By: Jonathan Vaitl

Two cases currently in the federal court system could have significant implications for mandatory pre-dispute arbitration agreements in nursing home admission agreements.

The U.S. Supreme Court heard arguments this month in a consolidation of three case involving a Kentucky nursing home owned by Kindred Nursing Centers LP (“Kindred”).[1] The case centers on pre-dispute arbitration agreements in nursing home admission agreements. The incoming residents who were bound by the arbitration agreements did not personally sign the agreements; family members with power of attorney signed them. When the family members brought wrongful death lawsuits against the nursing home in state court, Kindred sought to enforce the arbitration agreement.

The case initially went to the Kentucky Supreme Court. The Kentucky Supreme Court found that the agreements were unenforceable because of a Kentucky state law that required a power of attorney instrument to specifically empower the attorney-in-fact to enter arbitration agreements. That specific empowerment was missing from the power of attorney instruments in this case.

Now the case will be decided by the U.S. Supreme Court. The plaintiffs argue that this case is about agency law and simple contract formation, which is properly governed by the states. Kindred, on the other hand, argues that the Federal Arbitration Act (“FAA”) preempts state law related to arbitration agreements.

The Kindred case may turn out to be moot, however, depending on a ruling by the Fifth Circuit. Last September, the Department of Health and Human Services (“HHS”) issued a final rule prohibiting nursing homes that accept Medicare and Medicaid from requiring pre-dispute arbitration agreements as a condition of admission. [2] The American Health Care Association challenged the rule’s legality, resulting in a federal court blocking the rule from going into effect. That case has been appealed to the Fifth Circuit, which is currently taking briefs in the matter.[3]

If the HHS ban survives, the Supreme Court’s ruling, whatever it may be, will be left with little direct impact on the specific parties to the actions. However, the Court’s ruling still will likely further clarify the scope of the FAA’s preemption. If the Court finds that the arbitration agreement is valid, then the federal government will effectively be intervening in state agency law as it relates to arbitration agreements.

Nursing homes stand to lose the most in both cases. Attempts to minimize the cost of disputes may become more difficult if nursing homes are not able to enforce arbitration agreements because of state agency laws or federal rules. It will be interesting to see whether the federal courts continue to push the liberal federal policy in favor of arbitration, or if some of the state anti-arbitration efforts finally take hold.

Endnotes:

[1] Kindred Nursing Centers Limited Partnership v. Clark, No. 16-32 (U.S. argued Feb. 22, 2017).

[2] Centers for Medicare & Medicaid Services, CMS Finalizes Improvements in Care, Safety, and Consumer Protections for Long-Term Care Facility Residents, CMS.gov (Sep. 28, 2016) https://www.cms.gov/Newsroom/

MediaReleaseDatabase/Press-releases/2016-Press-releases-items/2016-09-28.html.

[3] Am. Health Care Ass’n v. Burwell, No. 17-60005 (5th Cir. filed Jan. 5, 2017).