It seems as if we are starting to see, once again, some of the actions of Wisconsin nursing homes that led to the original Nursing Home Reform Act.
Now is a good time to take a look back and review what that federal law was all about.
The Nursing Home Reform Act of 1987
In 1986, Congress authorized the Institute of Medicine to conduct an analysis of complaints against the nursing home industry by its residents and their families. The study found that an alarming number of nursing home residents were abused, neglected, or given inadequate care. Further, legislation from state to state was inconsistent and inadequate.
In 1987, Congress passed the 1987 Nursing Home Reform Act, designed to ensure that residents received quality care and was supposed to lead residents toward their “highest practicable” physical, mental, and psychological well-being.
Reforms of the Act include the requirement for providing certain services to each resident, and that it established a Residents’ Bill of Rights.
Further, nursing homes who received Medicaid and Medicare payments for long-term care residents would only receive those payments if they were certified by their state to be in substantial compliance with the requirements of the Act.
The study also concluded that nearly 50 percent of nursing home care was financed by Medicaid, another 12 percent by Medicare, and the remaining portion by a variety of other sources including private health insurance, out-of-pocket private pay, and other miscellaneous sources.
The Residents’ Bill of Rights
The Residents’ Bill of Rights established the following rights for nursing home residents:
The right to freedom from abuse, mistreatment, and neglect.
The right to freedom from physical restraint.
The right to privacy.
The right to accommodation of medical, physical, psychological, and social needs.
The right to participate in resident and family groups.
The right to be treated with dignity.
The right to exercise self-determination.
The right to communicate freely.
The right to participate in the review of one’s care plan and to be fully informed in advance about any changes in care, treatment, or change of status in the facility.
The right to voice grievances without discrimination or reprisal.
Other Important Provisions
One of the other important provisions of the Act limited the ability of nursing homes to require a third-party guarantor or payor for services. Those provisions are now codified as part of 42 U.S.C. § 1395i-3(c)(5)(A)(ii) and 42 U.S.C. § 1396r(c)(5)(A)(ii).
The language in 42 U.S.C. § 1395i-3(c)(5)(A)(ii), for example, provides that:
[w]ith respect to admissions practices, a skilled nursing facility must … not require a third-party guarantee of payment to the facility as a condition of admission (or expedited admission) to, or continued stay in, the facility.
The language 42 U.S.C. § 1396r(c)(5)(A)(ii) is virtually identical.
However, almost as soon as the Act was passed, nursing homes began to devise ways to get around it.
In Podolsky v. First Healthcare Corporation,1 the admissions agreement of that particular facility was under scrutiny. This facility was owned by First Healthcare Corporation (FHC), which owned a number of nursing home facilities in California. Podolsky’s wife testified that at the time of admission to the nursing home, she was handed “a stack of papers,” told they were “routine,” and that she would have to sign them.
The documents identified her as the “responsible party.” As the responsible party, she was jointly and severally liable, and assumed all liability for any charges incurred by her husband. No one at the facility ever explained the agreement or what the term “responsible party” meant.
Testimony from other people indicated that this practice at the various FHC nursing homes all had a similar admissions process. The contract further provided that the person signing was a guarantor personally, but continued by saying that signing the guarantee was “voluntary” and cannot be required as a condition of admission or guaranteed residence.
Podolsky discussed the history leading up to the passage of the Act as well as a number of laws enacted in the state of California, regulating the conduct of nursing homes.
The court concluded that the law does not specifically forbid voluntary guarantee of payment, but also concluded that under the circumstances with the FHC nursing home chain that the practice appeared to be deceptive. The court specifically noted the provisions that 42 C.F.R. § 483.15(a)(3) which provides that “[t]he facility must not request or require a third-party guarantee of payment to the facility as a condition of admission or expedited admission. …”
In Johnson v. Kindred Healthcare, Inc.,2 the admissions contract at issue had been signed by the individual’s wife, whose only authority to act was based on a health care power of attorney. The question was whether the health care agent had the authority to make a binding contract for the principal. Relying on the Massachusetts health care proxy statutes, the court concluded that the health care agent did not have authority to bind the principal to a financial agreement.
