Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

The Price of Admission: Liability and Responsibility for Nursing Home Expenses

Caring for elderly relatives and clients has numerous costs, both financial and otherwise, but liability for another’s nursing home expenses isn’t a burden everyone needs to assume.  How you handle the nursing home admission agreement can make a significant difference in determining who’s responsible and what options the parties retain.

Whether you advise clients or are assisting your elderly parent, there are certain things you need to know before anyone signs a nursing home admission agreement.

The agreement may appear innocuous, but a third party who signs a nursing home admission agreement may be personally liable for services provided or mandated to arbitrate as the means to resolve a dispute.  Thus, reviewing and understanding a nursing home admission agreement before it’s signed can prevent unpleasant surprises down the road if the resident runs out of money to pay the nursing home bill.

Signature Blocks
The typical nursing home admission agreement contains five signature blocks: 1) one for the applicant/resident; 2) one for the resident’s spouse; 3) one for the resident’s legal representative; 4) one for a “responsible party”; and 5) one for a guarantor.  A legal representative is a third party, such as an attorney-in-fact under a valid power of attorney, the resident’s conservator or guardian, or a representative payee.  A “responsible party” is a third party who has access to and agrees to use the resident’s income and assets to pay for the resident’s care.  A guarantor is a third party who agrees to be personally liable for the resident’s liabilities.

State & Federal Requirements
Federal law controls admissions to federally subsidized nursing facilities and skilled nursing facilities (“nursing homes”), and most nursing homes participate in federal programs.1 Nursing homes must also follow state law, and the state’s legal requirements may differ significantly from those imposed by federal law.  Federal law does not preempt stricter state standards.2

Minnesota’s statute governing nursing home admission agreements, Minn. Stat. §144.6501, purports to level the playing field between the corporate nursing home, on the one hand, and the individual, often elderly and ill, resident, on the other.  Certain provisions of the state statute control the content and format of the agreement itself.  For example, the contract must include a written notice in the signature block, “in bold capital letters, that a person other than the resident or financially responsible spouse may not be required by the facility to assume personal financial liability for the resident’s care.”

Other statutory provisions dictate the practices and procedures a nursing home must follow when it becomes party to the nursing home admission agreement.  The statute mandates that copies of the admission agreement must be made available to potential residents, provides that a nursing home must not make false or misleading statements within the contract, and requires a nursing home to make reasonable efforts to communicate the content of the nursing home admission agreement with the resident.  In sum, these provisions prevent a nursing home from hurrying the resident into signing, simply asking the resident to sign at the “X,” or saying that the documents are “routine” or “just a formality.”

Still other provisions control the formalities in legalizing the agreement.  The resident must sign the contract unless the resident is incapacitated or cannot understand or sign the agreement because of their medical condition.  If the resident cannot sign, the nursing home may request the signature of another person on behalf of the applicant.  Once signed, a signed copy must be given to the resident.

Spousal Responsibility
Either spouse is legally bound to pay the other resident spouse’s nursing home bill.  Minnesota’s spousal duty statute provides: “where husband and wife are living together, they shall be jointly and severally liable for necessary medical services that have been furnished to either spouse, and necessary household articles and supplies furnished to and used by the family.”3 Even a valid prenuptial agreement that waives financial responsibility for medical expenses cannot sever the financial obligation one spouse has to pay for nursing home expenses for the resident spouse.4

The Minnesota Court of Appeals recently considered the extent of Minnesota’s spousal duty obligation in In the Matter of Revocable Trust of Naomi Margolis.5 This case involved a couple in a second marriage who had a prenuptial agreement. The husband/trustee signed his wife’s nursing home admission agreement as spouse.  Over the next few years, the husband/trustee paid more than $200,000 out of his wife’s trust account to pay for her care.  After her death, the wife’s children, who were co-beneficiaries of her trust, sued the husband/trustee, arguing that he should have been personally responsible for his wife’s nursing home bill.

Even though the express language of the wife’s trust authorized trust assets to be used for her “support, maintenance, and health,” the court found for the children.  The court, focusing on the statutory fiduciary obligations of the husband/trustee and his spousal duties, held that the husband/trustee had both a contractual and a statutory obligation to provide for his wife’s care.  The court did not address whether, under the facts of this case, where the husband and wife were not living together, the “community” spouse is obligated to pay for the resident spouse’s care.

Based on the broad holding in Margolis, it is unlikely that any Minnesota spouse can avoid liability for the other spouse’s “necessary medical expenses.”  However, because a husband and wife may divorce after one of them enters a nursing home, the spouse not entering the home should not sign the other’s nursing home admission agreement. Spouses may be obligated under law to provide for each other while married, but following a divorce, one will not want to be contractually liable as a direct party for the other’s nursing home bill.  Where husband and wife divorce after one of them enters a nursing home, the dissolution decree should address which party is responsible for paying the nursing home bill.

