Lawsuit Takes on CMS Over Arbitration Ban in Long-Term Care

Skilled nursing providers concerned over the federal government’s ban on arbitration agreements now have at least one reason for hope. A newly filed lawsuit seeks to overturn the ban and asks a judge to delay enforcement pending the outcome of the case.

The Centers for Medicare & Medicaid Services (CMS) overstepped its authority in banning arbitration in a final rule issued last month, according to the suit filed Monday by the American Health Care Association (AHCA)—the largest industry trade group for skilled nursing providers—and several operators. The arbitration ban came as part of a sweeping update of the regulations governing Medicare- and Medicaid-certified long-term care providers, and is set to take effect Nov. 28.

These providers have the right to enter into arbitration agreements with residents under the Federal Arbitration Act (FAA), and only Congress has the power to limit that right, the legal complaint states. 

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“We are taking this step to stop what is a clear overreach by CMS. Federal law plainly prohibits CMS from issuing this arbitration regulation,” said Mark Parkinson, AHCA president and CEO, in a press release. “The merits of allowing individuals in our centers and their families this legal remedy are clear: study after study shows that arbitration is fair and speeds judgments in a cost-effective manner that benefits those injured more than anyone else.”

One such study, cited in the complaint, is a 2015 survey of parties and attorneys who took part in arbitrations under the Kaiser Foundation Health Plan, which encompasses more than 7 million members in California. About 90% of respondents said that the arbitration system was as good or better than the state court system.

Specific benefits of arbitration include that decisions are made faster and the process is simpler, allowing residents to bring small claims that they otherwise wouldn’t, according to the complaint. In addition, there will be negative consequences if a ban is imposed. Long-term care providers will face higher insurance and legal costs and pass them on to consumers; or, they will have to divert Medicare and Medicaid funds that otherwise would have gone to resident care.

While providers advance this argument in favor of arbitration, some consumer advocacy groups have countered that potential residents too often are forced to sign away their rights to a standard trial. The CMS rule does not apply to private pay senior living, but these providers also use arbitration agreements and have taken some heat for it.

Assisted living providers therefore might be watching the outcome of this court case with interest. If the ban is upheld, it could presumably increase the pressure for more regulation around arbitration in private pay settings, which could come from entities such as the Consumer Financial Protection Bureau (CFPB).

The groups taking on CMS, meanwhile, are expressing confidence in their position. 

“We have a strong legal case,” stated Parkinson. “That’s why we’re asking the courts to have this rule overturned.” 

Written by Tim Mullaney

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