Am. Health Care Ass'n v. Burwell

• Citation: 217 F.Supp.3d 921
• Decision Date: 07 November 2016
• Docket Number: CIVIL ACTION NO. 3:16–CV–00233
• Parties: AMERICAN HEALTH CARE ASSOCIATION, Mississippi Health Care Association, Great Oaks Rehabilitation and Healthcare Center, LLC, Community Care of Vicksburg, Mansfield Long Term Care, LLC, Plaintiffs v. Sylvia Mathews BURWELL, In Her Official Capacity as Secretary of Health and Human Services and Andrew M. Slavitt, In His Official Capacity as Acting Administrator of the Centers for Medicare and Medicaid Services, Defendants.
• Court: U.S. District Court — Northern District of Mississippi

217 F.Supp.3d 921

AMERICAN HEALTH CARE ASSOCIATION, Mississippi Health Care Association, Great Oaks Rehabilitation and Healthcare Center, LLC, Community Care of Vicksburg, Mansfield Long Term Care, LLC, Plaintiffs
v.
Sylvia Mathews BURWELL, In Her Official Capacity as Secretary of Health and Human Services and Andrew M. Slavitt, In His Official Capacity as Acting Administrator of the Centers for Medicare and Medicaid Services, Defendants.

CIVIL ACTION NO. 3:16–CV–00233

United States District Court, N.D. Mississippi, Oxford Division .

Signed November 07, 2016

217 F.Supp.3d 924

Andrew J. Pincus, Archis A. Parasharami, Kevin S. Ranlett, Mayer Brown LLP, Washington, DC, John L. Maxey, II, Marjorie Selby Self, Steven Mark Wann, Maxey Wann, PLLC, Jackson, MS, for Plaintiffs.

W. Scott Simpson, Joel McElvain, U.S. Department of Justice, Deepak Gupta, Gupta Wessler PLLC, Washington, DC, Oliver E. Diaz, Jr., Diaz Law Firm, Jackson, MS, for Defendants.

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ORDER

Michael P. Mills, U.S. DISTRICT COURT NORTHERN DISTRICT OF MISSISSIPPI

Plaintiffs¹ have filed a motion with this court seeking a preliminary injunction enjoining defendants from enforcing a new Rule enacted by the Center for Medicare and Medicaid Services ("CMS") which would effectively bar nursing homes receiving federal funds from entering into new pre-dispute arbitration agreements with their residents, starting November 28, 2016. Defendants Sylvia Mathews Burwell, the Secretary of Health and Human Services ("HHS") and Andrew M. Slavitt, the Acting Administrator of CMS, have responded in opposition to the motion. This Court, having considered the submissions of the parties and amicus curiae , and having conducted a hearing on the motion for preliminary injunction, concludes that the motion is well taken and should be granted.

Background and Procedural History

In July 2015, CMS proposed to revise the regulations governing participation of long term care ("LTC") facilities in Medicare and Medicaid. 80 Fed. Reg. 42,168, 42,169 (July 16, 2015). The changes were meant, among other things, "to improve the quality of life, care, and services in LTC facilities, optimize resident safety, [and] reflect current professional standards." Id. In the proposed rule, CMS expressed a number of concerns about the use of agreements requiring residents of LTC facilities to submit any disputes with the facility to binding arbitration. In light of these concerns, CMS proposed, and requested public comments on, several requirements regarding the execution and content of arbitration agreements, including a requirement that admission to a facility "not be contingent upon the resident or the [resident's] representative signing a binding arbitration agreement." Id. at 42,265. The agency also expressed concern that the requirements it contemplated might be insufficient and therefore solicited comments on whether arbitration agreements should be prohibited entirely. Id. at 42,211, 42,242.

CMS received more than 9,800 public comments on the comprehensive revision of the regulations, almost 1,000 of which related to arbitration. After considering those comments, as well as conducting research into scholarly articles and court decisions, CMS became "convinced that requiring residents to sign pre-dispute arbitration agreements is fundamentally unfair because, among other things, it is almost impossible for residents or their decision-makers to give fully informed and voluntary consent to arbitration before a dispute has arisen." Id. at 68,792.

