Showalter

Health Law for Healthcare Managers

Now in its fifth edition, The Law of Healthcare Administration continues
to examine the legal aspects of healthcare from a management
perspective. Using plain language, the book is a comprehensive
treatment of health law in the United States, addressing topics from the
basic structure of the court system to the general legal responsibilities of
The Law of
Healthcare
healthcare organizations to the specific liabilities inherent in the

The Law of Healthcare Administration

provision of care. Legal concepts in the book are supported by examples
from actual court decisions.

Administration
This edition features:

• Discussion of recent legal developments in high-profile areas such as

HIPAA, abortion, and withholding life-sustaining treatment
• Revision to the corporate-compliance chapter that better emphasizes
fraud and abuse issues
• Addition of sidebars that provide extra information, real-life
examples, and interesting insights about the concepts explored
• Inclusion of objectives, summaries, and discussion questions to
highlight important points in each chapter
• Introduction of a Glossary and Suggested Readings to supplement
understanding and to encourage further learning

About the Author

Fifth Edition
J. Stuart Showalter, J.D., M.F.S., has spent most of his career dealing with
health law issues. From 1972 through 1980, he served in the U.S. Navy in
various positions, including as in-house counsel, malpractice-claims defense
attorney, and counsel to the U.S. Navy Surgeon General. From 1980 to 1996,
Mr. Showalter was vice president and in-house counsel to the Catholic Health
Association of the United States. In addition, he has been a hospital system’s
director of compliance and a law professor.

Fifth
Edition

J. Stuart Showalter
 THE LAW OF
HEALTHCARE ADMINISTRATION

FIFTH EDITION
 THE LAW OF
HEALTHCARE ADMINISTRATION

FIFTH EDITION

J. Stuart Showalter
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The statements and opinions contained in this book are strictly those of the author(s) and
do not represent the official positions of the American College of Healthcare Executives
or of the Foundation of the American College of Healthcare Executives.

Copyright © 2008 by the Foundation of the American College of Healthcare Executives.

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may not be reproduced in any form without written permission of the publisher.

13 12 11 10 09 5 4 3 2 1

L i br a r y of C on gr ess C a t a l ogi ng-i n-P ub l i ca ti on Da t a

Showalter, J. Stuart.
The law of healthcare administration / J. Stuart Showalter. —5th ed.
p. cm.
Includes index.
ISBN 978-1-56793-957-6 (alk. paper)
1. Medical care—Law and legislation—United States. 2. Hospitals—Law and legis-
lation—United States. 3. Medical laws and legislation—United States. I. Title.
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BRIEF CONTENTS

Preface .......................................................................................................... xi
1. THE ANGLO-AMERICAN LEGAL SYSTEM .................................................... 1
2. CONTRACTS AND INTENTIONAL TORTS .................................................... 23
3. NEGLIGENCE .............................................................................................. 47
4. THE ORGANIZATION AND MANAGEMENT OF A CORPORATE HEALTHCARE
INSTITUTION ............................................................................................ 89
5. LIABILITY OF THE HEALTHCARE INSTITUTION .......................................... 127
6. ADMISSION AND DISCHARGE .................................................................... 159
7. MEDICAL STAFF APPOINTMENTS AND PRIVILEGES .................................. 187
8. EMERGENCY CARE...................................................................................... 221
9. CONSENT FOR TREATMENT AND WITHHOLDING CONSENT ...................... 243
10. TAXATION OF HEALTHCARE INSTITUTIONS .............................................. 293
11. ANTITRUST LAW ........................................................................................ 319
12. FRAUD, ABUSE, AND CORPORATE COMPLIANCE PROGRAMS.................... 357
13. ISSUES OF REPRODUCTION ...................................................................... 385
14. HEALTH INFORMATION MANAGEMENT ...................................................... 423
Glossary ........................................................................................................ 471
Suggested Readings ...................................................................................... 477
Case Index .................................................................................................... 479
Index ............................................................................................................ 497
About the Author.................................................................................... 511
vi The Law of Healthcare Administration

DETAILED CONTENTS

Preface .................................................................................................... xi
1. THE ANGLO-AMERICAN LEGAL SYSTEM 1
Sources of Law ........................................................................................ 3
The Court System .................................................................................. 8
Legal Procedure ...................................................................................... 14
The Court Decides .................................................................................. 20
Jackson v. Metropolitan Edison Co. ................................................ 20
Planned Parenthood of S.E. Pennsylvania v. Casey .......................... 22
2. CONTRACTS AND INTENTIONAL TORTS 23
Elements of a Contract ............................................................................ 24
The Physician–Patient Relationship.......................................................... 25
Liability for Breach of Contract .............................................................. 33
Liability for Breach of Warranty .............................................................. 33
Liability for Intentional Tort.................................................................... 35
The Court Decides .................................................................................. 44
Stowers v. Wolodzko ........................................................................ 44

3. NEGLIGENCE 47

Standard of Care .................................................................................... 47

Proving the Standard of Care and Breach of the Standard ...................... 53

Injury and Causation .............................................................................. 60

Defenses ................................................................................................ 62

Liability for Acts of Others: Vicarious Liability ........................................ 67

Distinctions Among Causes of Action...................................................... 68

Countersuits by Physicians ...................................................................... 71

Reforming the Tort System .................................................................... 72

Alternatives to the Tort System................................................................ 73

 Detailed Contents vii

The Court Decides .................................................................................. 83

Helling v. Carey .............................................................................. 83
Perin v. Hayne ................................................................................ 84

4. THE ORGANIZATION AND MANAGEMENT OF A CORPORATE

HEALTHCARE INSTITUTION 89

Formation and Nature of a Corporation .................................................. 90

The Governing Board of a Healthcare Institution.................................... 97

Responsibilities of Management .............................................................. 104

The Independent Hospital and Reasons for Change ................................ 105

Piercing the Corporate Veil...................................................................... 109

Alternative Strategies: Sale, Consolidation, and Merger............................ 111

Joint Ventures with Physicians ................................................................ 112

The Court Decides .................................................................................. 120

Charlotte Hungerford Hospital v. Attorney General ........................ 120

Stern v. Lucy Webb Hayes National Training School for Deaconesses

and Missionaries................................................................................ 121

Woodyard, Insurance Commissioner v. Arkansas Diversified

Insurance Co. ................................................................................ 125
5. LIABILITY OF THE HEALTHCARE INSTITUTION 127
Respondeat Superior Versus Independent Contractor Status .................... 128
Erosion of Independent Contractor Status .............................................. 130
Doctrine of Apparent Agency .................................................................. 132
Erosion of Captain-of-the-Ship and Borrowed-Servant Doctrines ............ 134
Doctrine of Corporate Liability .............................................................. 136
The Court Decides .................................................................................. 149
Norton v. Argonaut Insurance Co. .................................................. 149
Johnson v. Misericordia Community Hospital .................................. 153

6. ADMISSION AND DISCHARGE 159

Access to Healthcare and Voluntary Admission ...................................... 159

Admission and Treatment of Mentally Ill Patients.................................... 167

Discharge from the Hospital.................................................................... 171

Utilization Review, Peer-Review Organizations, and Managed Care ........ 175

viii Detailed Contents

The Court Decides .................................................................................. 184

Hill v. Ohio County ........................................................................ 184
7. MEDICAL STAFF APPOINTMENTS AND PRIVILEGES 187
Duty to Use Reasonable Care in Appointment of Medical Staff .............. 188
Due Process and Equal Protection Requirements .................................... 190
Standards for Medical Staff Appointments .............................................. 192
Discipline of Professional Staff ................................................................ 196
Exclusive Contracts with Physicians ........................................................ 202
Economic Credentialing .......................................................................... 204
Peer Review of Professional Practice ........................................................ 206
The Court Decides .................................................................................. 216
Moore v. Board of Trustees of Carson–Tahoe Hospital. .................. 216
Leach v. Jefferson Parish Hospital District No. 2.............................. 217

8. EMERGENCY CARE 221

Necessity for Emergency Care Facilities .................................................. 222

Duty to Treat and Aid ............................................................................ 222

Duty to Exercise Reasonable Care .......................................................... 232

Staffing the Emergency Department ........................................................ 235

Good Samaritan Statutes ........................................................................ 237

9. CONSENT FOR TREATMENT AND WITHHOLDING CONSENT 243

Types of Consent and Recommended Procedures.................................... 244

The Healthcare Institution’s Role in Consent Cases ................................ 249

How “Informed” Must Informed Consent Be?........................................ 250

Consent of a Spouse or Relative .............................................................. 255

Refusal of the Patient to Consent ............................................................ 256

Consent for Treatment of Incompetent Adults ........................................ 260

Consent and Refusal of Treatment for Minors ........................................ 269

The Court Decides .................................................................................. 286

Cobbs v. Grant ................................................................................ 286

Bush v. Schiavo ................................................................................ 291

10. TAXATION OF HEALTHCARE INSTITUTIONS 293

Nature of a Charitable Corporation ........................................................ 293
 Detailed Contents ix

Federal Tax Issues.................................................................................... 296

State Taxation of Real Estate .................................................................. 302
The Court Decides .................................................................................. 310
Utah County v. Intermountain Health Care, Inc. ............................ 310
Greater Anchorage Area Borough v. Sisters of Charity...................... 315
Barnes Hospital v. Collector of Revenue .......................................... 316

11. ANTITRUST LAW 319

The Sherman Act .................................................................................... 319

The Clayton Act ...................................................................................... 322

The Federal Trade Commission Act ........................................................ 325

Interstate Commerce .............................................................................. 325

Exemptions from Antitrust Legislation .................................................... 326

Sanctions and Enforcement of Antitrust Statutes .................................... 332

Rule-of-Reason Analysis and Per Se Violations ........................................ 333

Applications to Healthcare ...................................................................... 334

Other Considerations .............................................................................. 343

The Court Decides .................................................................................. 350

Copperweld Corp. v. Independence Tube Corp. .............................. 350

12. FRAUD, ABUSE, AND CORPORATE COMPLIANCE PROGRAMS 357

Enforcement Climate .............................................................................. 358

False Claims Act ...................................................................................... 360

Antikickback Statute ................................................................................ 365

“Stark” Self-Referral Laws ...................................................................... 369

Corporate Compliance Programs ............................................................ 373

The Court Decides .................................................................................. 380

United States v. Greber .................................................................... 380

United States v. McClatchey ............................................................ 382

13. ISSUES OF REPRODUCTION 385

Abortion ................................................................................................ 386
Sterilization ............................................................................................ 396

Hospital’s Role in Reproductive Issues .................................................... 401

Wrongful Birth and Wrongful Life .......................................................... 403
x The Law of Healthcare Administration

Other Reproduction Issues ...................................................................... 411

The Court Decides .................................................................................. 419
Skinner v. Oklahoma ex rel. Attorney General .................................. 419
14. HEALTH INFORMATION MANAGEMENT 423
A New Focus .......................................................................................... 424
Legal Requirements ................................................................................ 425
Access to Medical Record Information .................................................... 431
HIPAA and the Patient’s Right to Access Medical Information .............. 433
State Open-Meeting and Public-Records Laws ........................................ 449
Medical Records in Legal Proceedings .................................................... 451
The Court Decides .................................................................................. 465
Tarasoff v. Regents of the University of California ............................ 465

Glossary .................................................................................................. 471

Suggested Readings ................................................................................ 477
Case Index .............................................................................................. 479
Index ...................................................................................................... 497
About the Author.................................................................................... 511
PREFACE

The Law of Healthcare Administration is intended to give readers some

appreciation of the role law plays in the everyday operation of our health-
care system. The book was first published in 1988, when the late Arthur
F. Southwick was a guiding light in our field. It was the first to capture the
essence of health law from management’s perspective. I have been privi-
leged to carry Professor Southwick’s legacy through the third and fourth
editions, and now it is time for the fifth.
My publisher has told me—probably in an effort to inflate my ego and
keep me writing (it worked on both counts!)—that this is one of the best-
selling books ever published by Health Administration Press. Its continued
popularity in a rapidly changing field is a powerful reminder that “law is the
warp and woof of healthcare,” to paraphrase one of my former bosses.
The goal for this edition was to retain the book’s basic format but
to make the following important changes:

• New developments in several areas are discussed. Although the law

changes at a glacial pace, small avalanches do happen from time to
time. I point these changes out, including those in the areas of
HIPAA, abortion, and withholding life-sustaining treatment.
• Plain language is used as much as possible. Legalese can induce not
only confusion but also somnolence; both should be avoided.
• Chapters have been reordered for a different and better flow to the
material.
• The chapter formerly entitled “Corporate Compliance Programs in
Healthcare” has been reworked to give greater emphasis to health-
care fraud and abuse issues. It is now called “Fraud, Abuse, and
Corporate Compliance Programs.”
• Chapter Objectives now introduce each chapter, giving the reader a
quick preview of the lessons in each chapter.
• Legal Briefs, Legal DecisionPoints, and The Law in Action are sprin-
kled throughout the chapters. Legal Briefs offer extra information,

xi
xii Preface

not always about legal matters, that adds interest to the learning of
concepts. Legal DecisionPoints include legal scenarios for further
thought. The Law in Action boxes lay out actual cases and outcomes
and are akin to the “war stories” that I often tell in class and that
seem to stimulate good discussion. Questions and scenarios raised in
these three extra elements will spur critical thinking and hopefully
add to students’ understanding of the concepts in the chapter.
• Chapter Summaries and Chapter Discussion Questions follow each
chapter.
• The appendix in the fourth edition has been abandoned in favor of
some excerpts of judicial decisions in the pertinent chapter.
• Now located at the end of each chapter is The Court Decides section.
Most cases in this section are accompanied by discussion questions. The
cases in this section are compiled from the opinions of various federal
and state courts. They are presented to illustrate the legal principles dis-
cussed in the chapter. Deletions I made from the original texts of the
opinions are generally indicated by ellipses; in some instances, however, I
summarized lengthy omissions and placed them in brackets and they are
italicized. Asterisks (***) sometimes indicate omissions in the original
texts of opinions because this tends to be the judiciary’s style. Except
where pedagogic purposes require their retention, all notes and in-text case
citations have been omitted from the opinions without notation.
• A Glossary of important definitions is now available.
• Suggested Readings have been added for the inquisitive mind,
whether the instructor’s or the student’s.
• The List of Cases in the fourth edition has been renamed Case
Index, to reflect its format at the end of the book.

For professors who assign this textbook in their courses, Power-

Point presentations with accompanying notes are available. Additionally,
there is an Instructor’s Manual with suggested talking points for the Legal
DecisionPoints, Chapter Discussion Questions, and The Court Decides
discussion questions as well as chapter overviews and main topics, with
additional material provided as pertinent. To gain access to the instruc-
tor’s resources, e-mail [email protected].
I hope this book fills a need for a pragmatic health law text for stu-
dents and faculty of healthcare administration, nursing, and public health
programs and related disciplines. It may also be useful to health administra-
tion executives.
Thanks go to numerous persons who submitted suggestions and
keen insights based on their experiences with the earlier editions and/or
their review of the manuscript of this edition. Among these people are
David V. Kraus at the University of California San Diego Medical Center;
 Pre f a c e xiii

Clifford Mills of Seattle, Washington; Jeffrey Poster of Arlington, Texas;

and Tadd Pullin of Houston, Texas.
I also want to thank the staff of Health Administration Press for
their patience and professional support during the long process of bring-
ing this fifth edition to press.

J. Stuart Showalter, JD, MFS

Orlando, Florida
 CHAPTER

THE ANGLO-AMERICAN LEGAL SYSTEM

1
After reading this chapter, you will

• understand that law comes from four basic sources:

constitutions, statutes, administrative regulations, and
judicial decisions.
• know that in the U.S. legal system, no one branch of
government is meant to be more powerful than the
others.
• be able to find judicial opinions in the “reporter”
publications.
• understand the importance of stare decisis.
• have a basic familiarity with certain procedural concepts
in legal procedure (e.g., complaint, answer, discovery).

In Charles Dickens’s Oliver Twist, Mr. Bumble says, “The law is an ass—an
idiot” while trying to talk his way out of a predicament. In the novel, it has just
been shown that he is an accessory to his wife’s attempt to deprive poor Oliver
of his rightful inheritance. Mr. Bumble’s argument does not work. He and his
wife lose their jobs and become inmates of the very workhouse where Oliver’s
mother died while giving birth to him. The law is not so asinine after all.
The law has fascinated authors and scholars at least since biblical times.
The U.S. legal system has done the same for more than two-and-a-quarter cen-
turies. One can study law simply by reading statutes and judicial decisions, but
for a full understanding, and to appreciate the context of law at any point in
time, one must also read history, sociology, public policy, politics, economics, lit-
erature, ethics, religion, and other relevant fields. The choice of analytical
method is only the first challenge for the student, because the roots of our legal
tradition can be traced as far back as the Norman conquest of England in 1066.
It is little wonder, then, that some (like myself) view the richness of the U.S.
legal tradition with respect that approaches reverence.
Stated in the most basic and arguably most important way, the pur-
pose of the Anglo-American legal system is to provide an alternative to

1
2 The Law of Healthcare Administration

personal revenge as a method to resolve disputes among individuals, organi-

zations, and governments. Considering the size and complexity of our nation,
the litigious temperament of our people, and the wide range of possible dis-
putes, our legal system is remarkably successful in achieving its purpose. It has
its shortcomings, to be sure, but at least it stands as a bulwark against self-help
and blood feuds. For these reasons, it is essential that the student of health-
care administration gain a level of familiarity with law and the legal system.
Virtually every decision made and every action taken by healthcare adminis-
trators have legal implications, and all such decisions and actions are explicitly
or implicitly based on some legal principle.
Just as law infused many of Dickens’s novels, Shakespeare’s plays, and
other works of literature, so too does it permeate today’s healthcare industry.
The U.S. medical system is perhaps the most heavily regulated enterprise in the
world. Not only is it subject to the principles that affect all businesses (every-
thing from antitrust to zoning), but it must also deal with myriad regulations
that are peculiar to patient care. This is why the law of healthcare administration
is so important—we must understand basic legal principles well enough to rec-
ognize when professional legal advice is needed. That is the most important
purpose of this book: to help keep you and your organization out of trouble.
In this chapter we encounter some general concepts essential to any
study of law and give special emphasis to three areas:

1. the sources of law,

2. the workings of the court system, and
3. the basic legal procedure.

In its simplest and broadest sense, law is a system of principles and rules
devised by organized society (or groups within society) to set norms for human
conduct. Societies and groups within it must have standards of behavior, and the
means to enforce those standards, lest we devolve toward vigilantism. The pur-
pose of law, therefore, is to avoid conflict among individuals and between gov-
ernment and its subjects. Inevitably conflicts do occur, however, and then legal
institutions and doctrines supply the means of resolving the disputes.
Because law is concerned with human behavior, it falls short of being an
exact science. Indeed, in my years of teaching this subject at three universities
the most frequent answer to students’ questions has been “it depends.” This
response is frustrating for both the students and the instructor, but it is honest.
The law usually provides only general guidance, rather than an exact blueprint
for living.
But, in one sense, uncertainty about the law is a virtue and is its great-
est strength. The opposite—legal rigidity—would produce decay by inhibit-
ing initiative and the growth of social institutions. Viewed in the proper light,
the law is a beautiful and constantly changing tapestry. Although it usually
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 3

evolves at the deliberate speed of a glacier, it eventually responds to economic

and social developments to reflect the beliefs of society at any given location
or point in time.

Sources of Law

Among other ways, law can be classified as either public law or private law,
depending on its subject matter. Public law concerns the government and its
relations with individuals and businesses. Private law refers to the rules and prin-
ciples that define and regulate rights and duties among persons. These categories
overlap, but they are useful in understanding Anglo-American legal doctrine.
Private law comprises the law of contracts, property, and tort, all of which
usually concern relationships between private parties. It also includes, for exam-
ple, such social contracts as canon law in the Catholic Church and the regula-
tions of a homeowners’ association. Public law, on the other hand, regulates and
enforces rights where government is a party to the subject matter (e.g., labor
relations, taxation, antitrust, environmental regulation, and criminal prosecu-
tion). The principal sources of public law are as follows:

• written constitutions (both state and federal),

• statutory enactments by a legislative body (federal, state, or local),
• administrative rules and regulations, and
• judicial decisions.

Constitutions
The U.S. Constitution is aptly called the “supreme law of the land”
because it sets standards against which all other laws are judged. The other
sources of law must be consistent with the Constitution.
The Constitution is a grant of
power from the states to the federal
government (see Legal Brief). All Legal Brief
powers not granted to the federal gov-
ernment in the Constitution are The United States is not technically a union; it is a
reserved by the individual states. This federation (from the Latin word “foedus”—
covenant), a combination of 50 self-governing
grant of power to the federal govern-
states that have ceded some of their sovereignty to
ment is both express and implied. For the central (federal) government to promote the
example, the Constitution expressly welfare of all.
authorizes the U.S. Congress to levy
and collect taxes, borrow and coin
money, declare war, raise and support
4 The Law of Healthcare Administration

armies, and regulate interstate commerce. Congress may also enact laws
that are “necessary and proper” for exercising these express powers. For
example, the power to coin money includes the implied power to design
U.S. currency, and the power to regulate interstate commerce embraces
the power to pass antidiscrimination legislation, such as the Civil Rights
Act of 1964.
The main body of the Constitution establishes, defines, and limits the
power of the three branches of the federal government:

1. the legislature (Congress) has the power to enact statutes,

2. the executive branch has the power to enforce the laws, and
3. the judiciary has the power to interpret the laws.

Each branch of government has a different role to play, and none is

intended to take priority over the others. The president can nominate federal
judges, but the Senate must confirm those nominations; Congress can remove
high-ranking federal personnel (including judges and the president) through
the impeachment-and-trial process; and the judiciary can declare laws uncon-
stitutional. A congressional bill can be vetoed by the president, but Congress
can override a veto by a two-thirds vote of each chamber. Figure 1.1 illustrates
this system of “checks and balances” in the federal government.
Twenty-seven amendments follow the main body of the Constitution.
The first ten, ratified in 1791, are known as the Bill of Rights, which includes
the well-known rights to

• exercise freedom of speech,

• practice religion,
• be secure from unreasonable searches and seizures,
• bear arms in an organized militia,
• demand a jury trial,
• be protected against self-incrimination, and
• be accorded substantive and procedural due process of law.

Of the remaining amendments, two cancelled each other (the 18th,

which established prohibition, and the 21st, which repealed the 18th). Thus,
as of this writing, only 15 substantive changes have been made to the basic
structure of our government in more than 215 years.
The first ten amendments apply only to the federal government.
However, the Fourteenth Amendment (ratified in 1870) provides “nor
shall any State deprive any person of life, liberty, or property, without due
process of law.” The U.S. Supreme Court has held that most of the rights
set forth in the Bill of Rights apply to the states because of the Fourteenth
Amendment’s due process clause. (An example of a due process case is shown
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 5

F I G U R E 1.1
1. Impeach/convict Checks and
2. Appoint Balances
3. Veto
4. Override or not confirm
5. Interpret or rule unconstitutional
1
6. Amend law (regulation)

1 2

3 (6)
Legislative Executive Judicial

4 5
5
6

in The Court Decides: Jackson v. Metropolitan Edison Co. at the end of this
chapter.) Consequently neither the states nor the federal government may
infringe on the rights mentioned before.
In addition to the U.S. Constitution, each state has its own constitu-
tion, which is the supreme law of that state but is subordinate to the federal
constitution. The state and federal constitutions are often similar, although
state constitutions are more detailed and cover such matters as the financing
of public works and the organization of local governments.

Statutes
Statutes are laws enacted by a legislative body such as Congress, a state legisla-
ture, or a unit of local government (a county or city council, for example).
Statutes enacted by any of these bodies may apply to healthcare organizations.
In regard to discrimination in admitting patients, for example, hospitals must
comply with federal statutes such as the Civil Rights Act of 1964 and the Hill-
Burton Act. Most states and a number of large cities have also enacted antidis-
crimination statutes.
Judges face the task of interpreting statutes; this is especially difficult if the
wording is ambiguous, as it usually is. In interpreting statutes the courts have
developed several “rules of construction,” and in some states these rules are them-
selves the subject of a separate statute. Whatever the source of the rules, it is gene-
rally agreed that the rules are designed to help one ascertain the intent of the leg-
islature. For example, common rules of construction include the following:
6 The Law of Healthcare Administration

1. to interpret a statute’s meaning consistent with the intent of the

legislature;
2. to interpret it to give effect to all of its provisions; and
3. if it is unclear, to consider its purpose, the result to be attained, the
legislative history, and the consequences of one interpretation over another.

Whether of constitutions or statutes, judicial interpretation is the pulse

of the law. A prominent example appears a few pages later in Erie R. R. Co. v.
Tompkins, where the meaning of a venerable federal statute was at issue. In
Chapter 10, the section on taxation of real estate discusses numerous cases
involving what it means for a piece of property to be “used exclusively” for
charitable purposes. These are just two of the many examples that permeate this
text. The student should be alert for others and should try to discern the dif-
ferent philosophies of judicial interpretation that the cases’ outcomes represent.

Administrative Law
Administrative law is the division of public law relating to the administration
of government. According to one scholar, “Administrative law…determines
the organization, powers and duties of administrative authorities.”1 Admi-
nistrative law has greater scope and significance than is sometimes realized.
In fact, administrative law is the source of much of the substantive law that
directly affects the rights and duties of individuals and businesses and their
relation to governmental authority. (See, for example, the discussion of fede-
ral healthcare privacy regulations in Chapter 14.)
The executive branch of government carries out (administers) the law as
enacted by the legislature and as interpreted by the courts. However, the exec-
utive branch also makes law (through administrative regulations) and exercises a
considerable amount of quasi-judicial (court-like) power. The phrase “adminis-
trative government” should be understood as encompassing all departments of
the executive branch and all governmental agencies created by legislation for
specific public purposes.
Administrative agencies exist at all levels of government: local, state, and
federal. Well-known federal agencies affecting healthcare are the National Labor
Relations Board, Federal Trade Commission, Centers for Medicare and Medi-
caid Services (formerly known as the Health Care Financing Administration),
and Food and Drug Administration. At the state level there are boards of pro-
fessional licensure, Medicaid agencies, worker’s compensation commissions,
zoning boards, and numerous other agencies whose rules affect healthcare
organizations.
Legislative bodies delegate lawmaking and judicial powers to administra-
tive government as necessary to implement statutory requirements; the result-
ing rules and regulations have the force of law, subject of course to the provi-
sions of the Constitution and statutes. The U.S. Food and Drug Administration,
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 7

for example, has the power to set forth rules controlling the manufacturing,
marketing, and advertising of foods, drugs, cosmetics, and medical devices.
The amount of delegated legislation increased tremendously during
the twentieth century, especially after World War II. The reasons are clear:
economic and social conditions inevitably change as societies become more
complicated, and legislatures cannot directly provide the detailed rules nec-
essary to govern every particular subject. Delegation of rule-making author-
ity makes it possible to put this responsibility in the hands of experts, but the
enabling legislation will stipulate the standards to be followed by an admin-
istrative agency when promulgating regulations. Such rules must be consis-
tent with their underlying legislation
and the Constitution.
Legal Brief
Judicial Decisions
The last major source of law is the William the Conqueror is generally considered to be
judicial decision. All legislation, the first king of all England. But do you know what or
whom he conquered?
whether federal or state, must be
Ironically, he conquered England. He was a Nor-
consistent with the U.S. Constitu- man. Before the Norman Conquest (the Battle of
tion. The power to legislate is, Hastings) in 1066, English residents (like those in
therefore, limited by constitutional many other societies of Europe) were governed by
doctrines, and the federal courts unwritten local customs that varied from place to
have the power to declare that an place and were enforced inconsistently. After assum-
ing the throne, William began a process that led to a
act of Congress or a state legislature
system of courts and laws that were “common” to
is unconstitutional.2 Judicial deci- the entire country. This ended local control and pecu-
sions are subordinate of course to liarities, and it is why the law we inherited from Eng-
the Constitution and to statutes, so land is still known as the “common law.” The name
long as the statute is constitutional. “King’s Bench” or “Queen’s Bench” (depending on
Despite this subordinate role, how- the gender of the monarch) is another vestige of the
Norman Conquest. It is used even today to describe
ever, judicial decisions are the pri-
the courts that William and his successors estab-
mary source of private law. Private lished as the national judicial system of England.
law, especially the law of contracts
and torts, has traditionally had the
most influence on healthcare and
thus is of particular interest here.
The common law—judicial decisions that were based on tradition,
custom, and precedent—was developed after the Norman Conquest in 1066
(see Legal Brief) and produced at least two important concepts that persist
today: the writ and stare decisis. A writ is an order issued by a court direct-
ing the recipient to appear before the court or to perform or cease perform-
ing a certain act.
The doctrine of stare decisis (literally, “to abide by decided cases”)
requires that courts look to past disputes involving similar facts and principles
and to determine the outcome of the current case on the basis of the earlier
8 The Law of Healthcare Administration

decisions. The use of earlier cases as precedent (see Legal Brief) leads to general
stability in the Anglo-American legal system because persons embarking on a
new enterprise can surmise the legal consequences of the endeavor from judicial
decisions already rendered in similar circumstances. Consider the opening sen-
tence of the 1992 abortion decision,
Planned Parenthood of S.E. Pennsylva-
Legal Brief
nia v. Casey (see The Court Decides at
the end of this chapter) in which Jus-
Use of precedent to determine the substance of law
tice O’Connor wrote, “Liberty finds
distinguishes the common law from a code-based
civil law system, which traditionally relies on a com- no refuge in a jurisprudence of
prehensive collection of rules. The civil law system doubt.” In upholding Roe v. Wade, the
is the basis for the law in Europe, Central and South landmark abortion decision of 1973,
America, Japan, Quebec, and (because of its French the opinion gives considerable insight
heritage) the state of Louisiana. into the concept of stare decisis.
Stare decisis—the concept of
precedent—applies downward, but not
horizontally. An Ohio trial court, for
example, is bound by the decisions of Ohio’s Supreme Court and the U.S.
Supreme Court but not by the decisions of other Ohio trial courts or by the deci-
sions of out-of-state courts. Courts in one state may, but are not required to,
examine judicial decisions of other states for guidance, especially if the issue is new
to the state. Similarly, a federal trial court is bound by the decisions of the
Supreme Court and the appellate court of its own circuit but not by the decisions
of other appellate courts or by the decisions of other district courts. The doctrine
of stare decisis should not be confused with res judicata. Res judicata literally
means “a thing (res) or issue settled by judgment.” In practical terms this means
that once a legal dispute has been resolved in court and all appeals have been
exhausted, the same parties may not later bring suit regarding the same matters.

The Court System

In a perfect world, we would not need courts and lawyers. This may have
been the point of Shakespeare’s famous line in Henry VI, “The first thing we
do, we kill all the lawyers.” At the time—sixteenth century—resentment
against lawyers ran high in England, and the Bard was perhaps making the
most famous lawyer joke of all. But because we do not live in utopia, we still
need courts and lawyers, and we probably always will.
The court system is the primary venue for resolving legal disputes in
the United States, where there are more than 50 different court systems,
because in addition to the federal courts, the District of Columbia, the Vir-
gin Islands, Guam, Northern Marianas, and Puerto Rico have their own
systems. The large number of court systems makes study of the law in the
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 9

F I G U R E 1.2
Supreme Court Model of a
Typical
Three-Tier
Court of Court of Court of Court
Appeals Appeals Appeals Structure
(Region 1) (Region 2) (Region 3)

Trial Trial Trial Trial Trial Trial Trial

Court Court Court Court Court Court Court

Trial Trial Trial Trial Trial Trial Trial Trial

Court Court Court Court Court Court Court Court

United States complex, but the complexity adds strength and vitality; vari-
ous resolutions to a particular problem can be tested in individual states
before a consensus is reached regarding the most desirable solution.

State Courts
The federal court system and the court systems of most states use a three-tier
structure comprising the trial courts, the intermediate courts of appeal, and
a supreme court (see Figure 1.2). In a state court system, the lowest tier—
the trial courts—is often divided into courts of limited jurisdiction and courts
of general jurisdiction. Typically the courts of limited jurisdiction hear crim-
inal trials involving lesser crimes (e.g., misdemeanors and traffic violations)
and civil cases involving disputes of a certain, small amount. The courts of
limited jurisdiction often include a small-claims court, where lawyers are not
allowed to practice and complex legal procedures are relaxed.
The state courts of general jurisdiction hear the more serious criminal
cases involving felonies and civil cases involving larger monetary amounts.
Because of the large number of cases, the courts of general jurisdiction are
often divided into special courts; a family or domestic relations court, a juve-
nile court, and a probate court are some examples. (The probate court is
often given jurisdiction to hear cases involving such matters as surgery for an
incompetent person or the involuntary commitment of a mentally ill person.)
The next tier in most states is the intermediate appellate courts. They
hear appeals from the trial courts. In exercising their jurisdiction, appellate
courts are usually limited to the evidence from the trial court and to ques-
tions of law, not of fact.
The highest tier in the state court system is the state supreme court.
This court hears appeals from the intermediate appellate courts (or from trial
10 The Law of Healthcare Administration

courts if the state does not have intermediate courts) and possesses limited
jurisdiction to hear certain cases as if it were a trial court. A state supreme
court is also often charged with administrative duties such as adopting rules
of procedure and disciplining attorneys.
The states are not uniform in naming the various courts. Trial courts
of general jurisdiction, for example, may be named circuit, superior, common
pleas, or county court. New York is unique in that its trial court is known as
the “supreme court.” In most states the highest court is named the supreme
court, but in Massachusetts the high court is called the “Supreme Judicial
Court,” and in New York, Maryland, and the District of Columbia the high-
est court is called the “Court of Appeals.” The intermediate appellate court
in New York is called the “Supreme Court Appellate Division.”

Federal Courts
The federal court system is similar. At its bottom tier, the federal district
court hears criminal cases involving both felonies and misdemeanors that
arise under federal statutes and hears civil cases involving actions between
parties of different states and those arising under federal statutes or the U.S.
Constitution. (Claims involving federal statutes and the U.S. Constitution
can also be heard in state court, depending on the situation.) Ninety-one
U.S. district courts are established geographically in the 50 states. In addi-
tion, the District of Columbia, the Virgin Islands, Guam, Northern Mari-
anas, and Puerto Rico each has its own federal trial court, as mentioned ear-
lier. The district court may hear suits in which a citizen of one state sues a
citizen of another state (that is, involving “diversity of citizenship”) if the
amount in dispute is more than $10,000.
Such was the situation in Erie R. R. Co. v. Tompkins,3 in which the
plaintiff, a citizen of Pennsylvania, was injured by a passing train while walk-
ing along the Erie Railroad’s right of way in that state. He sued the railroad
for negligence in a New York federal court asserting diversity jurisdiction.
The railroad was a New York corporation, but the accident occurred in Penn-
sylvania. The railroad pointed out that under Pennsylvania’s court decisions
persons who were trespassers could not recover for their injuries. Mr. Tomp-
kins, of course, disagreed and contended that because there was no state
statute on the subject—only judicial decisions—the railroad could be held
liable in federal court as a matter of “general law.”
At issue here was the interpretation of a section of the Federal Judici-
ary Act, which states:

The laws of the several States, except where the Constitution, treaties, or
statutes of the United States otherwise require or provide, shall be regarded
as rules of decision in trials at common law, in the courts of the United States,
in cases where they apply.4
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 11

An 1842 case—Swift v. Tyson5—concluded that this language only

applied to the statutes of a state. Because there was no Pennsylvania statute
on the subject of liability to trespassers, Mr. Tompkins argued that the rail-
road’s duty and liability should be determined in federal court as a matter of
general common law. Based on Swift, the lower courts held for Mr. Tomp-
kins. The Supreme Court disagreed, however, citing various plaintiffs’ use of
diversity jurisdiction and the Swift doctrine to circumvent an unfavorable
state law. Thus, the court reversed the judgment in favor of Mr. Tompkins.
It stated that in previous years,

Experience in applying the doctrine of Swift v. Tyson, had revealed its defects,
political and social; and the benefits expected to flow from the rule did not
accrue. Persistence of state courts in their own opinions on questions of com-
mon law prevented uniformity; and the impossibility of discovering a satisfac-
tory line of demarcation between the province of general law and that of local
law developed a new well of uncertainties.
. . . [T]he mischievous results of the doctrine had become apparent. Diver-
sity of citizenship jurisdiction was conferred [by the Constitution] in order to
prevent apprehended discrimination in state courts against those not citizens of
the state. Swift v. Tyson introduced grave discrimination by noncitizens against
citizens. It made rights enjoyed under the unwritten “general law” vary accord-
ing to whether enforcement was sought in the state or in the federal court; and
the privilege of selecting the court in which the right should be determined was
conferred upon the noncitizen. Thus the doctrine rendered impossible equal
protection of the law. In attempting to promote uniformity of law throughout
the United States, the doctrine had prevented uniformity in the administration
of the law of the state.

And finally, the Court concluded:

Except in matters governed by the Federal Constitution or by acts of Con-

gress, the law to be applied in any case is the law of the state. And whether
the law of the state shall be declared by its Legislature in a statute or by its
highest court in a decision is not a matter of federal concern. There is no
federal general common law. Congress has no power to declare substantive
rules of common law applicable in a state whether they be local in their
nature or “general,” be they commercial law or a part of the law of torts.
And no clause in the Constitution purports to confer such a power upon
the federal courts.

Federal and state courts have concurrent jurisdiction in cases arising

under the U.S. Constitution or any of the federal statutes that do not confer
exclusive jurisdiction on the federal court system. In contrast, the federal
12 The Law of Healthcare Administration

courts have exclusive jurisdiction with respect to certain cases such as the fol-
lowing:

• alleged violations of federal antitrust or securities laws,

• admiralty,
• issues related to the Employee Retirement Income Security Act, and
• bankruptcy cases (which are heard by U.S. Bankruptcy Courts located in
each federal judicial district).

Appeals from the federal district courts go to the U.S. courts of

appeals. The United States, along with its territories (the Virgin Islands,
Guam, Northern Marianas, and Puerto Rico), has 11 multistate circuits plus
a separate circuit for the District of Columbia, each of which has a court that
functions in the same manner as the state intermediate appellate courts (see
Figure 1.3). In addition, there is a 13th Court of Appeals for the Federal Cir-
cuit that hears cases involving certain matters that are exclusively the province
of federal law.
At the highest rung in the federal court system is the U.S. Supreme
Court. The Supreme Court hears appeals from the U.S. courts of appeals and
from the highest state courts in cases involving federal statutes, treaties, or
the U.S. Constitution. Generally a party has no absolute right to have her
case heard by the Supreme Court. Instead, in most cases the Court’s decision
whether to hear a case is entirely discretionary. (One exception is a case in
which lower courts have declared a federal statute to be unconstitutional.)
Parties must petition the Court for a writ of certiorari—an order to the lower
court requiring that the case be sent up for the high court’s review—and per-
suade at least four of the nine justices that the issue merits their attention.
The Supreme Court normally decides only a very small percentage of the
thousands of cases it is asked to consider each year. Because the Supreme
Court exercises considerable discretion in controlling its docket, lower courts
in effect decide many important legal issues. Typically the Court grants cer-
tiorari only in those cases that present current questions of extraordinary
legal or social significance or when the federal courts of appeals have differed
in deciding cases involving the same legal issue.
Aside from the Supreme Court, which is created by Article III of the U.S.
Constitution, the establishment and organization of the federal court system is
the responsibility of Congress. Accordingly, Congress can create additional
courts from time to time and define the jurisdiction of new and existing tri-
bunals. Complementing the district courts and the courts of appeals are several
federal courts with specialized functions. Congress has created, for example, the
U.S. Federal Claims Court (which hears certain contract claims brought against
the government), the U.S. Court of International Trade, the U.S. Tax Court,
and the U.S. Court of Appeals for the Armed Forces.
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 13

F I G U R E 1.3
Map of U.S.
Courts of
Appeals

2 1

8
3
9 7
10 6
4

5 11

Circuit 1: ME, NH, MA, RI, Puerto Rico Circuit 7: WI, IL, IN
Circuit 2: VT, NY, CT Circuit 8: ND, SD, NE, MN, IA, MO, AR
Circuit 3: PA, DE, NJ, Virgin Islands Circuit 9: WA, OR, ID, MT, CA, NV, AZ, AK,
Circuit 4: WV, VA, NC, SC HI, Guam, Northern Mariana Islands
Circuit 5: TX, LA, MS Circuit 10: WY, UT, CO, NM, KS, OK
Circuit 6: MI, OH, KY, TN Circuit 11: AL, GA, FL

Alternative Methods of Resolving Disputes

In addition to the court system, two alternative methods of resolving dis-
putes are popular in the United States. The first is by an administrative
agency or tribunal. Undoubtedly administrative bodies settle far more dis-
putes today than do the judicial courts. (Workers’ compensation cases are a
familiar example.) Moreover, an administrative agency often has the statutory
responsibility and power to initiate enforcement of statutory pronounce-
ments. It frequently happens that the same agency that wrote the regulations
brings the initial proceeding, hears the case, and decides the dispute. The
Federal Trade Commission, for example, is empowered to compel an alleged
offender to cease and desist from practicing unfair methods of competition
under the Commission’s regulations. Statutes, of course, prescribe the po-
wers of administrative bodies. The role of ordinary courts will generally be
limited to preventing administrative authorities from exceeding their powers
and to granting remedies to individuals who have been injured by wrongful
administrative action. Sometimes the statutes will grant the right of appeal to
a judicial court from an adverse administrative decision.
14 The Law of Healthcare Administration

Another alternative method for resolving disputes is arbitration, a

method that is often faster, less complicated, more confidential, and less
costly than commencing a lawsuit. Arbitration is the submission of a dispute
for decision by a third person or a panel of experts outside the judicial
process. When the parties to a dispute voluntarily agree to have their differ-
ences resolved by an arbitrator or by a panel and that the settlement will be
binding, arbitration becomes a viable alternative to the court system. Statu-
tory law in most states favors voluntary, binding arbitration and frequently
provides that an agreement to arbitrate is enforceable by the courts.6 Arbi-
tration is distinguished from mediation, in which a third party—the media-
tor—simply attempts to persuade adverse parties to agree to settle their dif-
ferences. The mediator has no power to require a settlement.

Legal Procedure

Substantive law is the type of law that creates and defines rights and duties.
Most of this book is devoted to the substantive law as it relates to healthcare
providers. Procedural law, as the name implies, provides the specific processes
for enforcing and protecting rights granted by the substantive law. The branch
of procedural law discussed in this section is the law relating to trial of a case.

Commencement of Legal Action: The Complaint

When claims go to court, the first stage involves filing a legal action. A claimant
who begins a lawsuit (an “action”) becomes the plaintiff, and the other party is
the defendant. The plaintiff starts the case by filing a “complaint” that states the
nature of the claim and the amount of damages or other remedy sought. (The
complaint and other papers subsequently filed in court are the “pleadings.”) A
copy of the complaint, along with a summons, is then served on the defendant.
The summons advises the defendant that the complaint must be answered or
other action must be taken within a limited time (for example, 30 days) and that
if the defendant fails to act the plaintiff will be granted judgment by default.

The Defendant’s Response: The Answer

In the second stage of the process, the defendant files an “answer” to the com-
plaint admitting, denying, or pleading ignorance to each allegation. The defen-
dant may also file a complaint against the plaintiff (a “countersuit” or “counter-
claim”) or against a third-party defendant whom the original defendant believes
is wholly or partially responsible for the plaintiff’s alleged injuries.
At this stage in the proceeding the defendant may ask the court to dis-
miss the plaintiff’s complaint because the court lacks jurisdiction, there was a
prior judgment on the same matter, or the plaintiff’s complaint failed to state a
legal claim. Although the terminology differs from state to state, the motion to
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 15

dismiss is usually called either a motion for “summary judgment” or a “demur-

rer.” If the court grants the motion to dismiss, the judgment is final and the
plaintiff can appeal the decision immediately.

Discovery
In rare cases there is little delay between the initial two stages and the deci-
sion by the court (see The Law in Action).
Most frequently, however, especially
in urban areas, there is a delay of several The Law in Action
months or years between commencement of
the action and trial. During this time, each In one instance of procedural law, a
wife and mother of young children had
party engages in the third stage of the litiga-
lost two-thirds of her blood supply
tion process—discovery, an attempt to deter- because of a ruptured ulcer, but her
mine the facts and the strength of the other husband refused to approve blood
party’s case. Discovery is a valuable device transfusions because they were Jeho-
that can be used, for example, to identify vah’s Witnesses. The hospital peti-
prospective defendants or witnesses or to tioned the district court for permission
to administer blood; the district court
uncover other important evidence. For
denied permission, and the case was
example, in one hospital case a patient had taken to a court of appeals where an
fallen on the way to the washroom and frac- order was signed allowing the transfu-
tured a hip.8 During discovery the hospital sion, all within a matter of hours.7
was required to disclose the identity of the
nurse who had directed the patient to the
washroom instead of giving bedside attention.
During the discovery phase, parties may use any or all of five methods
to discover the strength of the other party’s case. All are generally limited to
relevant facts and matters that are not privileged or confidential. These meth-
ods are as follows:

1. depositions,
2. interrogatories,
3. demands to inspect and copy documents,
4. demands for a physical or mental examination of a party, and
5. requests for admission of facts.

The most common and effective discovery device is the deposition, Depositions
whereby a party subpoenas a witness to testify under oath before a court
reporter, who transcribes the testimony. The opposing attorney will also
be present during the deposition to make appropriate objections and, if
appropriate, to cross-examine the witness. The transcript of the deposition
may be read into evidence at the trial itself if the witness is unable to tes-
tify in person and can be used to impeach the witness’s testimony if his
“story” has changed.
 16 The Law of Healthcare Administration

Interrogatories A second method of discovery, written interrogatories, is similar to the tak-

ing of depositions except that the questions are written. The procedure for
using written interrogatories sometimes varies, depending on whether they
are directed toward an adverse party or other witnesses. Interrogatories are
somewhat less effective than oral depositions because there is little opportu-
nity to ask follow-up questions.

Discovery of A party using the third method of discovery (a method especially relevant to
Documents healthcare cases) may request to inspect and copy documents, inspect tangi-
ble items in the possession of the opposing party, enter and inspect land
under the control of the other party, and inspect and copy items produced by
a witness served with a subpoena duces tecum (a subpoena requiring the wit-
ness to produce certain books and documents such as medical records).
There are special rules governing subpoenas to produce hospital records
because of their sensitivity.

Physical or A physical or mental examination, the fourth discovery device, may be used
Mental when the physical or mental condition of a party to the lawsuit is in dispute
Examination and good cause is shown for the examination.

Request for The final discovery method is to request the opposing party to admit certain
Admission facts. By using these requests for admission, the parties may save the time and
expense involved in unnecessary proof and may substantially limit the factual
issues to be decided by the court.

The Trial
A trial begins with the selection of a jury if either party has requested a jury
trial. After jury selection, each attorney makes an opening statement in which
an explanation is given of matters to be proven during the trial. The plaintiff
then calls witnesses and presents other evidence, and the defense attorney is
given the opportunity to cross-examine each of the witnesses. After the plain-
tiff has rested the case, the defendant’s attorney frequently asks the court to
direct a verdict for the defense. Courts will grant the directed verdict if the
jury, viewing the facts most favorably to the plaintiff, could not reasonably
return a verdict in the claimant’s favor that would be in accord with the law.
If the motion is denied, the defendant proceeds with evidence and witnesses
in support of her case, subject to cross-examination by the plaintiff.
When all the evidence has been presented, either party may move for
a directed verdict. If the judge denies the motion, “instructions” will be
given to the jury regarding relevant law, and the jury will deliberate until
reaching a verdict. Many times, after the jury has reached its decision, the
losing party asks the court for a “judgment notwithstanding the verdict” aka
“judgment N.O.V.”—an abbreviation for the Latin term “non obstante
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 17

veredicto”—and a new trial. The motion will be granted if the judge decides
that the verdict is against the weight of the evidence.
The judge and the jury, of course, play key roles in the trial. The judge
has the dominant role, deciding whether evidence is admissible and instructing
the jury on the law before deliberation begins. As noted earlier, the judge also
has the power to take the case away from the jury by means of a directed ver-
dict or a judgment notwithstanding the verdict. The role of the jury is thus lim-
ited to deciding the facts and determining whether the plaintiff has proved the
allegations by a preponderance of the evidence. Because the jury’s role is to
decide the facts, it is of utmost importance that the members of the jury be
impartial. If there is evidence that a jury member might have been biased, many
courts will overturn the verdict. In cases tried without a jury, the judge assumes
the jury’s fact-finding role. (This function, because it can be performed by
judge or jury, is often referred to as that of the “trier of fact.”)

Concluding Stages: Appeal and Collection

The next stage in litigation is often an appeal. For various reasons (e.g., satisfac-
tion with the verdict or a party’s unwillingness to incur additional expenses), not
all cases go to an appellate court. In those that do, however, the party who
appeals the case (the losing party in the trial court) will usually be referred to as
the “appellant” and the other party will be the “appellee.” In reading appellate
court decisions one must not assume that the first name in the case heading is
the plaintiff’s because many appellate courts reverse the order of the names
when the case is appealed (see Figure 1.4). The appellate court limits itself to a
review of the law applied in the case; it will accept the facts as determined by the
trier of fact. In its review, the appellate court may affirm the trial court decision,
modify or reverse the decision, or reverse it and remand the case for a new trial.
The final stage of the litigation process is collecting the judgment. The
most common methods of collection are execution and garnishment. A writ of
execution entitles the plaintiff to have a local official seize the defendant’s prop-
erty and to have that property sold to satisfy the judgment. A garnishment is an
order to a third person who is indebted to the defendant to pay the debt directly
to the plaintiff to satisfy the judgment. Often the third party is the defendant’s
employer who, depending on local laws, may be ordered to pay a certain per-
centage of the defendant’s wages directly to the plaintiff.

Chapter Summary

This chapter discusses the sources of law, the relationships among the three
branches of government, the basic structure of the federal and state court sys-
tems, and some basics of legal procedure in civil cases. (The procedures used in
criminal cases are somewhat different and are beyond the scope of this text.)
18 The Law of Healthcare Administration

F I G U R E 1.4
Citation The legal system has a unique citation method. The Planned Parenthood case is
an example. Its heading conveys a sizable amount of information in a short
Method of the
space, as follows:
Legal System
Names of the parties: Planned Parenthood of S.E. Pa. v. Casey
▲

▲
“Appellant” or “Petitioner” “Appellee” or “Respondent”
(the one who brought the case (the one who is answering
to the court) the petitioner’s arguments)

Citation: 505 U.S. 833 (1992)

▲
▲

▲
▲
Volume number Name of Page Year of decision
“reporter” number
where case
is found

Following the volume number is the name of the publication where the decision
can be found. Supreme Court decisions are published in the U.S. Reports, as
above. Published federal district court decisions are found in the Federal Supple-
ment. Federal appellate decisions are published in the Federal Reporter.

State court decisions can be found in publications of the West Publishing

Company. These are grouped regionally with decisions of the courts of nearby
states. Common examples are as follows:
Northeast Reporter (N.E., N.E. 2d)
Southeast Reporter (S.E., S.E. 2d)
Southern Reporter (So., So. 2d)
Pacific Reporter (P., P. 2d)
A designation of “2d” (or even “3d” in some cases) indicates that a publisher
began a new numbering system at a certain point, beginning with volume 1 of
the “second series,” for example.
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 19

Chapter Discussion Questions

1. What are the four sources of law in the United States?

2. Describe the three branches of government and the role of each,
including the system of checks and balances.
3. What is the hierarchy among the sources of law in the federal
government?
4. What is the system for citing judicial opinions?
5. What is stare decisis, and why is it important?
6. Describe the structure of the federal judicial system.
7. If Jackson v. Metropolitan Edison Co. had been a healthcare case, what
would have been the implications for healthcare organizations had the
decision been different (i.e., if the regulatory scheme had implicated
“state action”)?

Notes
1. Jennings, W. 1959. The Law and the Constitution.
2. Marbury v. Madison, 5 U.S. (1 Cranch) 137 (1803)—established the court’s power to declare
federal legislation unconstitutional.
3. 304 U.S. 64 (1938).
4. 28 U.S.C. § 725.
5. 15 Pet. 1 (1842). Before the current system took hold, early Supreme Court reports were
published by the clerk, and the name of the “reporter” was an abbreviation of the name of
that official.
6. For example, Ohio Rev. Code Ann. § 2711.03 (Baldwin 1986).
7. Application of President and Directors of Georgetown College, Inc., 331 F.2d 1000 (D.C.
Dir. 1964), cert. denied, 377 U.S. 398 (1964).
8. Cidilko v. Palestine, 24 Misc. 2d 19, 207 N.Y.S.2d 727 (1961).
20 The Law of Healthcare Administration

the court decides

Jackson v. Metropolitan Edison Co.
419 U.S. 345 (1974)

Rehnquist, J. Metropolitan employees disconnected her

service.
Respondent Metropolitan Edison Co. is a pri- Petitioner then filed suit against Metropoli-
vately owned and operated Pennsylvania corpo- tan in the United States District Court for the
ration which holds a certificate of public conven- Middle District of Pennsylvania under the Civil
ience issued by the Pennsylvania Public Utility Rights Act of 1871, 42 U.S.C. § 1983, seeking
Commission empowering it to deliver electricity damages for the termination and an injunction
to a service area which includes the city of York, requiring Metropolitan to continue providing
PA. As a condition of holding its certificate, it is power to her residence until she had been
subject to extensive regulation by the Commis- afforded notice, a hearing, and an opportunity to
sion. Under a provision of its general tariff filed pay any amounts found due. She urged
with the Commission, it has the right to discon- that...Metropolitan’s termination of her service
tinue service to any customer on reasonable for alleged nonpayment...constituted “state
notice of nonpayment of bills. action” depriving her of property in violation of
Petitioner Catherine Jackson is a resident of the Fourteenth Amendment’s guarantee of due
York, who has received electricity in the past process of law.
from respondent. Until September 1970, peti- The District Court granted Metropolitan’s
tioner received electric service to her home in motion to dismiss petitioner’s complaint on the
York under an account with respondent in her ground that the termination did not constitute
own name. When her account was terminated state action and hence was not subject to judi-
because of asserted delinquency in payments cial scrutiny under the Fourteenth Amendment.
due for service, a new account with respondent On appeal, the United States Court of Appeals
was opened in the name of one James Dodson, for the Third Circuit affirmed, also finding an
another occupant of the residence, and service absence of state action. We granted certiorari to
to the residence was resumed….In August 1971, review this judgment.
Dodson left the residence. Service continued The Due Process Clause of the Fourteenth
thereafter but concededly no payments were Amendment provides: “[N]or shall any State
made. Petitioner states that no bills were deprive any person of life, liberty, or property,
received during this period. without due process of law.” In 1883, this Court
On October 7, 1971, employees of Metro- in the Civil Rights Cases affirmed the essential
politan came to the residence and inquired as dichotomy set forth in that Amendment between
to Dodson’s present address. Petitioner stated deprivation by the State, subject to scrutiny
that it was unknown to her. On the following under its provisions, and private conduct, “how-
day, another employee visited the residence ever discriminatory or wrongful,” against which
and informed petitioner that the meter had the Fourteenth Amendment offers no shield.
been tampered with so as not to register We have reiterated that distinction on
amounts used. She disclaimed knowledge of more than one occasion since then. While the
this and requested that the service account for principle that private action is immune from
her home be shifted from Dodson’s name to the restrictions of the Fourteenth Amendment
that one of Robert Jackson, later identified as is well established and easily stated, the
her 12-year-old son. Four days later on October question whether particular conduct is “pri-
11, 1971, without further notice to petitioner, vate,” on the one hand, or “state action,” on
 C h a p t e r 1 : T h e A n g l o - A m e r i c a n Le g a l Sy s t e m 21

the other, frequently admits of no easy Perhaps in recognition of the fact that the
answer. supplying of utility service is not traditionally
Here the action complained of was taken the exclusive prerogative of the State, peti-
by a utility company which is privately owned tioner invites the expansion of the doctrine of
and operated, but which in many particulars of this limited line of cases [on state action] into a
its business is subject to extensive state regu- broad principle that all businesses “affected
lation. The mere fact that a business is subject with the public interest” are state actors in all
to state regulation does not by itself convert their actions.
its action into that of the State for purposes of We decline the invitation for [these] rea-
the Fourteenth Amendment. Nor does the fact sons...:
that the regulation is extensive and detailed, It is clear that there is no closed class or
as in the case of most public utilities, do so.... category of businesses affected with a public
[T]he inquiry must be whether there is a suffi- interest * * *. The phrase ‘affected with a public
ciently close nexus between the State and the interest’ can, in the nature of things, mean no
challenged action of the regulated entity so more than that an industry, for adequate rea-
that the action of the latter may be fairly son, is subject to control for the public good....
treated as that of the State itself. The true Doctors, optometrists, lawyers, Metropoli-
nature of the State’s involvement may not be tan, and [a] grocery selling a quart of milk are
immediately obvious, and detailed inquiry may all in regulated businesses, providing arguably
be required in order to determine whether the essential goods and services, “affected with a
test is met. public interest.” We do not believe that such a
Petitioner advances a series of contentions status converts their every action, absent more,
which, in her view, lead to the conclusion that into that of the State.
this case should fall on the [state action] side of We also find absent in the instant case the
the line...rather than on the [private action] side symbiotic relationship presented in Burton v.
of that line. We find none of them persuasive. Wilmington Parking Authority. There where a
[The Court here embarks on a lengthy dis- private lessee, who practiced racial discrimina-
cussion of each of the petitioner’s arguments. tion, leased space for a restaurant from a state
First, she argued that there was state action parking authority in a publicly owned building,
because Metropolitan was a state-recognized the Court held that the State had so far insinu-
monopoly. The Court doubted that Metropoli- ated itself into a position of interdependence
tan had been granted a monopoly, but even if with the restaurant that it was a joint partici-
it had, the Court found this fact did not make pant in the enterprise. We cautioned, however,
Metropolitan’s actions state action because that while a “multitude of relationships might
the actions complained of had no relationship appear to some to fall within the Amendment’s
to whether it was or was not a monopoly. Next, embrace,” differences in circumstances beget
she argued that Metropolitan supplied an differences in law, limiting the actual holding to
“essential public service” that state law lessees of public property.
required it to provide and that it was therefore ...We therefore have no occasion to decide
performing a public function that amounted to whether petitioner’s claim to continued service
state action. The Court dismissed this argu- was “property” for purposes of that Amendment,
ment, saying that there is a difference between or whether “due process of law” would require a
providing a utility service and performing a State [that took] similar action to accord peti-
function traditionally exercised only by govern- tioner the procedural rights for which she con-
ment (such as eminent domain). The Court tends. The judgment of the Court of Appeals for
continued:] the Third Circuit is therefore Affirmed.
22 The Law of Healthcare Administration

the court decides

Planned Parenthood of S.E. Pennsylvania v. Casey
505 U.S. 833 (1992)

…[T]he Court’s legitimacy depends on making obsolete. From the obligation of this promise
legally principled decisions under circum- this Court cannot and should not assume any
stances in which their principled character is exemption when duty requires it to decide a
sufficiently plausible to be accepted by the case in conformance with the Constitution. A
Nation. willing breach of it would be nothing less than
…The Court is not asked to [overrule prior a breach of faith, and no Court that broke its
decisions] very often….But when the Court faith with the people could sensibly expect
does [so], its decision requires an equally rare credit for principle in the decision by which it
precedential force to counter the inevitable did that.
efforts to overturn it and to thwart its imple- ….
mentation. Some of those efforts may be mere The Court’s duty in the present case is
unprincipled emotional reactions; others may clear. In 1973, it confronted the already divi-
proceed from principles worthy of profound sive issue of governmental power to limit per-
respect. But whatever the premises of opposi- sonal choice to undergo abortion, for which it
tion may be, only the most convincing justifica- provided a new resolution based on the due
tion under accepted standards of precedent process guaranteed by the Fourteenth
could suffice to demonstrate that a later deci- Amendment. Whether or not a new social
sion overruling the first was anything but a sur- consensus is developing on that issue, its
render to political pressure, and an unjustified divisiveness is no less today than in 1973,
repudiation of the principle on which the Court and pressure to overrule the decision, like
staked its authority in the first instance. So to pressure to retain it, has grown only more
overrule under fire in the absence of the most intense. A decision to overrule Roe’s essen-
compelling reason to reexamine a watershed tial holding under the existing circumstances
decision would subvert the Court’s legitimacy would address error, if error there was, at the
beyond any serious question…. cost of both profound and unnecessary dam-
…The promise of constancy, once given, age to the Court’s legitimacy, and to the
binds its maker for as long as the power to Nation’s commitment to the rule of law. It is
stand by the decision survives and the under- therefore imperative to adhere to the essence
standing of the issue has not changed so fun- of Roe’s original decision, and we do so
damentally as to render the commitment today.
 CHAPTER

CONTRACTS AND INTENTIONAL TORTS

2
After reading this chapter, you will

• know the essential elements of a valid and enforceable

contract.
• understand why contract law is important to physician–patient
and hospital–patient relationships.
• appreciate how the contract principle of breach of warranty
can apply to the healthcare setting.
• grasp the basics of intentional torts and how they can affect
healthcare professionals.

