Kindred Healthcare Skilled Nursing Case Goes To SCOTUS Over Arbitration Agreements


On October 28th of this year this US Supreme Court (SCOTUS) granted a petition to hear the case: Kindred Nursing Centers Limited Partnership v. Clark.

The buzz in the skilled nursing industry is that SCOTUS is going to shut down arbitration.

CMS has also issued a new anti-arbitration rule - before the SCOTUS review and decisions - that bars any nursing home that receives federal funding from requiring that its residents resolve any disputes in arbitration, instead of court. In what seems to be a mixed set of reviews and opinions, operators are either accustomed to not using and therefore not enforcing arbitration, or the opposite: they use arbitration all the time. I have heard first hand that the CMS rule bars any mentioning of voluntary arbitration as well. Larger corporations use arbitration for a wide array of reasons, and this ruling will add millions in additional costs to the bottom lines of public equity post-actute groups like:

KND ,ENSG, ADK, GEN, CSU, PBD and PUW and others. When lawsuits go to a jury they can easily upend an operator with millions of dollars in legal fees per case.

This could not come at a worse time (optically) as REITs have moved to shed SNF assets due to perceived cut backs from CMS and reimbursement risk and the fact that tenents are looking more default ready than even before. Many of these SNFs can be attributed back to municipal debt bonds.

The NYTimes on 9/28/2016 published:"With its decision, the Centers for Medicare and Medicaid Services, an agency under Health and Human Services, has restored a fundamental right of millions of elderly Americans across the country: their day in court."

Of course the elderly need their day in court, and bad operators need to be shut down. However, with the Five-Star Quality Rating System from CMS, notable Grade-A private-pay SNF's receive low ratings and low level stars when they are in fact trending up and by internal standards doing very well.

Facts persist: SNF and post-acute facility economics are better for the state and federal budget than full time staff or independent living with home health. However, customization and effective advocacy is the key. Simple issues need to be taken to reduce risk and prevent abuse to residents like pharmacology, 24/7 monitoring of vitals, data integration and in-room patient video cameras and additional staff.

Perhaps most is interesting is that unless SCOTUS "singles out" this ruling and states they are in favor of the CMS ruling in this instance, but not for arbitration as a whole, the SNF - nursing home industry is going to be the catalyst to a 7th Amendment advocacy call against citizens who have been refused their 7th Amendement right from the 1926 Federal Arbitration Act. The FAA supports a compulsory and binding arbitration contractual agreement, an arbitration award and a contractual agreement to forgo any appeals to a court. Senator Al Franken is reintroducing his bill: Arbitration Fairness Act of 2015, which bars mandatory arbitration agreements.

Here is the Kentucky's Supreme Court ruling - Link

From Erica Tiechert at ModernHealthcare.com: According to Kentucky's Supreme Court, it would be "strange" to allow an individual to waive another's rights through a binding contract. The state court determined the residents would have needed to specifically agree to hand over power of attorney for arbitration agreements in order for the disputed arrangements to be valid. Clark and Wellner both had power of attorney for their parents when they signed the disputed contracts, Kindred says.