Ask the Legal Expert about ... arbitration clauses

John Durso, Esq.  Nixon Peabody LLP
John Durso, Esq. Nixon Peabody LLP

May a SNF continue to use  arbitration clauses in resident contracts?

Unless your state courts have ruled that state law prohibits the arbitration clauses, providers should be able to continue to use arbitration clauses in resident contracts. A number of state supreme courts have ruled that arbitration clauses in nursing home residency agreements are enforceable. Providers prefer arbitration over litigation because arbitration awards are most often lower than awards by a jury. 

CMS issued new skilled nursing rules, effective Nov.  28, 2016, which specifically banned the use of arbitration clauses in resident admissions agreements. However, the American Health Care Association and two nursing home providers filed a lawsuit to enjoin the Centers for Medicare & Medicaid Services from enforcing its ban. 

The court temporarily found for the providers, but it expressed discomfort in enjoining the ban, which it believed to be sound public policy: “As sympathetic as this court may be to the public policy considerations [that] motivated the [ban], it is unwilling to play a role in countenancing the incremental ‘creep' of federal agency authority beyond that envisioned by the U.S. Constitution.”

Even so, the court left the door open for CMS in the future to show that it “could make a sufficiently strong showing that it had the regulatory authority to enact the [ban].”

This language coming from a U.S. District Court seems to indicate that arbitration clauses could still be on unstable ground in the future. Given President-elect Donald Trump's stated distaste for expanding government regulations, his administration might not permit CMS to continue to push for the regulatory ban.  Moreover, the Trump administration could prevent CMS from appealing the district court decision.