A Federal Ban on Arbitration Agreements in Nursing Homes? Senators’ Comment on CMS Proposed Rule Ignores Congressional Intent and Judicial Precedent

In July, the Centers for Medicare & Medicaid Services (CMS) proposed changes to the requirements for long-term care facilities, including implementation of new restrictions on the use of binding arbitration agreements between residents and facilities. Due by October 14, 2015, there have been several noteworthy comments, including one from a group of Senators fronted by Minnesota Senator Al Franken.

While many healthcare companies and nursing home operators submitted comments arguing that the arbitration agreements used in the vast majority of long-term care admissions are fair, voluntary, and already comply with the Proposed Rule, therefore making the changes unnecessary, one group of Senators took the extreme position that arbitration agreements in long-term care facilities should be banned altogether. In a September 23, 2015 letter, 34 Democratic Senators led by Senator Franken urged CMS to prohibit binding, pre-dispute arbitration agreements (the Franken Comment).

While anyone can submit a comment to a proposed rule in the Federal Register, the Proposed Rule and especially the Franken Comment seek to side-step the legislative and judicial processes and the existing “emphatic federal policy in favor of arbitral dispute resolution.” While the Proposed Rule’s arbitration provisions appear to be inconsistent with the Federal Arbitration Act (FAA) and repeated Supreme Court decisions stressing the benefits of arbitration, the Franken Comment is squarely at odds with existing law and urges CMS to use the regulatory process to circumvent Congress and the FAA.

Federal courts have consistently held that, to regulate arbitration, an agency must show evidence of Congressional intent to do so. On several occasions, however, Congress has been presented with the option to grant authority to regulate arbitration agreements to agencies, and it has repeatedly declined.

In an apparent effort to tie its arbitration-related proposals to the health and safety requirement imposed by the Medicare Act and the Medicaid Act, the Proposed Rule states that “the increasing prevalence of [arbitration] agreements could be detrimental to residents’ health and safety and may create barriers for surveyors and other responsible parties to obtain information related to serious quality of care issues.” However, this speculation that the use of arbitration agreements could theoretically be detrimental to resident health and safety “simply perpetuates the historical prejudice against arbitration agreements that Congress sought to eradicate when it enacted the FAA some [90] years ago.” Attempting to tie an outright ban on arbitration agreements to Congressional intent or the health and safety of residents would be even more tenuous.

While we await CMS’s decision and announcement of a Final Rule or a Supplemental Proposed Rule, it remains to be seen whether the minority group of Senators opposed to binding arbitration in nursing homes will be able to disrupt the emphatic federal policy in favor of arbitration. Nonetheless, the Proposed Rule and ensuing discussion should remind healthcare and long-term care companies to ensure that they offer balanced, consumer-friendly, voluntary arbitration agreements, handled by trained personnel and guided by sound business practices.

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