The increasing use of arbitration provisions in nursing home agreements is the subject of continuing discussion and some debate. As a result of increasing liability insurance costs and highly publicized judgments and settlements, particularly in states such as Florida, Texas, and Mississippi, many nursing homes have incorporated into their admission agreements an agreement to arbitrate disputes. Some view arbitration as preferable to traditional litigation because it is more flexible, less costly, and less time-consuming. Nursing homes considering using arbitration must be aware that federal and state laws place constraints on certain kinds of arbitration agreements and that courts have struck them down in certain circumstances. Therefore, if a nursing home decides to use an arbitration agreement, nursing home management should become familiar with and stay informed about federal and state law developments and take certain precautions in the drafting of arbitration agreements.

Most recently, CMS addressed binding arbitration agreements between nursing homes and their residents in a directive to state survey and certification agencies. Memorandum from Steven A. Pelovitz, Director, Survey & Certification Group, CMS Center for Medicaid & State Operations, to Survey & Certification Group Regional Office Management (G-5) and State Survey Agency Directors (Jan. 9, 2003), available at www.cms.hhs.gov/medicaid/ltcsp/sc0310.pdf. CMS defined binding arbitration agreements as those that require disputes to be resolved through binding arbitration either as a condition of admission or a condition of remaining in the nursing home. CMS acknowledges that, under Medicare, whether or not to agree to a binding arbitration agreement is a matter that can be negotiated between the resident and the facility, and, under Medicaid, CMS will defer to state law as to whether or not such agreements are permitted. Thus, while such agreements have already been in use, the CMS directive is noteworthy because it does not label them as prohibited by the Medicare and Medicaid laws. However, CMS believes that binding arbitration agreements may compromise the quality of care received by nursing home residents, leading to consequences for the facility if it attempts to enforce the agreement in a way that violates Federal Requirements for Participation under Medicare and Medicaid at 42 C.F.R. part 483.

For example, Medicare regulation 42 C.F.R. § 483.12(a)(2) limits the circumstances under which a facility may discharge or transfer a resident. The regulation does not permit a facility to discharge or transfer a resident based on his or her failure to comply with the terms of a binding arbitration agreement. Further, a facility that retaliates against a current resident who refuses to sign or comply with a binding arbitration agreement is subject to an enforcement action based on its failure to comply with the obligation to furnish an abuse-free environment under 42 C.F.R. § 483.13(b) or with other requirements bearing on the facility's obligation to provide quality care to all residents. Medicaid regulations 42 C.F.R. §§ 431.200-.250, entitled "Fair Hearings for Applicants and Recipients," apply to eligibility disputes and appeals of a resident's proposed transfer or discharge from a facility and are not affected by the binding arbitration agreement, i.e., those disputes and appeals are addressed through the administrative process, not through arbitration. Another consideration for nursing home management is whether the Federal Arbitration Act (FAA) would apply to their arbitration agreement. Generally, the FAA preempts state law, and its purpose is to overcome courts' refusals to enforce agreements to arbitrate. See Allied-Bruce Terminix Companies, Inc. v. Dobson, 115 S. Ct. 834, 838 (1995). The Supreme Court has decided that the FAA applies in diversity cases in federal court and can preempt conflicting state anti-arbitration laws in state courts. Id. (internal citations omitted). However, the FAA only applies and preempts state arbitration laws if the dispute at issue concerns a contract involving interstate commerce. If the nursing home's business activities have an interstate nexus, it could save an arbitration agreement that state anti-arbitration laws otherwise would render void.

Facilities also need to negotiate arbitration provisions in a manner that will not cause them to be found unenforceable as an "adhesion agreement," e.g., where the facility may be found to be in a more powerful position because of the resident's reliance on the facility for long-term-care services. Clear language, an opportunity to consult with counsel or advisors, not making the arbitration provision a required condition of admission, and an ability to reconsider the arbitration portion of the admission agreement are helpful aspects of negotiations that can buttress the enforceability of such provisions.

Arbitration agreements can be considered by nursing facilities as a part of the admission process, as a means for resolving disputes. Properly implemented, they do not violate federal requirements for Medicare and Medicaid participation. As the threat of expensive and time-consuming litigation remains a real one, arbitration remains a tool that facilities may well consider.