CMS Rule Allows – But Could Discourage – Arbitration Agreements in Skilled Nursing Facilities

The Centers for Medicare & Medicaid Services (CMS) has overturned an Obama-era ban on the use of pre-dispute, binding arbitration agreements by skilled nursing facilities. But providers might still think twice about using these agreements, due to certain consumer protection provisions in CMS’ final rule.

In fact, the protections for SNF residents and their families in the final rule, published July 18 in the Federal Register, have some heft, one attorney said.

“From my perspective, the final rule is perhaps the strongest version of consumer protections in connection with arbitration agreements short of an outright ban on pre-dispute arbitration agreements,” Brian McGovern, a partner at the New York office of the law firm Crowell & Moring, told SNN. “I think it’s CMS’ attempt to really balance the dueling goals of allowing enforcement of arbitration agreements which would be consistent with Federal Arbitration Act (FAA) and Supreme Court decisions – as well as providing residents and consumers with enhanced protections from being forced into arbitration without understanding the implications.”

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SNF residents who sign arbitration agreements waive the right to legal action in court in the event of a dispute and agree to go through private arbitration instead; such agreements have been the target of consumer rights groups in a variety of industries. For SNFs, the primary motivation to use them is to avoid the time and expense of litigation, McGovern noted.

Balancing consumer safeguards with law

When the Obama administration banned SNFs from using pre-dispute, binding arbitration agreements in 2016, the action drew a lawsuit from the American Health Care Association (AHCA) and subsequently, an injunction from a federal district court in Mississippi.

The final rule issued last week drew reactions from legislators, with Rep. Linda T. Sánchez, D-Calif., vowing in a statement to reintroduce legislation banning facilities from using pre-dispute arbitration agreements. A joint statement from Sen. Ron Wyden, D-Ore., and Rep. Richard E. Neal, D-Mass. called for increased consumer protections in light of the rollback.

But a complete ban on arbitration goes against a Supreme Court decision in the case Kindred Nursing Centers L.P. v. Clark, attorney Neville M. Bilimoria, a partner in the health law practice group in the Chicago office of Duane Morris, noted back when CMS issued proposed revisions to the rule in 2017.

“The Supreme Court decision in Kindred now makes virtually any attempt to discriminate against the use of arbitration a violation of the FAA,” Bilimoria said at the time.

But the new final rule is the most resident-friendly that could be consistent with the federal mandate to uphold arbitration, McGovern said. For one thing, facilities cannot make signing an arbitration agreement a condition of admission to a SNF: Residents can either agree to arbitration or decline to do so.

“That is a material change from the proposed rule, and is certainly consistent with the interests of nursing home resident advocates that it should be voluntary, not mandatory,” he told SNN.

Another major change is the fact that even if residents or their representatives sign an arbitration agreement, they could still change their minds. The rule grants residents or their representatives the right to rescind the agreement within 30 calendar days of signing it.

“These requirements ensure that a decision on whether to sign the agreement is made only after the resident or his or her representative understands what he or she is agreeing to, and that there is time to reconsider a decision to sign the agreement and seek legal advice, if he or she chooses to do so,” CMS said in the final rule.

SNFs ‘revisiting’ arbitration?

There’s some debate about how widespread such arbitration agreements are, and what the result of the final rule will be on facilities’ use of them.

“They are the rule, rather than the exception – except when there was a lot of uncertainty over the enforceability of them. Prior to that they were the rule, rather than the exception,” Alan Schabes, partner at the law firm of Benesch, Friedlander, Coplan & Aronoff, told SNN.

Bilimoria, on the other hand, had a somewhat different view, telling SNN in an email that they “are not as common as most people think.”

“We represent SNFs all over the country, and we are constantly preaching to our clients to institute arbitration agreements in their resident contracts,” he told SNN. “Many facilities aren’t focused on arbitration agreements and how they can significantly reduce liability for nursing homes and avoid costly litigation.”

But increasing numbers of facilities are instituting them, particularly after the Kindred Supreme Court decision, Bilimoria noted. That number might continue to climb; while McGovern estimated that fewer than half of his clients used arbitration clauses in their admission process, the final rule might lead some facilities to revisit them as a tool.

That’s not necessarily a given, however. Even though the final rule does not ban the use of arbitration clauses, the fact that they cannot be mandatory for admission and the rescinding period might counterbalance the benefits providers are seeking from arbitration, McGovern said.

“We’ll have to see how it works going forward, but it has the potential to sort of undercut the goal of facilities in proposing arbitration,” he told SNN.

Bilimoria agreed.

“By CMS requiring formal notification that families and residents need not sign arbitration agreements, this could have a chilling effect on residents signing arbitration agreements in facilities,” he said. “Under this final rule, facilities may need to concomitantly notify families and residents of the benefits of arbitration (for both parties) in order to encourage arbitration.”

In addition, the final rule stipulates arbitration agreements have to be drawn up and explained in “a form or manner” that residents or their representatives understand. But there is no guidance from the government on what that entails, Schabes noted. That means providers will have to make sure that people who aren’t legal experts can understand agreements and documents that are drawn up, he said.

Another element of the final rule that could be significant is the requirement that facilities keep the results of arbitration on file for a five-year period, Schabes said. This is so CMS can gather data on how arbitration is conducted in long-term care facilities, the agency said in the final rule.

What comes next

If SNFs want to re-examine arbitration agreements, they need to look at more than just the final rule.

Facilities must also consider what state Supreme Courts have said about arbitration, and consider the ways that intake processes are conducted in light of the new requirements, Bilmoria said.

Some facilities who have been waiting on the final rule for clarity may decide to revise their agreements and move forward with arbitration under the parameters of the new final rule, McGovern said. But overall, what the impact will be is hard to predict a week from the rule’s publication.

“It may be interesting to revisit this in a year or two to see how often is that 30-day cooling-off period invoked,” he told SNN. “How many residents opt out in the first instance, and [then] rescind in that 30-day period? That will be telling, going forward in five years, whether arbitration is going to be standard practice for nursing homes.”

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