United States Supreme Court Upholds Nursing Home Arbitration Agreements

by on May 16, 2017, No Comments

Today, the United States Supreme Court upheld the validity of nursing homes arbitration agreements, reaffirming that states may not impose rules that single out arbitration agreements from other contracts. In a 7-1 decision, the Justices upheld the use of nursing home agreements entered into by a resident’s authorized representative.

Arbitration agreements are governed by the Federal Arbitration Act (FAA), which provides for binding arbitration based on contractual agreements. With very few exceptions, the FAA preempts any state law identified in a contract and only the FAA will apply to the arbitration of disputes arising under or related to the parties’ contractual agreement. Therefore, parties that execute arbitration agreements give up their right to pursue litigation or an appeal in a court of law on substantive grounds. In its decision, the Kentucky Supreme Court, however, invalidated arbitration agreements signed by two nursing home deceased residents’ power of attorneys on the basis that the execution of the agreements violated the state’s “clear statement rule”.  The “clear statement rule,” a Kentucky state court created standard, requires a power of attorney to explicitly permit the representative to enter into an arbitration agreement in order for the agreement to be valid.  The Kentucky Supreme Court reasoned that the clear statement rule is used to protect the resident’s fundamental right to a jury trial.

Justice Elena Kagan, writing for the majority of the Court, overruled the Kentucky Supreme Court finding that no other Kentucky Constitutional fundamental rights were protected by the “clear statement rule” in a similar way, such as freedom of speech or freedom to acquire and protect property. Specifically, the Supreme Court noted, “[b]ut the state court nowhere cautioned that an attorney-in-fact would now need a specific authorization to, say, sell her principal’s furniture or commit her principal to a nondisclosure agreement.” Moreover, the Supreme Court found that the Kentucky ruling “fails to put arbitration agreements on an equal plane with other contracts,” which is a violation of the FAA.

With this ruling now settled, the health care industry awaits the Trump Administration’s position regarding the federal rule, Reform of Requirements for Long-Term Care Facilities, finalized in October 2016, which prohibits skilled nursing facilities, nursing facilities and dually-certified facilities that receive federal funds from the Medicaid and Medicare programs from using pre-dispute binding arbitration agreements as a condition of admission. In December 2016, Centers for Medicare and Medicaid (CMS) postponed the implementation of the federal rule after the U.S. District Court for the Northern District of Mississippi granted health groups’ request for an injunction on the implementation of the rule.  On April 26, 2017, CMS submitted a revised proposed rule, “Revision of Requirements for Long-Term Care Facilities: Arbitration Agreements” to the White House Office of Management and Budget (OMB) for further review

The Obama Administration appealed the preliminary injunction to the United States Court of Appeals for the Fifth Circuit and the Trump Administration has requested an extension of time to file its opening brief.


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