Others’ Responsibility
Many states have filial duty statutes that require adult children or other close relatives of an indigent person to provide financial support for that person.  Minnesota’s filial duty statute, which provided in part that “[e]very poor person who for any reason is unable to earn a livelihood shall be supported by his children, parents, brothers, and sisters, grandchildren or grandparents …,” was repealed in 1974.6 Therefore, unlike a nursing home resident’s spouse, children and other relatives are not obliged to pay for their parents’ or other more distant relatives’ nursing home expenses.

Generally speaking, an attorney-in-fact has a fiduciary obligation to carry out the principal’s wishes regarding the disbursement of the principal’s funds.  The attorney-in-fact, however, “has no affirmative duty to exercise any power conferred upon the attorney-in-fact under the power of attorney.”7 Should the attorney-in-fact choose to act, Minnesota’s power-of-attorney statute provides that an attorney-in-fact is to exercise the power in the “same manner as an ordinarily prudent person of discretion and intelligence would exercise in the management of the person’s own affairs and shall have the interests of the principal utmost in mind.”8

Under principal/agency law, an attorney-in-fact acting for an informed principal is not a party to the agreement because the attorney-in-fact isn’t acting in a personal capacity.  Because the relationship is strictly between the principal and the agent, not between the agent and a third party, the agent is usually not personally liable to a third party.  Personal liability is imposed only if the attorney-in-fact injures a party while acting in bad faith.9

Federal law prohibits nursing homes from requiring, as a condition of admission, that a third party—commonly called a “responsible party”—guarantee payment of any unpaid expenses incurred by the home on behalf of the resident.10 The language of the statute also prohibits nursing homes from conditioning expedited admission or continued residence in a particular facility on any third-party guarantee of payment.11 By the plain wording of Minnesota’s statute, nursing homes may request third party guarantors and may even solicit a responsible party signature.  Likewise, a third party may volunteer to cover any expenses.  However, a third-party guarantor is not required as a condition of admission or retention.12

Thus, even though nursing homes can hold a resident or a resident’s spouse financially liable for costs associated with care, a nursing home cannot hold third parties liable without the third party’s express, voluntary consent.

Responsible Parties
Under Minnesota law, a “responsible party” isn’t just any third party who agrees to use the nursing home resident’s assets to pay the resident’s bill.  Rather, a “responsible party” is a person who has access to the resident’s income and assets and agrees to use them to pay for the resident’s care.13 The statute provides that a “responsible party” does not typically assume personal financial liability for the resident’s care but that personal liability can be imposed if the resident’s income or assets are misapplied.14

Minnesota’s seminal case on this topic is Northfield Care Center, Inc. v. Anderson.15 In this case, the resident’s son signed the nursing home admission agreement as attorney-in-fact and responsible party, even though his signature was not required by the terms of the contract.  After the resident’s death, the nursing home attempted to collect, from the son, the approximately $3,800 due.  The nursing home brought an action, and judgment was for the nursing home in both conciliation court and district court.

On appeal, the Minnesota Supreme Court considered whether the son was obligated as a responsible party under the contract.  The court reasoned that the admission agreement did not require a responsible party signature and that Minnesota law was unambiguous in obligating a responsible party under certain circumstances.  The court held that “a responsible party shall be personally liable only to the extent the resident’s income or assets were misapplied” and remanded the case for a determination on that point.

This case illustrates that varying federal and state standards can be confusing.  Even though the son voluntarily signed as “responsible party” as permitted by federal law, thus making him personally liable for outstanding payments to the nursing home, under Minnesota law, he can only be held personally liable if he is found to have misapplied the resident’s funds.

In another Minnesota case, the adult children avoided responsible party and fiduciary liability by the skin of their teeth.  In this case, Extendicare Health Services, Inc. v. Henderson,16 after the resident’s death, her two sons were sued by the nursing home for the unpaid balance on their mother’s account. One son had signed the admissions agreement as the “responsible party.”  The other son had not signed the agreement but was the personal representative of his mother’s estate.

The trial court determined that, under Minnesota law, for a “responsible party” to be personally liable, that party must: 1) have access to the resident’s assets; and 2) agree to apply those assets to pay for the resident’s care or agree to apply for medical assistance on the resident’s behalf.  In the case of the first son, the court found that while he had agreed to apply his mother’s assets to her care, he did not have access to those assets because he was not her legal representative.  Regarding the second son who was his mother’s legal representative, the court found that while he had access to his mother’s assets, he had not agreed to apply them toward her care since he had not signed the nursing home admission agreement.  The appellate court affirmed.  In dicta, the court warned that nursing home contracts that appear to require a “responsible party” signature may violate Minnesota statutes.

