CMS Prohibits Arbitration Clauses in Long-Term Care Facility Contracts

By Wendy S. Salkin

On Wednesday, the Centers for Medicare and Medicaid (CMS)—an agency within the Department of Health and Human Services (HHS)—released a final rule that “will revise the requirements that Long-Term Care facilities [LTCs] must meet to participate in the Medicare and Medicaid programs” (1). (Almost all LTCs receive funds from Medicare or Medicaid.) This is the first time that these requirements have been “comprehensively reviewed and updated since 1991” (6)—that is, in the past 25 years. One of the most striking changes to the regulation is found in §483.65, where CMS “require[es] that facilities must not enter into an agreement for binding arbitration with a resident or their representative until after a dispute arises between the parties” (12) which means that CMS is “prohibiting the use of pre-dispute binding arbitration agreements” (12). Among the reasons provided by CMS for this change is a recognition of the notable power differential between LTCs and their residents:

There is a significant differential in bargaining power between LTC facility residents and LTC facilities. LTC agreements 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 LTC resident and his/her family. LTC facilities are also, in many cases, the resident’s residence. These facilities not only provide skilled nursing care, but also everything else a resident needs. Many of these residents may reside there for a prolonged period of time, some for the rest of their lives. Because of the wide array of services provided and the length of time the resident and his/her family may have interactions with the LTC facility, disputes over medical treatment, personal safety, treatment of residents, and quality of services provided are likely to occur. Given the unique circumstances of LTC facilities, we have concluded that it is unconscionable for LTC facilities to demand, as a condition of admission, that residents or their representatives sign a pre-dispute agreement for binding arbitration that covers any type of disputes between the parties for the duration of the resident’s entire stay, which could be for many years. (402-403)

As The New York Times reported, when the rule was first proposed in July 2015, it was “aimed at improving disclosure.” But, this final version of the rule “went a step further than the draft, cutting off funding to facilities that require arbitration clauses as a condition of admission.”

This final rule has been seen by many as a huge step forward in protecting the rights and interests of LTC residents to access the court system when seeking redress for wrongs committed against them while under the care of a LTC facility. As The New York Times reported back in November of 2015, such arbitration clauses have severely limited the sorts of legal recourse available to LTC residents and their families. Examples include:

  • “The family of a 94-year-old woman at a nursing home in Murrysville, Pa., who died from a head wound that had been left to fester, was ordered to go to arbitration.”
  • The legal guardian of a 90-year-old woman with dementia received a fax from the woman’s nursing home informing him that, unless he agreed to arbitration, the doctors in the facility would not treat her for bed sores.
  • The family of a woman with Alzheimer’s who was “sexually assaulted twice in two days by other residents” in her nursing home was unable to have the arbitration clause in their agreement with the facility voided.

Of course, the new rule has met with pushback, particularly from those who stand to lose the most in light of this new prohibition: the nursing home industry. Yesterday, Mark Parkinson, CEO and President of the American Health Care Association (AHCA) not to mention former Governor of Kansas, expressed that AHCA is “‘extremely disappointed’” with the final rule, adding:

“That provision clearly exceeds CMS’s statutory authority and is wholly unnecessary to protect residents’ health and safety. AHCA is considering the appropriate steps for it to take in light of this unjustified action by CMS.”

This sentiment echoes other comments submitted to CMS during the open comment period, which charged that the arbitration clause prohibition would “violate the Non-Delegation and the Separation of Powers Doctrines” (403) on the grounds that CMS, which is a “quasi-executive and quasi-legislative” agency “has no authority to act in a quasi-judicial function” (403).

CMS responded that the Secretary of HHS is acting within the scope of her statutory authority to

  1. “promulgate regulations for the residents’ health, safety, and well-being and administer the programs under the Act,”
  2. “create specified rights for LTC residents, including, but not limited to, free choice, confidentiality, privacy, and grievances,” and
  3. “establish any other rights for residents.” (403)

Some initial impressions on this prohibition on arbitration clauses in LTC contracts: first, this prohibition has the potential to bring alleged wrongdoing on the parts of nursing homes and other LTCs out of the shadows of arbitration. Second, as CMS itself suggests, it shifts the power between LTC residents (and their families) and LTCs at least modestly in the direction of the residents and their families, who often sign these contracts under conditions where the residents-to-be are living with “dwindling mental acuity” and their family members are “emotionally vulnerable.” Still, caution is warranted as the new rule comes into effect, as LTCs’ increased exposure to litigation costs may bring with it a corresponding hike in nursing home costs for residents and their families—costs that are already exorbitant. It’s also worth keeping an eye out to see whether any court challenges are brought against the new rule, which is scheduled to go into effect on November 28 of this year.

In the meantime, here’s a short reading list for getting up to speed on the new rule: