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Physician-patient arbitration agreements: Make sure they are understood by all
The judiciary favors arbitration in the health care industry as a more rational, cost-effective, and efficient forum to resolve health care disputes.
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by B. Sonny Bal, MD, MBA, and Lawrence H. Brenner, JD
The doctor-patient relation is inherently contractual; a physician agrees to treat in exchange for payment for the services. One contractual strategy to deal with the risk of medical malpractice lawsuits is to sign arbitration agreements with patients. We examine here the prevailing law that governs these agreements.
Arbitration is commonly used in commercial, labor-management, and international disputes. Parties stipulate that they will submit their differences before an impartial person or group appointed by mutual assent or statutory provision, and abide by the arbitrator’s decision. Arbitration procedures differ from those used in the courts, especially regarding burden of proof and presentation of evidence. The disadvantages of arbitration relate to the difficulty in setting guidelines, and less predictable outcomes than a court decision. Advantages include less time and expense related to medical malpractice litigation, while maintaining disputants’ privacy.
In contrast to arbitration, mediation is an informal process whereby an impartial third-party facilitates a voluntary, negotiated settlement between disputants. If efforts at mediation fail, parties can still resort to formal adjudication by a court of law; unlike arbitration, mediation does not close the door to subsequent litigation.
Judicial support
 B. Sonny Bal |
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Despite criticisms that patient-physician arbitration agreements may violate public policy by constricting the sacred right to a jury trial, the legal system has favored arbitration agreements. For example, the Tennessee Supreme Court, in Buraczynski v. Eyring, ruled, “arbitration agreements between physicians and patients are not, per se, void as against public policy.” Madden v. Kaiser Foundation Hospitals illustrates a common view among courts. When a patient who had agreed to arbitrate all malpractice and related claims against the hospital filed a lawsuit, the California Supreme Court dismissed the claim and ordered arbitration instead.
Federal or state law?
The U.S. Congress favors arbitration as a more efficient dispute resolution process than litigation. Most states have enacted laws to govern arbitration in the health care arena, setting forth specific requirements for arbitration agreements. The Federal Arbitration Act (FAA) was passed to limit states from placing onerous requirements on arbitration agreements. Thus, in Doctor’s Associates v. Casarotto, the U.S. Supreme Court held that the FAA preempted a Montana statute that declared an arbitration clause unenforceable unless the clause was printed in a certain format.
The Supreme Court has said that the FAA applies to all disputes involving interstate commerce, and that the FAA should be read broadly to require arbitration where the contract contains an arbitration clause. The judicial view is that activities in the health care industry constitute interstate commerce because shipping medical supplies, performance of laboratory tests, recruitment of physicians, receipt of Medicare funds, treatment of out-of-state patients, and out-of-state offices cross state lines.
When is arbitration unenforceable?
Despite judicial favor of arbitration agreements, there are circumstances when such agreements will be unenforceable. For example, courts will not compel arbitration if the plaintiff was not a party to the arbitration agreement. This situation can arise where the decedent in a wrongful death lawsuit signed an arbitration agreement, but a next-of-kin survivor files the suit. In Lawrence v. Beverly Manor, a nursing home patient’s daughter, as power of attorney, signed an arbitration agreement when her mother was admitted to the facility. When the patient died after a fall, the patient’s son filed suit. In refusing to compel arbitration, the Missouri Supreme Court held that the arbitration agreement only applied to claims brought by the patient.
Common law defenses such as duress, unconscionability, or fraudulent misrepresentation can invalidate contractual agreements; of these, unconscionability is commonly invoked in patient-physician arbitration agreements. An example of an unconscionable agreement would be one that restricted the patient to arbitration only, while the physician retained the option to sue. A court will scrutinize both the mechanism whereby the arbitration agreement was formed and the terms of the contract itself. If a contract was entered under highly coercive circumstances, or if the terms are obviously one-sided, the arbitration agreement may be invalidated.
The patient’s prospective costs can also determine whether arbitration is fair or unconscionable. Under some circumstances, a portion of the patient’s costs of arbitration must be borne by the health care provider. In others, arbitration must be available without cost to indigent patients. The fee schedules of most major providers of arbitration services, including the National Arbitration Forum (NAF), reflect the guidelines set forth by the courts. The U.S. Supreme Court has recognized the NAF’s Code of Procedure as “a model of fair cost and fee allocation.”