In the previous chapter, law was described as being either public or private.
But law can be categorized in other ways as well, one of the most common
being the distinction between criminal law and civil law; civil law also has
subdivisions. Figure 2.1 shows these classifications.
When people think of professional liability in healthcare, they usually
think of medical malpractice, a form of negligence. Negligence is, to be sure,
the most common type of malpractice, but medical malpractice can also be
based on intentional torts and breaches of contract. In fact, many malprac-
tice suits allege more than one cause of action, the reasons for which are dis-
cussed later in the chapter.1
The existence of a legal duty is essential to any professional liability
case, and the concept of duty tends to change as our society and values
change. The legal duty may be imposed by constitution, legislation, common
law, or even contract. In healthcare, special legal duties arise from the con-
tractual aspects of the physician–patient relationship.2
This chapter does not address the law of contracts as it relates to
operational issues such as employment, materials management, facilities
maintenance, and procurement. Although many of the basic principles dis-
cussed here apply in those areas too, the full topic of contracts is beyond the
scope of this text. After all, in law schools contracts is a full credit course of
its own.

23
24 The Law of Healthcare Administration

F IG U R E 2.1
1
A Taxonomy
Law
of Law

Criminal Civil

Contracts Torts

Express Implied Intentional Negligent Strict Liability

Elements of a Contract

In simple terms, for a contract to be valid, four elements must exist:

1. Both parties must be “legally competent” to enter into the contract. Con-
tracts entered into by mentally incompetent persons are not valid; nei-
ther are most contracts entered into by minors.
2. There must be a “meeting of the minds.” One party must make an
offer—to buy or sell, for example—and the other party must accept
that offer. The terms of the offer and acceptance must be identical.
3. “Consideration” must be given. Consideration is basically the price paid
for the contract, but it need not be in the form of money. It may also
be a promise (a) to do something you otherwise would not be required
to do or (b) to refrain from doing something you otherwise would be
able to do.
4. The purpose of the contract must be legal. A contract with a hit man to
“off ” another person is void because its purpose is illegal. Likewise,
many exculpatory contracts—those in which a party excuses the other
from liability in advance—are invalid because they are against public
policy.

Contracts may be express (written or spoken) or implied. Many of

our day-to-day human interchanges are implied contracts. For example,
consider a patron ordering lunch in a restaurant. Implicit in the situation
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 25

is this message (the offer): “If you serve me what I order, I will pay the
bill.” By taking the order and serving the food, the restaurant accepts the
patron’s offer and a contract exists. The offer and acceptance are rarely
expressed in words, but the contract is still valid. Similarly, the
doctor–patient relationship includes an offer (“If you treat me, my insur-
ance or I will pay”) and an acceptance (“We’ve scheduled your appoint-
ment for next Tuesday”).

The Physician–Patient Relationship

The physician–patient relationship is founded on a contract in which the

physician agrees to provide treatment in return for payment. Professional
liability can arise if this contract is
breached. In the absence of a contract
between physician and patient, the law
usually imposes no duty on the physician Legal DecisionPoint
to treat the patient, although it may
impose other duties on the physician. For You are at the beach having a picnic with your
example, like other passersby, physicians significant other. You notice a man struggling
have no legal obligation to help accident in the surf. You put down your wine and run to
victims. The law in most states will not his rescue. A couple of minutes into the res-
require them to be “Good Samaritans.”3 cue you notice that your companion is about
to finish the last of the wine, so you leave the
(See Legal DecisionPoint.)
sputtering victim to return to your picnic
This principle was illustrated in before the wine is gone.
Childs v. Weis.4 A Dallas woman who was What were your legal and moral responsi-
seven months pregnant was visiting bilities before you began to assist the vic-
another town when she began to suffer tim? Were they the same after you began to
labor pains and bleeding. At a local hospi- give aid? Do the answers change depending
on whether you were trained in CPR? What if
tal’s emergency department a nurse exam-
you were an off-duty EMT? What other hypo-
ined her, called the defendant physician, thetical facts might affect your analysis?
and told the woman to go to her doctor
in Dallas. The woman left the hospital
and, about an hour later, gave birth to her baby in a car. Twelve hours
later the infant died. The court held that the physician had no duty to the
woman because no physician–patient relationship had been established.
(There was a dispute about what the doctor actually told the nurse. The
physician said that he had instructed the nurse to have the woman call her
own doctor and see what he wanted her to do.) The hospital’s and nurse’s
duties are a different matter, of course. And as noted in Chapter 8, “Emer-
gency Care,” federal law now requires emergency department personnel to
stabilize emergency conditions irrespective of whether a provider–patient
relationship exists.)
26 The Law of Healthcare Administration

Creation of the Relationship

A contract is a prerequisite to a physician–patient relationship. As noted ear-
lier, the contract can be express or implied. Sometimes the patient is uncon-
scious or otherwise unable to express consent for treatment, so the law will
treat the rendering of services to an unconscious person as an implied con-
tract. This prevents “unjust enrichment” by requiring the patient to pay for
the services she never really agreed to (but presumably would have). It also
imposes the same duties on the physician that would arise under an express
or implied contract.
Although clear enough in the abstract, these principles of contract law
are sometimes difficult to apply in the widely varying circumstances that arise
in medical practice. For example, physicians commonly consult one another
regarding their patients’ diagnosis and treatment. This often happens infor-
mally (the proverbial “hallway consult”), and the consulted physician may
not see the patient or know his name. Do these informal consultations create
a physician–patient relationship? Generally the answer is “no.” For example,
in Oliver v. Brock5 a physician phoned a colleague, Dr. Brock, to discuss the
former’s treatment of the patient, Anita Oliver. As summarized in the treat-
ing physician’s affidavit (see Legal DecisionPoint) to the court,

[I] had the occasion to and did call Dr. Ernest C. Brock, a practicing physician
in Tuscaloosa, Alabama, with reference to Dr. Brock’s recommendations con-
cerning the care and treatment of another patient [and] during the course of
such conversation [I] did describe generally the injuries of plaintiff and the type
of treatment [I] was then giving plaintiff, and Dr. Brock did indicate to [me]
that under the circumstances described he thought the treatment to be correct;
[I] did not disclose to Dr. Brock the name of the patient; [my] discussion with
Dr. Brock was gratuitous on his part and for [my] guidance in connection with
the treatment of plaintiff; [I] did not employ Dr. Brock to care for or treat plain-
tiff and Dr. Brock did not care for or treat plaintiff to [my] knowledge. In the
discharge summary...[I] did make note of the telephone conversation with Dr.
Brock and of the suggestions made to [me] by Dr. Brock but did not
suggest...that Dr. Brock was in any way employed...in the care and treatment of
plaintiff....

The court decided that there was no doctor–patient relationship between Dr.
Brock and Anita Oliver. This view is supported by this general rule:

A physician is under no obligation to engage in practice or to accept profes-

sional employment.... The relation is a consensual one wherein the patient
knowingly seeks the assistance of a physician and the physician knowingly
accepts him as a patient. The relationship between a physician and patient may
result from an express or implied contract...and the rights and liabilities of the
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 27

parties thereto are governed by the general law of contract.... [T]he volun-
tary acceptance of the physician–patient relationship by the affected parties
creates a prima facie presumption of a contractual relationship between
them. A physician may accept a patient and thereby incur the consequent
duties although his services are performed gratuitously or at the solicitation
and on the guaranty of a third person.6

On the other hand, a physician need not come into direct contact
with a patient for a doctor–patient relationship to exist. A pathologist,
for example, has a relationship with the patient even though the pathol-
ogist probably never sees the person
whose specimen comes to the lab and the
patient does not know the pathologist
exists.7 Legal DecisionPoint
Another important issue involves
the duty of a physician providing services An affidavit is a written document in which
to someone who is not the other party to the “affiant” (the one who signs the docu-
the contract. This happens when, for ment) swears under penalty of perjury that
example, a physician conducts a pre- the facts asserted in the statement are
true. Affidavits generally cannot substitute
employment examination, examines an
for in-court testimony because they are not
applicant for life-insurance purposes, or subject to cross-examination. But affi-
examines a plaintiff for a personal injuries davits are sometimes used to support
case. The general rule is that in these sit- arguments on collateral matters, especially
uations a physician–patient relationship is if the opposing attorney does not object. In
not established between the physician and this case, the affidavit (page 26) was used
to support Dr. Brock’s position that he did
the person being examined and, there-
not have a doctor–patient relationship with
fore, that the physician owes no duty to Mrs. Oliver.
the individual being examined, only to Who do you suppose wrote this affidavit?
the party who contracted for the exami- Are any of its assertions not, strictly speak-
nation. ing, facts? If you were opposing counsel,
Some courts, however, have found would you object to the use of such an affi-
davit? If you were the judge, what weight
at least a limited duty toward the plaintiff
would you give it? If you could cross-exam-
even in the absence of a contractual rela- ine the affiant (the treating physician who
tionship. In James v. United States the consulted with Dr. Brock), what kinds of
plaintiff applied for a position at a ship- questions would you like to ask him about
yard and, as a condition of employment, his assertions?
was required to take a physical examina-
tion. A chest x-ray revealed an abnormality, but through a clerical error
the physician never saw the x-ray or the radiologist’s report. Almost
two years later the plaintiff was diagnosed with an inoperable cancer.
The defense argued that the absence of a physician–patient relationship
precluded any duty of care. But the court awarded damages anyway
because
28 The Law of Healthcare Administration

[h]aving made a chest X-ray an essential part of the preemployment exami-

nation to determine an applicant’s physical fitness, however, defendant failed
to use due care when...the report on the X-ray was not brought to the atten-
tion of the examining physician.8

Employees’ Remedies and Workers’ Compensation Laws

When an employee suffers an injury or illness arising out of her employment, the
workers’ compensation system is usually the exclusive remedy for the employee.
This means that workers are precluded from recovering from their employer or
co-employees for negligence or other claims, apart from the workers’ compen-
sation claim. If an employee is injured on the job and the company physician
provides negligent treatment, can the employee recover from either the
employer or the physician?
Again, the general rule is, workers’ compensation is the employee’s exclu-
sive remedy.9 However, some courts have found that when an employer operates
in two capacities—as both an employer and a hospital, for example—the second
capacity imposes obligations unrelated to and independent of the hospital’s obli-
gations as an employer. This is known as the “dual capacity doctrine.” In Guy v.
Arthur H. Thomas Co., the plaintiff worked as a laboratory technician at the
defendant hospital and in the performance of her duties operated a magnetic
blood gas apparatus that used mercury.10 In her complaint against the hospital
the plaintiff alleged that she contracted mercury poisoning from the apparatus,
that the hospital’s employees negligently failed to diagnose her condition as mer-
cury poisoning, and that her injuries were aggravated as a result.
The court held that as an employer the hospital was liable for workers’
compensation benefits and that as a hospital it was liable in tort:

Appellant’s need for protection from malpractice was neither more nor less
than that of another’s employee. The…hospital, with respect to its treatment
of the appellant, did so as a hospital, not as an employer, and its relationship
with the appellant was that of hospital–patient with all the concomitant tra-
ditional obligations.

In addition to the issue of exclusive remedy, another issue is whether

workers’ compensation laws protect a company physician from liability for
negligent treatment of fellow employees. These laws generally provide immu-
nity from suits by co-employees, and some courts have dismissed suits against
company physicians on this basis.11

Scope of the Duty Arising from the Relationship

In the typical physician–patient relationship, the physician has agreed to diag-
nose and treat the patient in accordance with the standards of acceptable
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 29

medical practice and to continue to do so until the natural termination of the

relationship. (The standards of practice and termination of the relationship
are discussed later in this chapter.) The patient has agreed to pay the physi-
cian for the services rendered. (The patient has not agreed to follow the doc-
tor’s orders; failure to do so, however, may excuse the physician from liabil-
ity for untoward results.) Ordinarily the physician does not promise to cure
the patient. In some cases, however, such a warranty or guarantee may be
found from express promises made by the physician, and if no cure results he
will be liable for breach of warranty. This subject is discussed further later in
this chapter.
The physician may limit the scope of the contract to a designated geo-
graphic area or medical specialty. In McNamara v. Emmons a woman sus-
tained a bad cut, which was treated by an associate of the defendant physi-
cian.12 The next morning the patient left for a vacation in a town 20 miles
away. While there, she felt she needed further treatment and asked the defen-
dant physician to come to the town. He refused but gave her instructions and
named a local physician whom she might call. The court held that in these
circumstances the physician was justified in limiting his practice to his own
town. In other cases the courts have decided that, at least when no emer-
gency exists, the physician has no obligation to make house calls but instead
may require the patient to come to the office for treatment.

In many states the contractual relationship between the patient and the physi- Duties to the
cian not only allows the physician to warn certain persons when a patient has Person Other
an infectious disease but also obliges the physician to do so. For example, than the
state law may require the healthcare provider to notify the sexual partners of Patient
persons diagnosed with HIV or AIDS.
Similarly, a physician might be subject to liability when a patient
injures a third party. In Freese v. Lemmon a pedestrian was injured by an auto-
mobile when its driver suffered a seizure.13 Both the driver and his physician
were sued by the injured person—the physician on the theory that he was
negligent in diagnosing an earlier seizure and in advising the driver that he
could operate an automobile. The Supreme Court of Iowa reversed the trial
court’s dismissal of the case against the physician on the theory that a physi-
cian is subject to liability to third persons for negligently treating or giving
false information to a patient when an unreasonable risk of harm to a third
party or class of persons was foreseeable.
In the well-publicized case Tarasoff v. Regents of the University of
California the California Supreme Court ruled that despite a confidential
relationship with patients, a doctor has a duty to use reasonable care to
warn persons threatened by a patient’s condition.14 The patient in Tarasoff
had told his psychotherapist that he intended to kill a certain person and
later carried out his threat. On these facts the court determined that the
30 The Law of Healthcare Administration

victim’s parents had a valid cause of action against the psychotherapist for
failure to warn.
An important consideration in such cases is whether the injury to the
third parties was foreseeable. In Brady v. Hopper, a suit by persons injured in
the assassination attempt on President Reagan in 1981, the court held that
John Hinckley, Jr.’s psychiatrist owed no duty to the plaintiffs because there
was no evidence that Mr. Hinckley had made specific threats against the
plaintiffs that would make his act foreseeable.15

Termination of the Relationship

Like all contracts, the one between the physician and the patient is termi-
nated at certain points:

• when the patient is cured or dies,

• when the physician and the patient mutually consent to termination,
• when the patient dismisses the physician, or
• when the physician withdraws from the contract.

Withdrawal by a physician before the patient is cured often results in

a claim of abandonment by the patient. Whether abandonment is a breach of
contract, an intentional tort, or negligence has been a matter of considerable
confusion. There might be valid claims for all three, especially when the
physician thought the patient had been cured and prematurely discharged
her from the hospital.16 The confusion has been compounded by the absence
of a clear line between abandonment and lack of diligence in treating the
patient.
Abandonment may be either express or implied. Express abandon-
ment occurs if a physician notifies a patient that he is withdrawing from the
case but fails to give the patient enough time to locate another physician. In
Norton v. Hamilton the plaintiff reported being in labor several weeks before
her baby was due.17 According to the plaintiff’s allegations, the physician
examined her and concluded that she was not in labor. When the pains con-
tinued, the plaintiff’s husband called the physician twice to say that his wife
was still in pain. At that point the physician said he was withdrawing from the
case. While the husband was looking for a substitute physician, the plaintiff
delivered her child alone and suffered unnecessary pain and distress. The
court held that the physician’s acts would be abandonment, if proven.
Implied abandonment occurs when the physician’s conduct makes
abandonment of the patient obvious. In Johnson v. Vaughn18 Dr. Vaughn
admitted the patient to the hospital, treated him, and then went home leav-
ing word that he was to be called if the patient’s condition grew worse.
Because at the time the patient seemed dangerously ill, the patient’s son
called a Dr. Kissinger who “gave such attention as appeared to be most
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 31

urgent” but felt that he could not proceed further without a release from Dr.
Vaughn. He called Dr. Vaughn and told him that the patient was dying and
needed immediate attention. At this, Dr. Vaughn apparently became abusive,
called Dr. Kissinger a louse for trying to steal his patient, and hung up. A call
from the patient’s son produced more abuse. Finally Dr. Vaughn said he
would release the patient if he was paid $50 by nine o’clock the next mor-
ning. Meanwhile 30 or 40 minutes had passed before Dr. Kissinger could
operate, and the patient later died. The court held that these facts were suf-
ficient to state a claim of abandonment against Dr. Vaughn.
Physicians can raise various defenses to claims of abandonment. If the
physician gives notice of withdrawal early enough for the patient to find
another physician of equal ability, the claim will fail. And physicians have the
right to limit their practice to a certain specialty or geographic area. A physi-
cian who is too ill to treat a patient or to find a substitute also has a valid
defense to an abandonment claim. If a physician obtains a substitute physi-
cian, she has a valid defense so long as the substitute is qualified and the
patient has enough time to find another if the substitute is unacceptable.
A physician may not abandon a patient simply because he thinks
another physician is handling the case; Maltempo v. Cuthbert is an exam-
ple.19 The plaintiff ’s diabetic son was in a county jail awaiting transporta-
tion to a state prison to serve a sentence for a drug violation. In jail the
son’s health deteriorated, and his mother called her family physician for
assistance but could only reach the defendant physician, who was taking the
family physician’s calls. This physician told the mother that he would inves-
tigate and call back if there were any problems. He then called the jail,
learned that the son was being treated by the jail physician, and did noth-
ing further. The young man died while being transported to the state
prison. The appellate court affirmed a jury verdict in favor of the plaintiff.
Even if it were unethical for the defendant physician to treat the young man
without the jail physician’s consent (a questionable proposition, at best),
the jury could find negligence in the doctor’s failure to ask the other doc-
tor about the man’s condition or at least to inform the parents that he was
proceeding no further. The physician’s actions “lulled the [plaintiffs] into
believing that their son was being cared for, and effectively prevented them
from seeking other emergency help.”
Two California cases raised questions about the freedom of a healthcare
provider to refuse initial or continued treatment of a patient whom the provider
does not wish to treat. In Payton v. Weaver a physician informed his patient—a
35-year-old indigent woman with end-stage renal disease and a history of drug
and alcohol abuse—that he would no longer continue as her physician because
of her intensely uncooperative behavior, antisocial conduct, and refusal to follow
instructions.20 The patient tried without success to find alternative treatment
and petitioned the court to compel the physician to continue treating her. The
32 The Law of Healthcare Administration

parties then agreed that the physician would continue to treat her if she met rea-
sonable conditions of cooperation. When she did not keep her part of the bar-
gain, the doctor again notified her that he was
withdrawing, and she again sought a court
order. This time the trial court found that she
Legal DecisionPoint had violated the previous conditions and in
the process adversely affected other dialysis
patients. The court also found that there was
End-stage renal disease (ESRD) is chronic
kidney failure that has progressed to the no emergency requiring treatment under a
point of requiring kidney dialysis or trans- California statute,21 that the physician’s notice
plant. An ESRD patient needs to undergo was sufficient to end the relationship, and that
dialysis every three or four days but lives a the doctor was not responsible for the fact that
somewhat normal existence between treat- no other dialysis unit would accept the patient
ments (subject to contributing conditions
(see Legal DecisionPoint). The appellate court
such as high blood pressure and diabetes).
The court stated that “there was no emer- sustained the trial court decision. (It is not
gency” in Ms. Payton’s case. Do you agree? known what happened to poor Ms. Payton.)
Was she a patient with a chronic disease, or A different situation resulted in the
was she a patient who was bound to have decision that a medical group and hospital
serial emergencies? Instead of seeing Dr. could not refuse nonemergency care to a
Weaver as scheduled (which of course she
husband and wife. In Leach v. Drummond
did not), what if she had been taken to the
emergency department every few days in Medical Group, Inc., the plaintiffs, who were
extremis and in need of dialysis? If you were patients of the medical group, had written to
a hospital administrator, how would you a state agency commenting adversely on the
advise the emergency department to deal performance of the group’s physicians.22
with Ms. Payton? The group then told the couple that because
they complained to the medical board, “a
proper physician–patient relationship” could not be maintained and they
would receive only 30 days of care, and then only if there was an emergency.
The couple sued to compel continued treatment of their many health prob-
lems. The trial court denied relief, but the appellate court reversed the deci-
sion and allowed the suit to continue. The court decided that although one
physician may not be required to treat a patient that she does not like, the
whole group can be ordered to.23 Because the patients had not publicly crit-
icized the doctor but only discreetly contacted the appropriate state agency,
the court held that denying services to them was not justified. (It is signifi-
cant to note that the defendants were the only medical group available within
100 miles.)

Duties Some cases have extended the physician’s duty to the patient even after the
Following doctor–patient relationship has ended. In Tresemer v. Barke the plaintiff ’s
Termination physician had implanted an intrauterine device (IUD) in 1972.24 The
of the physician had seen the patient only on that one occasion. The plaintiff later
Relationship suffered injury from the device (a Dalkon shield) and filed suit against the
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 33

physician. She alleged that he learned about the risks of the IUD but failed
to warn her. The court held that the defendant had a duty to warn the plain-
tiff, noting that a physician is in the best position to alert a patient and that
death or great bodily harm might be avoided without much inconvenience.25

Liability for Breach of Contract

In the typical physician–patient contract, the physician agrees (or implies

agreement) to perform a service. Failure to perform the service with reason-
able skill and care may give the patient a claim not only for negligence but
also for breach of contract. We have already seen breach-of-contract cases
based on abandonment in connection with ending the physician’s contractual
duty; Alexandridis v. Jewett offers one example.26
In Alexandridis two obstetricians implied that they would be available
when the patient went into labor. On learning that the woman was in labor,
one of the obstetricians notified his partner, who was on call. The partner did
not arrive in time, however, and an episiotomy (a small incision that eases
childbirth) had to be performed by a first-year resident and caused injury to
the patient. In the suit that followed, the appellate court found enough evi-
dence to send the case to a jury and that the partners would be liable for
breach of contract if their superior skill would have protected the patient
from injury. In a similar case the court noted that a valid claim could be
stated for breach of contract against a urologist because he allegedly agreed
to perform an operation on the plaintiff but was not present during the sur-
gery. Two colleagues from his medical group performed the operation
instead.27
A physician who uses a different procedure from the one that was prom-
ised will also be liable for breach of contract. In Stewart v. Rudner the physician
promised to arrange for an obstetrician to deliver a child by cesarean section.28
The patient was a 37-year-old woman who had had two previous stillbirths and
was extremely eager to have a “sound, healthy baby.” While the patient was in
labor the physician told another obstetrician to “take care of this case” but did
not tell him about the promise to perform a cesarean section. At the end of a
lengthy labor the baby was stillborn. The appellate court upheld a jury verdict
for the patient on the ground that the physician breached his promise that a
cesarean operation would be used to deliver the baby.

Liability for Breach of Warranty

Physicians are especially susceptible to liability not only if they promise to per-
form a certain service but also if they promise a specified result. A physician who
34 The Law of Healthcare Administration

guarantees a result gives the patient a contract basis for a lawsuit if the
treatment is not successful. In Sullivan v. O’Conner a professional enter-
tainer thought her nose was too
long. 29 She contracted with a
Legal Brief physician to have cosmetic surgery.
The physician promised that the
Sullivan v. O’Conner is a good example of the surgery would “enhance her beauty
roles juries and appellate courts play in our legal and improve her appearance.” In
system. The jury decides what the facts are, and the
fact, the surgery was unsuccessful,
appellate court must accept those facts as true
unless they are indisputably wrong. and after two more operations the
In some respects the function of these roles is nose looked worse than before.
like the instant replay rule in the NFL: Unless there Physicians do not guarantee results
is clear evidence to the contrary, the “call on the simply by agreeing to perform an
field” stands. operation, and it is often hard to
draw the line between an opinion
and a guarantee. But the jury
decided in this case that there was a
guarantee, and the appellate court affirmed the jury’s verdict for the plain-
tiff (see Legal Brief).
Guilmet v. Campbell is a well-known case in medical–legal circles.
The plaintiff had a bleeding ulcer and talked with a surgeon about a pos-
sible operation. He testified that the surgeon told him this:

Once you have an operation it takes care of all your troubles. You can eat as
you want to, you can drink as you want to, you can go as you please. Dr.
Arena and I are specialists; there is nothing to it at all—it’s a very simple oper-
ation. You’ll be out of work three to four weeks at the most. There is no dan-
ger at all in this operation. After the operation you can throw away your pill
box. In twenty years if you figure out what you spent for Maalox pills and
doctor calls, you could buy an awful lot. Weigh [that cost] against an opera-
tion.30

With this alleged assurance, the plaintiff underwent the operation.

Postoperative evaluation showed that the plaintiff had a ruptured esopha-
gus. His weight dropped from 170 to 88 pounds, and he developed he-
patitis. He then sued the physician on both a negligence theory and a war-
ranty (guarantee) theory. The jury decided that the physicians were not
negligent but had breached their promise to cure. The state’s supreme
court affirmed the decision. In response to Guilmet, and presumably after
some heavy lobbying by the medical profession, the Michigan legislature
passed a statute requiring that any alleged promise or guarantee of a cure
will be void unless it is in writing and signed by the physician alleged to
have made it.31
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 35

Liability for Intentional Tort

Another basis for professional liability is intentional tort. A tort is a civil

wrong not based on contract that results in injury to another person or
another person’s property or reputation. Torts are usually divided into three
categories, each of which involves a different type of proof (see Figure 2.1).
An intentional tort, as the name implies, results when a person intends to do
the wrongful act. Negligence occurs when a person intends no harm but fails
to do what a reasonably careful person would do under the circumstances.
Strict liability results when an act is wrongful, not because the actor intended
the wrong or was negligent but because the act involved a high risk of harm
to others. As noted earlier, most malpractice cases are based on negligence.
(Strict liability is uncommon in healthcare administration, but it surfaces in
relation to defective drugs and medical devices.)
Lawsuits based on intentional tort are less common in healthcare than
negligence cases, but they are important because they give plaintiffs some
flexibility they would not have otherwise. There may also be multiple conse-
quences for the healthcare provider who commits an intentional tort.
Because intent is usually an essential element in proving both the intentional
tort and a crime, many intentional torts, such as assault and battery, entail
both criminal and civil liability. The commission of a criminal act could lead
to a third consequence: revocation of the license to practice.

Assault and Battery

Assault and battery is actually a combination of two intentional torts. An
assault is conduct that places a person in fear of being touched in a way
that is insulting, provoking, or
physically harmful. Battery is the
actual touching (see Legal Brief). Legal Brief
Both assault and battery are acts
done without legal authority or We accept the incidental touching that accom-
panies everyday life, but there are certain
permission. A move to kiss some-
boundaries. This is why being jostled on an
one without consent is an assault, elevator is not battery; being groped is.
and the act of kissing is assault and Battery is summarized by the aphorism, “Your
battery. If the person were asleep right to swing your arm ends where my nose
when kissed there would be no begins.”
assault (because the person was not
apprehensive), but there would be a
battery. (Obviously, kissing some-
one with permission is neither an assault nor a battery, but rather fun for
both parties.)
The question of consent to medical or surgical treatment is complex; we
discuss it completely in Chapter 9. For present purposes, assault and battery
36 The Law of Healthcare Administration

cases can be grouped into three categories. First are the intentional acts com-
mitted by the healthcare provider with no consent from the patient whatso-
ever. In Burton v. Lefwich, for example, a physician who was having trouble
removing sutures from the toe of a four-year-old child (whose parents were
apparently not much help) hit the tot’s thigh several times with his open
hand, leaving bruises that were visible for three weeks.32 An appellate court
upheld a jury verdict that the physician had committed battery.
Compare that case with Mattocks v. Bell, where a 23-month-old girl—
whom a medical student was treating for a lacerated tongue—clamped her
teeth on the student’s finger and would not let go.33 After trying to free his
finger by forcing a tongue depressor into the child’s mouth, the student
slapped her on the cheek. The parents’ battery suit failed. The force used was
proper under the circumstances.
In these kinds of cases a physician’s liability for striking someone is no
different from the liability of any other person; this is true as well when a
physician performs an operation without consent. In the oft-cited Schloen-
dorff v. Society of New York Hospital (which is discussed in more detail in
Chapter 9), a doctor was liable for battery after he operated on a patient who
had consented only to an examination under anesthesia but not to an opera-
tion.34 In another case a patient signed a consent form naming a specific
urologist to remove his kidney stones. After surgery, the patient discovered
that the operation had been performed not by the urologist but by two other
members of the urologist’s medical group. He then sued all three physicians
for malpractice and failure to obtain informed consent. After the jury found
in favor of the defendants, the Supreme Court of New Jersey reversed the
decision. It found that the plaintiff had claims for battery and malpractice and
that even if no physical injury occurred, the defendants could be liable for
mental anguish and perhaps even punitive damages.35 The court stated:

Even more private than the decision who may touch one’s body is the deci-
sion who may cut it open and invade it with hands and instruments. Absent
an emergency, patients have the right to determine not only whether surgery
is to be performed on them, but who shall perform it.36

A second category of assault and battery includes situations where the

duty to obtain permission has been met but the physician goes beyond the
scope of the consent (more on this later). In a third category the physician
acts within the scope of the consent but does not adequately advise the
patient of the risks of the treatment. In that situation, the patient’s consent
is not well informed and the permission is invalid. As discussed in Chapter 3,
a suit can be brought in both the second or third categories on a theory of
either negligence or assault and battery. Negligence is the most common alle-
gation, but liability on assault and battery is also possible.37Mohr v. Williams
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 37

illustrates the last two kinds of cases.38 In Mohr the plaintiff consented to an
operation on her right ear. After she was anesthetized, the surgeon disco-
vered that her left ear needed surgery more than the right ear and operated
on the left one instead. On the ground, among others, that the surgeon’s
conduct amounted to a technical assault and battery, the appellate court
upheld a trial court’s decision to let the case proceed.
Although the surgeon in Mohr should have consulted the patient
before operating on the other ear, a surgeon will sometimes be justified in
operating beyond the scope of the consent—for instance, when an emer-
gency makes obtaining the patient’s consent impossible or dangerous. In
Barnett v. Bachrach a surgeon operating on a patient with an ectopic preg-
nancy (a pregnancy outside the uterus) discovered that the pregnancy was
normal but that the patient had acute appendicitis.39 He removed the appen-
dix and later sued the patient for not paying the operating fee. The patient
defended the suit by alleging that the appendix was removed without her
consent. In holding for the surgeon the court noted that if he had not taken
out the appendix, the patient and child might have been endangered.

Defamation
Defamation is wrongful injury to another person’s reputation. Written
defamation is libel, and oral defamation is slander. To be actionable, the
defamatory statement must be “published”—that is, the defendant must have
made the statement to a third party, not just to the plaintiff. This was the
point of Shoemaker v. Friedberg.40 In this case, a physician wrote a letter to a
patient stating that she had a venereal disease. The patient showed the letter
to two or three other women and later, in the presence of a friend, discussed
the diagnosis with the physician. In suing him she alleged a breach of confi-
dentiality, but the court held that no recovery should be allowed because the
patient had “published” the diagnosis herself. (This could be thought of as
the “it’s your own dumb fault” rule.)
Physicians have several defenses available to them in defamation suits:

• The truth of a statement is an absolute defense, if the defendant can

prove that the statement was true.41 Even a true statement, however,
can lead to liability for an invasion of privacy or breach of confiden-
tiality.
• Some statements, such as those made during a judicial proceeding or by one
physician to another in discussing a patient’s treatment, are privileged and
provide a defense. In Thornburg v. Long, for example, a specialist incor-
rectly reported to a family physician that a patient had syphilis.42 When
the patient sued the specialist for libel, the court held that the statement
was privileged because the specialist had a duty to communicate the
information to the family physician.
38 The Law of Healthcare Administration

• Statements made in good faith to protect a private interest of the physician,

the patient, or a third party are entitled to a qualified privilege. An exam-
ple is a false but good-faith report of a sexually transmitted disease diag-
nosis to a state health department, as required by law.

False Imprisonment
False imprisonment arises from unlawful restriction of a person’s freedom.
Many false imprisonment cases involve patients who have been involuntarily
committed to a mental hospital. In Stowers v. Wolodzko a psychiatrist was held
liable for his treatment of a patient who had been committed against her
will.43 Although this type of commitment was allowed under state law, the
psychiatrist kept the woman from calling an attorney or a relative. His actions
amounted to false imprisonment because her freedom was unlawfully
restrained. (The unusual facts of this case are laid out in The Court Decides:
Stowers v. Wolodzko at the end of this chapter.)

Invasion of Privacy and Breach of Confidentiality

Truth is a defense in defamation cases, but there are two other bases for
possible liability even when a physician’s statement about the plaintiff is
true: (1) invasion of privacy and (2) wrongful disclosure of confidential
information. Invasion of privacy occurs when a patient is subjected to
unwanted publicity. For example, in Vassiliades v. Garfinckel’s, Brooks Bros.,
the defendants (a physician and the famous department store) used
“before” and “after” photographs of the plaintiff ’s cosmetic surgery with-
out her permission. This was sufficient to support a verdict for invasion of
privacy and breach of fiduciary duty.44 Similarly, a Michigan physician was
held liable for invasion of privacy when he allowed a lay friend to observe
the delivery of a baby in the patient’s home. Clearly, a patient’s expectation
of privacy should be respected.
A suit for wrongful disclosure of confidential information was brought
on behalf of a man who had been a patient at the Holyoke Geriatric and Con-
valescent Center.45 His family had sought the court’s permission to remove
him from the kidney dialysis treatments that were sustaining his life. The
court granted the petition, but several nurses and aides from the center, with
the approval of the center’s administrator, wrote a letter to a local newspaper
protesting the decision. The letter appeared on the front page of the paper.
A jury awarded the plaintiff’s widow and estate $1 million for violation of a
statute that prohibits release of personal information. The case clearly shows
the danger of disclosing confidential patient information without proper
authority.
Frequently, state or federal law requires disclosure of confidential
information. For example, confidential information from a patient’s medical
record may be disclosed for the purpose of quality assurance and peer-review
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 39

activities and to state authorities in cases of suspected child abuse. Other

reporting requirements include those relating to communicable disease,
abortion, birth defect, injury or death resulting from use of a medical device,
environmental illness and injury, injuries (such as knife or gunshot wounds)
resulting from suspected criminal activities, and conditions (such as epilepsy)
affecting one’s ability to drive safely or operate heavy machinery.
Obviously, disclosures made in conformity with law are not “wrong-
ful,” and no liability will attach. Similarly, there is no liability for disclosing
patient information when the patient (or the patient’s guardian) has given
permission or when a search warrant or other legal procedure requires it.
Healthcare facilities must be aware of the federal and state requirements
regarding confidentiality of medical records and must have policies and pro-
cedures in place to protect the information contained in them. (All of these
requirements are discussed in more detail in Chapter 14.)

Misrepresentation
This is another tort for which physicians have been held liable. Misrepresenta-
tion can be either intentional (fraudulent or deceitful) or negligent. Either way,
it must be shown that a fact was falsely represented and that the person claim-
ing injury relied on the misrepresentation. Misrepresentation cases involving
physicians are of two types: (1) representations to persuade a patient to submit
to treatment and (2) representations about a prior treatment or its results.
Physicians who misrepresent the nature or results of treatment they have
given are liable for fraud even if the treatment was done carefully. In Johnson v.
McMurray 46 Dr. McMurray had performed an earlier surgery on Mr. Johnson
and had left a surgical sponge in his body. Mr. Johnson specifically asked that Dr.
McMurray not participate in the follow-up surgery that was needed to remove
the sponge, and he sought out a Dr. Griffith to operate. Unknown to Mr. John-
son, Dr. Griffith intended to have Dr. McMurray assist in the surgery anyway,
which he did. More complications arose, and the patient eventually lost his leg.
The court decided that the two doctors had fraudulently concealed a significant
fact and a jury could award damages.
Misrepresentation sometimes allows a patient to bring suit after the
statute of limitations expires. In Hundley v. Martinez a physician repeatedly
assured his patient—an attorney—that his eye would be all right after a
cataract operation.47 Over the years, the attorney became virtually blind in
that eye. In this case, although the statute of limitations had run, the court
held that the limitation period was suspended if the jury found that the physi-
cian had obstructed the plaintiff’s case by fraud or in other indirect ways.

Outrage
The intentional tort of outrage—sometimes called “intentional infliction
of emotional distress”—arises from extreme and offensive conduct by the
40 The Law of Healthcare Administration

defendant; Rockhill v. Pollard48 provides a graphic example. The plaintiff,

her mother-in-law, and her ten-month-old daughter were injured in an
automobile accident on a wintry evening in Oregon shortly before Christ-
mas; the accident knocked the baby unconscious. A passing motorist
picked them up and arranged for a physician to meet them at his office.
Here is a portion of the court’s opinion describing the encounter with the
defendant, Dr. Pollard:

Both plaintiff and [her mother-in-law] Christine Rockhill testified that defen-
dant was rude to them from the moment they met him. Plaintiff testified:

“And the first thing, he looked at us, and he had a real mean look on his face,
and this is what he said. He said, ‘My God, women, what are you doing out
on a night like this?’…and my mother-in-law tried to explain to him why we
were on the road, and her and I both pleaded to him.”

Without making any examination, defendant told them there was nothing
wrong with any of them. [The baby] was still unconscious at this time.
According to plaintiff:

“She was very lifeless. I was saying her name, and she wouldn’t respond at
all. Her eyelids were a light blue. She was clammy, very cold.

“In fact, I thought she was dead at the time.”

After repeated requests to do so, the doctor finally gave the child a
cursory examination and said there was nothing wrong with her. The baby
had vomited, and both the adults had blood and vomit on them. The opin-
ion states that the doctor told the mother-in-law, “Get in there and clean
yourself up. You are a mess.” The opinion continues:

“The doctor was out of the room, and I told her [Christine Rockhill, her
mother in law], I says, ‘We have got to get help for this baby,’ and she said,
‘Well, what are we going to do?’

“And the doctor came back in the room, and she asked the doctor, she says,
‘What are we going to do?’ And he just shrugged his shoulders and said he
didn’t know.”

When Christine Rockhill suggested that her brother would pick them up at
defendant’s office, defendant said, “My God, woman, I can’t stay here until
somebody comes and gets you.” Although the temperature was below freezing
and [the baby’s] clothing and blanket were wet with vomit, he told them to
wait outside by a nearby street light while someone came…to get them.
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 41

After a 20-minute wait in the cold, the group was taken to a hospital,
where the baby arrived only semiconscious and apparently suffering from
shock. The women were given emergency treatment and released. The child
had surgery to repair a depressed skull fracture and was released after a week
in the hospital.
The trial court had dismissed the lawsuit thinking that the plaintiff
had not presented a prima facie case—that is, enough evidence to win
unless the defendant presents contradictory evidence. The Supreme Court
of Oregon disagreed, stating, “We think the issue should have been sub-
mitted to the jury.”
It is not hard to see why a jury could find that the defendant’s con-
duct was outrageous, is it?

Violation of Civil Rights

For at least 40 years courts have recognized causes of action for violations of
patients’ civil rights. Discrimination on the basis of race, religion, ethnicity,
and other protected categories is an obvious example.49 Eidgeion v. Eastern
Shore Hospital Center is an example of less apparent discrimination. The plain-
tiff was involuntarily committed to a Maryland hospital after an ex parte hear-
ing (one in which only one party is present) in which the plaintiff’s wife testi-
fied that he had exhibited abnormal and violent behavior. Two physicians
examined the plaintiff on his arrival at the hospital, and although he showed
no outward signs of mental illness the doctors ordered that he be held at the
hospital. The plaintiff maintained that his wife lied about his behavior because
she wanted to be free to join her male friend in Florida. In fact, as soon as she
met up with her “friend,” the hospital released the plaintiff. He promptly sued
his wife, the physicians, and the hospital for violation of federal and state civil
rights statutes, negligence, false imprisonment, false arrest, defamation, inten-
tional infliction of emotional distress, and conspiracy to commit these wrongs.
The court held that the complaint stated a valid cause of action.50

Chapter Summary

This chapter addresses the essential elements of a valid contract (competent

parties, a “meeting of the minds,” consideration, and legality of purpose)
and the importance of contract law in the relationship between patients and
their physicians and between patients and hospitals. The chapter also briefly
discusses issues relating to workers’ compensation and intentional tort,
pointing out that both can affect doctor–patient and hospital–patient rela-
tionships.
42 The Law of Healthcare Administration

Chapter Discussion Questions

1. Referring to Oliver v. Brock, what factors did the court use in determining
whether Dr. Brock had a contractual relationship with Mrs. Oliver? What dif-
ferences in the facts might have changed the outcome of the case?
2. Why are workers’ compensation benefits the sole remedies for workplace
injuries of employees as they were in Guy v. Arthur H. Thomas Co.?
3. Explain why a case of a pursuit of a breach of contract, such as Guilmet v.
Campbell, would be easier than a standard case alleging negligence.
4. In what ways can intentional torts arise in the healthcare field?

Notes
1. Some physicians and hospitals believe they have complete professional liability coverage under their
malpractice insurance policies, but in fact they are covered only for negligent acts. For example, in
Security Ins. Group v. Wilkinson, 297 So. 2d 113 (Fla. App. 1974), the court held that a hospital’s
professional liability policy did not cover a breach of contract to treat the plaintiff’s wife.
2. Note that courts can and do apply legal principles to find legal duties where none existed previously. In
Tarasoff v. Regents of the Univ. of Cal., 118 Ca. Rptr. 129, 529 P.2d 553 (1974), aff’d, 131 Cal. Rptr.
14, 551 P.2d 334 (1976), the court found that a psychiatrist had a duty to warn the person whom the
patient had threatened to kill, even though there was no relationship between the doctor and the threat-
ened person and in spite of the fact that doctor–patient communications are normally confidential. This
case is discussed in detail in Chapter 14, “Health Information Management.”
3. For example, in Hurley v. Eddingfield, 156 Ind. 416, 59 N.E. 1058 (1901), the only physician
available to aid a critically ill person refused, for no reason, to assist. The court stated that unless
some special contract or other commitment exists physicians have no legal responsibility to treat
people. Vermont and Minnesota have statutes that require a bystander to render aid in an emer-
gency—Vt. Stat. Ann. Tit. 12, § 519 (1973); Minn. Stat. Ann. § 604.05 (Supp. 1985).
4. 440 S. W.2d 104 (Tex. Civ. App. 1969). This case is discussed in greater detail in Chapter 8.
5. 342 So. 2d 1 (Ala. 1976).
6. Am. Jr. 2nd, “Physicians, Surgeons and Other Healers,” § 96.
7. Holder, A. 1978. Medical Malpractice Law, 2nd ed., 6.
8. 483 F. Supp. 581 (1980).
9. See, for example, Young v. St. Elizabeth Hosp., 131 Ill. App. 3d 193, 475 N.E.2d 603 (1985)—the
plaintiff alleged negligent treatment of injuries sustained on the job; suit dismissed; McAlister v.
Methodist Hosp. of Memphis, 550 S.W.2d 240 (Tenn. Sup. Ct. 1977)—a hospital employee alleged
negligent treatment of work-related back injury.
10. 55 Ohio S. 2d 183, 378 N.E.2d 488 (1978).
11. See, for example, Garcia v. Iserson, 42 A.D.2d 776, 346 N.Y.S.2d 572 (1973), aff’d, 33 N.Y.2d
421, 353 N.Y.S.2d 955, 309 N.E.2d 420 (1974). Others have found that a company physician is an
independent contractor for purposes of the workers’ compensation exclusion and have permitted
suits against physician-employees. See, for example, Stevens v. Kimmel, 182 Ind. App. 187, 394
N.E.2d 232 (1979); Ross v. Schubert, 180 Ind. App. 402, 388 N.E.2d 623 (1979). The dual
capacity doctrine has also been invoked to find physicians liable for negligent treatment of workers.
See, for example, Hoffman v. Rogers, 22 Cal. App. 3d 655, 99 Cal. Rptr. 455 (1972); Duprey v.
Shane, 39 Cal. 2d 781, 249 P2d 8 (1952).
12. 36 Cal. App. 2d 199, 97 P.2d 503 (1939).
13. 210 N.W.2d 576 (Iowa 1973). See also Kaiser v. Suburban Transp. Sys., 65 Wash. 2d 461, 398 P.2d
14 (1965), amended by 65 Wash. 2d 461, 401 P.2d 350 (1965)—passengers on a patient’s bus
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 43

were allowed to recover damages from the defendant physician; Duvall v. Goldin, 139 Mich. App.
342, 362 N.W.2d 275 (1984)—physician owed a duty to third persons injured in auto accident
after the physician failed to warn his patient not to operate a motor vehicle.
14. 118 Cal. Rptr. 129, 529 P.2d 553 (1974) aff’d, 131 Cal. Rptr. 14, 551 P.2d 334 (1976). See also
Davis v. Lhim, 124 Mich. App. 291, 335 N.W.2d 481 (1983)—a psychiatrist was held liable for
discharging a patient who subsequently killed his mother and for failing to warn the patient’s
mother. But see Soto v. Frankford Hosp., 478 F. Supp. 1134 (E.D. Pa. 1979).
15. 751 F.2d 329 (10th Cir. 1984).
16. Louisell, D., and H. Williams. 1973. Medical Malpractice § 8.08, at 219.
17. 92 Ga. App. 727, 89 S.E.2d 809 (1955).
18. 370 S.W.2d 591 (Ky. 1963).
19. 504 F.2d 325 (5th Cir. 1974).
20. 131 Cal. App. 3d 38, 182 Cal Rptr. 225 (1982).
21. Cal. Health & Safety Code § 1317 (West 1979).
22. 144 Cal. App. 3d 362, 192 Cal. Rptr. 650 (1983).
23. Cal. Civ. Code § 51.
24. 86 Cal. App. 3d 656, 150 Cal. Rptr. 384 (1978).
25. Id. at 672, 150 Cal. Rptr. at 394. See also Tuchman v. Cutter Laboratories (no. 976,275, Cuya-
hoga Cty., Ohio, Ct. of Common Pleas; unpublished)—failure to warn the patient of allegedly
defective prosthetic heart valve.
26. 388 F.2d 829 (1st Cir. 1968).
27. Perna v. Pirozzi, 92 N.J. 446, 457 A.2d 431 (1983). This case is discussed in more detail in rela-
tion to assault and battery.
28. 349 Mich. 459, 84 N.W.2d 816 (1957).
29. 363 Mass. 579, 296 N.E.2d 183 (1973).
30. 385 Mich. 57, 68, 188 N.W.2d 601, 606 (1971).
31. Mich. Comp. Laws Ann. § 566.132 (Supp. 1985), amending, Mich. Comp. Laws Ann. §
566.132 (1967).
32. 123 So. 2d 766 (La. Ct. App. 1960).
33. 194 A.2d 307 (D.C. Ct. App. 1963).
34. 211 N.Y. 125, 105 N.E. 92 (1914).
35. Perna v. Pirozzi, 92 N.J. 446, 438, 457, A.2d 431, 461 (1983)—against the urologist, plaintiff
had a cause of action for breach of contract, breach of fiduciary duty, and malpractice.
36. Id. at 461, 457 A.2d at 439.
37. Prosser, W. 1984. Law of Torts, 5th ed., 189.
38. 95 Minn. 261, 104 N.W. 12 (1905).
39. 34 A.2d 626 (D.C. Mun. Ct. App. 1943).
40. 80 Cal. App. 2d 911, 916, 183 P.2d 318, 322 (1947).
41. Even a true disclosure, however, may give rise to liability for invasion of privacy or wrongful dis-
closure of confidential information. See also the discussion on confidentiality of medical records in
Chapter 14, “Health Information Management.”
42. 178 N.C. 589, 101 S.E. 99 (1919).
43. 386 Mich. 119, 191 N.W.2d 355 (1971)—the court also held the psychiatrist liable for assault and
battery for giving the patient involuntary medication beyond what was permitted by the statute.
44. 492 A.2d 580 (D.C. App. 1985)—the department store was not liable because it had obtained
assurances from the physician that the plaintiff had given her consent.
45. Spring v. Geriatric Authority of Holyoke, 394 Mass. 274, 475 N.E.2d 727 (1985).
46. 461 So. 2d 775 (Ala. 1984).
47. 151 W. Va. 977, 158 S.E.2d 159 (1967).
48. 259 Or. 54, 485 P.2d 28 (1971).
49. See, for example, Washington v. Blampin, 226 Cal. App. 2d 604, 38 Cal. Rptr. 235 (1964).
50. 479 A.2d 921 (Md. 1984). See also Johnson v. Silvers, 742 F.2d 823 (4th Cir. 1984)—the plain-
tiff’s complaint, which stated that while voluntarily committed he had been forced to take antipsy-
chotic medication against his will, alleged a deprivation of liberty within the contemplation of 42
U.S.C. § 1983.
44 The Law of Healthcare Administration

the court decides

Stowers v. Wolodzko
386 Mich. 119, 191 N.W.2d 355 (1971)

Swainson, J. of plaintiff’s husband and without the authoriza-

tion, knowledge, or consent of plaintiff, signed a
This case presents complicated issues concern- sworn statement certifying that they had exam-
ing the liability of a doctor for actions taken ined plaintiff and found her to be mentally ill.
subsequent to a person’s confinement in a pri- Such certificate was filed with the Wayne County
vate mental hospital pursuant to a valid court Probate Court on January 3, 1964, and on the
order.… same date an order was entered by the probate
Plaintiff, a housewife, resided in Livonia, court for the temporary hospitalization of plain-
Michigan, with her husband and children. She tiff until a sanity hearing could be held. The
and her husband had been experiencing a great Judge ordered plaintiff committed to Ardmore
deal of marital difficulties and she testified that Acres, a privately operated institution, pursuant
she had informed her husband…that she to the provisions of [Michigan law].
intended to file for a divorce. Plaintiff was transported to Ardmore Acres
On December 6, 1963, defendant appeared on January 4, 1964.…
at plaintiff’s home and introduced himself as “Dr. ….
Wolodzko.” Dr. Wolodzko had never met either The parties are in substantial agreement as
plaintiff or her husband before he came to the to what occurred at Ardmore Acres. Defendant
house. He stated that he had been called by the requested permission to treat the plaintiff on
husband, who had asked him to examine plain- several different occasions, and she refused.
tiff. Plaintiff testified that defendant told her that For six days, she was placed in the “security
he was there to ask about her husband’s back. room,” which was a bare room except for the
She testified that she told him to ask her hus- bed. The windows of the room were covered
band, and that she had no further conversation with wire mesh. During five of the six days,
with him or her husband. She testified that he plaintiff refused to eat, and at all times refused
never told her that he was a psychiatrist. medication. Defendant telephoned orders to
Dr. Wolodzko stated in his deposition…that the hospital and prescribed certain medication.
he told plaintiff he was there to examine her. He visited her often during her stay.
However, upon being questioned upon this When plaintiff arrived at the hospital she
point, he stated that he could “not specifically” was refused permission to receive or place tele-
recollect having told plaintiff that he was there phone calls, or to receive or write letters. Dr.
to examine her. He stated in his deposition that Wolodzko conceded at the trial that plaintiff
he was sure that the fact he was a psychiatrist wished to contact her brother in Texas by tele-
would have come out, but that he couldn’t phone and that he forbade her to do so. After
remember if he had told plaintiff that he was a nine days, she was allowed to call her family,
psychiatrist. but no one else. Plaintiff testified on direct
Plaintiff subsequently spoke to Dr. examination that once during her hospitaliza-
Wolodzko at the suggestion of a Livonia police- tion she asked one of her children to call her
woman, following a domestic quarrel with her relatives in Texas and that defendant took her
husband. He did inform her at that time that he to her room and told her, “Mrs. Stowers, don’t
was a psychiatrist. try that again. If you do, you will never see your
On December 30, 1963, defendant Wolodzko children again.” It is undisputed that plaintiff
and Dr. Anthony Smyk, apparently at the request repeatedly requested permission to call an
 C h a p t e r 2 : C o n t ra c t s a n d I n t e n t i o n a l To r t s 45

attorney and that Dr. Wolodzko refused such person incommunicado is clearly a restraint of
permission. one’s freedom, sufficient to allow a jury to find
At one point when plaintiff refused medica- false imprisonment.
tion, on the written orders of defendant, she Defendant contends that it was proper for
was held by three nurses and an attendant and him to restrict plaintiff’s communication with
was forcibly injected with the medication. Hos- the outside world. Defendant’s witness, Dr. Sid-
pital personnel testified at the trial that the ney Bolter, testified that orders restricting com-
orders concerning medication and deprivation munications and visitors are customary in cases
of communication were pursuant to defendant’s of this type. Hence, defendant contends these
instructions. orders were lawful and could not constitute the
Plaintiff, by chance, found an unlocked basis for an action of false imprisonment. How-
telephone near the end of her hospitalization ever, the testimony of Dr. Bolter is not conclu-
and made a call to her relatives in Texas. She sive on this point.
was released by court order on January 27, ….Psychiatrists have a great deal of power
1964. over their patients. In the case of a person con-
Plaintiff filed suit alleging false imprison- fined to an institution, this power is virtually
ment, assault and battery, and malpractice, unlimited. All professions (including the legal
against defendant Wolodzko, Anthony Smyk profession) contain unscrupulous individuals
and Ardmore Acres. Defendants Ardmore who use their position to injure others. The law
Acres and Smyk were dismissed prior to trial. must provide protection against the torts com-
At the close of plaintiff’s proofs, defendant mitted by these individuals. In the case of men-
moved for a directed verdict. The court tal patients, in order to have this protection,
granted the motion as to the count of mal- they must be able to communicate with the
practice only, but allowed the counts of outside world. In our country, even a person
assault and battery and false imprisonment who has committed the most abominable crime
to go to the jury. At the Conclusion of the has the right to consult with an attorney.
trial, the jury returned a verdict for plaintiff in Our Court and the courts of our sister
the sum of $40,000.… States have recognized that interference with
Defendant has raised five issues on attempts of persons incarcerated to obtain their
appeal.… freedom may constitute false imprisonment.
…. Further, we have jealously protected the indi-
The second issue involves whether or not vidual’s rights by providing that a circuit Judge
there was evidence from which a jury could find “who willfully or corruptly refuses or neglects
false imprisonment. to consider an application, action, or motion
“False imprisonment is the unlawful for, habeas corpus is guilty of malfeasance in
restraint of an individual’s personal liberty or office.” [Citation omitted.]
freedom of locomotion.” [Citation omitted.] It is …[P]laintiff was…attempting to communi-
clear that plaintiff was restrained against her cate with a lawyer or relative in order to
will. Defendant, however, contends that obtain her release. Defendant prevented her
because the detention was pursuant to court from doing so. We…hold that the actions on
order (and hence not unlawful), there can be no the part of defendant constitute false impris-
liability for false imprisonment. However, defen- onment.…
dant was not found liable for admitting or keep- A person temporarily committed to an insti-
ing plaintiff in Ardmore Acres. His liability stems tution pursuant to statute certainly must have
from the fact that after plaintiff was taken to the right to make telephone calls to an attorney
Ardmore Acres, defendant held her incommuni- or relatives. We realize that it may be necessary
cado and prevented her from attempting to to restrict visits to a patient confined to a men-
obtain her release, pursuant to law. Holding a tal institution. However, the same does not
46 The Law of Healthcare Administration

apply to the right of a patient to call an attorney requirement, the facts in the instant case pro-
or relative for aid in obtaining his release. This vide cogent reasons as to why such a rule is
does not mean that an individual has an unlim- necessary. Mrs. Stowers was able to obtain
ited right to make numerous telephone calls, her release after she made the telephone call
once he is confined pursuant to statute. Rather, to her relatives they, in turn, obtained an
it does mean that such an individual does have attorney for her. Prior to this, because of the
a right to communicate with an attorney and/or order of no communications, she was virtually
a relative in attempt to obtain his release. held a prisoner with no chance of redress. We,
Dr. Bolter was unable to give any valid therefore, agree with the Court of Appeals
reason why a person should not be allowed to that there was sufficient evidence from which
consult with an attorney. We do not believe a jury could find that Dr. Wolodzko had com-
there is such a reason. While problems may mitted false imprisonment.
be caused in a few cases because of this The Court of Appeals is affirmed.

Stowers v. Wolodzko Discussion Questions

1. What other information would you like to have to fully consider this
case?
2. According to the opinion, Mrs. Stowers was committed on the strength
of the statement of two physicians that she was “mentally ill.” Would
that evidence be sufficient today to have someone committed
involuntarily? If not, what would the evidence have to prove? Why?
3. How should these kinds of cases be handled today?
 CHAPTER

NEGLIGENCE
3
“Even a dog distinguishes
between being stumbled over and
being kicked.”
—O. W. Holmes, “Trespass and
Negligence,” 14 American Law
Review 1, 15 (1880)

After reading this chapter, you will

• know that four essential elements must be proven for a plain-

tiff to prevail in a negligence case.
• realize that the standard of care (the duty) can be proven by
expert testimony, published principles, or the jury’s common
experience of what is reasonable.
• understand that the plaintiff’s injuries must be caused by the
defendant’s breach of the duty.
• be aware that under the concept of “vicarious liability,” one
can be liable for the actions of someone else.

This chapter is one of the longest in the book because negligence is the most
common type of liability case that healthcare organizations face. It occurs
when the wrongdoer (the tort-feasor) fails to live up to accepted standards of
behavior—that is, fails to use “due care.” Four elements are essential to prove
negligence: (1) a duty of care, (2) breach of that duty, (3) injury, and (4) cau-
sation. We will review each of these elements in turn.

Standard of Care

The duty of due care requires all persons to conduct themselves as a reasonably
prudent person would do in similar circumstances. One who fails to meet this
standard has committed a breach of duty, and the tort-feasor will be liable if the

47
48 The Law of Healthcare Administration

breach causes injury to property or another person. The most common negli-
gent tort is a motor vehicle accident. The standard of care in these cases is rela-
tively easy to prove by relying on measures such as the following:

• traffic laws (e.g., speeding, licensure),

• the driver’s physical or mental condition (e.g., intoxication or physical
impairment), and/or
• analysis of what would constitute due care under the circumstances (i.e.,
what an average, reasonable driver would do if faced with the same situ-
ation).

