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CHAPTER

243

LIABILITY OF THE HEALTHCARE INSTITUTION

A s mentioned in chapter 1, the history of healthcare institutions begins with the almshouses of the Middle Ages. From then until the mid- nineteenth century, those institutions had little to do with medical care

and more to do with housing unfortunates and keeping them away from “respectable” society. They were religious charities and, as the word alms- houses implies, were supported by donated money and services. A vestige of this history is church groups’ (especially Catholic) sponsorship of so many of today’s hospitals.

Given their charitable nature, hospitals and many other organiza- tions were held to be immune from tort liability lest their good deeds be diminished by jury awards. Some courts adopted this position because they considered the assets of a charitable corporation to be held in trust for its beneficiaries and feared that the implied trust would be violated by payment of money damages. Others held that the beneficiaries of a charity (including the general public) implicitly waived their rights to sue when accepting the benefits of charitable services. Still others based the rule simply on concepts of public policy, specifying that tort liability should apply only to a profit- making enterprise.1

Whatever its rationale, support for the doctrine of charitable immunity waned as modern medicine evolved in the twentieth century (see chapter 1), and the concept had virtually disappeared by the 1970s.

charitable immunity The venerable principle (now discredited) that a charitable organization is not to be held liable for the tortious actions of its agents.

7 After reading this chapter, you will learn that

• the earliest healthcare institutions were religious works of mercy and were usually immune from liability for negligence;

• the concept of independent contractor is often useless today as a defense in medical malpractice cases;

• under respondeat superior, the corporation is responsible through the acts of an agent, whereas under corporate liability it owes a duty directly to the plaintiff; and

• managed care organizations’ efforts to reduce costs present challenging liability issues.

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C o p y r i g h t 2 0 2 0 . H e a l t h A d m i n i s t r a t i o n P r e s s .

A l l r i g h t s r e s e r v e d . M a y n o t b e r e p r o d u c e d i n a n y f o r m w i t h o u t p e r m i s s i o n f r o m t h e p u b l i s h e r , e x c e p t f a i r u s e s p e r m i t t e d u n d e r U . S . o r a p p l i c a b l e c o p y r i g h t l a w .

EBSCO Publishing : eBook Collection (EBSCOhost) - printed on 5/18/2022 12:17 PM via UNIVERSITY OF MARYLAND GLOBAL CAMPUS AN: 2361947 ; Stuart Showalter.; The Law of Healthcare Administration, Ninth Edition Account: s4264928.main.eds

T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n244

The public’s perception of hospitals as purely charitable organizations had changed.2 Health plans and government programs (rather than alms) paid for operational expenses; liability insurance was available to cover defense costs and jury awards; and healthcare more readily adopted the traits of market-driven industries. The courts began to treat not-for-profit enterprises in the same manner as other companies insofar as third-party liability claims were concerned, and thus charitable immunity was overturned in a series of state-by-state judicial decisions once the rationale for immunity dissolved. (As discussed in chapter 6, however, government hospitals still enjoy immunity or partial immunity in some jurisdictions, justified as “sovereign immunity” rather than charitable immunity.)

The demise of “charitable immunity” is exemplified by the decisions of two courts. As long ago as 1969—in the state that was the US birthplace of the doctrine—the Massachusetts Supreme Judicial Court decided to abandon it:

In the past on many occasions we have declined to renounce the defence [sic] of

charitable immunity. . . . We took this position because we were of opinion [sic]

that any renunciation preferably should be accomplished prospectively and that

this should be best done by legislative action. Now it appears that only three or

four States still adhere to the doctrine. It seems likely that no legislative action in

this Commonwealth is probable in the near future. Accordingly, we take this occa-

sion to give adequate warning that the next time we are squarely confronted by

a legal question respecting the charitable immunity doctrine it is our intention to

abolish it.3

In 2001, Wisconsin’s high court, which had never adopted the principle in the first place, declined to do so, calling this legal fiction “an antiquated doctrine that fails to reflect the emergence of hospitals as modern health care facilities.”4

With the end of charitable immunity, healthcare became one of the most dramatically changing areas of personal injury law. This chapter reviews evolving legal principles that have affected traditional hospital liability stan- dards since the 1970s, including the following:

• Independent contractor status • Captain-of-the-ship and borrowed-servant doctrines • Apparent agency or agency by estoppel • Corporate liability

The chapter begins with a refresher course in the traditional rules of respondeat superior, proceeds to address the principles identified in the previous list, and ends with a section on the liability of managed care and similar organizations.

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 245

Respondeat Superior Versus Independent Contractor Status Respondeat Superior Defined As noted in chapter 6, respondeat superior (vicarious liability) is the principle that an employer is liable for a tort an employee commits within the scope of employment. The idea is based on the principle qui facit per alium, facit per se (Latin for “one who acts through another, acts for himself”). Even though the employer is not directly at fault, it controls the means and methods of the employee’s work and thus should answer for the employee’s negligence. Pre- sumably, the imposition of liability encourages the employer to apply sound procedures for controlling employees’ job performance.

Liability asserted on the basis of respondeat superior essentially depends on the answers to three questions:

1. Was a tort committed? 2. Was the person who committed the tort an agent or an employee of

the defendant? 3. Was the tort committed within the scope of the agent’s or employee’s

duties?

The duty of a healthcare institution (see Legal Brief) is to have its employees use the same reasonable level of care as that practiced in similar organizations in similar communities.5 Patients are entitled to the care their medical conditions require.6 To prove breach of this duty, the plaintiff must usually produce expert testimony about how similar clinicians and hospitals treat his kind of condition.7 Not surprisingly, the plaintiff’s experts will testify that other hospitals or other doctors would have treated the patient differently. The defense will call witnesses who will say, “Oh, no! What the doctor [or nurse, or hospital] did was perfectly reasonable.” The battle of the experts is on, and the jury will be asked to decide who is correct.

Sometimes, expert testimony is not necessary—such as when the situation involves routine or nonprofessional care (e.g., helping a patient to the bathroom or out of a wheelchair),8 when a physi- cian’s order is violated,9 or when common sense makes the breach of duty apparent.10 Commonsense logic underlies the Depart- ment of Health & Human Services’ list of adverse events discussed in chapter 6, and expert testimony is not required because laypersons are capable of determining that

Legal Brief

For the sake of simplicity and readability, through- out much of this book the term hospital is used as shorthand for healthcare institution because the general principles that apply to hospitals also usually apply to other corporate healthcare pro- viders. Discussion that applies solely or primarily to an actual hospital should be apparent from the context.

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reasonable care was not exercised. (See The Court Decides: Norton v. Argonaut Insurance Co. at the end of this chapter for a case in which all parties—hospital, physician, and nurse—were held liable for a fatal medication error that common sense indicates was preventable.)

Whether experts testify or not, the principle of vicarious liability is based on public policy considerations. The employer usually has insurance coverage or superior financial means to compensate for the damage caused by the employee’s tort. Besides, a corporation can act only through agents and employees. Not holding the organization liable for its employees’ actions would mean that the company would not be responsible for decisions made and acts committed in furtherance of institutional aims. The employee who committed the tort can also be held liable for the wrongful act or omission, so the employer and the employee are often sued together; however, the employer is usually the main target because of its “deep pockets.”

Independent Contractor Defined Because respondeat superior is based on employers’ right to control the means and methods of employees’ work, employers are not liable for the negligence of independent contractors. An independent contractor has sole control over the means and methods of the work to be accomplished, although the person who employs, hires, or appoints a contractor retains the general power of approval over the final work product. For example, if a homeowner hires an independent contractor to build a house, provides the plans, and retains the power to approve the final result but does not control the day-to-day activities of the laborers, then the contractor is responsible for the laborers’ actions. In effect, the owner is saying, “Here’s what I want built. Go do it, and tell me when you’re done.”

In the context of hospital liability, a physician in private practice who is a member of the medical staff was traditionally considered an independent con- tractor, and the hospital could use the physician’s independent status to avoid liability for the doctor’s alleged malpractice (see also The Joint Employer Con- cept in chapter 4). There are numerous old cases to this effect. For example, in Heins v. Synkonis, the hospital was not held liable for the negligence of a private physician because the hospital merely provided office space for the doctor’s outpatient clinic and no actual or apparent employment relationship existed between the hospital and the independent contractor doctor.11

Erosion of Physicians’ Independent Contractor Status

The Heins case was decided in 1975, and although old cases are not necessar- ily bad law, its rationale has eroded over the years, making the independent contractor defense less viable today. Some of the factors prompting courts

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to see an employment-like relationship where none would have been found before include the following:

• An increasing number of patients no longer select their own physicians; rather, the hospital, an employer, or some other third party designates the doctor or a panel of doctors.

• Patients use hospitals’ emergency services more frequently. Private physicians commonly tell patients to go to the emergency department (ED) if they have concerns outside normal office hours. “Meet me at the ED” has morphed into “the ER docs will take care of you.”

• Healthcare institutions have increased the number of employed physicians on their staffs and in their clinics.

• Medical practice has become increasingly institutionalized and specialized.

• The number of contracts with hospital-based specialists has increased dramatically.

Employment of Physicians Because of lifestyle preferences, various economic forces, the effects of the Affordable Care Act’s (ACA) reforms, and fraud laws that provide “safe har- bors” for many transactions with employees (see chapter 15), physicians are increasingly becoming hospital employees. Young physicians coming out of residency often prefer to focus their energies on patient care rather than the business aspects of private practice, for which they may not feel well suited. At the other end of the age spectrum, baby boomer physicians frequently choose to sell their practices and become hospital employees for many of the same reasons.

According to one report, 5,000 physician practices were acquired by hospitals from July 2015 to July 2016, at which point hospitals employed 42 percent of all physicians, up from 25 percent four years earlier, and nearly a third of physician practices nationwide were owned by hospitals.12

This trend is in sharp contrast to the image of the private practice phy- sician, who was free from external control and whose professional judgment went unquestioned. Such was the autonomy of the medical doctor in the early and mid-twentieth century that “corporate practice of medicine” laws in many states forbade doctors from becoming employees. (This issue is also discussed in chapter 10 under the heading Staffing the Emergency Depart- ment.) Hospitals were, in effect, viewed merely as “doctors’ workshops” and thus were not liable for the physicians’ medical negligence. Instead, hospitals were responsible for the actions of members of their medical staffs only when those physicians were performing “administrative” rather than “medical” functions.

