In a summary judgment decision, Federal District Court Judge Timothy L. Brooks sustained regulations promulgated by the Trump Administration that permit pre-dispute arbitration agreements, with resident protections, which replaced the Obama Administration’s prohibition of pre-dispute arbitration agreements under all circumstances. Northport Health Services of Arkansas v. United States Department of Health and Human Services, Case No. 5:19-CV-5168 (W.D. Ark., Apr. 7, 2020).
Following the publication of the final Obama regulations on October 4, 2016 (81 Fed. Reg. 68688, 68790), the American Health Care Association and individual nursing homes challenged the ban on pre-dispute arbitration agreements. A federal district court in Mississippi granted them a nationwide preliminary injunction on November 7, 2016, American Health Care Association v. Burwell, 217 F.Supp.3d 921 (N.D. Miss. 2016). The ban on arbitration never went into effect.
The Centers for Medicare & Medicaid Services (CMS) engaged in notice and comment rulemaking again, publishing proposed rules in June 2017, 82 Fed. Reg. 26649, 26650 (Jun. 8, 2017), and final rules, 42 C.F.R. §483.70(n) (84 Fed. Reg. 34718, Jul, 18, 2019) that permitted pre-dispute arbitration agreements, with certain resident protections.
On September 4, 2019, nursing facilities challenged four specific provisions of the rules: (1) the prohibition against requiring individuals to sign arbitration agreements as a condition of admission; (2) the requirement that arbitration agreements be explained in a language that the resident understands; (3) residents’ 30-day right of rescission; and (4) the five-year retention requirements. Plaintiffs alleged that the challenged provisions violate the Administrative Procedures Act (APA) by violating the Federal Arbitration Act (FAA); by exceeding the Secretary’s authority under the Medicare and Medicaid statutes; as arbitrary and capricious (because of a lack of empirical evidence to support the rules); and by violating the Regulatory Flexibility Act (by failing to analyze the economic impact of the rule). The court rejects all five arguments.
Defending the rule from the FAA claims, CMS argued that the rule may affect a facility’s ability to participate in the Medicare and Medicaid programs, but that a facility violating the rule could legally enforce an arbitration agreement in court and that a facility “‘could rationally choose to accept a fine as the price for negotiating an agreement the way it wants.’”
Rejecting the FAA claim, the court finds “nothing in the text of the FAA that limits an agency’s prerogatives to place conditions on the receipt of federal funding in order to achieve the goals of the federal program.” The Court finds that the Secretary has authority under the Medicare and Medicaid statutes to promulgate the rules, citing statutory authority to ensure that the requirements for care are “adequate to protect the health, safety, welfare, and rights of residents.” 42 U.S.C. §§1395i-3(f)(1), 1396r(f)(1). Finally, the Court concludes that CMS’s rulemaking was not arbitrary and capricious and did not violate the Regulatory Flexibility Act.
Note: While the decision upholds important resident protections included in the Final Rule, the Center for Medicare Advocacy believes that pre-dispute arbitration agreements are inherently unfair to residents and their families, especially those experiencing a health crisis and seeking immediate access to care. The Center encourages residents and their families to not sign these so-called “voluntary” pre-dispute arbitration agreements.
- For more information, please see the Center’s joint statement with the Long Term Care Community Coalition: https://www.medicareadvocacy.org/cms-finalizes-rollback-of-pre-dispute-arbitration-protections/