CMS to Publish Proposed Rule Allowing LTC Pre-Dispute Arbitration Agreements as Condition of Admission

Today (June 8, 2017), CMS is publishing its proposed rule removing prohibitions against binding pre-dispute arbitration provisions in long-term care agreements.  On October 4, 2016, CMS published a final rule entitled “Reform of Requirements for Long-Term Care Facilities.” The final rule amended 42 C.F.R. 483.70(n) to prohibit LTC facilities from entering into pre-dispute arbitration agreements with any resident or his or her representative, or requiring that a resident sign an arbitration agreement as a condition of admission. The final rule required 1) that an agreement for post-dispute binding arbitration must be entered into by the resident voluntarily; 2) that the parties must agree on the selection of a neutral arbitrator; and 3) that the arbitral venue must be convenient to both parties. The arbitration agreement could be signed by another individual only if allowed under state law and all other requirements under the Federal Rule were met.  Particularly, a resident’s admission or right to remain at the facility could not be made contingent upon the resident or his or her representative signing an arbitration agreement.

However, in October 2016, the American Health Care Association and a group of affiliated nursing homes succeeded in obtaining a preliminary injunction in the United States District Court for the Northern District of Mississippi.  The district court held that the plaintiffs were likely to prevail in their challenge to the 2016 final rule. It concluded that it would likely hold that the rule’s prohibition against LTC facilities entering into pre-dispute arbitration agreements was in conflict with the Federal Arbitration Act (FAA), 9 U.S.C. 1 et seq. The court also reasoned that it was unlikely that CMS could justify the rule, or could overcome the FAA’s presumption in favor of arbitration, by relying on the agency’s general statutory authority under the Medicare and Medicaid statutes to establish rights for residents (sections 1891(c)(1)(A)(xi) and 1919(c)(1)(A)(xi) of the Act) or to promulgate rules to protect the health, safety and well-being of residents in LTC facilities (sections 1819(d)(4)(B) and 1919(d)(4)(B) of the Act).  CMS subsequently issued a nation-wide instruction on December 9, 2016, directing state survey agency directors not to enforce the 2016 final rule’s prohibition of pre-dispute arbitration provisions,  while the injunction remained in effect.

Under the recently announced policy change, CMS would retain provisions of the 2016 final rule related to protecting the interests of LTC residents, including the requirement that the agreement be explained to the resident and his or her representative in a form and manner that he or she understands. However, the proposed rule would remove the following:

  • the requirement at §483.70(n)(1) precluding facilities from entering into pre-dispute agreements for binding arbitration with any resident or resident’s representative;
  • the prohibition at §483.70(n)(2)(iii) banning facilities from requiring that residents sign arbitration agreements as a condition of admission to a facility;
  • certain provisions regarding the terms of arbitration agreements.

The proposed rule would retain the requirement that a copy of the signed agreement for binding arbitration and the arbitrator’s final decision must be retained by the facility for 5 years and be available for inspection upon request by CMS or its designee. Comments on the proposed rule must be received at CMS by 5:00 p.m. on August 7, 2017.

2016 Was a Busy Year: Developments in Nursing Facility Arbitration Law

Nursing home arbitration agreements get a bad rap. But as most practitioners in the field know, nursing facility arbitration agreements seem here to stay, at least (possibly) until recently.  Arbitration is thought by many to offer significant flexibility and efficiency vis-à-vis litigation, and proponents in the skilled nursing industry cite arbitration as an important tool to reduce litigation costs – including, of course, the costs associated with “runaway jury” punitive and noneconomic damages verdicts, which can be crippling to industry participants.

The enforceability of nursing facility arbitration agreements has long been a hotly contested issue.  It probably is fair to say that, in general, courts broadly view these agreements as enforceable in a vacuum, but they will approach any particular instance with a healthy degree of skepticism.  Occasionally, state courts have tried to go one step further than analyzing and rejecting nursing facility arbitration agreements on an ad hoc basis and have announced a per se rule against enforceability of such agreements.  That typically does not end well for those courts.

The relatively recent Marmet decision is a good example of this latter scenario.  There, the West Virginia Supreme Court issued a decision in a consolidated group of cases holding that pre-dispute nursing facility arbitration agreements were void as against public policy under state law  The decision was appealed to the U.S. Supreme Court, which granted certiorari and promptly slapped down the state court.  In a (relatively) scathing per curiam opinion, the Court emphasized:  “As this Court reaffirmed last Term, ‘[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward:  The conflicting rule is displaced by the FAA.’  … That rule resolves these cases.  Since that decision, state courts seem to be somewhat more receptive to honoring and enforcing nursing facility arbitration agreements.

