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Has the CMS Done an About Face as it Relates to Arbitration?

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Has the Centers for Medicare & Medicaid Services (CMS) abandoned its previously adopted Final Rule prohibiting mandatory nursing home arbitration?  The recent decision by the CMS to forego its Fifth Circuit appeal of the decision blocking the agency's Final Rule suggests YES.

CMS adopted Final Rule 42 CFR § 483.70, which was scheduled for implementation beginning November 28, 2016.  A section of the Final Rule completely banned the use of binding arbitration agreements or pre-dispute arbitration clauses for nursing home residents. 

In October 2016, a federal lawsuit was filed by the American Health Care Association in Mississippi challenging the Final Rule and seeking an injunction to prohibit CMS from enforcing the arbitration ban.  On November 7, 2016, the federal court entered a preliminary injunction enjoining CMS from enforcing the Final Rule.  On January 6, 2017, CMS filed a notice of appeal in the Fifth Circuit Court of Appeals.  After several extensions were granted giving CMS additional time to file their brief, on June 5, 2017, CMS voluntarily dropped its appeal without explanation. 

Of note, the case is still active at the district court level. CMS has given no indication on how it will proceed at the district court level, but given recent statements, it is believed that CMS will not pursue any further litigation.   In fact, CMS recently issued a statement that it now believes the ban imposed “unnecessary and excessive” litigation costs on health care providers. Moreover, CMS stated that it reconsidered the ban and now believes that arbitration agreements are “advantageous to both providers and beneficiaries because they allow for the expeditious resolution of claims without the costs and expense of litigation.”

A pending rule from CMS was reviewed by the White House on June 2, 2017.  Although the revised rule does not ban arbitration agreements in the nursing home setting,  it does impose new requirements on nursing home arbitration agreements.  For example, nursing homes will be required to explain the arbitration agreements to the resident and his or her representative.   Further, the revised rule requires arbitration agreements to be written in “plain language.” 

The ban would have affected thousands of nursing homes that care for Medicare and Medicaid beneficiaries. The CMS Final Rule had three implementation dates, two of which have not yet occurred. Based upon these recent developments relating to arbitration, there is uncertainty concerning the remainder of the Final Rule. With estimated costs to the nursing home industry of $831 million for the first year and $736 million per year for subsequent years, providers will be closely watching as these issues unfold.