On October 4, 2016, The Centers for Medicare and Medicaid Services (“CMS”) passed substantial updates to the rules governing skilled nursing facilities and nursing facilities (collectively “Facilities”)^[1] that participate in Medicare and Medicaid, but the most significant is 42 C.F.R. § 483.70(n), which will shape the resolution of Facilities’ disputes.

This rule expressly prohibits Facilities from entering “into a pre-dispute agreement for binding arbitration with any resident or resident’s representative.”  Id.  The rule also prohibits Facilities from requiring “that a resident sign an arbitration agreement as a condition of admission to the [Facilities].”  Id.  These prohibitions also extend to private pay residents so long as the Facilities participate in Medicare and/or Medicaid.  CMS passed the rule reasoning that it was “unconscionable for [Facilities] to demand, as a condition of admission, that residents or their representatives sign a pre-dispute agreement for binding arbitration that covers any type of disputes between the parties for the duration of the resident’s entire stay, which could be for many years.”^[2]

There were many public comments challenging the rule, but CMS’ response simply reminded federal healthcare program participants that it “regularly requires providers and suppliers of healthcare items and services to forgo certain rights they might otherwise have with respect to Medicare and Medicaid patients.”^[3]  And this rule is no different.

Facilities may only enter into an arbitration agreement with a resident after a dispute between the facility and a resident arises, but cannot make a resident’s continued stay contingent upon its execution.  In fact, before execution, Facilities must explain the form, the resident must acknowledge understanding, and voluntarily agree to arbitration.  A resident or an uninterested resident representative may then sign the agreement, which must be retained by the Facility and made available for inspection for five years.  CMS further mandates that the agreement provide for the selection of a neutral arbitrator agreed upon by both parties, provide for selection of a venue convenient to both parties, and must not prohibit anyone, including the resident, from communicating with federal, state, or local officials.

While CMS states that this new rule will not affect already-existing arbitration clauses, it does remind Facilities that the prohibition on binding arbitration agreements is a condition of participating in the Medicare and Medicaid programs.^[4]  Therefore, “if a facility wishes to continue to utilize pre-dispute agreements, it is free to continue in business without Medicare or Medicaid residents.”^[5]  So Facilities do not have to eliminate all arbitration agreements before November 28, 2016, they simply cannot use them in the future for any residents if they wish to remain in the Medicare and Medicaid programs.

As a practical matter, this new rule eliminates arbitration as a means of resolving disputes between a resident and a nursing facility.  It is highly unlikely that a resident or their family will sign an agreement to arbitrate after a dispute has arisen.  This is especially true in light of the additional requirements that CMS is imposing in this rule on post-dispute arbitration agreements.

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[1] CMS acknowledges that arbitration agreements are utilized in other healthcare industries and sectors and has reserved the right to expand the regulation, but for now it remains applicable only to skilled nursing facilities and nursing facilities, so it does not apply to assisted living facilities or other personal care facilities.

[2] 81 Fed. Reg. 68,792 (Dep’t of Health and Human Serv. October 4, 2016).

[3] Id.

[4] Id.

[5] Id.