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This understanding began to change in the late 1950s with the landmark case of Bing v. Thunig.13 In that decision the New York Court of Appeals eliminated the distinction between administrative and medical acts and settled the issue of whether the physician’s professional status prevented the imposition of vicarious liability on the hospital. A well-known passage from Bing reads as follows:

The conception that the hospital does not undertake to treat the patient, does not

undertake to act through its doctors and nurses, but undertakes instead simply

to procure them to act upon their own responsibility no longer reflects the fact.

Present-day hospitals, as their manner of operation plainly demonstrates, do far

more than furnish facilities for treatment. They regularly employ on a salary basis a

large staff of physicians, nurses and interns, as well as administrative and manual

workers, and they charge patients for medical care and treatment, collecting for

such services, if necessary, by legal action. Certainly, the person who avails himself

of “hospital facilities” expects that the hospital will attempt to cure him, not that

its nurses or other employees will act on their own responsibility.14

The erosion of the physician’s independent contractor status (discussed earlier), coupled with the trend toward employment of physicians and the elimination of any distinction between administrative and medical acts—all these factors combine to make the hospital responsible for the quality of care rendered within its walls (see section titled Doctrine of Corporate Liability later in this chapter).

Apparent Agency, Agency by Estoppel The concepts of apparent agency (also known as ostensible agency) and agency by estoppel can also counter the independent contractor defense. (There is a fine distinction between these concepts, and some courts may note the difference, but as a practical matter they are virtually indistinguishable.15) They arise when a third party reasonably believes that the purported agent is acting at the direction of the principal even though that is not the case.

In the hospital setting, many physicians who are not on the human resources payroll have contracts to provide patient services. This arrange- ment is particularly true of anesthesiologists; radiologists; pathologists; and specialists in emergency medicine, nuclear medicine, and a few other clinical fields. They are not technically hospital employees, but to the average per- son encountering them in the clinical setting they appear to be. Under the circumstances, liability may attach, though no actual authority was given and the physician was technically an independent contractor.

Two Delaware cases illustrate this principle. In Vanaman v. Milford Memorial Hospital, a private physician was on call to provide emergency

apparent agency or agency by estoppel Closely related doctrines that can sometimes be used to counter the independent contractor defense.

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 249

services.16 The court held that it was for the jury to decide whether the alleg- edly negligent doctor treated the patient in a private capacity or while fulfill- ing the hospital function of providing emergency care. The court said that the hospital could be liable for the doctor’s negligence if it held the physician out to be its employee and the patient justifiably relied on that representa- tion. Schagrin v. Wilmington Medical Center is in the same vein; the court found that a medical partnership staffing an ED may be an agent of the hos- pital and not an independent contractor—depending on the degree of hos- pital control, the methods of paying the doctors, and the degree of patients’ reliance on the hospital compared with their reliance on the physicians.17

The outcome depends on the facts of each specific case, but the courts seem generally inclined to find a hospital liable irrespective of a purported independent contractor status by applying such principles as apparent agency and agency by estoppel. We thus see the gradual demise of the hospital’s independent contractor defense.

Erosion of Captain-of-the-Ship and Borrowed-Servant Doctrines

For many years, two other doctrines helped hospitals escape liability for physicians’ acts: the captain-of-the-ship and borrowed-servant concepts. The former presumed that a surgeon was the “captain” during surgery and, like the captain of a real ship, was responsible for what occurred under her com- mand. Thus, the hospital’s argument was that the surgeon, not the hospital, was liable for negligence during surgery. This argument was bolstered by the borrowed-servant doctrine, the principle that one who is normally an employee of one person or entity (e.g., an employee of a hospital) may be borrowed by another—a surgeon, for example—thereby becoming a servant of the surgeon and making the surgeon liable for the “borrowed” employee’s negligence.

In any vicarious liability case, the basis for liability is one’s right of control over the negligent activities of another. As the number of persons on surgical teams has grown and as anesthesiologists, nurses, surgical assistants, and others have been increasingly recognized as performing independent functions pursuant to hospital policies and their own professions’ standards of care, the courts have realized that imposing liability on the chief surgeon alone for the negligent acts of all surgical team members is not sound legal doctrine. Whether the surgeon or the hospital was the sole controlling master or whether both had control to justify joint liability is for the jury to decide.

Many cases involving a miscount of instruments or surgical sponges illustrate erosion of the captain-of-the-ship and borrowed-servant doctrines.

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For example, in Tonsic v. Wagner, the trial court applied the captain-of-the-ship doc- trine to hold the surgeon liable when nei- ther the scrub nurse, a circulating nurse, nor an intern counted the surgical instru- ments at the conclusion of a colectomy.18 As a result, a clamp was not removed from the patient. The trial court did not permit the jury to consider the vicarious liability of the hospital. The Pennsylvania Supreme Court reversed the decision, noting that under the law of agency, a negligent party may be the employee of two masters simultaneously, even when the masters are not joint employers. In such situations both masters may be liable.19 Accordingly, the plaintiff was entitled to a new trial in her suit against the hospital (see Law in Action).

The trend has been observable for decades.20 When medical care is provided by highly specialized, sophisticated teams of professionals working in an institutional setting, determining who is exercising what control over whom at any given time is difficult. In such cases, many consider it logical that the corporate institution must share in the liability.

Doctrine of Corporate Liability

Under the doctrine of corporate liability, the hospital itself is negligent. This liability is not “vicarious”—it attaches to the corporation because the hospital owes a legal duty directly to the patient, and this duty is not delegable to the medical staff or other personnel. A Connecticut court defined corporate lia- bility in these words: “Corporate negligence is the failure of those entrusted with the task of providing accommodations and facilities necessary to carry out the charitable purpose of the corporation to follow . . . the established standard of conduct to which the corporation should conform.”21

What direct duties does the healthcare organization owe the patient or another person? Is a hospital just a space for doctors to practice, where responsibility for patient care is exercised by physicians and clinical person- nel under their direction? The hospital does not practice medicine, so how can it be liable? To answer these questions, one must consider the corporate

Law in Action

During a deposition in a case involving a retained sponge, an exchange between the chief operat- ing room nurse and the plaintiff ’s lawyer went as follows:

Attorney. When the operation was over, did you or anyone else count the sponges that had been used?

nurse. No, sir.

Attorney. Why not?

nurse. Well, we didn’t count them before the sur- gery, so it wouldn’t have done any good to count them afterward, would it?

Understandably, the case was settled before trial.

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 251

purposes of a hospital or health system. Is its role simply to furnish physical facilities and accommodations wherein private physicians care for and treat their patients? Or is its role broader?

As previously discussed, healthcare systems are more than “doctors’ workshops.” They arrange, furnish, and provide the community with an entire range of health-related services—preventive, curative, and palliative; outpatient and inpatient; acute and long term. As their vision has expanded, so have their duties.

Before the mid-1960s, courts generally limited hospitals’ corporate duties to such issues as selection and retention of employees and maintenance of hospital equipment, buildings, and grounds; these duties remain areas of potential liability today. Negligence regarding equipment is seen when there are unrepaired defects, when equipment is misused,22 or when it is used for an unintended purpose.23 The duty of reasonable care regarding the use of equipment and its selection for an intended purpose also includes a duty to inspect the equipment systematically and regularly before use.24 Rules and regulations of licensing authorities, accreditation standards, and instructional manuals supplied by manufacturers to maintain equipment can be admitted at trial as evidence of expected standards of care. Failure on the part of hospi- tal and medical personnel to comply with such standards constitutes evidence of breach of duty.

Under negligence theories, physicians and institutional providers have a duty to warn a patient of known risks when the patient is furnished with a medical device. Moreover, courts are now extending the duty to include informing patients of risks that become known after the device is furnished. Thus, if a heart pacemaker is implanted and the particular device is later recalled because of a defect, the hospital and the physician have a duty to notify the patient if the physician knows or should know of the recall.

With regard to the availability of equipment and services, one is not required to possess the newest and most modern equipment available on the market, but there is a duty to have available the usual and customary equip- ment and staff for any service that the hospital renders. (The same applies to physicians’ offices, nursing homes, and other facilities.) For example, provid- ers have been found liable for using unsterilized hypodermic needles.25 In Garcia v. Memorial Hospital, a hospital did not have a pediatric endotracheal tube that might have saved a child’s life.26 The hospital operated an ED and held itself out as providing a full range of emergency services, and the court held that availability of a pediatric endotracheal tube is usual and customary in EDs. In another example, a Pennsylvania hospital was found liable when its electrocardiogram machine in the ED broke down and no backup instrument was available.27 The emergency patient had to be taken to another location for the test, but he died there.

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Healthcare organizations also have a corporate responsibility to exer- cise reasonable care in selecting and retaining employees. In Wilson N. Jones Memorial Hospital v. Davis,28 the hospital had to pay the plaintiff both com- pensatory and punitive damages for failure to investigate the background and references of an applicant for the position of orderly. The hospital’s normal hiring procedure was to obtain four employment references and three per- sonal references. Established policy was to verify at least one of the employ- ment references and one of the personal references before hiring the appli- cant. In this case, a hospital executive employed the applicant as an orderly without checking any of the references. The lame justification, asserted after the fact, was that the hospital had a critical need for personnel.

After the individual began work, an inquiry was sent to one of the ref- erences, who verified that the orderly had worked for him for approximately four months but did not answer any of the other questions on the reference form. The hospital failed to follow up. Furthermore, the employee had stated that he received his training as an orderly while in the US Navy, but again the hospital did not inquire, saying the armed services had not been coopera- tive with it in the past. However, the plaintiff requested information from the Navy and promptly learned that the orderly had been expelled from the Navy’s Medical Corps School after a single month’s training, that he had been diagnosed as having a serious drug problem, and that he had a criminal record. The orderly also had listed three personal references on his applica- tion and included a local telephone number for each. The hospital attempted to contact only one of these references, and that attempt was unsuccessful.

