The answer is not straightforward, as it requires harmonizing complex and myriad healthcare laws with the far less regulated area of technology. Although there are no laws specifically addressing arbitration related to Digital Health, there are state laws that impose restrictions on arbitration agreements related to medical care and healthcare services. There is also a federal rule (albeit enjoined) and a revised, final federal rule (just enacted) imposing special conditions on arbitration agreements as to Long Term Care Facilities (LTCFs) and Skilled Nursing Facilities (SNFs).
Judicial scrutiny of a Digital Health app’s consumer arbitration agreement, therefore, may vary depending on whether the app provides healthcare or health services, and the relationship of the app, if any, to a healthcare provider or insurer. Although a determination of whether an app involves healthcare or health is fact-specific and unsettled, in light of the web of laws regulating the healthcare industry, determining the enforceability of an arbitration clause will likely differ between, on the one hand, Mobile Health Apps (defined as: apps that provide general health and well-being services), and, on the other hand, Mobile Healthcare Apps (defined as: apps that provide medical and/or healthcare services and that involve a regulated healthcare provider or medical practitioner).1
The Federal Arbitration Act
There is a strong public policy favoring arbitration, but an accompanying foundational precept that claims should be arbitrated only to the extent the parties have agreed. State legislatures and courts have historically been skeptical of consumer arbitration agreements. The Federal Arbitration Act (FAA) was enacted in response, stating a “written provision” in a contract “evidencing a transaction involving interstate commerce to settle by arbitration” of “a controversy. . .arising out of” that “contract. . .shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”2
The U.S. Supreme Court has recently taken an expansive view of the FAA and the preemption doctrine. In AT&T Mobility LLC v. Concepcion, the court held that a California precedent, which barred arbitration and class action waivers, was invalid under the FAA.3 Since Concepcion, lower federal courts and state courts have struggled with defining the limitations of the preemption doctrine under the FAA and the FAA’s savings clause that state contract law applies.4
E-Commerce Arbitration Clauses Are Routinely Enforced
There is no legal barrier to consumer arbitration provisions related to Internet-based agreements, or in electronic format. “Courts around the country have recognized that [an] electronic ‘click’ can suffice to signify the acceptance of a contract,” and that “[t]here is nothing automatically offensive about such agreements, as long as the layout and language of the site gives the user reasonable notice that a click will manifest assent to an agreement.”5
Healthcare Law Imposes Special Conditions on Arbitration
There is no federal or state statute or regulation that restricts or prohibits consumer arbitration agreements as to Digital Health, but there are many state laws and federal regulations restricting arbitration agreements related to healthcare and medical services.
1. The CMS Rule Restricting Nursing Home Arbitration Agreements
In October 2016, during the last year of the Obama administration, the Department of Health and Human Services’ Centers for Medicare & Medicaid Services (CMS) issued a final rule (2016 Rule) effective November 28, 2016, prohibiting Medicare and Medicaid-participating LTCFs and SNFs from entering "into predispute binding arbitration agreements with their residents or their representatives."11 The 2016 Rule also imposed a number of restrictions on post-dispute arbitration contracts, including that such a contract must be entered into by the resident voluntarily, that the parties must agree on the selection of a neutral arbitrator, and that the arbitral venue must be convenient to both parties.
The Northern District of Mississippi entered a preliminary injunction barring the 2016 Rule, pursuant to the FAA in Am. Health Care Ass'n v. Burwell.12 The government appealed the decision, but the new administration published a proposed revision to the 2016 Rule, and dismissed its appeal.13
Under the new administration, CMS proposed a revised rule in 2017, which was adopted in July 2019.14 The 2017 Final Revised Rule removes the requirements precluding facilities from entering into pre-dispute agreements and dictating the terms of the agreement. It retains many of the other aspects of the 2016 Rule, including prohibiting nursing homes from requiring residents to sign binding arbitration agreements as a condition for receiving care, and will require nursing homes to inform residents or their representatives that they are not required to sign a binding arbitration agreement. It also prohibits a provider from barring a patient from communicating with government agencies, and requires the terms be in “plain language” and posted in the facility.
