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December 06, 2016 Practice Points

CMS Nursing Home Rule Enjoined

By Karl Bayer

A Mississippi federal judge has blocked a Department of Health and Human Services' Centers for Medicare and Medicaid Services (CMS) regulation that bars federally funded nursing homes from utilizing pre-dispute binding arbitration agreements. Under the rule that was published in October and scheduled to go into effect at the end of November, federal monies may be withheld from long-term care facilities that require residents to sign a mandatory agreement to arbitrate as a condition for admission. The measure was designed to improve nursing home disclosure and instituted at the urging of 16 states and the District of Columbia. It would affect about 1.5 million individuals who reside in more than 15,000 skilled nursing facilities across the United States.

In American Health Care Association v. Burwell, No. 3:16-CV-00233 (Nov. 7, 2016), a group of nursing homes and long term care facilities (collectively, the plaintiffs) filed a motion seeking a preliminary injunction against the Secretary of Health and Human Services and the Acting Administrator for CMS (defendants). After examining the pleadings, the federal concluded:

This case places this court in the undesirable position of preliminarily enjoining a Rule which it believes to be based upon sound public policy. . . . [T]his court believes that nursing home arbitration litigation suffers from fundamental defects originating in the mental competency issue, rendering it an inefficient and wasteful form of litigation. This court believes that Congress might reasonably consider this inefficiency, as well as the extreme stress many nursing home residents and their families are under during the admissions process, as sufficient reason to decide that arbitration and the nursing home admissions process do not belong together. Nevertheless, Congress did not enact the Rule in this case; a federal agency did, and therein lies the rub. [The court] . . . is unwilling to [countenance] the incremental "creep" of federal agency authority beyond that envisioned by the U.S. Constitution. . . . Moreover, given that the enactment of the Rule raises serious legal questions extending well beyond the arbitration issue, this court concludes that the balance of harms and the public interest support holding it in abeyance until the doubts regarding its legality can be definitively resolved by the courts.

The court ultimately granted the plaintiffs' motion for a preliminary injunction and enjoined the defendants from enforcing the CMS rule. Meanwhile, the Supreme Court of the United States recently granted a petition for certiorari in Kindred Nursing Centers Limited Partnership v. Clark, No. 16-32. In the appeal from the Supreme Court of Kentucky, the question present is:

Whether the Federal Arbitration Act pre-empts a state-law contract rule that singles out arbitration by requiring a power of attorney to expressly refer to arbitration agreements before the attorney-in-fact can bind her principal to an arbitration agreement.

Both of these lawsuits are bound to lead to some new and interesting legal rulings.

Keywords: alternative dispute resolution, adr, litigation, preliminary injunction, nursing homes, regulation

Karl Bayer is the founder of Karl Bayer Dispute Resolution in Austin, Texas.

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