Editor’s Corner: How a new arbitration rule could impact worthless services claims

Legal cases
headshot of Evan Sweeney

In November 2008, a 79-year-old woman was admitted to Country Villa Watsonville West Nursing and Rehabilitation Center (now Watsonville Post-Acute Center) less than 20 miles outside of Santa Cruz, California, to continue rehabilitation following a knee replacement surgery. After her rehab stint she planned to return home where she lived independently with her cat.

She never made it home. According to a complaint filed by the U.S. Attorney’s Office for the Northern District of California, she received 83 doses of Percocet within the first 17 days of her stay. The facility would eventually switch her to two other narcotics after she began vomiting in response to the initial pain medication.

The previously healthy 79-year-old would go on to lose 26 pounds and until being rushed to the hospital where she was diagnosed with septic syndrome, aspiration pneumonia and respiratory failure. She died in January 2009, less than two months after being admitted to the facility.

That would be just one of several jarring examples, outlined by the U.S. Attorney’s Office, in which the facility had “persistently and severely overmedicated elderly and vulnerable residents … causing infection, sepsis, malnutrition, dehydration, falls, fractures, pressure ulcers, and for some residents, premature death.” Prosecutors charged the facility’s owners--Country Villa Health Services--with providing “grossly inadequate, materially substandard, and/or worthless services to Medicare and Medicaid beneficiaries.” Country Villa paid $3.8 million to settle the claims that the provider violated the False Claims Act. 

Worthless services allegations under the FCA have been a closely watched legal trend ever since Extendicare Health Services Inc. agreed to pay $38 million to settle claims of substandard care in its 33 nursing homes. More often than not, these cases appear to target post-acute care facilities. Just last month, the Department of Justice filed a complaint against Vanguard Healthcare, a Tennessee skilled nursing facility chain, alleging the provider failed to meet even basic quality care standards.

It hasn’t always been an easy case for prosecutors to make. In 2014, the 7th U.S. Circuit Court of Appeals ruled that poor quality care doesn’t trigger FCA liability, and threw out a $9 million jury verdict against Momence Meadows Nursing Center Inc. Furthermore, grossly substandard care can be difficult to pin down. In the complaint against Vanguard, much of the evidence comes from state and federal surveys.

But a finalized rule released recently by the Centers for Medicare & Medicaid Services could provide a boost for worthless services claims--or at least those prosecutors on the lookout for them.

The new rule prohibits the use of pre-dispute binding arbitration agreements, a legal tactic that has been widely used in the nursing home industry where facilities often require residents and their families to sign an arbitration agreement in order to be admitted to the facility. It’s worth noting that initially, CMS proposed a much less stringent regulation, allowing nursing homes to continue using arbitration agreements as long as the practice was adequately explained to the family and was not a condition of admission.

CMS apparently had a change of heart following the comment period. Although the nursing home industry pushed for the proposed regulation to be dropped altogether, CMS wrote 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.”

So, what does this have to do with false claims or worthless services? By prohibiting arbitration agreements, residents and families who suffer harm in nursing homes will be able to litigate their claims in court instead of in legal disputes that play out behind closed doors. Incidents like the one described above will be part of the public record, and you can bet that U.S. Attorneys around the country will be watching for any egregious claims of substandard care that might fall into a the category of worthless services.

Legal experts have long pointed to the links between elder abuse and fraud, and earlier this year the DOJ launched 10 regional Elder Justice Task Forces to investigate nursing homes “that provide grossly substandard care to their residents.” Notably, those task forces include representatives from the Medicaid Fraud Control Units and the U.S. Attorney’s Office.

It’s clear the feds want to go after worthless services, particularly given the nursing home industry’s tumultuous history with quality care. In 2014, an Office of Inspector General report found one-third of Medicare beneficiaries experienced an adverse event or some type of temporary harm during a skilled nursing facility stay, which triggered $2.8 billion in hospital treatment costs in 2011 alone.

This represents a big opportunity for the federal government to recoup dollars from facilities that haven’t provided adequate care. Given that the feds have already begun testing the waters of worthless services, doing away with arbitration agreements might give them ample opportunity to dive all the way in. -- Evan @HealthPayer