CMS Changes Stance on Pre-Dispute Arbitration Agreements

The Centers for Medicare and Medicaid Services (“CMS”) issued a proposed rule on June 5, 2017 that, if made final, would lift the current ban on pre-dispute arbitration agreements used by Long-Term Care (“LTC”) facilities. This marks an abrupt about-face from the position held by CMS beginning only 9 months ago. The current ban on arbitration agreements covers such agreements in 3 settings: (1) LTC facilities entering into pre-dispute arbitration agreements with their residents; (2) conditioning admission to LTC facilities on the execution of a pre-dispute arbitration agreement; and (3) conditioning an LTC facility resident’s continuing right to remain at the facility on the execution of a post-dispute arbitration agreement.

When the ban was introduced last year, the reaction from the LTC industry was immediate. The American Health Care Association (“AHCA”), together with several nursing homes, was granted their requested preliminary injunction by the U.S. District Court of Mississippi on November 7, 2016. Following the grant of the preliminary injunction, AHCA President and CEO Mark Parkinson spoke out against the current CMS arbitration ban by stating the perks that arbitration can offer such as swifter results, faster compensation, and less burden on CMS funding. Since then, the U.S. Supreme Court has upheld these arbitration agreements for tort claims in the LTC facility setting, mainly through preemption of state law by the Federal Arbitration Act (“FAA”). In that recently decided case, Kindred Nursing Centers Limited Partnership v. Clark, the Supreme Court stressed that “arbitration agreement[s] must ordinarily be treated as ‘valid, irrevocable, and enforceable’” even if not explicitly labeled as an arbitration agreement so long as the objective of the contract is the same.

The Trump Administration’s promise to streamline federal regulation, coupled with court decisions in favor of arbitration, have worked to fuel CMS’s quick reversal on the rule banning arbitration in the stated settings and situations. The new proposed rule is much more streamlined, doing away with arbitration prohibitions entirely in pre-dispute settings and allowing for enforcement of arbitration agreements so long as they are “transparent” and unambiguous. The proposed rule stresses that for an adequate level of transparency for post-dispute arbitration agreements to be enforceable, binding arbitration agreements must:

  • be in plain language;
  • be incorporated into the admissions contract in plain language if a condition of admission;
  • be explained to the resident it is to be affected upon;
  • be accompanied by resident acknowledgement of understanding;
  • not contain prohibitive language regarding the resident’s communications with any state or federal employees or agents relating to the LTC facility;
  • If such an agreement is used to obtain a dispute resolution, copies of such agreement and the arbitrator’s final decision must be retained for CMS inspection; and
  • LTC facilities using binding post-dispute arbitration must post notice of such in a conspicuous area of their facility so as to notify both visitors and residents.

Consistent with what is meant to be the main function of arbitration, the proposed rule works to limit the financial burdens of parties that would otherwise be heading immediately to litigation to resolve their problems. In keeping with the FAA, CMS is working to streamline the regulation of arbitration agreements while incentivizing good-faith arbitration efforts. The proposed rule is available for public comment until August 7, 2017 and can be found here:

Medicare and Medicaid Programs; Revision of Requirements for Long-Term Care Facilities: Arbitration Agreements