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Federal Court Grants Preliminary Injunction against CMS’ New Nursing Home Arbitration Rule
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Federal Court Grants Preliminary Injunction against CMS’ New Nursing Home Arbitration Rule

11.09.16

On November 7, the U.S. District Court for the Northern District of Mississippi granted a preliminary injunction which likely provides at least temporary respite for long-term care (LTC) facilities amidst a recent flurry of new regulation. The Court granted the request for a preliminary injunction filed by the LTC plaintiffs – including the American Health Care Association (AHCA), the Mississippi Health Care Association, and three LTC providers – following the release of a final federal administrative rule completely banning pre-dispute arbitration agreements at LTC facilities participating in Medicare and Medicaid. (The rule was the subject of a previous post.)  The plaintiffs argued that the rule should be blocked on the grounds that the Centers for Medicare and Medicaid Services (CMS) exceeded its legal authority in issuing the rule. The rule’s prohibition was to go into effect on November 28, 2016 and, as a condition of participation in the Medicare and Medicaid programs, would have entirely barred pre-dispute arbitration agreements, which many LTC providers routinely utlilize with their patients. 

Many LTC stakeholders had presented objections to the rule through the formal rule comment process, and due to the rule’s quickly approaching effective date, the plaintiffs filed a complaint in federal court seeking an injunction against its implementation.

While the legal outcome granting the temporary injunction certainly favored the plaintiffs, U.S. District Judge Michael Mills emphasized that the Court believed CMS’ rule was based upon “sound public policy” aimed at curbing a “wasteful form of litigation,” that is, litigation about arbitration agreements.  Nonetheless, the Court addressed the legal merits of the requested preliminary injunction based on the administrative record that was before CMS at the time it issued the rule and previous federal court rulings. With regard to the administrative record, the Court stated that CMS failed to sufficiently prove and independently verify the public comments and allegations of the negative impacts of LTC arbitration agreements. In reviewing the relevant case law, the District Court suggested that the U.S. Supreme Court would likely require additional bases for the ban in the absence of Congressional legislative authority. With this in mind, the District Court expressed that it “would not play a role in countenancing the incremental ‘creep’ of federal agency authority beyond that envisioned by the U.S. Constitution."

The preliminary injunction order acknowledges that the Court’s decision does not preclude the possibility that future legislative action could empower CMS to issue and enforce such a rule, but held that to do so in the current instance would involve an overly broad, far-reaching interpretation of the agency’s authority. The order noted a history of failed attempts at such legislation, correspondence from the LTC industry, and a letter from 34 U.S. Senators voicing opposition to the rule. 

 

The Court recognized that the plaintiffs were likely to suffer irreparable harm if the rule were to go into effect as scheduled and then later be struck down, as it would require LTC facilities to change their business practices in essential ways that could not be retroactively corrected.

The Court stated that the rule may very well run afoul of the Federal Arbitration Act (FAA) which promotes and protects the rights of parties to enter into arbitration agreements. By threatening to withhold federal funding on which these facilities largely depend to stay in business, the rule would effectively violate the right to enter into arbitration agreements protected by the FAA.

In a separate track of legal challenges to the LTC industry’s use of arbitration agreements, the U. S. Supreme Court recently agreed to hear a case concerning the validity of nursing home arbitration agreements. In that case, the original complaint alleged that such an arbitration agreement violated the LTC resident’s right to bring litigation against the facility while the facility maintains that federal law allows them to use these agreements as an alternative to litigation. The Supreme Court is likely to hear arguments in that case before the end of June 2017.

Thank you to Aubrey Beckham and Keith Maune, Belmont University College of Law, for their help in preparing this article.



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