2. State Laws Governing Healthcare Arbitration Agreements
A multitude of states restrict arbitration agreements arising from medical care and/or healthcare services. Usually, the states impose specific drafting requirements, such as: (1) the option to revoke the agreement within a certain amount of time; (2) specific language, in specific font size; and (3) precluding waivers as a condition of treatment. As an example, under California Code of Civil Procedure Section 1295 and California Health & Safety Code Section 1363.1, an arbitration agreement involving medical services or healthcare insurance must include specific, statutory language in 10-point bold red type on the first page, and a patient’s right to rescind the agreement up to 30 days after signing.15
While the Supreme Court has held that the FAA preempts state laws that prohibit arbitration because they conflict with the FAA objectives, two questions remain. First, does the FAA preempt a CMS federal regulation? Second, are state laws that do not ban arbitration agreements, but impose requirements or restrictions, preempted by the FAA? The state of the law – as to the FAA, preemption and statutes and regulations imposing restrictions on arbitration agreements – is less than clear.
3. The Preemption Doctrine: Battle of the Feds
The FAA does not apply where there is a contrary federal, congressional command that overrides the FAA.16 In Am. Health Care Ass'n, the court addressed the scope of preemption as to CMS, finding that in order to prove that a statute contains such authority, the party opposing arbitration must show intent from the statute's text, history, or purposes. The court concluded there should be either: (i) “an express statutory mandate,” or (ii) for agencies with “generalized statutory mandates,” there must be a record establishing the need for the restrictions. The Am. Health Care Ass'n court found that CMS had generalized authority, but had not sufficiently developed a record, with evidence, to support the limitations on arbitration agreements in the 2016 Rule in the face of the FAA.17
Given the 2017 Final Revised Rule was just recently adopted, when and if the rule is challenged, it is unknown whether a court will find that CMS has developed the requisite record to satisfy the Am. Health Care Ass'n. test, or whether other courts will adopt the same standard in determining the enforceability of a CMS Rule vis-à-vis the FAA.
4. The FAA Preempts State Laws Prohibiting Arbitration and Imposing Any Special Conditions as to Healthcare Arbitration Provisions
The second question is: whether a state statute escapes FAA preemption because it places restrictions on arbitration agreements, but does not ban them outright.18 The U.S. Supreme Court appeared to answer in the negative in Doctor's Associates, Inc. v. Casarotto, holding that the FAA preempted a Montana law mandating special notice requirements, which barred laws that “condition[ed] the enforceability of arbitration agreements on compliance with a special…requirement not applicable to contracts generally.”19
Many states, in particular California, continued to invalidate arbitration agreements in the healthcare arena despite Doctor's Associates. The courts cited to the FAA Section 2's saving clause, which authorizes a court to invalidate an arbitration agreement under generally applicable contract defenses, such as fraud, duress, or unconscionability, under state law, emphasizing the state’s public policy concerns as to healthcare and healthcare insurance.20
Recent Supreme Court decisions, however, have rejected lower courts and state supreme courts’ reliance upon public policy concerns. The High Court’s critical decision in Kindred Nursing Ctrs. Ltd P’ship v. Clark held that the FAA preempted a Kentucky state law that prohibited arbitration agreements signed by agents related to medical care to the elderly:21
The FAA. . .preempts any state rule discriminating on its face against arbitration—for example, a ‘law prohibit[ing] outright the arbitration of a particular type of claim.’ And not only that: The Act also displaces any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of arbitration agreements.22
In April 2019, the Supreme Court held that an ambiguity in an agreement could not be construed against the drafter or inferred to assume the parties agreed to class arbitration.23 Even California state courts have now held the FAA preempts state statutes and public policy concerns regarding arbitration agreements in healthcare.24
In drafting the e-commerce agreement, one should carefully consider applicable healthcare laws when the app is a Mobile Healthcare App, in particular, as the number of challenges to arbitration agreements has yet to decline. The current jurisprudence reflects there is no specific legal impediment to healthcare or health apps, assuming they comply with state contract law, except as to mobile apps related to LTCFs or SNFs. Given the uncertainty of the preemption doctrine as between the FAA and CMS, Digital Healthcare Apps involving LTCFs or SNFs should consider the 2017 Revised Final Rule.
In drafting the arbitration agreement, attorneys should ensure that the contract meets the requisite notice and consent requirements of contract law under the applicable state law and may want to:
- Determine whether the app is a Mobile Health App or a Mobile Healthcare App.
- Ascertain the involvement, if any, of a healthcare or medical provider or healthcare insurer in the app and, where a LTCF or SNF is involved, consider the 2017 Revised Final Rule.
- Use a clickwrap or scrollwrap agreement.
- Incorporate a delegation clause as to arbitrability. Example: “Whether a dispute is arbitrable shall be determined by the arbitrator.”
- Consider whether an opt-out provision is appropriate or technologically available.