Soon after hire, the orderly attempted to remove a Foley catheter from a patient’s bladder without first deflating the bulb; this action seriously injured the patient. The hospital was held liable for both compensatory and punitive damages. The hospital’s critical need for orderlies at the time did not justify its failure to exercise reasonable care in the employee selection process. Moreover, the punitive damages awarded in the case were assigned as a result of “such an entire want of care as to indicate that the act . . . was the result of conscious indifference to the rights, welfare, and safety of the patients in the hospital.”29

Failure to Adopt or Follow Rules Hospital bylaws, rules and regulations, and the accreditation standards of The Joint Commission are admissible as evidence at trial.30 If violation of a hospital rule is the proximate cause of a plaintiff ’s injury, liability can be pre- mised on the fact that the rule is the expected standard of care. Violation of a rule or written standard does not automatically amount to negligence, but it is strong evidence. For example, in Pederson v. Dumouchel, a hospital was held liable when—in violation of hospital policy—it permitted nonemergency

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dental surgery to be performed under a general anesthetic without the super- vision of a medical doctor.31

Typically, the existence of a rule and evidence of its breach are submit- ted to the jury as a question of fact. As would be expected, evidence that a rule has been violated is often persuasive to jurors. For example, a jury ver- dict for the plaintiff was affirmed in Burks v. Christ Hospital, citing a hospital policy requiring that bedside rails be raised if a patient is restless, obese, or under sedation, unless the attending physician issues an order to the con- trary.32 The plaintiff sustained injuries when he fell from the bed, and the jury was entitled to consider the violation of this written standard as evidence of negligence. In another example, a Michigan case noted that an administrative regulation requiring hospitals to have written policies regarding medical con- sultations and to record consultations was intended to protect hospitalized patients.33 Accordingly, the plaintiff was entitled to have the jury instructed on the purpose of this rule.

Another variation of corporate liability is a hospital’s failure to have and to implement adequate rules regarding communication of vital informa- tion on patient care to others who are or will be responsible for treating the patient. For example, in Keene v. Methodist Hospital,34 an injured patient was seen at about 2:00 a.m. on December 25 by an on-call physician in a hos- pital ED. He was sent home after X-rays were taken, and a few hours later a radiologist examined the films and detected a possible skull fracture. The radiologist suggested further X-ray studies and dictated a tentative diagnosis and recommendations into a recorder, but he did not communicate further with the attending physician, the patient, the patient’s family, or hospital administration. Because of the Christmas holiday, the dictation was not transcribed for two days. During this period, the patient lost consciousness, was returned to the hospital for emergency surgery, and died as a result of a fractured skull and hemorrhage.

The court stated that the patient “would not have died from his head injuries if he had been treated for a skull fracture during the morning of December 25” and found both the ED physician and the radiologist liable. In addition, the hospital was held liable because “it is the duty of the Hospital to adopt procedures which would ensure that the opinion of a radiologist showing the possibility of a severe injury would be immediately conveyed to the proper persons.”35 Thus, failure to have and to follow proper rules, regulations, or systems when indicated by recognized professional standards can result in liability—whether it is called corporate negligence or vicarious liability.36

In any given case, the applicable legal theory—corporate negligence or respondeat superior—is becoming increasingly difficult to determine, but it probably does not matter much. Just as in Bing v. Thunig37—which in 1957

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eliminated any distinction between the administrative and professional acts of nurses for the purposes of respondeat superior—the distinction between hospitals’ vicarious liability (respondeat superior) and direct liability (cor- porate negligence) has nearly disappeared for all practical purposes. In any event, hospital rules, standards of accreditation, and licensure regulations must be realistic, known to all affected persons, implementable, and consis- tently enforced. Furthermore, the rules must be regularly and systematically reviewed; if they are not realistic and workable, they should be eliminated.

Negligence in Selection and Retention of Medical Staff The law in most states now recognizes that a corporate healthcare institu- tion owes a duty directly to its patients to exercise reasonable care in the selection and retention of medical staff. The corporation may be liable if it knows or should have known that an individual physician was not compe- tent to perform the permitted clinical procedures. This doctrine emerged from the 1965 landmark case of Darling v. Charleston Community Memorial Hospital,38 in which the Illinois Supreme Court held that a hospital could be liable under either (1) respondeat superior, if nurse employees failed to notify medical and hospital administrators when they knew that a patient was receiv- ing inadequate medical care, or (2) corporate liability, if the hospital failed to review and monitor the quality of care generally rendered to patients by the private physician. The private physician in this case was a general practitioner who had been permitted by the hospital to practice orthopedic medicine and whose clinical competence had not been reviewed in his more than three decades of practice.

Significantly, Darling also established that to prove the standard of care, the jury may consider standards set forth in medical staff bylaws as well as those promulgated by The Joint Commission and state licensing authori- ties. Moreover, the case abolished the “locality rule” in Illinois. In short, the hospital could no longer fully defend itself by asserting that other hospitals in the area also did not enforce their medical staff bylaws or review the per- formance of their medical staff members.

The Illinois court rejected the view that a hospital simply procures nurses and doctors who then act on their own responsibility. A hospital treats patients and acts through its nurses and doctors, even if the latter are not employees.39 Following the Darling decision, one commentator wrote:

Even in the absence of an employer–employee . . . relationship . . . there now

appears to be some chance . . . to impose liability on the hospital on the theory

of independent negligence in failing to review, supervise, or consult about, the

treatment given by the physician directly in charge, if the situation indicates that

the hospital had the opportunity for such review but failed to exercise it, or that its

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servants (usually nurses or residents) were negligent in failing to call the attention

of the proper hospital authorities to the impropriety or inadequacy of the treat-

ment being given.40

Case law has firmly established that hospital administration and medi- cal staff have a joint role with respect to the clinical performance of individual practitioners. The governing body of a hospital has a responsibility to adopt corporate and medical staff bylaws providing for an organized medical staff accountable to the board for quality of care. The governing board grants medical staff appointments, delineates privileges on an individual basis, and reappoints clinicians on the basis of the recommendations of medical staff committees. In ruling on these recommendations, the board must be satisfied that the peer review process is working properly and avoid rubber-stamping recommendations submitted by the medical staff. The responsibility of the governing body is nondelegable; the board does, however, delegate to the medical staff the authority to implement the credentialing process and pre- pare recommendations for appointments and reappointments (more on this subject in chapter 8).

Other leading cases have recognized the corporate duty of a hospital to exercise reasonable care in the selection and retention of the medical staff. A 1971 Georgia case, Joiner v. Mitchell County Hospital Authority, held that members of the medical staff who make physician appointment recommen- dations to the governing body of a hospital are agents of the hospital.41 In considering these recommendations, the governing body must act in good faith and with reasonable care.42 Nevada’s Supreme Court recognized a simi- lar institutional duty in Moore v. Board of Trustees of Carson-Tahoe Hospital, a case concerning medical staff privileges.43 The court stated:

The purpose of the community hospital is to provide patient care of the highest

possible quality. To implement this duty of providing competent medical care to

the patients, it is the responsibility of the institution to create a workable system

whereby the medical staff of the hospital continually reviews and evaluates the

quality of care being rendered within the institution. The staff must be organized

with the proper structure to carry out the role delegated to it by the governing

body. All powers of the medical staff flow from the board of trustees, and the staff

must be held accountable for its control of quality. . . . The role of the hospital vis-

à-vis the community is changing rapidly. The hospital’s role is no longer limited

to the furnishing of physical facilities and equipment where a physician treats his

private patients and practices his profession in his own individualized manner.

Licensing [of physicians], per se, furnishes no continuing control with

respect to a physician’s professional competence and therefore does not assure

the public of quality patient care. The protection of the public must come from

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n256

some other authority, and that in this case is the Hospital Board of Trustees. The

Board, of course, may not act arbitrarily or unreasonably in such cases. The Board’s

actions must be predicated upon a reasonable standard.44

In Gonzales v. Nork, the defendant performed an unsuccessful and alleg- edly unnecessary laminectomy and spinal fusion procedure on a 27-year-old man who had been injured in an automobile accident.45 Various complications developed and substantially reduced the patient’s life expectancy. The plaintiff presented evidence showing that the surgeon had performed more than three dozen similar operations negligently or unnecessarily. The trial court issued a lengthy opinion recognizing that the hospital owed a duty of care to the patient with respect to the delineation of surgical privileges extended to private surgeons. The court stated forcefully that this duty included the obligation to protect the patient from acts of malpractice by an independently retained doctor if the hospital knew or should have known that such acts were likely to occur. Even though the hospital had no knowledge of Dr. Nork’s propensity to commit malpractice or perform unnecessary surgery, its failure to have a system for acquiring such knowledge justified the finding of negligence.

A landmark Wisconsin case in 1981 took a particularly enlightened view of the role of a hospital in its relations with the medical staff. In Johnson v. Misericordia Community Hospital (see The Court Decides at the end of this chapter), the plaintiff alleged that the hospital was negligent in grant- ing orthopedic surgical privileges to a particular physician.46 The Wisconsin Supreme Court affirmed a jury verdict for the plaintiff on the following bases:

1. The hospital failed to inquire into the physician’s professional background and qualifications prior to granting a staff appointment.

2. The hospital failed to adhere to its own bylaw provisions and to Wisconsin statutes pertaining to medical credentialing.

3. The exercise of ordinary care would have disclosed the physician’s lack of qualifications.

4. Had the hospital exercised due diligence, it would not have appointed the physician to the medical staff.

5. By not exercising due diligence, the hospital exposed patients to a “foreseeable risk of unreasonable harm.”

Johnson stands for the now well-recognized proposition that, as the Wiscon- sin court simply phrased it, “A hospital has a duty to exercise due care in the selection of its medical staff.”47

Only licensed practitioners can practice medicine and exercise clinical judgment for the proper care and treatment of patients, but the governing board and administration are responsible for ensuring that the organized

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 257

medical staff periodically reviews the clinical behavior of staff physicians. Rather than second-guess medical care, the governing board delegates the review and evaluation functions to the medical staff, which in turn is account- able to the board for its recommendations in a process known as credential- ing (see a complete discussion in chapter 8).

