On September 28, 2016, CMS issued its long-awaited final rule that forbids skilled nursing facilities (“SNFs”) and nursing facilities (“NFs”) participating in the Medicare or Medicaid programs from demanding pre-dispute binding arbitration in any new admission agreements implemented on or after November 28, 2016. The rule does not impact existing contracts containing arbitration clauses entered into before the November 28th effective date. Going forward, long-term care facilities can no longer require binding arbitration agreements as a condition of admission or enter into binding arbitration agreements with residents before an actual dispute arises. If a dispute arises, the long-term care facility may request that a resident enter into an independent agreement for binding arbitration. Failure to sign the agreement, however, may not be grounds for termination of a resident’s right to remain in the facility. Residents must (1) be provided an explanation of the agreement in a form and manner that they understand, (2) acknowledge that they understand the agreement, and (3) voluntarily enter into the agreement. The post-dispute arbitration agreement itself must allow the parties to select a mutually-agreed upon neutral arbitrator and a venue that both parties deem convenient. It may not contain any language that discourages communication with federal, state, or local officials.
According to CMS, the regulatory bar to mandatory arbitration is grounded in (i) federal statutes permitting the Secretary of the Department of Health and Human Services (“HHS”) to establish additional requirements “relating to the health, safety, and well-being of SNF and NF residents respectively, as the Secretary finds necessary”; and (ii) the agency’s statutory authority to impose conditions for payment to providers under the Medicare and Medicaid programs. Relying on that authority, CMS determined that there is significant evidence that pre-dispute arbitration agreements have a “harmful impact on the quality of care of residents” warranting a regulatory response.
In the final rule, CMS determined to bar pre-dispute arbitration agreements altogether, while retaining some of the other resident protections for any agreements entered into, subsequent to admission and after a dispute has arisen.
Click here to read the entire rule: https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-23503.pdf
Regardless, legal action to challenge the validity of the final rule thus remains a distinct possibility. The outcome of any such litigation, however, is uncertain. In this regard, the FAA contains a “saving clause”, which provides that agreements to arbitrate may be invalidated under common-law grounds such as “fraud, duress or unconscionability”. In its preamble to the final rule, CMS acknowledges that an argument could be made that a pre-dispute arbitration agreement should not be enforced based on the “savings clause”. For its part, CMS notes that the negative comments it received to the Proposed Regulations “confirmed our conclusion that pre-dispute arbitration clauses are, by their very nature, unconscionable. . . [i]t is virtually impossible for a resident or their surrogate decision-maker to give fully informed or voluntary consent to such arbitration provisions [when] refusing to agree to the arbitration clause, in most cases, means that care will be denied.” Under CMS’ view, the enforceability of all nursing home admission agreements containing arbitration clauses — including existing agreements signed prior to November 28, 2016 — would be vulnerable to challenge as “unconscionable”.
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