However, criteria like these—readily understandable to the average

juror—are often unavailable in professional liability cases. Most jurors can
rely on their own experience and common sense to determine whether a
driver acted negligently, but they usually do not have the knowledge or expe-
rience to judge whether a healthcare provider has acted reasonably in a med-
ical malpractice case. As a result, courts have adopted a special standard in
such cases: Physicians are measured against other physicians, not against the
average person.
One case stated the rule as follows: “A physician is bound to bestow
such reasonable and ordinary care, skill, and diligence as physicians and sur-
geons in good standing in the same neighborhood, in the same general line
of practice, ordinarily have and exercise in like cases.”1 Courts generally agree
with this concept, but like most legal standards it is subject to various inter-
pretations. The differences have to do with three aspects of the definition:

1. Who is a “reasonable physician”?

2. What level of skill is to be applied?
3. What school of medicine do other physicians follow?

The Reasonable Physician

The first standard requires only “reasonable and ordinary” treatment. Physi-
cians are not measured against their most knowledgeable and highly skilled
colleagues but against the knowledge and skill of average physicians in the
same line of practice.2
If a physician chooses among alternative methods of treatment or uses
experimental techniques, he will not be guilty of malpractice if the selection
is one that in the physician’s opinion best meets the patient’s needs. Thus, it
is sometimes stated that there will be no liability if the treatment would be
recognized by a “respectable minority” of the medical profession, even
though most physicians would have adopted another treatment plan.3 In one
case a physician performing a thyroidectomy severed the patient’s laryngeal
 Chapter 3: Negligence 49

nerves.4 The patient did not claim that the physician was not careful. Rather,
he claimed that two types of treatment were recognized and that the surgeon
should have chosen the other one. The court rejected this argument because
both methods were acceptable.
A more difficult problem arises when the physician treats the patient
by a method that even a respectable minority would deem unacceptable
because it verges on experimentation. But physicians are clearly right to use
innovative techniques when standard methods have failed and the condition
is serious. In one case a surgeon performed an unorthodox operation on an
ankle after trying standard techniques and when other physicians had advised
amputation.5 The court held that the operation was justified as a last resort.
But a doctor who follows an experimental procedure before attempting stan-
dard methods is likely to be considered negligent. In one instance a physician
treating an infant for a curvature of the spine used a surgical procedure he
had developed but no one else had used. The child died after suffering a
severe hemorrhage. In the lawsuit that followed, the court found both the
doctor and the hospital liable for not disclosing to the child’s parents that the
procedure was unorthodox.6

Local, State, or National Standard

The second aspect of the standard of care compares the treatment in ques-
tion to that used by physicians and surgeons “in the same neighborhood.”
Originally the neighborhood was considered the community in which the
physician practices or similar areas elsewhere in the state or the nation. This
has been called the “locality rule” because it measures the standard of care in
a given instance solely by the practices of other physicians in the same or a
similar locality.7
This rule was based on the theory that doctors in remote areas should
not be held to the same standards of medical expertise as doctors in urban
areas because of difficulties of communication and travel and because they
have limited opportunities to keep abreast of medical advances. It also relied
on the fact that in such areas physicians were often forced to practice in inad-
equate hospital facilities.8 However, the traditional locality rule has given way
in most states to a broader standard because the original reasons for the rule
have all but disappeared.9 As one court stated:

Locality rules have always had the practical difficulties of: (1) a scarcity of pro-
fessional people…qualified [or willing] to testify; and (2) treating as acceptable
a negligent standard of care created by a small and closed community of physi-
cians in a narrow geographical region. Distinctions in the degree of care and skill
to be exercised by physicians in the treatment of patients based upon geography
can no longer be justified in light of the presently existing state of transporta-
tion, communications, and medical education and training which results in a
50 The Law of Healthcare Administration

standardization of care within the medical profession. There is no tenable policy

reason why a physician should not be required to keep abreast of the advance-
ments in his profession.10

For these reasons, the court held that the “language ‘same neighbor-
hood’...refer[s] to the national medical neighborhood or national medical
community, of reasonably competent physicians acting in the same or similar
circumstances.”11 Thus, a “national standard” has been created.12 (This
newer standard is all the more reasonable given recent advances in commu-
nications technology, including the Internet.)
For physicians practicing under less-than-ideal conditions, the burden
of meeting a national standard has been lightened by permitting “justifiable
circumstances” as a defense.13 For example, a physician would not be respon-
sible for providing certain care if the necessary facilities or resources were not
available. The test is what is reasonable under the circumstances. All sur-
rounding circumstances are to be considered in determining whether there
was a breach of the standard of care.14

The “School Rule”

The third consideration in determining the standard of care is whether the care
is comparable to that of physicians and surgeons “in the same general line of
practice.” This principle, sometimes called the “school rule,” is a throwback to
the days when there were distinctly different schools of treatment. For example,
the allopathic school (whence MDs come) treated diseases by using agents (such
as antibiotics) whose effects differ from the agent causing the disease. Another
was the homeopathic school, which posits that to cure a person’s symptoms, the
doctor should give medicine that will cause in healthy people the same set of
symptoms from which the patient suffers. There are also practitioners of osteo-
pathic medicine and chiropractic medicine (i.e., DOs and DCs), which (at least
in their “pure” form) emphasize manipulative techniques to correct bodily
anomalies thought to cause disease and inhibit recovery.
Although still recognized, the distinctions between these schools have
blurred in recent decades, leaving what is sometimes called the “regular prac-
tice of medicine.” For example, for years osteopathy was not considered
“regular medicine” in some states and osteopaths were not allowed to pre-
scribe drugs or perform surgery; they were judged only by the standards pre-
vailing in their own school of medicine.15 Today, most states allow osteopaths
to perform surgery and prescribe drugs, and they are held to the standard of
care of the so-called regular practice of medicine. The school rule remains
important, however, because a few branches of medicine remain and the
trend in medicine is toward specialization. The standard for judging practi-
tioners in specialties or schools is usually established by the practices of oth-
ers in the same school or specialty.
 Chapter 3: Negligence 51

For example, alternative remedies like acupuncture, herbal medicine,

faith healing, naturopathy, massage, and music and aroma therapies claim
numerous adherents. These practitioners (who usually do not have medical
degrees) apply their crafts (which are recognized to improve psychological
and physical well-being) without promising or implying that they are treat-
ing a medical condition. They are not judged by the standards of medical
practice, but if they stray from their areas of expertise they will be judged
against the standards taught in traditional medical schools.
In Hawaii an MD who practiced alternative medicine was deemed
unqualified to testify as an expert witness on the cause of his patient’s symp-
toms following breast-implant surgery. The court noted,

Dr. Arrington does not possess any education, training, or experience with
silicone. He is a general practitioner with an orientation toward holistic med-
icine and alternative therapies, such as nutritional, vitamin, and herbal reme-
dies. He is not a pathologist, general surgeon, plastic surgeon, or an immu-
nologist. Prior to moving to Hawaii, Dr. Arrington practiced with
chiropractic, naturopathic, and holistic medicine specialists. Nothing in Dr.
Arrington’s background or experience suggested that he would be compe-
tent to testify regarding the effects of silicone on the human body.16

In applying the school rule, courts must decide whether the “school”
is legitimate. Legitimacy generally depends on whether rules and principles
of practice have been set up to guide the members in treating patients. When
standard of care is in question, the existence of licensing requirements will
usually suffice as a recognition of a separate school.17 In an early case the
court did not recognize a spiritualist’s practice as following a school of treat-
ment because the practitioner’s only principle was to diagnose and treat the
disease by means of a trance. Because there was no legitimate school, the
practitioner was held to the standards of medical practice.18 In the case of a
Christian Science practitioner, however, the court held the defendant to the
standard of care, skill, and knowledge of ordinary Christian Science healers
because he belonged to a recognized school.19
Within these school-rule standards, nonphysician practitioners are
held responsible for knowing which diagnoses are within their area of prac-
tice and which cases should be referred to a licensed physician for standard
treatment. For example, in Mostrom v. Pettibon a chiropractor was held liable
for not identifying medical problems for which chiropractic treatment was
not appropriate.20
Even MD-physicians can be held responsible for failing to refer a case
to a specialist if the problem is beyond their training and experience. For
example, a general practitioner was held liable for negligence when a patient
died of a hemorrhage after coughing up blood for two days. The court found
52 The Law of Healthcare Administration

that the physician should have grasped the seriousness of the patient’s condi-
tion and called in a thoracic surgeon who might have saved the patient’s
life.21 On the other hand, a court found that a laminectomy and spinal fusion
(procedures used on a slipped disk in the back) were within the scope of gen-
eral surgeons and that the defendant was not negligent in failing to call in an
orthopedist or neurosurgeon.22 (This decision might be questioned in
today’s era of greater specialization.)
Assuming that a general practitioner remains within her area of expert-
ise and does not fail to refer a patient to a specialist when required, most
courts hold the physician to the standards of other general practitioners and
not to the standards of specialists.23 Physicians who present themselves as
specialists, however, are held to a higher standard of care than that for gene-
ral practitioners.24
Practitioners who are licensed, trained, or credentialed only in certain
fields of medicine are held to higher standards of care if they go beyond their
ken. This situation has arisen not only with licensed practitioners such as chi-
ropractors and podiatrists but also with nurses, medical students, and other
clinical personnel. In Thompson v. Brent a medical assistant working in an
orthopedist’s office was held to the standard of care required of physicians in
using a Stryker saw to remove a cast.25

Reasonable Prudence: The Helling Standard

The common practices of the profession itself traditionally set the standard of
care in any given case. That is, physicians are usually judged by what other
physicians would do under the circumstances. However, courts sometimes
find the profession’s standard inadequate and permit juries to decide for
themselves—without expert witnesses—whether a physician was negligent.
In so doing they have found negligence “as a matter of law” from the facts
of the case.
In Favolora v. Aetna Casualty and Surety Company, a 71-year-old
patient fell while being x-rayed. She suffered numerous injuries, including a
fractured femur.26 The subsequent prolonged hospitalization brought on a
pulmonary embolism and a kidney infection. In bringing suit the patient
claimed that the fall would not have occurred if her radiologist had examined
her medical records, which cited her history of sudden fainting spells. At the
time, it was not the practice of radiologists to take the patient’s medical his-
tory into account; the radiologist was just taking and interpreting pictures,
after all. After the judge explained the law to the jury in this way, they
returned a verdict for the defendant. The appellate court reversed the deci-
sion, however, on the belief that the accepted practices of the radiology pro-
fession were inadequate. In reaching this decision the court looked to the
custom of teaching hospitals, which did require radiologists to examine
patients’ histories.
 Chapter 3: Negligence 53

The Favolora case got little “ink” (as they say in the newspaper business)
perhaps because it was decided in Louisiana, which is not often considered a bell-
wether of jurisprudence. But 12 years later, in 1974, a landmark case from the
state of Washington made headlines in medicolegal circles. Barbara Helling, the
plaintiff, had been treated by two ophthalmologists from 1959 until 1968 while
experiencing difficulty with her contact lenses. After being diagnosed with glau-
coma in 1968, she sued her (by now former) ophthalmologists because she had
permanent damage to her vision. This injury, she alleged, was caused by the defen-
dants’ negligence in not conducting some simple tests nine years earlier. Both the
trial and appellate court decisions were for the ophthalmologists because, accord-
ing to expert witnesses, the standard of practice at the time did not require rou-
tine testing for glaucoma in patients under the age of 40. The Supreme Court of
Washington disagreed and sent shock waves through the physician community
(see The Court Decides: Helling v. Carey at the end of this chapter).
Following the Helling decision, and at the behest of the medical profes-
sion, the Washington legislature passed a statute that purported to overturn the
Helling rule:

In any civil action for damages based on professional negligence against a

hospital...or against a member of the healing arts...the plaintiff in order to
prevail shall be required to prove by a preponderance of the evidence that the
defendant or defendants failed to exercise that degree of skill, care, and learn-
ing possessed at that time by other persons in the same profession, and that
as a proximate result of such failure the plaintiff suffered damages, but in no
event shall the provisions of this section apply to an action based on the fail-
ure to obtain the informed consent of a patient.27

Despite the statute, a later case, Gates v. Jensen, held that Helling’s
rule—that “reasonable prudence may require a standard of care higher than
that exercised by the relevant professional group”—was still in effect.28 The
court noted that the original bill had used the word “practiced” rather than
“possessed” (as it appears in the enacted version quoted above). According
to the Gates court the change in the bill showed that the standard was not
limited to what members of the profession actually did but could be extended
to what they ought to do. (See Legal Brief on page 54.)

Proving the Standard of Care and Breach of the Standard

To succeed in a professional liability suit a plaintiff must first prove the stan-
dard of care and then show that the defendant breached that standard. This
usually requires expert testimony, which normally comes from the defendant’s
fellow practitioners because they know the standards of practice best. Unlike
54 The Law of Healthcare Administration

lay witnesses, an expert witness is not

Legal Brief limited to testifying about facts; he
may express opinions about the nature
Many in the medical community assailed Helling as and cause of a patient’s illness or injury.
judicial impertinence toward the medical profes- Because of the need for expert
sion. However, the outcome of the case might have testimony, proving malpractice can
been different had a more critical analysis been pre- be difficult even if a valid case exists
sented. Tonometry (a test to measure intraocular
because the plaintiff cannot always
pressure) is inexact and produces a high rate of
false positives. To illustrate, if the incidence of dis- find a qualified expert witness. Some
ease is 1 in 25,000, there will be 250 actual cases in believe that a “conspiracy of silence”
a population of that size. If the diagnostic test is 95 among physicians makes them reluc-
percent accurate, it will accurately diagnose about tant to testify against other members
237 of those cases (95 percent x 250), but it will of the profession,29 and if a physician
falsely diagnose as positive 1,238 others (5 percent
is not a party to the lawsuit, she can-
x the remaining 24,750), whom we postulate do not
have the disease. Thus, there will be a total of 1,475 not be forced to testify.30 Evidence
other than expert opinion is admissi-
only about 16 percent of the time (237 ÷ 1,475).
positive test results, and each one is a true positive
ble in some instances to prove negli-
Each positive test result will require further diag- gence, however, and occasionally
nostic procedures, which undoubtedly contribute to even the defendant physician may
a higher cost and a heightened level of patient anxi-
provide the needed expert testimony.
ety. Negative test results are similarly unrealistic
and may lead to a false sense of security in the 13 The various methods of proof are
persons who have the disease but tested negative. discussed in the following sections.
Given the inaccuracy of the tests, the relatively
low incidence of the disease in younger persons, Expert Testimony
and some disagreement about the effectiveness of As mentioned before, the normal
existing treatment options, there is an issue as to
method of proving professional neg-
whether universal glaucoma screening makes good
public policy, irrespective of Helling’s outcome. ligence is to establish by expert testi-
mony the appropriate standard of
care and to show that that standard
was breached. The expert witness
must have certain qualifications:

1. The witness must be familiar with the jurisdiction’s standard-of-care

requirements. If the court follows the locality rule, the witness must
practice in the same locality as the defendant physician (or at least be
familiar with the local practice, if practicing elsewhere).31 If a
national standard applies, any otherwise qualified expert in the coun-
try is acceptable. A national standard of care, therefore, eases the
burden of proof for the plaintiff because the search for a willing
expert need not be limited to a particular locality. (This is another
reason the “locality rule” has been relaxed: Finding physicians in a
particular town to testify against their colleagues and friends was
often a daunting task.)
 Chapter 3: Negligence 55

2. The expert witness must be professionally qualified. The basic requirement

is knowledge of the standard of practice involved in the patient’s care.
The witness need not practice the same specialty or even follow the
same school of medicine, but he must be familiar with the type of care
involved in the lawsuit. For example, a specialist may testify about the
standards for general practitioners if she is knowledgeable about them.32
Similarly, if the issue concerns the standards for doctors of osteopathy,33
doctors of medicine can testify, although the school rule generally pro-
hibits the imposition of their standards on the practice of others.34
Unless special qualifications can be established, a member of one spe-
cialty would not be allowed to testify about the standards of practice in
another specialty. The plaintiff must lay a foundation for expert testi-
mony by persuading the judge that the witness has the appropriate
training and experience to qualify as an expert. If the judge decides that
the witness meets the qualifications, the testimony is allowed and the
jury decides what weight to give it. Otherwise the witness is not permit-
ted to testify. Qualification is a matter within the judge’s discretion.

For example, in Gilmore v. O’Sullivan (decided in 1981), an obstetri-

cian–gynecologist’s negligence was alleged in the prenatal care and delivery
of the plaintiffs’ son. The court refused to permit the plaintiffs’ expert to tes-
tify because (a) he was not board certified in obstetrics and gynecology, (b)
there was no evidence of the number or types of maternity cases he had han-
dled, (c) he had not delivered a baby since 1959 or performed surgery since
1967, and (d) he had pursued no research in or study of obstetrics and gyne-
cology in recent years.35
Sometimes even the defendant will be called as an expert witness.
Unlike criminal defendants, who can invoke the constitutional privilege
against self-incrimination, defendants in a civil case must testify to facts
within their knowledge. Most courts have thought it unfair to require the
physician not only to testify regarding such facts but also to provide the
expert testimony needed to establish the standard of care. The New York
decision in McDermott v. Manhattan Eye, Ear and Throat Hospital 36 illus-
trates a contrasting view. The defendants, one of whom was one of the
world’s leading ophthalmologists, advised the plaintiff to undergo a series of
operations to correct a condition of the cornea in her left eye. The opera-
tions resulted in blindness, and the plaintiff claimed that the surgery was not
approved by accepted medical practice for the original diagnosis. At the trial
the plaintiff presented no expert witness of her own but called on the defen-
dant to testify to the standard of care required and the deviation from that
standard. The appellate court stated that the plaintiff had the right to
require the defendant to testify both to his actual knowledge of the case and
as an expert to establish the generally accepted medical practice.
56 The Law of Healthcare Administration

Even though statements made out of court are hearsay and are nor-
mally excluded from evidence, in some circumstances a physician’s out-of-
court statements may be used as evidence of breach of the standard of
care.37 Courts face a difficult task in determining whether a given state-
ment was really an admission of negligence or merely an expression of
sympathy (see Legal Brief). After the death of one patient, for instance,
the physician said, “I don’t know; it never happened to me before. I must
have gone too deep or severed a vein.” The court said this was too vague
to be an admission of negligence.38
Legal Brief On the other hand, in
another case a physician doing a
An admission (a statement that a party to the suit sigmoidoscopy (a visual examina-
makes against his own interest) is an exception to tion of the colon in search of
the hearsay rule because it is inherently reliable. polyps) tore the patient’s large
This is true even if the statement is made during intestine.40 On the way from the
negotiations for settlement and would not normally
operating room the patient’s hus-
be allowed into evidence.39
band heard him say to another
physician, “Boy, I sure made a mess
of things,” and to the husband him-
self he said, “In inserting the sigmoidoscope into the rectum, I busted the
intestine.” The court held that this admission could take the place of
expert testimony because a jury could infer that the physician had not
exercised the requisite degree of care.

Other Evidence of the Standard

In some instances a plaintiff is permitted to introduce medical treatises
into evidence to prove the standard of care. Because medical publications
are hearsay (out-of-court statements offered to prove the truth of the mat-
ter asserted), most states limit their use to attacking the credibility of an
expert witness41 or reinforcing the opinion given in evidence by an
expert.42 A few states, however, permit medical treatises to be used as
direct evidence to prove the standard of care. In a Wisconsin case the
court took “judicial notice” of the standard of care set forth in a loose-leaf
reference service, Lewis’ Practice of Surgery, to determine whether an
orthopedic surgeon was negligent in performing surgery for a ruptured
disk.43 In states using the Wisconsin approach, the author must be proved
to be a recognized expert or the publication to be a reliable authority.
Written rules or procedures of the hospital, regulations of govern-
mental agencies, standards of private accrediting agencies, and similar pub-
lished material may be admissible to show the requisite standard of care. The
landmark decision of Darling v. Charleston Community Memorial Hospital
held, among other things, that the standards promulgated by the Joint
Commission on Accreditation of Hospitals (now the Joint Commission),
 Chapter 3: Negligence 57

standards of a governmental licensing authority, and provisions of the hospi-

tal’s medical staff bylaws were admissible as evidence of negligence.44

Negligence Per Se
In some cases a statute or other law may be used to establish the standard of
care.45 Negligence that is established by showing a violation of law is called
negligence per se or statutory liability. This doctrine requires that several ele-
ments be proven, including:

1. violation of the statute occurred and an injury resulted from the violation,
2. the injured person was one whom the statute was meant to protect, and
3. the harm was the type that the statute was enacted to prevent.46

In Landeros v. Flood the defendant physician examined an 11-month-

old child. She was suffering from a fracture of the right tibia and fibula, an
injury that appeared to have been caused by a twisting force. Her mother
gave no explanation for the injury, but in fact the child had been beaten
repeatedly by both her mother and her mother’s common-law husband. The
physician failed to diagnose battered-child syndrome, and he did not take x-
rays that would have revealed a skull fracture and other injuries. The child
returned home where she was again severely injured. Because the doctor did
not report the matter to the authorities, as required by law, a civil damage
action was allowed on the theory that the physician breached his duty to
report child abuse.47 Similar laws require reporting abuse of other vulnerable
persons.

Common-Knowledge Doctrine
Occasionally no expert testimony is required to establish professional negli-
gence, such as when the negligence is so obvious that it is within common
knowledge.48 One clear example is amputation of the wrong limb. In Hammer
v. Rosen three witnesses, not experts, testified that the defendant had beaten an
incompetent psychiatric patient.49 Although the defendant physician claimed
that without expert testimony it could not be shown that the beatings deviated
from standard treatments, the court held otherwise because “the very nature of
the acts complained of bespeaks improper treatment and malpractice.” (Why
expert testimony was not presented is not made clear in the opinion, but it
might be that the plaintiff’s attorneys never thought it would be necessary. As it
turns out, they were right.)

Res Ipsa Loquitur

Perhaps the most complex exception to the expert-testimony rule is the doc-
trine of res ipsa loquitur (“the thing speaks for itself”). The doctrine goes
back to an English case decided in 1863, Byrne v. Boadle.50 Plaintiff Byrne
 58 The Law of Healthcare Administration

was walking down the street and was hit on the head by a barrel of flour that
had rolled out of an upper level of a warehouse owned by Boadle. Although
the precise negligent act or omission could not be proven, the court found
that Boadle was negligent because it is obvious that barrels of flour do not
fall out of buildings unless someone has been negligent.
Three conditions are essential for the use of res ipsa loquitur:

1. the accident must be of a type that normally would not occur without
someone’s negligence,
2. the defendant must have had sole control of the apparent cause of the
accident, and
3. the plaintiff could not have contributed to the accident.

Whether the doctrine should be applied in a particular case is deter-

mined by the judge. Once a judge decides that res ipsa applies, an inference
of negligence has been created. This means that the case must go to the
jury, who can then decide for plaintiff or defendant.51 In medical malprac-
tice cases it is sometimes impossible for patients to know the cause of the
injury, particularly if they were anesthetized during the treatment. If a
plaintiff is permitted to invoke the doctrine of res ipsa loquitur, she can pre-
vail even without proving any specific negligent acts of the defendant.
(Plaintiffs’ attorneys would prefer, however, to point to specific negligent
acts in making their case rather than rely on res ipsa. Doing so has a more
dramatic effect on the jury.)

Requirement 1 The primary difficulty for malpractice plaintiffs in res ipsa cases has been the
first requirement: the injury ordinarily would not occur in the absence of
negligence. The general test is whether in light of ordinary experience—as a
matter of common knowledge—one could infer that the defendant was neg-
ligent.52 In one example a patient underwent surgery for removal of part of
his colon.53 The incision was closed with sutures, but eight days later it
opened and a second operation was required to close it. The court held that
res ipsa loquitur did not apply because a layperson would not know whether
the incision failed to close because of the physician’s negligence or for some
other reason. Thus, the doctrine cannot be based simply on bad treatment
results.
In contrast, leaving foreign objects in a patient after surgery is negli-
gence within the common knowledge of laypeople, and in such cases res ipsa
loquitur is frequently used. In Jefferson v. United States the plaintiff was a sol-
dier who had undergone a gallbladder operation.54 Eight months later, after
he had been suffering spells of nausea and vomiting, another operation dis-
closed that a towel had eroded into his small intestine. It was 30 inches long
and 18 inches wide and was marked “Medical Department U.S. Army.”
 Chapter 3: Negligence 59

These facts, the court held, clearly showed negligence on the part of the
defendants. (The “thing” clearly “spoke” for itself!)
Some courts permit common knowledge among physicians to satisfy the
threshold test; that is, expert testimony—not just common knowledge of layper-
sons—is permitted to establish that the injury would ordinarily not occur with-
out negligence. In Hale v. Venuto the plaintiff suffered from palsy of her left foot
following surgery to correct a dislocation of her kneecap.55 A neurologist and an
orthopedic surgeon testified on her behalf that the injury was more likely than
not a result of negligence. The appellate court ruled this sufficient to permit use
of res ipsa loquitur, adding that California courts have relied on both common
knowledge and expert testimony in determining probable negligence.

In addition to showing that the accident or injury would not normally occur Requirement 2
without someone’s negligence, the plaintiff must show that the defendant had
exclusive control of its apparent cause. This can be a problem for malpractice
plaintiffs. Traditionally the doctrine cannot be applied in an action against seve-
ral defendants, any one of whom could have caused the plaintiff’s injury56; this
is very often the case for patients who have undergone surgery.
A major departure from the rule, however, was the California case of
Ybarra v. Spangard.57 After an appendectomy, the plaintiff felt sharp pains in
his right shoulder and later suffered paralysis and atrophy of the shoulder
muscles. The subsequent suit went to a California appellate court, which
allowed the use of res ipsa loquitur against all of the defendants who had any
control over the patient while he was anesthetized. These included the sur-
geon, the consulting physician, the anesthesiologist, the owner of the hospi-
tal, and several hospital employees. The court held that the test had become
one of “right of control rather than actual control.”58 The rationale for
imposing on the defendants the burden of explaining the cause of the injury
was that a special trust and responsibility arises from the physician–patient
relationship.

The third requirement for use of res ipsa loquitur is showing that the plain- Requirement 3
tiff could not have contributed to the injury. In many cases this is not diffi-
cult to prove. For instance, if the plaintiff was under anesthesia, it is clear that
he had no responsibility. If it is possible, however, that the accident was
caused by the plaintiff’s negligence, res ipsa loquitur will not apply. In Rice
v. California Lutheran Hospital a hospital employee left a cup, saucer, tea
bag, and hot water on a table beside a patient who was recovering from sur-
gery and was under the influence of painkilling drugs.59 Scalding water
spilled on the patient, who claimed that res ipsa loquitur should apply
because the injury occurred while she was under sedation and did not under-
stand what was going on. The court held that the doctrine did not apply in
this case because witnesses testified that the plaintiff confessed to spilling the
60 The Law of Healthcare Administration

water on herself and that she was awake and alert at the time. As this case
shows, the third requirement for res ipsa then is based on the facts of each
case.

Strict Liability
By definition, strict liability does not fall into a discussion of negligence
because strict liability imposes liability without fault—that is, without any
showing of negligence. A brief discussion is nevertheless relevant here
because the concept is closely tied to the doctrine of res ipsa loquitur and the
standard of reasonable prudence discussed earlier.
A showing of fault was not required to impose liability until the mid-
nineteenth century, but then society decided that some wrongdoing must be
shown before holding persons responsible for injuries that their actions
caused. Thus, negligence is required in most tort cases. “Strict liability” has
been imposed, however, on those whose activities—such as using dynamite
or keeping dangerous animals—entail a high degree of risk to others. The
rationale behind strict liability is to place the burden of inevitable losses on
those best able to bear them, even if they were as careful as possible in deal-
ing with the danger.60
Developments in product-liability law have imposed strict liability on
the manufacturers and vendors of various dangerous products. The doctrine
imposes liability on those responsible for defective goods that pose an unrea-
sonable risk of injury and do in fact result in injury, regardless of how much
care was taken to prevent the dangerous defect.61 (Accidents caused by
defective tires or automobile parts are good examples.) The doctrine does
not apply to services, only to products. For example, courts have generally
held that in giving blood hospitals are providing a service, not a product, and
therefore strict liability does not apply.62

Injury and Causation

It is not enough to prove that a physician failed to meet the standard of care
and that the patient was injured. A plaintiff must show that the injury was the
“proximate cause” of the negligence. The law considers an injury to be the
proximate result of a negligent act if

• the injury would not have occurred but for the defendant’s act, or
• it was a foreseeable result of the negligent conduct.

The purpose of a malpractice trial is not to convict the defendant but

to decide whether the plaintiff’s loss is more likely than not the result of the
defendant’s substandard conduct. Therefore, the plaintiff’s burden of proof
 Chapter 3: Negligence 61

is lower than the government’s in a criminal prosecution. The plaintiff need

only prove that there is a strong likelihood (a “preponderance of the evi-
dence”) that negligence caused the result, and the negligence need not be
the sole cause of but only a significant factor in the injury.
If a physician has failed to meet the standard of care, the injuries
resulting from that lapse, if any, may be difficult to determine. This is espe-
cially true in healthcare because the patient presumably already had some ill-
ness or injury resulting from other causes. A number of physicians have been
completely absolved from liability, despite their negligence, because of inad-
equate proof of causation. For example, in Henderson v. Mason, the defendant
physician failed to discover a piece of steel embedded in the patient’s eye. The
steel was eventually discovered and removed by another physician.63 The
court denied recovery because testimony showed that the patient would have
suffered infection and loss of vision even if the defendant’s diagnosis had
been correct.
A court may determine that only some of a patient’s injuries
resulted from negligence. In one case a woman and her obstetrician lived
near each other. In the sixth month of pregnancy she experienced labor
pains, and her husband summoned the doctor. The doctor did not arrive
for several hours, however, and the patient miscarried. In the suit charg-
ing him with negligence in failing to treat her, the court decided that the
obstetrician’s negligence did not cause the miscarriage because his pres-
ence in the house would not have prevented it. He was nevertheless held
liable for the patient’s pain and suffering, which he might have eased or
prevented had he arrived sooner.64

“Loss of a Chance”
Sometimes the nature of a disease means that a patient has virtually no
chance of long-term survival, but an early diagnosis may prolong the
patient’s life or permit a slim chance of survival. Should a practitioner who
negligently fails to make that early diagnosis be liable even though the
chances are that she could not ultimately prevent the patient’s death? The
courts have been divided on this question. Some jurisdictions have held
that the defendant should not be liable if it was more likely than not that
the patient would have died anyway.65 Other courts have concluded that
if the defendant increased the risk of death by lessening the chance of sur-
vival, such conduct was enough to permit the jury to decide the proxi-
mate-cause issue, at least where the chance of survival was significant.66
“The underlying reason is that it is not for the wrongdoer, who put the
possibility of recovery beyond realization, to say afterward that the result
was inevitable.”67
In a Washington case the defendant allegedly failed to make an early
diagnosis of the patient’s lung cancer, and the patient eventually died.68 The
62 The Law of Healthcare Administration

defendants offered evidence that, given that type of lung cancer, death within
several years was virtually certain, regardless of how early the diagnosis was
made. The defendants moved for summary judgment. Because the plaintiff
could not produce expert testimony that the delay in diagnosis “more likely
than not” caused her husband’s death, the trial court dismissed the suit. For
purposes of appeal, both parties stipulated that if the cancer had been diag-
nosed when the patient first saw the defendants, his chances of surviving five
years would have been 39 percent, and that at the time the cancer was actu-
ally diagnosed his chances were 25 percent. Thus, the delay in diagnosis may
have reduced the chance of a five-year survival by 14 percent. The appellate
court held that the reduction was sufficient evidence of causation to allow the
issue to go to the jury, who would then decide whether the negligence was a
substantial factor in producing the injury. “To decide otherwise would be a
blanket release from liability for doctors and hospitals any time there was less
than a 50 percent chance of survival, regardless of how flagrant the negli-
gence.”69 The court also noted, however, that if the jury found the defen-
dants liable they would not necessarily be liable for all damages caused by the
patient’s death but only for those resulting from the early death.
The question of damages is closely related to the element of causa-
tion. In addition to proving that the injury was caused by negligence, the
plaintiff must prove which injuries resulted from the negligent conduct
and what those injuries are worth. The most common damages are called
actual or compensatory damages. These compensate the plaintiff for out-
of-pocket loss, such as the cost of medical and rehabilitation treatments
and lost earnings, and for noneconomic loss, such as pain and suffering.70
(While economic losses can be fairly accurately demonstrated, it can be
difficult to attach dollar values to pain and suffering. Nevertheless, juries
do assign dollar amounts to these noneconomic injuries, sometimes in
very large amounts. For this reason some of those who argue for reform
in the tort system suggest limitations on recovery for pain and suffering,
and in fact several states have enacted statutes limiting these damages. One
such statute was recently upheld as constitutional.) Punitive damages are
seldom awarded in negligence cases.

Defenses

Malpractice defendants may have legal defenses that can avoid or reduce lia-
bility even if a plaintiff can prove all the elements of the case. A statute of
limitations can prevent a case from going to trial. Other defenses, such as
comparative negligence, require a decision by the trier of fact (the jury or the
judge in nonjury trials). Defenses especially relevant in malpractice actions are
discussed in the following sections. Other legal defenses, such as res judicata
 Chapter 3: Negligence 63

(discussed in Chapter 1), are of course available but have no unique signifi-
cance in malpractice cases.

Assumption of Risk
A defendant in a tort action can occasionally raise assumption of risk as a
defense. In many jurisdictions, people who perceive a risk and still voluntarily
expose themselves to risk will be precluded from recovering damages if injury
results. In medical malpractice cases the risk often involves a new method of
treatment, and an important issue is whether the possible effects of such treat-
ment were made known to the patient. This issue is closely related to informed
consent (see Chapter 9) because a physician who informs the patient of the
risk will not be liable because the patient knowingly assumed the risk. In Karp
v. Cooley, for example, the surgeon was not held liable for the patient’s death
after a heart transplant because he had fully informed the patient of the risks
and had obtained consent to perform the operation.71
Assumption of risk does not usually include a physician’s negligence.
In the Karp case if death had been caused by an error unrelated to the nov-
elty of the surgery (such as a mishap in administering anesthesia), the defen-
dants could have been held liable.

Contributory and Comparative Negligence

Even if a physician has been negligent, contributory negligence is a complete
defense in many states. Under this theory, if the patient failed to act as a rea-
sonably prudent person would have done, and if the patient’s negligence
contributed in any way to the injury, he cannot recover damages for the
physician’s negligence. In one case a physician who was grossly intoxicated
treated a patient negligently.72 The court refused to hold the doctor liable on
the ground that the patient was negligent in accepting treatment from a
physician who was obviously drunk.
There are cases, however, in which the patient’s contributory negli-
gence merely aggravated an injury caused by the physician’s negligence. If
the injury would have occurred despite due care by the patient, the patient
will be allowed at least a partial recovery. In a Wisconsin case, Schultz v.
Tasche, an 18-year-old woman was treated negligently for a fracture of the
femur (thigh bone).73 As a result her right leg was one and one-half inches
shorter than the left and was “deformed and painful.” The appellate court
decided that the patient could recover for the doctor’s negligence despite her
own negligence in leaving the hospital early, driving 15 miles to her home,
and failing to return for additional treatment. The plaintiff’s negligence, the
court decided, merely aggravated the existing injury, and its only relevance
was to reduce the damage award.
Although nominally a contributory negligence case, Schultz illustrates
the comparative-negligence approach adopted by many states because of the
64 The Law of Healthcare Administration

harsh “all or nothing” requirement of traditional contributory negligence.

Different theories of comparative negligence exist, but all attempt to com-
pensate the injured party in some way despite the injured’s own negligence.
A later Wisconsin case illustrates one variation.74 A hospital patient slipped
while taking a shower and was injured. The jury decided that the hospital was
20 percent negligent, possibly for failing to install safety devices in the
shower, but the patient was found 80 percent negligent and was awarded
only $4,500.

Exculpatory Contracts
The Law in Action Historically defendant physicians could raise
as a defense a contract clause, signed prior to
The disputed section of the Tunkle con-
treatment, in which the patient agreed to for-
tract read: “In consideration of the…
services to be rendered and the rates feit the right to sue. Exculpatory contracts
charged [for them], the patient or his are invalid in most contexts, and the same
legal representative agrees to and applies in healthcare. In Tunkle v. Regents of
hereby releases…the hospital from any the University of California the court held
and all liability for the negligent or that a contract between a hospital and a
wrongful acts or omission of its employ-
patient that attempted to release the hospital
ees, if the hospital has used due care in
selecting its employees.” from liability was against public policy (see
The contract was not part of a fair The Law in Action).75
bargain. It pretty much said: If you
wanted to get treated, you had to sign Release
on the dotted line. In contrast to an exculpatory contract, a
release executed by a patient following treat-
ment may operate as a defense. If a physician
and patient reach a settlement on a malpractice claim, a release given by the
patient will bar a later suit for injuries arising from the same negligent act. A
more complicated situation results when one person wrongfully injures a
patient and a physician aggravates the injury by negligence. If the patient set-
tles with the original tort-feasor and gives that person a release, does the
release also cover the physician? It depends.
In Whitt v. Hutchison the plaintiff, who was injured at a ski resort,
claimed that his injuries were aggravated by the negligence of the physicians
treating him. Three-and-a-half years after the original injury, the plaintiff settled
with the ski resort for $6,000 and signed a form releasing

the resort from any and all liability…and any and all other loss and damages of
every kind and nature sustained by or hereafter resulting to the undersigned…
from an accident which occurred on or about the first day of March, 1969, at
Clear Fork Ski Resort, Butler, Richland County, Ohio, and of and from all lia-
bility, claims, demands, controversies, damages, actions, and causes of action
whatsoever, either in law or equity, which the undersigned, individually or in any
 Chapter 3: Negligence 65

other capacity, their heirs, executors, administrators, successors and assigns, can,
shall or may have by reason of or in any wise incident [to] or resulting from the
accident hereinbefore mentioned.76

The court held that this release was broad enough to include malprac-
tice claims and upheld a dismissal of the suit against the defendant physicians
and hospital. The reasoning was that aggravation of the injury because of
malpractice is considered a “proximate result of the negligence of the origi-
nal tort-feasor.” In some cases courts have held the release effective for all
tort-feasors, even when there was an express provision to the contrary.77 In
most instances, however, a release will not be effective for those explicitly
excluded. In Whitt the physicians and hospital were not excluded from the
release, and hence the release was considered unconditional. “Such a release
is presumed in law to be a release for the benefit of all the wrongdoers who
might also be liable, and to be a satisfaction of the injury.”78

Good Samaritan Statutes

Good Samaritan statutes, discussed more completely in Chapter 8, offer a
defense if the physician has rendered aid at the scene of an accident. These
statutes, which most states have in some form, commonly provide that a
physician rendering emergency care will not be held liable for negligence
unless she is grossly negligent or acts in a reckless manner.79 Most of these
statutes do not require doctors to assist in emergencies but protect those who
volunteer their aid. Some states, however, have gone further and created a
duty to assist along with immunity from civil suit for persons complying with
the law.80 References to a Good Samaritan statute may thus indicate either
immunity or a duty to assist, or both.81

Workers’ Compensation Laws

Workers’ compensation statutes may provide a defense to physicians who
are employed by companies and are sued by employees whom they treat in
the course of their employment. In many states, workers’ compensation
laws are the exclusive remedy for such a patient, and a malpractice suit
against the physician will not be permitted. Some courts, however, have
allowed such suits.82

Governmental Immunity
Statutes grant immunity to many physicians employed by governmental
agencies. This immunity is based on the historical concept of “sovereign
immunity,” a principle that derives from early English law. Generally speak-
ing it is the doctrine that the sovereign (in the United States, the govern-
ment) cannot commit a legal wrong and is immune from suit or prosecution.
In many cases, the government has waived this immunity to allow suits for
66 The Law of Healthcare Administration

discretionary acts of government agents (but not for “ministerial” acts—

those performed without exercise of judgment).
Governmental immunity normally applies, if at all, only to negligent
acts and not to intentional or grossly negligent conduct.83 A governmental
physician will also not be immune from suit under civil rights acts for depri-
vation of medical treatment if the alleged acts or omissions are “sufficiently
harmful to evidence deliberate indifference to serious medical needs.”84 As
discussed earlier, a physician may also be sued under these kinds of statutes
for violation of other civil rights.85

Statutes of Limitations
Statutes of limitations specify a period during which lawsuits must be filed. The
time allowed for malpractice actions (often two years) is generally shorter than
for other actions, although the statutory provisions vary greatly from state to
state.86 California’s statute of limitations for medical malpractice applies to
“any action for damages arising out of the professional negligence” of a physi-
cian.87 This leaves in doubt whether the statute applies only to suits that specif-
ically plead negligence or to other causes of action—such as breach of contract
or intentional tort—resulting from a negligent act. Florida’s statute, on the
other hand, seems clearly intended to apply to any cause of action commonly
referred to as malpractice, not only those based on a theory of negligence:

An “action for medical malpractice” is defined as a claim in tort or in con-

tract for damages because of the death, injury, or monetary loss to any per-
son arising out of any medical, dental, or surgical diagnosis, treatment, or
care by any provider of health care.88

Statutes of limitation generally specify that the period begins when the
cause of action “accrues.” A cause of action in an assault-and-battery case, for
example, accrues the moment the defendant threatens or touches the plain-
tiff. In malpractice cases, however, it is often difficult to determine when the
statutory period begins, particularly if the adverse result appears much later.
There are three specific times when the statute might begin, depending on
the state’s law and the particular circumstances:

1. when the alleged negligent treatment is rendered,89

2. when the patient discovers or should have discovered the alleged mal-
practice (the “discovery rule”),90 and
3. when the treatment ends or, in a few states, when the physician–patient
relationship ends.91

Particular circumstances create other possibilities. For example, if a

physician fraudulently conceals malpractice, the statutory period will begin
 Chapter 3: Negligence 67

only with actual discovery of the negligence.92 Likewise, the beginning of

the limitations period is often delayed for minor patients. In Chaffin v.
Nicosia, for example, a physician’s negligent use of forceps during a birth
caused an almost complete loss of sight in the child’s right eye.93 Suit was
allowed 22 years later because it was brought within two years after the
injured person reached the age of majority. Moreover, some courts have
decided, despite the discovery rule, that an action for wrongful death accrues
at the date of the death.94

Liability for Acts of Others: Vicarious Liability

A healthcare provider can be held liable for the negligence of others, even
though he has not been personally negligent. This is called vicarious liabil-
ity, and it is based on the principle of respondeat superior—let the superior
respond for the negligence of agents or employees. Thus, physicians and
other providers are responsible for the negligent acts of their nurses, para-
medics, x-ray technicians, and other persons in their employ.95 (The liability
of hospital employees is discussed in Chapter 5.)
Liability under the theory of respondeat superior does not depend on
the negligent person being employed by the superior (although this is a con-
sideration) but on whether the person was under the direction and control
of the superior. In Baird v. Sickler a surgeon was held liable for the acts of a
nurse-anesthetist employed by the hospital. The court judged that the close
relationship between the surgeon and the anesthetist resembled that of an
employer and employee in that the former had the right of control over the
latter. A significant factor in this case was that the surgeon had instructed the
anesthetist in some of the procedures and participated in positioning the
patient and administering the anesthetic. This created the appearance of a
“master–servant” (employer–employee) relationship, and the physician “had
to answer for the servant’s failures.” By contrast, when a nurse had negli-
gently administered an injection ordered by a physician, the physician was
found not vicariously liable for the negligent act because he did not control
the administering of the medicine.96
In addition to being liable for the acts of employees, physicians
who refer cases to physicians not in their employ may also be held liable.
In general, physicians are not liable when a substitute physician or a spe-
cialist takes over a case, but if they are careless in selecting the substitute
or the specialist, they will be liable for their own negligence. One who
continues to participate in the treatment of the patient is involved in a
joint venture with, and will be liable for the negligence of, the other.97
A physician in a legal partnership with other physicians is liable for the
torts of the partners (as long as they acted within the scope of the partnership)
68 The Law of Healthcare Administration

because every partner is legally an agent of the other partners (see the discus-
sion in Chapter 4). If judgment is rendered against a partnership that has
insufficient assets, the physician’s personal assets may be used to satisfy the
judgment. In one extreme case a man sued a medical partnership for alien-
ation of affections, claiming that his wife had an affair with one of the part-
ners.98 Normally there is no vicarious liability for intentional torts; however,
in this case the court decided that the partnership was liable if the other part-
ners did not use reasonable means to prevent their associate from wrongfully
injuring the plaintiff’s family relations. (Liability of this type could be limited
by incorporating the partnership. The corporation would then have to
respond in damages, although physicians who personally committed such
torts would of course still be individually liable for their own wrongful acts.)
Determining whether the supposed
“servant” was acting within the scope of the
“master’s” business can be tricky. Years ago,
Legal DecisionPoint there was a case in which a sailor received
orders to report to a new duty station across
Suppose that your hospital has a laboratory the country by a date 30 days in the future.
that provides services to physician prac- The sailor was on leave in the interim. He
tices. You have drivers who travel a route, was not told by what means to travel or what
picking up specimens for lab work. One day
route to take, just to be at the Navy base by
a driver deviates from his assigned route for
a two-hour lunch with his girlfriend. After- a certain time. He drove his own car and
ward, he is on his way to the next assigned took a detour to visit friends and family for a
pickup point when he has an accident. Is few days. While in his hometown he was
the hospital liable? involved in a motor vehicle accident. The
What other facts, if any, do you need to occupants of the other car sued the U.S. gov-
know to answer that question? What, if any-
ernment claiming that the sailor was the gov-
thing, should be done about the driver?
ernment’s agent carrying out the govern-
ment’s orders and that, therefore, the
government should be liable on the theory of respondeat superior. How should
this case be decided? Develop the arguments for each side of the case. (For a sim-
ilar situation in healthcare, see Legal DecisionPoint.)

Distinctions Among Causes of Action

Of course a single set of facts may support more than one cause of action.
There will likely be tactical and legal advantages and disadvantages to each.
These depend on the time the action commenced, the legal defenses avail-
able, the need for expert witnesses, the existence of insurance coverage, and
the type of damages recoverable.
Statutes of limitation, discussed ealier, vary according to the type of
cause of action. For example, in Ohio the distinctions are as follows99:
 Chapter 3: Negligence 69

Causes of Action Limitation Period

Malpractice, defamation, assault/
battery, false imprisonment 1 year
Other personal injury 2 years
Wrongful death 2 years from date of death
Actions on oral contract 6 years
Actions on written contract 15 years

Thus, if a patient in Ohio visited an attorney one year and a day after
malpractice occurred, it would be too late to sue on that theory (unless the
discovery rule is in effect). But if the malpractice resulted in the patient’s
demise and the heirs approached the attorney one year and a day after the
death, it would still be timely to sue for wrongful death. Either a patient or
a family could sue for intentional tort within two years or for breach of con-
tract within six or 15 years. Thus, one set of facts can support numerous
causes of action and numerous limitations periods.
Other defenses, also discussed earlier, are not available in every type of
action. Assumption of risk, contributory and comparative negligence, Good
Samaritan statutes, workers’ compensation law, and governmental immunity
usually apply only to suits for negligence, and intentional torts are almost
always excluded from such legal protection. Governmental immunity will
sometimes protect a person from liability for gross negligence, but it generally
will not be a defense to actions for intentional torts or violation of civil rights.
A release executed by a plaintiff after the incident, usually pursuant to a settle-
ment, may apply to actions based on breach of contract, negligence, or inten-
tional tort.
A third distinction among causes of action rests on the need for expert
testimony. Most negligence cases and many contract cases require expert tes-
timony that the defendant did not exercise the requisite care and skill. This
type of evidence is usually not necessary, however, to prove an intentional
tort or violation of a contract.100
Another fact to consider in choosing a cause of action is that medical
malpractice insurance does not cover all types of professional liability. A pro-
fessional liability policy, for example, usually does not cover intentional
torts. For this reason, a plaintiff’s attorney might choose a negligence or
breach-of-contract theory so that damages will be collectible from the mal-
practice insurer. The Minnesota Supreme Court held that a physician’s “pro-
fessional liability and personal catastrophe” policy did not cover sexual assaults
on several young patients. The court found that the physician’s sexual conduct
involved neither the providing nor the withholding of professional services,
and therefore the insurer’s policy did not cover the plaintiffs’ damages.101 By
contrast, the Wisconsin Court of Appeals held that a defendant psychiatrist’s
70 The Law of Healthcare Administration

malpractice insurance covered a claim for damages resulting from the defen-
dant’s sexual acts with the plaintiff during the course of treatment. The court
held that such conduct can constitute a failure to give proper treatment.102
Obviously, the availability of damages is important in the choice of
possible causes of action. Damages are often classified as actual, nominal, or
punitive. Actual damages—sometimes called compensatory damages—are
the damages awarded to a plaintiff to compensate for past and future medical
costs, past and future loss of income, physical pain, and mental anguish.
Nominal damages are awarded to a plaintiff who proves the elements of a
case but cannot prove actual damages. Punitive damages—also called exem-
plary damages—are designed to punish a defendant for conduct that the
court considers willful or malicious. A plaintiff’s right to recover any of the
three types of damages will depend on the nature of the action. Table 3.1
shows the general rule regarding the types of damages that are recoverable in
the various kinds of actions.
Actual damages fall into two major categories: economic and
noneconomic. Economic damages include expenses for medical care, reha-
bilitation, nursing care, child care, and lost earnings. Such damages are
relatively easy to prove and are available in every kind of action. Noneco-
nomic damages are for injuries that are real but cannot easily be assigned
a dollar value—pain and suffering and emotional distress, for example.
Pain and suffering, which covers some of the intangible damages accom-
panying physical injury, is allowed as an item of damages in all but con-
tract actions, but some states have enacted laws that place a dollar limit on
such damages.
Courts vary on whether to allow damages for emotional distress, and this
question is somewhat unsettled. As a general rule, recovery for emotional dis-
tress is allowed if the defendant has acted willfully or maliciously. Damages for
mental distress are therefore usually allowed in suits for intentional tort and in
negligence actions if the emotional distress results from physical contact that
inflicts bodily injury. Courts are extremely reluctant, however, to allow damages
for mental distress in a negligence action unless physical injury to the plaintiff

TA B L E 3.1
1
Possible Types Type of Action Actual Damages Nominal Damages Punitive Damages
of Damage Intentional tort Yes Yes Yes
Recovery*
Breach of contract Yes Yes Rare
Negligence Yes No Rare

*These generalizations are ordinarily true, but some exceptions occur. In an assault-and-battery case,
nominal and punitive damages can be recovered even if no actual damages were incurred.
 Chapter 3: Negligence 71

occurred. Courts usually allow such damages only when there was reckless disre-
gard for the well-being of the plaintiff and the emotional distress was so great that
it injured the plaintiff physically. Most medical malpractice cases do not show the
willful malice or gross negligence needed to sustain a claim for damages for emo-
tional distress in the absence of physical injury.
In some malpractice cases, however, the defendant’s negligence is deemed
so gross, willful, wanton, or malicious as to suggest reckless indifference or actual
intent to harm. These are the cases in which courts may award damages for emo-
tional harm, or even punitive damages, even in the absence of physical injury.103
For example, in Grimsby v. Samson a husband brought suit against a hospital and
a physician because they allegedly failed to provide treatment for his dying wife.
He claimed damages for the extreme mental distress he suffered as he watched his
wife die. The Washington Supreme Court denied recovery for negligent infliction
of emotional distress, but it held that the plaintiff had stated a cause of action for
the intentional tort of “outrage” and could recover under that theory.104 Out-
rage, it should be noted, is an intentional tort and an action under which puni-
tive damages are available.
Examples of cases in which punitive damages were allowed in malpractice
actions where the defendant’s conduct was judged extreme include the following:

• injecting silicone into the plaintiff’s breasts knowing that the silicone was
labeled “not for human use”105;
• leaving the operating room without obtaining a qualified
replacement106;
• removing a patient’s uterus without authorization107; and
• opening the patient’s abdomen inexpertly to drain accumulated pus, making
no attempt to remove a bowel obstruction, suturing the wound, and send-
ing the patient home in a hearse after telling her that she was going to
die.108

On the other hand, a claim for punitive damages was denied when a
physician unknowingly operated on the wrong patient109 and when a resident
circumcised a baby against the wishes of the parents. In these cases the evidence
established only negligence, not the “aggravated disregard of defendants’ [pro-
fessional] duties which has heretofore been considered by this court as a prereq-
uisite in malpractice cases to the allowance of punitive damages for deterrent
purposes.”110

Countersuits by Physicians

For physicians, being the defendant in a lawsuit is usually an expensive propo-

sition. Even if insurance covers attorneys’ fees and other expenses, patients and
72 The Law of Healthcare Administration

work time are lost, anxiety increases, reputation suffers, and malpractice
insurance premiums may rise. When, after a number of years, the defendant
finally prevails in the suit she, in high dudgeon, often asks, “Can I now sue
the plaintiff or the plaintiff’s lawyer
to get back at them for this outrage?”
Legal Brief In most cases the answer is, “Yes, you
can, but you will lose.” And even if
“The revenge-seeking defendant would be well the original suit was completely frivo-
advised to hear Judge Learned Hand’s remark: ‘After
lous, it is difficult to recover dama-
some dozen years of experience I must say that as
a litigant I should dread a lawsuit beyond almost ges in most states. Besides, getting
anything else short of sickness and death’.” involved in yet another lawsuit sel-
dom seems worth the time, money,
—Quoted in R. Posner, Law and Literature (1998) and angst that would be involved
(see Legal Brief).
The legal theories on which
physicians have based countersuits in
malpractice cases include defamation, negligence, abuse of process, and mali-
cious prosecution.
Defamation has rarely been successful because statements made in
the course of legal proceedings are privileged.111 Furthermore, courts have
held that an attorney does not owe a duty to the adverse party to determine
the basis for the plaintiff ’s claim before filing suit. Attorneys are liable only
to their clients for professional malpractice.112 Abuse of process is difficult
to prove because filing suit in itself does not sustain the cause of action.
Physicians have, however, sometimes successfully sued on the theory of
malicious prosecution. This generally requires that the following be shown:

• the malpractice suit was decided in favor of the physician,

• there was no probable cause to believe that the physician was liable, and
• the plaintiff or attorney acted maliciously in bringing the suit.

Ill will or the lack of any reasonable possibility of success may support
an allegation of malice. Most states also require a showing of actual damages.
In some states special damages must be proved—for example, damages that
arise from an arrest of the person or seizure of property.113 Damages com-
mon to anyone involved in litigation—such as attorneys’ fees, injury to rep-
utation, and mental distress—are not sufficient.

Reforming the Tort System

Periodically the healthcare system encounters a “malpractice crisis” during

which the cost of professional-liability insurance rises steeply. There are multiple
 Chapter 3: Negligence 73

causes of these crises, including sharp drops in the stock market (when insurance
companies lose investment income) and an increase in jury verdict awards. These
crises are usually accompanied by calls for reform of the tort system, and legis-
latures respond in various ways. Following are some reform measures:

• shortening the statute of limitations;

• limiting awards for “pain and suffering”;
• eliminating “joint and several” liability so that any one of multiple
defendants is only liable for his percentage fault;
• requiring pretrial screening, arbitration, or mediation;
• limiting attorneys’ contingency fees;
• allowing the defendant to deduct from jury award payments made to
the plaintiff by other sources (such as health insurance);
• creating joint underwriting associations to spread malpractice risks
among various insurance carriers;
• establishing “secondary” insurance plans to cover judgments beyond the
limit of the primary insurance; and
• allowing insurers to pay out the award over time rather than in a lump
sum (so-called “structured settlements”—see page 76).

Other reforms have involved protecting the public from incompetent

physicians through heightened licensing standards, mandatory continuing edu-
cation, reporting of disciplinary actions, periodic recredentialing, and similar
means. The federal government, for example, maintains the National Practi-
tioner Data Bank (NPDB), a resource that is intended to contain all disciplinary
actions, license suspensions, malpractice settlements and judgments, and similar
information for all physicians. A hospital’s failure to query the NPDB during the
medical staff privileging and credentialing process (see Chapter 7), for example,
could be construed as corporate liability for the organization; thus, providers are
more closely monitoring the quality of care of the physicians on their medical
staffs.
The various types of tort reforms have had mixed success, and it is clear
that the system for adjudicating malpractice claims remains imperfect. For this
reason, people have begun to look at alternatives to the traditional litigation
process.

Alternatives to the Tort System

Arbitration has been proposed not only for pretrial screening of claims but
also as a system for resolving disputes. Other proposed alternatives to the tort
system include no-fault compensation and problem solving by private con-
tract rather than by litigation.
74 The Law of Healthcare Administration

Arbitration
Arbitration is a method of resolving disputes at a hearing before an impartial
referee without involving the court system. Among the advantages cited for
arbitration are as follows:

• arbitration is speedier than the court system;

• once the dispute is aired, arbitration saves the time of all parties;
• matters under arbitration may be decided by an expert in the field;
• in arbitration, the formalities and complex rules of court
proceedings are relaxed;114
• arbitration costs much less than a jury trial; and
• arbitration proceedings allow greater privacy than court proceedings.115

Two major types of arbitration are relevant to malpractice disputes. The

first type is mandatory arbitration, which may be imposed on the parties by
statute or court rule. The second type of arbitration is voluntary, agreed to by
the parties either when they initially enter into a contractual relationship or
after the dispute arises. Voluntary arbitration is not a recent development, hav-
ing been introduced in some California health plans as early as the 1960s.
One of the major legal problems with arbitration provisions is that a court
might consider them to be “contracts of adhesion” and therefore unenforceable.
A contract of adhesion is one entered into by a person whose bargaining posi-
tion is weak because she cannot do without the other party’s services. An obvi-
ous example would be an arbitration clause forced on a patient who urgently
needs emergency care.
Despite the possibility of adhesion problems, the California Supreme
Court upheld an arbitration clause in the leading case of Doyle v. Guiliucci,
which contested the arbitrator’s decision in favor of the health plan and against
the three-year-old patient. The court decided that “the arbitration provision in
such contracts is a reasonable restriction, for it does no more than specify a
forum for the settlement of disputes.”116
Patients attempting to avoid arbitration have usually failed in their
attempts if the agreement was entered into fairly. In Burton v. Mt. Helix General
Hospital the court considered and rejected several contentions of a patient who
had signed an arbitration agreement. First, the court decided that the patient’s
failure to read or understand the agreement did not make the agreement invalid
because a person who signs a contract he is capable of understanding is bound by
its terms, and the terms of the agreement were “clear and unmistakable.” Second,
the court found no evidence that the hospital defrauded the patient or exercised
undue influence. Third, the court noted that arbitration is beneficial because it
provides an alternative to litigation and saves time and expense. Finally, the court
decided that the arbitration agreement in question was not a contract of adhesion.
(The court distinguished it from an earlier California case in which an agreement
 Chapter 3: Negligence 75

that relieved the hospital of all liability was offered as a condition of being admit-
ted to the hospital. That agreement was invalidated because it violated public
policy.117)
The California experience with arbitration has proven attractive to
state legislators. A Michigan statute, for instance, provides that a hospital and
members of its medical staff must offer arbitration to patients at the hospital.
(Physicians treating patients in their offices, however, are not required to
offer arbitration.) The arbitration agreement may not be offered as a prereq-
uisite to treatment, and patients may revoke the agreement within 60 days
after execution (or, if it was signed on admittance to a hospital, within 60
days after discharge). Arbitration hearings in many states are conducted by an
attorney, a physician, and a layperson, although a hospital administrator may
be substituted for the physician if the claim is solely against a hospital.118 The
Michigan Supreme Court has held that this arbitration scheme does not
deprive the patient of due process.119

The No-Fault Concept

No-fault systems, another proposed alternative to the traditional tort system,
have existed in the United States for many years in other contexts. One form of
no-fault—workers’ compensation—was first established in the early 1900s.
More recently many states have adopted no-fault to supplement the tort system
in automobile accident cases. In its simplest terms, when an automobile owner
purchases no-fault coverage and a person riding in the automobile is injured, the
owner’s insurance pays for the loss, no matter who caused the accident.
No-fault concepts are fairly adaptable to automobile accidents because it
is usually clear when injury resulted from the accident. The concepts are more
difficult to apply to medical injuries because the patients are to some degree ill
or injured before receiving treatment. Thus, in medical injuries a major prob-
lem with a true no-fault system is proving that the physician caused the harm.
A medical-injury compensation system that is not fault-oriented pre-
sumably would authorize compensation for a “medical accident,” an “unto-
ward result,” “a therapeutic misadventure,” or some similar concept. All these
phrases in substance describe an unanticipated event or result, and although
they may be intelligible in the abstract, one must still discover the causes of the
compensable event.120
Some legal observers suggest that healthcare providers could avoid mal-
practice suits by offering to compensate patients for economic losses from
adverse medical occurrences.121 Others suggest developing a list of “designated
compensable events” that would be covered by insurance much as in the case
of workers’ compensation.122 Injury caused by such an event would be covered
by the insurer, and the patient would be precluded from suing in tort. The
insurance would be purchased by the healthcare provider, who would pass the
costs on to patients. Some compensation for pain and suffering could be made,
76 The Law of Healthcare Administration

but there would be ceilings on such amounts.123 Despite the various proposals,
a workable no-fault plan for medical injuries has not yet been discovered.

