Arkansas Federal Court Determines that Arbitration Agreement Is Not Prohibited “Other Consideration” under Medicaid Regulations

Medicaid law forbids nursing facilities from requiring “any gift, money, donation, or other consideration” as a precondition of admission to that facility.  See 42 U.S.C. § 1396r(c)(5)(A)(iii); 42 C.F.R. § 483.12(d)(3).  On May 10, 2011, the United States District Court for the Western District of Arkansas ruled that an arbitration agreement as a precondition of admission does not constitute “other consideration” under the Medicaid laws and regulations.

In Northport Health Servs. Of Ark., LLC v. O’Brien, No. 2:10-CV-02013 (W.D. Ark. May 10, 2011), the attorney-in-fact of a deceased resident of a rehabilitation facility sued the facility in Arkansas state court for a variety of tort claims, including medical malpractice and wrongful death, and also claimed a violation of Arkansas’ Long Term Care Resident’s Rights Statute.  The facility, citing an arbitration agreement and a consent to arbitration and waiver of jury trial signed by the resident as a requirement prior to his admittance to the facility, filed a separate motion in federal court to compel arbitration and to enjoin the state court proceedings.

Although the District Court noted that several types of challenges to the validity of the arbitration agreement were available, such as estoppel, waiver, or unconscionability, the resident’s attorney only raised one theory in her motion papers: that the arbitration agreement constituted “additional consideration” and was therefore illegal under the Medicaid provision barring “other consideration” as a precondition to admission.

The District Court disagreed.  Although it noted that the Centers for Medicare and Medicaid Services (“CMS”) and the Arkansas Department of Human Services (“ADHS”) “skillfully skirt the issue of whether a requirement of signing an arbitration agreement as a precondition to admission may be violative of Medicaid regulations,” the Court found that permitting these types of arbitration agreements did not violate prior guidance documents issued by CMS and ADHS.  The Court also found that most courts that considered the issue found that these types of arbitration agreements did not constitute “additional consideration” under the Medicaid laws.

Furthermore, the Court’s own statutory interpretation supplied further support for its decision.  The phrase “other consideration” did not encompass an arbitration agreement because the construction of the sentence in which it appeared demonstrated that the phrase was intended to mean items with discernable monetary value and not something with undefined value, like the right to a jury trial waived by an arbitration agreement.

Finally, the Court upheld the appropriateness of arbitration agreements in this context.  Although the Court acknowledged that these agreements deprive a party from the right to a jury trial, the procedure still offers each side “an opportunity to adequately air their grievances before an impartial decision-maker.”  To hold arbitration agreements invalid “would serve only to perpetuate the historical prejudice against arbitration agreements that Congress sought to eradicate through enactment of the [Federal Arbitration Act] over eighty years ago.”

This post was contributed by David Nardolillo.