Arbitration providers must be impartial. In Engalla v. Permanente Medical Group, Inc., the California Supreme Court reasoned that arbitration administered by one of the parties leaves that party open to lawsuits alleging misconduct or misrepresentation related to the process, regardless of the neutrality of the arbitrator. The susceptibility to such collateral lawsuits diminishes the value of efficient and rational arbitration — independent third party arbitrators such as the NAF are favored since they are immune from these attacks.
A court may invalidate an arbitration agreement if it constitutes a contract of adhesion. An adhesion contract is a form contract created and imposed by a stronger party on a weaker party, on a take it or leave it basis, where the terms of the contract are in favor of the drafting party. A contract of adhesion is not automatically unenforceable, but a court will scrutinize it closely, and may decide not to enforce specific terms of the contract that are unenforceable.
An example of an adhesion contract is conditioning treatment upon the patient signing the arbitration agreement. Colorado mandates that any physician who refuses to treat a patient solely on a refusal to sign an arbitration agreement will be subject to disciplinary action. A properly drafted arbitration agreement should be clear that refusal to sign is not a condition of treatment, and that the patient will still be treated, or alternatives offered, even if the arbitration agreement is not signed.
Illustrative case law
In Broemmer v. Abortion Services of Phoenix, Ltd, the Arizona Supreme Court struck an arbitration agreement since it was a contract of adhesion that did not meet the reasonable expectations of the patient. A high-school graduate, making less than $100 a week, traveled from Iowa to Arizona for an abortion. Confused and distraught, she hastily signed a consent, medical history, and arbitration agreement. In a later dispute, after the clinic tried to compel arbitration, the patient testified that she did not know what arbitration meant. The clinic had no policies or procedures for ensuring that the patient understood the forms, which it presented to prospective patients on a take it or leave it basis, as a condition for treatment.
In contrast to Broemmer, the Mississippi Supreme Court, in Cleveland v. Mann, upheld an arbitration agreement when the plaintiff pleaded a lack of understanding from his illiteracy, and extreme pain when he signed the agreement. The doctor’s office had clear policies and procedures in place; the arbitration agreement was a two-page document, the first of which gave bold-type notice of what the patient was signing. The next page outlined each term, along with patient understanding that neither emergency care nor immediate stress was involved. The agreement gave the patient 15 days to rescind, and had provisions for submitting written changes to the clinic for approval. Each clause was signed by the patient acknowledging his understanding, and countersigned by an office representative, and initialed by the doctor.
Valid Arbitration Agreements
Many states have provisions that allow the patient some time to review the agreement away from the doctor's office and unilaterally revoke or cancel it. In interpreting revocation clauses, courts will examine if the patient really had sufficient time to review and understand the contract. In Sosa v. Paulos, the medical staff gave the patient an arbitration agreement less than an hour before surgery while she was undressing for the operation. The patient later argued that she did not read the agreement and no one had explained it to her before she signed it. The Utah Supreme Court agreed; the revocation provision did not overcome otherwise unconscionable circumstances.
Other state statutes require that the type and print of the arbitration agreement should be of a particular size, not buried in fine-print legalese and that the language should be simple enough to understand. Connecticut, for example, requires that arbitration agreement terms should be clear to someone with a 6th grade education and on a form no longer than one page in length.
Many physicians believe that lay juries cannot fully comprehend the complexities of medical malpractice cases, and may specify a physician-arbitrator in the agreement. States are split on the validity of such choice-of-arbitrator clauses. Arizona and Louisiana prohibit arbitration agreements that require the patient to select a physician as arbitrator, while the Utah Supreme Court, in Sosa, upheld an arbitration provision that required a three-arbitrator panel consisting of board-certified orthopaedic surgeons.
Conclusions
The judicial view seems to favor arbitration in the health care industry, as a more rational, efficient, and cost-effective forum to resolve health care disputes. Such agreements should be consistent with general contract law principles. Physicians should have policies and procedures to ensure that patients read, understand, and acknowledge receipt of arbitration agreements. Ideally, such policies and procedures could be documented in the informed consent process itself.
- B. Sonny Bal, MD, JD, MBA, is associate professor of hip and knee replacement in the department of orthopedic surgery, University of Missouri School of Medicine. Lawrence H. Brenner, JD, is on the faculties of orthopedics at Yale University and the University of Southern California and practices in Chapel Hill, N.C. Address all correspondence to Brenner at lb@lawrencebrennerlaw.com.