Risk Management
Risk management is not really an alternative to the tort system but an organized
effort to avoid the tort system entirely. In healthcare, the purpose of risk man-
agement is to identify and reduce risks to healthcare consumers. The fundamen-
tal basis for the malpractice system is the fact that adverse medical outcomes do
occur; thus, risk management is essentially preventive medicine.
Avoiding risk requires identifying problems and forestalling incidents that
lead to claims. It also includes dealing in a timely, reasonable manner with inci-
dents that do occur. Healthcare providers should exercise appropriate skill in treat-
ing patients and maintain thorough, accurate medical records. Perhaps most
importantly, providers should take a personal interest in each patient. Despite the
impersonality often prevalent in our society, patients still have high expectations for
sympathetic treatment when they visit their physicians. If they are disappointed,

there is a strong get-even, or revenge factor. I have heard plaintiffs’ attorneys

say that their clients did not really want to sue for money. What they really
wanted was a chance to be alone in the room with the defendant doctor for
about fifteen minutes. When a physician has maltreated you in a psychological
sense, the revenge motive arises. If we ever had a tort in this country known as
psychological malpractice we would not have enough courthouses to take care
of all the cases.124

Structured Settlements
This, too, is not really an alternative to the tort system, but it is a related concept.
If a defendant (or insurance company) wants to resolve a case without trial, there
are numerous ways to design a settlement agreement. Structured settlements are
financial arrangements that compensate the plaintiff through periodic payments
rather than in a lump sum, as was traditional. A structured settlement incorpo-
rated into a trial judgment by agreement of the parties and with the approval of
the court is called a “periodic payment judgment.” Structured settlements have
the benefit of compensating the plaintiff for her damages without creating the
possibility of a windfall. One example of a kind of structured settlement is shown
in The Court Decides: Perin v. Hayne at the end of this chapter.
Another example of a structured settlement involved negligence at a U.S.
Navy hospital in the 1970s. Lack of oxygen during delivery resulted in severe
brain damage to the baby, but with proper care she was expected to have a nor-
mal life expectancy. The parents and the government settled the case by creating
a “reversionary trust” to care for the child as long as she lived. Calculations
showed that a principal amount of $1 million, plus reinvested earnings, would
cover the expected cost of custodial care for 72 years, the life expectancy of a
 Chapter 3: Negligence 77

F I G U R E 3.1
1
Example of a
Structured
Trust fund
Settlememt
balance
$ 1 million Annual cost

Age
0 72

newborn at the time. To prevent the parents from receiving a windfall, the
reversionary trust language provided that the trust funds would be returned
to the government if the child died before the age of 72. (See Figure 3.1 for
a graph depicting this example of a structured settlement.)

Chapter Summary

This chapter outlines four basic elements of proof in a tort case—duty,

breach, injury, and causation. The duty (the standard of care) can be proven
in various ways, and the plaintiff’s injuries must have been caused by a
breach of that duty by the defendant or the defendant’s agent. In the case
of an agency relationship, the concept of respondeat superior (vicarious lia-
bility) applies. In the case of a physician’s negligence (medical malpractice),
the standards of different “schools” of practice (traditional medicine versus
osteopathy, for example) might determine the standard of care to be
applied. When proof of specific negligence is difficult to demonstrate, res
ipsa loquitur might be applied. Also explored in this chapter are a number
of defenses to malpractice suits and reform of and alternatives to the tort
system.

Chapter Discussion Questions

1. What are the four elements of proof necessary for a plaintiff to prove a
negligence case?
2. What is the significance of Helling v. Carey in relation to the standard of
care in medical malpractice cases?
3. How can the standard of care be proven?
78 The Law of Healthcare Administration

4. What is an exculpatory contract, and when is one held to be enforceable?

5. What is the principle of “vicarious liability” (respondeat superior)?
6. What are some examples of “tort reform,” and how successful have they
been?

Notes

1. 61 Am. Jur. “Physicians and Surgeons,” § 205 (1981). See also Roady, T., and W. Andersen.
1960. Professional Negligence, 70.
2. For a comparison of the standards imposed on general practitioners and specialists, see the
section on the school rule, infra.
3. Baldo v. Rogers, 81 So. 2d 658 (Fla. 1955), reh’g denied, 81 So. 2d 661 (Fla. 1955); Holder,
A. 1978. Medical Malpractice Law, 2nd ed., 47.
4. DeFillipo v. Preston, 53 Del. 539, 173 A.2d 333 (1961).
5. Miller v. Toles, 183 Mich. 252, 150 N.W. 118 (1914).
6. Fiorentino v. Wenger, 272 N.Y.S.2d 557, 26 A.D.2d 693 (1966), rev’d on other grounds, 19
N.Y.2d 407, 227 N.E.2d 296 (1967). Decision against the hospital was reversed, however; the
court of appeals decided that the hospital had no obligation to disclose or to make certain that dis-
closures were made unless it knew or should have known that informed consent was lacking and
that the operation was not permissible under existing standards. Informed consent, which is often
treated as a cause of action separate from negligence, is discussed in Chapter 11, “Antitrust Law.”
7. Locality can, of course, mean the same community or a wider area that is still in the general
vicinity where the physician practices. The term is generally used in contrast to a national stan-
dard, which is discussed in this chapter.
8. Faulkner v. Pezeshki, 44 Ohio App. 2d 186, 189, 337 N.E.2d 158, 162 (1975).
9. Small v. Howard, 128 Mass. 131, 35 Am. R. 363 (1880) was overruled in 1968 by Brune v.
Belinkoff, 235 N.E.2d 793 (Mass. 1968).
10. Zills v. Brown, 382 So. 2d 528, 532 (Ala. 1980).
11. Id. at 532.
12. At least 18 states have adopted a national standard. See, for example, Sullivan v. Henry, 160 Ga.
App. 791, 287 S.E.2d 652, 659 (1982); Drs. Lane, Bryand, Eubanks & Dulaney v. Otts, 412
So. 2d 254 (Ala. 1982); Hall v. Hilburn, 466 So. 2d 856 (Miss. 1985).
13. Drs. Lane, Bryand, Eubanks & Dulaney v. Otts, 412 So. 2d 254 (Ala. 1982).
14. A Texas court noted that “[t]he circumstances to be considered include the state of medical
knowledge at the time the complained of treatment was performed. “ Guidry v. Phillips, 580
S.W.2d 883, 887/88 (Tex. Civ. App. 1979, writ ref’d n.r.e.).
15. Waltz, J., and F. Inbau. 1971. Medical Jurisprudence, 54.
16. Craft v. Peebles, 893 P.2d 138 (Haw. 1995).
17. See, for example, Dolan v. Galluzzo, 77 Ill. 2d 279, 396 N.E.2d 13 (1979)—a podiatrist was
held to standards of podiatrists; MD testimony excluded.
18. Nelson v. Harrington, 72 Wis. 591, 40 N.W. 228 (1888). See also Hansen v. Pock, 57 Mont.
51, 187 P. 282 (1920)—a herbologist was held to standards of surgical and medical practice in
the absence of a school of practice.
19. Spead v. Tomlinson, 73 N.H. 46, 59 A. 376 (1904).
20. 25 Wash. App. 158, 607 P.2d 864 (1980). See also Kelly v. Carroll, 36 Wash. 2d 498, 219 P.2d
79 (1950), cert. denied, 340 U.S. 892 (1950)—a naturopath was liable for a patient’s death
from appendicitis; the naturopath must know when treatment is ineffective and when medical
care is needed.
21. Pittman v. Gilmore, 556 F.2d 1259 (5th Cir. 1977). See also Lewis v. Soriano, 374 So. 2d 829
(Miss. 1979)—a general practitioner had a duty to refer a complicated fracture to an orthopedic
specialist.
 Chapter 3: Negligence 79

22. Mata v. Albert, 548 S.W.2d 496 (Tex. Civ. App. 1977, writ ref’d n.r.e.).
23. See, for example, Sinz v. Owens, 33 Cal. 2d 749, 705 P.2d 3 (1949)—a physician who did not
use skeletal traction in treating a double comminuted fracture of a patient’s leg would be held to
the skill of a specialist only if he should have known that greater skill than a general practitioner’s
was necessary; Reeg v. Shaughnessy, 570 F.2d 309 (10th Cir. 1978)—physicians held to that
degree of care commensurate with their training and experience.
24. See, for example, Lewis v. Soriano, 374 So. 2d 829 (Miss. 1979).
25. 245 So. 2d 751 (La. App. 1971).
26. 144 So. 2d 544 (La. App. 1962).
27. Wash. Rev. Code § 4.24.290 (1975, as amended 1983).
28. 92 Wash. 2d 246, 595 P.2d 919 (1979).
29. In Faulkner v. Pezeshki, 44 Ohio App. 2d 186, 193, 337 N.E.2d 158, 164 (1975), the court
noted: “Locating an expert to testify for the plaintiff in a malpractice action is known to be a
very difficult task, mainly because in most cases one doctor is reluctant and unwilling to testify
against another doctor. Although doctors may complain privately to each other about the
incompetence of other doctors, they are extremely reluctant to air the matter publicly.”
30. For this reason, attorneys have on occasion named a physician as a defendant in a suit solely for
the purpose of obtaining testimony. In one such instance the physician so named successfully
sued the attorney for malicious prosecution. See Carlova. 1981. “‘Shotgun’ Malpractice Suits
Suffer a Costly Setback.” Medical Economics 58: 29. Physicians’ countersuits are discussed in this
chapter.
31. See, for example, Callahan v. William Beaumont Hosp., 400 Mich. 177, 254 N.W.2d 31 (1977).
32. See, for example, Siirila v. Barrios, 398 Mich. 576, 248 N.W.2d 171 (1976).
33. See, for example, Ferguson v. Gonyaw, 64 Mich. App. 685, 236 N.W.2d 543 (1976).
34. Id. In this case, the DO and his instructor were the only practicing osteopathic neurosurgeons in
all of Michigan. The court rejected the plaintiff’s argument that they should not be permitted to
set their own standards. A growing number of states have overturned the school rule when stan-
dards of different schools are similar.
35. 106 Mich. App. 35, 307 N.W.2d 695 (1981).
36. 15 N.Y.2d 20, 203 N.E.2d 469 (1964), aff’d, 278 N.Y.S.2d 209, 224 N.E.2d 717 (1966). See
Waltz, J., and F. Inbau. 1971. Medical Jurisprudence, supra note 15, at 82.
37. Hearsay is an out-of-court statement offered into evidence to prove the truth of the mat-
ter asserted in the statement. Hearsay, as defined, is not admissible, but there are some
notable exceptions, such as the business record exception, which makes medical records
admissible under some circumstances. Out-of-court statements are admissible if offered
for purposes other than to prove the truth of the statement—for example, to impeach the
credibility of the witness.
38. Scacchi v. Montgomery, 365 Pa. 377, 380, 75 A.2d 535, 536 (1950).
39. The law tries to encourage settlements and will not allow into evidence an offer of settlement if
the case goes to court. If the offer of settlement includes an admission of negligence, however,
the admission itself can be used as evidence.
40. Wickoff v. James, 159 Cal. App. 2d 664, 324 P.2d 661 (1958). Both of these cases are discussed
in Long. 1968. The Physician and the Law, 28–30.
41. Discrediting the testimony of a witness is called impeachment.
42. Bergen. 1971. “Medical Books as Evidence.” JAMA 217: 527.
43. Burnside v. Evangelical Deaconess Hosp., 46 Wis. 2d 519, 175 N.W.2d 230 (1970).
44. 33 Ill. 2d 326, 211 N.E.2d 253, 14 A.L.R.3d 860 (1965), cert. denied, 383 U.S. 946 (1966).
45. Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d 326, 211 N.E.2d 253 (1965).
46. See, for example, Cal. Evid. Code § 669 (1985 Supp.)—it raises a presumption of negligence
under these circumstances but permits the defendant to rebut the presumption by showing that
he did what a “person of ordinary prudence,” who desired to comply with the law, might do
under similar circumstances.
47. 17 Cal. 3d 399, 131 Cal. Rptr. 69, 551 P.2d 389 (1976)—the cause of action for negligence in
failing to diagnose the syndrome was also stated by the complaint.
48. See, for example, Sinz v. Owens, 33 Cal. 2d 749, 205 P.2d 3, 8 A.L.R.2d 757 (1949).
80 The Law of Healthcare Administration

49. 7 N.Y.2d 376, 380, 165 N.E.2d 756, 757 (1960). See Long. 1968. The Physician and the Law,
supra note 40, at 74–75.
50. 2 H. and C. 722, 159 Eng. Rep. 299 (1863).
51. This is a simplified description of the operation of the doctrine. Actual application varies from
state to state. In some states the doctrine raises only a permissible inference of negligence; in
some it creates a presumption of negligence to shift the burden of rebutting the presumption
over to the defendant; in still others the defendant has the burden of persuasion. See Prosser, W.
1984. Handbook of the Law or Torts, 5th ed., 244, 258–59. For a more thorough discussion, see
Podell. 1977. “Application of Res Ipsa Loquitur in Medical Malpractice Litigation.” Ins. Counsel
J, 44: 634.
52. Prosser, W. 1984. Handbook of the Law or Torts, 5th ed., § 39, at 244.
53. Jamison v. Debenham, 203 Cal. App. 2d 744, 21 Cal. Rptr. 848 (1962).
54. 77 F. Supp. 706 (Md. 1948), aff’d, 178 F.2d 518 (4th Cir. 1949), aff’d, 340 U.S. 135 (1950).
55. 137 Cal. App. 3d 910, 187 Cal. Rptr. 357 (1982).
56. Waltz, J., and F. Inbau. 1971. Medical Jurisprudence, supra note 15, at 100.
57. 25 Cal. 2d 486, 154 P.2d 687 (1944).
58. Id. at 493, 154 P.2d at 691. Ybarra v. Spangard has been followed in California; see, for exam-
ple, Hale v. Venuto, 137 Cal. App. 3d 910, 187 Cal. Rptr. 357 (1982)—it has also been cited
with approval in various jurisdictions; see Louisell, D., and H. Williams. 1984. Medical Malprac-
tice § 14.02, at 14–18.
59. 158 P.2d 579 (Cal. App. 1945), rev’d on other grounds, 27 Cal. 296, 163 P.2d 860 (1945).
60. Alternatives to allocating loss on the basis of fault are discussed at the end of this chapter under
“Alternatives to the Tort System.”
61. See Restatement (Second) of Torts § 402A.
62. See, for example, Perlmutter v. Beth David Hosp., 308 N.Y. 100, 123 N.E.2d 792 (1954).
Many states have dealt with this issue by legislation; see, for example, Wis. Stat. § 146.31(2)
(West Supp. 1986)—this precludes application of warranty or strict tort liability in cases involv-
ing contaminated blood.
63. 386 S.W.2d 879 (Tex. Civ. App. 1964).
64. Mehigan v. Sheehan, 94 N.H. 274, 51 A.2d 632 (1947).
65. See, for example, Cornfeldt v. Tongen, 295 N.W.2d 638 (Minn. 1980); Hanselmann v. McCar-
dle, 275 S.C. 46, 267 S.E.2d 531 (1980); Hiser v. Randolph, 126 Ariz. 608, 617 P.2d 774 (Ct.
App. 1980); Cooper, 272 N.E.2d 97.
66. See, for example, Hamil v. Bashline, 481 Pa. 256, 392 A.2d 1280 (1978); McBride v. United
States, 462 F.2d 72 (9th Cir. 1972).
67. Herskovits v. Group Health Cooperative of Puget Sound, 99 Wash. 2d 609, 614, 664 P.2d 474,
476 (1983).
68. Herskovits, 664 P.2d 474. See also Glicklich v. Spievack, 16 Mass. App. 488, 452 N.E.2d 287
(1983), appeal denied, 454 N.E.2d 1276 (1983)—diagnosis of breast cancer delayed for nine
months; jury verdict for plaintiff upheld.
69. Herskovits, 99 Wash. 2d at 614, 664 P.2d at 477.
70. Mansur v. Carpenter, 273 Ind. 374, 404 N.E.2d 585 (1980).
71. 349 F. Supp. 827 (S.D. Tex. 1972), aff’d, 493 F.2d 408, cert. denied, 419 U.S. 845. This case
is discussed in greater detail in Chapter 11, “Antitrust Law.” See also Holder, A. 1978. Medical
Malpractice Law, 2nd ed., supra note 3, at 306–9.
72. Champs v. Stone, 74 Ohio App. 344, 58 N.E.2d 803 (1944).
73. 166 Wis. 561, 165 N.W. 292 (1918). See also Heller v. Medine, 377 N.Y.S.2d 100, 102, 50
A.D.2d 831, 832 (1976)—“A patient’s failure to follow instructions does not defeat an action
for malpractice where the alleged improper professional treatment occurred prior to the patient’s
own negligence. Under such circumstances, damages are reduced to the degree that the plain-
tiff’s negligence increased the extent of the injury.”
74. Schuster v. St. Vincent Hosp., 45 Wis. 2d 135, 172 N.W.2d 421 (1969).
75. 60 Cal. 2d 92, 32 Cal. Rptr. 33, 383 P.2d 441 (1963). See 61 Am. Jur, 2. “Physicians and Sur-
geons,” § 164 (1981).
76. 43 Ohio St. 2d 53, 54, 330 N.E.2d 678, 679–80 (1975).
 Chapter 3: Negligence 81

77. See, for example, Ellis v. Bitzer, 2 Ohio 89 (1925).

78. Whitt v. Hutchison, 43 Ohio St. at 61, 330 N.E.2d at 684 (1975). See also Berger v. Fireman’s
Fund Ins. Co., 305 So. 2d 724 (La. Ct. App. 1974)—a child was injured in a schoolyard by a
piece of wire thrown by a lawn mower. The surgeons either punctured her kidney or failed to
discover a wound already there, and the child died the next day. The parents settled with the
school board and executed a release, then brought a wrongful death action against the hospital
and physicians. An appellate court ruled improper a summary judgment in favor of the defen-
dants, because neither the release nor any testimony established negligence by the school board.
Thus, a factual issue remained: whether the school board and physicians were joint tort-feasors
who could be released by a single release.
79. See, for example, Vt. Stat. Ann. tit. 12, § 519(b) (1973).
80. Vt. Stat. Ann. tit. 12, § 519 (1973); Minn. Stat. Ann. § 604.05 (as amended 1984) (West Supp.
1985).
81. Some have questioned the need for Good Samaritan statutes. Given that negligence is judged
according to a standard of care under the circumstances, it is hard to see how anything but gross
negligence could lead to liability for rendering care in an emergency situation. Indeed, research
fails to reveal any cases in which Good Samaritan statutes have been applied to traditional emer-
gency situations, such as when a physician happens upon the scene of an automobile accident.
82. See the discussion on workers’ compensation in Chapter 2.
83. See, for example, Pangburn v. Saad, 326 S.E.2d 365 (N.C. Ct. App. 1985)—immunity for state
hospital personnel was qualified and did not extend to gross negligence and intentional torts;
thus, the rule may not apply in a case in which the plaintiff’s brother was released by the defen-
dant after an involuntary psychiatric commitment and less than a day later attacked and stabbed
the plaintiff. According to the court, the plaintiff could maintain an action for negligent release,
distinct from a “classic medical malpractice” action; negligent release would be based on a gen-
eral duty to the public not to create an unreasonable risk of harm at the hands of a psychiatric
patient, such duty being independent of the physician–patient relationship.
84. Id., citing Estelle v. Gamble, 429 U.S. 97, 106 (1976), reh’g denied, 492 U.S. 1066.
85. See the discussion on violation of civil rights in Chapter 2.
86. A summary of statutes of limitations may be found in Moritz, A., and R. Morris. 1970. Hand-
book of Legal Medicine, 212–14.
87. Or certain other specified, licensed healthcare providers. Cal. Civ. Proc. Code § 411.30 (as
amended 1984) (West Supp. 1985).
88. Fla. Stat. Ann. § 95.11(4) (b) (West 1982).
89. Moritz, A., and R. Morris. 1970. Handbook of Legal Medicine, supra note 86, at 211; Hill v.
Hays, 193 Kan. 453, 395 P.2d 298 (1964).
90. See, for example, Cates v. Baol, 54 Mich. App 717, 221 N.W.2d 474 (1974).
91. 1970 Wis. L. Rev. 915, 918; 6 Akron L. Rev. 265, 267–68 (1973).
92. Barrier v. Bowen, 63 N.J. Super. 225, 164 A.2d 357 (1960).
93. 261 Ind. 698, 310 N.E.2d 867 (1974).
94. Hubbard v. Libi, 229 N.W.2d 82 (N.D. 1975).
95. See, for example, Thompson v. Brent, 245 So. 2d 751 (La. App. 1971)—the physician was liable
because a medical assistant in his employ was negligent in removing a cast with a Stryker saw.
96. Honeywell v. Rogers, 251 F. Supp. 841 (W.D. Pa. 1966). Vicarious liability is discussed in
greater detail under the captain-of-the-ship and borrowed-servant doctrines in Chapter 5.
97. Morrill v. Komasinski, 256 Wis. 417, 41 N.W. 2d 620 (1950). See Waltz, J., and F. Inbau.
1971. Medical Jurisprudence, supra note 15, at 119–21.
98. Kelsey-Seybold Clinic v. Maclay, 456 S.W.2d 229, aff’d, 466 S.W.2d 716 (Tex. 1971).
99. Ohio Rev. Code Ann. §§ 2305.06-2305.11.
100. Holder, A. 1973. “Abandonment: Part I.” JAMA 225: 1157.
101. Smith v. St. Paul Fire and Marine Ins. Co., 353 N.W.2d 130 (Minn. 1984).
102. L.L. v. Medical Protective Co., 122 Wis. 2d 455, 362 N.W.2d 174 (1984).
103. A case permitted damages for a mother’s emotional distress when a prescription for her infant
daughter was improperly filled; the pharmacist’s act was labeled “willful and wanton miscon-
duct.” Lou v. Smith, 285 Ark. 249, 685 S.W.2d 809 (1985).
82 The Law of Healthcare Administration

104. 85 Wash. 2d 52, 530 P.2d 291 (1975)—court adopted the requirements for outrage as defined
in Restatement (Second) of Torts § 46, including the necessity for the plaintiff to be an immedi-
ate relative of the victim and present at the event.
105. Short v. Downs, 36 Colo. App. 109, 537 P.2d 754 (1975).
106. Medveca v. Choi, 569 F.2d 1221 (3d Cir. 1977) (applying Pennsylvania law).
107. Pratt v. Davis, 118 Ill. App. 161, aff’d, 224 Ill. 300, 79 N.E. 562 (1905).
108. Morrell v. Lalonde, 45 R.I. 112, 120 A. 435 (1923), appeal dismissed, 264 U.S. 572 (1924).
109. Ebaugh v. Rabkin, 22 Cal. App. 3d 891, 99 Cal. Rptr. 706 (1972).
110. Noe v. Kaiser Found. Hosps., 248 Or. 420, 435 P.2d 306 (1967).
111. Huene v. Carnes, 121 Cal. App. 3d 432, 175 Cal. Rptr. 374 (1981).
112. See, for example, Friedman v. Dozorc, 412 Mich. 1, 312 N.W.2d 585 (1981); Hill v. Willmott,
561 S.W.2d 331 (Ky. App. 1978).
113. Ohio is one of the states requiring special damages. See Dakters v. Shane, 64 Ohio App. 2d 196,
412 N.E.2d 399 (1978); New York is another—see Berlin v. Nathan, 64 Ill. App. 3d 940, 381
N.E.2d 1367 (1978), cert. denied, 444 U.S. 828, reh’g denied, 444 U.S. 974 (1979). The
American Medical Association has recommended that the special injury requirement be elimi-
nated in physician countersuits for malicious prosecution and that the physician be permitted to
recover costs in a frivolous suit (Professional Liability in the ‘80s, American Medical Association
Special Task Force on Professional Liability and Insurance, Report 3, p. 14. March 1985.)
114. U.S. Department of Health, Education, and Welfare. 1973. Report of the Secretary’s Commission
on Medical Malpractice, App. at 215. Washington, DC: U.S. Government Printing Office.
115. Bergen. 1970. “Arbitration of Medical Liability.” JAMA 211: 176.
116. Doyle v. Guiliucci, 62 Cal. 2d 606, 610, 43 Cal. Rptr. 697, 699, 401 P.2d 1,3 (1965).
117. Cal. Ct. App. 4th Dist., Div. 1 (Feb. 24, 1976). This case, originally certified for publication,
was later decertified and thus does not stand as precedent. Burton and related cases are discussed
in greater detail in Chapter 9, “Consent for Treatment and Withholding Consent.”
118. Mich. Comp. Laws Ann. §§ 500.3053–3061 (West 1983) and §§ 600.5041–5044 (West Supp.
1985).
119. Morris v. Metriyakool, 418 Mich. 423, 344 N.W.2d 736 (1984).
120. U.S. Department of Health, Education, and Welfare, supra note 114, at 101.
121. See Moore and O’Connell. 1984. “Foreclosing Medical Malpractice Claims by Prompt Tender
of Economic Loss.” La. L. Rev. 44: 1267. For other no-fault proposals see Havighurst and Tan-
credi. 1974. “Medical Adversity Insurance: A No-Fault Approach to Medical Malpractice and
Quality Assurance.” Ins. L. J. 69; Carlson. 1973. “Conceptualization of a No-Fault Compensa-
tion System for Medical Injuries.” Law & Society Review 7: 329; Switzer and Reynolds. “Med-
ical Malpractice Compensation: A Proposal.” Am. Bus. L. J. 13: 65.
122. The American Bar Association Commission on Medical Professional Liability studied the feasibi-
lity of developing a list of compensable events and concluded that it was possible. Boyden and
Tancredi. 1979. “Part III: Identification of Designated Compensable Events (DCEs).” In Com-
mission on Medical Professional Liability, Designated Compensable Event System: A Feasibility
Study.
123. Havighurst and Tancredi. 1974. “Medical Adversity Insurance: No-Fault Approach to Medical
Malpractice and Quality Assurance.” Ins. L. J. 69.
124. McDonald, D. 1971. Medical Malpractice, 4.
 Chapter 3: Negligence 83

the court decides

Helling v. Carey
83, Wash. 2d 514, 519 P.2d 981 (1974)

Hunter, J. [I]n most cases reasonable prudence is in

fact common prudence; but strictly it is
We find this to be a unique case. The testi- never its measure; a whole calling may have
mony of the medical experts is undisputed unduly lagged in the adoption of new and
concerning the standards of the profession available devices. It never may set its own
for the specialty of ophthalmology.… The tests, however persuasive be its usages.
issue is whether the defendants’ compliance Courts must in the end say which is
with the standard of the profession of oph- required; there are precautions so impera-
thalmology, which does not require the giv- tive that even their universal disregard will
ing of a routine pressure test to persons not excuse their omission.
under 40 years of age, should insulate them Under the facts of this case reasonable
from liability under the facts of this case.... prudence required the timely giving of the
[The court points to evidence that the inci- pressure test to this plaintiff. The precau-
dence of glaucoma in persons under the age tion of giving this test to detect the inci-
of 40 was about 1 in 25,000.] However, that dence of glaucoma to patients under 40
one person, the plaintiff in this instance, is years of age is so imperative that irrespec-
entitled to the same protection, as afforded tive of its disregard by the standards of
persons over 40, essential for timely detec- the ophthalmology profession, it is the
tion of the evidence of glaucoma where it duty of the courts to say what is required
can be arrested to avoid the grave and dev- to protect patients under 40 from the
astating result of this disease. The test is a damaging results of glaucoma.
simple pressure test, relatively inexpensive. We therefore hold, as a matter of law, that
There is no judgment factor involved, and the reasonable standard that should have
there is no doubt that by giving the test the been followed under the undisputed facts of
evidence of glaucoma can be detected.... this case was the timely giving of this sim-
Justice Holmes stated in Texas & Pac. Ry. ple, harmless pressure test to this plaintiff
v. Behymer: and that, in failing to do so, the defendants
What usually is done may be evidence of were negligent, which proximately resulted
what ought to be done, but what ought to in the blindness sustained by the plaintiff for
be done is fixed by a standard of reasonable which the defendants are liable.
prudence, whether it usually is complied ....
with or not. The judgment of the trial court and the
In [another case,] Justice [Learned] Hand decision of the Court of Appeals [are]
stated: reversed….
84 The Law of Healthcare Administration

Helling v. Carey Discussion Questions

1. The Supreme Court of Washington is often viewed as nontraditional—

liberal, activist, or bellwether, depending on one’s point of view. Do
you agree with the court’s decision in this case to abandon a traditional,
physician-determined standard of care? Why or why not?
2. Is this “judge-made law”? If so, is it to be admired or disliked? Fashion
an argument supporting each point of view.
3. The legislation that attempted to overturn the healing precedent has
been on the books for three decades but has had little effect. Why do
you suppose this is so, and why has the legislature not seen fit to rein-
force it?
4. Consider the Legal Brief on page 54 relating to whether Helling is
good public policy. Do you understand how it can be that a test that is
95 percent accurate can result in positive test results that are truly posi-
tive only 16 percent of the time?

the court decides

Perin v. Hayne
210 N.W.2d 609 (Ia. 1973)

McCormick, J. trespass. After both parties had rested,

the trial court sustained defendant’s
This is an appeal from a directed verdict motion for directed verdict, holding the
for a doctor in a malpractice action. We evidence insufficient to support jury con-
affirm. sideration of the case on any of the
The claim arose from an anterior pleaded theories. Plaintiff assigns this rul-
approach cervical fusion performed on ing as error. We must review each of the
plaintiff Ilene Perin by defendant Robert A. pleaded bases for recovery in the light of
Hayne.... The fusion was successful in applicable law and the evidence.
eliminating pain, weakness and numbness I. Specific negligence. Plaintiff alleges
in plaintiff’s back, neck, right arm and there was sufficient evidence to support
hand caused by two protruded cervical jury submission of her charge [that] defen-
discs, but plaintiff alleged she suffered dant negligently cut or injured the recur-
paralysis of a vocal chord [sic] because of rent laryngeal nerve. Plaintiff had pro-
injury to the right recurrent laryngeal truded discs at the level of the fifth and
nerve during surgery.... The injury reduced sixth cervical interspaces. The purpose of
her voice to a hoarse whisper. surgery was to remove the protruded discs
She sought damages on four theories: and fuse the vertebrae with bone dowels
specific negligence, res ipsa loquitur, from her hip. Removal of a disc ends the
breach of express warranty and battery or pinching of the nerve in the spinal column
 Chapter 3: Negligence 85

which causes the patient’s pain. The bone Defendant testified he did not know the
supplants the disc. cause of the injury but presumed it resulted
The procedure involves an incision in the from contusion of the nerve incident to
front of the neck at one side of the midline retraction of the visceral column. He
at a level slightly below the “adam’s apple.” thought plaintiff’s laryngeal nerve may have
Four columns run through the neck. The been peculiarly susceptible to such injury.
vertebrae and spinal chord are in the axial He insisted the surgery was done just as it
or bone column at the rear. In order to get always was and if he were doing it again he
to the axial column the surgeon must would do it the same way. He said one
retract the visceral column which lies in study has shown the surgery will result in
front of it. The visceral column, like the vas- paralysis of a vocal chord [sic] in two or
cular columns on each side of it, is covered three-tenths of one percent of cases in
with a protective fibrous sheath, called fas- which it is used. He also said there is no
cia. It contains the esophagus and trachea. way to predict or prevent such instances.
The recurrent laryngeal nerve, which sup- ....
plies sensitivity to the muscles that move In considering the propriety of the verdict
the vocal chord [sic], is located between the directed for defendant we give the evidence
esophagus and trachea. supporting plaintiff’s claim the most favor-
The surgeon does not enter the visceral able construction it will reasonably bear.
column during the cervical fusion proce- We recognize three possible means to
dure. The same pliancy which enables the establish specific negligence of a physi-
neck to be turned enables the visceral col- cian. One is through expert testimony, the
umn to be retracted to one side to permit second through evidence showing [that]
access to the axial column. The retraction is the physician’s lack of care is so obvious
accomplished by using a gauze-padded as to be within comprehension of the lay-
retractor specifically designed for retraction man, and the third (actually an extension
of the visceral column during this surgery. of the second) evidence that the physician
The record shows the defendant used injured a part of the body not involved in
this procedure in the present case. Plain- the treatment. The first means is the rule
tiff was under general anesthetic. The and the others are exceptions to it.
anesthesia record is normal, and there is In this case plaintiff asserts [that] a jury
no evidence of any unusual occurrence question was generated by the first and
during surgery. Defendant denied any pos- third means. We do not agree.
sibility the laryngeal nerve was severed. Plaintiff alleges the laryngeal nerve was
He said it could not be severed unless the negligently cut or injured. The record is
visceral fascia was entered, and it was devoid of any evidence the nerve was sev-
not. He also believed it would be impossi- ered during surgery....
ble to sever the nerve during such surgery The doctors agree the technique
without also severing the esophagus or employed by defendant was proper. The
trachea or both. sole basis for suggesting the expert testi-
[An expert witness for the plaintiff testi- mony would support a finding of specific
fied that it would be unusual to specifi- negligence is that the nerve was injured
cally encounter the laryngeal nerve during during retraction. Where an injury may
this surgery but that “the injury could occur despite due care, a finding of negli-
occur despite the exercise of all proper gence cannot be predicated solely on the
skill and care.”] fact it did occur.
86 The Law of Healthcare Administration

.... Washington, plus three legal treatises on

Plaintiff also maintains there is evidence the subject. It quotes with favor the fol-
of negligence from the fact this is a case of lowing:]
injury to a part of the body not involved in In the usual case the basis of past expe-
the treatment. However, that is not so. The rience from which this conclusion may be
surgical procedure did include retraction drawn is common to the community, and
of the visceral column. It was very much in is a matter of general knowledge, which
the surgical field. the court recognizes on much the same
.... basis as when it takes judicial notice of
Trial court did not err in directing a ver- facts which everyone knows. It may, how-
dict for defendant on the issue of specific ever, be supplied by the evidence of the
negligence. parties; and expert testimony that such an
event usually does not occur without neg-
II. Res ipsa loquitur. Plaintiff also ligence may afford a sufficient basis for
alleges the applicability of the doctrine of the inference.
res ipsa loquitur. Our most recent state- Thus we disagree with defendant’s con-
ment of the doctrine appears in [a 1973 tention [that] the second foundation fact
case]: must be based exclusively on the common
Under the doctrine of res ipsa loquitur, knowledge of laymen.
where (1) injury or damage is caused by an In this case, however, even considering
instrumentality under the exclusive control the expert testimony, the record at best
of defendant and (2) the occurrence is only supports an inference [that] plaintiff
such as in the ordinary course of things suffered an extremely rare injury in ante-
would not happen if reasonable care had rior approach cervical fusion surgery
been used, the happening of the injury which may occur even when due care is
permits, but does not compel, an infer- exercised. Rarity of the occurrence is not a
ence defendant was negligent. sufficient predicate for application of res
The contest in this case concerns pres- ipsa loquitur.... There is no basis in the
ence of the second foundation fact [from present case, in expert testimony or other-
the quoted paragraph]. wise, for saying plaintiff’s injury is more
.... likely the result of negligence than some
Defendant argues the second founda- cause for which the defendant is not
tion fact for res ipsa loquitur is absent responsible.
because it does not lie in the common ....
knowledge of laymen to say injury to the We do not believe there was any basis
laryngeal nerve does not occur if due care in this case for submission of res ipsa
is exercised in anterior approach cervical loquitur. Trial court did not err in refusing
fusion surgery. to submit it.
We must initially decide what has previ- III. Express warranty. [The court dis-
ously been an open question in this juris- misses this count, saying that the evi-
diction: may the common experience to dence supporting her argument that the
establish the second foundation fact for physician guaranteed a good result was
res ipsa loquitur be shown by expert testi- equivocal in nature: “There comes a point
mony? when a question of fact may be generated
[The court proceeds to review cases as to whether the doctor has warranted a
from Wisconsin, California, Oregon, and cure or a specific result. However, in the
 Chapter 3: Negligence 87

present case the evidence does not rise to gral part of the treatment procedure but
that level.”] merely a known risk, the courts are
IV. Battery or trespass. Plaintiff con- divided on the issue of whether this
tends there was also sufficient evidence to should be deemed to be a battery or
submit the case to the jury on the theory negligence.
of battery or trespass. In effect, she ....
alleges she consented to fusion of two We agree with the majority trend. The
vertebrae (removal of only one protruded battery theory should be reserved for
disc) thinking there would be a separate those circumstances when a doctor per-
operation if additional vertebrae had to be forms an operation to which the patient
fused. She asserts the fact four vertebrae has not consented. When the patient
were fused combined with defendant’s gives permission to perform one type of
assurances and failure to warn her of spe- treatment and the doctor performs
cific hazards vitiated her consent and another, the requisite element of deliber-
makes the paralyzed vocal chord [sic] the ate intent to deviate from the consent
result of battery or trespass for which given is present. However, when the
defendant is liable even without negli- patient consents to certain treatment and
gence. There was no evidence or con- the doctor performs that treatment but
tention by her in the trial court nor is there an undisclosed inherent complication
any assertion here that she would not with a low probability occurs, no inten-
have consented to the surgery had she tional deviation from the consent given
known those things she says were with- appears; rather, the doctor in obtaining
held from her prior to surgery. consent may have failed to meet his due
Defendant testified plaintiff was fully care duty to disclose pertinent informa-
advised as to the nature of her problem tion. In that situation the action should
and the scope of corrective surgery. He be pleaded in negligence.
acknowledges he did not advise her of the From our approval of this analysis it
hazard of vocal chord [sic] paralysis. He should be clear we believe the battery or
believed the possibility of such occurrence trespass theory pleaded by plaintiff in
was negligible and outweighed by the this case is limited in its applicability to
danger of undue apprehension if warning surgery to which the patient has not con-
of the risk was given. sented. There must be a substantial dif-
[The court next begins a discussion of ference between the surgery consented
the distinction between consent and to and the surgery which is done. Plaintiff
informed consent, quoting with approval asserts she consented to only one fusion
from its own landmark case of Cobbs v. rather than two. Assuming this is true,
Grant:] the most that could be argued is [that]
Where a doctor obtains consent of the the second fusion was a battery or tres-
patient to perform one type of treatment pass. But she does not claim damages for
and subsequently performs a substan- a second fusion. She asks damages
tially different treatment for which con- because of injury to the laryngeal nerve
sent was not obtained, there is a clear during surgery. The evidence is undis-
case of battery. However, when an undis- puted that whether one or two fusions
closed potential complication results, were to be done the path to the axial col-
the occurrence of which was not an inte- umn had to be cleared by retraction of
88 The Law of Healthcare Administration

the visceral column. Hence, any injury have generated a jury issue on negli-
caused by such retraction occurred dur- gence, but we do point out that recovery
ing a procedure to which consent had on such basis is precluded unless a plain-
been given. Retraction of the visceral col- tiff also establishes he would not have
umn during the surgery was not a battery submitted to the procedure if he had
or trespass. been advised of the risk.... There is no
We have no occasion to reach the evidence plaintiff would have withheld
question whether failure to advise plain- her consent in this case.
tiff of the risk of laryngeal nerve injury ....
would in the circumstances of this case Affirmed.

Perin v. Hayne Discussion Questions

1. Has due care been shown? Does it need to be?

2. What is the “second foundation fact,” and how does “common experi-
ence” matter in relation to it?
3. The opinion states, “There must be a substantial difference between the
surgery consented to and the surgery which is done [for a battery case
to be made].” What would amount to a “substantial difference” in your
mind? What if throat cancer had been discovered and cleanly removed
with no aftereffects? Would that be a substantial difference justifying
damages for battery even though no other injury (and, in fact, a bene-
fit) had resulted?
4. Why did the court “have no occasion” to decide whether failure to
advise the plaintiff of the risk of nerve injury raised a negligence issue?
 CHAPTER

THE ORGANIZATION AND MANAGEMENT OF

4
A CORPORATE HEALTHCARE INSTITUTION

After reading this chapter, you will

• understand that a corporation is a “person” for many legal

purposes, but it is not an “individual” or a “citizen” in the
view of the law. Laws that apply to persons also apply to cor-
porations; laws that specify individuals or citizens do not.
• recognize that incorporation has many advantages, the most
significant of which is limiting the liability of the individuals
who own the corporation.
• realize that the powers of a corporation are limited and must
be specified in state law and/or the corporate charter.
• understand that the governing board must be actively
involved in overseeing the affairs of the company without
meddling in management’s control of day-to-day operations.
• know the ways to avoid “piercing the corporate veil.”

Most institutional providers of healthcare are corporations, and this chapter

will focus on the fundamental nature of the corporate form of organization.
However, healthcare can also be provided by sole proprietorships and part-
nerships. In a sole proprietorship, an individual (such as a family physician in
solo practice) assumes all possible organizational roles: employer, employee,
and owner. The proprietor usually retains any profits, or suffers any losses,
and bears the full risks of the enterprise.
A partnership exists if the proprietor is joined by someone who will
share in the rewards and risks. Partnerships are governed by state law and by
an agreement between the parties,1 and the parties have great latitude to
develop an agreement that will suit their needs.

89
90 The Law of Healthcare Administration

The simplest kind of partnership is a general partnership. Although

this can be changed by agreement, general partners usually receive equal
shares of profits or losses, are entitled to equal voting rights, and are person-
ally liable for the debts of the venture.2 On the death or departure of a part-
ner, the partnership is automatically dissolved, but the business operation
does not necessarily end.3 All owners of a general partnership ordinarily con-
trol the business by consensus; however, as the volume of business and the
number of partners increase, owners often change the business into a limited
partnership or a corporation.
A limited partnership is an organization that provides limited liability
to some persons who invest in the organization.4 It has some of the charac-
teristics of both a general partnership and a corporation with respect to for-
mation, operation, and liabilities.5 (The characteristics of corporations are
discussed later in this chapter.) It requires one or more general partners who
have the managerial powers and unlimited liability that “partner” normally
implies. Limited partners, on the other hand, have no right to participate in
the day-to-day management or control of the business; in return, they are not
liable to third-party creditors for the partnership’s debts. To create a limited
partnership, one files with a designated public official—typically the county
recorder or the secretary of state—a certificate containing essential informa-
tion about the partnership. Typically the certificate must contain:

• the partnership’s name,

• the partnership’s street and mailing address, and
• the names and business addresses of the general partners.

A joint venture is a special form of partnership created by contract

to accomplish an identified, specific purpose—for example, operation of a
free health-screening service for the poor. A joint venture will usually exist
for a limited period. Each participant will ordinarily share in management;
profits and losses will be shared in accordance with the agreement; and lia-
bility is unlimited. Two or more corporations may create a joint venture.6
Joint ventures have become popular in the healthcare industry. The rest of
this chapter will focus on corporations, the predominant form of health-
care organization.

Formation and Nature of a Corporation

A corporation is “an artificial being, invisible, intangible, and existing only in

contemplation of law. Being the mere creature of the law, it possesses only
those properties which the charter confers upon it, either expressly or as inci-
dental to its very existence.”7 (See The Law in Action.)
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 91

Accordingly, a corporation is purely a creation of the legislature and

can exist only by virtue of a statute providing for its formation and the grant
of a franchise (“charter”). In both England
and the United States the early corporations
were ecclesiastical, educational, charitable, The Law in Action
or even governmental in purpose and were
A nine-decade-old case from the
usually created by special act of the legisla-
House of Lords (England’s equivalent
ture. (The American Red Cross, for exam- of the U.S. Supreme Court) alludes to
ple, is a corporation chartered by the U.S. the artificial “personhood” of a cor-
Congress.) poration:
The modern corporation came into “A corporation is an abstraction. It
prominence in the latter part of the nine- has no mind of its own any more than
it has a body of its own; its active and
teenth century with passage of state statutes
directing mind must consequently be
for incorporating businesses. In effect these sought in the person of somebody who
laws allowed any group of persons (or even for some purposes may be called an
a single individual in some states) to incor- agent, but who is really the directing
porate an enterprise for any lawful purpose, mind and will of the corporation, the
as long as statutory requirements are met. very ego and center of the personality
of the corporation.”
These corporation laws eliminated the need
Thus, the Lords found that the cor-
for special legislative action each time a cor- poration itself was liable for the negli-
poration was created. gence of its director (see Lennard’s
Legislation characterized as “general Carrying Co., Ltd., v. Asiatic Petroleum
business corporation acts” provides for the Co., Ltd., 1915 A.C. 705).
formation and operation of business corpo-
rations organized for profit and embracing
a wide range of enterprises such as manufacturing, wholesaling, and retailing.
Some states have no separate corporate statute for not-for-profit organiza-
tions, but most have a not-for-profit corporation statute. Many states also
have separate corporation laws governing the creation and operation of par-
ticular types of business such as banking; public utilities; and the practice of
law, medicine, dentistry, accountancy, and similar professions.
It is important for the executives of a corporation to know the relevant
statute under which it is incorporated, because this statute will limit the con-
duct of the corporation’s affairs. The organization has only the powers
granted to it by its charter and as specified or implied in the relevant statute.
(See the section “Powers of a Corporation” later in the chapter.)
Implicit also in the definition of a corporation is the fact that it is an arti-
ficial person or legal entity distinct from the individuals who created, own, or
manage it. Accordingly, corporations are usually included in the definition of
“person” under constitutions and statutes. For example, the Fifth and Four-
teenth Amendments to the U.S. Constitution provide that no “person” shall
be deprived of “life, liberty, or property without the due process of law,” and
the Fourteenth Amendment provides that no state “shall deny to any person...
92 The Law of Healthcare Administration

the equal protection of the laws.” It has long been held that corporations as
well as individuals are protected by these fundamental doctrines.
On the other hand, a corporation is not a “person” under state licen-
sure statutes governing the practice of the professions. A corporation, as an
artificial person, cannot obtain a license to practice a profession because it
cannot possess the educational requirements or meet the standards of per-
sonal character required for professional licensure. (This prohibition on cor-
porate licensure must, of course, be distinguished from those statutes that
permit licensed individuals to incorporate their practice.) Similarly, a corpo-
ration is not a person within the meaning of the Fifth Amendment’s protec-
tion against self-incrimination because the purpose and intent of the provi-
sion applies only to people.
Although a corporation is generally a “person,” it is not a “citizen”
and thus cannot vote in an election. Thus, a corporation is not protected by
the Fourteenth Amendment’s provision that “no state shall make or enforce
any law which shall abridge the privileges or immunities of citizens of the
United States.” Hence, a particular state can require that a corporation incor-
porated elsewhere pay special taxes, franchise fees, or other fees in return for
the privilege of doing business within the state’s borders. In other words, a
natural person who is a citizen has freedom of mobility from state to state
without special restrictions, whereas a corporation does not.
A corporation is a legal entity distinct from those who created it, own
it, or are employed by it. Hence, the corporation can acquire, own, and dis-
pose of property (including stock in other corporations) in its own name, and
it can sue and be sued. In short, a corporation is an independent entity with
rights and responsibilities of its own.
A corporation is formed by filing articles of incorporation with the sec-
retary of state or other designated official of the state in which incorporation
is sought. As soon as these are approved by the authorized official, the cor-
porate charter is said to have been issued. Although requirements regarding
the proper form of the articles differ somewhat from state to state, the prin-
cipal information in the articles includes the following items:

• the name of the corporation,

• the address of the corporation’s office,
• the name of the registered agent authorized to receive service of process,
• the names and addresses of the incorporators,
• the duration of corporate existence (on which there is usually no limit),
• the purposes of the corporation,
• the names of the initial members of the board of directors, and
• the number and classification of shares of stock (in a profit-making cor-
poration) or the designation of “members” if any (in a not-for-profit
organization).
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 93

The incorporators are those who prepare, sign, and file the articles
of incorporation. Some states require a minimum number of incorpora-
tors, but many others permit a single individual to act as the incorpora-
tor.8

Advantages of the Corporate Form of Organization

There are five principal advantages to incorporation—limited liability, perpetual
existence, free transfer of ownership interests, taxation separate from individual
income taxes, and the ability to raise capital. Each is discussed below.

1. The primary advantage of incorporation is limited liability. Normally the

owners of a corporation are not personally liable for the corporation’s
contracts or torts. A shareholder of a profit-making corporation is not
personally liable, with some few exceptions, for corporate debts beyond
the extent of the investment in its stock. The magnitude of this advan-
tage is easily appreciated if one considers how a catastrophic loss can
affect a sole proprietor or partner. Limited liability also encourages
socially desirable ventures that may otherwise entail an unacceptable
risk. Employees are also favored because agents of a corporation are not
personally liable for corporate obligations, so long as they act within the
scope of delegated authority.
2. The second advantage is perpetual existence. Unlike in a sole propri-
etorship or partnership, a corporation’s continued legal existence and
operational capabilities in most instances are not affected by the death
or disability of an owner.
3. The third benefit of incorporation is free transfer of ownership interests,
(at least if the corporation is organized as a for-profit). Shareholders in
the organization can sell their interests to fellow shareholders or the
general public (unless special provisions are made and noted on the
stock certificates). Free transferability is an important attribute because
it increases the liquidity and value of corporate investments. In the case
of a not-for-profit corporation, however, state statutes usually provide
that membership interests may not be transferred unless the bylaws
specifically provide for transferability.9
4. The fourth benefit is that a corporation’s taxation is separate from indi-
vidual income taxes. That is, if the corporation has taxable income, the
tax liability belongs to the corporation rather than to the individuals.
The corporate tax rate is generally lower than the personal income tax,
and the persons who own the corporation are taxed only on the distri-
butions of income (dividends) they receive, not on their proportionate
shares of the entire corporate profit.
5. The final advantage is that the corporate form has the ability to raise
outside capital easier, because third-party investors enjoy limited risks
94 The Law of Healthcare Administration

and an opportunity for reward. In a competitive market, access to

equity capital, as distinct from borrowing and creating debt, is a major
consideration when undertaking new or expanded ventures.

Powers of a Corporation
A corporation may act only within its corporate authority—that is, it has only
those powers that are consistent with the statute under which it is formed and
its state-approved charter. The language of the purpose clause in the articles
of incorporation is, therefore, extremely important in determining the limits
of corporate power.
There are two kinds of powers: express and implied. Express pow-
ers are those specifically designated by charter or statute. The relevant
statute under which the corporation is formed will enumerate various
express powers such as the power to buy, lease, or otherwise acquire and
hold property and the power to make contracts to effectuate corporate
purposes. Implied powers flow directly from express powers and are the
powers to enter into transactions that are reasonably necessary to carry out
the express powers. The existence of implied power is generally deter-
mined by whether a transaction tends to directly further or accomplish the
corporation’s purposes and objectives.
Charlotte Hungerford Hospital v. Attorney General, although not
involving a typical “corporate charter,” illustrates the importance of knowing
the limits of corporate power. To read this case, see The Court Decides at the
end of this chapter.
Any departure from express or implied corporate power is said to be
ultra vires (“beyond the power” of the corporation). Therefore, in plan-
ning for the future and in making commitments, the governing body of
the corporation must keep a close eye on the corporation’s legal author-
ity, and legal advice regarding this issue is of utmost importance. For
example, if a not-for-profit corporation makes a donation or transfers
assets to another institution for a purpose not included in its own charter,
the transfer would be ultra vires.
An ultra vires contract is usually void and can be challenged in a suit
for an injunction. In an extreme situation the state could revoke the corpo-
rate charter; however, given the ease of amending the articles of incorpora-
tion and bylaws, ultra vires problems are relatively rare today.10 One should
note, however, that members of the governing body and corporate officers
can be held personally liable for losses suffered by the corporation as a result
of an ultra vires transaction in which they acted knowingly or in bad faith. No
personal liability will accrue, however, as long as they acted honestly and were
simply mistaken in their judgment of the matter.
Transactions that raise the issue of corporate power in healthcare
include the following:
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 95

• lending credit or guaranteeing the debts of another corporation,

because such a transaction would be outside the purpose of a hospital;
• making loans to its corporate trustees, officers, or members;
• forming a partnership with another corporation or an individual; and
• consolidating or merging with another corporation.11

These transactions are not necessarily ultra vires, but the corporate
authority to enter into them must be verified with legal counsel. (Corporate
consolidations and mergers are discussed later in the chapter.)
The doctrine of ultra vires applies to governmental institutions as well
as private corporations. For example, the attorney general of Florida ruled
that in the absence of an express statutory provision, a county hospital lacked
the authority to lease the hospital’s facilities to a private corporation.12 Sim-
ilarly, a taxpayer in Georgia successfully challenged a public hospital’s pur-
chase and operation of a retail store that leased and sold medical equipment
to the general public. When affirming the trial court’s decision to enjoin the
transaction, the Georgia Supreme Court observed that a public hospital may
not engage in independent private business enterprises without statutory
authority.13

Not-for-Profit Corporations
A not-for-profit (aka “nonprofit”)14 corporation is one in which no part of
the income or profit of the organization can be distributed for private gain to
shareholders, members, directors, trustees, officers of the corporation, or
other private individuals.15 A profit-making corporation is owned by share-
holders, who are entitled and expect to receive dividends from the earnings
of the corporation and to share in assets should the corporation be dissolved.
Not-for-profit corporations, on the other hand, are almost always prohibited
by statute from issuing shares of stock. A not-for-profit corporation can, of
course, earn income and actually make a profit without sacrificing its not-for-
profit status, so long as it uses that profit for institutional purposes. Moreover
it can, without question, pay a salary or wage to corporate members, trustees,
or other individuals who are actually employees or professional persons ren-
dering actual service. As long as the compensation paid is reasonable, it is not
“private gain” that would jeopardize the corporation’s not-for-profit sta-
tus.16
In sum, motive is important in determining not-for-profit status. In
a not-for-profit institution, motives of ethical, moral, or social purposes pre-
dominate and profit is not fundamental to the purpose of the endeavor. But
a mere declaration of not-for-profit purpose in a corporate charter is never
conclusive if in fact the entity is being used as an alter ego for private gain.17
For this reason the purpose clause in the articles of incorporation of a not-
for-profit corporation is usually quite restrictive. Although a not-for-profit
96 The Law of Healthcare Administration

corporation can be organized for many lawful purposes, the incorporators

normally state a specific purpose such as establishing a hospital, a symphony
orchestra, or a museum of fine arts.
Not-for-profit status is a necessary first requirement for tax exemption,
not only under the federal income tax statutes and regulations18 but also
under the various state statutes providing for taxes on income, real or per-
sonal property, and sales.19 Aside from taxes, many state laws make signifi-
cant distinctions between regulations governing not-for-profit and business
organizations.
A not-for-profit corporation must be distinguished from a charitable
corporation. Although charitable status demands not-for-profit status, a not-
for-profit corporation need not have a charitable purpose. Many social clubs
and similar organizations that provide services exclusively to members are
organized and operated as legitimate not-for-profit corporations without
being formed for charitable or benevolent purposes. Such corporations,
therefore, will not qualify for the tax-exempt status that charitable corpora-
tions enjoy.20
In addition to the fact that a private business corporation has share-
holders entitled to dividends and a not-for-profit corporation does not,
there are other significant differences. Not-for-profit corporations may or
may not have “members,” depending on the provisions of the law under
which they are incorporated. Members of a not-for-profit corporation are
roughly equivalent to a business corporation’s shareholders, but they are not
entitled to receive dividends. Like shareholders, however, they hold certain
“reserved powers” such as the authority to do the following:

• elect members of the governing body;

• approve merger or dissolution of the corporation;
• amend the articles of incorporation and bylaws, including changing the
corporate purpose;
• set the corporate philosophy and mission; and
• adopt annual budgets, unless the board of directors is given this
power.21

In most states, members must meet at least annually to conduct busi-

ness. In a corporation without members the board of directors is the sole
governing authority, and it has the statutory power to exercise the reserved
powers.22
Upon the dissolution or merger of a not-for-profit corporation, the
assets of the corporation must be distributed in accordance with state law and
the provisions of the articles of incorporation. Generally, the assets must be
distributed to another corporation with a similar purpose. According to some
cases, however, when dissolution occurs, assets acquired by gift are to be
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 97

returned to the donor; in others, all assets are held to revert to the state; and
in still others, it has been ruled that members of a membership corporation
are entitled to the assets in certain circumstances.23

Internal Management of a Corporation

Corporate bylaws contain rules for the internal management and gover-
nance of the corporation. Unless statutes or the articles of incorporation
provide otherwise, the power to adopt and amend bylaws of the corpora-
tion lies with the membership or shareholders. In short, the governing
body (board of directors or trustees) cannot adopt or amend corporate
bylaws unless it has been specifically granted this power in the statute or
charter. The bylaws define the rights and duties of the corporate members
or shareholders, the powers and responsibilities of the governing body,
and the rights and duties of the major corporate officers. Corporate bylaws
are an internal document; hence, they need not be filed in any public
office or otherwise made available for public inspection (unless state law
so requires).
As noted before, certain extraordinary matters normally require the
vote of members or shareholders. As noted below, other major powers reside
with the governing board. Otherwise, the day-to-day management of the
corporation is the responsibility of its chief executive officer and other man-
agement staff.

The Governing Board of a Healthcare Institution

The governing body of a healthcare institution has four major functions:

1. Develop policy and strategic plans.

2. Appoint senior administration and medical staff members.
3. Delineate clinical privileges.
4. Oversee the professional performance of both lay administrators and the
medical staff.

