Arbitration Provisions in Residency Agreements - Will CMS Ban LTC's from Entering into Pre-Dispute Arbitration?

All Long Term Care (“LTC”) facilities that accept Medicare and Medicaid residents are subject to the new regulations that the Center for Medicare & Medicaid Services (“CMS”) issued on September 28, 2016. One of the final rules codified at 42 C.F.R. § 483.70(n)(1) - provides that, effective November 28, 2016, LTC facilities "must not enter into a pre-dispute agreement for binding arbitration with any resident or resident's representative nor require that a resident sign an arbitration agreement as a condition of admission to the LTC facility."

Arbitration generally favors the LTC facility since the case will be heard in front of an arbitrator as opposed to a jury and an arbitrator is less likely to award punitive or other damages to the resident than a jury. Moreover, it is more expensive to for the resident to pursue a claim against the LTC facility in arbitration. The arbitration association typically requires a significant up front fee and the arbitrator charges the parties an hourly rate somewhere between $175 to $300 per hour. The court systems fees are lower and the judges are paid by the taxpayers in the jurisdiction. The LTC facility is in a much better position to absorb the arbitration costs than the resident.

CMS became "convinced that requiring residents to sign pre-dispute arbitration agreements is fundamentally unfair” since the residents typically do not fully understand the rights that they are waiving. Concerned that the LTC facilities were going to lose their rights to arbitration, a LTC association, the American Health Care Association (“AHCA”) filed a lawsuit in the United States District Court of the Northern District of Mississippi to prevent the rule from going into effect.

The judge in the case granted a preliminary injunction to stop CMS from implementing the rule on November 28, 2016. This ruling is preliminary and the case is going to proceed - CMS will be given an opportunity to prove its case. The judge does appear to be sympathetic to CMS and indicated that the ban on arbitration was based on “sound public policy.” However, the judge did indicate that the AHCA cited a great deal of case law which demonstrated that AHCA had a likelihood of success in overturning the ban on arbitration.

As the case proceeds, it allows CMS time to show that it has the authority to ban arbitration clauses.  The case may go on for months or even years before it gives a final ruling.  However, until the judge gives a final ruling, LTC facilities are free to enter into residency agreements that include binding arbitration provisions.