If you serve, plan to serve, or invest in skilled nursing properties that serve Medicare and Medicaid recipients, this is a good blog post to pay attention to.

On September 24, the Centers for Medicare and Medicaid (CMS) released a final rule that increases regulations on nursing homes that care for Medicare and Medicaid residents, as the vast majority of skilled nursing providers do. One of the regulations—the “headline” for many in the media—is the prohibition of arbitration clauses in new resident contracts.

Here’s what you need to know about CMS’ new regulations, particularly the ruling on arbitration agreements. When They Will Roll Out, and How They Could Affect Skilled Nursing

The new nursing home requirements are intended to improve the health and safety of residents by updating the existing regulations imposed on long-term care providers who are Medicare- or Medicaid-eligible. For example, a top CMS priority is reducing hospital-acquired infections, which are common in nursing homes. The rule requires providers to develop specific plans to prevent these infections. Other updates include requirements for care plans, staff and training, and nutrition.

The cost of complying with the updated requirements, according to CMS, will be high. The average cost per property to comply is estimated to be $62,900 in the first year of implementation and $55,000 annually thereafter. The grand total for compliance across the sector is estimated at $831 million in the first year.

The regulations will be rolled out in three phases: Phase 1 beginning in November 2016, Phase 2 in November 2017, and Phase 3 in November 2018.

In the remainder of this post, we’ll focus on a major change implemented in Phase 1: the prohibition of arbitration agreements, a topic that has gained the attention of the media, the skilled nursing industry, and consumer groups.

The History of Arbitration Agreements & the New Prohibition

Historically new nursing home contracts often included a pre-dispute arbitration agreement, which meant residents and their families were not allowed to sue nursing homes in the event of a violation. These clauses meant that if a resident was the subject of elder abuse or sexual harassment or even wrongful death, the resident and their families were forced to seek justice through arbitration, rather than in court.

Beginning November 28, 2016, new residents will no longer be obligated to sign these agreements, although arbitration can be used if both the resident and provider agree. The CMS regulation does not affect existing contracts, whose arbitration clauses can remain intact without change.

Arbitration Clauses in the News

Last year, the New York Times published a front-page article citing egregious examples of nursing home abuse and neglect in which the victims were unable to seek damages from the properties in court. Other media stories have followed to show opposition to nursing home contracts, including one about a 100-year-old resident who was murdered by her roommate. Skilled nursing isn’t the only industry to come under fire; cell phone contracts and employee agreements, among others, have critics who argue that arbitration clauses deny people appropriate access to justice following adverse events. Often, these clauses are used by companies to avoid unwanted press after an incident that could affect their reputation. Arbitration clauses have been both upheld and thrown out in courts in recent years, varying by state and circumstance.

For nursing homes, opponents argue that not only do arbitration agreements create barriers that prevent justice for abuse or neglect, they often are signed under duress or in ignorance. These residents, critics say, did not understand or know about the agreement when they signed, or were incapable of finding appropriate care without agreeing to arbitration.

AHCA’s Response

Supporters of arbitration agreements, such as the American Health Care Association (AHCA), argue that these clauses are necessary to keep legal fees down for nursing homes, which already operate on thin margins. In a statement, AHCA president Mark Parkinson stated that the prohibition of pre-dispute arbitration “clearly exceeds CMS’s statutory authority and is wholly unnecessary to protect residents’ health and safety.”

In other words, Parkinson argues that CMS does not have the legal authority to impose this regulation because CMS gets its authority through Executive Orders and acts of Congress. Parkinson suggests that no such measure has granted CMS the right to regulate contracts in this way, and therefore, CMS is vulnerable to a lawsuit challenging the rule. CMS could be found guilty of overreach in this instance, which could overturn this regulation. AHCA’s Cliff Porter also stated last year in an NPR interview that arbitration agreements actually allow victims to get their award from the nursing home faster than through the traditional court system.

Cost or Quality?

The AHCA statement on the new rule also expressed disappointment with CMS over other parts of the rule, especially concerning cost. AHCA pointed out that the new requirements carry a cost burden, but CMS provides no avenues for providers to receive additional funding to support compliance.

As stated at the beginning of this post, CMS has published these regulations to improve the quality of care in nursing homes, and its supporters say the new requirements are necessary to protect residents from abuse and neglect. But for skilled nursing providers, opponents say, the cost of keeping compliant with the regulations—and the high costs of potential legal fees—could actually impede their ability to provide good quality care. Finding that balance between cost and quality will be critical.

What are you hearing in the industry about CMS’ new rule? Share your thoughts in the form below, and we might expand on them in an upcoming blog post.

Timely, Accurate Data on Skilled Nursing

Download the complimentary NIC Skilled Nursing Data Report with data from the second quarter of 2016: