American Health Care Ass'n v. Burwell
217 F. Supp. 3d 921
N.D. Miss.2016Background
- CMS promulgated a rule (42 C.F.R. § 483.70(n)(1)) effective Nov. 28, 2016, prohibiting long‑term care facilities that participate in Medicare/Medicaid from entering into new pre‑dispute binding arbitration agreements with residents or making admission contingent on signing such agreements.
- Plaintiffs (AHCA, MHCA and three Mississippi nursing homes) sued under the Administrative Procedure Act seeking declaratory relief and a preliminary injunction to block enforcement of the Rule.
- The district court held a hearing and evaluated the administrative record and precedent; it limited its review to the administrative record per APA principles.
- Key factual/contextual concerns in the administrative record: CMS relied heavily on public comments and literature alleging coercion at admission, confidentiality clauses, and bargaining‑power disparities; plaintiffs emphasized FAA preemption, agency overreach, and procedural defects.
- The court found plaintiffs likely to prevail on FAA and statutory‑authority grounds, found insufficient agency factual development to support a nationwide effective ban, and concluded plaintiffs would suffer irreparable harm absent a stay.
- The court granted a preliminary injunction preventing enforcement of the arbitration ban pending further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| FAA preemption — May CMS bar new pre‑dispute arbitration agreements? | Rule unlawfully conflicts with FAA; an effective ban on new agreements is preempted. | Participation in Medicare/Medicaid is voluntary; the rule is a condition of payment—not an invalidation of existing contracts. | Court: Likely favors plaintiffs — rule functionally a ban and CMS record insufficient to justify overriding FAA policy. |
| Statutory authority — Do Medicare/Medicaid statutes authorize the ban? | CMS lacks clear congressional authorization; Congress considered and rejected similar legislation. | Broad statutory mandates to protect resident health, safety, and rights justify the Rule; deference to agency interpretation. | Court: Likely favors plaintiffs — statutory text/vague grants are too thin for such unprecedented action; separation‑of‑powers concerns weigh against CMS. |
| Arbitrary & capricious under APA — Was the Rule procedurally and substantively reasonable? | Agency changed longstanding position and relied mainly on comments; action arbitrary. | CMS conducted literature review, considered comments, and provided rationale; rulemaking permissible. | Court: Unlikely to be dispositive; court would probably defer to agency on this point if statutory/Federal Arbitration Act issues did not dispose the case. |
| Regulatory Flexibility Act — Did CMS adequately assess economic impact on small entities? | CMS improperly certified no significant economic impact and failed to analyze arbitration‑specific costs. | Agency performed Regulatory Impact Analysis and permissibly certified under RFA; review is deferential. | Court: Plaintiffs unlikely to prevail on RFA theory at preliminary stage; certification reviewed deferentially. |
Key Cases Cited
- Kappos v. Hyatt, 566 U.S. 431 (limiting APA review to the administrative record)
- Nat'l Fed. of Indep. Bus. v. Sebelius, 567 U.S. 519 (limits on spending‑power coercion principles discussed)
- Saturn Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir.) (FAA preempts laws that prohibit formation of arbitration agreements)
- AT&T Mobility v. Concepcion, 563 U.S. 333 (FAA promotes arbitration; state rules that obstruct arbitration may be preempted)
- CompuCredit Corp. v. Greenwood, 565 U.S. 95 (FAA enforcement can be displaced only by clear contrary congressional command)
- D.R. Horton, Inc. v. NLRB, 737 F.3d 344 (5th Cir.) (agency action that conflicts with FAA requires close scrutiny)
- Marmet Health Care Ctr., Inc. v. Brown, 565 U.S. 530 (arbitration defense and unconscionability principles in consumer/resident contexts)