By now, most industry members are aware that Centers for Medicare and Medicaid Services (CMS) recently published a proposed set of new rules for regulating long term care (LTC) facilities. During the review period, CMS received more than 8,000 comments from stakeholders about the proposed changes. Since this was CMS's first attempt since 1991 to make widespread changes to its rules, the agency's proposal has sparked significant debate. CMS's proposed rule for the use of arbitration agreements is particularly controversial as the signing of arbitration agreements has become commonplace in the admission process at LTC facilities.

Practical Effect of Proposed Rule

The most significant change proposed by CMS is a prohibition on making the signing of arbitration agreements a prerequisite for admission to a LTC facility. This change would effectively make arbitration agreements unenforceable in many jurisdictions. For example, in Mississippi, arbitration agreements generally are not enforceable unless the resident personally signs the arbitration agreement or has provided a durable power of attorney to the resident's responsible party. One exception to that rule is if the prospective resident lacks capacity to make her own decisions and the person admitting the resident to the facility is a qualified surrogate under the Mississippi Health Care Surrogate Act. However, the signing of an arbitration agreement is not a "health care decision" under the Act unless executing the arbitration agreement is required at admission. Consequently, CMS's proposal to prohibit mandatory arbitration agreements would make arbitration agreements unenforceable in Mississippi in most instances, since a resident's family member often executes the admission paperwork due to the prospective resident's lack of capacity.

CMS' Regulatory Authority

Until now, CMS's only position on arbitration agreements was that a facility could not threaten to discharge a current resident for refusing to execute an arbitration agreement after admission (see January 9, 2003 Letter, Ref: S&C-03-10). CMS had said that it was not weighing in on the use of arbitration agreements prior to a resident's admission to the facility. CMS is reversing that position and declaring its belief that requiring prospective residents to sign arbitration agreements is an unfair practice.

CMS's rulemaking authority comes from Title XVIII of the Social Security Act and the corresponding subsections of that Act providing for the regulation of the Medicare system and long term care facilities. Nowhere within the Act is there any provision for CMS's authority to regulate arbitration agreements as proposed by CMS's new rules. This fact is particularly important because the Federal Arbitration Act (FAA) prohibits the treating of arbitration agreements differently from any other contract. As the United States Supreme Court has stated, the FAA reflects an "emphatic federal policy in favor of arbitral dispute resolution" (KPMG LLP v. Cocchi). Without specific authority from Congress, CMS likely lacks the authority to regulate preadmission arbitration agreements.

By way of comparison, the Consumer Financial Protection Bureau (CFPB) is preparing new rules governing the use of arbitration agreements in the financial services industry. Unlike CMS, Congress vested the CFPB with authority to draft new rules to regulate arbitration agreements under the Dodd-Frank Act. Without similar authority from Congress, CMS's new rule prohibiting binding arbitration agreements may not survive judicial scrutiny if implemented.

Potential Outright Ban on Pre-dispute Arbitration Agreements

CMS also has requested feedback on whether the use of arbitration agreements should be completely prohibited in the long term care setting. Some politicians have publicly supported CMS's proposed rule changes and encouraged CMS to move toward an outright ban of preadmission arbitration agreements.  For example, on September 23, 2015, 34 Democratic United States Senators issued a public statement encouraging CMS to ban completely the use of mandatory arbitration agreements by long term care providers and only allow facilities to enter into arbitration agreements after an incident has occurred. Noticeably absent from the Senators' position statement is any reference to CMS's legislative authority to regulate preadmission arbitration agreements. That is likely because no such authority exists.

CMS's intent to limit the use of preadmission arbitration agreements seemingly conflicts with the policy objectives of the FAA. If CMS implements its proposal to regulate arbitration agreements, it should expect lawsuits challenging its authority to implement such regulations.