Advocates for Hawaii’s elderly celebrated a federal agency’s decision this week to bar the use of pre-dispute arbitration agreements by nursing homes and other long-term care facilities.

Hawaii officials had lobbied the U.S. Department of Health and Human Services last year to issue a rule that better protects the elderly from inadvertently signing away their right to sue should a dispute arise during their stay at a facility.

Despite strong objections from health care corporations and nursing home operators who say arbitration is less expensive and faster than court, the Centers for Medicare and Medicaid Services banned pre-dispute binding arbitration agreements as a requirement for participation in federally funded insurance programs for the poor, disabled and elderly.

Hokulaki Senior Living LLC walkers and wheel chairs. care home elderly. 14 aug 2015. photograph Cory Lum/Civil Beat

A federal agency has banned long-term care facilities from requiring arbitration agreements before admitting a resident to a facility that accepts federal funds.

Cory Lum/Civil Beat

The new arbitration restrictions, which take effect Nov. 28, were part of the agency’s biggest review and rewrite of nursing home rules since 1991. The 713-page rule will be published Tuesday in the Federal Register.

“This is definitely a victory for the little guy,” said John McDermott, Hawaii’s long-term care ombudsman.

In a binding arbitration agreement, clients waive their constitutional right to resolve a dispute in court. Instead, the remedy is arbitration, a process by which a neutral third party investigates the matter and makes a determination.

Many residents who enter these facilities are suffering from dementia and don’t fully understand what they are signing or that they have a choice not to sign such documents, McDermott said. There also can be pressure on residents or their families to make decisions hastily due to a shortage of available beds or inability to return home after an unexpected trip to the hospital, he added.

Critics also say arbitration ends up being less fair than going to court, which allows for appeals, a more robust discovery process and greater transparency.

Wesley Rogers, who was regional vice president of Avalon Health Care, the largest provider of nursing homes in Hawaii and Utah, had asked to keep voluntary arbitration agreements for skilled nursing facilities.

“The risk and exposure that is at play while taking care of patients and residents in their declining years of life is very extreme,” he said in a letter to federal officials. “Without the protection that an Arbitration Agreement carries my biggest fear is that the cost of doing business would increase exponentially.”

Arbitration agreements are a “fair and appropriate way to minimize unwarranted lawsuits,” Rogers said. If a defense attorney sees an arbitration agreement signed, he added, they then decide if the case is appropriate or unwarranted, and most of the time a claim is not filed unless a truly serious injury has occurred.

Attorney General Doug Chin listens to AG's attorney Julie Shina during oral arguments at the Hawaii State Supreme Court. Mauna Kea. 27 aug 2015. photograph Cory Lum/Civil Beat

Attorney General Doug Chin joined attorneys general from 14 other states in opposing pre-dispute arbitration agreements.

Cory Lum/Civil Beat

Rogers declined to comment Thursday, saying he wasn’t familiar at this point with the new rule.

Steve Gold, administrator of the 288-bed Hale Nani Rehabiliation and Nursing Center in Honolulu, one of three Avalon nursing homes in Hawaii, has said that arbitration ensures that family members’ rights are truly represented throughout the process.

While the vast majority of residents at Hale Nani signed arbitration agreements, he’s said he respects their right to decline.

Hawaii Attorney General Doug Chin joined attorneys general from 14 other states and the District of Columbia in opposition to pre-dispute binding arbitration agreements.

Their joint letter last October explained how the Federal Arbitration Act of 1925 has moved beyond its premise, which was to facilitate arbitration of disputes between commercial entities who were on the same level.

Companies now routinely impose mandatory arbitration in a wide range of consumer contracts where the consumer has little bargaining power, they told officials at the Health and Human Services Department.

“Increasingly, consumers are presented with ‘take it or leave it’ fine print contracts containing pre-dispute arbitration clauses in which consumers are required to waive their right to seek judicial resolution of future disputes (and appeal thereof) in federal or state court,” the attorneys said.

The courts have found such language binding on the consumer even if he or she is unaware of the clause, never saw the provision, and had no opportunity to negotiate or reject it, the attorneys said.

“These concerns are especially acute at the time a particularly vulnerable individual is entering a long-term care facility, an emotional time for both the individual and the family, who typically are faced with a large number of documents that need to be completed to enroll in the facility,” Chin and the other attorneys general said.

Hawaii Long-Term Care Ombudsman John McDermott testifies about his office is now a staff of 1 person, him. McDermmot calculated on a 50-week schedule, he would have inspect 48 care homes a a day. 4 feb 2016. photograph Cory Lum/Civil Beat

Hawaii Long-Term Care Ombudsman John McDermott, seen here at a legislative hearing in February, lobbied federal officials to end arbitration agreements.

Cory Lum/Civil Beat

The Centers for Medicare and Medicaid Services recognized the comments from the attorneys general and others in their final rule.

“Based on the comments received in response to this rulemaking, we are convinced that requiring residents to sign pre-dispute arbitration agreements is fundamentally unfair because, among other things, it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen,” said Andrew Slavitt, the agency’s acting administrator, and Slyvia Burwell, secretary of the department, in the final rule.

Larry Geller, who serves on the Kokua Council’s board of directors, said the ban on forced arbitration — a practice he described as “predatory” — is welcome.

Larry Geller from Kokua listens to Sen Thielen questioning.

Larry Geller of the Kokua Council says pre-dispute arbitration agreements are “predatory.”

Cory Lum/Civil Beat

“Families are not equipped to go to arbitration,” he said, adding that it is inappropriate to handle claims of neglect in this manner.

The new arbitration rule does not affect existing arbitration agreements or prohibit all arbitration agreements between residents and the facilities. If the home does not participate in Medicare or Medicaid programs, arbitration is allowed.

And if, after a dispute comes up, the resident and the care facility want to go through binding arbitration, the rule allows for that.

Read the attorneys general letter to the Centers for Medicare and Medicaid Services below. All 9,814 comments on the rule can be found here.

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