The medical staff is responsible for developing reasonable criteria and fundamentally fair procedures for evaluation, appointment, and delineation of privileges. The medical staff must gather information and data that sup- port its recommendations and must forward the information to the govern- ing body. The board, in turn, is responsible for approving the criteria and procedures for appointment, the delineation of privileges, and the renewal of appointments. It then acts on the medical staff ’s recommendations after ensuring that all supporting information is complete.

Hospitals must develop a credentialing process for other professionals— physician’s assistants, nurse practitioners, podiatrists, technicians, pharma- cists, and other clinicians—who also work in their facilities. Institutions must evaluate the competencies of these individuals just as they do those of the medical staff. Moreover, procedures must be developed to review periodically the performance of each of these professionals. The scope of their clinical activities is a matter for the medical and nursing staffs to develop according to local licensure laws and professional custom and usage.

The cases discussed in this section illustrate significant changes in the theories of hospital liability. The law of agency and respondeat superior no longer suffice to explain corporate duty; rather, in the hospital setting, the rules of respondeat superior and corporate or independent negligence have essentially become one.

Liability of Managed Care Organizations

Managed care organization (MCO) is a general term used to describe any number of health insurance arrangements that are meant to reduce unneces- sary costs through a variety of mechanisms, including contracts with physi- cians and hospitals to provide care at reduced payment rates. These providers make up the MCO’s “network,” and they offer a range of services that varies depending on the type of plan chosen. There are generally three types of plans:

1. Health maintenance organizations (HMOs) usually only pay for care in the network; the patient’s primary care doctor coordinates the care.

2. Preferred-provider organizations (PPOs) usually pay more if care is provided in the network, but they still pay part of the cost if the patient goes outside the network.

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n258

3. Point-of-service plans let the patient choose between an HMO or a PPO each time they need care, and the level of payment will vary accordingly.48

MCOs have mechanisms for reviewing the medical necessity of specific services, controlling inpatient admissions and lengths of stay, establishing cost-sharing incentives for outpatient surgery, contracting selectively with certain healthcare providers, and managing high-cost healthcare cases inten- sively. They proliferated in the 1980s, during the frenzy over efficiency and cost savings; as with the first wave of physician–hospital organizations (see chapter 5), whether they have had any significant effect on rising healthcare costs is debatable.

In general, managed care plans tend to emphasize preventive and pri- mary care and to limit access to more costly services. In many MCOs, select primary care physicians act as gatekeepers who must be consulted before the patient can see a specialist. Many patients also must obtain MCO authori- zation for hospitalization or for hospitalization to extend beyond a certain number of days. This process is often referred to as utilization review (UR) or utilization management (UM), and the requests for authorization are often handled by nurses specially trained to administer the program. Autho- rization can be refused for a number of reasons; for example, the proposed treatment may not be a covered benefit, the proposed treatment may not be medically necessary, or the request may not have been made in a timely or procedurally correct manner.

Quality Versus Cost Savings

Any of these reasons to deny care can be legitimate, but when UR denials appear to result from financial pressures, aggrieved patients often allege that the health plan neglected quality in favor of economy. They assert that a par- ticular authorization request was denied for other than clinical reasons, that they were refused necessary treatment, or that they were discharged from the hospital prematurely. The aphorism that patients were being sent home “sicker and quicker” arose out of this last claim.

Typical of the cases that first raised these issues were two from Cali- fornia in the late 1980s. In Wickline v. State,49 the plaintiff argued that the decision to admit patients or extend their stay is a medical one that only a physician—and not a health plan—should make; she attempted to assert liability against the state’s Medi-Cal program after a UR decision led to her being discharged early, which resulted in complications that caused loss of a leg.

utilization review (UR) Systematic (usually retrospective) review of the efficiency and medical necessity of healthcare services on the basis of established guidelines.

utilization management (UM) Proactive techniques to improve the efficiency and to control the cost of health services by influencing providers’ medical decision- making; UM typically includes concurrent peer review processes.

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The trial court decided in the patient’s favor, but the appellate court reversed the decision while emphasizing the difference between prospective and retrospective UR.

In . . . prospective utilization review, authority for the rendering of health care ser-

vices must be obtained before medical care is rendered. Its purpose is to promote

the well-recognized public interest in controlling health care costs by reducing

unnecessary services while still intending to assure [sic] that appropriate medical

and hospital services are provided to the patient in need. However, such a cost

containment strategy creates new and added pressures on the quality assurance

portion of the utilization review mechanism. The stakes, the risks at issue, are

much higher when a prospective cost containment review process is utilized than

when a retrospective review process is used.

A mistaken conclusion about medical necessity following retrospective

review will result in the wrongful withholding of payment. An erroneous decision in

a prospective review process, on the other hand, in practical consequences, results

in the withholding of necessary care, potentially leading to a patient’s permanent

disability or death.50

The court went on to hold that it was ultimately the physician’s, not Medi- Cal’s, responsibility to decide when the patient should be discharged.

Third party payers of health care services can be held legally accountable when

medically inappropriate decisions result from defects in the design or implementa-

tion of cost containment mechanisms. . . . However, the physician who complies

without protest with the limitations imposed by a third party payor, when his medi-

cal judgment dictates otherwise, cannot avoid his ultimate responsibility for his

patient’s care. He cannot point to the health care payor as the liability scapegoat

when the consequences of his own determinative medical decisions go sour.51

The court concluded that although the physician was “intimidated” by Medi-Cal’s UR decision, he was not “paralyzed” by it and should have made a greater effort to keep his patient in the hospital. There is irony in this outcome: the court agreed with the plaintiff ’s argument that the decision to discharge is one for physicians to make, and she lost her appeal as a result.

Four years later, the other California case—decided by different judges on the same appellate court—limited the applicability of Wickline’s broad language. In Wilson v. Blue Cross of Southern California,52 a physician had requested three to four weeks of additional care for a depressed psychiatric patient. On the basis of a prospective review, the insurance company declined to pay for any further care. Because nobody else could afford to pay, the patient was discharged. He committed suicide less than three weeks later.

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n260

The Wilson court found that there was “substantial evidence that [the decision] not to approve further hospitalization was a substantial factor in bringing about the decedent’s demise,”53 and it remanded the case for fur- ther proceedings. In their decision, the justices characterized Wickline’s state- ment that “the decision to discharge is . . . the responsibility of the patient’s own treating doctor” as being dictum and overly broad. According to the Wilson court, “This broadly stated language was unnecessary to the [earlier] decision and in all contexts does not correctly state the law relative to causa- tion issues in a tort case.”54

Over the next few years, cases in several other states addressed the issue of MCOs’ allegedly wrongful denial of treatment, and the results were mixed. The decisions often depended on interpretation of the Employee Retirement Income Security Act of 1974 (ERISA).55

ERISA Preemption Complicates Matters Congress passed ERISA to protect employer-sponsored pension plans and later expanded the act to cover employee benefit plans, including employer- sponsored health plans. ERISA eliminates conflicting state laws by creating a uniform regulatory structure and preempts (supersedes) “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”56

Because employer-sponsored health plans are ERISA plans, some cases held that this provision bars state tort claims based on MCOs’ UR decisions and leaves ERISA as the plaintiffs’ only recourse.57 Unfortunately (from the plaintiffs’ standpoint), ERISA has no provisions for compensatory damages—such as would be awarded to make a person whole in a typical negligence case.

As the appeals of these various preemption cases wound their way through the court system, a few states attempted to resolve the problem by passing laws that provide a remedy for claims against MCOs. The Texas stat- ute is typical; it provides, in its most relevant part, the following:

sec. 88.002

(a) A health insurance carrier, health maintenance organization, or other man-

aged care entity for a health care plan has the duty to exercise ordinary care when

making health care treatment decisions and is liable for damages for harm to an

insured or enrollee proximately caused by its failure to exercise such ordinary care.

(b) [Any such entity] is also liable for damages for harm to an insured or enrollee

proximately caused by the health care treatment decisions made by its:

(1) employees;

(2) agents;

dictum (plural, dicta) Latin meaning “remark”—a comment in a legal opinion that is not binding because it is not required to reach the decision but that states a related legal principle.

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 261

(3) ostensible agents; or

(4) representatives who are acting on its behalf and over whom it has the right

to exercise influence or control or has actually exercised influence or control

which result in the failure to exercise ordinary care.58

The US Court of Appeals for the Fifth Circuit upheld this law in 2000, stating, “Although state efforts to regulate an entity in its capacity as plan administrator are preempted, managed care providers operate in a traditional sphere of state regulation when they wear their hats as medical care providers. . . . We are not persuaded that Congress intended for ERISA to supplant this state regulation of the quality of medical practice.”59

Similar cases in other states tested similar statutes. Two federal circuits agreed with the Fifth Circuit, but three others did not. By early 2004, the federal circuits were split 3–3 on the question of whether ERISA preempted state law claims against MCOs for their adverse treatment decisions.60

The Supreme Court Weighs In (Heavily) In June 2004, the US Supreme Court handed down a landmark decision in Aetna Health, Inc. v. Davila.61 The facts of the cases—plural, because two lawsuits were consolidated and decided as one—typify many patients’ situa- tions. The first patient, Juan Davila, had been prescribed Vioxx for arthritis pain, but his MCO refused to pay for it and approved a less expensive drug instead. According to the decision, Davila “suffered a severe reaction that required extensive treatment and hospitalization.”

The second patient had undergone surgery, and her physician felt she needed an extended hospital stay. The MCO’s discharge nurse denied this request, after which the patient “experienced postsurgery complications forcing her to return to the hospital.” She argued in her lawsuit that “these complications would not have occurred had [the MCO] approved coverage for a longer hospital stay.”

Both patients sued their health plans on the basis of section 88.002 (the Texas statute quoted earlier), but the US Supreme Court found the Texas law to be invalid per ERISA’s preemption language (also quoted earlier). In his opinion for a unanimous Supreme Court, Justice Clarence Thomas wrote, “A benefit determination is part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan. . . . The fact that a benefits determination is infused with medical judgments does not alter this result.”62 He drew no distinction between medical and non- medical judgments by benefits plan administrators, and he summed up the Supreme Court’s decision as follows: “Respondents bring suit only to rectify a wrongful denial of benefits promised under ERISA-regulated plans, and do not attempt to remedy any violation of a legal duty independent of ERISA.

