Healthcare Policy & Law

CHAPTER 12

Healthcare Quality Policy and Law

Vicarious Liability

The concept of vicarious liability, which maintains that one party can be held legally accountable for the actions of another party based solely on the type of relationship existing between the two parties, is premised on the long-standing principles of “agency” law. Under this field of law, where one party to a relationship effectively serves (or is held out to society) as an agent of another party, a court can assign legal responsibility to the other party where the agent’s actions negligently result in injury to a person or damage to property. For example, vicarious liability allows a hospital to be held responsible in some situations for the negligent acts of the doctors that practice medicine under its roof—not because the hospital itself somehow acted negligently, but rather because the doctor is (or is viewed as by the law) an agent of the hospital.

One relatively easy way for a plaintiff to win a lawsuit premised on vicarious liability is to establish through evidence that the two parties at issue are engaged in an employer–employee relationship, and that the employee (i.e., the agent) was acting within the normal scope of her professional duties when the act of negligence occurred. In these instances, courts frequently look to the employer to adequately supervise the employee while on the job and hold the employer responsible when an employee’s negligent acts occur within the parameters of the employee’s job responsibilities.

However, many “agents” of the companies they are hired to work for are not formal employees; rather, they are hired as independent contractors. Indeed, this is true of most hospital–physician relationships. Historically, agency law respected hiring entities’ decisions to hire individuals as independent contractors rather than as employees, and the general legal rule is that employers are not accountable for the illegal actions of these contractors. Nonetheless, there are exceptions to this rule, and courts have developed theories of vicarious liability—such as actual agency, apparent agency, and nondelegable duty—that are more concerned with the scope of an employer–independent contractor relationship than with the formal characterization of the relationship as determined by the parties themselves. In other words, employers cannot avoid legal liability simply by labeling a hired worker as an independent contractor, because courts will analyze the relationship to determine whether it operates at the end of the day like a typical employer–employee relationship.

Actual agency exists—and the negligence of an independent contractor can be imputed to his employer—when the employer exercises de facto supervision and control over the contractor. Thus, for example, agency can be shown to exist between a healthcare corporation and a health professional when the particular facts pertaining to the relationship reveal that the corporation actually exercises control over the professional, even though the professional is not technically an employee. Similarly, the doctrine of apparent agency (also called ostensible agency) is another exception to the general rule that employers should not be legally exposed for the negligence of their independent contractors. In the context of health care, this type of agency exists, for example, when a patient seeks care from a hospital emergency department (rather than from any particular physician working in that department) and the hospital has led patients to believe that physicians are employees of the hospital (for example, via a billboard extolling the skills of the physicians who practice in its emergency department).21 Finally, courts have also associated the doctrine of vicarious liability with certain duties considered so important to society as to be legally “nondelegable.” For example, the importance of a hospital’s obligation to maintain control over the care provided in its emergency department led one court to rule that it would be improper for the hospital to claim immunity from vicarious liability when its independent contractor furnished substandard medical care.2

Corporate Liability

As opposed to vicarious hospital liability, which is predicated on the negligence of individual health professionals, corporate liability holds hospitals accountable for their own “institutional” acts or omissions. In other words, a hospital can also be held liable when its own negligent acts as a corporation cause or contribute to a patient’s injury. Several general areas give rise to litigation around hospitals’ direct quality of care duties to patients: failure to screen out incompetent providers (i.e., negligence in the hiring of clinicians), failure to maintain high-quality practice standards, failure to take adequate action against clinicians whose practices fall below accepted standards, and failure to maintain proper equipment and supplies.14

The most famous hospital corporate liability case is Darling v. Charleston Community Memorial Hospital.23 In Darling, the Illinois Supreme Court found Memorial Hospital liable for negligent treatment provided to plaintiff Dorrence Darling, an 18-year-old who suffered a broken leg while playing in a college football game. The poor treatment Darling received by the hospital’s emergency room staff—his leg cast was not properly constructed and its application cut off blood circulation—ultimately resulted in amputation of Darling’s leg below the knee. The court held the hospital liable not for the actions of the emergency room staff, but for its own negligence: according to the court, Memorial Hospital did not maintain a sufficient number of qualified nurses for postemergency-room bedside care (when Darling’s leg became gangrenous), and it neither reviewed the care provided by the treating physician nor required the physician to consult with other members of the hospital staff.

Insurer Liability

Like hospitals, conventional (i.e., indemnity) health insurers historically were not susceptible to being sued under tort principles; rather, they were subject mainly to breach of contract lawsuits when they failed to reimburse medical claims for services covered under beneficiaries’ health insurance policies. This stemmed from two related facts: first, normative insurer practice was to leave medical judgments and treatment decisions in the hands of doctors, meaning that it was rare for an insurer-related action to lead to the type of injury covered by tort law; second, to the extent that an insurer did deny a beneficiary’s claim for insurance coverage, it did so retrospectively—in other words, afterthe beneficiary received needed diagnostic tests, treatments, medications, and so on. This effectively meant that when beneficiaries sued their health insurer, they did so not because they had been physically or emotionally injured by the insurer’s decision to deny an insurance claim, but because there was a dispute as to whether the insurer was going to pay for the already-received medical care.24 Thus, although coverage denials had potentially enormous economic implications for affected beneficiaries, they did not tend to raise healthcare access or quality issues.

In the years following the Darling decision, however, courts began to apply tort liability principles to traditional indemnity insurers when their coverage decisions were at least partially responsible for an individual’s injury or death,25 which had the effect of opening insurers to a fuller range of potential damages (e.g., pain and suffering) than had been the case previously (when under breach of contract principles insurers were only liable for the actual cost of care they had initially declined to cover). This increased exposure to liability grew out of the fact that insurers were becoming more aggressive in their use of prospective coverage decisions, and courts were aware of how these types of coverage determinations could impact access to and the quality of health care. The advent of managed care as the primary mechanism for delivering and financing health care only magnified this concern given managed care’s use of techniques such as utilization review, and opened the door to one of the most contentious aspects of health services quality today: the extent to which patients can sue managed care organizations for negligent coverage or treatment decisions.