In a heavily anticipated ruling with wide-ranging effects across the long-term care industry, a federal court in Mississippi on Monday blocked CMS’s
ban on new pre-dispute arbitration agreements between residents and nursing homes that accept Medicaid or Medicare. The arbitration ban, which was released in September in CMS’ “Reform of Requirements for Long-Term Care Facilities”
final rule, was set to go into effect November 28, 2016. However, the Court’s
November 7, 2016, Order raised significant doubts about CMS’ authority to issue a regulation that overrides the Federal Arbitration Act (FAA). The lawsuit, known as
AHCA v. Burwell, was initiated by the American Health Care Association, the Mississippi Health Care Association, and three Mississippi skilled nursing facilities.
Notwithstanding the November 28, 2016, final rule implementation date, the injunction entered by the Court allows nursing facilities and residents (or their representatives) to continue to enter into arbitration agreements in connection with the resident’s admission to the nursing home until a final ruling in the case. The Department of Justice (DOJ) now has 60 days to file an appeal to the U.S. Court of Appeals for the Fifth Circuit; however, DOJ must first seek permission from the Office of the Solicitor General to proceed. Due to the broad implications in this case and the strong positions of each side, an appeal is certainly likely, and a subsequent appeal to the U.S. Supreme Court is not out of the question.
In its decision, the Mississippi court first held that the new rule violated the FAA because it was, in effect, a ban on all nursing home arbitration contracts, rather than merely an incentive, because virtually all nursing homes rely so heavily on federal funding. The court went on to note that Congress intended to “place arbitration agreements upon the same footing as other contracts with the FAA,” and based on the “pro-arbitration FAA policies which the Supreme Court has applied,” the court determined that the U.S. Supreme Court would likely find the same.
The court also found that the factual record upon which CMS based its final rule was inadequate. “[A]ccumulating and reading from public comments is a questionable method of proving
anything,” the court said, noting that “it would have been far preferable for an agency with the resources of CMS to conduct its own independent and reliable investigation of issues relating to nursing home arbitration, in order to justify a step which, it must have known, would raise serious concerns in light of the FAA.”
Addressing the government’s argument that vague language in the Medicare and Medicaid statutes gave CMS authority to issue a final rule prohibiting arbitration altogether, the Mississippi Court again found that “the Rule enacted by CMS in this case crosses the line.” As the Court pointed out, generalized language regarding “protecting resident health and safety,” “protect[ing] and promot[ing] the rights of each resident,” or “health, safety, and welfare” are insufficient to justify CMS’ ban on arbitration agreements. Moreover, the fact that
34 U.S. Senators wrote a letter supporting the ban proved to the court that prohibiting arbitration agreements entirely was “obviously, a minority view which is incapable of becoming law.”
Although the Court expressed its concerns about often lengthy and expensive litigation proceedings to enforce arbitration agreements, the Court acknowledged that its decision must be based on the administrative record before CMS, not its own experiences or prior judicial decisions, and that these issues were properly left to Congress—not CMS—to address. Therefore, the Court concluded that CMS had overstepped its bounds and blocked implementation of the arbitration provision in the final rule, expressing that it was “unwilling to play a role in countenancing the incremental ‘creep’ of federal agency authority beyond that envisioned by the U.S. Constitution.”
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