Nursing Home Operators Could Face Fines, Citations Tied to Arbitration Agreements as Part of New CMS Requirements

Nursing home providers could be cited by surveyors for noncompliance – and issued civil monetary penalties – as part of updated guidance tied to arbitration agreements published by the Centers for Medicare & Medicaid Services (CMS).

This approach is subject to scrutiny and appears to contradict previous federal efforts to make arbitration readily available to all industries, including nursing homes. As a result, attorneys in the health care space expect to see an increase in civil litigation as arbitration contracts become a riskier avenue.

“It continues to be the federal government’s, and Congress’s assertion, that they prefer arbitration. They want to make it available to people to use and they’ve clearly stated that if you make an effort to treat arbitration contracts differently from other contracts – that’s subject to scrutiny,” said Drew Graham, a partner at Hall Booth Smith’s New York City office.


Specifically, there are enforcement tags, or F-tags, associated with arbitration as part of the updated guidance.

If surveyors feel a resident is at risk of psychosocial harm by way of the contract formation process or as a result of participating in a case involved in arbitration, a facility could receive one of these tags.

“Two big points are, [CMS is] going to enforce this with two F-tags which are brand new that didn’t exist before this came out, and that they’re going to treat [arbitration contracts] differently,” added Graham.


The July guidance is in relation to arbitration requirements that became effective September 2019, specifically guidance that prohibits facilities from requiring residents to sign binding arbitration agreements as a condition of admission to a facility, or as a condition to continue to receive care.

Such agreements have been contentious in the past, according to attorney Craig Conley, with arbitration effectively banned in long-term care facilities around 2016 and then restored through several legal disputes during the Trump administration.

Conley is a shareholder at Baker Donelson Bearman Caldwell & Berkowitz law firm in its Memphis office.

“[The Trump administration] basically formed this proposed rule that CMS adopted in September of 2019 that formally reversed that Obama-era ban on these types of agreements in the long-term care setting,” Conley said.

Arbitration agreements had to be optional as part of the 2019 update, along with the selection of a neutral arbitrator, a convenient venue, and in a form that can be easily understood with the resident or the responsible party acknowledging that understanding, Conley said.

The right to revoke arbitration within 30 days of signing was another 2019 change.

Graham said the possibility that an operator would require an arbitration agreement as a condition of admission was an isolated occurrence – the agency has made it clear in the past via letters or other directives that this should not be a common occurrence.

“In our experience, we just really don’t see conditions of admission-based arbitration; it’s not to say they’re not there, but my experience has been that I have not seen it,” said Graham.

Hall Booth Smith primarily represents nursing homes in personal injury litigation that is brought by families against the centers, Graham said.

Enforcing arbitration tags, guidance

It remains to be seen how surveyors will enforce arbitration guidance, Graham said, but he expects there will be an increase in civil litigation in state and federal courts versus cases being resolved through arbitration.

It appears that civil monetary penalties (CMPs) for a facility would only be associated with the higher degrees of severity for these new F-tags, Graham and Conley said.

“To get to the level of a CMP, it’s going to mean you’re going to have to get an [immediate jeopardy] at that point, obviously, and they’ve got to show this form of serious psychosocial injury or harm,” added Conley.

Unlike noncompliance in other tags, like those tied to abuse which may result in physical, mental and/or psychosocial outcomes, noncompliance with the arbitration tags will “almost exclusively” be looking at psychosocial impact, according to the CMS surveyor manual.

Surveyors will need to gather evidence through interviews, record review and observation, and in some cases use the “reasonable person concept” to determine psychosocial severity, according to the CMS manual.

The agency defines the reasonable person concept as what degree of actual or potential harm would one expect a reasonable person in the resident’s similar situation to suffer as a result of the noncompliance.

“This new guidance that arbitration agreements pose a risk of psychosocial harm to residents is not something that historically has been said about these agreements,” Graham said. “As a practical matter, that alone shows that they intend to treat them differently.”

Surveyors will have access to arbitration awards – or who won the case – for five years as part of the guidance.

In terms of the arbitrator selection process, guidance suggests CMS wants more transparency around relationships between the arbitrator and all parties.

“Has any party used the arbitrator repeatedly? If they have used that arbitrator, what have the rulings been? [Operators are] certainly going to have to be more transparent about historic relationships with arbitrators,” Graham said.

Advice for operators

Back in September 2019, many operators went back and looked at their arbitration agreements based on the information they had at the time. Operators should do that again now with the newly issued guidance, according to Graham and Conley.

Language in the written agreement, wording, format, even font size need to be reviewed.

The process of presenting an arbitration agreement is another huge undertaking, in line with education of admissions staff, the residents and families on what arbitration is and what they need to know.

“In many cases, we’re asking clinicians to explain legal issues, and I think it’s going to be important to revisit that as operators and make decisions about what tools they’re going to use to do it,” added Graham. “I think a rebook in light of some of the directives and guidance is important to do right now.”

Either way, the guidance is something to “watch carefully,” Graham said. It’s possible that CMS with or without its surveyors would review agreements made during that interim period.

“If CMS comes in and does a survey, [the operator] can be found to be out of compliance with the CMS rules and regulations in that regard, and can be dinged on the survey,” Conley said.

Operators must make sure their admissions staff are well educated in the arbitration process as well, and review updates from 2019, he added.

“Make certain that the facility staff are well trained in how they present these arbitration agreements, what they tell the residents, what they tell the family, what they’re documenting,” Conley said. “In my experience in training admissions coordinators and admission staff is that a lot of them don’t really understand arbitration.”

With the guidance, it’s even more important for admissions staff to really understand what the surveyors are going to be looking for when scrutinizing arbitration agreements and other related documents, noted Conley.

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