Has CMS exceeded its statutory authority by banning arbitration agreements in the nursing home setting? The American Health Care Association says YES, and a federal court seems to agree.

Sweeping new regulations from the Centers for Medicare & Medicaid Services, condensed to 713 pages of reforms, were recently adopted by CMS. The first phase of the Final Rule, codified at 42 CFR §  493.70, was scheduled for implementation beginning November 28, 2016.  These reforms are projected to cost the nursing home industry $831 million for the first year and $736 million per year for subsequent years.

Arguably the most controversial portion of the Final Rule was a complete ban on the use of binding arbitration agreements or pre-dispute arbitration clauses for nursing home residents.  This ban seems to run afoul of Supreme Court jurisprudence addressing the Federal Arbitration Act in skilled nursing cases (See Marmet Health Care Center, Inc. v. Brown, 132 S.E.1201 (2012)).

A federal lawsuit filed by the American Health Care Association in Mississippi last month argued that CMS had exceeded its statutory authority in promulgating this Final Rule and should be enjoined from enforcing the arbitration ban. On November 7, 2016, the federal court entered a preliminary injunction enjoining CMS from enforcing the Final Rule which “raises serious legal questions well beyond the arbitration issue” . . . “until the doubts regarding its legality can be definitively resolved by the Courts.”  The Court’s Order hints that the arbitration ban is likely to be struck down as the litigation continues.  For now, the status of the Final Rule remains uncertain.