Committee Structure and Execution of Policy

To fulfill these functions properly, the board must ensure the proper organi-
zation of its own committee structure, management committees, and med-
ical staff. For example, the board must be sure that its executive committee
is functioning and operating properly in executing board policy between
board meetings. This committee must not assume the power to make deci-
sions that are legally reserved to the board as a whole or to the members.
Moreover, the executive committee is not permitted to delegate its responsi-
bilities to any individual member of the committee.
98 The Law of Healthcare Administration

In addition to the executive committee, other standing committees

typically include the following:

• Finance. The finance committee is given authority for managing and

investing hospital funds and for the overall supervision of fiscal policies.
• Buildings and grounds. The buildings and grounds committee generally
oversees the physical plant.
• Personnel. This committee develops policies regarding salaries, wages,
and fringe benefits for employees.
• Public relations. The public relations (or corporate communications)
committee oversees the message being distributed to stakeholders and
the general public.
• Education. The education committee recommends training programs
for personnel.
• Corporate compliance. This compliance committee ensures that meas-
ures are in place to enable compliance with legal standards.
• Medical staff relations. The medical staff relations committee promotes
mutual understanding between the lay board and the professional staff.

Each committee’s role is to offer recommendations and advice to the

governing body, because the ultimate responsibility for all decisions usually
remains with the board.24
Having set policy for the institution, the board must ensure that com-
mittees and management carry it out effectively. The board should not
become involved in the details of day-to-day management and operations—
these are delegated to the hospital administration and to the medical staff—
but it must have mechanisms in place to review performance and hold the
corporation’s agents accountable. It is basic law that when authority for
implementing policy is delegated, the authority can be revoked if perform-
ance is unsatisfactory. The board must not abdicate its responsibilities by del-
egating responsibilities and not monitoring their execution. Accordingly, all
corporate officers and the medical staff are in fact subordinate to the board.
As previously noted, the corporate bylaws govern the board’s struc-
ture and the administration of the hospital, control internal operations,
and provide for management of corporate property. The bylaws define the
powers, duties, and limitations of the board’s responsibilities, always of
course in accord with state incorporation statutes. In addition to corpo-
rate bylaws, the board is empowered to adopt bylaws for its own govern-
ment. Special bylaws, rules, and regulations govern and control the organ-
ization of the hospital’s professional staff, its officers and committee
structure, and its functions. These medical staff bylaws and subsequent
amendments to them must be approved by the board of trustees and are
incorporated by reference as part of the corporate bylaws.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 99

Composition and Meetings of the Board

The board’s size is determined by the articles of incorporation or bylaws.
Some states require a minimum number of board members, usually three,
while others allow as few as one board mem-
ber.25 In a membership type of not-for-
profit corporation, the members of the cor- The Law in Action
poration ordinarily elect the members of the
A West Virginia licensing statute
governing body. Most statutes permit a non-
requires that at least 40 percent of the
member of the corporation to be elected to members of governing boards of both
the board. In a not-for-profit corporation local governmental and not-for-profit
without members, the board itself may select hospitals be composed of “consumer
new members. This is called a “self-perpetu- representatives.” These are individuals
ating” board. In some situations, such as in in small businesses, members of labor
organizations, elderly persons, and
a state or county hospital, a public official or
low-income persons. Each of these
body may appoint board members. Terms of groups is entitled to equal representa-
office and qualifications of the members of tion on each board. Women, members
the board will be determined by charter or of racial minorities, and the handi-
bylaw provisions drafted in accordance with capped are to be given special consid-
statutory requirements. For example, local eration when appointments or nomina-
tions are made for board membership.
statutes may require that trustees be of
The statute may be enforced by an
majority age and that a certain number of action for a court injunction initiated
trustees be residents of the state of incorpo- by any citizen or the state department
ration.26 (See The Law in Action.) of health.27
A special election may be called to fill The West Virginia statute was
sudden vacancies on the governing board, enacted primarily to help control
healthcare costs. There has been no
and directors can be removed from their
subsequent evidence, however, that
posts for legal cause or justification. Gener- the presence of consumer representa-
ally this must be done by those possessing tives on healthcare organizations’
the power of election. To put the matter boards has had an effect on reducing
another way, the governing board of a not- healthcare expenditures.
for-profit membership corporation may not
usually vote to remove a member of the
board unless the statutes, charter, or bylaws provide for such action.28
Depending on the circumstances and local statute, the removal of a board
member sometimes requires court action or action of the state’s attorney
general. Regardless of who has the power of removal, the individual who is
subject to the proceeding has a right to due process of law—a statement of
the reasons of removal and an opportunity to hear and challenge evidence
and cross-examine witnesses. One who has been the subject of an improper
removal may bring an action in court for reinstatement.29
Members of the governing board usually cannot be paid or compensated
for their services on that body unless local statutory law permits the corporate
charter or bylaws to provide for compensation. The rule is particularly relevant
100 The Law of Healthcare Administration

to not-for-profit corporations because of the fundamental doctrine that members

and trustees of such an institution must not derive any personal financial gain
from the corporation. Hence, salaries to board members or special financial ben-
efits, such as a discount for hospital services rendered to board members and
their families, are usually improper even if local corporate law would otherwise
authorize such payments. This prohibition, of course, excludes salary paid to a
corporate officer who is also a voting member of the board. For example, most
healthcare organizations place the chief executive officer on the board; this indi-
vidual could be paid a reasonable salary for her executive services, although she
may not participate in the board action that establishes the salary. Similarly, a hos-
pital attorney who sits on the board may be paid reasonable fees.30
In managing the affairs of the corporation the board must act in a prop-
erly constituted, formal meeting. Independent action by one or even a majority
of board members does not bind the corporation. Except for regular meetings
provided for in the articles of incorporation or corporate bylaws, proper notice
of a meeting must be given to each board member, usually in writing. Unless
such notice is given, the meeting is invalid, except that if all members have actu-
ally attended the meeting, it can be said that they have waived the notice require-
ment. Even so, decisions made at a casual, unannounced gathering of the board
may be ineffective. If the statutes permit, meetings can be held by teleconfer-
ence; otherwise, members must attend in person.31
A written record (minutes) should be made of the action taken at each
meeting of the board. Members who object to any proposed action should make
certain that their dissents are noted in the record. The frequency of meetings
depends on provisions in the charter or bylaws and on particular circumstances.
Unless the local statutes, charter, or bylaws provide otherwise, the choice of the
place of the board meeting may be at the discretion of the board. Meetings may
even occur outside the state of incorporation, as long as the place selected is rea-
sonably convenient.
The charter or bylaws will fix the number of board members necessary
for a quorum. In the absence of a provision, the rule is that a quorum is a sim-
ple majority of the board and that a majority vote of those voting on an issue is
sufficient to bind the corporation. Members of the board may not vote by proxy
in the absence of a specific statutory or bylaw provision because each member
has a fiduciary duty to attend meetings personally and to exercise independent
judgment.32
Note that the foregoing general principles of corporate law are
reflected in the Hospital Accreditation Standards published by the Joint
Commission.

Duties of the Governing Board

As previously pointed out, directors or trustees of a corporate entity are not
agents or employees of the corporation. They are not personally liable for
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 101

corporate debts and contracts, and they are not personally liable for the torts
committed by corporate employees.33 In these matters, the corporation itself is
the responsible party. (But if employ-
ees commit a tort within the scope of
their employment, both the corpora- Legal Brief
tion as the employer and the person
who committed the tort are liable to Members of the governing board of charitable cor-
the injured third party.) porations are frequently called “trustees.” Strictly
Notwithstanding these general speaking, however, they are not trustees because a
principles of corporate law, members trustee is vested with the title to property that is
of the governing board can sometimes held and managed for the benefit of others. In a
be personally liable for failure to carry corporation the title to property is vested in the cor-
poration itself. Under trust law the duty of a trustee
out their fiduciary duties properly (see is generally higher than the duty of a member of the
Legal Brief). The term “fiduciary” governing body of a corporation. For example, the
means simply that one is in a position trustee of a trust may be liable for poor business
of great trust and confidence and has judgments in the management of the property held
rights and powers to be exercised for the beneficiaries’ benefit. A governing board
solely for the benefit of others. The member, however, will generally be held liable only
for actual negligence, willful disregard of duty, or
members of the governing board of a wrongful acts.
profit-making enterprise owe their
fiduciary duties to the corporation and
the stockholders. In a not-for-profit
corporation the duties are owed to the
corporation and its members, if any, and in some cases to the community at
large.
Hospital board members’ duties can be listed a number of ways. For
teaching purposes, I usually list eight:

1. Act with loyalty and due care.

2. Protect hospital property.
3. Avoid self-dealing and conflicts of interest.
4. Establish and oversee hospital strategic goals.
5. Select the chief executive officer.
6. Select a qualified medical staff.
7. Supervise the quality of medical care.
8. Establish operating budgets.

These specific duties can probably be boiled down to two: loyalty and
responsibility.

The duty of loyalty means that the individuals must put the interests of the Duty of Loyalty
corporation above all self-interest (a principle based on the idea that “no
one can serve two masters”). Specifically, no trustee is permitted to gain
102 The Law of Healthcare Administration

any secret profits personally, to accept bribes, or to compete with the cor-
poration.34
The duty of loyalty also raises the question of whether a director can
personally contract with the corporation. Can directors, for instance, sell
supplies or services to the hospital? The answer is “yes,” if certain high
standards are met. A director or trustee may usually contract with the cor-
poration if the contract is fair, if full disclosure of all personal interest is
made, and if utmost good faith is exercised.35 The director should never
vote on or participate in the discussion of the transaction, either directly
or through an agent. Competitive bidding should be used to establish the
fairness of the contract. The burden of proving the fairness of a contract
and disclosing self-interest is always on the individual director, and the
court will closely scrutinize the transaction if the matter is challenged. It
is, therefore, riskier for a director to buy from a hospital and then resell at
a personal profit than to sell personal property or services to the institu-
tion at fair market value.36 A contract with a governing board member
that does not meet the aforementioned standards is not void, but it is
voidable. 37
There may be specific state statutes pertaining to board members’
contracts with the corporation they serve.38 In a governmental hospital,
state law may prohibit all transactions between a board member and the
corporation, even if full disclosure is made and the contract is fair. When-
ever members of a governing board wish to contract with the corporation
they serve, it follows that they must seek careful legal advice based on local
law.
In addition to making certain that the letter of the law is followed,
every hospital should have and should follow conflict-of-interest policies.
Each board member must be required to file a written declaration of possi-
ble conflicts of interest and disclose gifts, gratuities, and lavish entertainment
offered by companies doing business with the hospital.

Duty of The fiduciary duty of responsibility means that members of the hospital gov-
Responsibility erning board must act with due care in every activity of the board. Good faith
and honesty are the major tests in determining whether due care has been
exercised. This is the same standard of care imposed on the director of a busi-
ness corporation.39
The first word in “act with due care” is act. The directors of a hospital
corporation must actually direct the company. It is not enough that they merely
preserve corporate property as caretakers; they must use corporate property to
achieve corporate objectives. Directors must, therefore, attend meetings of the
board and actively participate in decisions.
Included in the duty of responsibility is the idea that directors and
trustees must exercise reasonable care in selecting and appointing the chief
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 103

executive officer and other corporate agents, such as outside legal counsel.40
They must also use reasonable care in supervising the agents whom they appoint
and in holding them accountable, and they have a duty to remove a chief exec-
utive officer or other agent whom they know (or should know) is incompetent.
There is also a duty to use reasonable care in appointing individuals to the
medical staff. Case law now makes it clear that a corporate duty exists to restrict
clinical privileges or to terminate an appointment when the board knows or
should know of incompetence on the part of a medical staff member.41 That is,
there is corporate liability when the board knew of professional malpractice or
when it should have known this from the management and medical staff depart-
ments charged with reviewing each staff physician’s clinical performance.
Board members may rely on written, documented reports and recom-
mendations from responsible professional sources such as medical staff commit-
tees, hospital accountants, and legal counsel. They need not personally verify all
items in these reports if nothing arouses suspicion or question,42 but there is a
liability risk if they fail to obtain professional advice when there is an apparent
problem—for example, if they fail to obtain competent legal counsel when the
hospital has a recognizable legal issue.
In general, board members are not personally liable for honest
errors in business judgment. This is consistent with the standard applica-
ble to the directors of for-profit corporations and means simply that board
members must exercise the judgment that reasonably prudent directors or
trustees would be expected to exercise under similar circumstances. (An
example of the lack of honest business judgment that could render a mem-
ber of a governing board personally liable is permitting institutional funds
to remain in a bank that the member knew or ought to have known was
in financial straits.43)
Stern illuminates the kinds of responsibilities board members carry
and the difficulties that can arise when they are not adhered to. (See The
Court Decides: Stern v. Lucy Webb Hayes National Training School for
Deaconesses and Missionaries at the end of this chapter for an example of
these responsibilities not being met.) As you read this case, remember that
the facts occurred nearly 50 years ago. For this reason, the sanctions the
court meted out are mild compared to what would be ordered if a board
today abdicated its responsibilities in the way the Sibley Memorial Hospi-
tal’s board did many years ago.

Protection Against Liability

In general, personal liability of hospital directors is not a serious financial
risk so long as they regularly attend board meetings, vote personally, avoid
conflicts of interest, and exercise utmost good faith and honesty in conduct-
ing the corporation’s affairs. The best means of establishing good faith and
honesty is a written record of all the board’s deliberations, including the
104 The Law of Healthcare Administration

votes of individual trustees on individual transactions. Any member who dis-

sents from majority action of the board should, therefore, make sure that the
dissent is part of the written record.44
Individual trustees and corporate officers have two means of protecting
themselves: (1) purchasing liability insurance and (2) making sure that the cor-
poration has appropriate indemnification provisions to protect board members
if they suffer any personal loss because of exercising their (good faith) board
responsibilities.
Because insurance may be expensive and not sufficiently compre-
hensive, many not-for-profit corporations favor indemnification plans or a
combination of insurance and indemnity. Insurance for directors and offi-
cers may, for example, exclude coverage for gross negligence, for inten-
tional acts, and for criminal activity. Indemnification means that if a
trustee faces a civil suit alleging violation of fiduciary responsibilities or is
prosecuted in a criminal action, the individual may be repaid by the cor-
poration for personal expenses, including attorney’s fees and perhaps even
amounts paid as a result of the action. The hospital may in turn purchase
insurance covering the costs of indemnification.
Most state laws authorize a corporation to provide for indemnification.45
Many such statutes apply to directors and officers of the corporation, and fre-
quently they apply to both civil and criminal actions. Thus, depending on local
and state law, the trustees and officers have the right to indemnification under
certain circumstances. On this matter, careful legal advice is necessary to ensure
that the governing body understands the circumstances under which indemnifi-
cation can and cannot be provided. It is also imperative that the corporate char-
ter or bylaw provisions covering this matter be drafted with the utmost care.
Some statutes—those in New York, for example—are exclusive; that is,
a corporation can have an indemnification agreement with its governing board
and officers only to the extent precisely authorized by statute.46 Most statutes,
however, are permissive so that corporations may indemnify to a greater extent
than the statutes provide. Delaware’s is a prototype of this model.47 In general,
the statutes authorize indemnification plans for legal actions brought against
trustees and officers by stockholders or by members on behalf of the corpora-
tion as well as for actions by third parties.

Responsibilities of Management

In one sense this entire book involves the responsibilities of management. A

group of people known as “management” runs the day-to-day operations of
the corporation (under the overall guidance of the governing board, of
course.) All the topics covered in this text are important for managers to keep
in mind as they discharge their duties.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 105

Management comes from the Latin “manu agere”—to lead by the

hand. The literal translation may strike a discordant note to twenty-first cen-
tury ears. We prefer to think of ourselves as “leaders” who set goals and
empower others to reach them, not people driving a team of oxen. But the
fact remains that the job of management (or leadership, if you prefer) is to get
things done through people.
Management is an art. Like art, it is hard to define. From Adam Smith
and John Stuart Mill in the nineteenth century through Frederick Winslow Tay-
lor, Henri Fayol, and Peter Drucker in the twentieth century, many have tried
to define management in scientific terms. All have failed to some degree. But
no matter how one describes management, clearly it is that function of an
organization concerned with setting a goal (strategy), creating an action plan
(tactics) to achieve those goals, measuring outcomes, and reassessing the strat-
egy and tactics based on the outcomes.
In a healthcare organization, management functions begin with the senior
administration (from the Latin “administratio,” a compound of ad [to] and min-
istratio [serve]; the word is also the source of “minister”). Senior administrative
positions include, by whatever title, the chief executive officer, vice presidents, and
department directors. Their responsibilities include the following duties:

1. Support the governing board in its strategic planning and policymaking

activities.
2. Carry out (implement, administer, execute) the board’s policies and strate-
gic goals.
3. Communicate board policies and the strategic plan to employees and the
medical staff.
4. Oversee day-to-day hospital operations.
5. Measure the quality of patient care.
6. Manage operating funds.
7. Select qualified junior executives.
8. Conduct necessary business transactions.

Management must report regularly to the governing board on the status

of all these activities.

The Independent Hospital and Reasons for Change

For many years the corporate model of a hospital was that of a single legal entity—
one corporation with a governing board—providing acute care for medical and
surgical patients. All activities permitted by the corporate charter, including those
not directly related to the care of patients, were conducted by the single entity,
more often than not a tax-exempt, not-for-profit corporation.
106 The Law of Healthcare Administration

We now see that there are disadvantages to remaining a stand-alone

hospital corporation. For example, if the hospital corporation governs all
activities of whatever kind, all those activities are subject to the laws that
affect hospitals. Among these are tax laws and, where they still exist, laws
requiring certificates of need for capital improvements and major changes in
services.48 Stand-alone hospital corporations are also limited in their ability
to diversify and change their service lines. (Hospital charters may limit the
corporate purpose to inpatient care and directly related activities.)
For a quarter century (or more) hospitals have asked themselves,
“What business are we in?” Historically the answer was essentially, “We are in
the business of providing doctors with a building, equipment, and supplies
for them to treat people who have acute illnesses.” Over time, however, the
answer has become,

We are a team of people who work together to improve the health and
quality of life of the individuals and communities we serve.

This is obviously a far different vision, and it requires not only differ-
ent leadership skills but a different corporate structure as well. The new
vision—a focus on promoting health rather than simply treating illness—
involves activities that are alien to a traditional hospital corporation. There-
fore, the single corporate hospital entity is less and less common, and the
landscape is now populated with reorganized corporations that are better
suited to the new image of what healthcare is all about. As noted in the next
section, corporate reorganization (restructuring) takes several forms, with the
particular form determined by the needs of each situation.
It cannot now be disputed that healthcare in the United States has
been transformed from a professional service to a giant industry. Beginning
in the 1980s these factors led to a huge number of corporate reorganizations
(and re-reorganizations) to enable corporations to do the following:

• add new service lines,

• maximize revenues,
• reduce costs,
• grow market share,
• partner with physicians or other organizations, and
• obtain freedom from governmental regulation (to the extent possible).

A multiorganizational system can diversify the system’s operations and

can engage in a wide range of activities that a single institution cannot under-
take, because subsidiary entities can provide special services or perform functions
not related to healthcare without being hampered by certificate-of-need regula-
tions, restrictive corporate law, and third-party reimbursement regulations.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 107

Multi-institutional Systems and Corporate Reorganization

“Multi-institutional system” and “corporate reorganization” are generic terms,
and no single definition, model, or form exists that describes either concept.
The term “system” has been applied to agreements to affiliate or to share serv-
ices, consortiums of healthcare institutions, leases, contract-management
arrangements, and chains of institutions formed via consolidations, mergers, or
acquisition of assets. Each of these relationships has quite different legal impli-
cations. Thus, the term “system” can apply to a mere contractual agreement at
one extreme and to integrated corporate ownership and managerial control at
the other. In any event, formation of a system is a linking together of existing
or new legal entities and services.
The American Hospital Association once defined a system as two or
more acute care hospitals that are owned, leased, or contract-managed by a
corporate office. This definition is outdated. Many systems now include
skilled nursing facilities, extended care facilities, ambulatory care centers, out-
patient surgical centers, owned physician practices, home health agencies,
managed care plans, and other health-related organizations. (See Figure 4.1
for a view of a possible multi-institutional healthcare system.)
Systems may be not-for-profit, proprietary (for-profit), or a combina-
tion of both types. For example, a not-for-profit system corporation may own
both not-for-profit and for-profit subsidiary corporations. A system may also
be owned and managed by state or local government.
Whether composed of multiple corporate entities or a single corpora-
tion with multiple divisions, all multi-institutional systems have a corporate
office responsible for those activities that are best performed in a centralized
manner, thus providing efficiency and economies of scale. Some of the kinds
of functions that are commonly performed at the “corporate” level include
the following:

• finance, • strategic planning,

• billing, • education
• legal, • risk management,
• compliance, • quality assurance,
• human resources and recruiting, • engineering,
• protective services (security), • housekeeping, and
• health information management, • food service.

Some healthcare observers once suggested that multi-institutional sys-

tems use resources less efficiently than independent hospitals do, earn lower
rates of return on investment, and sometimes charge inpatients higher room
rates.49 If not run wisely, the cost of supporting a corporate office may be a bur-
den on an organization’s resources, and the allegiance of individual hospitals
may shift from the local community to the system at large in such a way that
 108

F I G U R E 4.1
XYZ Regional Health System Organization Chart

XYZ Regional Health XYZ Health

Foundation, Inc.

Fund-raising
Community Services, Inc. Hospital A Hospital B Other Nonhospital
Services XYZ PAC
MD referral service
The Law of Healthcare Administration

Wellness programs Freestanding ED

Health screenings Cancer Institute Children’s Hospital Mobile care team
Health education Child protection team
Hospice Care, Inc.

Home Health Long Term Land

Agency Care, Inc. Development, Inc.
Retail MD
Pharmacy Practices Nursing home A
Nursing home B = Not-for-profit
Practice A company
Practice B Hospice A
= For-profit
Hospice B company
Practice C
Practice D = Noncontrol
relationship
No shape = Unincorporated
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 109

unneeded services are offered or local services are inadequate. Independent hos-
pitals should engage in a careful study of all relevant factors and probable out-
comes before they make a commitment to form or join a multi-institutional sys-
tem.
Nevertheless, the multi-institutional system is now well entrenched in
the healthcare environment, and a quarter century of experience shows that
they are likely to remain on the landscape for many decades to come.

Piercing the Corporate Veil

As we now know, a corporation is a legal entity that has its own rights and
responsibilities separate and distinct from its owners. It is a convenient legal
fiction, and because it can limit legal and financial liability it has been an
invaluable vehicle for encouraging investment in both for-profit and not-for-
profit activities. On the other hand, if a corporation is used to “defeat public
convenience, justify wrong, protect fraud, or defend crime,” the law will dis-
regard the corporate fiction and place liability on the owners of the corpora-
tion.50 This is known as “piercing the corporate veil.” Most of the litigated
cases in which the corporate veil has been pierced have concerned closely
held corporations or corporate parent–subsidiary relationships.
For a court to pierce the corporate veil, three elements must normally
be proved by the party challenging corporate existence:

1. There was complete domination of the corporation by its owner(s).

2. Control of the corporation was used by the owner(s) to commit fraud
or perpetrate a wrong, violate a statutory or other duty, or commit a
dishonest or unjust act.
3. Corporate control was the proximate cause of the injury that is the
subject of the suit.51
The burden of proving all three elements is on the party that is chal-
lenging corporate existence. Although as early as 1910 the U.S. Supreme
Court noted a growing tendency to look beyond corporate form, courts
remain reluctant to do so.52 Accordingly, as a general rule all three elements
must be proved to the satisfaction of the trier of fact (the judge or the jury,
as appropriate).53
Complete domination of the corporation means domination of
finances, business practices, and corporate policies to such an extent that the
entity has no mind or will of its own.54 Mere directorship of the corporation
by a sole shareholder entitled to corporate profits is not enough to justify
piercing the veil. Courts look, on a case-by-case basis, for unity of interest
and ownership sufficient to destroy the separate identities of the owner or
owners and the corporation. Evidence of this unity is found in such facts as:
110 The Law of Healthcare Administration

• mingling of corporate assets with the owner’s personal funds;

• neglect of business formalities such as filing separate tax returns,
holding regular meetings of the board of directors, and keeping
adequate corporate minutes;
• having a mere “paper” corporation with nonfunctioning officers and
directors listed in the articles of incorporation; and
• insufficient capitalization of the corporation.55

The decision whether to disregard the corporate fiction, however, will

not rest on a single factor. Courts will most often look for several factors sug-
gesting that the corporation and owner should be treated as one and the
same.56 United States v. Healthwin-Midtown Convalescent Hospital 57 is a
good example. Defendant Zide owned half of the stock of Healthwin, a con-
valescent center that provided skilled nursing care in return for payments
from Medicare. Mr. Zide also had a 50 percent interest in a partnership that
held title to both the real estate occupied by Healthwin and the furnishings
of the nursing home. Concluding that the nursing home had been overpaid,
the government brought suit against Healthwin and against Mr. Zide himself
for the amount of the alleged overpayment. Mr. Zide defended the claim
against him on the basis that the debt was solely the corporation’s and that
he was entitled to limited liability.
In rejecting his defense the court noted these factors:

• Mr. Zide alone controlled the corporation’s affairs.

• He was a member of the board, the president of the corporation, and
the administrator of the nursing facility.
• He alone signed corporate checks without concurrence of another
corporate officer.
• The board of directors did not meet regularly.
• Mr. Zide failed to maintain an arm’s-length relationship with the corpo-
ration by permitting Healthwin’s funds to be “inextricably intertwined”
with his personal accounts and other business transactions.
• The corporation was seriously undercapitalized, having liabilities consis-
tently in excess of $150,000 with an initial capitalization of only
$10,000.
• Mr. Zide diverted corporate funds to the detriment of creditors.58

In the court’s opinion, these facts made it clear that Mr. Zide used the
corporation to accommodate his personal business dealings. The court held
that to allow him to escape liability in these circumstances would be unfair to
his creditors (including Medicare). Accordingly, Mr. Zide was found person-
ally liable for the amount due the federal government because the corpora-
tion was a mere alter ego of its principal shareholder.59
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 111

In addition to the various factors showing a unity of interest and owner-

ship strong enough to outweigh the separate identity of the corporation, for the
corporate veil to be pierced limited liability must result in an inequity. An
inequitable result is often found when a statutory duty has been violated or fraud
or other wrongful action has been perpetrated. (See The Court Decides: Wood-
yard, Insurance Commissioner v. Arkansas Diversified Insurance Co. at the end of
this chapter for another case that illustrates judicial application of the doctrine.60)

Alternative Strategies: Sale, Consolidation, and Merger

To effect cost savings, some institutions find it advantageous to sell assets or

stock to another corporation or to consolidate or merge with other entities.
The sale of a corporation’s assets is a relatively straightforward transaction,
except that local law must be followed carefully when the seller is a charitable
corporation. Normally the governing boards of both the buyer and the seller
must approve the terms of the sale. The stockholders or members of the sell-
ing corporation must also approve the sale, because selling all or a substantial
portion of assets constitutes an extraordinary transaction beyond the authority
of the board acting alone.61 After the sale is completed, the selling corporation
may dissolve and cease doing business or may continue to operate on a more
restricted scale. If the seller is a charitable corporation, many local laws require
that a designated state officer approve the final arrangement, because the state
has the ultimate responsibility of enforcing terms of the charitable trust.
In a merger, one corporation is absorbed by the other and ceases to
exist. A consolidation (see Figure 4.2), in contrast, is a transaction that cre-
ates a new corporation comprising two or more existing companies, both of
which then dissolve.62
Before engaging in a merger or a consolidation, each party must care-
fully scrutinize state corporation law; certificate-of-need legislation; if appli-
cable, the state and federal statutes relevant to charitable organizations; and
perhaps other regulatory requirements. Normally the governing boards of
the corporations involved and the shareholders or any members or sharehold-
ers with voting rights must approve the plan. If an acquired corporation has
issued tax-exempt bonds, the terms of the bond documents may require
approval of the bondholders. The plan to merge or consolidate will, of
course, contain a comprehensive explanation of the terms and conditions of
the proposal. When the interested parties approve the plan, articles of merger
or consolidation are prepared and filed with the appropriate state officer
responsible for enforcing the relevant corporate law, who then issues a cer-
tificate authorizing the transaction. Once this is issued, the new corporation
owns all the property of those entities that no longer exist, has all their rights
and privileges, and is also liable for all their debts.63
112 The Law of Healthcare Administration

F I G U R E 4.2
Corporate Before Reorganization
Consolidation Members of A Members of B

Hospital Hospital
Corporation A Corporation B
After Reorganization
Members of A Members of B

A-B Holding Company

Hospital Hospital
Facility A Facility B

Consolidations and mergers of existing institutions frequently benefit

the community at large and the institutions involved. Such arrangements not
only improve the ability of a previously independent unit to diversify but also
enable the surviving corporation to provide a wider range of services,
improve quality assurance and risk management, and have greater economies
of scale to reduce healthcare costs. On the other hand, if market power is sig-
nificantly increased, the merger or consolidation may invite charges that it
violates antitrust laws. The antitrust aspects of asset acquisitions, consolida-
tions, and mergers are thoroughly discussed in Chapter 11.

Joint Ventures with Physicians

In today’s competitive, cost-conscious environment healthcare institutions

and physicians’ organizations often wish to develop contractual or business
arrangements with each other to share risk and reap economic rewards. Coop-
erative arrangements between healthcare institutions and physician organiza-
tions usually take the form of joint ventures, although they are sometimes
incorporated. A joint venture is a mutual endeavor by two or more legal enti-
ties for a specific, single purpose and for a limited duration. A joint venture is
thus one way of integrating two or more business organizations. In a true joint
venture most of the rules of a general partnership normally apply:
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 113

• The parties have created more than a contractual relationship and owe
fiduciary duties to each other.
• Each party has a right to participate in management.
• Property is owned jointly.
• Profits and losses are shared according to an agreement.
• Each participant has unlimited liability to third parties.

A joint venture differs from a general partnership, however, in that its partic-
ipants are not agents of each other.64
In healthcare the term “joint venture” has been used more broadly to
refer to a variety of legal relationships between institutional providers of care
and physicians who have in many cases formed a corporation or a group prac-
tice. For example, the term may simply denote a contractual agreement
between two legal entities, or a stock corporation created by physicians and
others, or a limited partnership distinct from a general partnership. The par-
ticipants may enter a contract with another or create a partnership or a cor-
poration for a number of reasons:

• to diversify their activities,

• to provide new or additional services to the community,
• to seek capital from interested investors,
• to maximize their reimbursement from Medicare and other governmental
healthcare programs, and
• to gain tax benefits.

Joint ventures are usually formed for one purpose only. For example,
a hospital and a physician organization may establish a joint venture to

• provide ambulatory, surgical, or emergency care to outpatients;

• create a health maintenance organization;
• own and manage a nursing home, medical office building, clinical
laboratory, laundry service, or home health service; or
• conduct utilization reviews.

In joint ventures the hospital and the physicians share the rewards and
the risks while contractually agreeing on matters of ownership, control, and
management. This preference for risk sharing has been stimulated by a num-
ber of factors, primarily changes in Medicare reimbursement rules. Although
physicians decide treatments and the patients’ length of stay, hospitals receive
a fixed, predetermined amount based on diagnosis. There are, therefore,
good reasons for the hospital to share its financial risks with physicians. The
latter also find merit in a joint venture because the growth of health mainte-
nance organizations, preferred provider organizations, and group medical
114 The Law of Healthcare Administration

practices, coupled with the excess number of physicians in some parts of the
country, have substantially reduced the attractiveness of solo practice. In
short, the theory is that physicians can gain competitive advantages by join-
ing together with healthcare institutions.
For what purpose and in what context (e.g., antitrust or tax laws) must
legal advice be sought? Physicians, healthcare executives, and their respective
counsel need to analyze carefully both the business arguments and the legal
reasons for undertaking a particular venture before embarking on it. A com-
plete legal analysis of each form of venture is beyond the scope of this text,
but some of the tax implications of a joint venture are mentioned in Chapter
10, and the antitrust aspects of various forms of joint action are analyzed in
Chapter 11. Of unique importance is the possible effect of federal statutes
(the “antikickback laws”) that prohibit certain agreements concerning remu-
neration for medical services or the use of facilities.
As noted in Chapter 12, federal law makes bribes, kickbacks, and rebates
illegal whenever medical services or goods are to be paid for by a federal health
program.65 Joint ventures must, therefore, be closely scrutinized to make
certain that a provider’s economic benefits are related to substantive financial
risks and not simply a payment intended to induce referrals of business.
Clearly, the substance rather than the form of an agreement will determine
the outcome of a given case. Designating a payment, for example, as a “con-
sulting fee” when in reality it is a payment for referral of patients will not save
the transaction from being considered illegal.
Another consideration is the prohibition of physician referrals to
healthcare organizations in which the physician holds a “financial interest.”66
Known as the Stark self-referral law (named after its sponsor, Rep. Fortney
“Pete” Stark of California), this statute is intended to remove the incentive
to overuse healthcare services and thus drive up the cost of federal healthcare
programs. It provides for fines and exclusion from Medicare and Medicaid
participation if physicians violate its complicated provisions. A joint venture
between a healthcare organization and a physician or physician group may
create a financial relationship that will trigger the self-referral statute.
In summary, joint ventures must be carefully designed and imple-
mented. The participants in a venture must be certain that they have legit-
imate business reasons for adopting their agreement, that the terms com-
ply with commonly accepted business practices, and that the venture does
not increase the cost of federal or state healthcare programs.

Chapter Summary

This chapter reviews the basic concepts of corporation law, including a cor-
poration’s “personhood,” its ability to shield owners from personal liability,
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 115

the foundations of corporate power, and the duties of a corporation’s gov-

erning board. The concept of “piercing the corporate veil” and the various
reasons for and methods of restructuring a healthcare corporation are also
explored in the chapter. The powers of a corporation are limited by state cor-
poration law and the company’s organizing documents (the “corporate char-
ter”). Healthcare executives must be aware of those powers and must assist
the governing board to accomplish corporate objectives within their limits.

Chapter Discussion Questions

1. Why is a corporation considered an “artificial person” under the law?

What are the consequences of this concept?
2. Describe the advantages of incorporation, as opposed to being
organized as a partnership.
3. Where does one look to find the powers of a corporation?
4. What are the functions and responsibilities of the governing board of a
healthcare corporation?
5. Why is the concept of “piercing the corporate veil” important to any
corporation and its subsidiaries?

Notes
1. Forty-nine states and the District of Columbia have adopted the Uniform Partnership Act
(U.P.A.). Louisiana is the only state that has not adopted the U.P.A. 6 U.L.A. 1 (Supp.
1986) (table of jurisdictions).
2. See, generally, Bromberg, A. R. 1968. Crane and Bromberg on Partnership (1968) [here-
inafter cited as Crane and Bromberg]. Personal liability of the owners is one of the most sig-
nificant differences between partnerships and corporations.
3. Unif. Partnership Act § 31 (4), 6 U.L.A. 394 (1969). See Crane and Bromberg, supra note
2, at 432–34; Reuschlein, H. G., and W. A. Gregory. 1979. Handbook on the Law of Agency
and Partnership, 368–70 [hereinafter cited as Reuschlein and Gregory].
4. Nineteen states and the District of Columbia have adopted the Uniform Limited Partner-
ship Act of 1916, and 30 states have adopted the Revised Uniform Limited Partnership Act
of 1976. Louisiana is the only state that has not adopted either act. 6 U.L.A. 151, 201
(Supp. 1986) (These are tables of jurisdictions that have adopted the 1916 and 1976 acts).
5. See, generally, Crane and Bromberg, supra note 2, at 143–51; Reuschlein and Gregory,
supra note 3, at 433–38.
6. See, generally, Crane and Bromberg, supra note 2, at 189–95; Reuschlein and Gregory,
supra note 3, at 441–46.
7. Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518, 636 (1819).
8. See, generally, Henn, H. G., and J. R. Alexander. 1983. Laws of Corporations and Other
Business Enterprises [hereinafter cited as Henn and Alexander].
9. Id. at 130–32.
10. An ultra vires transaction should be distinguished from an illegal act. The latter is an absolutely
void transaction; an example would be employment by the hospital of an unlicensed professional
person. Tovar v. Paxton Memorial Hosp., 29 Ill. App. 3d 218, 330 N.E.2d 247 (1975)—a
116 The Law of Healthcare Administration

physician licensed in Kansas but not licensed in Illinois could not maintain an action for an
alleged breach of an employment contract with an Illinois hospital.
11. See, generally, Oleksy v. Sisters of Mercy, 92 Mich. App. 770, 285 N.W.2d 455 (1979)—a
private charitable hospital has statutory authority to convey its assets to another not-for-
profit private hospital; the transaction is not ultra vires.
12. 82 Op. Fla. Att’y Gen. 44 (1982).
13. Tift County Hosp. Auth. v. MRS of Tifton, Ga., Inc., 255 Ga. 164, 165, 335 S.E.2d 546,
547 (1985) (quoting Keen v. Mayor of Waycross, 101 Ga. 588, 29 S.E. 42 (1897).
14. The terms “not-for-profit” and “nonprofit” are synonymous. I prefer the former, however,
because it emphasizes the essential point that the purpose of such a corporation is not to
make a profit even though it may, and usually does, do so.
15. See, generally, Oleck, H. L. 1980. Non-Profit Corporations, Organizations and Associations,
4th ed., § 3 [hereinafter cited as Non-Profit Corporations].
16. For example, the Michigan statute specifically states that a not-for-profit corporation “may
pay compensation in a reasonable amount to shareholders, members, directors, or officers
for services rendered to the corporation.” Mich. Comp. Laws. Ann. § 450.2301(3)(a).
17. See Non-Profit Corporations, supra note 15, at 4. The author states: “Motive is the acid test
of the right to nonprofit status, in most cases. When altruistic, ethical, moral, or social
motives are the clearly dominant ones in an enterprise, that enterprise is nonprofit. Obvi-
ously, it is difficult to test for human motives in an enterprise. Abuse of nonprofit status,
however, often is best tested by testing the motives of the organizers or officers of nonprofit
organizations.” Id. at 22.
18. See I.R.C. § 501 (1985); see also Non-Profit Corporations, supra note 15, at § 281. (This
contains general discussion of applicable federal tax code provisions.)
19. See Jordan. 1977. “Trends in Tax Exemption,” ABA-ALI Trends in Nonprofit Organization
Law § 11.
20. Charitable status is reviewed and explained in Chapter 10.
21. Typically members vote on such decisions as those to merge or dissolve the corporation;
amend articles and bylaws; appoint the chief executive officer; adopt budgets; and establish
corporate philosophy, mission, and values.
22. The reserved powers will be set forth in the not-for-profit corporation law and the articles
of incorporation.
23. See, generally, Non-Profit Corporations, supra note 15, at 383–84. Generally, distribution
problems arise in charitable organizations. Not-for-profit organizations that are not charita-
ble generally distribute their free assets to members or, in some cases, transfer those assets to
another organization depending on distribution procedures set up in their articles or bylaws.
24. There may be some exceptions to this general rule. For example, regarding the actual invest-
ment of financial resources, some states’ incorporation statutes may authorize the corporate
charter or bylaws to provide that investment of funds may be delegated by the board exclu-
sively to the finance committee, thereby removing possible liability from other board mem-
bers for improper investment. Investment of funds, however, must be distinguished from
application of funds for hospital purposes. The board must always carry the responsibility for
the latter on its own shoulders.
25. See, for example, Ohio Rev. Code Ann. § 1702.27 (A)(1) (page 1985). The Ohio Non-Profit
Corporation Statute states: “The number of trustees as fixed by the articles or the regulations
shall not be less than three or, if not so fixed, the number shall be three.” See, for example,
Mich. Comp. Laws Ann. § 450.2505 (1) (West Supp. 1986). The statute states: “The Board
shall consist of 1 or more directors. The number of directors shall be fixed by or in the man-
ner provided by the bylaws, unless the articles of incorporation fix the number.”
26. For example, a California statute prohibits anyone who owns stock or has any property
interest in a private hospital or is a director or officer of a private hospital from serving as a
director or officer of a public hospital servicing the same area. Cal. Health & Safety Code §
32110 (West 1973 and Supp. 1986). Accordingly, in Franzblau v. Monardo, 108 Cal. App.
3d 522, 166 Cal. Rptr. 610 (1980), the president of a not-for-profit private hospital was
prohibited from serving as a director of the public hospital district.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 117

27. W. Va. Code § 16-5B-6a (1985).

28. For example, the Ohio law permits a trustee of a not-for-profit corporation to be removed
from office by any procedure that is provided for in the articles of incorporation or the
bylaws. The remaining trustees may then fill any vacancy on the board by majority vote for
the unexpired term, unless the articles or bylaws provide otherwise.
29. State ex rel. Welch v. Passaic Hosp. Ass’n, 59 N.J.L. 142, 36 A. 702 (1897)—the director
cannot be removed from office without fair notice and the opportunity to be heard.
30. See, generally, Henn and Alexander, supra note 8, at §§ 243–45. In a very few states, how-
ever, the statutes for not-for-profit corporations are so worded that they seemingly prohibit
members of the governing body from receiving any compensation, making no distinction
between ordinary and extraordinary services. In such jurisdictions salaried officers may not
be able to sit as voting members of the governing board.
31. See, for example, Mich. Comp. Laws Ann. § 450.2521(3) (West Supp. 1986).
32. See, generally, Henn and Alexander, supra note 8, at § 209.
33. Hunt v. Rabon, 275 S.C. 475, 272 S.E.2d 643 (1980)—trustees of the hospital were not
personally liable when a patient died as result of crossed oxygen and nitrous acid gas lines;
see, generally, Henn and Alexander, supra note 8, at § 234.
34. With respect to the duty of loyalty, see Patient Care Services, S.C. v. Segal, 32 Ill. App. 3d
1021, 337 N.E.2d 471 (1975)—a corporate officer and director who actively engaged in a
rival and competing business to the detriment of a corporation must answer to the corpora-
tion for injury sustained. The defendant physician was an officer and director of the profes-
sional service corporation bringing the charge. He had established another professional serv-
ice corporation to perform identical medical planning services for a hospital client, thereby
attempting to seize an opportunity due the plaintiff corporation.
35. 18B Am. Jur. 2D, “Corporations,” § 1736 (1985).
36. See Henn and Alexander, supra note 8, at § 238.
37. In Gilbert v. McLeod Infirmary, the sale of hospital property to a corporation controlled by
Mr. Aiken, a hospital trustee, was voided even though there was no actual fraud and in spite
of the fact that Aiken had refrained from discussing the matter and had not voted on the
transaction. However, the attorney for Aiken, who was also a member of the board, had
favorably discussed the sale and voted in favor of the proposal. Moreover, Aiken had failed
to carry his burden of proof to show fair and adequate consideration for the sale of the
property. 219 S.C. 174, 64 S.E.2d 524 (1951).
38. See, for example, Wyo. Stat. Ann. § 17-6-104 (1977) and Md. Health-General Code Ann. §
19-220 (1982).
39. The Michigan Corporation and Non-Profit Corporation Acts provide, for example, that a
director shall discharge the duty of responsibility “in good faith and with that degree of dili-
gence, care, and skill which an ordinarily prudent person would exercise under similar cir-
cumstances in a like position.” Mich. Comp. Laws Ann. §§ 450.1541 (1), 450.2541 (1)
(West 1973 and Supp. 1986); see also Cal Corp. Code §§ 309(a), 5231(a), 7231(a),
9241(a), 12371(a) (West 1977 and Supp. 1986); Conn. Gen. Stat. Ann. § 33–447 (d)
(West Supp. 1986).
40. See Reserve Life Ins. Co. v. Salter, 152 F. Supp. 868 (S.D. Miss. 1957).
41. See text and cases discussed in chapters 5 and 7.
42. State statutes generally specify what items a trustee may rely on in discharging duties. See,
for example, Mich. Comp. Laws Ann. § 450.2541 (1) (West Supp. 1986)—a director may
rely on “opinion of counsel for the corporation, upon the report of an independent
appraiser selected with reasonable care by the board, or upon the financial statements of the
corporation represented to the director or officer to be correct....”
43. See Epworth Orphanage v. Long, 207 S.C 384, 36 S.E.2d 37 (1945); see also Queen of
Angels Hosp. v. Younger, 66 Cal. App. 3d 359, 136 Cal. Rptr. 36 (1977)—there was an
improper exercise of sound business judgment or breach of fiduciary duties when the board
of a not-for-profit charitable corporation compromised a $16 million claim by a religious
order for past services rendered to the hospital by members of the order. The settlement
agreement provided that the hospital should pay the motherhouse $200 per month for each
118 The Law of Healthcare Administration

Sister in the Order older than 70 years of age, whether or not the particular sister had per-
formed services at the hospital, plus $200 per month “for each lay employee who had
worked for the congregation for over 20 years, not to exceed ten lay employees at any one
time.” Although the claim was made in good faith and was not dishonest, the agreement
was invalid and constituted a diversion of corporate assets, because there was no lawful obli-
gation on the part of the hospital to pay for past services.
44. For example, a Michigan statute provides that board members are presumed to have con-
curred in a board action unless their dissent is entered in the minutes. Further, directors
who are absent from meetings are presumed to have concurred with any board action unless
they file a dissent with the secretary. Mich. Comp. Laws Ann. § 450.2553 (West Supp.
1986).
45. See, for example, Id. at §§ 450.2561, .2562, .2563.
46. N.Y. Not-for-Profit Corp. Law § 721 (McKinney 1970); N.Y. Bus. Corp. Law § 721
(McKinney 1986). The statute provides that no provision to indemnify directors or court-
awarded indemnification “shall be valid unless consistent with this article.” See also N.Y.
Not-for-Profit Corp. Law §§ 722–26 (McKinney 1970 and Supp. 1986) and N.Y. Bus.
Corp. Law §§ 722–26 (McKinney 1986)—permissible indemnification provisions.
47. Del. Code Ann. tit. 8, § 145(f) (1983). The statute provides: “The indemnification pro-
vided by this statute shall not be deemed exclusive of any other rights to which those seek-
ing indemnification may be entitled under any bylaw, agreement, vote of stockholders....”
48. The certificate-of-need (CON) program was established by the National Health Planning
and Resource Development Act of 1974. CON required approval for acquisition of major
medical equipment and expansion of clinical health services. See U.S.C. § 300m-6 (1982).
States were compelled to administer this program via State Health Planning and Develop-
ment Agencies or face loss of federal health allocation funds. Persons were compelled to
comply with this law on penalty of fine, loss of license, or enjoinment from further activity.
See 42 C.F.R. § 123.408 (1985). The federal health planning program was terminated in
1986, although a significant number of states continue to have CON programs. CON
approvals are usually costly, time consuming, and, to some extent, political, which works to
the detriment of small, independent hospitals. See, generally, Hamilton. 1985. “Barriers to
Hospital Diversification: The Regulatory Environment,” 24 Duq. L. Rev. 425, 428–32
(Symposium: Current Developments in Health Law).
49. Zuckerman. 1979. “Multi-Institutional Systems: Promise and Performance.” Inquiry 16:
291.
50. Fletcher, W. 1983. Cyclopedia of the Law of Private Corporations, § 41 [hereinafter cited as
Fletcher].
51. Id. at § 43.10; see also Lowendahl v. Baltimore & Ohio R.R., 247 A.D. 144, 287 N.Y.S.
62, aff ’d, 272 N.Y. 360, 6 N.E.2d 56 (1936).
52. J.J. McCaskill Co. v. United States, 216 U.S. 504, 515 (1910).
53. But see Church of Scientology v. Blackman, 446 So. 2d 190 (Fla. App.), reh’g denied, 456
So. 2d 1181 (1984); Dania Jai–Alai Palace, Inc. v. Sykes, 425 So. 2d 594 (Fla. App. 1983),
aff ’d in part, rev’d in part, 450 So. 2d 1114 (1984). In a succession of Florida appellate
cases, the courts had held that total domination, by itself, justified piercing the corporate
veil. However, on appeal of Dania Jai–Alai Palace, the Florida Supreme Court held that the
corporate veil could “not be pierced absent showing of improper conduct.” 450 So. 2d
1114, 1121 (Fla. 1984). Thus, the almost universal rule that all three factors must be pres-
ent to pierce the corporate veil.
54. See Fletcher, supra note 50, § 43.10.
55. “In a sense, faithfulness to these [corporate] formalities is the price paid for the corporate fic-
tion, a relatively small price to pay for limited liability.” Labadie Coal Co. v. Black, 672 F.2d
92, 97 (D.C. Cir. 1982).
56. See Jabczenski v. Southern Pac. Memorial Hosp., 119 Ariz. 15, 579 P.2d 53 (1978)—mere
existence of interlocking directorates between a not-for-profit and a for-profit corporation
was insufficient to justify disregarding the corporate identities.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 119

57. 511 F. Supp. 416 (1981), aff ’d, 685 F.2d 448 (1982).
58. Id. at 419.
59. Id. at 420.
60. 268 Ark. 94, 594 S.W.2d 13 (1980).
61. See Henn and Alexander, supra note 8, at § 341; see, for example, Mich. Comp. Laws Ann.
§§ 450.1753, 450.2753 (West 1973 & Supp. 1986).
62. See, generally, Henn and Alexander, supra note 8, at § 346.
63. See, for example, Mich. Comp. Laws Ann. §§ 450.1701-.1722, 450.2703–.2722 (West
1973 and Supp. 1986); see, generally, Henn and Alexander, supra note 8, at § 346.
64. See, generally, Henn and Alexander, supra note 8, at § 49.
65. 42 U.S.C. § 1395nn(b) (Medicare), § 1396n(b) (Medicaid) (1982).
66. Similarly, in Komanetsky v. Missouri State Medical Ass’n, 516 S.W.2d 545 (Mo. Ct. App.
1975) the Missouri State Medical Association was held to have implied power to join with
the Missouri Association of Osteopathic Physicians and Surgeons to form an independent
corporation for the purpose of conducting reviews of quality assurance and cost reviews of
services rendered by physicians. Compare Queen of Angels Hosp. v. Younger, 66 Cal. App.
3d 359, 136 Cal. Rptr. 36 (1977)—in which a charitable corporation formed to maintain
and operate a hospital could not lease its premises, abandon hospital operations, and devote
proceeds of the lease to operate medical clinics in low-income areas, regardless of the wor-
thy purpose of the clinics, because this would constitute a violation of the hospital’s articles
of incorporation.
120 The Law of Healthcare Administration

the court decides

Charlotte Hungerford Hospital v. Attorney General
26 Conn. Supp. 394, 225 A.2d 495 (1966)

MacDonald, J. complex, a medical office building for

members of its medical staff; (b) whether
The plaintiff in this action for a declaratory such a medical office building may, under
judgment is a nonstock corporation which the terms of the aforesaid deed of trust,
for many years has owned and operated a be located on a portion of the land held
voluntary general hospital in a complex of by plaintiff thereunder; (c) whether...the
buildings located on a 120-acre tract of plaintiff is authorized and empowered to
wooded land about one mile from the cen- lease...a portion of the land included in
ter of the city of Torrington. The land was the aforesaid deed of trust [to a sub-
acquired under a deed of trust providing sidiary corporation that will operate the
that the premises thus conveyed “are to medical office building]; [and] (d) whether,
be held and used by said grantee for the in addition to offices and office suites for
purpose of maintaining and carrying on a members of plaintiff’s medical staff, said
general hospital and, if a majority of cor- building may contain facilities related to
porators so elect, a training school for or supporting such offices and suites,
nurses in connection therewith may be such as medical laboratories, pharmacies
established, and for no other purpose and dispensaries.
whatsoever.” The deed of trust in ques- The court, after hearing the evidence and
tion, executed in 1917, specifically pro- the arguments of counsel with full participa-
vided that “if the land herein granted shall tion by counsel representing the only inter-
cease to be used for the [stated] pur- ested parties, namely, the attorney general
poses, title…shall thereupon pass to and of the state of Connecticut, as representa-
vest in said town of Torrington…to be used tive of the public interest in the protection
forever as a public park.” [A state statute of trusts for charitable uses…has no hesita-
later chartered the hospital subject to the tion in answering all four of the questions
“terms, conditions, restrictions and provi- posed in the affirmative. It is clear...that the
sions” of the deed of trust.] proposed project would materially aid the
Plaintiff [now wants to erect] a medical plaintiff in more efficiently carrying out the
office building on the hospital grounds stated purposes of the trust deed under
[because it] would be of great conven- which it was founded.... It is equally clear
ience and advantage both to the individ- from the extremely impressive testimony of
ual doctors and to the hospital…. [the president of the American Hospital
…. [However,] various questions have Association and another witness] that the
arisen with respect to the right, power and modern trend is almost universally toward
authority of plaintiff, under the terms of the practice of having nonprofit hospitals
said deed of trust and special act, to pro- provide physicians’ private offices for rental
ceed with such a project.... The specific to staff members, either in the hospital
questions which the court is requested to buildings themselves or on the hospital
answer...are (a) whether plaintiff is grounds....
authorized...to construct and operate, as The language of the deed of trust is to be
an integral part of its general hospital construed in light of the settlor’s purpose.
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 121

And reasonable deviations and expanded courts even though the elements for apply-
interpretations must be made from time to ing cy pres principles are not present.
time in order to keep pace with changes in A decree may enter advising plaintiff of
recognized concepts of the proper sphere of its rights, powers and authority herein by
general hospital operations.... Such devia- answering the four questions propounded
tions are recognized by our Connecticut in the affirmative.

Charlotte Hungerford Hospital v. Attorney General

Discussion Questions

1. Why is the state attorney general the defendant?

2. What is a “settlor”?
3. What are “cy pres” principles?
4. How does this case enhance your understanding of the limits of
corporate power?

the court decides

Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries
381 F. Supp. 1003 (D. D.C. 1974)

[This is a class action in which patients of Sibley Memorial Hospital, known officially by the name
shown, challenged various aspects of the hospital’s management and governance. The defendants
were certain members of the hospital’s board of trustees and the hospital itself. For a summary of
the differences between trustees of a trust and directors of a corporation, see the discussion in this
chapter.]

Gesell, J. [The court explains that the hospital

was begun by the Methodist
The two principal contentions in the com- Church–related Lucy Webb Hayes School
plaint are that the defendant trustees con- in 1895 and eventually became the
spired to enrich themselves and certain school’s main activity.]
financial institutions with which they were In 1960...the Sibley Board of Trustees
affiliated by favoring those institutions in revised the corporate by-laws.... Under the
financial dealings with the Hospital, and new by-laws, the Board was to consist of
that they breached their fiduciary duties of from 25 to 35 trustees, who were to meet
care and loyalty in the management of at least twice each year. Between such
Sibley’s funds.... meetings, an Executive Committee was to
122 The Law of Healthcare Administration

represent the Board [and in effect had full insufficient evidence to prove a conspiracy
power to run the hospital].... among them. The court then proceeds to
In fact, management of the Hospital discuss the allegations of breach of fiduci-
from the early 1950’s until 1968 was han- ary duty.]
dled almost exclusively by two trustee offi- III. Breach of Duty.
cers: Dr. Orem, the Hospital Administrator, Plaintiffs’ second contention is that,
and Mr. Ernst, the Treasurer. Unlike most even if the facts do not establish a con-
of their fellow trustees, to whom member- spiracy, they do reveal serious breaches of
ship on the Sibley Board was a charitable duty on the part of the defendant trustees
service incidental to their principal voca- and the knowing acceptance of benefits
tions, Orem and Ernst were continuously from those breaches by the defendant
involved on almost a daily basis in the banks and savings and loan associations.
affairs of Sibley. They dominated the A. The Trustees.
Board and its Executive Committee, which Basically, the trustees are charged with
routinely accepted their recommendations mismanagement, nonmanagement and
and ratified their actions. Even more sig- self-dealing. The applicable law is unset-
nificantly, neither the Finance Committee tled.... [H]owever, the modern trend is to
nor the Investment Committee ever met or apply corporate rather than trust princi-
conducted business from the date of their ples in determining the liability of the
creation until 1971, three years after the directors of charitable corporations,
death of Dr. Orem. As a result, budgetary because their functions are virtually indis-
and investment decisions during this tinguishable from those of their “pure”
period, like most other management deci- corporate counterparts.
sions affecting the Hospital’s finances, 1. Mismanagement.
were handled by Orem and Ernst, receiv- .... Since the board members of most
ing only cursory supervision from the large charitable corporations fall within
Executive Committee and the full Board. the corporate rather than the trust model,
[It was only after the deaths of Dr. Orem being charged with the operation of ongo-
and Mr. Ernst (in 1968 and 1972, respec- ing businesses, it has been said that they
tively) that other trustees began to assert should only be held to the less stringent
themselves and exercise supervision over corporate standard of care. More specifi-
the financial affairs of the hospital. At that cally, directors of charitable corporations
point, it became known that over the years are required to exercise ordinary and rea-
“unnecessarily large amounts of [Sibley’s] sonable care in the performance of their
money” had been deposited in accounts duties, exhibiting honesty and good faith.
bearing little or no interest at banks in 2. Nonmanagement.
which trustees had a financial interest. At …. A corporate director…may delegate his
the same time, the hospital bought certifi- [sic] investment responsibility to fellow
cates of deposit that paid lower-than-mar- directors, corporate officers, or even out-
ket rates and took out loans with interest siders, but he must continue to exercise
rates higher than the interest rates being general supervision over the activities of
paid on funds deposited. his delegates. Once again, the rule for char-
Because there was no evidence that the itable corporations is…the traditional cor-
trustees, other than Orem and Ernst, had porate rule: directors should at least be
ever actually agreed to engage in or profit permitted to delegate investment decisions
from these activities, the court found to a committee of board members, so long
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 123

as all directors assume the responsibility [The court goes on to point out that the
for supervising such committees by periodi- hospital board had recently adopted the
cally scrutinizing their work. American Hospital Association’s policy
Total abdication of the supervisory guidelines that essentially imposed the
role, however, is improper even under standards described above: (1) a duality
traditional corporate principles. A direc- or conflict of interest should be disclosed
tor who fails to acquire the information to other members of the board, (2) board
necessary to supervise investment policy members should not vote on such mat-
or consistently fails even to attend the ters, and (3) the disclosure and absten-
meetings at which such policies are con- tion from voting should be recorded in the
sidered has violated his fiduciary duty to minutes.]
the corporation. While a director is, of ...[T]he Court holds that a director…of
course, permitted to rely upon the a charitable hospital…is in default of his
expertise of those to whom he has dele- fiduciary duty to manage the fiscal and
gated investment responsibility, such investment affairs of the hospital if it has
reliance is a tool for interpreting the del- been shown by a preponderance of the
egate’s reports, not an excuse for dis- evidence that
pensing with or ignoring such reports.... (1)...he has failed to use due diligence
3. Self-dealing. in supervising the actions of those offi-
Under District of Columbia Law, neither cers, employees or outside experts to
trustees nor corporate directors are whom the responsibility for making day-
absolutely barred from placing funds to-day financial or investment decisions
under their control into a bank having an has been delegated; or
interlocking directorship with their own (2) he knowingly permitted the hospi-
institution. In both cases, however, such tal to enter into a business transaction
transactions will be subjected to the clos- with himself or with any [business entity]
est scrutiny to determine whether or not in which he then had a substantial inter-
the duty of loyalty has been violated. est or held a position as trustee, direc-
.... tor, general manager or principal officer
.… Trustees may be found guilty of a [without disclosing that fact]; or
breach of trust even for mere negligence (3) except [with disclosure], he actively
in the maintenance of accounts in banks participated in or voted in favor of a
with which they are associated while cor- decision...to transact business with him-
porate directors are generally only self or with any [business entity] in which
required to show “entire fairness” to the he then had a substantial interest or
corporation and “full disclosure” of the held a position as trustee, director, gen-
potential conflict of interest to the Board. eral manager or principal officer; or
Most courts apply the less stringent cor- (4) he otherwise failed to perform his
porate rule to charitable corporations in duties honestly, in good faith, and with a
this area as well. It is, however, occasion- reasonable amount of diligence and
ally added that a director should not only care.
disclose his interlocking responsibilities Applying these standards to the facts
but also refrain from voting on or other- in the record, the Court finds that each
wise influencing a corporate decision to of the defendant trustees has breached
transact business with a company in which his fiduciary duty to supervise the man-
he has a significant interest or control. agement of Sibley’s investments....
124 The Law of Healthcare Administration

[In conclusion, the court noted that not profit personally from the transac-
the plaintiffs pushed for strict sanctions tions; (4) the defendants will soon leave
against the various defendants: the the board because of age, illness, or the
removal of certain board members, the completion of a normal term; and (5)
cessation of all business transactions this is essentially the first case in the
with their related firms, an accounting of District of Columbia to discuss these
all hospital funds, and awards of money issues comprehensively, and thus no
damages against the individual defen- clear legal standards previously existed.
dants. But the court declined to adopt For these reasons, the court declines to
these rather severe measures. remove the defendants from the board, to
The court points out the factors that it assess money damages, or to take other
considered significant: (1) the defendant more severe actions. Instead, it requires
trustees are a small minority of the new policies and procedures to make cer-
board, whereas all board members were tain that all present and future trustees
in some way guilty of nonmanagement; are aware of the requirements of the law
(2) the defective practices have been and that they fully disclose all hospital
corrected, and those who were most transactions with any financial institu-
responsible for them have either died or tions in which they have an interest or
been dismissed; (3) the defendants did position.]

