CMS Reverses Course on Arbitration Agreements

On October 4, 2016, the Centers for Medicare and Medicaid Services (CMS) published a final rule prohibiting nursing homes from offering pre-dispute arbitration agreements to prospective residents upon admission. Now, CMS has reversed course. On June 2, 2017, CMS withdrew its appeal of a Federal District Court’s preliminary injunction banning implementation of the regulation prohibiting the use of mandatory arbitration agreements by nursing homes. Then, on Monday, June 5, 2017, CMS announced a proposed revision removing the prohibition on pre-dispute arbitration agreements.

By way of background, as part of the Reform of Requirements for Long-Term Care Facilities Final Rule, CMS promulgated a regulation prohibiting nursing homes that participate in Medicare or Medicaid from offering pre-dispute binding arbitration agreements to nursing home residents and their representatives. 42 C.F.R. § 483.70(n)(1). This regulation was set to take effect on November 28, 2016.

On October 17, 2016, the American Health Care Association and a number of Mississippi nursing homes filed a Complaint in the United States District Court for the Northern District of Mississippi seeking a declaration that the regulation was unlawful, and asking the District Court to issue both preliminary and permanent injunctions enjoining CMS from enforcing the rule (See American Health Care Association vs. Burwell, District Court for the Northern District of Mississippi, Civil Action No. 3:16-Cv-00233). The challengers argued, inter alia, that the new regulations violated the Federal Arbitration Act (FAA). The challengers further argued that the arbitration ban from CMS exceeded its authority under the Medicare Act and the Medicaid Act, violated the Regulatory Flexibility Act, and was arbitrary and capricious. 

After a hearing, the District Court issued a preliminary injunction on November 7, 2016 that stopped CMS from enforcing the arbitration ban. Following this decision, on December 9, 2016, CMS issued a memorandum stating that it would not enforce the arbitration ban while the injunction was in place. On January 5, 2017, CMS filed an appeal to the United States Circuit Court of Appeals for the Fifth Circuit challenging the temporary injunction.

The appellate brief from CMS related to the injunction was due on June 2, 2017. Instead of submitting a brief, CMS voluntarily withdrew its appeal. From a procedural standpoint, the underlying litigation in the District Court related to the permanent injunction remains pending. However, at this point, dismissal of that lawsuit seems a foregone conclusion. 

After the preliminary injunction, CMS “reviewed and reconsidered the arbitration” ban in the 2016 final rule. This led to a revised proposed rule, which CMS published on June 5, 2017. In the new proposed rule, CMS removes the prohibition on pre-dispute arbitration agreements.

The new proposed rule from CMS comes on the heels of the May 15, 2017 decision from the United States Supreme Court in Kindred Nursing Centers LP vs. Clark, --- S.Ct. ---, 2017 WL 2039160 (May 15, 2017). In Kindred, the United States Supreme Court overturned a Kentucky Supreme Court decision which held that a power of attorney document must confer specific authority to waive the right to a jury trial in order to enable a somebody acting pursuant to a power of attorney to sign an arbitration agreement. The United States Supreme Court struck down the rule announced by the Kentucky Supreme Court because it “single[d] out arbitration agreements for disfavored treatment” in violation of the FAA. That was second decision from the United States Supreme Court in the last five years finding that nursing home arbitration agreements are enforceable under the FAA. Previously, in Marmet Health Care Center, Inc. vs. Brown, 565 U.S. 530, 534 (2012)(per curiam), the Supreme Court held that pre-dispute arbitration agreements signed in the context of  nursing home admissions were enforceable under the FAA.

In light of the United States Supreme Court decision in Kindred, CMS withdrawing its appeal and the new proposed rule, at this juncture, there are no legal impediments to nursing home providers offering voluntary, pre-dispute binding arbitration agreements to prospective residents. 

If the proposed rule is implemented as a regulation, nursing homes will be able to continue offering voluntary binding arbitration agreements to residents and their representatives, provided that the agreements meet certain requirements, including the following:

• The agreement must be in plain language;
• If the agreement is a precondition of admission, it must be in plain writing in the admissions contact;
• The agreement must be explained to the resident (or his/her representative) in a form, manner and language that they understand;
• The resident must acknowledge understanding the agreement;
• The agreement must not prohibit or discourage communicating with federal or state surveyors or the ombudsman;
• Nursing homes must post a notice regarding the use of arbitration agreements in an area that is visible to both residents and visitors; and
• For any dispute resolved through arbitration, the signed agreement and the arbitrator’s decision must be retained so that it can be inspected by CMS.