© 2015 The Texas Lawbook.
By Stephen E. Fox and Jonathan Clark of Polsinelli
(April 15) – A few weeks ago, the Texas Supreme Court issued a landmark holding for health care providers seeking an easier path to arbitration.
In Fredericksburg Care Co. LP v. Perez, Texas’s high court essentially overturned a state law that placed onerous requirements on care providers seeking to require potential patients to prospectively submit disputes to arbitration before agreeing to admission at a facility.
Ultimately, while an easier path to arbitration exists, providers and their counsel must still carefully weigh the risks and rewards of alternative dispute resolution on a case-by-case basis—while remaining mindful of the unique legal issues that can arise when contracting with individuals who are sick, infirm, or in dire need of urgent care.
On March 6, however, the Texas Supreme Court held that the TMLA’s arbitration provision was directly preempted by the Federal Arbitration Act (“FAA”) and was, therefore, invalid. Importantly, the FAA contains none of the burdensome requirements for conspicuous placement, bold typeface, or an attorney’s signature that were previously compelled by the Texas statute.
Consequently, a health care provider’s pre-admission agreements containing arbitration provisions need not abide by the stricter provisions of the now-defunct state law.
Although the FAA does not contain an express pre-emptive provision, the U.S. Supreme Court has routinely and with great frequency applied the FAA to preempt state laws that “undermine the goals and policies [which is to favor arbitration and place arbitration agreements on equal footing with all other contracts] of the FAA.”
Thus, while “state law may be applied if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally,” the Supreme Court has declared that courts may not “invalidate arbitration agreements under state laws applicable only to arbitration provisions.”
The FAA applies to any contract affecting interstate commerce. Importantly, acceptance of Medicare payments on a patient’s behalf is sufficient to establish interstate commerce and the FAA’s application.
Consequently, any care provider who accepts Medicare is within the FAA’s reach.
Fredericksburg operates a long-term care nursing home. The Plaintiffs brought suit for negligent care and wrongful death as beneficiaries of a deceased former patient.
Fredericksburg quickly moved to compel arbitration, pursuant to an agreement signed by the decedent prior to admission. Neither side disputed that the pre-admission agreement failed to comply with the requirements set forth in the § 74.451 of the TMLA.
The Plaintiffs’ agreed that, under normal circumstances, the FAA would preempt the requirements of § 74.451. Rather, Plaintiffs’ position was that § 74.451, when viewed as part of a larger statutory scheme— i.e. Chapter 74 of the Civil Practice and Remedies Code and the TMLA as a whole—was enacted “for the purpose of regulating the business of insurance.”
This language is crucial because state laws ratified for that specific purpose fall within the purview of the McCarran-Ferguson Act (MFA), a federal statute providing a loophole from preemption for all state laws enacted “for the purpose of regulating the business of insurance.” 15 U.S.C. §§ 1011-1015.
In short, if the TMLA is within the ambit of the MFA, it is not preempted, and Fredericksburg’s arbitration clause fails. If, however, the MFA applies, the FAA cannot preempt the TMLA’s arbitration requirements, and Fredericksburg’s arbitration agreement with the decedent was invalid and unenforceable.
The trial court and the court of appeals agreed with the Plaintiffs, holding the TMLA was enacted for the purpose of regulating the business of insurance and, accordingly, that the MFA barred preemption—thereby rendering Fredericksburg’s arbitration clause invalid.
But the Texas Supreme Court reversed and remanded, meaning the case will now proceed to arbitration.
The Texas high court undertook an examination of the TMLA and questioned whether it was—as the lower courts held—“enacted for the purpose of regulating the business of insurance.”
The Court found the TMLA’s connection with the business of insurance to be tenuous.
Specifically, the Court stated, “we have made it abundantly clear that the TMLA and its predecessor were laws enacted for the purpose of making health care more affordable in Texas,” and that the law “as a whole, was not … enacted by the Texas Legislature for the purpose of regulating the business of insurance.”
The Court reasoned that, while the TMLA’s legislative roots may have been designed to lower costs to medical malpractice insurers—which would then be passed down as lower premiums to care providers—creating cost savings in health insurance markets is too broad for the purposes of the MFA, “which exempts the business of insurance’ and not the business of insurance companies.”
Accordingly, the Court held, the MFA did not apply and the statute was directly preempted by the FAA.
Now that the more burdensome state requirements have been undone, health care providers in Texas will probably begin to roll out arbitration clauses in pre-admission agreements on a much more regular basis.
Indeed, before Fredericksburg, many care providers chose not to pursue arbitration or even attempt to comply with the TMLA, for fear of scaring off patients with conspicuous language waiving the right to a jury trial, and the requirement that a patient have an attorney review her pre-admission agreement.
To be sure, requiring care providers to foist a conspicuous, bold-type arbitration agreement on a prospective patient—which the patient must then take to her attorney before receiving care—has undoubtedly resulted in fewer health care claims going to arbitration.
This is not to say, however, that the Court’s holding in Fredericksburg makes any arbitration agreement legally copacetic. Care providers who prefer arbitration must remain aware of defenses to arbitration agreements, all of which remain in place.
In the context of the sick, elderly, and critically-ill, issues of unconscionability or duress must remain top of mind when presenting these agreements to prospective patients and their families.
Ultimately, Texas care providers would be wise to seek counsel when deciding whether to pursue arbitration, and should evaluate both the necessity for and implementation of any arbitration agreement on a case-by-case basis.
Stephen Fox is a partner in the Dallas office of Polsinelli. He has more than 25 years of experience advising businesses about employment law-related matters and is a member of the prestigious College of Labor and Employment Lawyers. Jonathan Clark is also a labor and employment lawyer at Polsinelli in Dallas.
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