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n262

We hold that respondents’ state causes of action fall within the scope of [ERISA’s preemption language] and are therefore completely pre-empted . . . and removable to federal district court.”63

ERISA is thus the exclusive remedy for beneficiaries of employer- sponsored health plans when challenging their MCOs’ UR decisions. Because ERISA allows only contractual damages and equitable relief (such as an injunction), the kinds of remedies that would otherwise be available in state court are precluded. These include awards for compensatory damages (e.g., money awards for lost wages, pain and suffering, loss of consortium).

The decision also creates a strange injustice: Tort and bad-faith claims against non-ERISA health plans (i.e., individual insurance policies, govern- ment plans, church-sponsored plans that have elected not to be covered by ERISA) are not affected. Patients who suffer injury as a result of non-ERISA plans’ UR decisions are free to pursue traditional remedies in state court, whereas patients with identical injuries resulting from identical decisions made by ERISA plans have no viable claim.

In a strongly worded concurring opinion that was joined by Jus- tice Stephen Breyer, Justice Ruth Bader Ginsburg wrote, “I . . . join the Court’s opinion. But, with greater enthusiasm . . . I also join ‘the rising judicial chorus urging that Congress and [this] Court revisit what is an unjust and increasingly tangled ERISA regime’ [quoting a Third Circuit decision in 2003].” She pointed out with favor the suggestion of one court of appeals: “The vital thing . . . is that either Congress or the Court act quickly, because the current situation is plainly untenable.” These exhorta- tions were written in 2004, and the health reform debate of 2009–2010 was a grand opportunity for Congress to address the “tangled ERISA regime,”

but unfortunately the injustice created by ERISA preemption was not addressed (see Legal Brief).

The court has had at least one other occasion to address the conundrum. In the 2016 case of Gobeille v. Liberty Mutual Ins. Co., the justices considered Vermont’s “all-payer claims database” system, which required insurers to report data on health- care costs and treatment outcomes. The question was whether such a system— similar versions of which were in effect in at least 17 other states—impermissibly conflicts with ERISA’s dominion over employee benefit plans. By a 6–2 margin, the court held that it does.

Legal Brief

I would like to compliment the House [ACA] bill for one particular achievement. The convoluted language brilliantly upholds the tradition of the original ERISA legislation in defying rational and straightforward analysis. That we’re already try- ing to parse whether ERISA preemption is being relaxed is an indication that Congress isn’t sure what to do.

—Peter D. Jacobson, JD, MPH, University of Michigan (personal communication with

the author regarding the ACA debates)

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 263

Vermont’s reporting regime, which compels plans to report detailed information

about claims and plan members, both intrudes upon “a central matter of plan

administration” and “interferes with nationally uniform plan administration.”

The State’s law and regulation govern plan reporting, disclosure, and—by neces-

sary implication—recordkeeping. These matters are fundamental components of

ERISA’s regulation of plan administration. Differing, or even parallel, regulations

from multiple jurisdictions could create wasteful administrative costs and threaten

to subject plans to wide-ranging liability.

. . . ERISA’s express pre-emption clause requires invalidation of the Vermont

reporting statute as applied to ERISA plans. The state statute imposes duties that

are inconsistent with the central design of ERISA, which is to provide a single uni-

form national scheme for the administration of ERISA plans without interference

from laws of the several States even when those laws, to a large extent, impose

parallel requirements.64

Thus, it seems ERISA preemption issues will remain a tangled web unless Congress decides to act. Because the issues pit patient rights against business interests, and given the discordant political climate in Washington recently, there is considerable doubt whether that will occur anytime soon.

Summary

This chapter shows that the law has come a long way in recent years as it relates to healthcare organizations. For more than half of the twentieth cen- tury, most hospitals were charitable organizations and thus were immune from tort liability. After charitable immunity was abolished, courts began to apply the doctrine of respondeat superior to the healthcare setting, and a distinction was clearly drawn between an employee and an independent con- tractor. However, then the concepts of apparent agency and agency by estop- pel emerged, and the captain-of-the-ship and borrowed-servant doctrines fell out of favor. These new notions have now expanded to the point that the independent contractor defense seems no longer viable in the healthcare field. More significant, the expanded doctrine of corporate negligence—the nondelegable duty of reviewing and evaluating clinical practices—has virtu- ally obliterated the distinction between hospitals’ vicarious liability and direct liability, at least in the context of medical staff law.

Finally, the rise of managed care in the 1980s and 1990s has prompted questions about whether efforts to control costs compromise the quality of care. Because ERISA preempts any state law relating to employee benefit plans (including employer-based health plans), in many cases MCOs are immune from liability for coverage decisions that lead to adverse patient

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n264

outcomes. Conflicts sometimes arise between advancing patient welfare and reducing healthcare costs. In the context of ERISA, at least, resolution of the dilemma may require congressional action.

Discussion Questions

1. Why is the history of healthcare institutions important to understanding their legal liability today?

2. Why has the importance of independent contractor status declined in in recent years?

3. How is corporate liability different from liability under respondeat superior?

4. What is the liability of an MCO (e.g., HMO, PPO) when it makes decisions about insurance coverage for hospital stays?

5. Why is ERISA preemption an important consideration for MCOs? 6. What is the “tangled ERISA regime,” and what are the chances

that Congress will unsnarl it? (Students may wish to research any developments on this issue that have occurred since the publication of this book.)

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 265

The Cour t Decides

Norton v. Argonaut Insurance Co. 144 So. 2d 249 (La. Ct. App. 1962)

Landry, J.

[The plaintiffs are the parents of an infant who died after a medication error in a hos- pital. She was given an injection of a heart drug that should have been administered orally. The trial court found in the plaintiffs’ favor, and the defendants appealed.

Shortly after her birth, the Norton baby was diagnosed as having congenital heart disease and was placed on Lanoxin (a form of digitalis) to strengthen her heart and reduce her pulse rate. She was discharged from the hospital at two and a half months, and her mother administered the medication at home by using a medicine dropper. The child was readmit- ted about two weeks later—on December 29, 1959—by her pediatrician, Dr. Bombet.]

On this occasion [Dr. Bombet] issued admission orders on the infant to be placed in the child’s hospital chart or record. Included in his admission orders were instructions regarding medication, diet, etc., and the notation that special medication was being administered by the mother. In this connection it appears that Mrs. Norton pre- ferred to continue administration of the daily maintenance dose of the Lanoxin herself since she had been performing this function since the child’s initial admission to the hos- pital on December 15th. Dr. Bombet noted in the hospital admission orders of December 29, 1959, that special medication was being given by the mother to thusly advise the hos- pital staff and employees that some medica- tion was being administered the child other than that which he placed on the order sheet and would, therefore, be administered by the hospital nursing staff.

On January 2, 1960 (Saturday) Dr. Stotler examined the Norton baby at approximately noon while in the course of making his rounds in the hospital. As a result of this examination he concluded that the child needed an increase in the daily maintenance dose of Lanoxin and instructed Mrs. Norton, who was present in the room, to increase the daily dose of the Lanoxin for that day only to 3 c.cs. instead of the usual 2.5 c.cs. Follow- ing this instruction to Mrs. Norton, Dr. Stotler went to the nurse’s station in the hospital pediatric unit floor to check the hospital chart or record on the Norton infant and noted on the Doctor’s Order Sheet contained therein certain instructions among which only the following is pertinent to the issues involved herein: “Give 3.0 cc Lanoxin today for 1 dose only.”

Dr. Stotler’s entry of the foregoing order for medication constitutes the basis of plain- tiff ’s claim against Aetna as the professional liability insurer of Dr. Stotler. It is frankly conceded by Aetna that unless Dr. Stotler indicated on the order sheet that he had instructed the patient’s mother to increase the daily maintenance dose of Lanoxin to 3.0 c.cs. and administer the medication, his entry of the aforesaid prescription on the order sheet would indicate that the nursing staff of the hospital was to give the medication prescribed. It is further conceded that under such circumstances the child was subjected to the possibility of being administered a sec- ond dose of Lanoxin. The possibility thus pre- sented is exactly what occurred in the instant case. A member of the nursing staff noting

(continued)

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n266

Dr. Stotler’s orders, administered 3 c.cs. of Lanoxin in its injectible [sic] form instead of the elixir form which Dr. Stotler intended. . . . It is readily conceded by all concerned that the 3 c.cs. of Lanoxin administered the baby by hypodermic was a lethal overdose and was in fact the cause of the infant’s demise.

. . . [The day in question was a Saturday, and the regular staff was not on duty. Mrs. Florence Evans, a registered nurse whose regular duties were administrative in nature, was assisting in the pediatric unit that day. She had not engaged in the actual clinical practice of nursing for some time, and she did not know that Lanoxin was available in oral form; the last she knew, Lanoxin was given only by injection. Noting the doctor’s orders for “3 cc of Lanoxin,” and seeing no indication that it had been given, she decided to inject the medication herself, even though she sensed that this “appeared to be a rather large dose,” according to the court.]

. . . She discussed the matter very briefly with the student nurse, Miss Meadows, and inquired of the Registered Nurse, Miss Sipes, whether or not the child had previously received Lanoxin. Mrs. Evans then exam- ined the patient’s hospital chart and found nothing [to indicate that] the child had been receiving Lanoxin while in the hospital.

. . . Considering administration of the drug only by hypodermic needle, Mrs. Evans, accompanied by the Student Nurse, Miss Meadows, went to the medicine room of the pediatric unit and obtained two ampules of Lanoxin each containing 2 c.cs. of the drug in its injectable [sic] form. While pondering the advisability of . . . administering what she considered to be a large dose, Mrs. Evans noted that Dr. Beskin, one of the consultants on the child’s case, had entered the pediatric ward so Mrs. Evans consulted him about the matter and was advised that if Dr. Stotler prescribed 3 c.cs. he meant 3 c.cs. Still not certain about the matter Mrs. Evans also discussed the subject with Dr. Ruiz and was

informed by him in effect that although the dose was the maximum dose that if the doc- tor had prescribed that amount she could give it. [Despite her misgivings, she did give the injection. The baby went into distress, and despite emergency efforts, she died a little more than an hour later.]