In 2016, however, federal regulators attempted to throw a curveball to the skilled nursing industry.  On September 28, 2016, the Centers for Medicare and Medicaid Systems (“CMS”) announced a new rule ostensibly intended “to make major changes to improve the care and safety of the nearly 1.5 million residents in the more than 15,000 long-term care facilities that participate in the Medicare and Medicaid programs.”  As part of this new rule, which would go into effect on November 28, 2016, CMS banned the use of pre-dispute arbitration agreements by nursing homes on a going-forward basis.  It noted that the rule did not apply to existing arbitration agreements (thus avoiding running afoul of the Federal Arbitration Act), and it specifically allowed nursing facilities and plaintiff-residents to agree to arbitrate after a dispute has arisen.  But the sort of prospective arbitration agreement that is presented to residents and potential residents at the time of admission would be prohibited from now on.  Although the rule technically only applied to nursing homes that accepted Medicare and Medicaid funds, as a practical matter, that included virtually all such facilities.

Needless to say, this was a controversial measure.  And the industry did not take it lying down.  On October 17, 2016, a group of trade organizations and nursing facility operators filed a lawsuit in the U.S. District Court for the Northern District of Mississippi challenged the pre-dispute arbitration rule.  On November 7, 2016, the court ultimately agreed with the challengers and entered an order preliminarily enjoining it.  It held in relevant part that a federal agency regulation effectively banning a certain type of arbitration agreement, even on a prospective-only basis, would be flatly inconsistent with the overarching pro-arbitration policy and purpose embodied by the FAA.  On December 9, 2016, CMS capitulated and sent a memorandum to Medicaid state survey administrators announcing that the rule should not be enforced unless and until the litigation was resolved and the injunction was lifted.  Especially in light of the change in administrations, the ultimate status of the pre-dispute arbitration rule is uncertain at best, and it is currently not being enforced.

So where does that leave nursing facility arbitration agreements?  Are facilities free to include them in admissions packets without fear that they will be unenforceable?  The answer to those questions necessarily is a qualified one.  Pre-dispute nursing home arbitration agreements still are not unenforceable per se, but at the same time, they will be looked upon with varying degrees of skepticism by courts.  As noted above, many post-Marmet state courts seem to have gotten the message that animus towards nursing home arbitration agreements will not be tolerated by the federal judiciary.  But “many” does not mean “all” (or even, necessarily, “most”), and there are still a number of states and jurisdictions in which courts appear likely to continue to go out of their way to find reasons as to why any particular arbitration agreement should not be enforced.

As such, it is crucial that any nursing facility or operator of facilities that wants to institute (or continue to use) an arbitration program go to great lengths to dot every “i” and cross every “t” when offering residents the opportunity to enter into an arbitration agreement.  This includes proactively reviewing the form arbitration agreement currently in use to ensure it complies with state contract law requirements, and training admissions staff so that the avoid typical pitfalls when presenting arbitration agreements to residents or prospective residents to sign (e.g., making sure that the resident has capacity to sign or that there is sufficient documentation for a representative to sign on behalf of that individual, making sure that the agreement is properly witnessed and countersigned, etc.).

Litigation over the arbitrability of a nursing facility dispute can itself be so costly and time-consuming that it removes many of the efficiencies and related advantages of arbitration. As is usually the case, it is best to try to address that potential issue on the front end of things.



Effective November 28, 2016, long-term care facilities that participate in Medicare and Medicaid will no longer be able to enter into “pre-dispute” agreements for binding arbitration with their residents.  The Centers for Medicare & Medicaid Services (CMS) issued the final rule on September 28, 2016, after consideration of extensive comments from key stakeholders in the long-term care community regarding proposed revisions.

Under the rule, a facility can ask a resident or a resident’s representative to enter into an arbitration agreement after a dispute arises.  However, the facility must comply with several requirements, such as ensuring that the agreement provides for the selection of a neutral arbitrator and a venue convenient to both parties.  Further, a resident’s right to remain in the facility cannot be contingent upon entering into the arbitration agreement and the agreement cannot contain language that discourages communications with federal, state or local surveyors and other officials.

As one of the more controversial changes, critics of the new arbitration rule have reacted strongly against the change and have commented that this part of the rule “clearly exceeds” CMS’s statutory authority.  In its response to public comments, CMS explains that the Secretary of Health and Human Services has the authority to administer the program under the Social Security Act by setting general practice parameters for payment under Medicare and Medicaid.  CMS further cites to its authority to promulgate regulations for residents’ health, safety and well-being and states that there is “significant evidence that pre-dispute arbitration agreements have a deleterious impact on the quality of care for Medicare and Medicaid patients.”  Nevertheless, there are several legal bases upon which to challenge the agency’s ability to preclude an arbitration agreement.

While CMS’s comments cite to a resident’s waiver of the right to a jury trial as a major factor considered in its decision to disallow pre-dispute arbitration agreements, the final rule does not expressly preclude jury trial waiver provisions within facility admissions agreements.  Jury waivers may help to address runaway verdicts that have become a concern in negligence cases in past years, while still respecting expressed concerns that arbitration presents undue costs to residents and creates an environment of “secrecy.”  Note that state law may vary on whether such waivers are enforceable.

Also remarkable is CMS’s comment that it will not address waiver of class-action litigation in this rule, but rather reserve the issue for consideration during future rulemaking.

