Trial Magazine

On Sept. 28, the Centers for Medicare and Medicaid Services (CMS) issued a final rule prohibiting nursing homes from using pre-dispute forced arbitration agreements in admission contracts dated on or after Nov. 28, 2016. The rule applies to all skilled nursing facilities that receive money from Medicare and Medicaid—the majority of all facilities in the United States.

Forced arbitration agreements have long been an issue in nursing homes. Because many admission agreements contain a mandatory arbitration clause, residents and their families cannot sue the nursing home in cases of injury, abuse, sexual assault, or even murder. Although the nursing home industry argues that arbitration is a less expensive alternative to lawsuits—allowing more nursing homes to stay open—forced arbitration prevents injured residents and their families from getting their day in court.

CMS first issued its proposed regulatory update for nursing homes in July 2015. It required nursing homes using a forced arbitration agreement to explain its meaning to a potential resident; the resident to acknowledge understanding the agreement; that admission to the facility could not be contingent on the resident or his or her representatives signing the agreement; and a neutral arbitrator to conduct the arbitration. CMS, at the time, also stated that it was considering banning arbitration agreements in nursing homes completely.

When CMS issued the final rule, it asserted that the Federal Arbitration Act did not prohibit it from regulating the conditions of arbitration agreements. The final rule bans pre-dispute forced arbitration clauses completely with two important notes: First, the rule does not apply retroactively, covering only admission agreements signed on Nov. 28, 2016, and later. Second, the rule prohibits only pre-dispute forced arbitration agreements. A resident would have the right, after a dispute has arisen with the nursing home, to choose arbitration. In those scenarios, the agreement would still have to be explained to the resident in a manner he or she understands, and the resident would have to acknowledge that he or she understands the agreement.

On Nov. 7, the Northern District of Mississippi granted the American Health Care Association’s motion for a preliminary injunction to enjoin CMS from enforcing its ban on pre-dispute forced arbitration agreements. Additional proceedings in the Fifth Circuit are anticipated in the near future.