Phase 3 Guidance for Nursing Homes: Key Risk Management Takeaways

Property & Casualty, Risk, Senior Living & Social Services

On June 29th, 2022, the Centers for Medicare and Medicaid Services (CMS) released its anticipated guidance for Phase 3 of the updated nursing home Requirements of Participation. While the actual requirements of Phase 3 have been in effect since November of 2019, the updated guidance will go into effect for enforcement purposes on October 24, 2022. While the guidance clarifies a number of compliance items, let’s focus on a select few that hit home from a risk management standpoint.

Abuse and Neglect

Abuse and neglect continue to be leading causes of liability claims, and CMS is tuned into this increase in claims of mistreatment. If you have not thoroughly reviewed your abuse program recently, now is the time to do so. The updated CMS guidance adds additional verbiage to emphasize the importance of:

Incident Management Process – essential for compliance and litigation management

  • Immediate facility response once abuse or neglect is identified
  • Protect other residents who may be at risk
  • Report to appropriate entities (DQA, law enforcement, APS, etc.)
  • Complete a thorough investigation and root cause analysis
  • Implementing an action plan and monitor the plan for effectiveness
  • Communicated and coordinated through the QAPI program

In addition, the revised guidance in Chapter 5 strengthens the oversight of nursing home complaints and facility-reported incidents. This is no surprise as state survey agencies have been vocal about the dramatic increase in complaints they are receiving. Your best defense to this trend is a strong grievance management program. Check out these resources to learn more about what that means:

Additional notable updates regarding abuse and neglect include:

  • The “reasonable person” concept related to determining the severity of how a resident was or could have been effected by an abuse/neglect situation is further expounded in the guidance. The verbiage used arguably gives surveyors more grounds to support high-severity citations such as, Immediate Jeopardy, for any type of potential abuse/neglect situations.
  • Significant additional detailed language regarding what constitutes a reportable resident-to-resident altercation, injury of unknown source, neglect, and misappropriation.


Phase 3 guidance of the updated Requirements of Participation take QAPI (Quality Assurance Performance Improvement) to the next level from having a formal plan in place to evidencing implementation and utilization.

According to the updated guidance, a provider must be able to demonstrate that the following is taking place:

  • Adverse events are being identified, reported, investigated, analyzed, and prevented
  • Data collection and analysis is occurring at regular intervals
  • Corrective actions or performance improvement activities are developed, implemented, and evaluated

At a minimum, the QAPI program must:

  • Address all systems of care and management practices- Include clinical care, quality of life and resident choice
  • Set benchmarks and facility goals that are evidenced to show desired outcomes for residents
  • Reflect the complexities, unique care and services that the facility provides.
  • Be responsible to the Governing Body and/or executive leadership to ensure ongoing implementation and effectiveness (eh hem, Corporate Compliance)

Of particular note is clear language in the guidance that states surveyors are to have access to historically privileged information if there is a potential concern identified and there is a need to determine compliance. The guidance states, “the facility must allow the surveyor to review and copy QAA committee minutes and related documentation so that the surveyor is capable of evaluating the facility’s QAPI/QAA compliance.” Organizations will need to determine how to evidence compliance without compromising privileged information. Consider seeking legal counsel in regards to how to handle this potential conflict.

Corporate Compliance and Ethics

Federally regulated nursing facilities have been required to have a Corporate Compliance and Ethics program to prevent and detect criminal, civil, and administrative violations for some time already, however the updated State Operations Manual guidance to surveyors has given this requirement more teeth.

Providers may no longer be able to skate by on solely having a Corporate Compliance and Ethics policy to meet this requirement on paper – “The operating organization of each facility must have a compliance and ethics program that has been reasonably designed, implemented, maintained and enforced.”

Organizations must take a hard look at not only their written program, but how it is being implemented and followed. It may look good on paper to have a fancy, in-depth plan, but start out with the basics of what is required. Do not set higher standards in your written program than what is actually realistic for your organization to follow, as not following what is in your program is a recipe for disaster.