Mandatory Arbitration Clauses
While courts nationwide were glutted with nursing home litigation involving personal liability in the late 1990s and early to mid-2000s, there have been relatively few cases since 2005.  This could be due to the increased use of mandatory arbitration clauses in nursing home admission agreements.

Arbitration, a kind of alternative dispute resolution, provides a “forum in which a neutral third party renders a specific award after presiding over an adversarial hearing at which each party and its counsel present its position.”17 While similar to litigation, the arbitration process limits the discovery process, is a private forum, and is not presided over by a judge.18 Nursing homes often include mandatory arbitration provisions in their contracts because arbitration limits jury awards and allegedly reduces the cost of dispute resolution.

Most states that have specifically addressed the issue have found arbitration clauses in a nursing home admission agreement to be enforceable.19 The rationale for doing so includes the federal policy favoring arbitration, findings that such clauses are neither procedurally nor substantively unconscionable, and the parties’ ability to freely contract.  The United States Supreme Court has ruled—but not in the context of nursing home admission agreements—that arbitration agreements should be placed on the same footing as other contracts,20 that questions regarding the enforceability of an arbitration agreement should be resolved in favor of arbitration,21 and that the states may broaden the scope of arbitrable disputes beyond those allowed by the Federal Arbitration Act (“FAA”).22

The Minnesota counterpart to the FAA, the Uniform Arbitration Act (“UAA”), governs the enforceability of arbitration clauses in Minnesota.23 The stated purpose of the UAA is to encourage parties to resolve their disputes in a forum chosen by the parties, to discourage litigation, and to encourage the informal, speedy, and inexpensive resolution of disputes. In pertinent part it reads:

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.24

While Minnesota case law typically favors arbitration, courts have declined to enforce arbitration clauses under a couple of narrow fact scenarios.  For example, a party who has not agreed by contract to arbitration cannot be compelled to arbitrate a dispute.25 Also, oral agreements to arbitrate are not enforceable.26

Critics argue that while arbitration may be a good thing in general, mandatory arbitration provisions in nursing home admission agreements are inherently unfair, especially since the resident may not have the opportunity or ability to read or understand the entire nursing home admission agreement.27 They say that litigation—with full discovery and other litigation conventions, stricter statutory construction, and in view of the public eye—better protects residents’ rights.

In 2008, legislation that would invalidate arbitration provisions within nursing home admission agreements was introduced in the United States Senate.  Specifically, the bill was drafted to amend section 2 of the Federal Arbitration Act to read: “A pre-dispute arbitration agreement between a long-term care facility and a resident of a long-term care facility (or anyone acting on behalf of such a resident, including a person with financial responsibility for that resident) shall not be valid or specifically enforceable.”28 Under the proposed legislation, arbitration would still be available for those who choose arbitration once a dispute arises.

The bill passed out of committee in both the House and Senate, but no votes were taken.  Thus, unless a member of Congress reintroduces the bill in another session, it appears as though Minnesota courts may have to decide some day whether an arbitration clause in a nursing home admission agreement is enforceable.

