Frank vs. Bowers

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On June 20, 2013, the Florida Supreme Court issued an opinion addressing arbitration clauses between healthcare providers and patients.  Franks v. Bowers, No. SC11-1258 (Fla. June 20, 2013).  This decision should be of interest to providers who have arbitration agreements in place or who are considering implementation of an arbitration program.

In an arbitration agreement between the patient and a physician group, the patient agrees that if any dispute arises during his or her treatment that the dispute will be decided by an arbitrator rather than by a court or jury.

In the new decision, the patient, Joseph Franks, sought medical treatment from North Florida Surgeons, P.A. (“NFS”) and Gary John Bowers, M.D.   Prior to his visit, Mr. Franks signed a Financial Agreement, which included the following provisions:

  1. Arbitration: Under this provision, Mr. Franks agreed that in the event of a dispute, including any negligence claim against Dr. Bowers or NFS, the parties would attend binding arbitration.  Arbitration would proceed even if one of the parties did not want to arbitrate or refused to attend arbitration.
  2. Limitation on Damages: Mr. Franks agreed that in the event of any dispute, including a negligence claim, the non-economic damages would be capped at $250,000.

After Dr. Bowers performed surgery on Mr. Franks, Mr. Franks died from complications resulting from the laceration of an external iliac vein during surgery.  Mr. Franks’ wife then filed a medical malpractice and wrongful death lawsuit against Dr. Bowers and NFS.

At the request of NFS and Dr. Bowers, the trial court ordered the parties to arbitrate the matter in accordance with the Financial Agreement that Mr. Franks signed, and the appellate court agreed.  The Supreme Court of Florida, however, reversed that decision, concluding that the Financial Agreement at issue was inconsistent with the legislative purpose and public policy contained within Florida’s Medical Malpractice Act (“MMA”).

Under the MMA, parties to a medical malpractice action can elect to have damages determined by binding arbitration.  If the parties agree to arbitration, then the MMA caps noneconomic damages at $250,000.  If either party does not wish to proceed to arbitration, then the case will proceed to trial.  In that situation, if the patient proves medical negligence and that negligence resulted in the patient’s death, then the patient can recover noneconomic damages in an amount up to $1,000,000 (or $500,000 where the patient does not die).  One caveat to that, however, is that if the case proceeds to trial because the patient refused the physician’s offer to arbitrate, then the noneconomic damages are capped at $350,000.

The legislature enacted these provisions of the MMA given the medical malpractice insurance crisis caused by the dramatic increase in the size and amount of claims being awarded to patients, as well as the significant amount of attorneys’ fees and litigation costs incurred in litigating such actions in a court.  The Court explained that the purpose of the MMA is to balance the rights of patients with the needs of doctors, and, in doing so, to limit the remedies available to patients.

While the Court acknowledged that parties are free to contract around statutory law, such as the MMA, it further explained that the Financial Agreement in this particular case “blatantly contravenes the intent provided by the Florida Legislature” in enacting the MMA, and, therefore, cannot be upheld.  That is, while the MMA provides for voluntary binding arbitration, the purpose of the arbitration provision is to provide incentives for patients and doctors, thereby limiting their attorneys’ fees, costs, and delay.  While the Court found that the Financial Agreement in this case satisfies the MMA by requiring the parties to submit to arbitration, the Financial Agreement removed the incentives provided by the MMA for a patient to arbitrate.  In particular, the Court explained that the MMA arbitration provision requires the physician to admit liability, thereby saving a patient the time and expense of proving the physician was negligent.  On the other hand, a physician has an incentive to arbitrate in order to ensure any noneconomic damages are capped at $250,000.

In this case, however, the Court explained that by requiring the parties submit to arbitration and capping noneconomic damages at $250,000, the Financial Agreement removed any requirement that the defendant admit liability.  In essence, Mr. Franks’ wife was required to not only prove the amount of damages at arbitration, she was also required to prove liability, thereby removing any incentive for her to agree to arbitration as intended under the MMA.  As the Court stated, the “incentive provided to claimants to encourage arbitration is a necessary provision of the MMA.”

While not all arbitration provisions may be as inconsistent with the MMA as the Court found this one to be, the Court stated that any arbitration contract that seeks to enjoy the benefits of the arbitration provisions under the MMA (that is, any arbitration provision that caps damages), must necessarily adopt all of the MMA’s arbitration provisions.  Given the Court’s decision, that all physician groups should have their arbitration agreements reviewed and revised to ensure consistency with the MMA and the Court’s holding in Franks v. Bowers.  The silver lining to this decision may be that the Court struck down this agreement based on one narrow issue.  In implication, therefore, is that if this narrow issue is addressed to the Court’s satisfaction in another agreement, it would uphold that agreement.

It is important, however, to consider the legal ramifications of admitting liability and proceeding to arbitration in order to cap damages.  For example, under Florida law, a physician found to have committed repeated malpractice, that is three incidents of malpractice, may no longer maintain a medical license.  A decision from binding arbitration is considered one such strike against a physician.  Furthermore, any medical malpractice action that results in a judgment against the physician or even a settlement agreement must be reported to the National Practitioner Database.  Thus, it is imperative that physicians consult with legal counsel before deciding whether to settle a malpractice action, or whether to proceed to arbitration or trial.  Physicians should also be mindful that given these additional legal ramifications, they may wish to consult with independent counsel since their medical malpractice insurers likely have different considerations when determining how to proceed.