Establish how you will respond to an identified concern, and proactively monitor your identified risk areas risk areas- i.e. quality of care, financial operations, workforce screening and management, anti-kickback statute, and HIPAA practices.

7 Elements of an Effective Compliance and Ethics Program:

  1. Implementing written policies, procedures and standards of conduct
  2. Designation of a compliance officer and compliance committee
  3. Conducting effective training and education
  4. Developing effective lines of communication
  5. Enforcing standards through well-publicized disciplinary guidelines
  6. Conducting internal monitoring and auditing
  7. Responding promptly to detected violations and corrective action

Establish how your QAPI and Corporate Compliance Committees will co-exist and the relationship between the two (Corporate Compliance vs. QAPI). Also, be sure the plan clearly states how employees report concerns, and specifies a way to do so anonymously. Don’t forget about your annual (documented) review of your program.

Fraud and abuse claims are on the rise, and having a living, breathing Corporate Compliance and Ethics plan will help to mitigate this risk.

Organizations with five or more facilities are also required to:

  1. Provide training on the Corporate Compliance and Ethics plan (although annual training is recommended for organizations with less than five facilities as well)
  2. Designate a compliance officer for whom the compliance and ethics program is a major responsibility
  3. Designate a compliance liaison at each facility


The updated guidance significantly expanded its language regarding anti-retaliation. Facilities will now be required to post a notice with information on employees’ right to file a complaint with the State Survey Agency if they believe they have been retaliated against for reporting a suspected crime. The language emphasizes the importance of prohibiting retaliation and implementing policies and procedures that promote a culture of safety and open communication in the work environment. This goes hand-in-hand with your Corporate Compliance and Ethics program (whistleblowers receive 30% of penalties assigned), so be sure to incorporate language and/or policy that specifically addresses whistleblowers/anti-retaliation.

Arbitration Agreements

New requirements related to binding arbitration agreements went into effect on September 16, 2019, which is now incorporated in the Phase 3 guidance updates. If an organization is cited for non-compliance with their arbitration agreements, a plaintiff attorney could certainly use that to their favor in the event of litigation.

Nursing homes may not require residents to sign binding arbitration agreements as a condition of admission or as a requirement to continue to receive care at that facility. Additionally, facilities are required to explain the agreement to the resident/representative in way that they understand, allow the resident/representative to rescind the agreement within 30 calendar days of signing it, allow for a mutually agreed upon arbitrator, among other specific callouts.

Arbitration agreements, when executed appropriately, significantly reduce the impacts (financial, time, morale, etc.) of a liability claim. If you do not currently utilize arbitration agreements, strongly consider working with an attorney with robust experience in arbitration to implement them into your admission practice.

Benefits and Strategies for Effective Arbitration Agreements

The updated guidance gives surveyors much more direction to determine if a facility is meeting all of the requirements for utilizing arbitration agreements, including interviewing residents, legal representatives, and employees who present agreements to residents. It is vital not only from a compliance perspective, but also an agreement enforcement perspective, to educate admissions staff who review arbitration agreements with residents/reps. They need to understand how to communicate the arbitration information to meet the requirements, but also understand in each admission situation who is the correct person to sign the arbitration agreement.

Develop a consistent process and guidance for admission staff to follow when presenting information. Consider allocating separate discussions on the arbitration agreement and the rest of the admission “packet” to evidence your practice of ensuring the resident/representative’s understanding of the arbitration agreement.

Monitor the “acceptance” rate of agreements, and if more than 10-15% of residents/representatives are declining to sign arbitration agreements, determine if additional education is needed for individuals presenting the information.

Additional Links:
CMS Fact Sheet
Appendix PP Revisions

Additional Related Articles:
Corporate Compliance- Speak Up
Abuse Prevention Programs in Senior Living and Social Services
Forensic Interviewing for Abuse Investigations

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