. . . The rule applicable in the instant case is well stated in the following language [of an earlier Louisiana case]: (1) A physician, surgeon or dentist, according to the juris- prudence of this court and of the Louisiana Courts of Appeal, is not required to exercise the highest degree of skill and care possible. As a general rule it is his duty to exercise the degree of skill ordinarily employed, under similar circumstances, by the members of his profession in good standing in the same com- munity or locality, and to use reasonable care and diligence, along with his best judgment, in the application of his skill to the case.

[I]t is manifest that Dr. Stotler was negli- gent in failing to denote the intended route of administration and failing to indicate that the medication prescribed had already been given or was to be given by the patient’s mother. It is conceded by counsel for Dr. Stotler that the doctor’s oversight in this regard exposed the child to the distinct pos- sibility of being given a double oral dose of the medicine. Although it is by no means certain from the evidence that a second dose of oral Lanoxin would have proven fatal, Dr. Stotler’s own testimony dose [sic] make it clear that in all probability it would have pro- duced nausea. In this regard his testimony is to the effect that even if the strength of two oral doses were sufficient to produce death in all probability death would not result for the reason that nausea produced by overdosing would have most probably induced the child to vomit the second dose thereby saving her life. The contention that Dr. Stotler followed the practice and cus- tom usually engaged in by similar practi- tioners in the community is clearly refuted

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 267

and contradicted by the evidence of record herein. Of the four medical experts who testi- fied herein only Dr. Stotler testified in effect that it was the customary and usual practice to write a prescription in the manner shown. The testimony of Drs. Beskin, Bombet and Ruiz falls far short of corroborating Dr. Stot- ler in this important aspect. The testimony of Dr. Stotler’s colleagues was clearly to the effect that the better practice is to specify the route of administration intended. . . . In view of the foregoing, we hold that the act acknowledged by Dr. Stotler does not relieve him from liability to plaintiffs herein on the ground that it accorded with that degree of skill and care employed, under similar cir- cumstances, by other members of his profes- sion in good standing in the community. We find and hold that the record before us fails to establish that physicians in good stand- ing in the community follow the procedure adopted by defendant herein but rather the contrary is shown.

Pretermitting the issue of charitable immunity (with which we are not herein concerned in view of the fact that the suit is against the insurer of the hospital in the instant case) it is the settled jurisprudence of this state that a hospital is responsible for the negligence of its employees including, inter alia, nurses and attendants under the doctrine of respondeat superior.

[I]t is not disputed that Mrs. Evans was not only an employee of the hospital but that on the day in question she was in charge of the entire institution as the senior employee on duty at the time.

Although there have been instances in our jurisprudence wherein the alleged negligence of nurses has been made the basis of an action for damages for personal injuries . . . we are not aware of any prior decision which fixes the responsibility or duty of care owed by nurses to patients under their care or treatment. The general rule, however, seems

to be to extend to nurses the same rules which govern the duty and liability of physi- cians in the performance of professional services. Thus . . . we find the rule stated as follows:

* * * The same rules that govern the duty and liability of physicians and surgeons in the performance of professional services are applicable to practitioners of the kindred branches of the healing profession, such as dentists, and, likewise, are applicable to practitioners such as drugless healers, ocu- lists, and manipulators of X-ray machines and other machines or devices.

The foregoing rule appears to be well- founded and we see no valid reason why it should not be adopted as the law of this state. Tested in the light of [this rule] the negligence of Mrs. Evans is patent upon the face of the record. We readily agree with the statement of Dr. Ruiz that a nurse who is unfamiliar with the fact that the drug in question is prepared in oral form for administration to infants by mouth is not properly and adequately trained for duty in a pediatric ward. As laudable as her intentions are conceded to have been on the occasion in question, her unfamiliar- ity with the drug was a contributing factor in the child’s death. In this regard we are of the opinion that she was negligent in attempt- ing to administer a drug with which she was not familiar. While we concede that a nurse does not have the same degree of knowledge regarding drugs as is possessed by members of the medical profession, nevertheless, com- mon sense dictates that no nurse should attempt to administer a drug under the cir- cumstances shown in [this] case. Not only was Mrs. Evans unfamiliar with the medicine in question but she also violated what has been shown to be the rule generally practiced by the members of the nursing profession in the community and which rule, we might add, strikes us as being most reasonable and prudent, namely, the practice of calling the

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n268

prescribing physician when in doubt about an order for medication. . . . For obvious rea- sons we believe it the duty of a nurse when in doubt about an order for medication to make absolutely certain what the doctor intended both as to dosage and route. . . . . . .

The evidence . . . leaves not the slightest doubt that when Dr. Stotler entered the order for the medication on the chart, it was the duty of the hospital nursing staff to adminis- ter it. Dr. Stotler frankly concedes this impor- tant fact and for that reason acknowledged that he should have indicated on the chart that the medication had been given or was to be given by the mother, otherwise some nurse on the pediatric unit would give it as was required of the hospital staff. Not only was there a duty on the part of Dr. Stotler to make this clear so as to prevent duplication of the medication but also he was under the obligation of specifying or in some manner indicating the route considering the drug is prepared in two forms in which dosage is measured in cubic centimeters. In dealing with modern drugs, especially of the type with which we are herein concerned, it is the duty of the prescribing physician who knows that the prescribed medication will be admin- istered by a nurse or third party, to make certain as to the lines of communication

between himself and the party whom he knows will ultimately execute his orders. Any failure in such communication which may prove fatal or injurious to the patient must be charged to the prescribing physician who has full knowledge of the drug and its effects upon the human system. The duty of com- munication between physician and nurse is more important when we consider that the nurse who administers the medication is not held to the same degree of knowledge with respect thereto as the prescribing phy- sician. It, therefore, becomes the duty of the physician to make his intentions clear and unmistakable. If, as the record shows, Dr. Stotler had ordered elixir Lanoxin, or specified the route to be oral, it would have clearly informed all nurses of his intention to administer the medication by mouth. Instead, however, he wrote his order in an uncertain, confusing manner considering that the drug in question comes in oral and injectible form and that in both forms dosage is prescribed in terms of cubic centimeters.

It is settled jurisprudence of this state that where the negligence of two persons combines to produce injury to a third, the parties at fault are [jointly] liable to the injured plaintiff.

[Thus, the court affirms the jury’s verdict and holds everybody liable.]

Discussion Questions

1. How many mistakes can you count in this set of facts? At how many points could the chain of errors have been interrupted?

2. If you were the hospital administrator, the chief of the medical staff, or the chief of nursing, what action would you take to prevent recurrence of this tragedy?

3. This child’s death occurred more than 50 years ago, yet a 2007 report by the Institute of Medicine (Preventing Medication Errors) states that at least 1.5 million people are injured each year because of medication errors. According to the report, on average at least one medication error is made per hospital per patient per day. What safeguards are in place in hospitals today to prevent these kinds of mistakes?

4. What does pretermitting mean?

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 269

The Cour t Decides

Johnson v. Misericordia Community Hospital 99 Wis. 2d 708, 301 N.W.2d 156 (1981)

Coffey, J.

[This case involves negligent surgery per- formed on Mr. Johnson by Dr. Salinsky at Misericordia Community Hospital in July 1975. Because of undisputed negligence by the doctor, the patient (plaintiff ) has “a permanent paralytic condition of his right thigh muscles with resultant atrophy and weakness and loss of function.” The doctor settled before trial, but the hospital disputed allegations that it was negligent. A verdict in favor of the plaintiff was affirmed by the court of appeals.

Misericordia Community Hospital had pre- viously been a religiously affiliated hospital but was sold to a private group of physicians who first operated it as a nursing home but subsequently reinstituted acute care services there. At the time of the incidents in this case, the hospital was not accredited by The Joint Commission.]

On March 5, 1973 . . . Dr. Salinsky applied for orthopedic privileges on the medical staff. In his application, Salinsky stated that he was on the active medical staff of [other hospitals and that] his privileges at other hospitals had never “been suspended, diminished, revoked, or not renewed.” In another part of the application form, he failed to answer any of the questions pertaining to his malpractice insurance, i.e., carrier, policy number, amount of coverage, expiration date, [and] agent, and represented that he had requested privileges only for those surgical procedures in which he was qualified by certification.

In addition to requiring the above informa- tion, the application provided that significant misstatements or omissions would be a

cause for denial of appointment. Also, in the application, Salinsky authorized Misericor- dia to contact his malpractice carriers, past and present, and all the hospitals that he had previously been associated with, for the purpose of obtaining any information bearing on his professional competence, as well as his moral and ethical qualifications for staff membership. [The application also contained language releasing the hospital from any lia- bility as a result of doing a background check on the applicant.]

Mrs. Jane Bekos, Misericordia’s medical staff coordinator (appointed April of 1973) testifying from the hospital records, noted that Salinsky’s appointment to the medical staff was recommended by the then hospital administrator, David A. Scott, Sr., on June 22, 1973. Salinsky’s appointment and requested orthopedic privileges, according to the hospi- tal records, were not marked approved until August 8, 1973. This approval of his appoint- ment was endorsed by Salinsky himself. Such approval would, according to accepted medical administrative procedure, not be signed by the applicant but by the chief of the respective medical section. Additionally, the record establishes that Salinsky was ele- vated to the position of Chief of Staff shortly after he joined the medical staff. However, the court record and the hospital records are devoid of any information concerning the procedure utilized by the Misericordia authorities in approving either Salinsky’s appointment to the staff with orthopedic privileges or his elevation to the position of Chief of Staff.

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Mrs. Bekos testified that although her hospital administrative duties entailed obtaining all the information available regarding an applicant from the hospitals and doctors referred to in the application for medical staff privileges, she failed to contact any of the references in Salinsky’s case. In her testimony she attempted to justify her failure to investigate Salinsky’s application because she believed he had been a member of the medical staff prior to her employment in April of 1973, even though his application was not marked approved until some four months later on August 8, 1973. Further, Mrs. Bekos stated that an examination of the Misericordia records reflected that at no time was an investigation made by anyone of any of the statements recited in his application. . . .

