Published on Oct. 4, 2016

Updated on Sep. 18, 2024

In a recent article on Sept. 28. 2016, the NYT reports on a recent rule issued by the Center for Medicare and Medicaid Services banning nursing homes receiving federal funding from requiring residents to sign pre-dispute arbitration agreements.  (U.S. Just Made it a Lot Less Difficult to Sue Nursing Homes). Arbitrator Lise Gelernter (NAA Member) comments on the rule.  Expanding on the NYT’s coverage, Arbitrator Gelernter’s comment makes clear that “the agency had no quarrel with the institution of arbitration per se, but rather with the abuses associated with the use of pre-dispute arbitration agreements.”

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In one part of a comprehensive rule affecting nursing homes receiving Medicare or Medicaid funds to be published on October 4, 2016 in the Federal Register (going into effect on November 28, 2016), the Center for Medicare and Medicaid Services (CMS), a division of the federal Department of Health and Human Services, banned nursing homes from entering into mandatory pre-dispute arbitration agreements with their residents.  However, the new rule permits post-dispute arbitration agreements if they meet certain safeguards.  42 C.F.R. §483.70(n) (pre-publication copy attached, see discussion starting on p. 392).  Furthermore, the rule does not affect pre-dispute agreements already in place.

Although the agency acknowledged that arbitration can be a more efficient and less costly process for resolving disputes than a lawsuit, it was concerned about some of the one-sided arbitration clauses that the nursing home industry used and also about the circumstances under which most residents sign the pre-dispute arbitration agreements.  Most often, residents sign the agreement when they first enter a facility — an emotionally and physically fraught time — and the arbitration agreements are often buried in dense, multi-page contracts concerning all aspects of the new residents’ care and financial arrangements at the nursing home.  In its discussion of the comments received on the arbitration rule, CMS stated: “the comments we have received have confirmed our conclusion that pre-dispute arbitration clauses are, by their very nature, unconscionable.” (p. 401 of the pre-publication version of the rule).

The agency made it clear that it would not ban post-dispute arbitration agreements and recognized that arbitration can be conducted in a fair manner to the benefit of all parties. Thus, the agency had no quarrel with the institution of arbitration per se, but rather with the abuses associated with the use of pre-dispute arbitration agreements when one party is unsophisticated and is presented with the agreement on a “take it or leave it” basis.

CMS is not the first federal agency to propose a ban on pre-dispute arbitration agreements for its regulated entities.  The Consumer Financial Protection Bureau (CFPB) proposed a ban on the agreements in the financial services industry on May 24, 2016.

The CFPB has not finalized the rule yet, but received over 51,000 comments during the comment period, which closed on August 22, 2016.