CMS’ Prohibition of Pre-Dispute Arbitration Agreements for Skilled Nursing Facilities Leaves No Gaps in Its Mandate

business partnersThe Centers for Medicare and Medicaid Services (CMS) regulations that become effective on November 28, 2016 include prohibiting skilled nursing facilities from including arbitration agreements in the resident admission process. The new regulation prohibits pre-dispute arbitration agreements in the skilled nursing setting. However, this regulation permits entering into such agreements once a dispute exists, implying that the parties may already be adversarial and potentially unwilling to arbitrate. This regulation does not include assisted or independent living facilities, which CMS does not regulate. The lingering question is whether it covers disputes with residents who are not Medicare or Medicaid beneficiaries.

This new regulation was challenged during the comment period based on the Federal Arbitration Act’s pre-emption of laws that target and nullify arbitration clauses for reasons unrelated to contractual validity.  The FAA provides that arbitration clauses shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The United States Supreme Court has upheld the FAA pre-emption for decades, including in the context of long term care facilities. In Marmet Health Care Center, Inc. v. Brown, 132 S. Ct.1201(2012), the Court held that a West Virginia public policy against pre-dispute arbitration agreements was in violation of the FAA and could not be enforced.

CMS’ response to the FAA challenge was that it was not prohibiting arbitration, which can still proceed after a dispute arises.  Further, CMS took the strong position that it has the right to regulate participants receiving funding from the Medicare and Medicaid programs, thus, giving it the right to prohibit pre-dispute arbitration agreements and to protect resident rights, including the right to court access.

In addition to prohibiting nursing facilities from requiring pre-dispute arbitration clauses, the regulation requires facilities to explain the arbitration clause when entered into, obtain acknowledgment of understanding, and provide for selection of a neutral arbitrator at a venue convenient to both parties. The regulation also prohibits agreement to arbitration as a condition for remaining at the facility and prohibits discouraging residents from reporting to government agencies. All of these requirements become effective on November 28 for post-dispute arbitration agreements. Further, the facility is required to maintain arbitration decisions for inspection purposes for five years.

A central question becomes whether nursing facilities can include arbitration clauses in resident admission agreements for residents who are not Medicare or Medicaid beneficiaries. That analysis focuses on whether CMS regulates facilities as a whole or merely their conduct related only to Medicare and Medicaid beneficiaries.

Pursuant to the Social Security Act, nursing facilities are required to enter into provider agreements with CMS in order to receive reimbursements as providers of services.  In the agreements, the facilities must commit to providing services to residents who are beneficiaries.  Beneficiaries are defined as people who are either entitled to Medicare benefits or are eligible for Medicaid, regardless of whether they are receiving either.  One could surmise that a resident who is neither entitled to Medicare nor eligible for Medicaid can enter into a pre-dispute arbitration agreement; however, CMS has closed that loophole.

To qualify as providers, the facilities must satisfy the quality standards of the state survey agencies, indicating that CMS oversight is facility-wide and not on a beneficiary-by-beneficiary basis.  To bolster this facility-wide oversight, CMS can terminate provider agreements when the facility no longer meets the conditions of participation set forth in the remaining CMS regulations or in the state survey agency standards.

The argument that the new arbitration regulation should not be imposed on a facility when the resident is not a Medicare or Medicaid recipient will probably not prevail when CMS can regulate the facility as a whole. Recall that one of CMS’ responses to the FAA challenge was that it has authority to regulate areas related to resident rights, including access to courts.  That general purpose appears to bring the new regulations under CMS’ facility-wide oversight.

The conclusion is that, no matter how you slice it, pre-dispute arbitration clauses for nursing facilities are now a risky practice and should generally be avoided.

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