Look out! Arbitration provision may not provide enough coverage

Assisted living (AL) communities, long-term care (LTC) facilities, rehabilitation centers and other businesses that contract for ongoing health services with the elderly or others that may be mentally impaired must deal with the litigation risk of arguments that their agreements with the individuals they serve are invalid and unenforceable. Analyzing such risk is complicated by the potential involvement of a power of attorney acting on behalf of the impaired individual. A recent decision by a Pennsylvania trial court clarifies the enforceability of contracts between LTC and rehabilitation facilities and their residents/patients, and specifically the enforceability of arbitration provisions, but it also illustrates the limitations of such agreements.

ARBITRATION PROVISION:  VALID AND ENFORCEABLE, BUT LIMITED

In Lipshutz v. St. Monica Manor,[1] the Court of Common Pleas of Philadelphia County ruled that a nursing home/rehabilitation facility’s contract with a patient, which was signed by one of the powers of attorney, was valid and enforceable but was limited in its application to the patient’s claims only. In Lipshutz, the plaintiffs’ mother suffered a stroke and, after being discharged from a hospital, was admitted to the defendant’s nursing and rehabilitation facility. One of the plaintiffs, as her mother’s power of attorney, signed the facility’s standard admission contract, which included an arbitration provision. The plaintiffs’ mother subsequently died, and the plaintiffs, as executors of their mother’s estate, filed suit against the facility, alleging claims for their mother and for themselves as beneficiaries of their mother’s estate. The facility moved to dismiss the case pursuant to the arbitration provision in the admission contract.

The court first found that the power of attorney was effective, despite the plaintiffs’ failure to obtain certifications from two doctors documenting that the plaintiffs’ mother was mentally impaired, which was required by the plain terms of the power of attorney document. Despite the plaintiffs’ oversight, the court looked beyond the “formalities” of the power of attorney document to the “totality” of the circumstances because “if healthcare facilities were required to wait for formal certifications, patients would be forced to await formalities before desperately needed care was provided. In the case of seriously ill or injured patients, this is literally the difference between life and death.” 

After concluding that a valid contract existed between the facility and the plaintiffs’ mother, the court turned to the scope of the contract’s arbitration provision. Although the admission contract applied to any claims of the plaintiffs’ mother, the court concluded that it did not apply to any claims by the beneficiaries’ of the mother’s estate (i.e., plaintiffs and their siblings) because they were not parties to the contract. Under Pennsylvania law, an estate’s beneficiaries’ wrongful death claims and the decedent’s claims for injury that survive his or her passing must be tried together. The court found that this requirement of Pennsylvania law was preempted by federal law, however, because, “if [the] Court ordered the wrongful death and survival actions to remain in Court [together], the decedent’s arbitration agreement…would be nullified,” which is contrary to the requirements of the Federal Arbitration Act. Accordingly, the court split the case, allowing the wrongful death claims to proceed in the Court of Common Pleas but dismissing the survival claims in favor of arbitration.

LESSONS LEARNED

Lipshutz raises two very important issues for healthcare facilities that deal with the elderly or others that may be mentally impaired:

1. A power of attorney may prove valid even when documentation was incomplete. A power of attorney may be valid, even when “formalities” have not been completed. This means that, in urgent circumstances, healthcare facilities should consider all the evidence of a prospective patient/resident’s condition when determining whether the individual or the individual’s legal representative may execute a contract for admission to the facility. In simplest terms, admissions officers should not let formalities in a power of attorney document get in the way of letting a power of attorney sign an admission contract so that a patient/resident can be admitted and start receiving needed care. Admissions officers, however, should still look at what the substance of the power of attorney document says about the person’s condition then review available medical records, discharge notes, etc., to make an informed decision on the person’s condition. Although this step may seem like an additional burden on a facility, it is a small percentage of cases where all the formalities in a power of attorney document have not been completed, so the need to exercise this additional discretion is small.

2. A valid arbitration agreement may not prevent two separate cases. In the event a patient/resident dies and a claim is made, even a valid arbitration agreement between a facility and its patient/resident may not prevent the beneficiaries of the patient’s /resident’s estate from pursuing their own claims in court, even while the patient/resident’s claims proceed separately through arbitration. The prospect of having to defend two separate cases in two venues (arbitration and court) may change the calculus of whether an agreement to arbitrate really represents a cost and time savings for a healthcare facility that is a potential defendant in such cases.

TAKE ACTION

Facility owners and managers should review their facilities’ admission contracts to determine whether arbitration of disputes is required. Then, consult with legal counsel and insurance professionals to determine whether it is best for the facility to continue with arbitration (knowing that you may face two claims in different forums in the event of a death claim) or remove the arbitration provision, thereby having all disputes submitted to the courts in a single action.

Because this issue generally only arises in death claims (where the claims of the beneficiaries may differ than those of the estate), retaining an arbitration provision may be the better course. This decision, however, should be made with the assistance of legal and insurance professionals who can review a facility’s claim history to analyze whether the claims were mostly billing disputes or if there were also negligence/wrongful death cases. Addressing such issues will help facility owners and managers make informed decisions with regard to arbitration clause revisions.

Thomas W. Hazlett is Partner, Schnader Harrison Segal & Lewis LLP. His practice focuses on complex, commercial litigation in federal and state court. His areas of practice include antitrust and trade regulation; toxic tort defense; class action; financial services litigation; and intellectual property litigation. He can be reached at thazlett@schnader.com or (215) 751-2345.

Peter Prinsen, Esq., CPCU, RPLU, ASLI, AIC is Vice President and General Counsel at The Graham Co. Prinsen works with producers, account managers and the claims services departments to maximize insurance coverage, aggressively handle claims, ensure accurate reserves and advise insureds on coverage and claims matters. He can be reached at pprinsen@grahamco.com or (215) 701-5284.

REFERENCE

1. No. 00614, 2013 Phila. Ct. Com. Pl. LEXIS 396 (Nov. 12, 2013).

Disclaimer: This article is not an attempt to provide legal, accounting or consulting advice. Such advice should be obtained from licensed and qualified professionals.