Pre-Injury Agreements to Arbitrate Health Care Disputes: Legally "Shocking" or Legally Sensible?

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INTRODUCTION

Strong public policy, both at the federal and state level, favors private contracting and the ability to agree to arbitration as a means to resolve legal disputes. Under the Federal Arbitration Act (FAA), contracts involving interstate commerce must be treated as favorably and enforced to the same extent as any other contract by declaring that written provisions for arbitration are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." (1) For the first fifty years, courts were generally reluctant to enforce the FAA and found avenues to deny enforcement. Beginning in the 1980s, with crowded documents and public frustration of the trial process, the U.S. Supreme Court began to favor arbitration and broadly interpret the requirements of the FAA in a variety of commercial and consumer settings. (2) Arbitration clauses now routinely appear in pre-printed agreements ranging from credit card agreements, cell phone bills, home mortgages, to employee handbooks.

In the healthcare context, arbitration agreements are hotly contested. (3) Theoretically, the provider and patient can negotiate the terms, such as the identity of the arbitrator, the extent and amount compensable damages, the forum and rules of procedure for arbitration, and the scope of discovery. (4) In practice, the patient or his or her agent often signs the agreement prior to medical treatment without review or negotiation. Later, after a dispute arises, the plaintiff prefers to litigate with a jury trial, instead of in the arbitral forum. The plaintiff seeks a way to challenge the arbitration clause, but finds the challenge is limited to the traditional defenses of any contract. One of the few successful challenges has been the defense of unconscionability. However, unconscionable provisions are particularly hard to define and enforce. Therefore, while courts across the nation are generally upholding pre-injury dispute agreements in the healthcare context, they are struggling to define when an arbitration clause is so "shocking" that it is legally unenforceable.

Another issue which permeates healthcare is who has authority or when that authority is effective to agree to arbitration on behalf of the patient. In a recent example, the Tennessee Supreme Court upheld the validity of pre-dispute arbitration agreements in nursing home contracts when signed by an agent acting under the authority of a durable power of attorney in its Owens v. National Health Corp. (5) decision. The Tennessee decision is consistent with most states that have ruled on this issue of upholding a contract to arbitrate as a valid "health care" decision under a power of attorney. (6) In the wake of the Tennessee high court decision, six intermediate appellate court decisions were issued in quick succession. Each of these seven Tennessee cases involved a defendant who is a large multi-state operator of long-term healthcare facilities--Kindred Healthcare Operating, Inc., Life Care Centers of America, Inc. (LCC) or National Health Corporation (NHC) and related entities. In four of the seven cases, the courts remanded the cases back to the trial court level to determine whether the contracts or terms of executing the contracts were unconscionable or whether the agent who signed the agreement was authorized under a valid advance directive.

SHOCKING AND NOT SO SHOCKING RECENT CASES

Owens Upholds Validity of Arbitration Contracts in Nursing Homes Contracts

The Owens case involved an agent who signed a nursing home admission contract containing an arbitration agreement and waiver of a jury trial while acting under a Durable Power of Attorney for Healthcare. (7) The facts unfolded as follows: Mary Francis King signed a Durable Power of Attorney for Health Care ("Power of Attorney") on August 5, 2003. The Power of Attorney authorized Gwyn Daniel and William Daniel to make health care decisions for Ms. …