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April 27, 2017 Practice Points

Awaiting Final Word on the CMS Nursing Home Arbitration Ban

By Andrea Torgrimson

In November 2016, the Northern District Court of Mississippi issued a preliminary injunction against the enforcement of a Centers for Medicaid and Medicare (CMS) rule that barred nursing homes from entering into new arbitration agreements with their residents. This rule was to take effect on November 28, 2016, but was enjoined on November 7, 2016, pending the conclusion of the case. American Health Care Association v. Burwell, CV 16-00233-MPM-RP (N.D. Miss. Nov. 7, 2016).

The injunction came amidst a tumultuous change of presidential administrations. Now, interested parties on both sides of the aisle are awaiting not only the court's final opinion, but also how CMS, under new leadership, will move forward in the precarious realm of nursing home arbitration.

The CMS Rule
In 2015, CMS sought to amend its regulations for long term care facilities that participate in Medicare and Medicaid. After receiving nearly 9800 comments on the matter, CMS determined it would focus on the complex issue of nursing home arbitration. CMS determined that pre-dispute arbitration agreements in this context were "fundamentally unfair" to the residents because it was impossible to give informed consent to arbitration before a dispute had arisen.

Therefore, under its authority to "protect resident's health and safety," CMS promulgated the Arbitration Rule which barred pre-dispute arbitration agreements from being drafted into any new nursing home contract. Proponents of the Rule claimed it protected patients and granted previously denied access to the court system; conversely, the nursing home industry opposed the Rule claiming it negated the "speed and efficiency" nursing home arbitration provides.

American Health Care Association v. Burwell
On October 17, 2016, the American Health Care Association (American), among others, filed a complaint against the Secretary of Health and Human Services and the Acting Administrator of CMS. The complaint sought a declaratory judgment that the Arbitration Rule was unlawful and an injunction against enforcement of the Rule. After hearing arguments from both sides, the court granted American a preliminarily injunction.

The court discussed the clear and substantial problems that concern nursing home arbitration. The court stated that in its own experience, mental competency is an "intractable" problem affecting nursing home arbitration. Arbitration agreements are contracts and as such, the parties to the contract must be mentally competent at the time of signing for the contract to be enforceable. The court stated that nearly 50 percent of all nursing home residents suffer from disorders that affect their mental capacity, such as Alzheimer's, and many arbitration agreements are improperly signed by family members who lack power of attorney.

Despite these strong policy reasons for denying the injunction, however, the court limited its analysis "to the administrative record that was before the agency when it promulgated the rule."

To determine the appropriate remedy, the court analyzed whether American established: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable injury if the injunction were not issued; (3) that the threatened injury if the injunction were denied outweighed any harm from granting the injunction; and; (4) that an injunction would not disserve the public interest. The court determined that the plaintiffs met their burden and granted them a preliminary injunction.

The CMS Appeal
On January 5, 2017, CMS filed a Notice of Appeal. The issue is now in the hands of the Fifth Circuit Court of Appeals. However, the appeal was filed before President Trump took office, and it is unclear whether his administration will direct CMS to pursue the appeal.

Practice Point
No matter the ultimate outcome, this order illustrates the mental capacity issues involved in nursing home arbitration. The court's preliminary injunction, however, shows that despite these issues, nursing home arbitration agreements will probably continue to be a part of the nursing home landscape because any rule prohibiting them that does not stem from Congress is in danger of being struck down. This is especially true in the current political climate because the Republican Party, headed by the Trump administration, has called for relaxed regulations on American industries—including the nursing home industry. Therefore, to avoid a nursing home arbitration clause being rendered unenforceable, drafters and nursing homes must be cognizant of the contractual issues revolving around mental capacity and whether particular family members are authorized to bind nursing home patients.

Keywords: adr, alternative dispute resolution, litigation, nursing home arbitration, mental capacity, CMS

Andrea Torgrimson is a 2017 J.D. candidate at DePaul University College of Law in Chicago, Illinois.

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