New Major Change to Potential Nursing Home Liabilities

September 29, 2016

A common provision in many nursing home contracts requires the parties to agree to submit to binding arbitration of any disputes between the home and the resident. Homes have long seen these provisions as a convenient way to avoid protracted litigation and have disputes resolved by specialized panels familiar with nursing home operations. Residents, on the other hand, have complained that these provisions deny them the ability to seek redress of serious complaints in court. This is set to change.

On September 28, 2016, the Department of Health and Human Services, which oversees the Centers for Medicare and Medicaid Services (CMS), filed a rule requiring facilities that receive Medicare and Medicaid funds not enter into pre-dispute binding arbitration agreements. While the parties can still agree to arbitrate any dispute that arises, and be bound by those results, they will be forbidden from doing so prospectively. Because the overwhelming majority of nursing homes rely on Medicare and Medicaid reimbursements to survive, this rule will potentially have wide-ranging effects. The Rule takes effect October 4, 2016.

CMS has imposed this Rule based, in part, on a finding that “there is significant evidence that pre-dispute arbitration agreements have a deleterious impact on the quality of care for Medicare and Medicaid patients.” There are obviously many in the industry that disagree with this proposition and disagree that CMS even has the right to enforce such a provision. Indeed, much of CMS’ release appears to contain its legal justification for the rule.

Litigation over the Rule’s validity is certain to follow. The Federal Arbitration Act (FAA) sets forth a policy strongly favoring arbitration of disputes and allowing for binding pre-dispute arbitration provisions. Court cases have routinely upheld such provisions. CMS, for its part, articulates exceptions to these precedents for establishment and enforcement of the Rule. Unless and until a court enjoins enforcement of the Rule, however, CMS is likely to administer the policy as written.

The rule is prospective in nature. If the parties have entered into such an agreement before the effective date of the rule, CMS has confirmed that the parties will continue to be bound by the agreement. The Rule is silent on the impact of agreements with renewal provisions.

If you have questions concerning nursing home contracts and the impact this new Rule will have, please feel free to contact us.