Thus, the agency decided to promulgate a regulation—now codified at 42 C.F.R. § 483.70(n)(1) —providing that, effective November 28, 2016, LTC facilities that participate in Medicare or Medicaid "must not enter into a predispute agreement for binding arbitration with any resident or resident's representative nor require that a resident sign an arbitration agreement as a condition of admission to the LTC facility." 81 Fed. Reg. at 68,867. The agency characterized this approach as a middle ground, writing that "[w]hile some commenters have requested that we ban all arbitration, we have determined, at this

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point, to implement a policy that strikes a balance between banning arbitration in all situations and allowing unfettered use of [post-dispute] arbitration clauses ...." Id. at 68,799. This approach, CMS observed, would "allow residents to avail themselves of the benefits of arbitration once a dispute has arisen and the resident and/or his/her representatives can determine whether it may be an advantageous forum for them." Id. at 68,795.

Concerned by the planned restrictions on nursing home arbitration, the plaintiffs in this case formally presented their objections to the Rule by letter to the Secretary of HHS and the Acting Administrator of CMS. Compl. Ex. 5. Cognizant of the fact that the Rule was nevertheless set to go into effect on November 28, plaintiffs filed, on October 17, 2016, the instant complaint in this court. The complaint, which is filed pursuant to the Administrative Procedure Act, 5 U.S.C. § 500 et seq. ("APA"), seeks the "entry of a declaratory judgment that the Arbitration Rule is unlawful and entry of orders preliminarily and permanently enjoining the Secretary and the Acting Administrator from enforcing the Arbitration Rule when it is scheduled to take effect on November 28, 2016."

On November 3, 2016, this court conducted a hearing on the motion for preliminary injunction, and, having considered the parties' arguments, is prepared to rule.

Analysis

I. General Observations and Experiences Regarding Nursing Home Arbitration

Prior to discussing the preliminary injunction factors, this court will first address an argument which permeates plaintiffs' entire motion: the notion that nursing home arbitration is a fast and efficient process. In so arguing, plaintiffs appear to focus selectively on the nursing home cases which actually go to arbitration, without considering nursing home arbitration litigation as a whole. Given that plaintiffs have emphasized the issue so much in their motion, this court considers it proper to discuss its experiences with the broader subject of nursing home arbitration litigation. As discussed below, this court will not rule based on these experiences but does consider the recent history of arbitration-related litigation in this court useful in providing a fuller picture than that set forth in plaintiffs' briefing.

It is submitted that there is one intractable problem affecting nursing home arbitration, and no other form of arbitration, namely mental competency. This court has previously discussed this issue at some length, most recently in Jackson v. GGNSC , ––– F.Supp.3d ––––, 2016 WL 1104492 (N.D. Miss. 2016). This court would hasten to add that the mental competency problem is "nobody's fault;" it simply reflects the reality that, according to the National Center for Health Statistics, 50.4% of nursing home residents have been diagnosed with Alzheimer's or other dementias. See http://www.cdc.gov/nchs/fastats/alzheimers.htm . Arbitration agreements are contracts, and basic contract law requires that the parties to a contract be mentally competent at the time of execution of the agreement. Moreover, while the FAA strongly supports the practice of arbitration, its savings clause expressly preserves generally applicable contractual defenses. There is no more basic defense to the validity of a contract than lack of mental competency.

In a 2015 letter brief to CMS, plaintiff AHCA addressed the mental competency concerns raised by the American Trial Lawyers Association (ATLA) as follows:

The ATLA Letter also claims—again without citation of any authority—that "[c]ourts have upheld [arbitration] clauses signed by residents who were illiterate

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or too disabled with dementia to understand the contract or its implications." In fact, courts will invalidate arbitration agreements if they find that signatories lacked the mental capacity to contract, which is the type of generally applicable contract defense left intact by the FAA.

(AHCA letter at 9). This is, in this court's experience, a very selective description of the impact of the mental competency issue on nursing home arbitration litigation. While it is true that courts will invalidate arbitration agreements signed by residents they find to be incompetent, the AHCA letter omits the facts that, in this court's experience: 1) Many nursing homes will obtain signatures from residents in spite of grave doubts about their mental competency, or, more often, they will choose to have relatives of the residents sign the agreements, even when no power of attorney has been executed; 2) Many of these same nursing homes will later file motions to compel arbitration on the basis of those suspect arbitration agreements; and 3) The litigation of these arbitration actions can only be resolved in time-consuming litigation, which serves as a very significant incentive against filing suit in the first place. This court has repeatedly seen these...