Anyone familiar with long-term care litigation knows that the number of disputes regarding the use and enforcement of arbitration agreements in the context of assisted living/nursing home admissions has risen sharply over the last several years. Attorneys for residents and their families often object to enforcement of an arbitration agreement once a dispute has arisen, preferring to make a negligence case to a jury of their peers. Facilities generally want to enforce the agreements, for obvious reasons (reduced litigation costs, preference for a neutral arbitrator, the possibility of limited discovery and/or a confidential verdict, etc.). The United States Supreme Court has repeatedly held that the Federal Arbitration Act (“FAA”) clearly and unequivocally requires courts to treat arbitration agreements just like any other contract. Yet many state courts (including Kentucky) have gradually chipped away at a facility’s ability to enforce arbitration agreements in recent years by sharply limiting who has authority to sign such an agreement or by finding that a resident was not mentally competent to sign the agreement on his or her own behalf.
Last month, the Center for Medicaid and Medicare Services (“CMS”) announced a new regulation (now codified as 42 C.F.R. § 483.70(n)(1) (“the Rule”)) which, effective November 28, 2016, would prohibit facilities which participate in Medicare and Medicaid (i.e. the vast majority of long-term care facilities) from entering into any pre-dispute agreement for binding arbitration with any resident or resident’s representative. The Rule would also prohibit a facility from requiring that a resident sign an arbitration agreement as a condition of admission. As a basis for the Rule, CMS explained that it was convinced asking residents or their family members to sign a pre-dispute arbitration agreement was “fundamentally unfair,” and that this new regulation would “strike a balance” between those who favored such agreements and those who wanted to prohibit arbitration agreements altogether in the long-term care context.
On October 17, 2016, several plaintiffs (the American Health Care Association, the Mississippi Health Care Association, and three Mississippi nursing homes) filed an action for injunctive relief in the United States District Court for the Northern District of Mississippi, Oxford Division, to stop implementation of the Rule (American Health Care Association, et al v. Sylvia Mathews Burwell, et al, Case No. 3:16-cv-00233-MPM). Specifically, the plaintiffs asked the Court to temporarily enjoin CMS from enforcing the Rule until its merits could be fully adjudicated, and in the meantime, to preserve the status quo. On November 7, 2016, the Court granted the injunction.
The Court explained that, although its own experience with arbitration in the context of long-term care litigation indicated arbitration was neither fast nor more efficient than traditional litigation, CMS had not met its burden of showing that it had the authority to promulgate such a rule in contravention of the plain language of the FAA. Thus, the plaintiffs were likely to succeed on the merits of their action asking that the Rule be declared invalid. The Court also concluded that the plaintiffs were likely to suffer irreparable harm if a temporary injunction was not granted, and that the plaintiffs’ likely harm outweighed any harm to CMS if the injunction was denied. In short, the Court explained that while it personally agreed with many of the policy reasons expressed for the new Rule, it believed plaintiffs were likely to prevail on the argument that CMS lacked authority to promulgate such a Rule and it is better to preserve the status quo until the question is fully decided.
The practical effect of this decision is that arbitration agreements signed by a resident or a resident’s legal representative are still valid and enforceable for the foreseeable future, subject to any state’s common law regarding authority and enforceability of contracts in general. However, it is virtually certain that the Fifth Circuit Court of Appeals and perhaps even the United States Supreme Court will eventually weigh in on this question, and perhaps, change the answer.
If you have any questions about drafting or enforcing arbitration agreements, and/or defending long-term care malpractice claims, please call one of our Long-Term Care Liability Practice Group members.
This has been prepared for informational purposes only. It does not contain legal advice or legal opinion and should not be relied upon for individual situations. Nothing herein creates an attorney-client relationship between the Reader and Reminger. The information in this document is subject to change and the Reader should not rely on the statements in this document without first consulting legal counsel.
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