Hickory Heights Health and Rehab, LLC, et al. v. Yashika Watson, as Guardian of the Person and Estate of Zeola Ellis, III

The Spending Clause grants Congress the power “to pay the Debts and provide for the … general Welfare of the United States.” U.S. Const., Art. I, § 8, cl. 1. That power allows Congress to pass legislation incentivizing certain behavior from private parties or States in exchange for federal funds. But this Court has repeatedly noted that the Spending Clause power is limited, operating “much in the nature of a contract: in exchange for federal funds, [the recipients of the funds] agree to comply with federally imposed conditions.” Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 17 (1981). Pursuant to a delegation of Spending Clause power, the Centers for Medicare and Medicaid Services (CMS) issued a final rule revising the requirements that longterm care facilities must meet to participate in Medicare and Medicaid. The new rule prohibits those facilities from requiring residents to sign pre-dispute arbitration agreements as a condition of admission. The Arkansas Court of Appeals held that an arbitration agreement obtained in violation of the CMS rule is “illegal.” A divided Arkansas Supreme Court denied review, with the dissenting justices acknowledging that this ruling directly conflicts with precedent in the Court of Appeals for the Eighth Circuit stating that a Spending Clause rule only creates a condition for the receipt of federal funds. The questions presented are:

1. Whether legislation enacted pursuant to the spending power makes private conduct illegal absent a clear statement that Congress intended to do more than place conditions on the receipt of federal funds.

2. If so, whether CMS may make the use of arbitration agreements by recipients of federal Medicare and Medicaid funds illegal, notwithstanding the Federal Arbitration Act. (i)