The Centers for Medicare and Medicaid Services (CMS) published final regulations on October 4, 2016 prohibiting skilled nursing facilities from including arbitration agreements in the resident admission process. The new regulation prohibits pre-dispute arbitration agreements in the skilled nursing setting.1Once a dispute exists, arbitration agreements can be entered into.

The regulation becomes effective November 28, 2016 and is a marked change from the proposed regulations published on July 16, 2015. In the prior version, CMS limited arbitration agreements, but did not exclude them from the admission process. The 2015 draft regulation required facilities to explain the arbitration clause, obtain acknowledgment of understanding, and provide for selection of a neutral arbitrator at a venue convenient to both parties. The draft regulation also prohibited agreement to arbitration as a condition for admission and prohibited discouraging residents from reporting to government agencies.2These requirements become effective on November 28 for post-dispute arbitration agreements. Further, the facility is required to maintain the arbitrator’s decision for inspection purposes for five years.

CMS Refutes Challenges

The new regulation was challenged based on its patent violation of the Federal Arbitration Act (FAA), which provides that arbitration clauses shall be “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.3 This bar on laws that target and nullify arbitration clauses for reasons unrelated to contractual validity has been upheld for decades by the United States Supreme Court, including in the context of long term care facilities.4 The Marmet Court held that a West Virginia public policy against pre-dispute arbitration agreements was in violation of the FAA and could not be enforced.

Confronted with the FAA arguments, CMS took the position that the only relevant inquiry is whether the arbitration regulation was properly issued under the Social Security and Administrative Procedure Acts. The agency noted that it has the right to regulate participants in the Medicare and Medicaid programs, thus, giving it the right to prohibit pre-dispute arbitration agreements. CMS does not consider the arbitration regulations to prohibit arbitration, only to prohibit receipt of funds.

Further, CMS noted that the Secretary of the Department of Health and Human Services has the authority to create and protect resident rights, including the right to court access. CMS stated that the new regulation does not run afoul of Marmet because it only prohibits pre-dispute arbitration clauses entered into after November 28.

Early, inexpensive and confidential resolution of claims against skilled care facilities will be a thing of the past beginning November 28. Likewise, obtaining a signed post-dispute arbitration agreement with plaintiff’s counsel in the mix will be almost impossible.