In response to the recent Centers for Medicare & Medicaid Services (“CMS”) final rule prohibiting long-term care facilities from entering into pre-dispute arbitration agreements with its residents (the “Arbitration Rule”), several plaintiffs (including the American Health Care Association and other long-term care facility (“LTC”) providers) collectively filed a complaint on October 17, 2016 against CMS and the U.S. Department of Health and Human Services (“HHS”).  Plaintiffs filed the complaint to enforce their right to enter into arbitration agreements and further reinforce that CMS and HHS did not have the statutory or other authority to promulgate the Arbitration Rule, which will go into effect on November 28, 2016.

More specifically, plaintiffs highlight the following arguments in their complaint:

  • CMS exceeded its authority in implementing the ban. Plaintiffs allege that CMS and HHS do not have authority under the Medicare and Medicaid Acts to regulate alternative dispute resolution procedures.  Rather, plaintiffs argue that Congress has repeatedly rejected legislation that would have amended the Federal Arbitration Act to invalidate arbitration agreements between LTCs and their residents.
  • The Arbitration Rule will cause irreparable harm to LTCs and their residents. For LTCs that refuse to comply with the Arbitration Rule, which will go into effect on November 28, 2016, these LTCs will face sanctions that may include termination of a facility’s participation in the Medicare and Medicaid programs, denial of payment for services rendered, placement of a temporary manager in the facility, and civil monetary penalties assessed per day, all of which will increase LTC operation costs.  Plaintiffs argue that the financial impact of non-compliance would effectively threaten the delivery of quality care.
  • Arbitration is a more fair, efficient and cost-effective resolution process. Plaintiffs argue that arbitration typically takes less time, money and resource as compared to the jury trial process.  Moreover, plaintiffs argue that arbitration typically involves a more simplified and fair procedure, which process often allows individuals the ability to proceed without needing to retain a lawyer.  Where small claims are involved, plaintiffs argue that it may in fact be cost prohibitive to engage a lawyer.
  • The Arbitration Rule threatens to divert funds from patient care. For residents whose care is funded either wholly or in part by the Medicare or Medicaid programs, the increased costs to LTCs resulting from the Arbitration Rule will never be recouped because Medicare and Medicaid rates are fixed by law.  Therefore, plaintiffs argue that funds that should be dedicated to patient care will instead be used to pay for litigation and insurance costs.

The case, American Health Care Association et al. v. Burwell et al., Case Number 3:16-cv-00233, was filed in the U.S. District Court for the Northern District of Mississippi.