151002-Professional-Liability-BlogImagev3Quasi Tort Reform in Nursing Home Litigation Is on the Way!

Last fall, I posted a blog about the national trend of including arbitration provisions in nursing home admission agreements. This trend peaked following the U.S. Supreme Court’s decision in Marmet Health Care Center v. Brown, 132 S.Ct. 1201 (2012), in which the Court determined that the Federal Arbitration Act (FAA) preempts any state law or public policy limiting arbitration, holding that the language in the Act did not limit its application to non–personal injury disputes. The only remaining issue is whether contracts requiring arbitration, like any other contracts, are procedurally and substantively enforceable under New York contract laws.

Last summer, a lower court in New York refused to enforce an arbitration agreement in a nursing home admission agreement, in part because the judge believed that its enforcement was contrary to New York’s Public Health Law prohibiting arbitration of nursing home claims based on violations of a resident’s rights. That decision was recently overturned by the Appellate Division, First Department, in Friedman v. The Hebrew Home for the Aged at Riverdale, 2015 Slip Op. 06478 (August 11, 2015).

Despite the fact that the Marmet ruling effectively nullified the prohibition of arbitration in these agreements under New York Public Health Law §2801-d (8), the Friedman lower court in the New York Supreme Court, Bronx County, ruled in an unreported decision that the arbitration provision in a nursing home admission agreement is not enforceable. One of the reasons cited was that the provision was inconsistent with the legislative intent of the Public Health Law. The lower court decision further relied on a presumption that there was no equal bargaining power between the parties to the contract and the presence of an arbitration agreement was inconsistent with the New York choice of law provision in the same agreement.

It was even suggested on oral argument that the arbitration provision was buried among other documents that most people do not read at the time of admission when stressors are high. This argument is akin to what plaintiffs often claim about surgical consent forms. It was also assumed that the resident had no choice but to sign the agreement; a presumption undercut by the fact that the facility was selected by the resident’s son, who held power of attorney.

In addition to the reasons mentioned above, the plaintiff, as well as the New York State Trial Lawyers in an amicus brief, argued that because Public Health Law §2801-d regulated insurance in some manner, the McCarran-Ferguson Act in essence trumped the Federal Arbitration Act through reverse preemption principles. The plaintiff argued that the Public Health Law provision prohibiting arbitration of such claims remained valid law in New York, despite the FAA.

The First Department, in a one-page decision without dissent, unequivocally concluded that the Public Health Law was not enacted for the purpose of regulating insurance and therefore no reverse preemption applies. The court also found that the agreement signed by a son, who held power of attorney and was an attorney, was neither procedurally nor substantively unconscionable. It reversed the trial court, dismissed the lawsuit and remanded it for arbitration.

The timing of the First Department’s decision is interesting considering the recently proposed amendments to the federal Omnibus Budget Reconciliation Act (OBRA) that require the Centers for Medicare and Medicaid Services (CMS) to establish regulations for skilled nursing facilities seeking reimbursement. CMS expressed concerns about limiting nursing home residents’ access to the courts and just recently proposed a list of such criteria specifically identifying unbalanced bargaining positions of the parties to the admission agreement as a concern. It also suggests that such arbitration agreements cannot be mandatory.

The arbitration agreement in Friedman was a mandatory provision. The Friedman trial court inferred that admission to the facility was contingent on agreeing to arbitration, even though such a requirement was not specifically stated in the agreement, and despite the ability of the defense to prove that it was, in fact, negotiable. The Appellate Division did not raise this point in its decision nor make it a question of fact before invoking the FAA and requiring arbitration.

The decision in Friedman will no doubt affect the upcoming CMS decision on whether limits should be placed on the ability of nursing homes to require binding arbitration in their admission agreements or even whether the binding arbitration agreement should be prohibited entirely. Naturally, nursing home industry insurers strongly encouraged the facilities to weigh in with comments on that proposal before the September 14, 2015, deadline and explain the benefits of arbitration. On the flip side, patient advocacy groups offered contrary positions.