Federal Court Enjoins CMS Rule Banning Nursing Homes from Requiring Pre-Dispute Binding Arbitration Agreements

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 next week, 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. You may read more about the CMS rule in a prior blog post.

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 (the “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. As discussed in section I of this order, this 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. As sympathetic as this court may be to the public policy considerations which motivated the Rule, it is unwilling to play a role in countenancing the incremental “creep” of federal agency authority beyond that envisioned by the U.S. Constitution. While this court does not exclude the possibility that CMS could, in the future, make a sufficiently strong showing that it had the authority to enact the Rule it did, it seems unlikely, based on the administrative record in this case, that it will be held to have done so here. 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 Northern District of Mississippi 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 presented 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.

Stay tuned for more on both of these interesting lawsuits!

Hat tip to Liz Kramer at ArbitrationNation.

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