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Jonathon E. Cohn, Partner, Arent Fox LLP

CMS Rule Prohibiting Binding Arbitration Put on Hold



By Jonathon E. Cohn
Partner
Arent Fox LLP



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Original Publish Date: January 10, 2017

The use of binding arbitration provisions in healthcare facility admission agreements, particularly those involving nursing facilities, has generated controversy for many years. A new rule recently finalized by the Centers for Medicare and Medicaid Services (CMS) would prohibit the use of such provisions and bar Medicare reimbursement to any nursing facility continuing to include binding arbitration provisions in its admission agreement after November 28, 2016. A recent federal court decision, however, has effectively put a hold on the enforcement of that rule – at least, for now.

Typically, arbitration provisions in admission agreements require the patient to resolve any and all disputes that arise in connection with the care the facility provides through the binding arbitration process. In general, this means that any claims the patient has against the facility will be resolved by a neutral arbitrator, and not by the process of courtroom adjudication. The nursing home industry, the primary proponent of binding arbitration, has long argued that such provisions promote the fair, economical, and efficient resolution of disputes and has contended, in particular, that the arbitration process provides for quicker and less expensive resolution than referring the matter to court. On the other hand, most elder rights groups and plaintiff organizations oppose the use of these provisions, arguing that their main effect is to remove any dispute from resolution by a jury, which may be more sympathetic to a patient’s claims than an arbitrator, who is usually a retired judge. These groups also complain that patients and their representatives who agree to binding arbitration provisions at or near the time of admission do not fully understand the effect of such a provision or the rights that are being waived. In addition, they claim that the arbitration process is not more efficient or less expensive than the court process, anyway.

Different states have responded to the controversy in different ways. Some have not become involved, instead viewing the use of arbitration provisions in admission agreements as an issue which is subject to the right of the parties to contract. Others have prohibited their use as unfair and improper or an improper attempt to impose a condition not included in the Medicare or Medicaid law. Other jurisdictions, such as California, have permitted the use of such provisions, but have subjected them to extensive regulation regarding their format, font size, color, and timing of presentation for execution. When asked to uphold the enforceability of arbitration provisions, judges have also differed in their rulings. Most notably, many court decisions have in essence side-stepped the policy issue underlying enforceability by refusing to enforce arbitration provisions when the admission agreement is signed by an individual other than the patient (for example, by a “responsible party” who does not hold a power of attorney in the patient’s favor), which is common.

In July 2015, CMS attempted to resolve issues pertaining to the use of arbitration provisions in long-term care (LTC) facility admission agreements by promulgating a new rule, now codified at 42 C.F.R. Section 483.70(n)(l). This rule provides that, effective November 28, 2016, facilities participating 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 a an arbitration agreement as a condition of admission to the LTC facility.” CMS characterized its new rule as a compromise position since it did not bar the use of all arbitration agreements, just those that were entered into before any dispute arose. CMS reasoned that the parties could still agree to arbitrate after a dispute actually arose.

Recently, the national nursing home trade association, The American Health Care Association, took action in the United States District Court for the Northern District of Mississippi seeking to enjoin the rule from taking effect. In a 40-page decision issued in November, the federal district court sided with the nursing home industry and, while sympathetic to some of the concerns raised by the agency, ruled that it did not have the authority to issue the rule:

This court believes that Congress might reasonably consider…the extreme stress many nursing home residents and their families are under during the admissions process, as sufficient reason to decide that arbitration and the nursing home admissions process do not belong together. Nevertheless, Congress did not enact the Rule in this case; a federal agency did… . As sympathetic as this court may be to the public policy considerations which motivated the Rule, it is unwilling to play a role in countenancing the incremental “creep” of federal agency authority beyond that envisioned by the U.S. Constitution.

While it remains to be seen whether CMS will appeal this decision or Congress will take any action on the topic, for now, LTC facilities can still use pre-dispute arbitration provisions in nursing home admission agreements without the threat of losing Medicare reimbursement.

Even so, there is only so much solace the nursing home industry should take from the decision. The enforceability of pre-dispute arbitration provisions in nursing facility admission agreements remains highly controversial. Many state and federal court judges remain highly suspicious of arbitration provisions, are generally sympathetic to nursing home patients who are plaintiffs, and will tend to rule against the enforceability of binding arbitration provisions if there is a basis to do so.

Jonathon E. Cohn is a partner in the health care practice of Arent Fox LLP. His practice is devoted to litigation and trial work with an emphasis on health care issues including long-term care, Medicare and Medicaid, fraud and abuse, and reimbursement disputes. Jon represents various long-term and acute care providers in many areas, including licensing, certification, civil and criminal enforcement, reimbursement and collections, and other regulatory and administrative proceedings. He also represents health care professionals in licensure and workers’ compensation proceedings. He can be reached at 213-443-7515 or cohn.jon@arentfox.com.

To learn more about Arent Fox LLP visit www.arentfox.com.