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Arbitration Clause in Invoice for Medical Records from Medical Provider to Patient’s Attorney Found Unenforceable by New Jersey Court

By on July 29, 2016 in Arbitration with 0 Comments

Medical Records Online, Inc. (MRO) is a third party medical records processor of requests for medical records from hospitals and physicians, including Kennedy Memorial Hospitals (“Kennedy”). Plaintiff, Bernetich, Hatzell & Pascu, LLC (BH&P), is a personal injury law firm who sought to obtain records from Kennedy on behalf of a prospective client. MRO’s invoice for such records contained an arbitration clause if BH&P disputed the invoice. In Bernetich, Hatzell & Pascu, LLC v. Med. Records Online, Inc., 445 N.J. Super. 173 (App. Div. 2016), BH&P filed a class action, alleging that MRO overcharged BH&P and other requested providers. MRO responded by filing a motion to compel arbitration. The issue in this case was whether that arbitration clause was enforceable under New Jersey law.

BH&P had sent Kennedy Hospitals a medical records request on behalf of their prospective client, J.H., who authorized BH&P to obtain his medical records. In response, MRO sent BH&P an invoice for $204.19. MRO required prepayment before it would release the records. The invoice contained an arbitration clause that provided if BH&P disputed the invoice, it had to arbitrate its dispute.

MRO retrieved 271 pages of records. Its fees consisted of a $10 search and retrieval fee, $1.19 for postage and $193 per page fees. The fees were calculated at the rate of $1.00 per page for pages one through 100 and 25 cents a page for additional pages.

After paying the invoice, BH&P filed a class action suit, claiming that MRO overcharged it and other records requesters. In the suit, BH&P asserted that patients and their authorized agents are legally entitled to their medical records and that health care providers may only charge a cost-based fee.  BH&P claimed that MRO’s per page fee was unrelated and far exceeded its actual costs in retrieving electronically stored medical records and transferring them onto a disk. It claimed that these practices violated the New Jersey Consumer Fraud Act, among other claims. MRO, in response, filed a motion to compel arbitration or, in the alternative, to dismiss for failure to state a claim.

The trial court denied MRO’s motion to compel arbitration based upon the Atalese v. U.S. Legal Servs. Grp., L.P., 219 N.J. 430 (2014) case, holding that the invoice was a consumer contract that did not put BH&P on notice that by paying the invoice, it was waiving its right to litigate.

On appeal to the New Jersey Appellate Division, MRO contended that the arbitration provision was enforceable, that this invoice was not a consumer contract, and that BH&P waived any objection by paying the invoice. BH&P disputed these contentions and, further, argued that the arbitration provision was unenforceable because it was unilateral. Because MRO had a legal duty to provide the requested records, BH&P argued that this provision was unlawful.

The Appellate Division noted that a patient has a qualified privilege under state and federal law to inspect or obtain copies of his medical records. Based upon New Jersey regulations, a hospital may only charge its actual costs incurred to provide records requested by its patient. The per page amounts set forth in the regulations only establish the maximum a patient may be charged.

As for whether the arbitration clause was enforceable, the court applied fundamental principles of contract law. To be enforceable there must be consideration, which is essential to form a valid contract. Consideration means both sides must “get something” out of the contract.

The requirement for consideration is not met by fulfilling a pre-existing duty. In this case, MRO had a pre-existing statutory duty to provide medical records upon the request of a patient or the patient’s legally authorized representative. Because BH&P had a pre-existing right to the records for a cost-based fee, it did not “get something” of the alleged agreement to arbitrate that it did not already have. Further, MRO was providing nothing in exchange for an agreement to arbitrate because it was already obligated to provide the records. Thus, the Appellate Division found that the agreement to arbitrate lacked consideration. Accordingly, it held that BH&P may not be forced to arbitrate its dispute with MRO.

The court did not even reach the issue of the contract being unenforceable under Atalese because it found that the clause failed due to lack of consideration. The Appellate Division affirmed the trial court, finding the arbitration provision unenforceable.

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Betsy G. Ramos

About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 25 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

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