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The Price of Admission: By Susan T. Peterson Whether you advise clients or are assisting your elderly parent, there are certain things you need to know before anyone signs a nursing home admission agreement. The agreement may appear innocuous, but a third party who signs a nursing home admission agreement may be personally liable for services provided or mandated to arbitrate as the means to resolve a dispute. Thus, reviewing and understanding a nursing home admission agreement before it’s signed can prevent unpleasant surprises down the road if the resident runs out of money to pay the nursing home bill. Signature Blocks State & Federal Requirements Minnesota’s statute governing nursing home admission agreements, Minn. Stat. §144.6501, purports to level the playing field between the corporate nursing home, on the one hand, and the individual, often elderly and ill, resident, on the other. Certain provisions of the state statute control the content and format of the agreement itself. For example, the contract must include a written notice in the signature block, “in bold capital letters, that a person other than the resident or financially responsible spouse may not be required by the facility to assume personal financial liability for the resident’s care.” Other statutory provisions dictate the practices and procedures a nursing home must follow when it becomes party to the nursing home admission agreement. The statute mandates that copies of the admission agreement must be made available to potential residents, provides that a nursing home must not make false or misleading statements within the contract, and requires a nursing home to make reasonable efforts to communicate the content of the nursing home admission agreement with the resident. In sum, these provisions prevent a nursing home from hurrying the resident into signing, simply asking the resident to sign at the “X,” or saying that the documents are “routine” or “just a formality.” Still other provisions control the formalities in legalizing the agreement. The resident must sign the contract unless the resident is incapacitated or cannot understand or sign the agreement because of their medical condition. If the resident cannot sign, the nursing home may request the signature of another person on behalf of the applicant. Once signed, a signed copy must be given to the resident. Spousal Responsibility The Minnesota Court of Appeals recently considered the extent of Minnesota’s spousal duty obligation in In the Matter of Revocable Trust of Naomi Margolis.5 This case involved a couple in a second marriage who had a prenuptial agreement. The husband/trustee signed his wife’s nursing home admission agreement as spouse. Over the next few years, the husband/trustee paid more than $200,000 out of his wife’s trust account to pay for her care. After her death, the wife’s children, who were co-beneficiaries of her trust, sued the husband/trustee, arguing that he should have been personally responsible for his wife’s nursing home bill. Even though the express language of the wife’s trust authorized trust assets to be used for her “support, maintenance, and health,” the court found for the children. The court, focusing on the statutory fiduciary obligations of the husband/trustee and his spousal duties, held that the husband/trustee had both a contractual and a statutory obligation to provide for his wife’s care. The court did not address whether, under the facts of this case, where the husband and wife were not living together, the “community” spouse is obligated to pay for the resident spouse’s care. Based on the broad holding in Margolis, it is unlikely that any Minnesota spouse can avoid liability for the other spouse’s “necessary medical expenses.” However, because a husband and wife may divorce after one of them enters a nursing home, the spouse not entering the home should not sign the other’s nursing home admission agreement. Spouses may be obligated under law to provide for each other while married, but following a divorce, one will not want to be contractually liable as a direct party for the other’s nursing home bill. Where husband and wife divorce after one of them enters a nursing home, the dissolution decree should address which party is responsible for paying the nursing home bill. Others’ Responsibility Under principal/agency law, an attorney-in-fact acting for an informed principal is not a party to the agreement because the attorney-in-fact isn’t acting in a personal capacity. Because the relationship is strictly between the principal and the agent, not between the agent and a third party, the agent is usually not personally liable to a third party. Personal liability is imposed only if the attorney-in-fact injures a party while acting in bad faith.9 Federal law prohibits nursing homes from requiring, as a condition of admission, that a third party—commonly called a “responsible party”—guarantee payment of any unpaid expenses incurred by the home on behalf of the resident.10 The language of the statute also prohibits nursing homes from conditioning expedited admission or continued residence in a particular facility on any third-party guarantee of payment.11 By the plain wording of Minnesota’s statute, nursing homes may request third party guarantors and may even solicit a responsible party signature. Likewise, a third party may volunteer to cover any expenses. However, a third-party guarantor is not required as a condition of admission or retention.12 Thus, even though nursing homes can hold a resident or a resident’s spouse financially liable for costs associated with care, a nursing home cannot hold third parties liable without the third party’s express, voluntary consent. Responsible Parties Minnesota’s seminal case on this topic is Northfield Care Center, Inc. v. Anderson.15 In this case, the resident’s son signed the nursing home admission agreement as attorney-in-fact and responsible party, even though his signature was not required by the terms of the contract. After the resident’s death, the nursing home attempted to collect, from the son, the approximately $3,800 due. The nursing home brought an action, and judgment was for the nursing home in both conciliation court and district court. On appeal, the Minnesota Supreme Court considered whether the son was obligated as a responsible