Stern v. Lucy Webb Hayes National Training School for

Deaconesses and Missionaries Discussion Questions

1. If this case were decided today—more than three decades later—would

the outcome have been the same? If so, how?
2. As the chief executive officer or board member of a not-for-profit hospi-
tal corporation, what measures would you put in place to prevent a
repeat of the activities that led to the lawsuit involved here?
3. How would you summarize the duties of board members based on the
holding in this case?
 Chapter 4: The Organization and Management of a Corporate Healthcare Institution 125

the court decides

Woodyard, Insurance Commissioner v. Arkansas Diversified Insurance Co.
268 Ark. 94, 594 S.W.2d 13 (1980)

Hickman, J. There was no real controversy over the

commissioner’s findings of fact. He con-
The appellant is Arkansas Insurance Com- cluded that:
missioner W. H. L. Woodyard, III. The (2) That [Arkansas law] would appar-
appellee is Arkansas Diversified Insurance ently authorize a hospital and medical
Company (ADIC). service corporation [of which Blue Cross is
ADIC sought a certificate of authority one] to invest in a wholly owned sub-
from Woodyard to sell group life insur- sidiary insurance corporation with the
ance to Blue Cross and Blue Shield...sub- Commissioner’s consent.
scriber groups. Woodyard denied the (3) That Blue Cross is limited by [law] to
application. On appeal, his decision was transact business as a non-profit hospital
reversed by the Pulaski County Circuit and medical service corporation.
Court as being arbitrary and not sup- (4) That ADIC is not a separate corporate
ported by substantial evidence. We find entity from Blue Cross since Blue Cross
on appeal [that] the circuit court was through ADS owns all the capital stock of
wrong and [we] reverse the judgment. We ADIC. ADIC has common Officers and
affirm the commissioner. Directors with Blue Cross, Blue Cross pays
The only evidence before the commis- the salary for the Officers and employees
sioner was presented by ADIC. The of ADIC, ADIC will sell its products only to
appellee candidly admitted it was a wholly Blue Cross subscriber groups and the
owned subsidiary of a corporation named record indicates that ADIC is to be treated
Arkansas Diversified Services, Inc. (ADS) as a division of Blue Cross. The evidence
which is a wholly owned subsidiary of indicates that ADIC’s management will not
Blue Cross and Blue Shield, Inc. act independently but will conduct the
.... affairs of ADIC in a manner calculated pri-
ADIC candidly admitted it was created marily to further the interest of Blue Cross.
solely to serve Blue Cross customers. It ….
would provide services that could not oth- The commissioner found that since Blue
erwise be provided by law….ADS wanted Cross could not sell life insurance itself, it
its own life [insurance] company to better should not be able to do so through cor-
compete in the market place. porate subsidiaries. We find that decision
Blue Cross owns all the stock of ADS, neither arbitrary nor unsupported by sub-
which in turn owns all the stock of ADIC. stantial evidence.
The president of Blue Cross is the presi- ....
dent of both ADS and ADIC. Other Blue We agree with the commissioner’s find-
Cross officials hold positions in ADS and ing that [Arkansas law] limits the power of
ADIC. The companies use the same loca- medical corporations to providing medical
tion and similar stationery. ADIC will use service. If it did not, they could not only
Blue Cross employees to sell insurance. sell life insurance, but automobiles or any-
Underwriting for ADIC will be done by a thing else. Clearly, an insurance company
division of ADS. organized under a charter or statute
126 The Law of Healthcare Administration

empowering it to sell one kind of insurance The appellee argues the commissioner
lacks authority to sell another. arbitrarily pierced the corporate veil of
The appellees argue that even if the com- these subsidiaries.… [C]ourts will ignore
missioner was right in ruling Blue Cross the corporate form of a subsidiary where
could not market its own life insurance poli- fairness demands it. Usually, this will be
cies, Blue Cross could…invest in a wholly where it is necessary to prevent wrongdo-
owned subsidiary which would [have that ing and where the subsidiary is a mere
power]. The statutes, however, provide that tool of the parent. We believe both criteria
such an investment can be made only with were met here....
the commissioner’s consent.... Blue Cross, through its president and
Blue Cross is a tax exempt, non-profit other officials, candidly admitted why they
corporation enjoying a financial advan- wanted ADIC to sell insurance. Blue Cross
tage over conventional insurers. Allowing can, through its total control of both sub-
it to sell, through subsidiaries, its own sidiaries by stock, officers and directors,
life insurance policies, could be unfair to direct all efforts and endeavors of ADIC,
competitors. While the commissioner did and collect all profits.
allow Blue Cross to invest in ADS, we can We cannot say the commissioner was
see why he disapproved of ADIC. ADS wrong in piercing the corporate veil or in
unlike ADIC, could sell only policies writ- denying the application. The facts are
ten by insurance companies which clearly there to support his findings. This
lacked the competitive advantages of order is not contrary to law.
Blue Cross. Reversed.

Woodyard, Insurance Commissioner v. Arkansas

Diversified Insurance Co. Discussion Questions

1. How does a Blue Cross health plan fall under the definition of a
“hospital and medical service corporation”?
2. What is the function of that type of corporation in the healthcare
system? (Note: other states assign different names to them.)
3. What differences in this factual situation might have led to a different
outcome in the case?
 CHAPTER

LIABILITY OF THE HEALTHCARE INSTITUTION

5
After reading this chapter, you will

• know that most healthcare institutions began as religious

works of mercy and that, as such, they were usually immune
from liability for any negligence they might commit.
• understand that the concept of “independent contractor” is
nearly irrelevant today in the world of healthcare malpractice.
• realize that under “respondeat superior” the corporation is
responsible through the acts of an agent, whereas under “cor-
porate liability” it owes a duty directly to the plaintiff.
• learn that managed care organizations are under financial
pressure to minimize the amount of acute care service their
enrollees receive.

Although most basic tort principles still apply, the liability of healthcare
institutions differs from that of the individual clinician. This is so because,
obviously, institutions are not human beings; they are organizations cre-
ated by law and/or society to achieve stated goals through collective
human effort.
The history of healthcare institutions begins with the almshouses of
the Middle Ages—pits of misery and horror for the poor and the insane.
Before the nineteenth century, almshouses had little to do with medical care
and more to do with housing unfortunates and keeping them away from
“respectable” society. They were religious—mainly Christian—charities and
(as their name implies) were supported by donated money and services. The
fact that church groups (Catholic religious orders, notably) sponsor so many
of today’s hospitals is a vestige of this history.
Given their charitable character, hospitals—and other organizations,
the purpose of which was to relieve poverty, advance education and religion,
and serve similar community needs—were held to be immune from tort lia-
bility lest their good deeds be diminished by jury awards. Some courts

127
128 The Law of Healthcare Administration

adopted this position because they considered the assets of a charitable corpo-
ration to be held in trust for its beneficiaries and feared that the trust would
be violated by payment of money damages. Others held that the beneficiaries
of a charity (including the general public) impliedly 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 the rationale supporting immunity for charitable hospitals,
the reasons for the demise of the doctrine grew out of the transformation of
healthcare that began after the U.S. Civil War, and it had virtually disappeared
by the 1960s. The public’s perception of hospitals as charitable organizations
gradually changed.2 Health plans and governmental 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 understanding grew that these “not-for-
profit” enterprises should be treated in the same manner as other companies
so far as third-party liability claims were concerned. Thus, charitable immunity
was overturned in a series of state-by-state judicial decisions once the justifica-
tion for immunity dissolved. (It should be noted, however, that even today
governmental hospitals still enjoy immunity or partial immunity in some juris-
dictions. This is the result of “sovereign immunity,” rather than charitable
immunity as discussed in Chapter 3.)
After the decline of charitable immunity, healthcare became one of the
most dramatically changing areas of personal injury law. This chapter reviews
important legal theories that have affected traditional hospital-liability principles
in the last few decades, including:

• the erosion of independent contractor status,

• the concepts of apparent agency and agency by estoppel,
• the decline of the captain-of-the-ship and borrowed-servant doctrines, and
• the doctrine of corporate liability.

We begin with a refresher course in the traditional rules of respondeat

superior, proceed to address the factors mentioned, and end with a section
on the liability of a relatively new form of healthcare institution—the man-
aged care organization.

Respondeat Superior Versus Independent Contractor

Status

The duty of a healthcare institution (here referred to as a hospital from now on)
is to have its employees use the same reasonable level of care as that practiced in
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 129

similar hospitals in similar communities.3 Patients are entitled to the care that
their conditions require.4 To prove a breach of this duty the plaintiff must
usually produce expert testimony about how similar clinicians and hospitals
treat this kind of case.5 Miraculously the plaintiff’s experts will testify that other
hospitals or other doctors would treat the condition differently. The defense
will call witnesses who will say, “Oh, no! What the [doctor/nurse/hospital] did
was perfectly reasonable.” The battle of the experts is on, and the jury will be
asked whom to believe.
Sometimes expert testimony is not required. It is not necessary when the
situation involves routine or nonprofessional care, such as helping a patient to
the bathroom or out of a wheelchair.6 This applies also when a physician’s order
is violated7 or when common sense makes the breach of duty apparent.8 In
those kinds of cases, expert testimony is not required and laypersons are capable
of determining that reasonable care was not exercised. (See The Court Decides:
Norton v. Argonaut Insurance Co., at the end of this chapter. In this case all par-
ties—hospital, physician, and nurse—were held liable for a fatal medication error
that common sense indicates was avoidable.)
When liability is asserted on the basis of respondeat superior, essen-
tially three questions are asked:

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?

As noted in Chapter 3, respondeat superior—also known as vicarious lia-

bility—means that an employer is liable for a tort that an employee commits
within the scope of employment. It is based on the principle, “qui facit per
alium, facit per se”—that is, the one who acts through another, acts in his own
interests. Thus, the employer answers vicariously for the employee’s negligence
(even though the employer is not directly at fault) because the employer con-
trols the means and methods of the employee’s work and benefits from her
actions. (Presumably the imposition of liability encourages the employer to
apply sound procedures for controlling employees’ job performance.)
Holding the employer vicariously liable is based on public policy con-
siderations. 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 taken and acts committed in further-
ance of institutional aims. Of course, the employee who committed the tort
can also be held liable for the wrongful act or omission; therefore, the
130 The Law of Healthcare Administration

employer and the employee are often sued together. (The employer is usually
the main target because of its “deep pockets.”)
Because respondeat superior is based on the employer’s right to control
the means and methods of the employee’s work, it follows that the employer is
not vicariously liable for the negligence of an independent contractor. By defini-
tion an independent contractor is one who 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 result of the work. For example, if a person hires an independent contrac-
tor to build a house, the homeowner provides the plans and retains the power
to approve the final result but does not control the day-to-day activities of the
builders—that is the responsibility of the contractor. In effect, the owner says,
“Here’s what I want built. Go do it, and tell me when you’re done.”
In the field of hospital liability, a physician in private practice who is a
member of the medical staff has traditionally been considered an independ-
ent contractor. Accordingly, the hospital has not been liable to the patient for
the malpractice or negligence of the physician. There are numerous cases to
this effect.9 For example, in a Michigan case, Heins v. Synkonis, the hospital
was not held liable when a private physician saw the patient in the hospital
facility, and the hospital merely provided facilities for the doctor’s outpatient
clinic.10 The absence of either an actual or apparent employment relationship
led to the conclusion that the hospital was not liable for the alleged negli-
gence of the independent contractor doctor.

Erosion of Independent Contractor Status

Heins was decided more than 30 years ago. In recent years courts have
eroded independent contractor status as a defense. They have expanded
the doctrine of respondeat superior and have found an employment (or
employment-like) relationship in situations where none would have been
found previously. This phenomenon is the result of such factors as the fol-
lowing:

• 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. It is com-
mon for a private physician to tell the patient to go to the emergency
department outside normal office hours. “Meet me at the ER” has mor-
phed into “The ER docs will take care of you.”
• Healthcare institutions have increased the number of employed physi-
cians on their staffs and in their clinics.
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 131

• Medical practice has become increasingly institutionalized and

specialized.
• The number of contracts with hospital-based specialists has increased
dramatically.
As these developments occur, respondeat superior expands. As respon-
deat superior expands, the independent contractor defense shrinks.

Employment of Physicians
Payment of a salary or wage to an employed physician clearly justifies the
application of vicarious liability principles. Even a physician on a part-time
salary is considered an employee of the institution. In Niles v. City of San
Rafael, a part-time salaried director of a hospital pediatrics department was
negligent in making only a cursory examination of a head injury and in send-
ing the patient home with incomplete instructions for continued observa-
tion.11 The doctor’s negligence resulted in delayed diagnosis of intracranial
bleeding and permanent brain damage. The hospital was held liable even
though the physician, before being called to examine the patient, was in the
hospital emergency department seeing a private patient and thus was not
serving as an employee at the time.
The hospital will also be liable for the negligence of interns, residents, and
nurses performing their customary functions on behalf of the institution. As
long ago as 1957 the New York Court of Appeals, in the landmark case of Bing
v. Thunig, eliminated the distinction between administrative and medical acts
and settled the issue of whether the professional status of an employee prevented
the imposition of vicarious liability.12 An oft-quoted passage from Bing reads:

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.13

Both the administrative and medical personnel of teaching hospitals

must be particularly alert to the duties owed to patients with respect to the
role of resident physicians and interns. Clearly these persons are employees,
and the hospital is liable for negligent acts committed within the scope of
their employment.14
132 The Law of Healthcare Administration

Doctrine of Apparent Agency

Even though they are not technically hospital employees, many physicians—
such as anesthesiologists; radiologists; pathologists; and specialists in emer-
gency medicine, nuclear medicine,
and other clinical fields—have con-
Legal Brief tracts with hospitals to provide spe-
cific services to hospital patients.
If the principal’s conduct would lead a reasonable Although to the average person they
person to believe that the agent was authorized
to act on behalf of the employer, the person is
seem like employees, their contracts
entitled to rely on this apparent (or ostensible) frequently state that the physicians
agency relationship. If a principal creates the hold independent contractor status.
impression (implies) that an agent is authorized Thus, hospitals have frequently
when in truth he is not, the third parties are pro- asserted the defense of “independent
tected so long as they have acted reasonably. This contractor” in cases of alleged liability
latter situation is sometimes termed “agency by
estoppel,” and the principal will be estopped
arising from the professional practice
(barred) from denying the grant of authority if the of the specialists.
third parties have relied on the representations This defense has not been too
made. The two concepts—apparent agency and successful. The doctrine of apparent
agency by estoppel—are so close in meaning that agency (which is sometimes termed
they are virtually indistinguishable for practical “ostensible agency” and is similar to
purposes.
“agency by estoppel”) has often
been used to defeat the independent
contractor defense (see Legal Brief).
In the healthcare setting, the
essential elements of an apparent agency or an agency by estoppel are as
follows:

• Patients have been invited by the hospital to use the services of medical
specialists; indeed, many times the patient has no choice but to use the
specialists furnished by the hospital.
• A full-service hospital holds itself out as providing the complete range
of medical care, including all of the generally recognized specialties.
• Patients rely on these representations.
• This reliance justifiably permits them to consider the specialists as
employees or as an integral part of the hospital.

Whether an allegedly negligent specialist was an independent contractor is a

question for the jury; that is, the jury must decide on whether the patient was
justified in “looking to” the hospital to provide treatment.
Two Delaware cases illustrate these principles. In Vanaman v. Mil-
ford Memorial Hospital, a private physician was on call to provide emer-
gency services.15 The court held that it was for the jury to decide whether
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 133

the allegedly negligent doctor treated the patient in a private capacity or

while fulfilling the hospital function of providing emergency care. The
court said that the hospital could be liable for the doctor’s negligence if it
represented the physician as its employee and the patient justifiably relied
on that representation. To the same effect is Schagrin v. Wilmington Med-
ical Center, where it was held proper to deny a hospital’s motion for sum-
mary judgment.16 The court found that a medical partnership staffing an
emergency department may be an agent of the hospital and not an inde-
pendent contractor depending on the degree of hospital control, the
methods of paying the doctors, and the degree of patients’ reliance on the
hospital compared with their reliance on the physicians.17
Similarly, in Hannola v. City of Lakewood an Ohio appellate court
provided two reasons for finding agency by estoppel in holding that,
regardless of contractual provisions, the hospital could be liable for the
malpractice of a physician member of an independent foundation operat-
ing its emergency department if (1) the hospital held itself out to the pub-
lic as providing emergency care, and (2) the hospital governing body had
control over staff appointments of physicians employed by the founda-
tion.18 In addition, the hospital monitored the quality of care and had the
power to revoke the privileges of individual emergency department doc-
tors for justifiable cause.19
Thus, a hospital cannot contractually insulate itself from liability. In fact,
with increasing frequency the courts are inclined to find the hospital liable under
principles of vicarious liability, irrespective of a purported independent contrac-
tor status.
The doctrines of apparent agency and agency by estoppel may be applied
even if the allegedly negligent physician is not a medical specialist with an exclu-
sive contract to perform a designated hospital service. In Grewe v. Mt. Clemens
General Hospital, the plaintiff was taken to the hospital after suffering a severe
electrical shock and shoulder trauma.20 He was first seen by an internist, who
consulted with Dr. Fagen, an orthopedic surgeon. Dr. Fagen diagnosed a dis-
located right shoulder and in turn designated an orthopedic resident to reduce
the dislocation (restore the shoulder to its normal condition), but the reduc-
tion was unsuccessful. A specialist in internal medicine, Dr. Katzowitz, was
summoned to assist. (The choice of an internist is curious.) According to his
own testimony, Dr. Katzowitz did not view the patient’s x-rays before attempt-
ing to reduce the dislocated shoulder “by placing his foot on the plaintiff’s
chest and pulling his arm.” The plaintiff suffered an injury to a network of
nerves in his shoulder (the brachial plexus) and a bone fracture. Additional sur-
gery was necessary to remove bone fragments and to make other repairs.
The Supreme Court of Michigan held that agency by estoppel is estab-
lished if the “patient looked to the hospital to provide him with treatment,”
and it affirmed the jury’s verdict against the hospital. The jury had found that
134 The Law of Healthcare Administration

the plaintiff had no previous physician–patient relationship with Dr. Katzowitz

or the other physicians outside the hospital setting; there was nothing to put
the patient on notice that Dr. Katzowitz was an independent contractor; the
plaintiff had gone to the hospital expecting to be treated there; and all the
physicians were thus ostensible agents of the hospital. Because the patient
had not personally selected the physicians, he relied on the institution to pro-
vide care. Under the factual circumstances the hospital was estopped to deny
the absence of an employment relationship with the physicians.21
We thus see how the doctrines of apparent agency and agency by estop-
pel have contributed substantially to the demise of the hospital’s independent
contractor defense. In Grewe, Capan, and sim-
ilar cases the doctor was neither an employee
of the hospital nor the plaintiff’s personal
The Law in Action physician. The patients were entitled to jury
Physicians and hospitals often used trials on the issues of whether they had relied
the captain-of-the-ship and borrowed- on the hospital (rather than on self-selected
servant rules to try to escape liability. physicians) to furnish care and whether the
Physicians asserted that operating hospital had held out the doctors as ostensible
room nurses were hospital employees
employees of the hospital when furnishing
and as a matter of law could not visit
liability on a surgeon. The captain-of- emergency services.22
the-ship doctrine considers this an
issue for the jury to decide. The jury
will be instructed substantially as fol- Erosion of Captain-of-the-Ship
lows: “Regardless of who employs or and Borrowed-Servant Doctrines
pays the nurse who assists with sur-
gery, if the nurse is under the direction
of the surgeon in charge so as to be For many years, two other doctrines helped
the surgeon’s temporary servant or hospitals escape liability for physicians’
agent, any negligence on the part of acts—the “captain of the ship” and the “bor-
the nurse is the negligence of the sur- rowed servant” concepts. The former doc-
geon as well.” Hospitals try to assert trine presumed that a surgeon was the “cap-
this rule to escape their own liability
tain of the ship” during surgery and, like the
for nurses’ actions.
The criteria for determining whether captain of a real ship, was responsible for
the nurse is a “temporary servant or what occurred under his command. Thus,
agent” (borrowed servant) are (1) the hospital’s argument was that the sur-
whether an express or implied agree- geon, not the hospital, was liable for negli-
ment exists between the nurse and the gence during surgery. This argument was
surgeon that the former will assist the
bolstered by the borrowed-servant doc-
latter, (2) whether the work being
done at the time of the alleged negli- trine—that is, one who is normally an
gence was essentially that of the sur- employee of one person or entity may be
geon, and (3) whether the power to borrowed by another, thereby becoming a
control the details of the work being servant of the latter and rendering the latter
done resided with the surgeon. vicariously liable for the negligence of the
former. (See The Law in Action.)
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 135

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 in size, and as anesthesiologists, nurses, surgical assis-
tants, 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 it is not
sound legal doctrine to impose liability on the
chief surgeon alone for the negligent acts of all
surgical team members. The Law in Action
Numerous cases involving the mis- I once represented a hospital in a case
count of surgical sponges or instruments involving a retained sponge. During a
illustrate this trend (see The Law in Action). deposition, an exchange between the
In Tonsic v. Wagner the trial court applied chief operating room nurse and the
the captain-of-the-ship doctrine to hold the plaintiff’s lawyer went as follows:
surgeon liable when neither the scrub nurse,
Attorney: When the operation was
a circulating nurse, nor an intern counted over and the surgeon had sewn up
the surgical instruments at the conclusion of the wound, did you or anyone else
a colectomy.23 As a result, a clamp was not count the sponges that had been
removed from the patient. The trial court used?
felt bound by the captain-of-the-ship doc- Nurse: No, sir.
trine and refused to permit the jury to con- Attorney: Why not?
sider the vicarious liability of the hospital. Nurse: Well, we didn’t count them
The Pennsylvania Supreme Court reversed before the surgery, so it wouldn’t
the decision, noting that under the law of have done any good to count them
agency a negligent party may be the afterward, would it?
employee of two masters simultaneously,
even though the masters are not joint We settled the case before trial.
employers. In such situations both masters
may be liable.24 Accordingly the plaintiff was
entitled to a new trial in her suit against the
hospital. It is a question for the jury whether the surgeon or the hospital was
the sole controlling master, or whether there was joint control justifying
joint liability.
Similar facts were involved in Sprager v. Worley Hospital, where there
was a failure to remove a surgical sponge from the patient.25 In a suit against
both the surgeon and the hospital the jury found that the surgeon was not
personally negligent, and it refused to hold the surgeon liable for the nurses’
negligence. A verdict was rendered against the hospital alone. On appeal to
the intermediate appellate court, the judgment was reversed and a judgment
was entered against the surgeon on the basis of the captain-of-the-ship doc-
trine. On further appeal, the Texas Supreme Court specifically disapproved
the captain-of-the-ship doctrine and held that the determining factor was
how much control the doctor actually had over the nurses’ activities. The
136 The Law of Healthcare Administration

court pointed out that the nurses had been hired by the hospital, were
assigned to surgery by the hospital, and were therefore the general agents of
the hospital. At a new hearing the original jury decision (against the hospital
and not the surgeon) was reinstated.26
The trend toward imposing vicarious liability on the hospital for acts
of physicians—whether they are employees or independent contractors—has
been observable for decades.27 When medical care is provided by highly spe-
cialized, sophisticated teams of professionals working within an institutional
setting, it is frequently difficult to determine who is exercising what control
over whom at any given time. When this happens, many consider it logical
that the corporate institution share the liability.

Doctrine of Corporate Liability

Under the doctrine of corporate liability it is the hospital itself that is negligent.
This liability is not vicarious, as it is under the doctrine of respondeat superior.
Rather, it attaches independently to the corporation. In other words, the hospi-
tal owes a legal duty directly to the patient, and this duty is not delegable to the
medical staff or other personnel. A Connecticut court once defined corporate
liability 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.”28
What direct duties does the healthcare organization owe the patient or
another person? Isn’t patient care the responsibility of physicians and other
clinical personnel, not the impersonal corporation? To answer, one must con-
sider the corporate purposes of a community 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?
If a hospital is considered to be nothing more than bricks and mortar—
a doctor’s workshop, so to speak—then its duties to the patient are quite limi-
ted. On the other hand, organizations with broader purposes and functions can
be expected to have broader legal duties. As previously discussed, hospitals and
health systems do more than provide physical facilities and accommodations for
the practice of medicine. They are the focus for arranging, furnishing, and pro-
viding the community with an entire range of health-related services—preven-
tive, curative, and palliative; outpatient and inpatient; acute and long term. As
their vision has expanded, their duties have expanded in like measure.
Before the mid-1960s, courts generally limited hospitals’ corporate
duties to such issues as selection and retention of employees and mainte-
nance of hospital equipment, buildings, and grounds. Negligence regard-
ing equipment is seen when there are unrepaired defects, when equipment
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 137

is misused,29 or when it is used for an unintended purpose.30 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 systemati-
cally and regularly before use.31 Rules and regulations of licensing author-
ities, accreditation standards, and instructional manuals supplied by manu-
facturers to maintain equipment can be admitted at trial as evidence of
expected standards of care. Failure on the part of hospital and medical per-
sonnel to comply with such standards would constitute evidence of breach of
duty for the jury to consider.
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 knew or should have known of the recall.
With regard to the availability of equipment and services, the rule is
that there is no duty to possess the newest and most modern equipment
available on the market, but there is a duty to have available the usual and
customary equipment and staff for any service that the hospital undertakes to
render. (The same applies to physicians’ offices, nursing homes, and other
facilities.) Accordingly, use of unsterilized hypodermic needles has been
found to form the basis of liability.32 In Garcia v. Memorial Hospital a hospi-
tal did not have a pediatric endotracheal tube in the emergency department
that might have saved a child’s life.33 The hospital operated an emergency
department and held itself out as providing a full range of emergency servi-
ces. It was held to be usual and customary to have a pediatric endotracheal
tube available. Another example is provided by a Pennsylvania hospital that
was found liable when its emergency department EKG machine broke down
and no backup instrument was available.34 An emergency patient then had to
be taken to another location for the test, but he died there.
Healthcare organizations also have a corporate responsibility to exer-
cise reasonable care in selecting and retaining employees. In the Texas case
of Wilson N. Jones Memorial Hospital v. Davis,35 the hospital’s failure to
investigate the background and references of an applicant for the position
of orderly resulted in an award of both compensatory and punitive dama-
ges. The hospital’s normal procedure in hiring employees was to obtain
four employment references and three personal references. Established pol-
icy was to verify at least one of the employment references and one of the
personal references before hiring the applicant. In this case, a hospital exec-
utive employed the applicant as an orderly without checking any of the ref-
erences. (The reason given later was that the hospital had a critical need for
orderlies.)
138 The Law of Healthcare Administration

After the individual began work, an inquiry was sent to one of the ref-
erences, who verified that the orderly had worked for them for approxi-
mately four months but did not answer any of the other questions asked on
the reference form. The hospital failed to follow up. The applicant had rep-
resented that he had received his training as an orderly while in the U.S.
Navy. The hospital said it did not inquire of the Navy because it had had
unsatisfactory cooperation with the armed services in the past. However, the
plaintiff requested information from the Navy and promptly learned that the
orderly had been expelled from the Navy Medical Corps School after a sin-
gle month’s training, that he had been diagnosed as having a serious drug
problem, and that he had a criminal record. At the time he applied for the
position of orderly, the applicant also listed three personal references, all of
whom were shown to have had local telephone numbers and two of whom
were residents in the same city as the hospital. The hospital made only one
attempt to reach one of these references, and this was unsuccessful.
Soon after employment the orderly attempted to remove a Foley
catheter from a patient’s bladder without first deflating the bulb. This
attempt resulted in serious injuries to 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 the failure to exercise reasonable care in
the employee selection process. Moreover, the punitive damages awarded in
the case were a result of “an entire want of care” and “conscious indifference
to the rights, welfare, and safety of the patients in the hospital.”

Violation of Rules and Failure to Adopt Rules

as Corporate Negligence
Hospital bylaws, rules and regulations, and the accreditation standards of the
Joint Commission are admissible in evidence at trial.36 If violation of a hospi-
tal rule is the proximate cause of a plaintiff’s injury, liability can be premised
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 cer-
tainly strong evidence. For example, in Pederson v. Dumouchel a hospital was
liable as a matter of law when it permitted nonemergency dental surgery to be
performed under a general anesthetic without the supervision of a medical
doctor in violation of hospital policy.37
Typically, the existence of a rule and evidence of its breach will be sub-
mitted 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 verdict
for the plaintiff was affirmed in Burks v. Christ Hospital, citing a hospital pol-
icy that bedside rails be raised if the patient was restless, obese, or under seda-
tion unless the attending physician had issued an order to the contrary.38 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. A
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 139

Michigan case noted that an administrative regulation requiring hospitals to

have written policies regarding medical consultations and consultations to be
recorded was intended to protect hospitalized patients.39 Accordingly, the plain-
tiff was entitled to have the jury instructed on the purpose of this rule.
In addition to failing to follow published standards, the failure even to
have appropriate rules necessary for patients’ safety may constitute corporate
negligence. There was liability in Habuda v. Trustees of Rex Hospital where
the hospital had inadequate rules relating to the handling, storage, and
administration of medications.40
Another variation of corporate liability is a hospital’s failure to have
and to implement adequate rules for communicating vital information on
patient care to others who are or will be responsible for treating the patient.
For example, in Keene v. Methodist Hospital an injured patient was seen by a
physician on duty in a hospital emergency department on Christmas Eve and
sent home after x-rays were taken.41 Early Christmas morning the radiologist
detected a possible skull fracture and suggested further x-ray studies. The
physician dictated a tentative diagnosis and recommendations into a dictat-
ing machine without further communication to the attending physician, the
patient, or hospital administrators. Apparently as a result 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 sur-
gery, and died as a result of a fractured skull and hemorrhage. The hospital,
not just the physicians, was held liable for its failure to transmit the radiolo-
gist’s report promptly to the treating physician or, in his absence, to hospital
administrators. This factual situation is characterized as corporate negligence
because it is the duty of the hospital to have a system for prompt transcrip-
tion of dictated communications as a component of its responsibility to main-
tain and transmit the patient’s medical record.
Thus, we see that the failure to have and to follow proper rules, reg-
ulations, or systems in place when indicated by recognized professional
standards can result in liability whether it is called corporate negligence or
vicarious liability.42 It is becoming increasingly difficult to determine in any
given case whether the applicable legal theory is one of corporate negli-
gence or respondeat superior. It probably does not matter much. Just as in
Bing v. Thunig 43—which in 1957 eliminated any distinction between the
administrative and professional acts of nurses for the purposes of respon-
deat superior—the distinction between hospitals’ vicarious liability (respon-
deat superior) and direct liability (corporate negligence) has nearly disap-
peared for all practical purposes. In any event, hospital rules, standards of
accreditation, and licensure regulations must be realistic, known to all
affected persons, capable of implementation, and consistently enforced.
Further, the rules must be regularly and systematically reviewed; if they are
not realistic and workable, then they should be eliminated.
140 The Law of Healthcare Administration

Negligence in Selection and Retention of Medical Staff

The law in every state 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 com-
petent to perform the permitted clinical procedures. This doctrine began
to emerge as the result of the 1965 landmark case of Darling v. Charleston
Community Memorial Hospital.44 In that litigation the Illinois Supreme
Court held that a hospital could be liable either (a) under respondeat
superior, if nurse employees failed to notify medical and hospital adminis-
trators when they knew that a patient was receiving inadequate medical
care, or (b) under 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 was a general practitioner who had been per-
mitted by the hospital to practice orthopedic medicine and whose clinical
competence had not been reviewed during more than three decades of
practice.
Significantly, Darling also established that standards set forth in med-
ical staff bylaws, as well as those promulgated by the Joint Commission and
state licensing authorities, might be considered by the jury to prove the stan-
dard of care. 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 performance of members of the medical staff.
The Illinois court rejected the view that a hospital undertakes simply
to procure nurses and doctors to act on their own responsibility. Such a role
no longer reflects current hospital management. In fact, a hospital under-
takes to treat the patient and to act through its nurses and doctors, even if
the latter are not employees.45 Following the Darling decision, one com-
mentator 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 servants (usually nurses or residents) were negligent in failing to call
the attention of the proper hospital authorities to the impropriety or inade-
quacy of the treatment being given.46

Case law has now firmly established that hospital administration and
medical staff have a joint role with respect to the clinical performance of
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 141

individual practitioners. The governing body of the hospital has the

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 and delineates privi-
leges on an individual basis, and reappointments are made by the govern-
ing body on the recommendations of medical staff committees. In ruling
on these recommendations, the board must be satisfied that the peer
review process is in fact working and must avoid simply rubber-stamping
recommendations that are submitted by medical staff. The responsibility
of the governing body is nondelegable; the board does, however, delegate
to medical staff the authority to implement the credentialing process and
to prepare recommendations for appointments and reappointments (more
on this in Chapter 7).
Other leading cases have recognized the corporate duty of a hospital
to exercise reasonable care in the selection and retention of medical staff. A
1971 Georgia case, Joiner v. Mitchell County Hospital Authority, held that
members of the medical staff who make recommendations to the governing
body of the hospital for appointment of physicians were agents of the hospi-
tal.47 In considering these recommendations the governing body must act in
good faith and with reasonable care.48 A similar institutional duty was recog-
nized by Nevada’s Supreme Court in a medical staff privileges case entitled
Moore v. Board of Trustees of Carson–Tahoe Hospital.49 There 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 cre-
ate a workable system whereby the medical staff of the hospital continu-
ally 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 medi-
cal 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 individu-
alized 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 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.50
142 The Law of Healthcare Administration

In Gonzales v. Nork the defendant performed an unsuccessful and

allegedly unnecessary laminectomy and spinal fusion procedure on a 27-year-
old man who had been injured in an automobile accident.51 Various compli-
cations developed that substantially reduced the patient’s life expectancy. Evi-
dence was presented showing that the surgeon had performed more than
three dozen similar operations that were either negligently done or unneces-
sary. 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
actual knowledge of Dr. Nork’s propensity to commit malpractice, its
demonstrated lack of a workable system for acquiring such knowledge justi-
fied a finding of negligence.
A landmark Wisconsin case took a particularly enlightened view of the
role of a hospital in its relations with the medical staff. In Johnson v. Miseri-
cordia Community Hospital (see The Court Decides at the end of this chap-
ter) the plaintiff alleged that the hospital was negligent in granting orthope-
dic surgical privileges to a particular physician.52 The Wisconsin Supreme
Court affirmed a jury verdict for the plaintiff on the following basis:

1. that the hospital had failed to inquire into the physician’s professional
background and qualifications prior to granting a staff appointment,
2. that it failed to adhere to its own bylaw provisions and to Wisconsin
statutes pertaining to medical credentialing,
3. that the exercise of ordinary care would have disclosed the physician’s
lack of qualifications,
4. that had it done due diligence it would not have appointed him to the
medical staff, and
5. that not doing so exposed patients to a “foreseeable risk of unreasonable
harm.”

This case stands for the now well-recognized proposition that “a hospital has
a duty to exercise due care in the selection of its medical staff.”53
None of the case decisions since Darling has implied a supervisory
role for lay hospital administrators or trustees over physicians’ clinical activi-
ties. Only physicians can practice medicine and exercise clinical judgment for
proper care and treatment of patients. But it is the responsibility of the gov-
erning board and administration to be certain that the organized medical
staff is periodically reviewing the clinical behavior of staff physicians. Rather
than second-guessing medical care, the governing board merely delegates
the review and evaluation functions to the medical staff, which in turn is
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 143

accountable to the board for its recommendations in a process known as

“credentialing”; see a complete discussion in Chapter 7.
It is the medical staff’s job to develop reasonable criteria and fundamen-
tally fair procedures for evaluation, appointment, and delineation of privileges.
Information and data must be gathered and forwarded to the governing body
in support of recommendations. The board, in turn, approves both 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 mak-
ing certain that all supporting information is complete.
Consistent with these responsibilities, hospitals must develop a cre-
dentialing process for other professionals working within the institution.
Physician’s assistants, nurse practitioners, podiatrists, technicians, pharma-
cists, and other clinicians provide services in the hospital setting. It is clear
that the hospital must evaluate the competencies of these individuals just as
it does those of the medical staff. Moreover, procedures must be developed
to review periodically the performance of each of these persons. The scope of
their clinical activities is a matter for the medical and nursing staff to develop
according to local licensure laws and professional custom and usage.
The cases in this chapter illustrate significant changes in the theories
of hospital liability. The law of agency and respondeat superior no longer
explain liability based on a violation of a corporate duty. It should be evident
that in the hospital setting the rules of respondeat superior and corporate or
independent negligence have essentially become one.

Liability of Managed Care Organizations

The emphasis on efficiency and cost savings that characterized the 1980s and
1990s led many to question whether the healthcare system was neglecting the
quality of the care being provided in deference to economic considerations.
Issues arise when managed care organizations (MCOs)—health maintenance
organizations and similar health plans—make payment decisions that adversely
affect the medical outcome.
Some argue that irrespective of whether the MCO concurs and assumes
financial responsibility, the decision to admit patients or extend their stay is a
medical one that only a physician can make. Indeed this was the key point in
Wickline v. California,54 one of the first cases to attempt to assert liability against
an MCO (in this case, the state’s Medi-Cal program) when a utilization review
(UR) decision forced a patient’s early discharge. The court wrote, “Third party
payers of health care services can be held legally accountable when medically
inappropriate decisions result from defects in the design or implementation of
cost containment mechanisms....” It also held that the physician had the final
responsibility to make the medical decision whether to discharge. Because the
physician in question had not appealed the UR decision and should have done
so, the physician and not the MCO was held liable.
144 The Law of Healthcare Administration

A later California case found otherwise, however. In Wilson v. Blue Cross

of Southern California, a physician requested a 30-day admission for a depressed
psychiatric patient. The request was denied by UR, and the patient later commit-
ted suicide.55 The court found that Blue Cross’s refusal to pay for the admission
was a “substantial factor” in the patient’s death and that the MCO was liable,
stating, “The language in Wickline which suggests that civil liability for a dis-
charge decision rests solely within the responsibility of a treating physician in all
contexts is dicta.” Thus, the MCO was held liable. (“Dicta” are comments in a
decision that are not required to reach the decision but may state a related legal
principle as the judge understands it. Although they may be cited in legal argu-
ment, they do not have the full force of a precedent.)
There are substantial challenges for plaintiffs who wish to hold MCOs
responsible for decisions that adversely affect patient care. The most imposing
hurdle is ERISA, the Employee Retirement Income Security Act of 1974,56
which preempts “any and all State laws insofar as they...relate to any employee
benefit plan.” Numerous cases have held that medical malpractice claims against
MCOs are barred by the ERISA preemption provisions.57 To date there has been
no congressional action to amend ERISA and explicitly provide for MCO liabil-
ity for UR decisions, but some related action has been taken at the state level.
Texas, for example, allows an individual to sue an MCO for injuries
caused by adverse UR decisions. The act provides, in relevant part, as follows:

(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) A health insurance carrier, health maintenance organization, or other man-
aged care entity for a health care plan 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;
(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

This statute was upheld in Corporate Health Insurance, Inc. v. Texas

Department of Insurance,59 in which the court wrote, “Claims [such as mal-
practice claims] challenging the quality of a benefit...are not preempted by
ERISA…. Claims based upon a failure to treat where the failure was the result
of a determination that the requested treatment wasn’t covered by the plan,
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 145

however, are preempted by ERISA.” The court held that the Texas statute
addresses the quality of benefits actually provided and that its effect on
ERISA plans was too tenuous to constitute an improper imposition of state
law liability on them.
Notwithstanding the Texas case, until Congress or the Supreme Court
speaks definitively, the question of whether ERISA provides immunity to
MCOs for their financially motivated treatment decisions will continue to be
the subject of much litigation.

Chapter Summary

The law of hospital liability has come a long way in the past 70 years or so.
In the 1930s and 1940s most charitable hospitals were immune from tort lia-
bility. After charitable immunity was abolished, courts began to apply the
doctrine of respondeat superior to the hospital setting—timidly, at first. A
distinction was clearly drawn between an employee and an independent con-
tractor. Then emerged the concepts of apparent agency and agency by estop-
pel, together with the decline of the captain-of-the-ship and borrowed-ser-
vant doctrines. The notion of apparent agency has now expanded to the
point that the independent contractor defense is no longer viable or desirable
as a matter of substantive tort law in the field of hospital liability.
More significant, the expanded doctrine of corporate negligence—the
nondelegable responsibility of reviewing and evaluating clinical practices—
has essentially obliterated the distinction between vicarious liability and direct
liability, as illustrated in the cases discussed here.
Finally, the rise of managed care in the 1980s and 1990s has led to ques-
tions about whether efforts to control costs compromise the quality of care. This
facet of liability promises to be the subject of legal scrutiny into the foreseeable
future.

Chapter Discussion Questions

1. Why is the history of healthcare institutions important to an under-

standing of their legal liability today?
2. Why has the defense of “independent contractor” status declined in
importance in recent years?
3. How is “corporate liability” different from liability under respondeat
superior?
4. What is the liability of a managed care organization (e.g., health mainte-
nance organization, preferred provider organization) when it makes
decisions about insurance coverage for hospital stays?
146 The Law of Healthcare Administration

Notes
1. The origin of immunity in the United States is generally attributed to the often-cited McDon-
ald v. Massachusetts Gen. Hosp., 120 Mass. 432, 21 A.529 (1876). For a general discussion
of the social forces behind the doctrine, see Starr, P. 1982. The Social Transformation of
American Medicine.
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. 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 Manage-
ment Enterprises, 493 So. 2d 819 (La. Ct. App. 1986). Additionally, 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.
4. Foley v. Bishop Clarkson Memorial Hosp., 185 Neb. at 95, 173 N.W.2d at 885.
5. For example, 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;
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.
6. For example, Keeton v. Maury County Hosp., 713 S.W.2d 314 (Tenn. App. 1986)—where
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.
7. Reifschneider v. Nebraska Methodist Hosp., 387 N.W.2d at 489—violation of a physician’s
order that patient be attended at all times presented a prima facie case of negligence.
8. 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)—where 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.
9. For example, Mayers v. Litow & Midway Hosp., 154 Cal. App. 2d 413, 316 P.2d 351
(1957); Zelver v. Sequoia Hosp. Dist., 7 Cal. App. 3d 934, 87 Cal. Rptr. 79 (1970); Dickin-
son v. Mailliard, 175 N.W.2d 588 (Iowa 1970).
10. 58 Mich. App. 119, 227 N.W.2d 247 (1975).
11. 42 Cal. App. 3d 260, 116 Cal. Rptr. 801 (1974).
12. 2 N.Y.2d 656, 143 N.E.2d 3, 163 N.Y.S.2d 3 (1957).
13. Id., 2 N.Y.2d at 666.
14. With respect to hospital liability for negligence of residents and interns, see Waynick v. Rear-
don, 236 N.C. 116, 72 S.E. 2d 4 (1952); City of Miami v. Oates, 152 Fla. 21, 10 So. 2d 721
(1942); Klema v. St. Elizabeth’s Hosp., 170 Ohio St. 519, 166 N.E.2d 765 (1960); Wright v.
United States, 507 F. Supp. 147 (E.D. La. 1980)—the resident staffing an emergency depart-
ment was held to standards of physicians specializing in emergency medicine; Scott v. Brook-
dale Hosp. Center, 60 A.D.2d 647, 400 N.Y.S.2d 552 (1977).
15. 272 A.2d 718 (Del. 1970).
16. 304 A.2d 61 (Del. Super. Ct. 1973).
17. See also Mduba v. Benedictine Hosp., 52 A.D.2d 450, 384 N.Y.S.2d 527 (1976); Mehlman v.
Powell, 281 Md. 269, 378 A.2d 1121 (1977); Rucker v. High Point Memorial Hosp., 20 N.C.
App. 650, 202 S.E.2d 610 (1974); Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255 (Ky. 1985).
18. 68 Ohio App. 2d 61, 426 N.E.2d 1187 (1980).
19. Other leading cases illustrating application of the doctrines of apparent agency or agency by
estoppel are Seneris v. Haas, 45 Cal.2d 811, 291 P.2d 915 (1955) (anesthesiologist); Lund-
berg v. Bay View Hosp., 175 Ohio St. 133, 191 N.E.2d 821 (1963) (pathologist); Kober v.
Stewart, 148 Mont. 117, 417 P.2d 476 (1966) (radiologist). See also Griffin v. Matthews,
No. CA 86-09-127, unreported, Butler County, Ohio Ct. App. (May 11, 1987)—representa-
tions by a full-service hospital establish an agency by estoppel even in absence of reliance by
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 147

plaintiff; Smith v. Baptist Memorial Hosp. Sys., 720 S.W.2d 618 (Tex. Ct. App. 1986)—fac-
tual issues determine application of ostensible agency doctrine, and a hospital may not con-
tractually disclaim liability for negligence of physicians employed by a professional association;
Sztorc v. Northwest Hosp., 146 Ill. App. 3d 275, 496 N.E.2d 1200 (1986), reh’g denied,
Sept. 8, 1986—the hospital’s radiation therapy department staffed by a group of private physi-
cians represented as an integral part of the hospital precludes summary judgment for the
defendant hospital. Cf. Greene v. Rogers, 147 Ill. App. 3d 1009, 498 N.E.2d 867 (1986)—in
the absence of representations by hospital and reliance by patient, a summary judgment for
the hospital is proper.
20. 404 Mich. 240, 273 N.W.2d 429 (1979).
21. See also Restatement (Second) of Torts § 429 (1965). One who employs an independent
contractor to perform services for another that are accepted in the reasonable belief they are
being rendered by the employer is liable for physical harm caused by negligence of the con-
tractor.
22. A physician who is on call for emergencies within the hospital may be personally liable as the
result of a failure to respond—Hiser v. Randolph, 126 Ariz. 608, 617 P.2d 774 (1980). The
hospital may also be liable.
23. 458 Pa. 246, 329 A.2d 497 (1974).
24. See Restatement (Second) of Agency § 226 (1958).
25. 547 S.W 2d 582 (Tex. 1977).
26. 552 S.W.2d 534 (Tex. 1977). Accord Truhitte v. French Hosp., 128 Cal. App. 3d 332
(1982); City of Somerset v. Hart, 549 S.W.2d 814 (Ky. 1977); Grant v. Touro Infirmary, 254
La. 204, 223 So. 2d 148 (1969); Buzan v. Mercy Hosp., 203 So. 2d 11 (Fla. App. 1967);
Miller v. Tongen, 281 Minn. 427, 161 N.W.2d 686 (1968); Contra Swindell v. St. Joseph’s
Hosp., Inc., 161 Ga. App. 290 (1982)—hospital employees’ negligent act during perform-
ance of a myelogram was imputed to the physician.
27. This trend was anticipated and forecast by Professor Southwick as early as 1960 when he
wrote: “The third trend in the law of hospital liability is the most significant. It is the increas-
ing 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 inde-
pendent contractor.... Gradually, the test of hospital liability for another’s act is becoming sim-
ply a question of whether or not the actor causing injury was a part of the medical care organ-
ization.” Southwick, A. Vicarious Liability of Hospitals, 44 Marq. L. Rev. 151, 182 (1960).
28. Bader v. United Orthodox Synagogue, 148 Conn. 449, 453, 172 A.2d 192, 194 (1961).
29. 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).
30. Phillips v. Powell, 210 Cal. 39, 290 P.2d 441 (1930); Milner v. Huntsville Memorial Hosp.,
398 S.W.2d 647 (Tex. App. 1966).
31. 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).
32. Peck v. Charles B. Towns. Hosp., 275 A.D. 302, 89 N.Y.S.2d 190 (1949).
33. 557 S.W.2d 859 (Tex. 1977).
34. Hamil v. Bashline, 224 Pa. Super. 407, 307 A.2d 57 (1973).
35. 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).
36. 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.
37. 70 Wash. 2d 73, 431 P.2d 973 (1967).
38. 19 Ohio St. 2d 128, 249 N.E.2d 829 (1969).
39. Kakligian v. Henry Ford Hosp., 48 Mich. App. 325, 210 N.W.2d 463 (1973).
40. 3 N.C. App. 11, S.E.2d 17 (1968).
148 The Law of Healthcare Administration

41. 324 F. Supp. 233 (N.D. Ind. 1971).

42. 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—Dick-
inson v. Mailliard, 175 N.W.2d 588 (Iowa 1970).
43. 2 N.Y.2d 656, 143 N.E.2d 3, 163 N.Y.S.2d 3 (1957).
44. 33 Ill. 2d 326, 211 N.E.2d 253, cert. denied, 383 U.S. 946 (1966).
45. 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).
46. 14 A.L.R.3d 873, 879 (1967).
47. 125 Ga. App. 1, 186 S.E.2d 307, aff’d, 229 Ga. 140, 189 S.E.2d 412 (1972).
48. The New York courts have also recognized that the hospital has a duty to the patient to select
and retain staff physicians with care. See Fiorentino v. Wagner, 19 N.Y.2d 407, 227 N.E.2d
296, 299, 280 N.Y.S.2d 373, 378 (1967), where 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.”
49. 88 Nev. 207, 495 P.2d 605, cert. denied, 409 U.S. 879 (1972).
50. Id., 495 P.2d at 608. Readers will recognize that this language of the Nevada court is a para-
phrased summation of Arthur Southwick’s “Hospital Medical Staff Privileges,” 18 DePaul L.
Rev. 655 (1969). See also Pedroza v. Bryant, 101 Wash. 2d 226, 677 P.2d 166 (1984)—hos-
pitals 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.
51. No. 228566 (Super. Ct. Cal., Sacramento County, 1973), rev’d on other grounds, 60 Cal.
App. 3d 728 (1976).
52. 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).
53. 99 Wis. 2d at 723.
54. 239 Cal. Rptr. 810 (Ct. App. 1986).
55. 271 Cal. Rptr. 876 (Ct. App. 1989).
56. 29 U.S.C. § 1001 et seq.
57. See, for example, 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. Civ. No. H-97-2702 (U.S.D.C., S.D. Tex., Sept. 18, 1998).
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 149

the court decides

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

[The plaintiffs are the parents of an infant who died after a medication error in a hospital. 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 dis-
charged from the hospital at two and one-half months of age, and her mother administered the med-
ication at home by using a medicine dropper. The child was readmitted about two weeks later, on
December 29, 1959, by her pediatrician, Dr. Bombet.]

Landry, J. Mrs. Norton, who was present in the room,

to increase the daily dose of the Lanoxin
On this occasion [Dr. Bombet] issued for that day only to 3 c.cs. instead of the
admission orders on the infant to be usual 2.5 c.cs. Following this instruction to
placed in the child’s hospital chart or Mrs. Norton, Dr. Stotler went to the
record. Included in his admission orders nurse’s station in the hospital pediatric
were instructions regarding medication, unit floor to check the hospital chart or
diet, etc., and the notation that special record on the Norton infant and noted on
medication was being administered by the the Doctor’s Order Sheet contained
mother. In this connection it appears that therein certain instructions among which
Mrs. Norton preferred to continue admin- only the following is pertinent to the
istration of the daily maintenance dose of issues involved herein: “Give 3.0 cc
the Lanoxin herself since she had been Lanoxin today for 1 dose only”.
performing this function since the child’s Dr. Stotler’s entry of the foregoing order
initial admission to the hospital on for medication constitutes the basis of
December 15th. Dr. Bombet noted in the plaintiff’s claim against Aetna as the pro-
hospital admission orders of December fessional liability insurer of Dr. Stotler. It is
29, 1959, that special medication was frankly conceded by Aetna that unless Dr.
being given by the mother to thusly advise Stotler indicated on the order sheet that
the hospital staff and employees that he had instructed the patient’s mother to
some medication was being administered increase the daily maintenance dose of
the child other than that which he placed Lanoxin to 3.0 c.cs. and administer the
on the order sheet and would, therefore, medication, his entry of the aforesaid pre-
be administered by the hospital nursing scription on the order sheet would indi-
staff. cate that the nursing staff of the hospital
On January 2, 1960 (Saturday) Dr. Stotler was to give the medication prescribed. It
examined the Norton baby at approxi- is further conceded that under such cir-
mately noon while in the course of making cumstances the child was subjected to the
his rounds in the hospital. As a result of possibility of being administered a second
this examination he concluded that the dose of Lanoxin. The possibility thus pre-
child needed an increase in the daily main- sented is exactly what occurred in the
tenance dose of Lanoxin and instructed instant case. A member of the nursing
150 The Law of Healthcare Administration

staff noting Dr. Stotler’s orders, adminis- the matter and was advised that if Dr.
tered 3 c.cs. of Lanoxin in its injectible Stotler prescribed 3 c.cs. he meant 3 c.cs.
form instead of the elixir form which Dr. Still not certain about the matter Mrs.
Stotler intended.… It is readily conceded Evans also discussed the subject with Dr.
by all concerned that the 3 c.cs. of Lanoxin Ruiz and was informed by him in effect
administered the baby by hypodermic was that although the dose was the maximum
a lethal overdose and was in fact the dose that if the doctor had prescribed that
cause of the infant’s demise. amount she could give it. [Despite her
.... misgivings, she did give the injection. The
[The day in question was a Saturday, baby went into distress, and despite
and the regular staff was not on duty. emergency efforts, she died a little more
Mrs. Florence Evans, an R.N. whose reg- than an hour later.]
ular duties were administrative in ....The rule applicable in the instant case
nature, was assisting in the pediatric is well stated in the following language [of
unit that day. She had not engaged in an earlier Louisiana case]:
the actual clinical practice of nursing for (1) A physician, surgeon or dentist,
some time, and she did not know that according to the jurisprudence of this
Lanoxin was available in oral form; the court and of the Louisiana Courts of
last she knew, Lanoxin was given only Appeal, is not required to exercise the
by injection. Noting the doctor’s orders highest degree of skill and care possible.
for “3 cc of Lanoxin,” and seeing no indi- As a general rule it is his duty to exercise
cation that it had been given, she the degree of skill ordinarily employed,
decided to inject the medication herself, under similar circumstances, by the mem-
even though she sensed that this bers of his profession in good standing in
“appeared to be a rather large dose,” the same community or locality, and to
according to the court.] use reasonable care and diligence, alone
…. She discussed the matter very briefly with his best judgment, in the application
with the student nurse, Miss Meadows, of his skill to the case.
and inquired of the Registered Nurse, [I]t is manifest that Dr. Stotler was negli-
Miss Sipes, whether or not the child had gent in failing to denote the intended
previously received Lanoxin. Mrs. Evans route of administration and failing to indi-
then examined the patient’s hospital chart cate that the medication prescribed had
and found nothing [to indicate that] the already been given or was to be given by
child had been receiving Lanoxin while in the patient’s mother. It is conceded by
the hospital.… Considering administration counsel for Dr. Stotler that the doctor’s
of the drug only by hypodermic needle, oversight in this regard exposed the child
Mrs. Evans, accompanied by the Student to the distinct possibility of being given a
Nurse, Miss Meadows, went to the medi- double oral dose of the medicine.
cine room of the pediatric unit and Although it is by no means certain from
obtained two ampules of Lanoxin each the evidence that a second dose of oral
containing 2 c.cs. of the drug in its Lanoxin would have proven fatal, Dr.
injectible form. While pondering the advis- Stotler’s own testimony dose [sic] make it
ability of…administering what she consid- clear that in all probability it would have
ered to be a large dose, Mrs. Evans noted produced nausea. In this regard his testi-
that Dr. Beskin, one of the consultants on mony is to the effect that even if the
the child’s case, had entered the pediatric strength of two oral doses were sufficient
ward so Mrs. Evans consulted him about to produce death in all probability death
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 151

would not result for the reason that nau- Although there have been instances in
sea produced by overdosing would have our jurisprudence wherein the alleged neg-
most probably induced the child to vomit ligence of nurses has been made the basis
the second dose thereby saving her life. of an action for damages for personal
The contention that Dr. Stotler followed injuries…, we are not aware of any prior
the practice and custom usually engaged decision which fixes the responsibility or
in by similar practitioners in the commu- duty of care owed by nurses to patients
nity is clearly refuted and contradicted by under their care or treatment. The general
the evidence of record herein. Of the four rule, however, seems to be to extend to
medical experts who testified herein only nurses the same rules which govern the
Dr. Stotler testified in effect that it was the duty and liability of physicians in the per-
customary and usual practice to write a formance of professional services.
prescription in the manner shown. The tes- Thus...we find the rule stated as follows:
timony of Drs. Beskin, Bombet and Ruiz * * * The same rules that govern the
falls far short of corroborating Dr. Stotler duty and liability of physicians and sur-
in this important aspect. The testimony of geons in the performance of professional
Dr. Stotler’s colleagues was clearly to the services are applicable to practitioners
effect that the better practice is to specify of the kindred branches of the healing
the route of administration intended.... In profession, such as dentists, and, like-
view of the foregoing, we hold that the act wise, are applicable to practitioners such
acknowledged by Dr. Stotler does not as drugless healers, oculists, and manip-
relieve him from liability to plaintiffs ulators of X-ray machines and other
herein on the ground that it accorded with machines or devices.
that degree of skill and care employed, The foregoing rule appears to be well-
under similar circumstances, by other founded and we see no valid reason why
members of his profession in good stand- it should not be adopted as the law of
ing in the community. We find and hold this state. Tested in the light of [this rule]
that the record before us fails to establish the negligence of Mrs. Evans is patent
that physicians in good standing in the upon the face of the record. We readily
community follow the procedure adopted agree with the statement of Dr. Ruiz that
by defendant herein but rather the con- a nurse who is unfamiliar with the fact
trary is shown. that the drug in question is prepared in
Pretermitting the issue of charitable oral form for administration to infants by
immunity (with which we are not herein mouth is not properly and adequately
concerned in view of the fact that the suit trained for duty in a pediatric ward. As
is against the insurer of the hospital in laudable as her intentions are conceded
the instant case) it is the settled jurispru- to have been on the occasion in ques-
dence of this state that a hospital is tion, her unfamiliarity with the drug was
responsible for the negligence of its a contributing factor in the child’s death.
employees including, inter alia, nurses In this regard we are of the opinion that
and attendants under the doctrine of she was negligent in attempting to
respondeat superior. administer a drug with which she was
[I]t is not disputed that Mrs. Evans was not familiar. While we concede that a
not only an employee of the hospital but nurse does not have the same degree of
that on the day in question she was in knowledge regarding drugs as is pos-
charge of the entire institution as the sen- sessed by members of the medical pro-
ior employee on duty at the time. fession, nevertheless, common sense
152 The Law of Healthcare Administration

dictates that no nurse should attempt to which we are herein concerned, it is the
administer a drug under the circum- duty of the prescribing physician who
stances shown in [this] case. Not only knows that the prescribed medication
was Mrs. Evans unfamiliar with the medi- will be administered by a nurse or third
cine in question but she also violated party, to make certain as to the lines of
what has been shown to be the rule gen- communication between himself and the
erally practiced by the members of the party whom he knows will ultimately exe-
nursing profession in the community and cute his orders. Any failure in such com-
which rule, we might add, strikes us as munication which may prove fatal or inju-
being most reasonable and prudent, rious to the patient must be charged to
namely, the practice of calling the pre- the prescribing physician who has full
scribing physician when in doubt about knowledge of the drug and its effects
an order for medication.… For obvious upon the human system. The duty of
reasons we believe it the duty of a nurse communication between physician and
when in doubt about an order for med- nurse is more important when we con-
ication to make absolutely certain what sider that the nurse who administers the
the doctor intended both as to dosage medication is not held to the same
and route.… degree of knowledge with respect
…. thereto as the prescribing physician. It,
The evidence…leaves not the slightest therefore, becomes the duty of the physi-
doubt that when Dr. Stotler entered the cian to make his intentions clear and
order for the medication on the chart, it unmistakable. If, as the record shows, Dr.
was the duty of the hospital nursing staff Stotler had ordered elixir Lanoxin, or
to administer it. Dr. Stotler frankly con- specified the route to be oral, it would
cedes this important fact and for that have clearly informed all nurses of his
reason acknowledged that he should intention to administer the medication by
have indicated on the chart that the med- mouth. Instead, however, he wrote his
ication had been given or was to be given order in an uncertain, confusing manner
by the mother, otherwise some nurse on considering that the drug in question
the pediatric unit would give it as was comes in oral and injectible form and
required of the hospital staff. Not only that in both forms dosage is prescribed
was there a duty on the part of Dr. in terms of cubic centimeters.
Stotler to make this clear so as to pre- It is settled jurisprudence of this state
vent duplication of the medication but that where the negligence of two persons
also he was under the obligation of spec- combines to produce injury to a third, the
ifying or in some manner indicating the parties at fault are [jointly] liable to the
route considering the drug is prepared in injured plaintiff.
two forms in which dosage is measured [Thus, in unfortunately awkward lan-
in cubic centimeters. In dealing with guage, the court affirms the jury’s ver-
modern drugs, especially of the type with dict and hold everybody liable.]
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 153

Norton v. Argonaut Insurance Co. 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. It is nearly 50 years after this child’s death, 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 there is at least one medica-
tion error per hospital per patient per day. What safeguards are in place
in hospitals today to avoid these kinds of mistakes?
4. What does “pretermitting” mean?

the court decides

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

[This case involves negligent surgery performed on Mr. Johnson by a Dr. Salinsky at Misericordia hospi-
tal in July 1975. Because of undisputed negligence by the doctor, the patient (plaintiff ) has “a perma-
nent 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.
The Misericordia Community Hospital had previously been a religiously affiliated hospital but was
sold to a private group of physicians who first operated it as a nursing home but subsequently reinsti-
tuted acute care services there. At the time of the incidents complained of, it had never been accredited
by the Joint Commission.]

