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CMS Rule Upheld That Permits, But Limits, Arbitration Clauses in Nursing Home Contracts

Thank you to our guest blogger Anita Schnee, J.D. for leading this conversation regarding pre-dispute arbitration clauses and nursing-home agreements.

One more step has been taken in a four-year tussle as to whether, and how, pre-dispute arbitration clauses may be inserted into nursing-home agreements. In Northport Health Services of Arkansas, a federal district judge upheld the current administrative rule that permits such clauses, but that restricts the manner in which they are to be included.1

In 2016, the Obama administration sought to outlaw such clauses outright, but that ban never went into effect. In a suit immediately brought by the American Health Care Association and several nursing homes, a district court in Mississippi enjoined enforcement of the rule.2 Thereafter, the Center for Medicare and Medicaid Services (CMS) reversed itself and permitted such clauses to be imposed as a condition of admittance. Subsequently, though, CMS reconsidered again, re-opened public comment, and, in 2019, promulgated the current governing rule.3

The rule, now upheld at the district-court level, provides that arbitration clauses may be included in contracts that nursing-home residents sign on admission. However, if the facility intends to remain entitled to receive Medicare or Medicaid funds, the rule imposes the following protections and conditions:

  • No longer may such clauses be imposed before a resident may be admitted to, or receive care at, the facility. The arbitration clause must contain explicit language informing residents that they can refuse it; and
  • The arbitration clause must be written in plain language and residents must acknowledge that they understand it; and
  • Residents have the right to rescind agreement to the clause within thirty calendar days of signing; and
  • In case of disputes, both the facility and the resident must agree to a neutral arbitrator and venue; and
  • The clause must not prohibit or discourage the resident from contacting federal, state, or local officials; and
  • Facilities must retain copies of the signed agreement and arbitrators’ decisions for five years, during which time the records remain open to CMS inspection.

The Northport court ruled, in summary-judgment posture, that these limits were within CMS’s authority to impose rational measures to protect nursing-home residents’ health and welfare. The court accepted CMS’s argument that protections are necessary when arbitration agreements are included as part of the admissions process, because the contracts “are often made when the would-be resident is physically and possibly mentally impaired, and is encountering such a facility for the first time. In many cases, geographic and financial restrictions severely limit the choices available to [a] resident.”4 The current rule serves to prevent nursing homes from unfairly leveraging residents’ need to access care.

The court further agreed that the rule is a valid condition on receiving federal funds. “The regulations are reasonably related to the policy goals of the Medicare and Medicaid programs and are therefore a permissible use of the Government's authority to place conditions on the use of federal funds.”5 A facility “‘could rationally choose to accept a fine as the price for negotiating an agreement the way it wants.’”6

As to the requirement that facilities must retain copies of arbitration agreements and arbitrators’ decisions, the court found support in the administrative record for CMS’s belief that such agreements impede enforcement efforts, based on “anecdotal evidence of so-called ‘gag-clauses’ being common in arbitration agreements and that residents and family members were uncertain if they could talk to surveyors about a quality concern that was arbitrated.”7 The court approved CMS’s conclusion that “the secrecy surrounding the arbitration process is a substantial concern” and that because of this secrecy, arbitration “could result in some facilities evading responsibility for substandard care.”8

The American Bar Association has flatly opposed pre-dispute arbitration agreements. “We do not believe that the time of admission to a nursing home is appropriate for informed decision-making about such agreements. Nursing home admission is usually a time of crisis for individuals and their families; the resident is in an impaired condition, the choice of nursing homes may be severely limited, and the resident and family have no idea of the kind of dispute that might be bound by an arbitration clause in the future. There are advantages and disadvantages to arbitration, but it is only after a dispute arises that those pros and cons can be fully weighed, and an informed and voluntary decision can be made.”9

Similarly, the Center for Medicare Advocacy urges that pre-dispute arbitration agreements are “inherently unfair to residents and their families, especially those experiencing a health crisis and seeking immediate access to care. The Center encourages residents and their families to not sign these so-called ‘voluntary’ pre-dispute arbitration agreements.” Such clauses “burden[ ] residents with deciding whether arbitration is the right form of dispute resolution for them before even knowing what the dispute is about or when it might occur.”10

Hence, the rule’s inclusion of the rescission right is a critical step to counter the confusion and stress surrounding the signing of documents at admission. If residents and their families do seek legal advice immediately after the resident is admitted, the right to rescind provides additional time to advise residents and their families not to sign. If such clauses are uniformly refused, that could serve to effectuate CMS’s original 2016 position: they should be banned altogether.

Another suggestion is to insert a limiting instruction into powers of attorney, to withhold power from an agent to agree to procedures that forfeit the right to a jury.11

The Northport decision is currently on appeal to the United States Court of Appeals for the Eighth Circuit.

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  1. Northport Health Services of Arkansas, LLC, v. United States Dept. Health and Hum. Svcs., ___ F. Supp.3d ___, No. 5:19-CV-5168, 2020 WL 1696009 (D. W.D. Ark., April 7, 2020).
  2. American Health Care Ass’n v. Burwell, 217 F. Supp.3d 921 (N.D. Miss. 2016).
  3. 42 C.F.R. § 483.70(n) (84 Fed. Reg. 34718, July 18, 2019).
  4. Northport, 2020 WL 169009 at *11.
  5. Id. at *10.
  6. Id. at *4, quoting CMS Reply Brief.
  7. Id. at *14.
  8. Id. at *12.
  9. https://www.americanbar.org/groups/law_aging/publications/bifocal/vol-40/volume-40-issue-6/cms-final-rule-on-nursing-home-arbitration-clause/
  10. https://www.medicareadvocacy.org/federal-district-court-in-arkansas-upholds-federal-rule-authorizing-arbitration-requirements-in-nursing-home-contracts/?emci=297b8716-fc7f-ea11-a94c-00155d03b1e8&emdi=4f4ad0f0-2580-ea11-a94c-00155d03b1e8&ceid=7771537
  11. David L. McGuffey, Marmet Health Center v. Brown: Nursing Home Arbitration Agreements, 8 NAELA Journal 2012 at 249, available at: https://www.naela.org/app_themes/public/PDF/Library%20Tab/NJFal2012Case_Note_Marmet.pdf

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