Civil claims are one of the highest costs affecting skilled nursing facilities. No scholarship suggests that lawsuits against SNF providers improves quality of care. Rather, civil suits pose one of the greatest burdens to SNF providers – particularly those using captive insurance solutions.

Consequently, claims minimization strategies provide tremendous value to providers in terms of cost savings and improved quality of care. One of the most vilified risk management strategies by plaintiff’s attorneys is the use of Negotiated Risk Agreements (“NRAs”) by post-acute providers. This is because NRAs depress the frequency of valid claims against SNFs and create a hurdle for specious litigants.

An NRA is a contract between the provider and the patient. The goal of the contract is to expand and memorialize resident choice regarding the risks exposed to residents and providers. NRAs represent the product of a negotiation process between the provider and the resident which authorizes residents to engage in behavior contrary to standard provider policy and advice. These documents are very popular with assisted living facilities as the health of those patients occupy a broad range. As a result, some patients desire more autonomy than others.

NRAs are relatively rare in the SNF industry, but the time has come. The industry needs new tactics to reduce the cost of risk.

For nursing homes, risk prevention is an inherent mandate from the federal standards of care. The “Quality of Care” section of the federal regulations is instructive: “Each resident must receive and the facility must provide the necessary care and services to attain or maintain the highest practicable physical, mental, and psychosocial well-being, in accordance with the comprehensive assessment and plan of care.” See 42 C.F.R. § 493.25. This standard is at odds with itself, as evidenced by the state surveyors’ F-Tags. For example, F-Tag 240 builds quality of life into its facility assessments. However, F-Tag 323, covering Accidents and Supervision, requires the facility to remain as free from accident hazards as possible. F-Tag 323’s high but unclear standard resulted in some SNFs reducing resident choice to activities as simple as walking.

However, F280 guarantees the resident the right to participate in care planning and treatment. Further, the current Medicaid State Operations Manual requires that should SNFs develop care plans with input from the resident and/or the resident’s family or designated decision-maker. Surveyors assess this process by inspecting whether the SNF makes the care planning and treatment process understandable to the family. F280 provides SNF providers with legal justification to implement an NRA.

Although NRAs exist to expand patient autonomy, they are a favorite whipping boy of the plaintiff’s bar. Plaintiffs’ attorneys argue that NRAs constitute exculpatory contracts that seek to limit the providers duty of care to patients and are barred as a matter of public policy. Courts will deem agreements as invalid exculpatory contracts where the document encompasses broad waivers of liability protecting the SNF provider.

Further, any explicit liability releases relating to the providers duty of care are strictly prohibited and should not be incorporated into an NRA. That said, the value of an NRA does not hinge on its application as a liability waiver. Rather, the value of the NRA is that it constitutes a procedure whereby the provider maximizes resident-centered practices promoting dignity and autonomy.

Further, there is little case law deliberating the validity of NRAs and some states, such as Wisconsin and Illinois, provide statutory guidance regarding proper implementation of NRAs. Any argument that NRAs are invalid as a matter of public policy is a nonstarter. Consequently, properly drafted NRAs constitute valid, legal contracts in all 50 states.

That said, there is no doubt that a resident with an NRA in place will suffer an injury in an facility at some point. A properly drafted NRA may serve as a bar to the resident or the resident’s family from filing suit against the SNF. However, the NRA is only valid so long as it survives judicial scrutiny. Competently drafted NRAs should include the following components:

  • A clear description of the services at issue;
  • A description of the choices made available to the resident;
  • A description of the risks and benefits involved in each option;
  • A description of the resident’s choice;
  • Identification of the option agreed by both parties;
  • A description of each party’s responsibilities;
  • A sunset provision for the NRA indicating a follow up to assess whether the resident’s health status merits revision of the contract.

Given that cognitive issues are prevalent in SNF residents, all documents executed by the resident should be accompanied by a statement regarding the mental capacity of the resident. Ideally, this statement would be from a medical doctor or nurse, but trained staff will suffice if there is no reasonable alternative.

SNF providers that implement properly drafted NRAs should experience downward pressure on claims frequency as some cases of questionable liability and nuisance lawsuits will be barred by operation of contract. Although SNFs may not abrogate their liability with respect to malpractice, the SNF is not a prison and the patients have a right to outline what actions they desire to conduct. For example, an NRA with a resident may outline that a patient’s desire not to use a prescribed walker on every occasion may give rise to a potentially hazardous fall. If the patient understands the risks and enters into the agreement, it would be a challenge for a plaintiff’s attorney to overcome the existence of the NRA. As a result, a needless lawsuit may be avoided.

Cutting edge risk management is one of the keys to profitability in operating modern SNFs. Margins continue to erode as Medicare Advantage Plans consistently cover more residents while returning lower reimbursements. Insurance costs, which are largely a function of the frequency of claims, are one of the highest costs for skilled nursing providers. Through the implementation of an NRA policy throughout the providers facilities, the frequency of claims should drop. Over time, the provider’s risk profile will improve, which creates better leverage for insurance negotiations at renewal.

J. Matthew Queen is General Counsel & Chief Compliance Officer at Venture Captive Management, LLC.