The broad-sweeping final rule also contains several other provisions that directly affect compliance programs, training of nursing staff, updating infection and control programs, and other key requirements that long-term care facilities must comply with in order to participate in the Medicare and Medicaid programs.  It is advisable for long-term care facilities to promptly consult with a knowledgeable healthcare attorney to assess modifications to admissions packets and to otherwise establish the framework necessary to comply with the revised Requirements of Participation.

U.S. Supreme Court Declines to Review Oklahoma Case Denying Arbitration in Wrongful Death Case

The United States Supreme Court refused to review a decision by the Oklahoma Supreme Court denying a nursing home’s request to arbitrate a wrongful death claim with a resident’s family members. Thus, the Oklahoma Supreme Court’s decision will stand: family members of a deceased nursing home resident will not be required to arbitrate because they did not sign the arbitration agreement in their personal capacities and their claim is not wholly derivative of the former resident’s claim. Most nursing home arbitration agreements have language stating that the agreement binds a resident’s spouse and heirs, whether or not any claims are brought on behalf of the resident, and that the agreement covers wrongful death claims. Whether or not a court will enforce a provision that heirs arbitrate claims has been the subject of much litigation.

In Boler v. Security Health Care, LLC, the Oklahoma Supreme Court examined cases from other jurisdictions that considered whether a decedent’s heirs are bound by an arbitration agreement signed by or on behalf of the decedent. The Oklahoma high court noted that in states that consider wrongful death actions to be independent and separate causes of action, courts are more likely to hold that beneficiaries are not bound by the arbitration agreement. In contrast, the Oklahoma Supreme Court noted, beneficiaries are more likely held to be bound by a decedent’s agreement to arbitrate in states where wrongful death actions are wholly derivative of the decedent’s claims. Noting that Oklahoma’s wrongful death act created a new cause of action for the losses of the deceased’s spouse and next of kin and that recovery does not go to the estate of the deceased, the Oklahoma Supreme Court explained that wrongful death claims in Oklahoma are not wholly derivative claims. Thus, the court held that a decedent cannot bind beneficiaries to arbitration.

Colorado has taken a different approach from Oklahoma even though Colorado’s wrongful death act also creates a separate cause of action. Colorado’s Supreme Court did not analyze whether a wrongful death claim is wholly derivative or not in deciding whether a decedent can bind his or her heirs to arbitration. Instead, Colorado’s high court in Allen v. Pacheco turned to contract law. Thus, the court examined whether the parties intended to bind a spouse to arbitrate a wrongful death claim. Examining the plain language of the arbitration agreement, the court concluded that the agreement required a spouse to arbitrate her wrongful death claim.

While there is no way to guarantee that a court will enforce an arbitration agreement, this discussion illuminates the importance of knowing the nuances of arbitration case law in order to draft the strongest arbitration agreement possible. It is also advisable to review arbitration agreements periodically to determine whether they should be modified due to developments in the law, particularly evolving case law.

Getting Your LTC Arbitration Dispute into Federal Court

Last week, I noted that it often can be crucial – if you want to arbitrate a long term care (LTC) tort claim – to keep that claim out of state court.  But, as I also noted, this can be easier said than done.  Plaintiff’s lawyers often will sue employees of the LTC facilities (most often nursing home administrators) as co-defendants, and while the facility itself may be a foreign corporation, the employees normally are Colorado residents, thus spoiling diversity jurisdiction.  So does that mean the LTC facility is stuck in a potentially hostile state court venue if it wants to try to compel arbitration?

Not so fast.  Normally, plaintiffs do not bring the arbitration claim in the first instance – and why would they, given that they never want to arbitrate?  So the arbitration claim will not become a part of the state tort claim unless the defendant wants it to.

And while the defendant will want to raise the arbitration issue at some point, there’s no reason that it has to be in the case and the court in which it was sued.  It’s normally perfectly acceptable to bring a new, affirmative lawsuit attempting to compel arbitration.  But why include the resident employee?  The saying is that a plaintiff is the master of his claim, and if a LTC facility doesn’t want to include the employee, it doesn’t have to.  Voila!  Now you have diversity jurisdiction.

It may seem unfair to let a state court defendant manufacture diversity jurisdiction to take the arbitrability question into federal court despite a pending tort case.  Maybe it is and maybe it isn’t, but the point is, courts let defendants do that sort of thing all the time.  This is not to say that federal courts automatically will hear a complaint seeking to compel arbitration; it is possible that the resident defendant might be held to be an indispensable party under Rule 19 of the Federal Rules of Civil Procedure, and if that’s the case, dismissal will be warranted.  But nursing home administrators seem not to fall in that category too often.

Arbitration is not a panacea, of course.  Many LTC facilities are (understandably) wary of participating in a alternative dispute resolution process with little formal standards or appeal rights.  In most cases, it may be preferable to stay in state court.  But most is not all.  There are certain jurisdictions where a LTC defendant will want to get out of the forum at all costs.  In those places, it might be helpful to get to federal court, even if it’s just on the arbitration issue.  (It’s also important to note that even if the federal trial court is skeptical of the arbitration petition, the LTC facility will have appeal rights pursuant to Section 16 of the Federal Arbitration Act, so there is even a safeguard against an unfriendly district court judge.)