October 12, 1976

Mr. Max A. Gors, Secretary
Commerce and Consumer Affairs
State Capitol
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 76-98

Application of SDCL 21-25B-1 and 21-25B-3 to health main­tenance organization contracts

Dear Mr. Gors:

You have requested an opinion from this office based on the following facts:

FACTS:

The 1976 Legislature enacted SDCL 21-25A-l, 21-25B-1 and 21-25B-3, providing for voluntary arbitration of controversies aris­ing between the parties. The said statutes state in part, "The agree­ment to arbitrate is not a prerequisite to health care or treatment. By signing this contract you are agreeing to have any issue of medical malpractice decided by neutral arbitration and you are giv­ing up your right to a jury or court trial."

Western South Dakota Health Care, Inc., a health maintenance organization, has requested that they be allowed to include an ar­bitration agreement in their enrollee contracts as a condition for membership in said health maintenance organization. If the poten­tial member does not sign this agreement, he is not eligible for membership in the health maintenance organization.

Western South Dakota Health Care, Inc., contends that the re­quirement to arbitrate is a condition to becoming an enrollee of the health maintenance organization only and consequently should not be viewed as a prerequisite to receiving health care or treatment. In other words, their membership would be limited to only those per­sons who are willing to voluntarily enter into binding arbitration agreements in respect to those health care services provided through the health maintenance organization.

Based on the above facts, you ask:

QUESTIONS:

(1) By making such an arbitration agreement mandatory as a condition for enrollment in the health maintenance organiza­tion, is this a "voluntary agreement" under SDCL 21-25A-l, 21-25B-1, and 21-25B-3?

(2) By making such an arbitration agreement mandatory as a condition for enrollment in the HMO (health maintenance organization), is this not making the agreement to arbitrate a prerequisite to health care or treatment?

SDCL 21-25A-1, 21-25B-1 and 21-25B-3 provide:

21-25A-1. A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to ar­bitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives.

21-25B-1. Voluntary agreements pursuant to §21-25A-1 between hospitals or physicians and patients relating to services provided to the patient may, by their terms, provide for past and future services by and between the parties to the agreement; provided, however, that any party to such an agreement may terminate it as to future services by giving written notice to all other parties thereto, and such termination shall in no way affect or alter the arbitration of controversies arising as to services rendered prior to the giving of such notice.

21-25B-3. The arbitration agreement between hospitals or physi­cians and patients shall contain the following provision in twelve-­point boldface type immediately above the space for signature of the parties: "The agreement to arbitrate is not a prerequisite to health care or treatment. By signing this contract you are agreeing to have any issue of medical malpractice decided by neutral arbitra­tion and you are giving up your right to a jury or court trial."

SDCL 58-41-58 provides:

Every health maintenance organization shall establish and maintain a complaint system, approved by the director after consultation with the secretary, including an impartial arbitration provision, to provide reasonable procedures for the resolution of written com­plaints initiated by enrollees concerning the provision of health care services. Arbitration shall be made available to enrollees, except

(1) in the event that an enrollee elects to litigate his complaint prior to submission to arbitration, and

(2) that no medical malpractice damage claim shall be subject to arbitration, except as provided in chapter 21-25B.

Although the language of SDCL 21-25B-1 and 21-25B-3, by their terms, deals only with agreements between hospitals or physicians and patients, the provisions of SDCL 58-41-58 do deal with health maintenance organiza­tions. Subdivision (1) of SDCL 58-41-58 indicates to me that health maintenance organizations are not to make arbitration a "sine qua non" of health care and treatment under their program. Arbitration is to be an available option, but not a prerequisite to health care or a mandatory pro­cedure for enrollees to follow under the health maintenance organization plan.

This conclusion is further supported, I believe, by subdivision (2) of SDCL 58-41-58 wherein specific reference is made to medical malpractice claims being subject to arbitration only as provided in Ch. 21-25B. This specific addition was added in 1976 to the health maintenance organization law in an obvious reference to the medical malpractice arbitration bill passed by the 1976 Legislative Session (Ch. 155, Session Laws of 1976).

Although subdivision (2) of SDCL 58-41-58 is not as specific as it might have been as to what the exact correlation between Ch. 58-41 and Ch. 21-25B was intended to be, there is little doubt that the Legislature intended Ch. 21-25B to be controlling as far as medical malpractice arbitration is concerned. This leads me to conclude that the law implicitly, if not explicit­ly, requires a health maintenance organization’s contract terms relating to arbitration of medical malpractice damage claims to conform to the spirit as well as the letter of Ch. 21-25B. Certainly, the intent of the Legislature is clear in Ch. 21-25B that an arbitration agreement is not to be a prerequisite to medical care or treatment.

In my opinion, health maintenance organizations cannot insist on arbitra­tion being a prerequisite to medical care or treatment in their enrollee con­tracts. To allow a health maintenance organization to insert such a man­datory arbitration provision as a prerequisite to health care or treatment under its plan would not only be contrary to SDCL 58-41-58 and Ch. 21-25B, but would also be to ignore the well-established rule of law that what the law directly prohibits, the law will not indirectly allow. McFarland v. Barron, 83 S.D. 639, 164 N.W. 2d 607, 614 (1969).

Respectfully submitted,

WILLIAM J. JANKLOW
ATTORNEY GENERAL

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