At trial, the representatives of two Milwaukee hospitals . . . gave testimony concerning the accepted procedure for evalu- ating applicants for medical staff privileges. Briefly, they stated that the hospital’s govern- ing body, i.e., the board of directors or board of trustees, has the ultimate responsibility in granting or denying staff privileges. However, the governing board delegates the responsi- bility of evaluating the professional qualifica- tions of an applicant for clinical privileges to the medical staff. The credentials committee (or committee of the whole) conducts an investigation of the applying physician’s or surgeon’s education, training, health, ethics and experience through contacts with his peers in the specialty in which he is seeking privileges, as well as the references listed in his application to determine the veracity of his statements and to solicit comments dealing with the applicant’s credentials. Once [this has been done, a recommendation is relayed] to the governing body, which . . . has the final appointing authority.

The record demonstrates that had [such an investigation been conducted, Misericordia] would have found, contrary to [Dr. Salinsky’s]

representations, that he had in fact experi- enced denial and restriction of his privileges, as well as never having been granted privileges at the very same hospitals he listed in his application. This information was readily avail- able to Misericordia, and a review of Salinsky’s associations with various Milwaukee ortho- pedic surgeons and hospital personnel would have revealed that they considered Salinsky’s competence as an orthopedic surgeon suspect, and viewed it with a great deal of concern.

[The court summarizes some of Dr. Salinsky’s professional history. At one hospital, his request for expanded orthopedic privileges was denied after being on the staff for a year and a half. At another, his privileges were temporarily suspended and subsequently lim- ited after a report of “continued flagrant bad practices.” At a third, his initial application for privileges was flatly denied. The court adds, “The testimony at trial established many other discrepancies in Salinsky’s Misericordia appli- cation,” and it points out that experts in the field testified that, in their opinion, a prudent hospital would not have granted Salinsky’s application under these circumstances.]

The jury found that the hospital was neg- ligent in granting orthopedic surgical privi- leges to Dr. Salinsky and thus apportioned eighty percent of the causal negligence to Misericordia. Damages were awarded in the sum of $315,000 for past and future personal injuries and $90,000 for past and future impairment of earning capacity. . . .

Issues:

1. Does a hospital owe a duty to its patients to use due care in the selection of its medical staff and the granting of special- ized surgical (orthopedic) privileges?

2. What is the standard of care that a hospi- tal must exercise in the discharge of this duty to its patients[,] and did Misericor- dia fail to exercise that standard of care in this case?

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 271

At the outset, it must be noted that Dr. Salinsky was an independent contractor, not an employee of Misericordia, and that the plaintiff is not claiming that Misericordia is vicariously liable for the negligence of Dr. Salinsky under the theory of respondeat superior. Rather, Johnson’s claim is premised on the alleged duty of care owed by the hos- pital directly to its patients.

. . . “The concept of duty in Wisconsin, as it relates to negligence cases, is irrevocably interwoven with foreseeability. Foreseeability is a fundamental element of negligence.” In [a prior case,] this court set the standard for determining when a duty arises:

A defendant’s duty is established when it can be said that it was foreseeable that his act or omission to act may cause harm to someone. A party is neg- ligent when he commits an act when some harm to someone is foreseeable. Once negligence is established, the defendant is liable for unforeseeable consequences as well as foreseeable ones. In addition, he is liable to unfore- seeable plaintiffs.

Further, we defined the term “duty” as it relates to the law of negligence:

The duty of any person is the obligation of due care to refrain from any act which will cause foreseeable harm to others even though the nature of that harm and the identity of the harmed person or harmed interest is unknown at the time of the act.

. . . Thus, the issue of whether Misericordia

should be held to a duty of due care in the granting of medical staff privileges depends upon whether it is foreseeable that a hospi- tal’s failure to properly investigate and verify the accuracy of an applicant’s statements dealing with his training, experience and

qualifications as well as to weigh and pass judgment on the applicant would present an unreasonable risk of harm to its patients. The failure of a hospital to scrutinize the credentials of its medical staff applicants could foreseeably result in the appointment of unqualified physicians and surgeons to its staff. Thus, the granting of staff privileges to these doctors would undoubtedly create an unreasonable risk of harm or injury to their patients. Therefore, the failure to investigate a medical staff applicant’s qualifications for the privileges requested gives rise to a fore- seeable risk of unreasonable harm and we hold that a hospital has a duty to exercise due care in the selection of its medical staff.

Our holding herein is in accord with the public’s perception of the modern day medical scientific research center with its computed axial tomography (CATscan), radio nucleide imaging thermography, micro- surgery, etc., formerly known as a general hospital. The public is indeed entitled to expect quality care and treatment while [they are patients] in our highly technical and medically computed hospital complexes. The concept that a hospital does not undertake to treat patients, does not undertake to act through its doctors and nurses, but only procures them to act solely upon their own responsibility, no longer reflects the fact. . . . [T]he person who avails himself of our modern “hospital facilities” . . . expects that the hospital staff will do all it reasonably can to cure him and does not anticipate that its nurses, doctors and other employees will be acting solely on their own responsibility.

Further, our holding is supported by the decisions of a number of courts from other jurisdictions. These cases hold that a hospi- tal has a direct and independent responsibil- ity to its patients, over and above that of the physicians and surgeons practicing therein, to take reasonable steps to (1) insure that its medical staff is qualified for the privileges

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n272

granted and/or (2) to evaluate the care provided.

[The court here embarks on a lengthy discussion of similar cases from various other states. It points out the leading case of Darling v. Charleston Community Memorial Hosp., in which the Supreme Court of Illinois found a direct duty flowing from hospital to patient regarding the qualifications of mem- bers of the medical staff. The Johnson court favorably quotes from the Darling opinion, including the following passage: “The Stan- dards for Hospital Accreditation, the state licensing regulations and the defendant’s bylaws demonstrate that the medical profes- sion and other responsible authorities regard it as both desirable and feasible that a hos- pital assume certain responsibilities for the care of the patient.”]

There was credible evidence to the effect that a hospital, exercising ordinary care, [would have known of the deficiencies in Dr. Salinsky’s qualifications and] would not have appointed Salinsky to its medical staff. . . .

This court has held “. . . a jury’s finding of negligence . . . will not be set aside when there is any credible evidence that under any reasonable view supports the verdict.

. . . Thus, the jury’s finding of negligence on the part of Misericordia must be upheld [because] the testimony of [the expert wit- nesses] constituted credible evidence which reasonably supports this finding.

In summary, we hold that a hospital owes a duty to its patients to exercise reasonable care in the selection of its medical staff and in granting specialized privileges. The final appointing authority resides in the hospital’s governing body, although it must rely on the medical staff and in particular the creden- tials committee (or committee of the whole) to investigate and evaluate an applicant’s qualifications for the requested privileges. However, this delegation of the responsibil- ity to investigate and evaluate the profes- sional competence of applicants for clinical

privileges does not relieve the governing body of its duty to appoint only qualified physicians and surgeons to its medical staff and periodically monitor and review their competency. The credentials committee (or committee of the whole) must investigate the qualifications of applicants. [Paragraph break added.]

The facts of this case demonstrate that a hospital should, at a minimum, require com- pletion of the application and verify the accu- racy of the applicant’s statements, especially in regard to his medical education, training and experience. Additionally, it should: (1) solicit information from the applicant’s peers, including those not referenced in his application, who are knowledgeable about his education, training, experience, health, competence and ethical character; (2) deter- mine if the applicant is currently licensed to practice in this state and if his licensure or registration has been or is currently being challenged; and (3) inquire whether the applicant has been involved in any adverse malpractice action and whether he has expe- rienced a loss of medical organization mem- bership or medical privileges or membership at any other hospital. The investigating committee must also evaluate the informa- tion gained through its inquiries and make a reasonable judgment as to the approval or denial of each application for staff privileges. The hospital will be charged with gaining and evaluating the knowledge that would have been acquired had it exercised ordinary care in investigating its medical staff applicants and the hospital’s failure to exercise that degree of care, skill and judgment that is exercised by the average hospital in approv- ing an applicant’s request for privileges is negligence. This is not to say that hospitals are insurers of the competence of their medi- cal staff, for a hospital will not be negligent if it exercises the noted standard of care in selecting its staff. The decision of the Court of Appeals is affirmed.

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Notes

1. The origin of immunity in the United States is generally attributed to McDonald v. Massachusetts Gen. Hosp., 120 Mass. 432, 21 A.529 (1876). This decision was a determining factor in the famous case of Schloendorff v. Society of New York Hospital, 211 N.Y. 125, 105 N.E. 92 (1914), which is generally cited today for its dictum on negligence versus battery (see chapter 11).

2. For a landmark case abolishing charitable immunity, see President & Directors of Georgetown College v. Hughes, 130 F.2d 810 (D.C. Cir. 1942).

3. Colby v. Carney Hospital, 356 Mass. 527, 254 N.E. 2d 407 (1969). 4. Lewis v. Physicians Ins. Co. of Wisconsin, 627 N.W.2d 484 (Wis.

2001). 5. Foley v. Bishop Clarkson Memorial Hosp., 185 Neb. 89, 173 N.W.2d

881 (1970); Kastler v. Iowa Methodist Hosp., 193 N.W.2d 98 (Iowa 1917); McGillivray v. Rapides Iberia Management Enterprises, 493 So. 2d 819 (La. Ct. App. 1986). In addition, Lamont v. Brookwood Health Services, Inc., 446 So. 2d 1018 (Ala. 1983) held that the standard of care for hospitals was determined by the national hospital community.

Discussion Questions

1. In the opening paragraph of his classic 1881 treatise The Common Law, Oliver Wendell Holmes Jr. wrote: “The life of the law has not been logic: it has been experience. The felt necessities of the time, the prevalent moral and political theories, institutions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed.” How is this case an example of the truth of this passage?