In Northport Health Services of Arkansas LLC v. Posey,3 the issue was whether an admissions contract that included a mandatory arbitration clause was binding on the principal. In this case, the individual’s son had signed the admissions agreement. However, there was no evidence that he had any authority, either as an agent under the financial power of attorney or health care power of attorney.
The court noted that the Arkansas courts have repeatedly declined to find that individuals like the son in this case – relatives without powers of attorney or other legal authority to admit a family member to a nursing home – possess any valid authority to bind relatives to financial contracts.
In Slovik v. Prime Healthcare Corporation,4 the nursing home facility sued a resident’s stepson who was the Social Security “representative payee” for his stepfather. The argument of the facility was that the stepson breached his promise to be personally responsible for using his stepfather’s Social Security income to pay toward the facility. The stepson objected, arguing that the nursing home violated the statute of frauds, attempting to hold him liable for the debts of another. The court ignored this argument, but still found that the nursing home could not hold the stepson responsible under the Act.
In Knight v. John Knox Manor Inc.,5 a nursing home resident’s son signed an admissions agreement for his mother as a “responsible party.” Although the son had a springing power of attorney, he had no authority as agent, because the power of attorney had not been activated. The facility sued the son and was awarded about $57,000.
However, on appeal, the facility argued that the admissions agreement did not violate the third-party liability limitation, because the son’s liability was limited to paying the resident’s charges using the resident’s income and assets.
The Knight court stated that in Slovik, it had previously implied that such an arrangement might not violate federal law. However, in Knight, the court stated that the language of 42 U.S.C. § 1396r(c)(5) and 42 C.F.R. § 483.12(d)(2), allowing an individual with access to the resident’s income or resources to sign the contract without incurring personal financial liability, prohibited the admissions agreement creating a personal obligation, “regardless of whether such requirement was imposed in the form of a guarantee of the patient’s performance or in the form of the primary obligation.”
Growing Action Against Third Parties
So what’s the point of reviewing the Nursing Home Reform Act now?
The fact is that practitioners are seeing more and more efforts on the part of nursing homes to try to contractually obligate, or otherwise pursue action against third parties for unpaid resident’s cost of care. By extension, assisted living and other adult resident homes are doing much the same.
There is a Wisconsin case pending in Polk County, where the nursing home has brought claim against a daughter who was an agent under a health care power of attorney. Their contention is, in part, that the daughter purportedly signed the admissions contract as the “responsible party.” The counter argument is that the admissions contract was extremely vague about how it defines a “responsible party.” Further, under Wisconsin statutes, a health care agent is shielded from personal liability.6
The nursing home contends that, if there is any unpaid amount for the resident’s care, it is tantamount to a failure on the part of the health care agent to make sure that payments were made, thus making her responsible.
That sounds a lot like a personal guarantee.
Review Admissions Agreements Before They Are Signed
Under these circumstances, and given what other facilities are doing, it is becoming increasingly important to assist our clients in reviewing the admissions agreements before they are signed, not merely after the fact, when some issue arise.
Many practitioners are currently reporting a rise in the use of arguably prohibited clauses in admissions contracts, including such things as clauses that prohibit transfer of assets as part of Medicaid planning, and also that directly, or indirectly, require a third-party guarantee.
Keep in mind that the Nursing Home Reform Act only applies to nursing home admissions agreements, not to assisted living or other facilities, where such abuses are even more rampant.
This article was originally published on the State Bar of Wisconsin’s Elder Law and Special Needs Blog. Visit the State Bar sections or the Elder Law and Special Needs Section webpages to learn more about the benefits of section membership.
1 Podolsky v. First Healthcare Corporation, 50 Cal. App. 4th 632 (Cal. App. 1996).
2 Johnson v. Kindred Healthcare, Inc., 466 Mass. 779 (2014).
3 Northport Health Services of Arkansas, LLC v. Posey, 930 F.3d 1027 (8th Cir. 2019).
4 Slovik v. Prime Healthcare Corporation, 838 So. 2d 1054 (Ala. Civ. App. 2002).
5 Knight v. John Knox Manor, Inc., 92 So. 3d111 (Ala. Civ. App. 2012).
6 See Wis. Stat. § 155.50(3).