Last week, CMS released its final rule updating the requirements that Long-Term Care (LTC) facilities must meet to participate in Medicare and Medicaid.  Among the requirements is a new regulation under 42 C.F.R. § 483.70(n) (the “Rule”) which prohibits LTC facilities from entering into “pre-dispute” binding arbitration agreements with any facility resident or such resident’s representative.  The Rule also prohibits an LTC facility from requiring a resident to sign an arbitration agreement as a condition of admission.  In justifying the rule’s implementation, CMS noted the unique relationship that exists between LTC facilities and residents as well as the increased burdens and costs arbitration arrangements may impose on residents in the event of a dispute.  Concluding that pre-dispute arbitration clauses are, by their very nature, “unconscionable,” CMS invoked its authority to protect the wellbeing of residents to effectively prohibit such arrangements for Medicare enrolled LTC facilities.

The Rule goes into effect November 28, 2016 and specifically the does the following:

• Prohibits LTC facilities from entering into new pre-dispute binding arbitration agreements with any resident or resident’s representative, and prohibits the LTC facility from requiring a resident to sign an arbitration agreement as a condition of admission to the LTC facility.

• Imposes requirements on binding arbitration agreements entered into between LTC facilities and residents after a dispute has arisen between the resident and the facility.

• If a dispute is resolved through arbitration, requires the LTC facility to retain a copy of the signed binding arbitration agreement and the arbitrator’s final decision for 5 years, and the agreement and decision must be available for inspection upon CMS’s request.

Notably, the Rule does not invalidate pre-dispute binding arbitration agreements between LTC facilities and residents that were entered into before November 28, 2016.  These agreements continue to remain in effect, although the Rule is silent as to the consequences of any amendment or revision of a “grandfathered” agreement.  The Rule also does not prohibit an LTC facility and resident from entering into a binding arbitration agreement after a dispute has arisen, although the agreement will be subject to certain requirements (e.g. the resident’s right to remain in the facility must not be contingent on the resident entering into the agreement).  Finally, the Rule is silent as to mediation arrangements.

In commentary, CMS noted its concerns regarding the use pre-dispute binding arbitration agreements as a condition of receiving services “regardless of provider type,” but stated that LTC facilities are its “first priority” given the resident’s length of stay and the fact that the LTC facility often serves as a residence.  This suggests that CMS may in the future target other providers and suppliers that use such arrangements.

Given the widespread use of pre-dispute arbitration agreements in LTC facilities, the new Rule will likely require significant changes to LTC operations and litigation risk assessments.