See 42 U.S.C. §1395i-3(c)(5)[Medicare] and 1396r(c)(5)[Medical Assistance]; see 42 C.F.R. 483.12(d) for related administrative rules.
See 42 U.S.C. §§1395i-3c(5)(B)(i), 1396r(c)(5)(B)(i).
3 Minn. Stat. §519.05(a).  See earlier (now amended) language: “A spouse is not liable for any debts of the other spouse, except for necessaries furnished to the other after marriage, where the spouse would be liable at common law.”
See Minnesota Department of Human Services Health Care Programs Manual §19.15.
In the Matter of Revocable Trust of Naomi Margolis, 731 N.W.2d 539 (Minn. App. 2007).
6 Minn. Stat. §261.01.  Repealed by Laws 1973, c. 650, art. 21, §33.  See generally Matthew Pakula, “A Federal Filial Responsibility Statute: A Uniform Tool to Help Combat the Wave of Indigent Elderly,” 39 Fam. L.Q. 859, 862 (2005).
7 Minn. Stat. §523.21.
IdSee e.g., Northfield Care Center v. Anderson, 707 N.W.2d 731 (Minn. App. 2006).
10 42 U.S.C. §§1395i-3(c)(5)(A)(ii), 1396r(c)(5)(A)(ii).
11 Id.
12 Minn. Stat. §144.6501, Subd. 4(d).
13 Minn. Stat. §144.6501, Subd. 1(d).
14 Minn. Stat. §144.6501, Subd. 4(d).
15 Northfield Care Center, Inc. v. Anderson, 707 N.W.2d 731 (Minn. 2006).
16 Extendicare Health Services, Inc. v. Henderson, 2007 WL 968896, *1 (Minn. App. 2007) (unpublished).
17 Minn. R. Gen. Prac. 114.02(a)(1).18 See Minn. R. Gen. Prac. 114.09.
19 See, e.g., Miller v. Cotter, 863 N.E.2d 537 (Mass. 2007); Owens v. National Health Corp. 2006 WL 1865009 (Tenn. App. 11/20/06).
20 Elizabeth K. Stanley, “Parties’ Defenses to Binding Arbitration Agreements in the Health Care Field & the Operation of the McCarran-Ferguson Act,” 38 St. Mary’s L.J. 591, 599 (2007).
21 Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
22 See Perry v. Thomas, 482 U.S. 483, 492 n.9 (1987); Katharine Kuhn Galle, Comment. “The Appearance of Impropriety: Making Agreements to Arbitrate in Health Care Contracts More Palatable,” 30 Wm. Mitchell L. Rev. 969, 978 (2004).
23 Minn. Stat. §572.08-572.30.
24 Minn. Stat. §572.08.
25 Schoenborn v. State Farm Auto Ins. Co., 495 N.W.2d 460, 463 (Minn. App. 1993).
26 See Anderson v. Federated Mut. Ins. Co., 465 N.W.2d 68, 50, 69-70 (Minn. App. 1991), aff’d 481 N.W.2d 48 (Minn. 1992).
27 See generally, Elizabeth K. Stanley, supra n. 20; Katherine Palm, “Arbitration Clauses in Nursing Home Admission Agreements: Framing the Debate,” 14 Elder L.J. 453 (2006); Christopher B. Hopkins, “The Perils of Enforcing ‘Favored’ Arbitration,” 24 No. 1 Trial Advoc. Q. 30 (Winter 2005); Ann E. Krasuski, “Mandatory Arbitration Agreements Do Not Belong in Nursing Home Contracts with Residents,” DePaul J. Health Care L. 263 (2004).
28 S. 2838, 110th Cong. (2008); H.R. 6126, 110th Cong. (2008).

Executing the Agreement

Whether you are involved professionally on behalf of a client or personally on behalf of an aging parent or relative, several guidelines are worth remembering in handling a nursing home admission agreement.

  • Review the Agreement Prior to Signing.  Given the possibility that a nursing home may try to find a third party liable under a nursing home admission agreement or that the agreement may include a mandatory arbitration provision, it behooves the prospective resident, the resident’s legal representative, and/or the resident’s family to thoroughly review the agreement before signing or retain counsel to review the agreement.
  • Only the Resident Should Sign.  When preparing to sign, keep in mind that only the resident should sign the nursing home admission agreement.  If the resident can’t sign, the nursing home cannot require another person’s signature.  No third party, with the possible exception of a legal representative such as an attorney-in-fact, should sign the agreement.  To avoid difficulty in case the parties later divorce, a spouse should not sign the agreement.  If the resident’s attorney-in-fact does not agree to serve as a responsible party, does not have access to the resident’s income or assets, has resigned, or if the resident has revoked the power of attorney, the attorney-in-fact should not sign.  A fiduciary who does have legal control of assets, however, could sign in the signature block for the resident.  In that case, the fiduciary should sign as follows: “Jill Johnson, by her Attorney-in-Fact, Dave Anderson.”  Any third party signing a nursing home admission agreement in any capacity should strike out any clauses that reference third party liability.
  • No Responsible Party or Guarantor Should Sign.  When reviewing the agreement, remember that although nursing homes may pressure third parties to sign the nursing home admission agreement, it is against the law for a nursing home to require the signature of a responsible party.  No one should sign as responsible party.  No one should sign as personal guarantor.
  • Strike Mandatory Arbitration Clauses.  Mandatory arbitration provisions should be stricken, no matter who signs the agreement, and even if no one signs the agreement.  Nothing precludes the resident and nursing home consenting to arbitration in the future.

SUSAN T. PETERSON is the chair of the Estate Planning Department at the firm of Henningson & Snoxell, Ltd., located in Maple Grove, Minnesota.  She practices principally in the areas of estate planning, probate, estate and trust administration, and elder law.  Susan is admitted to practice in all Minnesota and federal courts and is a member of the National Academy of Elder Law Attorneys.  She received her law degree summa cum laude from the William Mitchell College of Law.

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