Ohio Supreme Court Precludes Arbitration of Provider Antitrust Lawsuit
by Fred Smith & David Goldhaber, Sedgwick, Detert, Moran & Arnold LLP, Chicago, IL
The Ohio Supreme Court has effectively authorized a group of physician providers to pursue their antitrust lawsuit against United HealthCare of Ohio in state court rather than in a private arbitration. The majority and dissenting opinions in this case reflect the debate that litigants -- and courts -- often engage in when deciding whether to arbitrate claims arising out of disputes in the managed care industry. While a motion for reconsideration is pending, the majority opinion appears to be yet another example of courts finding ways to narrow the scope of arbitration clauses in the managed care arena and allow claims to proceed in court rather than in a private arbitration setting.
When determining whether a particular dispute is subject to arbitration, both Federal and State courts routinely express the strong public policy of enforcing arbitration clauses contained in contracts. This is particularly so when the clauses are worded broadly to encompass any and all disputes arising out of or related to the contract between the parties or their relationship. To overcome judicial resistance to arbitration, Congress enacted the Federal Arbitration Act, which reflects the national policy favoring arbitration and placing arbitration agreements on equal footing with all other contracts. Buckeye Check Cashing, Inc. v. Cardegna, 126 S.Ct. 1204, 1207 (2006). States have also enacted similar statutory schemes.
While deciding whether to employ federal court standards when evaluating arbitrability issues, the Ohio Supreme Court has rejected the arbitration of a provider antitrust suit in the face of a seemingly broad arbitration clause. That court has therefore now raised questions about the arbitrability of certain healthcare disputes in Ohio.
On March 1, 2006, the Ohio Supreme Court in Academy of Medicine of Cincinnati v. Aetna Health, Inc., 108 Ohio St.3d 185, 2006-Ohio-657, affirmed two lower court rulings precluding arbitration. The lower courts had refused to enforce arbitration on the ground that the physicians’ antitrust claims could be maintained without reference to their individual provider agreements. The physician plaintiffs contended that the defendants used their market power to illegally set low provider reimbursement rates in violation of antitrust laws. However, these physicians had provider agreements with United Healthcare which called for arbitration of any disputes arising out of the contracts. United therefore filed a motion to stay the litigation and to compel arbitration. The trial court denied the motion, explaining that since plaintiffs alleged a price fixing conspiracy among the defendants, the dispute did not “arise out of or relate to” the contracts or otherwise involve the business relationships between the parties. United appealed.
When reviewing the trial court decision, the appellate court relied upon a federal arbitrability test articulated by the United States Court of Appeals for the Sixth Circuit in Fazio v. Lehman Bros., Inc. 340 F.3d 386 (6th Cir. 2003). In Fazio, the Sixth Circuit held that “a proper method of analysis . . . is to ask if an action could be maintained without reference to the contract or relationship at issue. If it could, it is likely outside the scope of the arbitration agreement.” 340 F.3d at 395. Relying upon that standard, the intermediate court of appeals agreed with the trial court, holding that the antitrust claims were outside the scope of the arbitration provisions in the provider agreements.
The Ohio Supreme Court accepted United’s appeal on a narrow issue: In determining whether a cause of action is within the scope of an arbitration agreement, may a state court in Ohio base that determination on a federal standard that inquires whether the action could be maintained without reference to the contract or relationship at issue? Avoiding analysis of the underlying facts, the Ohio Supreme Court held that the lower court could use, and properly applied, the federal arbitrability standards.
In his dissenting opinion, Justice Lanzinger agreed that the Court of Appeals was correct in applying federal arbitrability standards. However, he found that the majority incorrectly articulated and analyzed the federal standard. According to his dissent, the federal standard -- including the test set forth in Fazio -- required an evaluation of whether the allegations “touch matters” covered by the agreement. Justice Lanzinger asserted:
Even if we were to apply the standard mistakenly used by the appellate court, it is difficult to see how antitrust actions may be maintained against the HMO provider “without reference to” the individual provider agreements. . . . The provider agreements constitute the alleged anticompetitive instruments that give the physicians standing to sue. . . . They contain the reimbursement rates allegedly implicating unlawful restraint. The antitrust conspiracy claims relate to the provider contracts that contain the broad clauses requiring arbitration of any dispute “about the business relationship” between the physicians and United Healthcare.
Justice Lanzinger faulted the majority for not properly applying the federal standards. He concluded that in determining whether a dispute is to be arbitrated, the true federal standard requires an inquiry into whether the allegations underlying the claims “touch matters” covered by the agreement. Given the connection of the antitrust claims to the provider agreements, he found they “touch matters” in those contracts and thus met the test for arbitrability. Accordingly, he would have compelled arbitration in favor of United Healthcare in this case. A second justice (Lundberg, S.) concurred with the dissent.
The conflicting opinions in Academy of Medicine of Cincinnati reflect the ongoing uncertainty about the reach of arbitration provisions. This is particularly difficult for the healthcare industry as health plan insurers and providers routinely use arbitration clauses in their contracts. For the most part, courts have traditionally enforced these types of provisions where the language broadly mandates arbitration of disputes arising out of the contract and the dispute centered on benefits or other claims clearly within the contract. However, with the advent of antitrust class action lawsuits and other business tort/statutory claims being presented in the healthcare arena, the need for clarity as to whether these matters are to be arbitrated is more important than ever. Unfortunately, decisions like Academy of Medicine of Cincinnati add to the uncertainty of arbitrability rather than provide clarity. This is particularly so in light of the fact that the U.S. Supreme Court in Buckeye Check Cashing just recently signaled continuing preference to enforce arbitration provisions. As the Ohio Supreme Court ruling would suggest, not all courts agree on the application of arbitration provisions and whether they should govern today’s complex litigation evolving from business disputes in the healthcare industry. Perhaps it is time for the U.S. Supreme Court to grant certiorari in Academy of Medicine of Cincinnati or the next similar healthcare case involving arbitrable questions to provide us with that clarity. Otherwise, in the future the healthcare industry might need to consider being overly inclusive when setting forth the scope of arbitration clauses.