In September, CMS announced a final rule that bans pre-dispute binding arbitration agreements related to care received in long-term care facilities.  Among other things, the rule preserves the right of patients and their families to sue nursing homes in court over quality-of-care disputes.  The rule was set to take effect on November 28, 2016, but the American Health Care Association (AHCA), an industry group that represents most nursing homes in the U.S., filed a lawsuit in October trying to block the rule.  Last week, a federal judge in Mississippi agreed with AHCA and issued  a preliminary injunction blocking the rule until the lawsuit concludes. 

The court’s order explained that CMS first proposed the rule in July 2015 “to improve the quality of life, care, and services in [long-term care] facilities, optimize resident safety, [and] reflect current professional standards.”  CMS requested public comments on the rule, including several provisions related to the execution of arbitration agreements, and a requirement that admission to a long-term care facility not be conditioned on agreement to binding arbitration.  After receiving and reviewing more than 1,000 comments related to arbitration, CMS became “convinced that requiring residents to sign pre-dispute arbitration agreements is fundamentally unfair because, among other things, it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen.”

The court believed the rule was “based upon sound public policy” and felt “that nursing home arbitration litigation suffers from fundamental defects originating in the mental competency issue, rendering it an inefficient and wasteful form of litigation.”  Nonetheless, the court found that CMS exceeded its authority in issuing the rule, and was “unwilling to play a role in countenancing the incremental ‘creep’ of federal agency authority beyond that envisioned by the U.S. Constitution.” 

The lawsuit by the AHCA contends that CMS lacks authority to regulate how nursing homes handle disputes, saying that authority lies solely with Congress.  That argument seemed to impress the court, which explained that Congress has repeatedly considered legislation to accomplish virtually the same result as the rule but never passed such a law.  The court was concerned that CMS was trying to accomplish by agency fiat what the legislature was unable to do – abolish nursing home arbitration. 

The order granting the injunction is an appealable order.  Thus, CMS may well seek review now rather than waiting until the litigation runs its course.