Incapacity planning is a major component of an estate plan.  Quite often people name one person to serve as a health care agent and another person to serve as a financial agent.  What role does one agent have as opposed to the other in the context of contracting for medical services?

While the Probate Code does not provide a bright line, a recently-published California case explores the question in the context of the admission of a patient to a residential care facility for the elderly.  The Third District Court of Appeal, in Hutcheson v. Eskaton FountainWood Lodge (2017) ___ Cal.App.5th ___, found that the health care agent was the one authorized to admit the patient and the facility’s failure to obtain consent from that agent nullified an arbitration clause, thus exposing the facility to litigation in Superior Court.

What happened Barbara Lovenstein?

In 2006, Barbara Lovenstein signed an advance health care directive (sometimes known as a power of attorney) appointing her niece Robin Hutcheson as her agent (or attorney-in-fact) to make health care decisions for her, including the power to authorize her admission to a “medical care facility.”

Four years later, Lovenstein executed a financial power of attorney that followed the form in California Probate Code section 4401.  Lovenstein appointed both her sister Jean Charles and her niece Hutcheson as her agents, with each one having authority to act.  Charles and Hutcheson were given authority to act on behalf of Lovenstein with respect to “claims and litigation” and “personal and family maintenance.”  Lovenstein lived with Charles, but wanted Hutcheson to make health care decisions for her.

In 2012, Charles admitted Lovenstein to Eskaton FountainWood Lodge, a residential care facility for the elderly (RCFE).  Charles signed the admission agreement on behalf of Lovenstein and that agreement had an arbitration clause.  FountainWood received the 2006 health care directive, but did not require Hutcheson to sign the agreement.

Lovenstein was suffering from dementia and seizures.  She had a prescription for Ativan.  The facility’s staff allegedly began giving her doses of Ativan to alleviate anxiety and agitation, rather than to treat seizures.  Lovenstein choked on her food within a month of arriving at the facility, was diagnosed with aspiration pneumonia, and soon died.

Hutcheson sued in Sacramento County Superior Court for elder abuse and fraud as Lovenstein’s successor in interest.  FountainWood petitioned to compel arbitration based on the arbitration clause in the admission agreement.

Who had authority to admit Lovenstein?  The financial or the health care agent?

The trial court (Judge David Brown) denied the petition to compel arbitration, concluding that the admission to the facility was a health care decision, and Hutcheson as health care agent never signed the admission agreement, thus leaving her free to pursue her claims in court.

The Court of Appeal in Sacramento agreed.  In its opinion, the court explored the contours of financial powers of attorney under the Power of Attorney Law, and advance health care directives under the Health Care Decisions Law, in the particular setting of a patient placed for dementia care in an RCFE.

An RCFE, the court explained, is a housing arrangement where varying levels and intensities of care are provided to patients.  Much of what RCFEs provide is “personal care,” which includes activities of daily living such as dressing, feeding, toileting, bathing and grooming.  But RCFEs also may provide dementia care, such as hydration, skin care and therapeutic activities, as well as “incidental medical services.”

According to the California Assisted Living Association, RCFEs are “highly regulated with a robust body of laws and regulations designed to promote resident independence and self-direction to the greatest extent possible in a residential, nonmedical setting.”

Since FountainWood offered to provide dementia care to Lovenstein, only her agent under her health care directive could contract for the care.  Hence, FountainWood did not enter into an enforceable contract with Charles because she was not Lovenstein’s health care agent.

The court’s ruling amounted to a double whammy for FountainWood.  In addition to having to defend the lawsuit before a jury, as opposed to defending in the arbitration setting, FountainWood would not be entitled to the liability protections of California’s controversial Medical Injury Compensation Reform Act of 1975 (“MICRA”).

MICRA caps the noneconomic (e.g., pain and suffering) damages that a plaintiff may recover in a medical malpractice action against a “health care provider.”  Oddly, FountainWood was not such a provider for MICRA purposes, but it was “health care institution” for purposes of the Health Care Decisions Law.  Hence, MICRA would not cap damages against FountainWood, exposing it to greater liability.

The appellate court acknowledged FountainWood’s concern about liability, but left it to the Legislature to address the issue.  The court stated that RCFEs “can protect themselves against unlimited liability by ensuring [their] health care agreements containing arbitration clauses are executed by persons having legal authority to do so.”

Takeaways from Hutcheson v. Eskaton FountainWood Lodge

Advance health care directives determine who can contract for health care on behalf of an incapacitated person.

Businesses operating RCFEs in California will tighten their procedures with respect to admitting patients, requiring that agents operate under a valid advance health care directive rather than a financial power of attorney.

It appears likely that the RCFE industry will lobby for a legislative fix in 2018.