party under the contract. The court reasoned that the admission agreement did not require a responsible party signature and that Minnesota law was unambiguous in obligating a responsible party under certain circumstances. The court held that “a responsible party shall be personally liable only to the extent the resident’s income or assets were misapplied” and remanded the case for a determination on that point. This case illustrates that varying federal and state standards can be confusing. Even though the son voluntarily signed as “responsible party” as permitted by federal law, thus making him personally liable for outstanding payments to the nursing home, under Minnesota law, he can only be held personally liable if he is found to have misapplied the resident’s funds. In another Minnesota case, the adult children avoided responsible party and fiduciary liability by the skin of their teeth. In this case, Extendicare Health Services, Inc. v. Henderson,16 after the resident’s death, her two sons were sued by the nursing home for the unpaid balance on their mother’s account. One son had signed the admissions agreement as the “responsible party.” The other son had not signed the agreement but was the personal representative of his mother’s estate. The trial court determined that, under Minnesota law, for a “responsible party” to be personally liable, that party must: 1) have access to the resident’s assets; and 2) agree to apply those assets to pay for the resident’s care or agree to apply for medical assistance on the resident’s behalf. In the case of the first son, the court found that while he had agreed to apply his mother’s assets to her care, he did not have access to those assets because he was not her legal representative. Regarding the second son who was his mother’s legal representative, the court found that while he had access to his mother’s assets, he had not agreed to apply them toward her care since he had not signed the nursing home admission agreement. The appellate court affirmed. In dicta, the court warned that nursing home contracts that appear to require a “responsible party” signature may violate Minnesota statutes. Mandatory Arbitration Clauses Arbitration, a kind of alternative dispute resolution, provides a “forum in which a neutral third party renders a specific award after presiding over an adversarial hearing at which each party and its counsel present its position.”17 While similar to litigation, the arbitration process limits the discovery process, is a private forum, and is not presided over by a judge.18 Nursing homes often include mandatory arbitration provisions in their contracts because arbitration limits jury awards and allegedly reduces the cost of dispute resolution. Most states that have specifically addressed the issue have found arbitration clauses in a nursing home admission agreement to be enforceable.19 The rationale for doing so includes the federal policy favoring arbitration, findings that such clauses are neither procedurally nor substantively unconscionable, and the parties’ ability to freely contract. The United States Supreme Court has ruled—but not in the context of nursing home admission agreements—that arbitration agreements should be placed on the same footing as other contracts,20 that questions regarding the enforceability of an arbitration agreement should be resolved in favor of arbitration,21 and that the states may broaden the scope of arbitrable disputes beyond those allowed by the Federal Arbitration Act (“FAA”).22 The Minnesota counterpart to the FAA, the Uniform Arbitration Act (“UAA”), governs the enforceability of arbitration clauses in Minnesota.23 The stated purpose of the UAA is to encourage parties to resolve their disputes in a forum chosen by the parties, to discourage litigation, and to encourage the informal, speedy, and inexpensive resolution of disputes. In pertinent part it reads:
While Minnesota case law typically favors arbitration, courts have declined to enforce arbitration clauses under a couple of narrow fact scenarios. For example, a party who has not agreed by contract to arbitration cannot be compelled to arbitrate a dispute.25 Also, oral agreements to arbitrate are not enforceable.26 Critics argue that while arbitration may be a good thing in general, mandatory arbitration provisions in nursing home admission agreements are inherently unfair, especially since the resident may not have the opportunity or ability to read or understand the entire nursing home admission agreement.27 They say that litigation—with full discovery and other litigation conventions, stricter statutory construction, and in view of the public eye—better protects residents’ rights. In 2008, legislation that would invalidate arbitration provisions within nursing home admission agreements was introduced in the United States Senate. Specifically, the bill was drafted to amend section 2 of the Federal Arbitration Act to read: “A pre-dispute arbitration agreement between a long-term care facility and a resident of a long-term care facility (or anyone acting on behalf of such a resident, including a person with financial responsibility for that resident) shall not be valid or specifically enforceable.”28 Under the proposed legislation, arbitration would still be available for those who choose arbitration once a dispute arises. The bill passed out of committee in both the House and Senate, but no votes were taken. Thus, unless a member of Congress reintroduces the bill in another session, it appears as though Minnesota courts may have to decide some day whether an arbitration clause in a nursing home admission agreement is enforceable. Notes
Whether you are involved professionally on behalf of a client or personally on behalf of an aging parent or relative, several guidelines are worth remembering in handling a nursing home admission agreement.
SUSAN T. PETERSON is the chair of the Estate Planning Department at the firm of Henningson & Snoxell, Ltd., located in Maple Grove, Minnesota. She practices principally in the areas of estate planning, probate, estate and trust administration, and elder law. Susan is admitted to practice in all Minnesota and federal courts and is a member of the National Academy of Elder Law Attorneys. She received her law degree summa cum laude from the William Mitchell College of Law.
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