A new federal ban on forced arbitration clauses in nursing home contracts will have a "profound and far-reaching impact" on thousands of elderly Minnesota residents, Minnesota Attorney General Lori Swanson said this week.

The state's top lawyer, a fierce critic of mandatory arbitration clauses, said a rule issued this week by federal health regulators will restore the ability of thousands of Minnesotans to sue nursing homes in court over issues such as abuse, neglect and substandard care.

The rule, released Wednesday by the federal Centers for Medicare and Medicaid Services (CMS), prohibits so-called predispute binding arbitration clauses in contracts with nursing homes that receive federal funding. The clauses, which attorneys say have proliferated in nursing home contracts across Minnesota, require patients and families to settle any disputes over care through a secretive arbitration process rather than through a public court proceeding.

Minnesota nursing homes and their patients can still enter into arbitration if they choose, but the agreements cannot be written in a way that automatically compels both parties into arbitration before any dispute arises.

"This is a hugely significant ruling for patients in nursing homes and their families," said Swanson, who has twice testified before Congress on the issue. "Like many industries, nursing homes have used these mandatory clauses to strip vulnerable people of their American right to go to court."

In Minnesota, the ruling would apply to 376 nursing homes that are federally certified to receive Medicaid and Medicare funding. Among them, these facilities have nearly 30,000 beds. The state does not track how many of them actually use binding arbitration agreements, but consumer attorneys estimate that between one-third and one-half of senior-care facilities statewide use them.

"This is a bold move," said Suzanne Scheller, an attorney in Champlin, who noted that two recent U.S. Supreme Court rulings upheld the use of such clauses. "The feds are basically saying, 'If you get federal funding, you have to play by our rules.' "

Consumer attorneys say binding arbitration clauses can be sweeping in scope. Under such clauses, claims of medical malpractice, personal injury, inadequate care and breaches of contract, among other claims, are resolved by one or more arbitrators selected by the parties. Patients who sign the clauses give up their right to a jury trial, and arbitrators rarely award punitive damages, even in the most extreme cases of abuse.

Paying the arbitrators

Nursing home operators say arbitration can provide a streamlined and cheaper alternative to lengthy court litigation. But consumer attorneys say binding arbitration often costs patients many times more than filing a legal action. The parties typically split the cost of the arbitrators, who charge up to $600 an hour, and the expenses often come out of any judgments in favor of the nursing-home patients.

Mark Kosieradzki, a Plymouth attorney who specializes in cases of nursing home abuse and neglect, said he recently won a $225,000 judgment from an arbitration panel after the death of a nursing home resident who became overly dehydrated and died from staff neglect. However, after paying three arbitrators, the family walked away with just $19,000 and no punitive damages.

"That would never happen in court," he said. "All of those things that are supposed to streamline the process just end up stripping people of their rights and making nursing homes less accountable."

In 2015, Swanson joined 14 other state attorneys general in demanding the federal government ban such clauses. She said many families are already struggling emotionally when they move a loved one into a nursing home and should not be expected to decipher the fine print of such contracts.

"It's such a lopsided transaction," Swanson said. "You're sick and you're emotional, and you have a huge pile of documents to sign, and embedded in that pile is an arbitration [agreement]. It's not right."

In 2009, Swanson shut down the St. Louis Park-based National Arbitration Forum, then the largest consumer credit card arbitration company in the nation, after finding that the company had deceived consumers into thinking it was a neutral arbitrator when it actually had close ties to the debt collection industry.

Chris Serres • 612-673-4308

Twitter: @chrisserres