Coffey, J. failed to answer any of the questions

pertaining to his malpractice insurance,
On March 5, 1973, …Dr. Salinsky applied for i.e., carrier, policy number, amount of
orthopedic privileges on the medical staff. coverage, expiration date, [and] agent,
In his application, Salinsky stated that he and represented that he had requested
was on the active medical staff of [other privileges only for those surgical proce-
hospitals and that] his privileges at other dures in which he was qualified by certi-
hospitals had never “been suspended, fication.
diminished, revoked, or not renewed.” In In addition to requiring the above
another part of the application form, he information, the application provided
154 The Law of Healthcare Administration

that significant misstatements or omis- and doctors referred to in the application

sions would be a cause for denial of for medical staff privileges, she failed to
appointment. Also, in the application, contact any of the references in Salin-
Salinsky authorized Misericordia to con- sky’s case. In her testimony she
tact his malpractice carriers, past and attempted to justify her failure to investi-
present, and all the hospitals that he gate Salinsky’s application because she
had previously been associated with, for believed he had been a member of the
the purpose of obtaining any informa- medical staff prior to her employment in
tion bearing on his professional compe- April of 1973, even though his application
tence, as well as his moral and ethical was not marked approved until some four
qualifications for staff membership. [The months later on August 8, 1973. Further,
application also contained language Mrs. Bekos stated that an examination of
releasing the hospital for any liability as the Misericordia records reflected that at
a result of doing a background check on no time was an investigation made by
the applicant.] anyone of any of the statements recited
Mrs. Jane Bekos, Misericordia’s medical in his application.
staff coordinator (appointed April of ....
1973) testifying from the hospital At trial, the representatives of two Mil-
records, noted that Salinsky’s appoint- waukee hospitals...gave testimony con-
ment to the medical staff was recom- cerning the accepted procedure for evalu-
mended by the then hospital administra- ating applicants for medical staff
tor, David A. Scott, Sr., on June 22, 1973. privileges. Briefly, they stated that the
Salinsky’s appointment and requested hospital’s governing body, i.e., the board
orthopedic privileges, according to the of directors or board of trustees, has the
hospital records, were not marked ultimate responsibility in granting or
approved until August 8, 1973. This denying staff privileges. However, the
approval of his appointment was governing board delegates the responsi-
endorsed by Salinsky himself. Such bility of evaluating the professional quali-
approval would, according to accepted fications of an applicant for clinical privi-
medical administrative procedure, not be leges to the medical staff. The credentials
signed by the applicant but by the chief committee (or committee of the whole)
of the respective medical section. Addi- conducts an investigation of the applying
tionally, the record establishes that Salin- physician’s or surgeon’s education, train-
sky was elevated to the position of Chief ing, health, ethics and experience
of Staff shortly after he joined the med- through contacts with his peers in the
ical staff. However, the court record and specialty in which he is seeking privi-
the hospital records are devoid of any leges, as well as the references listed in
information concerning the procedure uti- his application to determine the veracity
lized by the Misericordia authorities in of his statements and to solicit comments
approving either Salinsky’s appointment dealing with the applicant’s credentials.
to the staff with orthopedic privileges or Once [this has been done, a recommen-
his elevation to the position of Chief of dation is relayed] to the governing body,
Staff. which...has the final appointing authority.
Mrs. Bekos testified that although her The record demonstrates that had
hospital administrative duties entailed [such an investigation been conducted,
obtaining all the information available Misericordia] would have found, contrary
regarding an applicant from the hospitals to [Dr. Salinsky’s] representations, that
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 155

he had in fact experienced denial and this duty to its patients[,] and did Miseri-
restriction of his privileges, as well as cordia fail to exercise that standard of
never having been granted privileges at care in this case?
the very same hospitals he listed in his
application. This information was readily At the outset, it must be noted that Dr.
available to Misericordia, and a review of Salinsky was an independent contractor,
Salinsky’s associations with various Mil- not an employee of Misericordia, and that
waukee orthopedic surgeons and hospi- the plaintiff is not claiming that Miseri-
tal personnel would have revealed that cordia is vicariously liable for the negli-
they considered Salinsky’s competence gence of Dr. Salinsky under the theory of
as an orthopedic surgeon suspect, and respondeat superior. Rather, Johnson’s
viewed it with a great deal of concern. claim is premised on the alleged duty of
[The court summarizes some of Dr. care owed by the hospital directly to its
Salinsky’s professional history. At one patients.
hospital his request for expanded ortho- .… “The concept of duty in Wisconsin,
pedic privileges was denied after being on as it relates to negligence cases, is irrev-
the staff for a year and a half. At another, ocably interwoven with foreseeability.
his privileges were temporarily suspended Foreseeability is a fundamental element
and subsequently limited after a report of of negligence.” In [a prior case,] this
“continued flagrant bad practices.” At a court set the standard for determining
third, his initial application for privileges when a duty arises:
was flatly denied. The court adds, “The A defendant’s duty is established
testimony at trial established many other when it can be said that it was foresee-
discrepancies in Salinsky’s Misericordia able that his act or omission to act may
application,” and it points out that cause harm to someone. A party is negli-
experts in the field testified that, in their gent when he commits an act when
opinion, a prudent hospital would not some harm to someone is foreseeable.
have granted Salinsky’s application under Once negligence is established, the
these circumstances.] defendant is liable for unforeseeable
The jury found that the hospital was consequences as well as foreseeable
negligent in granting orthopedic surgical ones. In addition, he is liable to unfore-
privileges to Dr. Salinsky and thus appor- seeable plaintiffs.
tioned eighty percent of the causal negli- Further, we defined the term “duty” as
gence to Misericordia. Damages were it relates to the law of negligence:
awarded in the sum of $315,000 for past The duty of any person is the obliga-
and future personal injuries and $90,000 tion of due care to refrain from any act
for past and future impairment of earning which will cause foreseeable harm to oth-
capacity.... ers even though the nature of that harm
and the identity of the harmed person or
Issues harmed interest is unknown at the time
1. Does a hospital owe a duty to its of the act.
patients to use due care in the selection ....
of its medical staff and the granting of Thus, the issue of whether Misericor-
specialized surgical (orthopedic) privi- dia should be held to a duty of due care
leges? in the granting of medical staff privileges
2. What is the standard of care that a depends upon whether it is foreseeable
hospital must exercise in the discharge of that a hospital’s failure to properly
156 The Law of Healthcare Administration

investigate and verify the accuracy of an a hospital has a direct and independent
applicant’s statements dealing with his responsibility to its patients, over and
training, experience and qualifications as above that of the physicians and sur-
well as to weigh and pass judgment on geons practicing therein, to take reason-
the applicant would present an unreason- able steps to (1) insure that its medical
able risk of harm to its patients. The fail- staff is qualified for the privileges
ure of a hospital to scrutinize the creden- granted and/or (2) to evaluate the care
tials of its medical staff applicants could provided.
foreseeably result in the appointment of [The court here embarks on a lengthy dis-
unqualified physicians and surgeons to cussion of similar cases from various other
its staff. Thus, the granting of staff privi- states. It particularly points out the leading
leges to these doctors would undoubt- case of Darling v. Charleston Community
edly create an unreasonable risk of harm Memorial Hosp. in which the Supreme Court
or injury to their patients. Therefore, the of Illinois found a direct duty flowing from
failure to investigate a medical staff hospital to patient regarding the qualifica-
applicant’s qualifications for the privi- tions of members of the medical staff. The
leges requested gives rise to a foresee- Johnson court favorably quotes from the
able risk of unreasonable harm and we Darling opinion, including the following
hold that a hospital has a duty to exer- passage: “The Standards for Hospital
cise due care in the selection of its med- Accreditation, the state licensing regula-
ical staff. tions and the defendant’s bylaws demon-
Our holding herein is in accord with the strate that the medical profession and other
public’s perception of the modern day responsible authorities regard it as both
medical scientific research center with its desirable and feasible that a hospital
computed axial tomography (CATscan), assume certain responsibilities for the care
radio nucleide imaging thermography, of the patient.”]
microsurgery, etc., formerly known as a There was credible evidence to the
general hospital. The public is indeed effect that a hospital, exercising ordinary
entitled to expect quality care and treat- care, [would have known of the deficien-
ment while a patient in our highly techni- cies in Dr. Salinsky’s qualifications and]
cal and medically computed hospital would not have appointed Salinsky to its
complexes. The concept that a hospital medical staff....
does not undertake to treat patients, This court has held “* * * a jury’s find-
does not undertake to act through its ing of negligence * * * will not be set
doctors and nurses, but only procures aside when there is any credible evidence
them to act solely upon their own respon- that under any reasonable view supports
sibility, no longer reflects the fact.... [T]he the verdict. * * *” Thus, the jury’s finding
person who avails himself of our modern of negligence on the part of Misericordia
“hospital facilities”...expects that the must be upheld [because] the testimony
hospital staff will do all it reasonably can of [the expert witnesses] constituted
to cure him and does not anticipate that credible evidence which reasonably sup-
its nurses, doctors and other employees ports this finding.
will be acting solely on their own respon- In summary, we hold that a hospital
sibility. owes a duty to its patients to exercise rea-
Further, our holding is supported by sonable care in the selection of its medical
the decisions of a number of courts from staff and in granting specialized privileges.
other jurisdictions. These cases hold that The final appointing authority resides in
 C h a p t e r 5 : L i a b i l i t y o f t h e H e a l t h c a re I n s t i t u t i o n 157

the hospital’s governing body, although it to practice in this state and if his licen-
must rely on the medical staff and in partic- sure or registration has been or is cur-
ular the credentials committee (or commit- rently being challenged; and (3) inquire
tee of the whole) to investigate and evalu- whether the applicant has been involved
ate an applicant’s qualifications for the in any adverse malpractice action and
requested privileges. However, this delega- whether he has experienced a loss of
tion of the responsibility to investigate and medical organization membership or
evaluate the professional competence of medical privileges or membership at any
applicants for clinical privileges does not other hospital. The investigating commit-
relieve the governing body of its duty to tee must also evaluate the information
appoint only qualified physicians and sur- gained through its inquiries and make a
geons to its medical staff and periodically reasonable judgment as to the approval
monitor and review their competency. The or denial of each application for staff
credentials committee (or committee of the privileges. The hospital will be charged
whole) must investigate the qualifications of with gaining and evaluating the knowl-
applicants. [Paragraph break added.] edge that would have been acquired had
The facts of this case demonstrate that it exercised ordinary care in investigating
a hospital should, at a minimum, require its medical staff applicants and the hos-
completion of the application and verify pital’s failure to exercise that degree of
the accuracy of the applicant’s state- care, skill and judgment that is exercised
ments, especially in regard to his med- by the average hospital in approving an
ical education, training and experience. applicant’s request for privileges is negli-
Additionally, it should: (1) solicit informa- gence. This is not to say that hospitals
tion from the applicant’s peers, including are insurers of the competence of their
those not referenced in his application, medical staff, for a hospital will not be
who are knowledgeable about his educa- negligent if it exercises the noted stan-
tion, training, experience, health, compe- dard of care in selecting its staff.
tence and ethical character; (2) deter- The decision of the Court of Appeals is
mine if the applicant is currently licensed affirmed.

Johnson v. Misericordia Community Hospital

Discussion Questions

1. In 1881 Oliver Wendell Holmes, Jr., wrote this in his classic treatise The
Common Law: “The life of the law has not been logic; it has been expe-
rience. 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?
158 The Law of Healthcare Administration

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 of 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 its nonemployee members of the medical
staff? Why or why not?
 CHAPTER

ADMISSION AND DISCHARGE

6
After reading this chapter, you will

• know the law regarding the hospital’s duty to admit and

care for patients under routine and emergency circum-
stances.
• recognize that not-for-profit hospitals have certain obligations
to provide benefits to the community because of their not-
for-profit, tax-exempt status.
• understand the kinds of issues that arise upon the admission
and discharge of psychiatric patients.
• have new knowledge about issues in managed care.

As the title suggests, this chapter addresses legal issues relating to hospital
admission and discharge. The chapter covers the following:

• access to healthcare and voluntary admission (including the right to

care, the admissions process, the right to equal protection, and
hospitals’ obligations under the Hill-Burton Act and similar laws);
• admission and treatment of mentally ill patients (including involun-
tary commitment and the standard of care for administering medica-
tions);
• discharge from the hospital; and
• utilization review, peer review, and managed care issues.

Access to Healthcare and Voluntary Admission

The General Right to Care

It is important to emphasize at the beginning that hospitals do not admit
patients; physicians do. Nevertheless, hospitals must have admission and
discharge policies because, among other reasons, hospital policies often

159
160 The Law of Healthcare Administration

dictate the legal issues involved in any given case. For example, the types
of services the hospital offers determine who can be admitted, and infor-
mation gathered during the admission process determines whether vital
medical and business records will be accurate.
Various factors affect a patient’s right to be admitted to a healthcare
facility. The first consideration is whether the patient’s condition is an
emergency and whether the hospital has the facilities and staff to treat that
emergency. (Care of emergency patients is discussed in more detail in
Chapter 8.) A second factor may be whether the patient has been treated
at the hospital before. A third relates to the hospital’s ownership; a gov-
ernmental hospital is often subject to different standards of care than
those imposed on private hospitals. A fourth point is whether the facility
has received federal funding under the Hill-Burton Act; if so, there may
be a duty to provide service for an indigent person.
It is “black-letter law” (a general rule) that a nonemergency patient
has no legal right to be admitted to any voluntary or proprietary hospital
or to most governmental hospitals.1 (See The Court Decides: Hill v. Ohio
County at the end of this chapter.) Thus, most institutions can generally
accept or refuse nonemergency cases with impunity as long as admission
policies are not illegally discriminatory and the relevant Hill-Burton Act
regulations are followed. Refusal to admit, therefore, does not ordinarily
give the patient grounds to challenge hospital admission policies. How-
ever, contractual arrangements could create an exception to this general
rule. A hospital that enters into a contract with a particular group of
patients or with another party (such as an employer or a managed care
plan) has a duty to admit group members whenever the need arises and
the hospital is capable of providing needed services. Breach of this con-
tractual obligation gives the other party or the beneficiary a right to sue
for damages.2
In addition, individuals’ rights under the U.S. Constitution and var-
ious civil rights statutes must be respected. Healthcare is not considered a
fundamental right—such as voting,3 freedom of speech, and the right to
counsel in a criminal trial4—but hospitals may not discriminate on the
basis of race, color, creed, national origin, or similar suspect classifications.
The reasons are sometimes based on constitutional principles (for exam-
ple, when “state action” is involved), but more often they depend on fed-
eral and state civil rights laws (the details of which are beyond the scope
of this text).
In short, although there is usually no constitutional basis for claim-
ing that an individual has a right to healthcare or payment for it from pub-
lic funds,5 both access and payment are affected by various statutes.6
These laws differ from jurisdiction to jurisdiction and in accordance with
political and economic developments. For example, it remains to be seen
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 161

how public policy will ultimately deal with the social issue of the many
millions of U.S. residents who do not have health insurance coverage.

Right to Admission and Services

Despite most hospitals’ relative freedom to refuse care for nonemergency
patients, legal risks arise when a hospital asserts this right too vigorously
(these risks are explored more fully in Chapter 8). Admission policies based
on discriminatory criteria, such as race or inability to pay, raise serious legal
issues and generate lawsuits. Even refusing treatment of difficult, disruptive
persons whose presence may seriously interfere with the care of other
patients is a matter of concern.
Rather than focusing on whether a patient has a right to be admit-
ted, the hospital should be attentive to its purpose and role in the commu-
nity. Having defined its purpose and role—its mission—the hospital must
work to provide adequate facilities, equipment, and staff to fulfill that mis-
sion. If such policies are adhered to, the narrow legal question of the
patient’s right to admission does not generally appear.

Governmental hospitals are creatures of statute and are established for Governmental
specific purposes. Many such statutes sort the hospital’s intended benefi- Hospitals and
ciaries according to their particular disease, financial status, or place of the Duty to
residence. Under these statutes, a patient who falls within the intended Provide
class of beneficiaries usually has a right to be treated. However, even if Services
such a legal right exists, it is not absolute. For example, a right to treat-
ment will be subject to the hospital’s actual ability (e.g., staffing levels,
available space and equipment) to provide the care needed. The right to
treatment will also depend on the rules and regulations of the governing
board. For example, the board might properly require proof of inability
to pay when the hospital’s statutory purpose is to serve the indigent.
(Note that even if the hospital’s statutory mandate is to care for those
unable to pay, the law does not prevent the hospital from admitting
patients who are able to pay if facilities are available.)
Like a private hospital, a governmental hospital may usually exclude
persons suffering from a condition that the facility is not equipped to treat.
For example, a general hospital may ordinarily deny admission to a mental
health patient or to one afflicted with a contagious disease when facilities
and staff are not available to care for these people properly. The patients
would have no cause of action for being refused admission, particularly if
their admission would endanger other patients.
Governmental hospitals owe the same duty of care to emergency
patients as do other hospitals: to stabilize the patient’s condition. Even if
an individual is not within the group of persons the facility was set up to
serve, refusing to give emergency care is not justified just because that
162 The Law of Healthcare Administration

individual is outside the class of persons the governmental hospital is set

up to serve (see discussion and case citations on this in Chapter 8).

Local Most states have statutes providing for payment from public funds for certain
Government’s medical services furnished to indigent persons. Legislation differs signifi-
Duty to cantly from state to state on the services covered, the patients entitled to care,
Reimburse for the process for payment, and the facilities that can render services. Typically
Care the statutes require municipal or county governments to pay for emergency
medical care given to indigent persons wherever the care is rendered. These
laws have withstood constitutional challenges.7 Healthcare administrators
must be aware of local statutes and judicial decisions that determine an insti-
tution’s right to reimbursement.
In many states, counties are required to reimburse for emergency
medical care given to indigent residents. In Arizona, for example, if an indi-
gent patient who needed emergency care were admitted to a private hospital,
the county’s obligation to pay for the services would continue throughout
the period of hospitalization, even after the emergency ended. In St. Joseph’s
Hospital and Medical Center v. Maricopa County an indigent patient was
admitted to a private hospital for emergency treatment. Later the agency
responsible for paying the medical expenses could have ended its obligation
to reimburse the private hospital by arranging the patient’s transfer to a
county-owned facility. It did not do so, and the government had to pay for
the entire hospitalization.8 Similarly, in Nevada a county has a duty to pay for
emergency care whether rendered at a county hospital or elsewhere, and prior
governmental consent is not required if the patient’s condition threatens his
life or causes permanent impairment.9
The duty to pay for the care of indigents is, obviously, becoming a
major policy issue given the sharp increase in the number of illegal immi-
grants and other uninsured persons in many states.
Also of concern is reimbursement for healthcare furnished to persons
who (a) have been found guilty of a crime, (b) are in custody or under arrest
awaiting trial, and (c) have been injured during apprehension. The duty to
pay may differ depending on the status of the patient. One must also distin-
guish between the duty to provide or summon care and the government’s
duty to pay for that care. Failure to obtain medical assistance for a prisoner
or person in custody can lead to liability for negligence. For example, an Indi-
ana municipality was liable for the wrongful death of a person arrested for
being drunk and disorderly on the ground that the police knew or ought to
have known that the person needed medical treatment.10
The Bill of Rights prohibits “cruel and unusual” punishment, and this
has been interpreted to require governments to provide convicted prisoners
with adequate medical treatment.11 The due process clauses of the Fifth and
Fourteenth Amendments require that persons who have not been convicted
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 163

but who have been detained or are under arrest be given essential food, shel-
ter, clothing, and medical care.12 On the other hand, a person not depend-
ent on the government has no constitutional right to medical care,13 and the
right to receive care is not necessarily accompanied by a right to have that
care paid for by the government.
Some laws clearly say that the government must pay for care given to
prisoners14 or persons in police custody (see The Law in Action).15 (The duty
to pay might be limited to cases in which the
government’s institutional facilities are inad-
equate16 or where the prisoner, or the fami- The Law in Action
ly, is unable to pay.17) Most states’ legisla-
tion, however, simply upholds a prisoner’s In my experience, the government’s
obligation to pay for care is the reason
right to receive medical care and is silent on
some police forces will not officially
the question of the government’s duty to arrest an injured suspect until after
pay a nongovernment provider for that emergency treatment has been com-
care.18 The statutes might not apply to per- pleted.
sons injured by the police at the scene of an
alleged crime or while being apprehended,
because such a person is not under arrest or in custody. Although the police
probably have a duty in such circumstances to seek medical care for the
injured person, the government is not obligated by either common or con-
stitutional law to pay the care provider; that obligation arises, if at all, only
through legislation.
For example, in City of Revere v. Massachusetts General Hospital,
Patrick Kivlin attempted to flee from the scene of a crime and was shot by
a police officer.19 The police summoned an ambulance, which took Mr.
Kivlin to Massachusetts General Hospital, where he remained for nine
days. Although he was in police custody and a warrant had been issued, he
was not officially arrested until the date of his discharge from the hospi-
tal. A month later he was again hospitalized, but the city of Revere refused
to pay for either hospitalization.
The Supreme Judicial Court held that Massachusetts contract law pro-
vided no basis for ordering the city to pay, but it found that the Eighth Amend-
ment’s prohibition against cruel and unusual punishment did require it to do
so.20 After granting certiorari, the U.S. Supreme Court overruled the Supreme
Judicial Court’s finding on the Eighth Amendment issue: “Because there had
been no formal adjudication of guilt against Kivlin at the time he required med-
ical care, the Eighth Amendment has no application.” Although the Supreme
Court noted that due process requires persons in Mr. Kivlin’s situation be given
care, local government had no duty to pay for that care in the absence of state
legislation. Thus, just as the state may deny payment for an elective abortion21
and the federal government may restrict Medicaid payments for abortions,22
the city of Revere was not required to pay Massachusetts General Hospital.23
164 The Law of Healthcare Administration

Not exactly an equitable result, but so sayeth

the Supreme Court of the United States (see
The Law in Action
The Law in Action).
Remember, the Supreme Court’s role is
not necessarily to do justice in every Reasonable Care Requirements and
case but to decide fundamental issues.
Admission Forms
In Revere the issue was an interpreta-
tion of the Eighth Amendment. Because Once patients are admitted to a hospital there
the source of payment is not a consti- is, of course, a duty to exercise reasonable
tutional issue (under the Eighth care for their treatment. Moreover, a kind of
Amendment or otherwise), that issue virtual admission can occur and the duty to
was left to the wisdom of the legisla- exercise reasonable care can arise even with-
ture of the Commonwealth of Massa-
out formal admission procedures. Consider
chusetts.
LeJeune Road Hospital, Inc. v. Watson.24 In
this case the hospital refused a bed to a minor
suffering from appendicitis because his
mother had not paid the required advance deposit. Staff members had already
put a hospital gown on the boy and examined him, but surgery was delayed until
his parents could find an institution that would care for him. In defending
against the parents’ lawsuit the hospital contended that formal admission had
not occurred and that no duty to exercise reasonable care had been created. This
argument was flatly rejected. The court held that even though the hospital had
no positive duty to admit, as a practical matter admission had occurred.
Certain practices must be followed once a decision is made to admit a
patient. Although the specifics may vary from hospital to hospital, in general
the admission process (“registration”) must include collection of the follow-
ing types of information:

• demographics, such as patient name, address, telephone number, marital

status (or personal representative if other than a spouse), gender, race,
and social security number;
• religious affiliation (if the patient cares to disclose that information);
• emergency contacts;
• identity of and demographics on the financially responsible party (e.g.,
patient, parent, guardian);
• insurance coverage(s);
• name of the admitting physician;
• patient’s language preferences and English proficiency;
• special needs (e.g., sign-language interpretation); and
• special requests regarding release of patient information.

Also at the time of registration the patient and family must be given a
wide range of information, both out of general courtesy and because of legal
requirements. This information includes the following:
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 165

• general hospital information (e.g., maps; telephone numbers; parking

restrictions; visiting, cafeteria, and gift-shop hours);
• where to store personal belongings, and what to do with valuables;
• smoking regulations;
• generalized consent for routine care and diagnostic procedures (which
must be signed and placed in the medical record and which does not sub-
stitute for a detailed informed consent for significant medical procedures);
• the hospital’s “Notice of Privacy Practices”; and
• other relevant hospital information.

The preceding lists are not all inclusive and are provided here for the
reader’s information only. Legal counsel can discuss the full range of issues to
be addressed at registration.

Hill-Burton Act and Mandated Free Care

The purpose of the Hospital Survey and Construction Act, enacted in 1946
and commonly known as the Hill-Burton Act, was to provide federal financ-
ing for the construction and modernization of publicly owned and not-for-
profit hospital facilities.25 For political reasons, and despite President Tru-
man’s attempts to create a national health service, the legislation did not
contain any provisions for the government to pay for services rendered in
Hill-Burton facilities. Two decades passed before Congress enacted
Medicare.
To accommodate President Truman, Hill-Burton required recipients
of financial assistance to furnish a “reasonable volume” of services for persons
unable to pay, unless the providers were financially unable to do so.26 This
provision became known as the hospital’s uncompensated care obligation.
The statute also required that hospital facilities financed with federal funds be
made available to all persons in the community, a duty commonly referred to
as the community service obligation.27
For political reasons the Hill-Burton program was implemented
through the states. The states were given responsibility for determining the
need for facilities, establishing a statewide plan, and obtaining assurances
from grant applicants that they would comply with the uncompensated care
and community service obligations.28 Thus, the Hill-Burton Act potentially
represented a means of providing healthcare to the poor. For many years,
however, the requirements were not implemented effectively. The initial
administrative regulations did not actually require the states to ensure that
financially assisted institutions were furnishing free care. They also failed
to define a “reasonable volume” of services or to specify patient eligibility
criteria. Because of these enforcement lapses, several Hill-Burton class-
action lawsuits contended that some institutions were violating the law
because (a) they required cash deposits or evidence of adequate insurance
166 The Law of Healthcare Administration

before admitting patients or (b) they automatically billed patients without

regard to their ability to pay. The first case of this kind—in a federal dis-
trict court in Louisiana—held that the Secretary of the Department of
Health, Education, and Welfare (HEW; this is now the Department of
Health and Human Services) had violated his statutory obligations to
enforce the Hill-Burton assurances.29 The court ordered the hospitals to
develop rules for implementing their obligations and to submit these for
court review.30
Following this and other decisions, HEW set forth new regulations
holding that an institution that received Hill-Burton financing could pre-
sume to meet its uncompensated care obligation by budgeting a certain
minimum amount for free care or by simply certifying that it did not
refuse admission solely because of inability to pay. (The latter option for
compliance was sometimes referred to as the “open-door policy.”31)
The community-service obligation was interpreted as requiring all
Hill-Burton hospitals to serve Medicaid patients32 and to extend emer-
gency care to any person residing or employed in the hospital’s service
area regardless of ability to pay.33 All services had to be nondiscriminatory
with regard to race, color, creed, or national origin. A patient denied char-
ity care was entitled to procedural due process: adequate notice of eligibil-
ity criteria, written reasons for denial, and an opportunity to appeal an
adverse decision to an impartial administrator.34 When a hospital could
not demonstrate compliance for particular years it could be required to
remedy the deficits.35
The regulations held that the uncompensated care obligation lasted
for 20 years after construction of the facility (in the case of a loan, for the
length of the loan). They also delegated to state Hill-Burton agencies the
task of identifying persons eligible for uncompensated care according to
certain specified criteria and made states responsible for monitoring hos-
pital compliance, applying sanctions in cases of noncompliance, and post-
ing notices to patients that uncompensated care was available.36 The 1973
rules, however, permitted hospitals to treat bad debts as “free care” by
allowing the determination of eligibility to be made after rendering the
services and billing the patient (see Legal Brief). Factors used to deter-
mine uncompensated care included insurance coverage, family income,
family size, state standards for Aid to Families with Dependent Children,
and federal poverty guidelines. The state agency also established for each
healthcare institution the reasonable level of uncompensated services after
considering the institution’s budget and annual statement, the nature and
volume of services, the need within the service area, and the ability of
other nearby healthcare organizations to provide charity care.
Several lawsuits were filed to challenge these regulations. The uncompen-
sated care guidelines were consistently upheld,37 and the 20-year limitation on
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 167

the obligation was said to be consistent with congressional intent.38 On the

other hand, the regulations permitting routine billing of patients and post-
poning the determination of eligibility for free care until services were ren-
dered were held to be invalid.39 Subject to certain exceptions—including a
medical emergency, for example—the amended rules required a written
determination of a patient’s eligibil-
ity before services were provided.
The National Health Plan- Legal Brief
ning and Resource Development
Act of 1974 (Public Law 93-641) Equating “bad debts” with “free care” meant that
whether a patient could not pay or simply would
essentially terminated the original
not pay, the hospital could still count the amount of
Hill-Burton program and substi- the unpaid bill toward its Hill-Burton obligation.
tuted a somewhat more restrictive This was seen as contrary to the spirit of the law,
scheme of providing federal funds which was to provide care to those unable to pay.
to modernize healthcare institu-
tions.40 This legislation not only
recognized the continuing obliga-
tion of hospitals to provide uncompensated care and community service,
but it also mandated new regulations. Congress now acknowledged that
Hill-Burton had never been effectively implemented, and thus the new law
placed greater responsibility on HEW to enforce the provisions for care of
the indigent. The statute also provided that funding of projects under the
new law would obligate the recipients to furnish uncompensated care and
community service for an indefinite period. Because the new law was not
retroactive, however, institutions that received funds before 1975 could
still claim the 20-year limit on their obligation.41
Over the years, restraints on the federal budget have restricted
appropriations of new funds for hospital construction, and the 20-year
uncompensated care obligations have expired. Healthcare administrators
must, therefore, review their institutions’ history of federal funding to
determine their obligations under either the Hill-Burton law or the regu-
lations that implemented the health planning law. Because of the passage
of time, these two measures are less significant now than they once were.
They may have some lingering viability for some institutions, however.

Admission and Treatment of Mentally Ill Patients

The legal rights of a mentally ill and incompetent patient are determined by
both constitutional law and state statutes. Because both of these sources of
law are continually evolving, hospital management needs competent, current
advice concerning emergency treatment, temporary detention, and formal
admission of these persons.
168 The Law of Healthcare Administration

As explained in Chapter 8, a general hospital’s refusal to extend emer-

gency care to an incompetent or mentally ill patient could lead to tort liabi-
lity. On the other hand, a refusal to admit such a person will not usually lead
to liability if the hospital is not staffed or equipped for psychiatric patients.
Nevertheless, at the request of relatives, social welfare agencies, or the police
an acute care hospital may decide to admit temporarily an unwilling, incom-
petent patient for the patient’s own safety or for the protection of others.
Unless admission procedures follow local statutory procedures carefully, the
hospital risks liability to the unwilling patient for the intentional torts of false
imprisonment and/or assault and battery.
The hospital should make certain that only reasonable force is used to
restrain a patient, that detention continues only for a reasonable time within
statutory limits, and that restraint or detention have the legitimate purpose
of protecting the patient or third parties. Medical and administrative person-
nel must be certain that they are following statutory requirements regarding
involuntary admission.42 Unwilling, incompetent patients should be admit-
ted or detained only on the order of a licensed physician exercising profes-
sional judgment in good faith. When professional persons are acting in good
faith and according to constitutional and statutory requirements, the risks of
liability are small.43

Involuntary Commitment
Because institutionalization represents a significant deprivation of personal lib-
erty, state statutes governing the civil commitment of mentally ill persons must
ensure that the patient is granted both substantive and procedural due process
of law.44 A person may not be committed involuntarily unless mental illness
presents a danger to the patient or to third parties.45 Danger to self can be found
if patients cannot provide the basic necessities of life or if there are indications
that they may harm themselves. Unless persons are adjudged dangerous to
themselves or others, indefinite confinement in a state mental hospital without
treatment violates their right to due process, and the officials responsible for
such confinement can be personally liable under civil rights laws.46
When mentally ill patients present a danger to themselves, a state has
a legitimate interest—under its parens patriae powers—to provide needed
care.47 If mentally ill patients present a danger to the community or to third
parties, civil commitment is justified by the state’s police power to regulate
matters of health, safety, and welfare.48 Many states require evidence of a
timely overt act or threat of violence to show that the patient represents a
danger. To meet such a standard, however, requires psychiatrists and other
professionals to predict a patient’s behavior, a task that may be scientifically
or medically impossible (see Legal Brief).
Balancing the legitimate rights of patients with the recognized inter-
ests of society involves difficult questions of social policy and medico-legal
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 169

judgments. The attempt to achieve

such a balance creates a twofold risk: Legal Brief
(1) some patients who are not dan-
gerous might be released when in “The American Psychiatric Association (APA)… informs
fact they need further care for other us that ‘[the] unreliability of psychiatric predictions
reasons, and (2) patients who are of long-term future dangerousness is by now an
thought to pose no risk might be established fact within the profession. The APA’s
best estimate is that two out of three [such] predic-
released and then proceed to harm
tions are wrong. The Court does not dispute this
others.49 (Misdiagnosis standing proposition, and indeed it could not do so; the evi-
alone does not constitute negligence dence is overwhelming.”
or malpractice. When a patient or
third party alleges that a physician’s —Barefoot v. Estelle, 463 U.S. 800 (1983)
negligent diagnosis was the proxi-
mate cause of damage, the plaintiff
must carry the burden of proof and
show by expert witness testimony
that the defendant departed from generally recognized standards of practice.)
The possibility of error is increased by the fact that the concept of “danger-
ousness” is ill defined in both medicine and law, and in many commitment
hearings the matter is left for the jury to decide on the basis of testimony
from expert witnesses.
Local statutes typically allow involuntary detention in emergencies for
a limited period ranging from 48 hours to several days, depending on the
jurisdiction. Because patients suffering acute psychotic episodes may seek
help from the emergency staff of a community hospital, the personnel must
be especially aware of relevant provisions authorizing short-term detention of
such persons. In essence, the statutes require that the patient be either dis-
charged from the hospital following the emergency or granted a timely hear-
ing as specified by the statute.
In a civil commitment the patient must receive a notice of the contem-
plated proceedings and a statement of the reasons for commitment. Such
patients have the right to be present and to be represented by counsel at the
hearing, the right to examine and cross-examine witnesses, the right to a jury
trial, and the right of appeal.50
Due process does not require that civil commitment proceedings use the
“beyond a reasonable doubt” standard of proof that is required in criminal pro-
ceedings.51 On the other hand, the “preponderance of evidence” standard—
which is applicable to most civil litigation—is not strong enough; after all,
involuntary hospitalization deprives the patient of liberty, and the risks of an
erroneous decision are grave.52 An intermediate standard of proof is more
likely to balance the rights of the mentally ill with the legitimate concerns of
society. This modified standard, endorsed by the Supreme Court, is often
expressed as “clear, convincing, and unequivocal” evidence of danger to self
170 The Law of Healthcare Administration

or others.53 (Due process, however, does not require the states to use the
same uniform standard of proof in civil commitment proceedings. Some
states have, in fact, adopted the criminal-law standard by statute or judicial
decision. It is permissible to use a standard higher than constitutionally
required.)
Courts distinguish between civil commitment of a mentally ill per-
son not charged with a crime and commitment of one who has been
charged. In Jones v. United States the defendant was acquitted in a crimi-
nal trial by reason of insanity and then placed in an institution for the
mentally ill. An insanity finding was based on a “preponderance of evi-
dence” rather than “clear and convincing” proof. The majority ruling held
that the less demanding standard was consistent with due process even if
the period of hospital confinement would exceed the prison term for the
criminal charge.54

Standard of Care and Administration of Medication

Once committed, a patient retains substantive constitutional rights not
only to adequate food, shelter, clothing, and medical care55 but also to
safe physical conditions, reasonable freedom from physical restraints, and
rehabilitation or training appropriate to the individual’s diagnosis.56 Offi-
cials of hospitals that fail to implement these duties can be held personally
liable.57
Minimally adequate medical care and treatment for mentally ill per-
sons was defined by one federal court as follows:

In order to render effective care and treatment, a hospital for the mentally ill
must not only hire qualified individuals, but must ensure the continuation of
their training and education during their employment.… [T]he court finds
there are four standards generally advanced by mental health professionals as
essential for minimally adequate treatment: a humane and therapeutic envi-
ronment; qualified staff in sufficient numbers; an individualized treatment
plan for each patient; and planned therapeutic programs and activities. It is
against these standards that the conditions at a psychiatric facility must be
measured in order to determine whether those operating the facility have
failed to provide treatment for those mentally ill individuals involuntarily
confined for such purpose in violation of the Fourteenth Amendment of the
United States Constitution.58

With respect to conditions of confinement and the patient’s right to reha-

bilitation and training, the Supreme Court has held that the Constitution

only requires that the courts make certain that professional judgment in fact was
exercised[:] the appropriate standard [is] whether the defendants’ conduct
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 171

[is]...such a substantial departure from accepted professional judgment, practice,

or standards in the care and treatment of this plaintiff, as to demonstrate that the
defendants did not base their conduct on a professional judgment.59

In the Supreme Court’s view, this standard “affords the necessary

guidance and reflects the proper balance between the legitimate interests of
the State and the rights of the involuntarily committed to reasonable condi-
tions of safety and freedom from unreasonable restraints.”
In several contexts, courts have developed the principle that mentally
ill persons should not be presumed incompetent to make treatment deci-
sions. The decision to commit someone involuntarily is not the same as a
finding of incompetence. Thus, a competent patient has the right to consent
(or refuse to consent) to her own care unless her or others’ safety requires it.
For example, competent psychiatric patients who are not a danger to them-
selves or others may not be given antipsychotic medications (which may have
serious side effects) against their will and may not be forced to become sub-
jects of medical research. The foundation for this rule has been described as
part of a “right of privacy” or, more simply, as a principle of common law.60
The right to give informed consent (see Chapter 9) can be overcome,
and medications, restraints, and other measures can be forcibly administered,
only when there are compelling reasons for doing so. In all jurisdictions,
unless an immediate danger or threat of harm exists, the patient is entitled to
(1) professional determination that medication or restraint is necessary, (2)
evaluation of alternatives, and (3) regular review of the recommended course
of treatment.61 A formal hearing is not required, but a judicial determination
of incompetence and the appointment of a guardian might be required.

Discharge from the Hospital

In most cases, discharge from the hospital presents no significant legal issues.
Most discharged patients (psychiatric or other) are of sound mind and do not
present a health risk to themselves or others. As soon as they are able, most
wish to be at home or at another institution that better suits their needs. (In
the emergency department, discharges and transfers of psychiatric patients
entail particular legal hazards—see Chapter 8).
It is elementary that patients should not be discharged without a
written order from a licensed physician and that a hospital or a physician
can be held liable for abandonment when discharging a patient who needs
further care. The test is whether the healthcare provider acted reasonably
under the circumstances62 and whether the patient’s condition was likely
to be aggravated by the discharge.63 If an unreasonable risk was taken, it
does not matter why the hospital discharged the patient. (The patient’s
172 The Law of Healthcare Administration

failure or inability to pay the bill is certainly no justification for discharge.)

When contemplating a patient’s transfer to a less costly institution (for
example, when required by a managed care plan), attending physicians
must be certain that the receiving institution is adequately equipped and
staffed to care for the patient’s condition properly. Most states have
statutes that contain standards for proper patient transfers, and federal
standards apply in the emergency setting.
Several cases illustrate the prospect of this kind of liability. For exam-
ple, in Meiselman v. Crown Heights Hospital the defendant was liable for dis-
charging a minor while his legs were in casts and open wounds were drain-
ing.64 Further professional care at home was necessary, and this was to be
arranged and supervised by the chief of the hospital’s surgical staff. The home
care proved to be inadequate, however, and the patient had to be sent to
another hospital. Because the need for further care was foreseeable and there
was evidence that the motive for discharging the patient was financial, the
discharge was considered unreasonable.
Patients can be discharged or given temporary leaves of absence
only on the written order of a physician, but the decision is not solely a
medical matter. In fact the hospital itself owes the patient a duty to have
proper discharge policies. In one case a physician mistakenly diagnosed a
diabetic patient who was near death; he thought the patient was suffering
from delirium tremens and called for the sheriff to remove him from the
facility. When the patient’s estate claimed that premature release was the
proximate cause of death the court held that the plaintiff was entitled to a
trial on questions relating to the hospital’s possible negligence.65 “We
cannot agree that the hospital operates as a slavish handmaiden to the
physicians on its staff…. Under Alabama law a hospital [has] a duty of care
to its patients.”66 (See Chapter 7 for a discussion of staff physician as an
independent contractor.) Had there been hospital policies requiring
trained staff to be involved in discharge planning, the problem might have
been avoided.
If a patient represents a known threat to third persons, the hospital
and attending physician can be liable to persons injured by the patient after
discharge. In Semler v. Psychiatric Institute of Washington, D.C., a man who
pleaded guilty to abducting a young girl received a suspended prison sen-
tence contingent on continued inpatient treatment at a psychiatric institu-
tion.67 On later recommendations of his physician and probation officer, the
court approved his transfer to day care, permitting him to live at home and
commute daily to the hospital with his parents. Soon, however, he began liv-
ing alone and working as a bricklayer’s helper, all with the knowledge of his
attending physician and the court probation officer but without court
approval. He then murdered a girl. The psychiatric facility, the physician,
and the probation officer were all held liable for allowing the patient full
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 173

outpatient status without obtaining the court’s approval. Because the court
had not given the probation officer authority to approve the transfer, that
approval did not shield the institution from liability and the officer’s unau-
thorized act made him personally liable.
There can also be liability when a readily identifiable potential victim
suffers foreseeable harm and was not warned
of the danger. Depending on the circum-
stances, some courts have drawn a distinction
The Law in Action
between breach of duty to the community at
large (negligent discharge) and breach of The famous Tarasoff case in California
duty to warn a third party who is at particu- is perhaps the most notorious and
tragic of cases involving a duty to
lar risk (see The Law in Action).68
warn third parties of a patient’s dan-
Programs for home care—for any gerous propensities. It is discussed in
patient, not just psychiatric patients—require Chapter 14 under the heading “Release
careful planning and monitoring to meet the of Information Without the Patient’s
individual’s needs. Discharge of a patient to Consent.”
home care requires attending physicians and
hospital personnel to be careful in instruct-
ing the patient and family and to relay medical information to professional
persons responsible for the home health program.69 Failure to do so would
constitute a breach of the hospital’s duty. The hospital would also remain vic-
ariously liable for the negligence of those responsible for continuing care of
the patient if they are hospital employees or apparent employees. If the
patient’s care and treatment are rendered under the jurisdiction of the court,
the orders of the court must be strictly followed.

Leaving Against Medical Advice

A problem arises when patients—even those of sound mind—insist on
leaving the hospital though they are still in need of care. They cannot be
held in the hospital against their will because that would constitute false
imprisonment,70 but if at all possible they should not be allowed to just
walk away. Attending physicians should advise these patients on why
remaining is recommended and what the consequences are of leaving
early. If the patients insist, however, they must usually be allowed to go.
The hospital must have a detailed policy to cover these situations. It
should include documentation of the advice given and the patient’s signa-
ture on a form releasing the hospital from liability. This form should state
that the patient was fully aware of the medical reasons for remaining and
had been advised not to leave the hospital, that the discharge was solely
on the patient’s own initiative, and that the refusal to stay was a matter of
the patient’s free will and volition. Some patients who insist on leaving
“AMA” (against medical advice) refuse to sign the release. If so, they cannot
be forced to sign, but the hospital policy should require that the substance
174 The Law of Healthcare Administration

of the form be explained and that the patient’s refusal to sign be docu-
mented.
Restraining patients of unsound mind from leaving the hospital is
permissible if their departure would endanger their health or life71 or the
lives or property of others.72 On the same grounds, patients of sound
mind who are suffering from a contagious disease may be detained to pro-
tect themselves and others. (In fact the hospital may have an affirmative
duty to the community to refuse to discharge such patients.) Restraint in
preventing them from leaving the hospital must be reasonable according
to the circumstances of each case. It is essential to provide competent
medical evidence of the contagious disease or the mental instability of
patients detained on either of these grounds, and all relevant facts must be
documented in the medical record. Hospital policies should address this
possibility.
A patient should never be held in the hospital for failure to pay a bill
or until arrangements for settlement are complete. This amounts to false
imprisonment, especially if force is used or threats are made.73 Of course,
proper policies should ensure that the payment question is addressed at the
time of admission, not discharge.
Nonemancipated minors below the age of discretion should be dis-
charged only to their parents or to persons who are legally entitled to cus-
tody. If the whereabouts of the parents are unknown and there is no
court-appointed guardian, steps should be taken to have a guardian
appointed. Social welfare agencies should help the hospital in these situa-
tions. If the parents can be located but for some reason cannot come to
the hospital, the patient should be discharged only to someone who has
written permission from a parent.
Emancipated minors—those who are old enough to consent for them-
selves under state law—can be discharged from the hospital in the same man-
ner as adults. Emancipation is usually a matter of agreement between the par-
ent and child; it is a question of fact in each case and does not depend on
whether the youth is or is not living at home. In some states emancipation
results when a minor marries. It can also be decreed by a court in some cases.
Generally it is legally sound to discharge the infant child of a minor
mother to the custody of the mother. The hospital cannot prevent the
mother from claiming her child, especially when she intends to retain cus-
tody and responsibility for raising the infant. Even if she intends to place
the child for private adoption, most states recognize her legal right to do so
in accordance with local limitations and restrictions. If the mother does not
claim the child herself but requests discharge to a third party, the child should
not be discharged except on the recommendation of an approved social serv-
ice agency that handles adoptions. Legal counsel should be consulted for
advice consistent with law.
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 175

Most states now have safe haven (or

“Baby Moses”) laws that allow mothers to
leave unwanted children in the hands of care
Legal DecisionPoint
providers anonymously and with no ques-
tions asked. These laws were adopted to pre-
A new mother is about to be discharged but
vent infanticides and baby abandonment.
does not want custody of the baby. She has
They were not passed with in-hospital births not made any arrangement for private adop-
in mind, but their premise is consistent with tion, does not want to take the baby home
the idea that at the time of the mother’s dis- with her, and has not named another person
charge from the hospital the question of the to take custody. If she were to leave the hos-
baby’s discharge depends on the mother’s pital with the baby, she could walk across
the street to a fire or police station and
wishes (see Legal DecisionPoint).
abandon the child anonymously. She could
also return to leave the baby outside the
hospital emergency department, also anony-
Utilization Review, Peer- mously. But if she simply leaves the baby
Review Organizations, and behind when she is discharged, the aban-
Managed Care donment is not anonymous: hospital per-
sonnel have a record of the baby’s birth, the
mother’s name, and other information.
Utilization Review and Case How should the hospital deal with the pri-
Management vacy issues that can arise? What if the sup-
posed father, learning of the situation,
Hospital policy includes a utilization arrives to claim the child? What if he or
review and case management (UR/CM) someone else alerts the media or state child
protection agencies? Can hospital authori-
process that makes recommendations on
ties confirm anything about the case? Why
the appropriateness of continued hospi- or why not? What can be said to whom, and
talization and that arranges for any (especially) what can be said in public?
needed postdischarge care (such as skilled
nursing services or home health care).
This process serves an advisory purpose and does not have the authority
to order a patient’s discharge or transfer—that is the prerogative of the
attending physician.
Normally UR/CM recommendations are based on sound profes-
sional judgment related to the patient’s medical needs. Unfortunately,
however, sometimes there is financial pressure from a managed care plan
that wants to keep its costs (its “medical loss ratio”) as low as possible
(see Legal Brief on page 176). Under the terms of the managed care
contract, the plan can tell the hospital and the physician that the
patient’s insurance will only pay for a certain number of days in the hos-
pital. Obviously, when this happens there is an incentive to discharge the
patient “sicker and quicker.”
A physician who believes the patient is not ready for discharge
should carefully document the reasons for not signing a discharge order
and should use her professional judgment in deciding whether to do so.
176 The Law of Healthcare Administration

If the physician bows to pressure and orders a discharge that is contrary to

professional standards and her better judgment, there may be significant
liability consequences. A California court summarized the rule as follows:

[T]he physician who complies with-

Legal Brief
out protest with the limitations
imposed by a third party payor,
In the vocabulary of insurance, the “loss ratio” is a
when his medical judgment dictates
formula that compares claims payments to income:
otherwise, cannot avoid…ultimate
losses + loss-related expenses responsibility for [the] patient’s
LR =
earned premiums
care. He cannot point to the health
In the health insurance business, “losses” means care payor as the liability scapegoat
claims paid for healthcare services. Fewer claims when the consequences of his own
paid means a lower loss ratio, which in turn means
determinative medical decisions go
higher retained earnings. The loss ratio is much
higher in government programs than in private sour.74
insurance plans because government programs are
not motivated to earn a profit. Tensions Between Insurance
Coverage and the Need for Care
Both government payers and private
health insurance plans require UR to
manage its costs. The focus of the process is primarily financial (within the
bounds of good patient care, of course). When a patient’s medical condition no
longer warrants continued hospitalization, the insurer will frequently deny co-
verage. This type of review is a result of the ever-increasing (“skyrocketing”) cost
of healthcare. Because financial considerations and medical needs sometimes
conflict, the persons charged with UR/CM should consult with the patient’s
attending physician before a decision about discharge is made. There are usually
processes for the physician to appeal the decision on insurance coverage, but if
the physician continues to believe treatment is necessary, he must ensure that the
treatment is provided, at whatever expense.
When review committees find no need for continued hospitalization and
recommend discharge or transfer to a less expensive location, patients must bear
the costs if they stay in the hospital. Attending physicians and case management
staff must carefully explain all this to patients and their family members, and
together they must decide on the future course and site of care. As long as a UR
committee functions within its defined role and exercises good faith consistent
with recognized standards for UR programs, individual members of the review
committee run no significant risk of legal liability.75 Statutes in many states give
immunity to members of a UR panel who act in good faith while carrying out
the review function.
Patients whose medical condition justifies discharge or transfer have no
common law or constitutional right to remain. A patient who does so is a tres-
passer, and a court may be asked to issue an injunction to remove the person
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 177

from the premises.76 The courts have reasoned that general hospitals have a duty
to reserve their beds and facilities for patients who genuinely need them and
should not permit a patient to remain when adequate care could be provided
elsewhere. On the other hand, the hospital and physician may not abandon or
discharge a patient in need of further care without making appropriate arrange-
ments for that care. Thus, someone who needs continuing care—in a nursing
home, for example—presents a dilemma for all the parties involved if no appro-
priate facility is available, especially if the patient is unable to pay the ongoing
hospital charges.
Monmouth Medical Center v. State 77 illustrates the conflict between eco-
nomic and human values in these circumstances. At issue were New Jersey’s
administrative regulations prohibiting reimbursement from the Medicaid pro-
gram for indigent patients no longer in need of acute hospital care and awaiting
transfer to a nursing home. Because there was a shortage of nursing home beds,
the state regulations required the hospital to absorb the cost of continuing care.
The hospital was unwilling to “eat” this cost, and it filed suit.
The purpose of federal Medicaid legislation is to provide financial
assistance for “medically necessary” services, and federal regulations require
states to furnish services “sufficient in amount, duration, and scope to rea-
sonably achieve [their purpose].”78 The New Jersey Supreme Court held that
the state regulations conflicted with the federal rules. So long as the hospital
exercised good faith and reasonable diligence in attempting to place patients
in nursing homes, it was legally entitled to reimbursement from Medicaid. In
essence the court said that fairness required society to absorb the costs of
continuing care even if the patient no longer needed the services of a general
hospital.
To put the issue in sharper focus, a later case—Monmouth Medical
Center v. Harris—upheld the government’s right to deny Medicare reim-
bursement to a hospital for a patient who no longer required either hospital
or skilled nursing care.79 Beds in a nursing home that provided custodial care
were not available, but this was essentially irrelevant because Medicare does
not reimburse providers for custodial care anyway.

Federally Mandated Peer-Review Organizations

Federal law requires organizations under contract with Medicare to conduct
utilization and quality control review to evaluate services being provided to
Medicare beneficiaries.80 Through retrospective reviews of data, the respon-
sibility of these peer-review organizations (PROs)—also known as quality
improvement organizations (QIOs)—is to determine whether

• hospital services are reasonable and medically necessary,

• the quality of those services meets professional standards, and
• the services could be provided more economically elsewhere.
178 The Law of Healthcare Administration

Each PRO/QIO is expected to conduct reviews of admission pat-

terns and identify groups of patients whose diagnoses or contemplated
treatments indicate that they could be safely cared for elsewhere than in an
acute care hospital. Each PRO/QIO is empowered to set objectives for
reducing inappropriate admissions in its geographic region and to identify
unacceptable admission patterns in use by particular institutions and medi-
cal practitioners.
To measure the quality of care furnished to Medicare patients the
review organization has the following specific responsibilities:

• ensure that patients with certain diagnoses receive adequate medical servi-
ces, especially where appropriate facilities are available but are underused;
• review hospital readmissions caused by previous substandard care;
• identify instances of unnecessary surgery; and
• reduce the number of avoidable deaths.

To achieve these objectives, PROs/QIOs develop treatment protocols

for particular diagnoses and set specific statistical goals. In addition to per-
forming these functions on behalf of the federal government, PROs/QIOs
have the power to deny reimbursement to a Medicare provider for unneces-
sary or inappropriate care.81 In certain circumstances the review organization
may also recommend penalties to providers, ranging from monetary fines to
exclusion from the Medicare program.

Managed Care Plans

Cost control through reduction of hospital utilization was the main impetus
for the development of managed care plans in the mid-1980s and their
increasing use (albeit with mixed results) in the years since. The plans use pri-
mary care physicians as “gatekeepers” to determine the appropriate point of
service for the patient’s particular condition. Preauthorization from the man-
aged care plan (an HMO, for example) is generally required before a patient
can be admitted to a hospital. If admission is approved, the patient cannot
remain hospitalized longer than a predetermined period set by the plan
unless additional approval is obtained.
In addition, some managed care plans pay physicians by means of a “cap-
itated” rate—a set amount per enrolled individual per month. The physicians are
then obligated to treat all enrolled persons who present for treatment, regard-
less of the cost that is incurred. Physicians in a capitated plan assume the risk that
the costs of treatment may exceed the sum of their capitated payment. In the-
ory, such a system encourages wellness and prevention activities and treatment
of illnesses in the most inexpensive manner possible (for example, as outpatients
or by use of physician assistants and nurse practitioners). The tension between
financial incentives and physicians’ ethical obligations should be obvious.
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 179

Managed care plans create significant legal issues when a patient is

refused admission to a hospital or is discharged prematurely and sustains
injury as a result. As has already been discussed, it is ultimately the physician’s
responsibility to decide what is in the patient’s best interest, and a number of
cases have held the physician liable for admission or discharge decisions that
were motivated by a managed care plan’s cost-control policies.82 On the other
hand, some courts have taken the view that if the managed care plan is in
effect dictating whether and for how
long a patient can be hospitalized, it Legal Brief
must assume liability for decisions
that have adverse effects on patient Managed care plans argue, of course, that they do
care. 83 not make treatment decisions and that all they do is
In addition, state legislatures tell the provider whether admission or continued
treatment will be covered under the particular
have begun to consider bills that will
insurance contract.
hold managed care organizations It is important for the hospital and the physician
liable for coverage denials and UR to serve as the patient’s advocate if insurance cov-
decisions that adversely affect patient erage is threatened. The Joint Commission speaks
care (see Legal Brief). Texas, for exam- to this dilemma in Comprehensive Accreditation
ple, passed a law in 1997 that allows Manual for Hospitals (2007, RI-9):
beneficiaries of health plans to bring
When an individual requests or presents for care,
suit against plans that do not exercise treatment, and services, the hospital is profes-
“ordinary prudence” under the cir- sionally and ethically responsible for providing
cumstances.84 The law was immedi- care…within its capability, mission, and applica-
ately challenged, and although parts of ble law and regulation. At times, indications for
it were held to conflict with the federal such care…can contradict the recommendations
of an external entity performing a utilization
Employee Retirement and Income
review (for example, insurance companies, man-
Security Act, the portions relating to aged care reviewers, and federal or state payers).
beneficiaries’ lawsuits were upheld.85 If such a conflict arises, …decisions are made
As with the decisions of man- based on the patient’s identified needs, regard-
aged care plans, all UR activities signif- less of the recommendations of the external
icantly affect the common law of mal- agency.
practice liability for both healthcare
institutions and physicians. Medicare’s
system of payment—by means of fixed
amounts for each diagnosis—may encourage the premature discharge of an
inpatient. Denying prior authorization for admission may increase the risks to
the patient and, accordingly, the risk of claims for damages.
The courts will give weight to professional protocols for specific medi-
cal conditions. Proof of deviation from those standards will be considered
evidence of negligence. Adherence to them will usually be considered evi-
dence of due care.
It follows that careful documentation of adherence to the specified cri-
teria should be in each patient’s medical record. For the same reasons any
180 The Law of Healthcare Administration

apparent deviation from the criteria should be documented and justified.