2. Do you agree with the court’s rationale? What would have been the implications of the opposite result?

3. Do you agree with the court’s statement on how the public perceives a modern hospital today? What evidence is there to support this statement?

4. Does this decision mean that a hospital will be liable for every incident of malpractice committed by nonemployee members of its medical staff? Why or why not?

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T h e L a w o f H e a l t h c a r e A d m i n i s t r a t i o n274

6. Foley v. Bishop Clarkson Memorial Hosp., 185 Neb. at 95, 173 N.W.2d at 885.

7. See, e.g., Reifschneider v. Nebraska Methodist Hosp., 222 Neb. 782, 387 N.W.2d 486 (1986) (when a semiconscious patient was placed on a cart in the hospital emergency department without use of restraints, expert testimony was required to establish expected standard of care); and Rosemont, Inc. v. Marshall, 481 So. 2d 1126 (Ala. 1985) (standard of care with respect to observation and supervision of patient’s ambulatory status requires expert testimony).

8. See, e.g., Keeton v. Maury County Hosp., 713 S.W.2d 314 (Tenn. App. 1986) (the hospital staff knew or could foresee that the patient would be in danger if moving about unassisted; expert testimony was not necessary to establish breach of duty).

9. Reifschneider v. Nebraska Methodist Hosp., supra note 7 (violation of a physician’s order that patient be attended at all times presented a prima facie case of negligence).

10. Hastings v. Baton Rouge Gen. Hosp., 498 So. 2d 713 (La. 1986) (violation of hospital bylaws constitutes breach of duty and eliminates the need for expert testimony); Therrel v. Fonde, 495 So. 2d 1046 (Ala. 1986) (when facts establish a significant delay in treatment, expert testimony is not necessary to support a jury verdict that the defendant failed to provide adequate security).

11. 58 Mich. App. 119, 227 N.W.2d 247 (1975). 12. Morgan Haefner, Hospitals Employed 42% of Physicians in 2016: 5

Study Findings, Becker’s Hospital review (published March 15, 2018), at https://www.beckershospitalreview.com/hospital-physician- relationships/hospitals-employed-42-of-physicians-in-2016-5-study- findings.html.

13. 2 N.Y.2d 656, 143 N.E.2d 3, 163 N.Y.S.2d 3 (1957). 14. Id. at 2 N.Y.2d 666. 15. See, e.g., Sanchez v. Medicorp Health Sys., 270 Va. 299, 303 (2005)

and Baptist Memorial Hosp. System v. Sampson, 969 S.W.2d 945 (Tex. 1998). In Baptist Memorial, the Texas Supreme Court wrote, “Many courts use the terms ostensible agency, apparent agency, apparent authority, and agency by estoppel interchangeably. As a practical matter, there is no distinction among them.”

16. 272 A.2d 718 (Del. 1970). 17. 304 A.2d 61 (Del. Super. Ct. 1973). See also, e.g., Mehlman v. Powell,

281 Md. 269, 378 A.2d 1121 (1977), and Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255 (Ky. 1985).

18. 458 Pa. 246, 329 A.2d 497 (1974).

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C h a p t e r 7 : L i a b i l i t y o f t h e H e a l t h c a r e I n s t i t u t i o n 275

19. See restatement (second) of agency § 226 (1958). 20. The trend was anticipated and forecast by Professor Arthur Southwick

(the original author of this textbook) as early as 1960, when he wrote, “The third trend in the law of hospital liability is the most significant. It is the increasing tendency . . . to impose vicarious liability on facts where none would have been imposed heretofore. By some leading decisions it no longer follows that a professional person using his own skill, judgment and discretion in regard to the means and methods of his work is an independent contractor. . . . Gradually, the test of hospital liability for another’s act is becoming simply a question of whether or not the actor causing injury was a part of the medical care organization.” Arthur F. Southwick, Vicarious Liability of Hospitals, 44 marq. l. rev. 151, 182 (1960).

21. Bader v. United Orthodox Synagogue, 148 Conn. 449, 453, 172 A.2d 192, 194 (1961).

22. Shepherd v. McGinnis, 257 Iowa 35, 131 N.W.2d 475 (1964); Ardoin v. Hartford Accident & Indem. Co., 350 So. 2d 205 (La. App. 1977).

23. Phillips v. Powell, 210 Cal. 39, 290 P.2d 441 (1930); Milner v. Huntsville Memorial Hosp., 398 S.W.2d 647 (Tex. App. 1966).

24. South Highlands Infirmary v. Camp, 279 Ala. 1, 180 So. 2d 904 (1965); Nelson v. Swedish Hosp., 241 Minn. 551, 64 N.W.2d 38 (1954).

25. Peck v. Charles B. Towns. Hosp., 275 A.D. 302, 89 N.Y.S.2d 190 (1949).

26. 557 S.W.2d 859 (Tex. 1977). 27. Hamil v. Bashline, 224 Pa. Super. 407, 307 A.2d 57 (1973). 28. 553 S.W.2d 180 (Tex. App. 1977). See also Hipp v. Hospital Auth.,

104 Ga. App. 174, 121 S.E.2d 273 (1961); Garlington v. Kingsley, 277 So. 2d 183 (La. App. 173), rev’d on other grounds, 289 So. 2d 88 (La. 1974).

29. 553 S.W.2d at 181. 30. Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d 326,

211 N.E.2d 253, cert. denied, 383 U.S. 946 (1966). There are many other cases in accord, some of which are cited infra.

31. 72 Wash. 2d 73, 431 P.2d 973 (1967). 32. 19 Ohio St. 2d 128, 249 N.E.2d 829 (1969). 33. Kakligian v. Henry Ford Hosp., 48 Mich. App. 325, 210 N.W.2d 463

(1973). 34. 324 F. Supp. 233 (N.D. Ind. 1971). 35. 324 F. Supp. at 235.

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36. Hospitals owe a duty to exercise such reasonable care as the patient’s known condition requires and to guard against conditions that should have been discovered by the exercise of reasonable care (Foley v. Bishop Clarkson Memorial Hosp., 185 Neb. 89, 173 N.W.2d 881 [1970]). Moreover, hospitals are held to standards and practices prevailing generally, not only in the local community but also in similar or like communities in similar circumstances (Dickinson v. Mailliard, 175 N.W.2d 588 [Iowa 1970]).

37. 2 N.Y.2d 656, 143 N.E.2d 3, 163 N.Y.S.2d 3 (1957). 38. 33 Ill. 2d 326, 211 N.E.2d 253, cert. denied, 383 U.S. 946 (1966). 39. In support of its position, the court cited Bing v. Thunig, 2 N.Y.2d

656, 143 N.E.2d 3, 163 N.Y.S.2d 3 (1957). 40. 14 A.L.R.3d 873, 879 (1967). 41. 125 Ga. App. 1, 186 S.E.2d 307, aff’d, 229 Ga. 140, 189 S.E.2d 412

(1972). 42. The New York courts have also recognized that hospitals have a duty

to patients to select and retain staff physicians with care. See Fiorentino v. Wenger, 19 N.Y.2d 407, 227 N.E.2d 296, 299, 280 N.Y.S.2d 373, 378 (1967), in which the court stated: “More particularly, in the context of the present case, a hospital will not be liable for an act of malpractice performed by an independently retained healer, unless it has reason to know that the act of malpractice would take place.”

43. 88 Nev. 207, 495 P.2d 605, cert. denied, 409 U.S. 879 (1972). 44. Id., 495 P.2d at 608. See also Pedroza v. Bryant, 101 Wash. 2d 226,

677 P.2d 166 (1984) (hospitals owe independent duty to patients to use reasonable care in selection and retention of medical staff; duty does not extend to the patient of a physician who allegedly committed malpractice in private office practice).

45. No. 228566 (Super. Ct. Cal., Sacramento County, 1973), rev’d on other grounds, 60 Cal. App. 3d 728 (1976).

46. 99 Wis. 2d 708, 301 N.W.2d 156 (1981). The opinion of the intermediate court of appeals is reported at 97 Wis. 2d 521, 294 N.W.2d 501 (1980).

47. 99 Wis. 2d at 723. 48. See, e.g., National Library of Medicine, “Medline Plus” (accessed Aug.

1, 2019), at https://medlineplus.gov/managedcare.html. 49. 192 Cal. App. 3d 1630, 239 Cal. Rptr. 810 (Ct. App. 1986). 50. Id. at 811–12. 51. Id. at 819. 52. 271 Cal. Rptr. 876 (Ct. App. 1990).

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53. Id. at 883. 54. Both quotes id. at 880. 55. 29 U.S.C. § 1001 et seq. 56. 29 U.S.C. § 1144(a). 57. See, e.g., Corcoran v. United Healthcare, Inc., 965 F.2d 1321 (5th Cir.

1992), and Rodriguez v. Pacificare of Tex., Inc., 980 F.2d 1014 (5th Cir. 1993). But see Dukes v. U.S. Healthcare, 57 F.3d 350 (3rd Cir. 1995), and Pacificare of Oklahoma, Inc. v. Burrage, 59 F.3d 151 (10th Cir. 1995).

58. Tex. Civ. Prac. & Rem. Code Ann. § 88.002. 59. Corporate Health Ins., Inc. v. Texas Dept. of Ins., 215 F.3d 526,

535 (5th Cir. 2000). The case was brought by various health insurers specifically to challenge the statute’s validity. The plaintiffs were not ERISA plans.

60. Cases holding that there is no preemption: Cicio v. Does, 321 F.3d 83 (2d Cir. 2003); Roark v. Humana, 307 F.3d 298 (5th Cir. 2002); Land v. CIGNA Healthcare, 339 F.3d 1286 (11th Cir. 2003). Cases holding that ERISA does preempt state claims: Andrews-Clarke v. Travelers Ins. Co., 984 F. Supp. 49 (D. Mass. 1997); DiFelice v. Aetna U.S. Health Care, 346 F.3d 442 (3d Cir. 2003); Marks v. Watters, 322 F.3d 316 (4th Cir. 2003).

61. 542 U.S. 200 (2004). 62. Id. at 219. 63. Id. at 214. 64. 577 U.S. __, 136 S. Ct. 936 (2016).

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