Texas High Court Ruling Frees Healthcare Providers To Elect Arbitration In Malpractice Suits

The Supreme Court of Texas last week ruled that healthcare providers can in fact compel arbitration with patients who sue them over negligent or abusive care.

The ruling means that providers now have another venue to sort out personal injury and malpractice claims. Should they so choose, they can bring the case before a private judge rather than a jury if they have a pre-existing arbitration agreement with the patient.

In 2013, a nursing home known as the Fredericksburg Care Company requested that a trial court grant it arbitration after the family of patient Elisa Zapata sued, alleging that the provider did not protect her from abuse or neglect. Fredericksburg noted the agreement it had with Zapata under the Federal Arbitration Act (FAA) and requested that a trial court enforce the request for arbitration.

The court did not, siding with the Zapata family’s argument that the McCarran-Ferguson Act—which the U.S. Congress passed in 1944—meant that state law would not be preempted by federal law. As such, both the trial court and the San Antonio appellate court found, the provider could not compel arbitration because of a Texas law enacted around the time of tort reform.

The Supreme Court first heard arguments in the case last October. Its ruling reverses what came before it. The case came down to jurisdiction; when a provider wants arbitration, should the court follow Texas law or federal law? In this case, the high court found it is the latter: “This case requires us to interpret and apply federal preemption law, and therefore United States Supreme Court precedent controls the outcome,” reads the ruling.

“There’s a long history of cases, even from the U.S. Supreme Court, saying the Federal Arbitration Act trumps state laws that try to impede arbitration,” says David Walsh, a partner and appellate attorney at Dallas firm Chamblee, Ryan, Kershaw & Anderson. “This is just one of those things that’s been percolating for many years.”

Basically, the McCarran-Ferguson Act was created for the purpose of allowing individual states to regulate the business of insurance how they so choosed. For the plaintiff’s arguments to work, the state law blocking the ability of a provider to compel arbitration would’ve had to also be created in the name of regulating insurance. And the high court ruled that wasn’t the case.

Walsh says that the new freedom to compel arbitration will impact nursing homes and other similar care facilities more than hospitals. The Texas Hospital Association did not immediately have a statement on Monday regarding the ruling, although a spokesperson said its general counsel was reading through the findings.

Walsh says that arbitration “may be more predictable” in terms of outcomes than a jury trial. However, juries in many parts of Texas are known to be sympathetic to doctors and care providers, he said.

“It takes some pretty egregious results to find against the healthcare provider. If you go to an arbitration agreement, they may more neutrally look at it,” Walsh added. “People are going to have to strategically think about what they want and where they want to be.”

For the Zapata case, the Supreme Court ordered it remanded to the trial court to allow Fredericksburg to request arbitration. Meanwhile, Walsh says it could have a broad impact on how providers structure their defenses in malpractice claims.

“I think it’s a big deal,” he said. “For the most part, healthcare providers have not pursued arbitration agreements at all. I think that’s going to be revolutionary, and you’re going to see a lot of the industry—especially nursing homes—immediately start having arbitration agreements.”