Skilled nursing facilities participating in the Medicare program and nursing facilities in the Medicaid program are prohibited from including a mandatory pre-dispute arbitration clause in their contracts with individuals seeking admission to long-term care (LTC) facilities under a final rule from the Centers for Medicare & Medicaid Services (CMS). This prohibition and other significant new or amended regulatory changes will go into effect on November 28, 2016, a mere 55 days after publication in the Federal Register.

The 713-page final rule, the result of the first comprehensive review of the regulations governing LTC facilities since 1991 (42 C.F.R. Part 483, Subpart B), obligates many other important changes to the operations of LTC facilities, from initial care planning to resident discharges. While the bulk of the new and amended requirements are effective on November 28, some requirements, due to their complexity, will be phased-in, to be fully implemented one-to-three years after the effective date.

CMS received more than 9,800 public comments to the proposed rule published on July 16, 2015. Almost 1,000 comments addressed the most controversial topic: the use of mandatory pre-dispute arbitration agreements with individuals seeking admission to LTC facilities. While the use of such arbitration agreements is well-established in some states (e.g., Florida, Kentucky, and North Carolina), LTC facilities in other states only recently began to make use of them. For example, a New York appellate court first held in 2015 that an arbitration agreement was enforceable notwithstanding a New York statute (Public Health Law § 2801-d) purporting to invalidate waivers of the right to institute a court proceeding or to a jury trial.

Proposed Rule

The proposed rule would have implemented certain safeguards to the use of pre-dispute arbitration agreements, rather than precluding them altogether. However, after review of the public comments and available literature, CMS ultimately decided it was “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.”

Implications

Some of the finer points regarding the impact of the final rule on arbitration in the context of LTC facilities include:

• The final rule does not invalidate existing pre-dispute arbitration agreements entered into before the effective date. These will be “grandfathered” and stay in effect.

• The final rule does not prohibit post-dispute arbitration agreements, although they will be subject to safeguards similar to those set forth in the proposed rule.

• The prohibition against the use of pre-dispute arbitration agreements is fashioned as a requirement for participation in Medicare and Medicaid. Therefore, it has no effect on a LTC facility, if one exists, that does not participate in such programs.

• CMS is requiring LTC facilities that resolve a dispute with a resident through arbitration to maintain a copy of the signed arbitration agreement and the arbitrator’s final decision for five years and that they be available for inspection by surveyors.

While a legal challenge to CMS’ authority to promulgate the prohibition against pre-dispute arbitration appears likely, unless an injunction is granted delaying the final rule’s implementation, LTC facilities should plan now to cease using pre-dispute arbitration agreements and comply with the other new and amended requirements before November 28.