CMS Bans Pre-Dispute Arbitration Agreements at Long-Term Care Facilities

CMS Bans Pre-Dispute Arbitration Agreements at Long-Term Care Facilities


Last week, the Centers for Medicare & Medicaid Services (CMS) issued a final rule that bans all pre-dispute arbitration agreements at long-term care (LTC) facilities that participate in Medicare or Medicaid programs. The rule takes effect on November 28, 2016. CMS specifically stated that the rule has no effect on the enforceability of any arbitration agreements signed before this date.

CMS acknowledged that the federal government generally favors arbitration, as evidenced through the Federal Arbitration Act, and that Congress has repeatedly failed to enact legislation to regulate arbitration agreements in LTC facilities. Nevertheless, CMS decided to act on its own, having decided that “pre-dispute arbitration agreements have a deleterious impact on the quality of care for Medicare and Medicaid patients.” To justify its complete ban on these agreements, rather than only restricting them as originally proposed, CMS asserted unequal bargaining power between LTC facilities and new residents, and the difficulty in obtaining resident’s fully informed and voluntary consent. Because of these factors, CMS declared that “predispute arbitration clauses are, by their very nature, unconscionable.”

According to a study published by Aon Risk Solutions in November 2015, the nationwide average total cost of a LTC claim subject to an arbitration agreement was $180,000 whereas the average cost of a non-arbitrated claim was $194,000. Among arbitrated claims, 0.8% settled for more than $1 million, while double that number (1.9%) of non-arbitrated claims settled for more than $1 million. Additionally, arbitrated claims were resolved on average three months sooner than non-arbitrated claims. Average overall loss rates vary greatly state-to-state. Among the states profiled in the study, projected 2016 loss rates varied from $410 per LTC bed in Texas to $9,820 per LTC bed in Kentucky. Because of the meteoric rise in costs associated with LTC liability losses in some states, arbitration agreements have become more and more prevalent.

While permitted, the new rule also places several requirements on any post-dispute arbitration agreements. The agreement cannot discourage the resident from communicating with government officials, and will need to indicate that the resident is waiving his or her right to judicial relief. In addition, in an effort to ensure that agreements are entered into voluntarily, any post-dispute arbitration agreement will need to be presented as a stand-alone document, and will need to provide the resident a choice to either accept or reject binding arbitration.

CMS will likely face legal challenges to this new rule, particularly a challenge to its legal authority to enact it. These challenges, however, will not likely impact the November 28, 2016 effective date. LTC facilities that presently utilize standalone arbitration agreements and/or include an arbitration clause in their standard resident admission agreements will need to make changes as necessary before November 28, 2016 to comply with the new CMS rule.

Who says CMS doesn’t have a sense of humor?  Note its comments that:

“We have only prohibited pre-dispute binding arbitration agreements between facilities and residents as a condition of participation in Medicare and Medicaid. If a facility wishes to continue to utilize pre-dispute agreements, it is free to continue in business without Medicare or Medicaid residents.” (emphasis added)

Thank you to Keith Maune, Belmont University College of Law, for his help in preparing this article.

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