Health Law Daily CMS’ ban on pre-dispute arbitration agreements temporarily stopped
Tuesday, November 8, 2016

CMS’ ban on pre-dispute arbitration agreements temporarily stopped

By Harold Bishop, J.D.

A Mississippi federal judge has temporarily blocked a CMS rule that would ban pre-dispute agreements for binding arbitration with any resident or resident’s representative or require that a resident sign an arbitration agreement as a condition of admission to a long-term care (LTC) facility. In granting a preliminary injunction, the court also expressed doubts about the government’s statutory authority to promulgate such a rule (American Health Care Association v. Burwell, November 7, 2016, Mills, M.).

Background. On July 16, 2015, CMS proposed to revise the regulations governing participation of LTC facilities in Medicare and Medicaid (80 FR 42168), including a requirement that admission to a facility not be contingent upon the resident or the resident’s representative signing a binding arbitration agreement. CMS also expressed concern that the requirements it contemplated might be insufficient and therefore solicited comments on whether arbitration agreements should be prohibited entirely (see CMS proposes overhaul to protect nursing home residents, July 16, 2015).

After reviewing over 9.800 comments, CMS was convinced that requiring residents to sign pre-dispute arbitration agreements is fundamentally unfair because it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen. As a result, CMS published a Final rule (81 FR 68688) providing that, effective November 28, 2016, LTC facilities that participate in Medicare or Medicaid must not enter into a pre-dispute agreement for binding arbitration with any resident or resident’s representative nor require that a resident sign an arbitration agreement as a condition of admission to the LTC facility. CMS viewed their position as a middle ground, allowing residents to avail themselves of the benefits of arbitration once a dispute has arisen (see Arbitration out, quality in under LTCF rule, October 4, 2016).

Issue accepted by SCOTUS. Arbitration clauses in skilled nursing facility and LTC facility contracts will be in the legal spotlight soon because the Supreme Court has granted a petition for writ of certiorari in Kindred Nursing Centers LP v. Clark.Arbitration clauses signed by residents’ attorneys-in-fact were struck down by the Kentucky Supreme Court of Appeals in three consolidated cases (one of which was Kindred Nursing) in Extendicare Homes, Inc. v. Whisman (October 9, 2015). In those consolidated cases, the court applied a state rule requiring a power-of-attorney form to explicitly refer to arbitration agreements before it can bind the principal to arbitration. Kindred Nursing filed its petition to the Supreme Court asking whether the Federal Arbitration Act (FAA) preempts the Kentucky state rule. Before the U.S. Supreme Court agreed to hear the case, AHCA filed an amicus curie brief in support of the ability of LTC facilities to use arbitration clauses (see Nursing home arbitration clause case on SCOTUS docket; rule’s ban challenged, November 1, 2016).

AHCA complaint. Because of the looming November 28, 2016 deadline, the American Health Care Association (AHCA) filed a complaint in federal district court in Mississippi seeking an injunction against the November 28 effective date of the arbitration prohibition. The AHCA called the rule "a clear overreach," claiming that LTC facilities have a right under the FAA to enter into and enforce arbitration agreements.

Analysis. The Mississippi district court found that the AHCA had a substantial likelihood of success on the merits of its complaint for injunction because: (1) it was likely that CMS will ultimately be held to have presented insufficient justification for banning LTC facility arbitration; and (2) the court did not see a strong showing of need in the agency’s administrative record for a regulation banning LTC facility arbitration.

The court also considered it virtually certain that the AHCA will, in fact, suffer at least some irreparable harm if the rule goes into effect on November 28 and is later held unlawful. Indeed, the court found it difficult to imagine that a rule requiring LTC facilities across the country to change their business practices in important ways would notproduce at least some harmful effects which are incapable of being remedied after the fact.

Based upon the administrative record, the court also found that the threatened injury if the injunction were denied outweighed any harm that would result if the injunction were granted. The court believes that CMS is in a particularly poor position to expect the rule to go into effect immediately, considering that, in using vague language in its enabling legislation to ban arbitration contracts, CMS is attempting to do something quite unprecedented.

Lastly, the court found that the rule changes a practice which CMS has accepted for many years. According to the court, CMS’ concerns with agency discretion did not constitute sufficient reason to prevent the courts from making a careful evaluation of the rule before it goes into effect. The court therefore concluded that a preliminary injunction serves the public interest.

The motion for preliminary injunction was granted.

The case is No. 3:16-CV-00233.

Attorneys: Andrew J. Pincus (Mayer Brown LLP) and John L. Maxey, II (Maxey Wann, PLLC) for American Health Care Association, Mississippi Health Care Association, Great Oaks Rehabilitation and Healthcare Center d/b/a Great Oaks Rehabilitation and Healthcare Center. W. Scott Simpson, U.S. Department of Justice, for Sylvia Mathews Burwell, Secretary, U.S. Department of Health and Human Services.

Companies: American Health Care Association; Mississippi Health Care Association; Great Oaks Rehabilitation and Healthcare Center d/b/a Great Oaks Rehabilitation and Healthcare Center; U.S. Department of Health and Human Services

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