Internal reviews should then help to identify cases of unnecessary or inappro-
priate surgery and avoidable medical and surgical complications. Reducing
the number of such cases by means of review can help reduce the number of
malpractice claims.
Finally, managed care plans, UR organizations, and others working
toward reducing utilization should encourage hospitals to improve their risk
management and quality assurance programs. Effective programs of this
nature can have a beneficial effect on malpractice exposure.

Chapter Summary

This chapter reviews the “black letter” rule that there is no common-law
right to be admitted to a hospital, and then it considers a number of excep-
tions to that principle. In its discussion of the law relating to emergency servi-
ces, the chapter foreshadows a more thorough treatment of the topic in
Chapter 8. In addition, the chapter presents special circumstances that attend
the admission and discharge of psychiatric patients and the “uncompensated
care” and “community service” obligations of many not-for-profit organiza-
tions. Finally, the chapter discusses the fact that there can be tensions
between managed care organizations’ desire to limit healthcare expenditures
and providers’ moral and legal duties to provide quality patient care.

Chapter Discussion Questions

1. Who has the authority to admit patients to hospitals, and why do

patients not usually have a right to be admitted?
2. What is a hospital’s responsibility to provide care to the indigent, and
how does it differ depending on the type of care (emergency versus
nonemergency) and the type of hospital (public, private, for-profit, not-
for-profit, tax-exempt)?
3. What are the Hill-Burton “uncompensated care” and “community
service” obligations?
4. What are the standards and processes for involuntary admission of per-
sons who are mentally ill?
5. What kinds of issues can be confronted when discharging a patient from
the hospital?
6. What are the tensions between managed care’s objectives and medical
judgment?
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 181

Notes
1. Hill v. Ohio County, 468 S.W.2d 306 (Ky. 1971), cert. denied, 404 U.S. 1041 (1972)—a
pregnant patient had no right to be admitted to a hospital when no emergency was apparent;
Fabian v. Matzko, 236 Pa. Super. 267, 344 A.2d 569 (1975); cf. Federal legislation prohibits
denial of services to persons needing emergency care and to those in active labor. 42 U.S.C. §
1395dd.
2. Norwood Hosp. v. Howton, 32 Ala. App. 375, 26 So. 2d 427 (1946).
3. Harper v. Virginia Bd. of Elections, 383 U.S. 663 (1966).
4. Douglas v. California, 372 U.S. 353 (1963).
5. See also Brooks v. Walker County Hosp. Dist., 688 F.2d 334 (1982), cert. denied, 462 U.S. 1105
(1983)—it is proper to dismiss federal court suit by indigents contending that they were entitled
to free healthcare services under Texas constitution pending clarification of state legal issues.
6. Spivey v. Barry, Mayor, District of Columbia, 665 F.2d 1222 (1981)—closing a medical clinic
serving indigents did not violate either statutory or constitutional rights.
7. Idaho Falls Consol. Hosps., Inc. v. Bingham County Bd. of County Comm’rs, 102 Idaho 838,
642 P.2d 553 (1982).
8. St. Joseph’s Hosp. and Medical Center v. Maricopa County, 142 Ariz. 94, 688 P.2d 986
(1984). The county’s indigent care requirement is found in Ariz. Stat. § 11-292.
9. Washoe County, Nev. v. Wittenberg & St. Mary’s Hosp., 676 P.2d 808 (1984).
10. Brinkman v. City of Indianapolis, 141 Ind. App. 662, 231 N.E.2d 169 (1967). See also Hart
v. County of Orange, 254 Cal. App. 2d 302 (1967); Porter v. County of Cook, 42 Ill. App.
3d 287, 355 N.E.2d 561 (1976).
11. Estelle v. Gamble, 429 U.S. 97, reh’g denied, 429 U.S. 1066 (1977)—Eighth Amendment is
violated by “deliberate indifference to serious medical needs.” See also Bivens v. Six Unknown
Federal Narcotics Agents, 403 U.S. 388 (1971)—persons subjected to constitutional violations
by federal officials have a right to recover damages against the official.
12. Youngberg v. Romero, 457 U.S. 307 (1982)—an involuntarily committed mental patient was
entitled to medical care.
13. Maher v. Roe, 432 U.S. 464 (1977); Harris v. McRae, 448 U.S. 297 (1980).
14. For example, Conn. Gen. Stat. § 18-7 (Supp. 1985); see also Hillcrest Medical Center v. State of
Okla., ex rel. Dep’t of Corrections, 675 P.2d 432 (Okla. 1983)—the county was liable for medical
expenses of a convicted murderer injured in automobile accident while in the county’s custody.
15. Idaho Code § 20-209 (1979); but see Sisters of Third Order of St. Francis v. County of
Tazewell, 122 Ill. App. 3d 605, 461 N.E.2d 1064 (1984)—the county was not liable for care
furnished an arrestee in the custody of municipal police.
16. Alaska Stat. § 33.30.050 (1982).
17. Md. Ann. Code art. 27, § 698 (Supp. 1985). See also Fla. Stat. § 901.35, which establishes a
hierarchy of responsibility for medical expenses provided to “any person ill, wounded, or oth-
erwise injured during or at the time of arrest....” The first tier of responsibility includes (1)
insurance, (2) the patient, and (3) a financial settlement relating to the cause of the injury or
illness; only if those sources are not available may the provider seek reimbursement from gov-
ernmental authority. Based on the “during or at the time of arrest” language, some law
enforcement officials attempt to avoid governmental responsibility by not formally arresting
the suspect until after treatment is rendered.
18. See “Comment, City of Revere v. Massachusetts General Hospital: Government Responsibility
for an Arrestee’s Medical Care,” 9 Am. J.L. & Med., 361, 369–70 (1983–84).
19. 463 U.S. 239 (1983).
20. Massachusetts Gen. Hosp. v. City of Revere, 385 Mass. 772, 484 N.E.2d 185 (1982). Rev’d.
on other grounds, Revere v. Massachusetts Gen. Hosp., 463 U.S. 239 (1983).
21. Maher, supra note 13.
22. Harris, supra note 13.
23. City of Revere v. Massachusetts Gen. Hosp., 463 U.S. 239 (1983).
24. 171 So. 2d 202 (Fla. Dist. Ct. App. 1965).
182 The Law of Healthcare Administration

25. Pub. L. No. 79-725; codified as amended 42 U.S.C. § 291-(o)-1 (1982).

26. 42 U.S.C. § 291c (e) (1982).
27. Id.
28. 42 U.S.C. §§ 291c (a), (e) (1982).
29. Cook v. Ochsner Found. Hosp., 61 F.R.D. 354 (E.D. La. 1972).
30. Id.
31. 42 C.F.R. § 53.111(d)(2) (1984).
32. Cook v. Ochsner Found. Hosps., 61 F.R.D. 354 (E.D. La. 1972).
33. 42 C.F.R. § 124.603(b) (1) (1984).
34. Newsom v. Vanderbilt Univ. Hosp., 453 F. Supp. 401 (M.D. Tenn. 1978).
35. Id.; Newsom v. Vanderbilt Univ. Hosp., No. 75-126, slip op. (M.D. Tenn. 1979), aff’d in
part, rev’d in part, modified in part, 653 F.2d 1100 (6th Cir. 1981).
36. 42 C.F.R. §§ 53.111(I), (j) (1984).
37. Cook v. Ochsner Found. Hosp., 559 F.2d 968 (5th Cir. 1977); Corum v. Beth Israel Med.
Center, 373 F. Supp. 550 (S.D.N.Y. 1974); Newsom v. Vanderbilt Univ. Hosp., 453 F. Supp.
401 (M.D. Tenn. 1978).
38. Cook, supra note 37; Lugo v. Simon, 426 F. Supp. 28 (N.D. Ohio 1976); Newsom, supra
note 37—the 20-year limit on the uncompensated-care obligation dates, however, from final
approval of federal funds rather than from completion of construction, while the community
service obligation is of indefinite obligation.
39. Corum, supra note 37.
40. 42 U.S.C. §§ 300o/300t (1982).
41. Cook v. Ochsner Found. Hosp., 559 F.2d 968 (5th Cir. 1977)—the 20-year limit on uncom-
pensated care obligations is valid on projects funded before 1975.
42. For example, Lowen v. Hilton, 142 Colo. 200, 351 P.2d 881 (1960); Maben v. Rankin, 55
Cal. 2d 139, 10 Cal. Rptr. 353, 358 P.2d 681 (1961); Geddes v. Daughters of Charity, 348
F.2d 144 (5th Cir. 1965); Jillson v. Caprio, 181 F.2d 523 (D.C. Cir. 1950).
43. See, for example, Jackson v. Indiana, 406 U.S. 715 (1972); Humphrey v. Cady, 405 U.S. 504
(1972).
44. Lewis v. Donahue, 437 F. Supp. 112 (W.D. Okla. 1977)—a patient released from state hospi-
tal and transferred to outpatient status may not be recommitted without due process protec-
tions; see also In re Anderson, 74 Cal. App. 3d 38, 140 Cal. Rptr. 546 (1977).
45. People v. Paiz, 43 Colo. App. 352, 603 P.2d 976 (1979).
46. O’Connor v. Donaldson, 422 U.S. 653 (1975); 42 U.S.C. § 1983.
47. Addington v. Texas, 441 U.S. 418 (1979).
48. Id.
49. See Tobias v. Manhattan Eye and Ear Hosp., 283 N.Y.S.2d 398, 28 A.D.2d 972 (1967), aff’d,
23 N.Y.2d 724, 296 N.Y.S.2d 368 (1968).
50. Lessard v. Schmidt, 349 F. Supp. 1078 (E.D. Wis. 1972), vacated, 414 U.S. 473 (1974), on
remand, 413 F. Supp. 1318 (1976); Doremus v. Furrell, 407 F. Supp. 509 (D.C. Neb. 1975).
51. Addington v. Texas, 441 U.S. 418.
52. Id.
53. Id.
54. 463 U.S. 354 (1983).
55. Youngberg v. Romero, 457 U.S. 307 (1982); Wyatt v. Stickney, 344 F. Supp. 387 (M.D. Ala.
1972); 344 F. Supp. 373 (M.D. Ala. 1972), aff’d in part, remanded in part, 503 F.2d 1305
(5th Cir. 1974), enforcing 325 F. Supp. 781 (M.D. Ala. 1971).
56. Youngberg v. Romero, 457 U.S. 307 (mentally retarded person).
57. Id.
58. Rome v. Fireman, 473 F. Supp. 92, 104, 119 (N.D. Ohio 1979); see also Ohlinger v. Watson,
652 F.2d 775 (9th Cir. 1980).
59. Youngberg, supra note 56 at 314, quoting and adopting the view of concurring Chief Judge
Seitz, Court of Appeals, Third Circuit, 644 F.2d 147, 178 (1980).
60. Rennie v. Klein, 653 F.2d 836 (3d Cir. 1981), vacated, 458 U.S. 1119, on remand, 720 F.2d
266 (1983); Davis v. Hubbard, 506 F. Supp. 915 (N.D. Ohio 1980); Rogers v. Okin, 634
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 183

F.2d 650 (1st Cir. 1980), vacated, 457 U.S. 291; Goedecke v. State, 198 Colo. 407, 603 P.2d
123 (1979)—common law recognizes a mental patient’s right to refuse medication.
61. Rennie v. Klein, 653 F.2d 836 (3d Cir. 1981).
62. Parvi v. City of Kingston, 394 N.Y.S.2d 161, 41 N.Y.2d 553, 362 N.E.2d 960 (1977)—the
city was potentially liable in negligence when intoxicated persons attempting to cross New
York Thruway were struck by a car after being abandoned by the police in a rural area.
63. But see Modla v. Parker, 17 Ariz. App. 54, 495 P.2d 494, cert. denied, 409 U.S. 1038 (1972)—
the hospital was entitled to summary judgment in a suit alleging wrongful discharge where there
was no evidence that the release retarded treatment or worsened the patient’s condition.
64. 285 N.Y. 389, 34 N.E.2d 367 (1941); see also Anderson v. Moore, 202 Neb. 452, 275
N.W.2d 842 (1979).
65. Morrison v. Washington County, Ala., 700 F.2d 678 (11th Cir. 1983), cert. denied, 464 U.S.
864 (1983).
66. Id., 700 F.2d at 683.
67. 538 F.2d 121 (4th Cir. 1976), cert. denied, 429 U.S. 827 (1976).
68. Chrite v. United States, 564 F. Supp. 341 (E.D. Mich. 1983)—Veterans Administration could
be liable for failure to warn a patient’s mother-in-law of threats of violence. Cf. Leedy v. Hart-
nett & Lebanon Valley Veterans Admin. Hosp., 510 F. Supp. 1125 (1981), aff’d, 676 F.2d
686 (1982)—Veterans Administration owed no duty to warn the plaintiff’s family when a dis-
charged mental patient posed no greater danger to the plaintiff than to the community at
large.
69. Kyslinger v. United States, 406 F. Supp. 800 (W.D. Pa. 1975), aff’d, 547 F.2d 1161 (3d Cir.
1977)—there was no evidence to support allegations that a patient with polycystic kidney dis-
ease and spouse were given inadequate information and training in use of home hemodialysis
unit at time of discharge from hospital.
70. Cook v. Highland Hosp., 168 N.C. 250, 84 S.E. 352 (1915); see, generally, False Imprison-
ment in Nursing Home, 4 A.L.R.2d 449.
71. Marcus v. Liebman, 59 Ill. App. 3d 337, 375 N.E.2d 486 (1978)—a psychologically disturbed
patient was entitled to a jury trial on the issue of whether her suspicion that force was threat-
ened was “reasonable,” thereby constituting tort of false imprisonment; see also Rice v. Mercy
Hosp. Corp., 275 So. 2d 566 (Fla. App. 1973).
72. Paradies v. Benedictine Hosp., 431 N.Y.S.2d 175 (1980), appeal dismissed, 435 N.Y.S.2d 982
(1980)—it is proper to dismiss action against hospital and physician when the patient, volun-
tarily admitted to the general hospital for psychiatric evaluation, left the hospital contrary to
medical advice and subsequently committed suicide; at the time of discharge there was no
apparent danger to the patient or others.
73. Gadsden v. Hamilton, 212 Ala. 531, 103 So. 553 (1925); Bedard v. Notre Dame, 89 R.I.
195, 151 A.2d 690 (1959). Cf. Baile v. Miami Valley Hosp., 8 Ohio Misc. 193, 221 N.E.2d
217 (1966)—there was no false imprisonment when no threat of force against a mother of an
infant patient existed and the patient was unaware of detention.
74. Wickline v. State of Cal., 183 Cal. App. 3d 1175, 228 Cal. Rptr. 661 (1986), reh’g granted,
727 P.2d 753, 231 Cal. Rptr. 560 (1986)—a patient’s physician determines medically neces-
sary course of treatment and duration of acute care hospitalization in accordance with prevail-
ing professional standards.
75. Id., 228 Cal Rptr. at 671—third-party payers are “legally accountable when medically inappropri-
ate decisions result from defects in design or implementation of cost containment mechanisms....”
76. Jersey City Medical Center v. Halstead, 169 N.J. Super. 22, 404 A.2d 44 (1979); Lucy Webb
Hayes Nat’l School v. Geoghegan, 281 F. Supp. 116 (D.C.D.C. 1967).
77. 80 N.J. 299, 403 A.2d 487 (1979), cert. denied, 444 U.S. 942 (1979).
78. 42 C.F.R. § 440.230(b) (1984).
79. Monmouth Medical Center v. Harris, 646 F.2d 74 (3d Cir. 1981).
80. 42 U.S.C. §§ 1320c to 1320c-13 (1983 and Supp. 1987).
81. 42 U.S.C. § 1320c-3.
82. See, for example, Wickline v. State, supra 74, and Corcoran v. United Health Care, Inc., 965
F.2d 1321 (5th Cir. 1992), cert. denied 113 S.Ct. 812 (1992).
184 The Law of Healthcare Administration

83. See, for example, Bauman v. U.S. Healthcare Inc., 1 F. Supp. 2d 420 (D.N.J. 1998) and Mur-
phy v. Arizona Bd. of Medical Exam’rs, 190 Ariz. 441, 949 P. 2d 530 (1997). Tex. Civ. Pract.
& Rem. §§ 88.001 et seq.
84. Tex. Civ. Prac. & Rem. Code § 88.002.
85. Corporate Health Ins. Inc. v. Texas Dept. of Ins., 12 F. Supp. 2d 597 (S.D. Tex. 1998).

the court decides

Hill v. Ohio County
468 S.W.2d 306 (Ky. 1971)

[This case is a wrongful death action against Ohio County, Kentucky, the owner of Ohio County Hospi-
tal. The trial court granted a motion for summary judgment in favor of the defendant, without giving
any reasons for that action. The “uncontradicted material facts” are as follows.]

Smith, Special Commissioner County Hospital in June 1964, admitted by

Dr. Charles Price of Hartford (one of the
Decedent approached Nurse Hartley [who four doctors practicing in the Hospital)
was “in charge of the floor,” according to and had again consulted Dr. Price within
the court] at her desk in the hospital the past year.
before 9 a.m. on May 12, 1967, said that Decedent was advised that she could
her name was Juanita Monroe, her doctor get OB service in Owensboro and
was in Illinois, she had come to Ohio Louisville, with doctors on call, and replied
County to attend a funeral and she was she did not want to go to Owensboro or
afraid she would not be able to get back Louisville, but would call a taxi to go
to Illinois before she had her baby. Nurse home. Nurse Hartley assisted her in mak-
Hartley assumed she wanted to be admit- ing the call. Being advised that decedent
ted for obstetrical (herein OB) care. was still there more than an hour later,
There were only four doctors admitted Nurse Hartley consulted with the hospital
to practice in the hospital. Nurse Hartley administrator and was told to call Bill
consulted her list and found that Dr. Beard Danks, ambulance driver, who promptly
(according to the doctors’ informal agree- appeared and offered to take decedent
ment among themselves) was “on call” wherever she wanted to go. She declined,
that week. He was at the time in the oper- and a taxi finally took her away.
ating room. Upon Nurse Hartley’s inquiry Her baby was born at home (apparently
whether to admit decedent, Dr. Beard unattended) during the night. Decedent
[replied] that he did not handle OB cases. called Bill Danks who came immediately,
Upon advice from the hospital administra- and about 6 a.m. called Dr. Johnson, who
tor that another of the four doctors, Dr. asked some questions concerning the state
Johnson, was making rounds, Nurse Hart- of mother and child and advised Danks to
ley asked him the same question and Dr. take them to Owensboro. Decedent was
Johnson replied that he did not handle dead on arrival at the Owensboro Hospital,
“walk-in OBs.” some 25 miles from Hartford.
Decedent did not advise that she had Ohio County Hospital is a public hospi-
been delivered of a child at the Ohio tal, constructed (at least in part) with
 C h a p t e r 6 : A d m i s s i o n a n d D i s c h a rg e 185

Hill-Burton funds which are for construc- hospital alone determine the right of
tion only. It is a one-floor building and the admission to the benefits of the institu-
county pays the cost of operation, includ- tion, and their discretion in this regard will
ing an administrator (not a doctor) and at not be reviewed by the courts at the suit
least two registered nurses. There are no of an individual applicant.
salaried doctors, no residents or interns, ....
and only four local doctors are admitted to In the instant case, the decedent was
practice. The hospital rules properly pro- not admitted to the hospital nor was the
vide that no patient may be admitted with- element of critical emergency apparent.
out an order from a doctor to do so [and The hospital nurse acted in accordance
Kentucky law] provides that no one may with valid rules for admission to the facil-
practice medicine without being licensed ity. The uncontradicted facts demonstrate
to do so. that no breach of duty by the hospital
.... occurred. The nurse could not force the
[The court quotes favorably from Ameri- private physicians to accept decedent as
can Jurisprudence, Second Edition:] a patient. The nurse did all she could do
With respect to a public hospital, it has for the decedent on the occasion in ques-
been said that since all persons cannot tion. Therefore, the hospital and the
participate in its benefits, no one has, indi- nurse were entitled to a dismissal as a
vidually, a right to demand admission. The matter of law.
trustees or governing board of a public The judgment is affirmed.

Hill v. Ohio County Discussion Questions

1. What other facts would you like to know about this situation?
2. Would the case be decided differently today than it was in 1971? If so,
why?
3. In a separate portion of the opinion the court uses the expression
“plaintiff’s intestate” in referring to the plaintiff, Mr. Hill. What does
that expression mean? Why is Mr. Hill the plaintiff in a case involving
an OB patient?
4. What is the significance, if any, of the fact that the hospital is a public
hospital that received Hill-Burton funds?
 CHAPTER

MEDICAL STAFF APPOINTMENTS AND

7
PRIVILEGES

After reading this chapter, you will

• know that the hospital governing board is ultimately

responsible for the overall quality of care being rendered in
the facility.
• understand that once there were different “due process” stan-
dards for public and private hospitals, but these requirements
have essentially disappeared.
• recognize that medical staff membership is not limited to
those with an MD but must be open to all qualified practi-
tioners.
• appreciate the confidentiality and liability issues involved in
peer review of professional performance.
• be aware that the courts will support a hospital’s decisions on
medical staff privileges and discipline if the decisions are sup-
ported by a fundamentally fair process.

Hospitals depend on physicians—without them, after all, a hospital has

no reason to exist—and a loyal and supportive medical staff is essential
to a well-run healthcare organization. For these reasons, legal disputes
with members of the organized medical staff must be avoided if at all
possible; they are difficult, disruptive, expensive, and frustrating to all
concerned.
This chapter concentrates on relationships between the general
acute care hospital and the organized medical staff, particularly those
issues that relate to how medical staff privileges are granted and main-
tained. With some minor variations, however, these principles may apply

187
188 The Law of Healthcare Administration

to any kind of hospital and any other healthcare institution that grants
licensed professionals the privilege to care for people within its walls.
Therefore, readers should interpret the word “hospital” to include those
other kinds of healthcare organizations.
The chapter also explores differences in the hospital–physician rela-
tionship when physicians are employees rather than independent contrac-
tors.

Duty to Use Reasonable Care in Appointment of

Medical Staff

The hospital corporation has the ultimate responsibility for the quality of
care rendered within the organization. Thus, the hospital governing
board (board of trustees or directors) has a duty to its patients to exercise
reasonable care in selecting the physicians who are given privileges to
work in the facility. If the physicians are employees, liability under respon-
deat superior obviously applies; thus, when there is no employment rela-
tionship, there is no vicarious liability. A hospital is not liable for the neg-
ligence of a physician who is an independent contractor. Even if the
physicians are independent contractors, a hospital’s negligence in grant-
ing medical staff privileges can result in liability for the hospital corpora-
tion.1 Stated another way, the hospital’s duty to select medical staff physi-
cians carefully is separate from its responsibility as an employer.
Patients who allege a breach of this duty do not need to prove that
the physician’s negligence was within the scope of an employment rela-
tionship.2 All that is needed is to establish that the hospital should not
have granted (or renewed) this individual’s staff privileges in the first
place. Liability will attach if the hospital knew or should have known that
the physician was incompetent. This concept is sometimes referred to as
“corporate,” “institutional,” or “direct” liability.
The hospital’s governing board may not abdicate its legal responsi-
bility to manage the institution, whether in business or clinical affairs.
Therefore, its duty to use reasonable care in granting medical staff privi-
leges cannot be delegated to the organized medical staff, the local med-
ical society, or any other group or individual. Although lay members of
the governing board are not qualified to judge physicians’ professional
competence, they are qualified to judge whether there is a reliable process
in place to assess those persons’ abilities. The board may authorize the
medical staff to investigate physicians’ backgrounds and make recommen-
dations about staff privileges (these recommendations are generally
approved), but the staff ’s role is advisory only; the board has the ultimate
decision-making responsibility.3 (See The Law in Action.)
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 189

Medical Staff Bylaws

An organized medical staff is an integral The Law in Action
part of the hospital corporation. It is a
miniature version of a corporation (and A physician friend of mine and I were
talking about the issue of medical-staff
some actually are incorporated) with a
decision making. He made a comment
structure of its own, complete with that led me to ask him, “who makes the
bylaws, rules, and regulations set up to decision on medical staff privileges?”
achieve the functions delegated to it by His reply was that the decision belonged
the governing board. Under the board’s to the medical staff credentialing com-
supervision, the medical staff ’s functions mittee, “of course.”
Not! It is true that as a practical mat-
include the following:
ter whatever the credentialing commit-
tee recommends is usually adopted, but
• serving as liaison between the board and the committee only makes recommen-
the members of the medical staff as a dations; the board ultimately decides.
whole,
• implementing the clinical aspects of
corporate policies on patient care,
• investigating applicants for medical staff membership and making
recommendations on whether to grant medical staff privileges,
• supervising the quality of medical care throughout the facility by means
of a peer-review process, and
• providing continuing education.

The medical staff bylaws must define the structure of the medical staff,
its areas of delegated authority, the functions of its committees, and the lines
of communication between the staff and the governing board. The hospital’s
attorney should play a key role in making these matters clear. (Some medical
staffs hire attorneys of their own. If this is the result of a perceived conflict of
interest between the medical staff and the hospital, it is highly unfortunate.
The two parties should have one interest only: quality patient care.)
If a multihospital system has separate medical staffs for each facility,
there must be a mechanism for the corporate (overall) governing board to
communicate with each facility’s medical staff and for each medical staff to
interact with the corporate levels in matters relating to patient care services.
This can be done in various ways, and commonly today healthcare systems
have an employed physician who serves as corporate director of medical
affairs. This position serves as a liaison between the various medical staffs and
the corporate office.
At least two salient issues emerge with respect to the hospital–physi-
cian relationship:

1. How can physicians be best integrated into the management of hospital

affairs to encourage institutional responsibility and loyalty?
190 The Law of Healthcare Administration

2. What are the rights of a licensed physician to attain and retain a hospital
staff appointment?

Because the institution is responsible for selecting the medical staff, and
because the governing board must oversee an effective process of peer review, it
is advisable to have physician representation on the board. (In many hospitals,
the chief of the medical staff is the ex officio appointee.) In the past, the busi-
ness administration and clinical administration of a hospital were kept separate.
It was thought that conflicts of interest would exist if members of the medical
staff were also members of the board. Although it is true that conflicts between
clinical and operational interests occur, the situations can usually be resolved by
full disclosure of the conflict and, if necessary, by declining to participate in deci-
sions that affect one’s divided loyalties. The reasons for integrating physicians
into hospital governance far outweigh those in favor of a board of trustees made
up entirely of lay members.
Two competing principles are at work here: (1) hospitals must con-
trol the quality of care being rendered, and (2) many physicians need hos-
pital admitting privileges to practice their profession. Although undeni-
ably essential and praiseworthy, these two principles sometimes create
tension. The courts traditionally approached these issues by first looking
to whether the particular hospital is public or private, because that distinc-
tion determined which legal principles applied. Although the public–pri-
vate dichotomy does not have the significance it once did, it is the start-
ing point for our discussion, if for no other reason than to present the
historical perspective.

Due Process and Equal Protection Requirements

As long ago as 1927 the U.S. Supreme Court held that a licensed physician
does not have a constitutional right to a medical staff appointment.4 But as
later cases show, when the hospital is owned by the government—and thus is
taking “state action”—it must afford the constitutional due process and equal
protection required by the Four-
teenth Amendment (see Legal Brief).
Legal Brief What is state action? Clearly a
state-, county-, or city-owned hospi-
“No state [shall] deprive any person of life, liberty,
or property, without due process of law; nor deny to tal engages in state action. After all, it
any person…the equal protection of the laws.” is an arm of government and acts on
the government’s behalf. On the
—The Fourteenth Amendment, U.S. Constitution other hand, most courts hold that
state action is not implicated in the
actions of a private hospital to deny
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 191

medical staff privileges.5 The accepted principle is that even though the
organization receives governmental funding and is highly regulated, state
action exists only when

• government involvement with the private hospital is significant;

• state activity is the cause of the alleged injury; and
• the state aids, encourages, or approves the activity.

Recognizing that general propositions do not decide concrete cases,

some examples are given here to help clarify how these principles are applied.
Ultimately we demonstrate that because of either the constitutional state
action concept or another theory, the standards are virtually the same for
both public and private hospitals.
It can be said with some certainty that private hospitals, although
highly regulated and funded in large part by the government, are not instru-
mentalities of the state for constitutional purposes. Thus, the government
does not aid or approve the activity or cause the injury simply by providing
funding to the hospital or by regulating it through licensure, certificate-of-
need legislation, or other controls.6 A private hospital is simply not perform-
ing a public function when it appoints physicians to its medical staff.7 When
the government owns the hospital, however, it must extend due process and
equal protection to any physician who applies for a medical staff appointment
and to any current staff member who is subject to disciplinary action.8
Referring to the Fourteenth Amendment, there are two kinds of due
process: substantive and procedural. Substantive due process concerns the
essence of the legal relationship between the state and the individual. Proce-
dural due process relates to the particular methods of dealing with that rela-
tionship—that is, the way rules are made and administered. Equal protection
of the laws simply means that persons must not be discriminated against on
the basis of unfair categories such as race, religion, gender, national origin,
and socioeconomic status. Both due process and equal protection issues can
surface whenever fundamental rights are directly affected by state action, and
both require the “state actor”—for our purposes, a hospital—to act reason-
ably, not “capriciously” or “arbitrarily.”
To summarize, governmental hospitals clearly take state action, and
they must grant due process and equal protection in their medical staff pro-
ceedings. Private hospitals are not directly subject to these constitutional prin-
ciples, but, as discussed later in the chapter, they now provide essentially the
same kind of rights when dealing with medical staff appointments. The dis-
tinction between the duties of public and private hospitals is now of little more
than academic interest. (At least a quarter-century ago some commentators
suggested that the public–private dichotomy is inequitable and anachronistic
because both public and private hospitals serve the same community.9)
192 The Law of Healthcare Administration

Standards for Medical Staff Appointments

In terms of the standards for medical staff appointments, all hospitals must
act reasonably when considering medical staff appointments and must use
fair procedures in applying their rules and regulations. Several developments
have led to this result:

• state statutes that prohibit certain forms of discriminatory or arbitrary

decisions by a hospital governing board,
• state judicial decisions that require the hospital to act reasonably and
with fairness as a matter of public policy,
• application of state and federal antitrust statutes prohibiting unlawful
restraints of trade, and
• rules prohibiting malicious interference with a licensed physician’s
right to practice medicine.

Both Medicare’s “Conditions of Participation” and the Joint Com-

mission standards require the essence of due process. As with a govern-
mental hospital, if a private hospital’s medical staff bylaws arbitrarily
exclude whole classes of practitioners they may be invalid either because
a local state statute prohibits such discriminatory conduct or simply by
virtue of common law. Statutes, for example, may prohibit a hospital
from summarily dismissing an application solely because the applicant is
an osteopathic physician, a podiatrist, or other type of licensed practi-
tioner. One of the more comprehensive statutes of this type is the Dis-
trict of Columbia’s, which grants procedural safeguards to clinical psy-
chologists, podiatrists, nurse midwives, nurse anesthetists, and nurse
practitioners.10
In short, applications for hospital access from these practitioners
must be evaluated fairly in light of the individual’s qualifications and
competence and the needs of the hospital. A few statutes go further by
providing that certain designated licensed practitioners must be allowed
to use the hospital’s facilities, but not as full members of the medical
staff.11 In any event, the medical staff bylaws should always provide for a
credentialing process and for well-defined physician supervision of prac-
titioners who are entitled to render medical services under such direc-
tion.
As a further example of legislative influence, the relevant Ohio anti-
discriminatory statute reads:

The governing body of any hospital, in considering and acting upon appli-
cations for staff membership or professional privileges within the scope of
the applicants’ respective licenses, shall not discriminate against a qualified
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 193

person solely on the basis of whether such person is certified to practice med-
icine or osteopathic medicine, or podiatry, or dentistry.12

The purpose of the statute is to prevent classwide discrimination

against applicants while still observing the hospital’s responsibility to estab-
lish reasonable standards for its staff and to determine the qualifications for
each individual. Hence, one Ohio hospital’s rules were discriminatory on
their face because they (a) required all podiatrists to complete two years of
postgraduate training in an approved residency program in addition to board
certification or eligibility, (b) prohibited podiatrists from conducting surgical
procedures with anesthesia, and (c) denied podiatrists the right to vote or
hold office within the staff organization.13 The court held that such provi-
sions were unreasonable and lacked any rational purpose because fewer than
10 percent of all podiatric graduates in the United States had completed a
two-year residency, no residency programs were available in Ohio, and simi-
lar restrictions did not apply to dentists or oral surgeons.

Qualifications of Staff Physicians

On the basis of various state and federal laws, no healthcare organization that
receives federal financial assistance (including Medicare payments) may dis-
criminate in medical staff appointments on the basis of race, creed, color, sex,
disability, national origin, or other prohibited category.14 Such discrimination
violates not only specific statutory prohibitions but also, in the case of gov-
ernmental facilities, the equal protection clause of the Fourteenth Amend-
ment.15 These subjects were at issue in Sosa v. Board of Managers of Val Verde
Hospital.16 In that case the court upheld the hospital’s decision to deny Dr.
Sosa admission to the medical staff. In recommending denial of the physi-
cian’s application, the medical staff credentials committee considered the
applicant’s character, qualifications, and standing in the community. The
court deemed these factors reasonable and not arbitrary.
Significantly, the court held that not all possible standards need to be
spelled out precisely in the medical staff bylaws.17 Because the defendant was
a county facility, the court discussed at length the application of the due
process clause. But the court’s viewpoint could be applied to a private hospi-
tal as well:

[S]taff appointments may be…refused if the refusal is based upon any rea-
sonable basis such as the professional and ethical qualifications of the
physicians or the common good of the public and the Hospital. Admit-
tedly, standards such as “character, qualifications, and standing” are very
general, but this court recognizes that in the area of personal fitness for
medical staff privileges precise standards are difficult if not impossible to
articulate. The subjectives of selection simply cannot be minutely codified.
194 The Law of Healthcare Administration

The governing board of a hospital must therefore be given great latitude in

prescribing the necessary qualifications for potential applicants. So long as
the hearing process gives notice of the particular charges of incompetency
and ethical fallibilities, we need not exact a precis of the standard in codi-
fied form.
On the other hand, it is clear that in exercising its broad discretion the
board [may] refuse staff applicants only for those matters which are reason-
ably related to the operation of the hospital. Arbitrariness and false standards
are to be eschewed. Moreover, procedural due process must be afforded the
applicant so that he may explain or show to be untrue those matters which
might lead the board to reject his application.18

The court noted that there was considerable evidence of Dr. Sosa’s
lack of ethical and professional competency, and it upheld the decision to
deny his application (see The Law in Action). In doing so, it pointed out that
it would not substitute its own judgment for that of the board because the
board, not the court, is charged with the responsibility of providing a com-
petent medical staff.19
Due process essentially means fundamental fairness. It has no fixed
meaning; it is a judgment call based on the time, place, and circumstances of
each case. One of the basic elements of fundamental fairness is that the indi-
vidual who is at risk of losing medical staff
privileges or of having an application
The Law in Action rejected is given sufficient notice of the
charges to attempt to rebut them at a hear-
At the hearing for Sosa v. Board of
Managers of Val Verde Hospital, evi- ing on the matter.
dence showed that the doctor Charges of lacking surgical judgment,
being without a surgical assistant, and assist-
• abandoned obstetrics patients in ing another who had no surgical privileges
active labor because they could not (all backed by supporting evidence) consti-
pay his bill;
tuted “sufficient notice” for discipline in the
• had an unstable physical demeanor
and showed nervousness, both of case of Woodbury v. McKinnon.20 The court
which were likely to jeopardize sur- held that to satisfy the fairness standard the
gical patients; hearing can be informal, the plaintiff’s attor-
• failed to use basic surgical tech- ney need not be permitted to question the
niques; other doctors present (as long as the plaintiff
• showed an unstable mental condition
could ask questions), and cross-examination
by numerous fits of anger and rage;
• had unsatisfactory references; need not be a part of every hearing. (In the
• pleaded guilty to two felony charges proper circumstances a summary suspension
in criminal courts; and of privileges will not violate due process as
• had his license to practice sus- long as the physician is afforded an opportu-
pended in two states. nity for a hearing within a reasonable time.21)
Thus, hospitals may exercise considerable
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 195

discretion in medical staff appointments and privileges—especially when the

motive is to enhance the quality of care—so long as the process is intuitively
“fair.”
It has been held proper for a hospital to have and enforce rules
regarding the maintenance and completion of medical records.22 Rules
such as this that state well-recognized professional qualifications as pre-
requisites for defined privileges will be upheld as long as the rules are rea-
sonable and capable of objective application.23 The key to validating a par-
ticular rule is that it be related to an individual’s specific qualifications
rather than to class-based distinctions such as race or creed. In formulat-
ing the rules, which should be stated in the hospital or medical staff
bylaws, the board may rely on professional standards recommended by the
medical staff. Thus, in Selden v. City of Sterling the court approved a rule
that stated that an associate medical staff member could not perform
major surgery without having a full staff member in attendance.24 Simi-
larly, in the interests of patient care a hospital may have a closed staff in
the radiology department as long as legitimate reasons for the decision can
be adequately documented.25
Does a similar philosophy prevail with respect to physicians who do
not hold an MD degree? With osteopathic physicians, for example, state law
is the paramount consideration. If the licensing statutes make no substantive
distinction between MDs and DOs (as is the case today), doctors of medicine
and osteopathy must be accorded equal rights and opportunities.26 Today,
there is little real difference between the two professions, and the antitrust
statutes apply to the hospital–physician relationship without distinguishing
the type of physician. It is contrary to public policy for hospitals to exclude
osteopathic doctors (or other non-MD physicians) as a group.

Hospital Access by Allied Healthcare Practitioners

Statutes are also crucial in determining the rights of allied health professionals
to practice in healthcare institutions. For example, North Carolina and North
Dakota extend chiropractors the right to practice within the scope of their
licenses.27 On the other hand, Oklahoma and Oregon distinguish between
physicians and chiropractors; they permit the latter to be excluded from the
staff of governmental hospitals because they are licensed by different profes-
sional boards.28 (The decisions are rather narrowly drawn, and the issue appears
not to have arisen in those states in the context of private hospitals. Neither has
it shown up again in any judicial opinion in more than 25 years.)
Bylaws that allow exclusion of an entire class of licensed allied health
practitioners may be rejected as unreasonable and contrary to constitutional
law, state statutes, or common law.29 When local law gives rights of limited
practice to designated individuals, hospitals are required to act reasonably
when granting privileges to these persons.30 It is not, however, necessary to
196 The Law of Healthcare Administration

grant them full clinical privileges; instead, hospitals are required to evaluate
applications for privileges by allied healthcare professionals fairly and objectively
and to base their decisions on reasonable criteria.31 Such evaluation calls for an
assessment of the individual’s training,
experience, and competence in rela-
Legal Brief tion to recognized standards of patient
care and institutional objectives. Of
Hospitals must have policies, based on state licen- course, neither an evaluation of this
sure laws, outlining the “scope of practice” for each kind nor a due process hearing neces-
category of allied health professional. sarily requires actually granting privi-
leges (see Legal Brief).32
A North Carolina case illus-
trates this concept. In Cameron v. New
Hanover Memorial Hospital, Inc., the governing board of a governmental hos-
pital granted limited privileges to two podiatrists but denied them the privilege
to perform major surgery, which they sought.33 The denial was based on the fact
that the plaintiffs had not been declared eligible or certified by the American
Board of Podiatric Surgery. Because the hospital required all persons appointed
to the medical staff to meet the standards of eligibility or certification set by their
specialty boards, the hospital board’s decision was upheld as reasonably related
to the hospital’s operational needs and goals. A complete review of the podia-
trists’ experience and training had been conducted, and procedural due process
had been followed.
The Joint Commission recognizes that the medical staff may “include
other licensed individuals permitted by law and the hospital to provide
patient care services independently.”34 Under the standard a given hospital is
not required to accept limited practitioners unconditionally; they may be
appointed to membership and granted clinical privileges consistent with their
scope of practice as set forth in local licensure law and the individual’s train-
ing, experience, and demonstrated competence.

Discipline of Professional Staff

A hospital may discipline, suspend, or refuse to reappoint a staff physician if

there is sufficient evidence of incompetence or intolerable behavior.35 In
Koelling v. Skiff Memorial Hospital the Iowa Supreme Court upheld an inde-
finite suspension of a staff physician charged with preparing deceptive and
misleading medical records; giving fabricated, inconsistent explanations for
his handling of a case; and rendering seriously inadequate medical care. In
such circumstances physicians are entitled to a hearing, the right to present
proof, and the right to cross-examine witnesses, and the court held that these
were accorded in the plaintiff’s case.36
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 197

The 1972 case of Moore v. Board of Trustees of Carson-Tahoe Hospital is

quite instructive with respect to the hospital’s twofold duties: (1) to exercise rea-
sonable care in selecting and retaining medical staff and (2) to extend both sub-
stantive and procedural rights of due process to the physician when disciplinary
action is undertaken.37 Moore involved the termination of a medical staff
appointment at a Nevada public hospital. Dr. Moore had been licensed to prac-
tice in Nevada and was certified by his professional board in obstetrics and gyne-
cology. Acting in accordance with the medical staff bylaws, the governing body
terminated his appointment on the ground of “unprofessional conduct.”
The specific acts that led to Dr. Moore’s termination were not expressly
prohibited in the medical staff bylaws or the hospital’s rules and regulations. The
doctor had allegedly attempted to administer a spinal anesthetic to an obstetrics
patient without proper sterile technique. (He
had prepared the medication, performed a
minimal skin preparation, and handled the
spinal needle, all without using sterile Legal DecisionPoint
gloves.) Two days later the chief of the med-
ical staff, with concurrence of another physi- Why do you suppose Dr. Moore was “in no
cian, canceled Dr. Moore’s scheduled sur- condition” to perform the intended surgery?
gery for that day, considering that he was “in Should the trial record and appellate deci-
no condition physically or mentally to per- sion have been more specific in describing
his condition?
form surgery” (see Legal DecisionPoint).
Dr. Moore brought suit to regain
his hospital privileges. He did not allege any violation of his rights to proce-
dural due process. (Indeed, at the medical staff hearing he was permitted to
have counsel present, to call friendly witnesses, and to cross-examine adverse
witnesses.) He maintained, however, that he was denied substantive due
process by reason of the uncertain meaning of “unprofessional conduct,”
the basis on which his privileges were revoked. (Nevada statutes authorize
the board of trustees of a public hospital to adopt bylaws, rules, and regula-
tions governing admission of physicians to the staff, and they grant the
board power to organize the staff. The bylaws of the medical staff author-
ized alteration or revocation of privileges on recommendation of the med-
ical staff for “unprofessional conduct.”38) The Nevada Supreme Court dis-
agreed with Dr. Moore’s argument, citing a Florida case that said: “Detailed
description of prohibited conduct is concededly impossible, perhaps even
undesirable in view of rapidly shifting standards of medical excellence and
the fact that a human life may be and quite often is involved in the ultimate
decision of the board.”39 The Moore court held that the language “unpro-
fessional conduct” was objective enough to justify the board’s decision to
terminate the doctor’s privileges. (See The Court Decides: Moore v. Board of
Trustees Carson-Tahoe Hospital, and The Court Decides: Leach v. Jefferson
Parish Hospital District No. 2, both at the end of this chapter.)
198 The Law of Healthcare Administration

In addition to holding that the board had followed sufficiently

objective standards, the court held that the evidence justified the decision
to terminate Dr. Moore’s privileges.40
Moore provides an excellent illustration of how

• the medical staff properly exercises its responsibility for quality of care
issues,
• a governing board should act on the medical staff’s recommended cor-
rective action before injury to a patient occurs, and
• courts will usually defer to a hospital’s decisions if they are based on
reasonable criteria that are related to the quality of care.

The Common Law

For years courts regarded voluntary hospitals as private institutions that
could adopt and enforce whatever rules they wished to control medical staff
appointments and staff discipline, so long as the action was not capricious
and was without malice (see The Law in Action).41 As a result of this judicial
attitude, the hospital’s discretion was virtually unlimited; courts hesitated to
intrude into hospitals’ internal management and did not inquire into the
arbitrariness or reasonableness of rules concerning medical staff membership.
Current or prospective members of the medical staff were not entitled to a
hearing or other procedural safeguards
unless the bylaws of the hospital or medical
The Law in Action staff positively provided such protection.42
Under the traditional view, neither The traditional judicial attitude—
receipt of federal or state funds nor pos- allowing the private hospital almost unfet-
session of tax-exempt status changed tered discretion in matters relating to med-
the private nature of a voluntary hospi- ical staff appointments—began to erode
tal, and accordingly neither brings into with recognition that malicious interference
play the rules of judicial review that
with a physician’s right to practice is a
would apply to a government hospi-
tal.43 Shulman v. Washington Hospital tort.48 There is never a privilege to act with
Center 44 and Foote v. Community Hos- malice. Accordingly, in one case, where it
45
pital of Beloit illustrate the traditional was shown that certain doctors were moti-
approach. They gave the voluntary hos- vated by financial interests in preventing the
pital’s governing board nearly absolute plaintiff from obtaining staff privileges at
discretion in denying staff privileges. In
the only hospital in the county, the plaintiff
Foote the Kansas court indicated that it
was not necessary for the hospital to had a legitimate cause of action against the
grant a hearing to an applicant for a hospital, the doctors, and the individuals on
staff position upon denial of his appli- the governing board.49
46
cation. In other words, the decision of Another chink in hospitals’ armor
the hospital’s governing board was final was state antitrust law. Aggrieved physicians
and not subject to judicial review.47
relied on “unlawful restraint of trade” to
challenge denial of medical staff privileges.
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d Pr i v i l e g e s 199

The action can be brought against indivi-

dual members of the board of trustees, the
The Law in Action
medical staff, and/or the hospital corpora-
tion, when the defendant intentionally pre- In Griesman v. Newcomb Hospital the
vents admission to hospital practice on some plaintiff was a doctor of osteopathy
(DO) who had been granted an unre-
basis other than the plaintiff’s professional
stricted license to practice medicine and
qualifications or quality of patient care.50 surgery in the state of New Jersey. He
Beginning in the 1980s, physicians was the only osteopath in the metropoli-
used federal antitrust laws more often, but tan area of Vineland, New Jersey, which
without much success, to challenge adverse was said to have a population of about
decisions on medical staff applications. (Both 100,000 people. Newcomb Hospital, a
private not-for-profit corporation, was
the states and the federal government have
the only hospital in the area.
antitrust statutes, but the federal statutes are Despite being requested to do so,
more significant and are used more often.) Newcomb Hospital refused to permit Dr.
For a variety of legal and practical reasons the Griesman to apply for admission to its
plaintiff physicians have generally failed. medical staff. It rested this decision on a
(Application of the antitrust laws to the hos- provision in the hospital bylaws that
said applicants must be graduates of an
pital–physician relationship is discussed more
American Medical Association
thoroughly in Chapter 11.) (AMA)–approved medical school and
More significant than the tortuous must be members of the county medical
interference and antitrust arguments was society. Dr. Griesman’s application to the
the straightforward view that the private county medical society had never been
hospital should not have unlimited discre- acted on, and he was not a graduate of
an approved school because the AMA
tion. This was evident in the New Jersey
approved no schools of osteopathy.
case Griesman v. Newcomb Hospital (see The By the time the case came to the New
Law in Action). Without benefit of a consti- Jersey Supreme Court, the American
tutional or statutory foundation, and with- Hospital Association and the Joint Com-
out relying on the tort and antitrust princi- mission had changed their policies and
ples mentioned above, the supreme court of had begun to approve of hospitals hav-
ing DOs on their staffs; the AMA
New Jersey simply held that a private hospi-
adopted a policy statement allowing
tal could not arbitrarily refuse to consider DOs “where it was determined locally
the application of an osteopathic physi- that they practice on the same scientific
cian.51 The decision was based on a funda- principles as those adhered to by the
mental public policy: a hospital is vested American Medical Association.” The
with a public interest and a special responsi- state medical society in New Jersey had
also dropped its opposition.
bility (a fiduciary duty) to both patients and
the medical community, especially when the
hospital is the only game in town.52
The New Jersey court invalidated the hospitals’ requirement that all
staff physicians be graduates of an AMA-approved medical school and be
members of the county medical society.53 The hospital must at least consider
the application of an osteopathic physician. This conclusion relied heavily on
Falcone v. Middlesex County Medical Society, in which the defendant’s denial
200 The Law of Healthcare Administration

of medical society membership to a licensed osteopathic physician was found

to violate the state’s public policy.54 Accordingly the New Jersey court was
willing to look into the reasonableness of a rule pertaining to staff privileges
and to strike down the rule if it was arbitrary and unrelated to standards of
patient care or other legitimate hospital concerns. Following Griesman,
another New Jersey court held that a voluntary hospital could not refuse
applicants without giving them the opportunity to have a hearing and learn
the reasons for the rejection.55
Other courts have followed suit. Whether for constitutional reasons
(in the case of state actors) or because of statutory or common-law principles,
it is now generally held that all applications for medical staff privileges and all
disciplinary actions must be fully evaluated on their own merits and that at
least a modicum of due process must be provided to the physician con-
cerned.56 The decision-making procedures need not amount to a trial, and a
right to counsel is not mandated (although it is permitted). But however the
process is structured, it must include, at a minimum, the physician’s rights to

• appropriate notice,
• a timely hearing,
• an opportunity to produce evidence and witnesses,
• cross-examine the hospital’s witnesses,
• a finding based on substantial and credible evidence,
• a written notice of the hearing body recommendations and the reasons
for them, and
• an opportunity to appeal.

Both Medicare’s “Conditions of Participation for Hospitals”57 and

Joint Commission’s standards58 reach essentially the same conclusions.
The Medicare conditions require the hospital’s governing body to appoint
physicians and establish privileges on the basis of written, defined criteria.
Criteria for selection are individual character, competence, training, expe-
rience, and judgment. All qualified candidates are to be considered by the
credentials committee of the medical staff, which then makes recommen-
dations to the governing board. Similarly, Joint Commission standards
require that the appointment and reappointment of physicians as well as
the delineation of an individual’s clinical privileges, whether or not that
person is a member of the medical staff, be based on the periodic reap-
praisal of each practitioner’s training, experience, current competence, and
health.59
Most hospitals have decided that it is easier to focus on the kind of
due process just described than to worry about whether specific bylaws
criteria are “arbitrary and capricious.” Therefore, it is recommended that
all hospitals have policies that provide both substantive and procedural
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 201

due process. All hospitals should be held to the same standards in appoint-
ing physicians to their medical staffs or delineating clinical privileges. The
sole criterion for making medical staff appointments and defining privileges
should be the practitioner’s competence to provide quality professional care
to further the hospital’s mission. Any reasonable criteria for medical staff
appointment and privileges that provide essential fairness and relate objec-
tively to the quality of patient care, the purposes of the hospital, and the
clinical and ethical behaviors of the individual physician are considered
legally sufficient.
Many cases support hospitals’ efforts to improve quality of care. To
illustrate, a hospital may require physicians to do the following:

• sign and abide by reasonable medical staff bylaws60;

• serve on a rotating basis in the emergency department61;
• be responsible for timely completion of medical records62;
• supply references with their applications63;
• obtain consultations in surgical or medical cases, as defined by medical
staff protocols64; and
• carry malpractice insurance coverage, because such a requirement pro-
tects the institution’s fiscal integrity.65

In addition, surgical or specialty privileges can be restricted. For example,

performance of major surgery in a given specialty may be limited to those who
are board certified or board eligible or who have a minimum number of years of
experience in the specialty.66
Hospitals are within their rights to suspend, discipline, or refuse to appoint
physicians who are professionally incompetent.67 Even when a physician is legally
entitled to due process, summary suspension for clinical incompetence will be
upheld as long as a hearing is granted within a reasonable time after suspension.68
Aside from clinical competence, questions of ethics, morals, and
good character are sometimes the focus of cases involving physicians’ med-
ical staff privileges. How far a hospital may go in denying a staff appoint-
ment or disciplining a physician for behavior that is not directly related to
patient care but is contrary to generally accepted social norms depends on
the particular facts (see Legal DecisionPoint on page 202).
In summary, courts will give deference to hospitals’ decisions if they are
well documented, are thoroughly vetted by appropriate committees, have
some relationship to the quality of medical care, and are the result of a funda-
mentally fair hearing process. As stated by the supreme court of Ohio, “It is
the [governing] board, not the court, which is charged with the responsibility
of providing a staff of competent physicians. The board has chosen to rely
upon the advice of medical staff, and the court may not surrogate for the staff
in discharging their responsibility.”69
202 The Law of Healthcare Administration

Reporting Disciplinary Actions

Many states require hospitals to file a
Legal DecisionPoint report with a designated state agency
whenever disciplinary action is taken
against a physician or other licensed clini-
May a hospital discipline or deny privileges
to a physician who cal personnel. 75 Some states require
healthcare practitioners to report any
• is convicted of conspiracy to murder his impairments of or professional miscon-
wife?70 duct by fellow practitioners. These
• fails to provide evidence of rehabilita- reporting requirements were developed
tion from past wrongful conduct?71 about 30 years ago in response to a “mal-
• has falsified information on the practice crisis” and as part of reform leg-
application for privileges?72 islation designed to improve the quality
• uses unacceptable language and is rude of patient care. Although well inten-
in the presence of patients and tioned, a practical difficulty with this
visitors?73 approach is that reports are sometimes
• shows an inability to work with not filed in a timely manner or at all. As a
others ? 74 result, an impaired or incompetent physi-
cian, even when disciplined by a given
hospital, can continue in practice by sim-
ply admitting patients to another hospital or by practicing in a different
locale. The difficulty is compounded when the other hospitals do not ade-
quately perform background checks on applicants for medical staff privi-
leges. The reporting statutes provide for certain administrative penalties
and fines for failure to report instances of professional misconduct or
incompetence, but in many cases the penalties are not severe enough or
are deferred in favor of rehabilitation for the physician in question. Physi-
cians and administration should become familiar with the reporting
requirements in their jurisdictions.

Exclusive Contracts with Physicians

Along with the governing board’s responsibility to select a competent medical

staff, the board has the authority to enter into an exclusive contract with a given
physician or group of physicians for specialty services. Hospitals frequently
enter into exclusive contractual arrangements for staffing the radiology,
emergency, or pathology departments, for example. Such contracts have been
upheld, even for a governmental hospital, as long as the reasons relate to
standards of patient care and efficient hospital operation and can be satisfac-
torily documented.76
In Adler v. Montefiore Hospital Association of Western Pennsylvania a
private hospital employed Dr. Edward Curtiss as the full-time salaried director
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 203

of the cardiology laboratory and granted him the exclusive privilege to per-
form cardiac catheterizations. This, of course, meant that other qualified car-
diologists were not permitted to perform this specialized procedure. In the
subsequent lawsuit by Dr. Adler challenging the exclusive contract, the par-
ties stipulated that the hospital was “at least a quasi-public institution” and
that the doctrine of state action would apply. Nevertheless, the exclusive
arrangement was upheld as reasonably related to the hospital’s purposes,
especially because it was a teaching institution.77
Catheterization, the court held, was a laboratory procedure—more
like radiology than surgery. There had been no denial of the plaintiff’s right
to admit his private patients to the hospital or treat them, and neither was
there denial of a corresponding patient right to select a physician. The exclu-
sive contract was considered part of the hospital’s effort to ensure quality of
care. The court said this was evidenced by the facts that catheterizations
require teamwork, and a single physician can best train and supervise the
team; physicians can best maintain their competence if they perform more
than just a few catheterizations over time; equipment failure can be mini-
mized by having only one physician responsible for its use and maintenance;
scheduling problems can be minimized; a full-time physician is better able to
teach students; it is in the patient’s best interest that the physician perform-
ing the procedure be on the hospital premises at all times in the event of
complications; and, finally, the hospital board can better monitor the quality
of care when one person is in charge of the laboratory. Accordingly, there was
no violation of Dr. Adler’s rights to substantive due process and equal pro-
tection because he must yield to reasonable rules intended to benefit the hos-
pital’s patients, the physicians, the university’s medical students, and the pub-
lic.
This case is fairly old, and exclusive contracts for “cath lab” services are
not especially common, but courts in other jurisdictions have also refused to
intervene in decisions of hospital authorities to confer exclusive privileges on
designated physician groups, especially in the areas of radiology, pathology,
emergency services, and anesthesiology. This is so, even though the contracts
have the effect of restricting the medical staff privileges of other qualified and
competent physicians.78
Exclusive service contracts have been challenged as violating federal
or state antitrust legislation. The underlying purpose of antitrust law is to
foster competition in the marketplace, and the argument is that exclusive
contracts reduce competition and amount to a “group boycott.” For the
most part, however, the challenges have not been successful because an
exclusive contract is seen as a reasonable restraint of trade that actually
promotes competition among hospitals and as being consistent with
efforts to promote high-quality care.79 The leading cases are discussed in
Chapter 11.
204 The Law of Healthcare Administration

Economic Credentialing

Ideally, decisions on medical staff privileges will be based on physicians’

competence and the quality of care they deliver. But the institution’s
financial stability obviously depends on providing care at a cost that will
be covered by reimbursement. When physicians’ utilization patterns begin
to affect the bottom line negatively, there is a danger that financial con-
siderations will creep into credentialing decisions. This practice has come
to be known as economic credentialing. Although there is no standard
definition of that term, the AMA defines it as “the use of economic crite-
ria unrelated to quality of care or professional competence in determining
a physician’s qualifications for initial or continuing hospital medical staff
membership or privileges.”80 Whether economic criteria are permissible is
a matter of considerable dispute.
Conceptually at least two scenarios would provide a motive for eco-
nomic credentialing. The first occurs when physicians admit patients to
the acute care hospital when those patients could be served more econo-
mically on an outpatient basis or in another type of inpatient facility (e.g.,
skilled nursing, inpatient hospice, nursing home). Judging by the dearth
of reported decisions, it seems that the utilization review/case manage-
ment function, rather than the credentialing process, is coping with this
situation adequately. This is not surprising given the hospital’s incentive to
keep costs as low as possible.
The second scenario involves a kind of “loyalty oath.” Physicians
are asked whether they have any financial interest in a competing facility,
such as another hospital, an imaging center, or an ambulatory surgery cen-
ter. If they do, their medical staff privileges will be conditioned on their
agreeing not to use those other facilities (or to use them only a certain
percentage of the time) if the same services can be provided at the hospi-
tal. This scenario raises issues under both state law and federal law. At least
one old case upheld the practice, but a recent case found that it might vio-
late federal and state antikickback laws and the issue was returned to the
trial court for further consideration.
In a 1978 case, Cobb County-Kennestone Hospital Authority v.
Prince, a Georgia governmental hospital authority purchased a whole-
body computed tomography (CT) scanner and then resolved that “if a
treatment, procedure, diagnostic test or other service is ordered for a
patient…and that procedure, test or service is routinely offered by the
Hospital, then the [hospitalized] patient will receive that service within
the confines of the Hospital complex.”81 Some staff physicians—who pri-
vately owned and operated a CT scanner outside the hospital complex—
challenged this policy as arbitrary, unreasonable, and restrictive of their
medical judgment. In upholding the hospital’s policy as reasonable and as
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 205

“strikingly similar” to exclusive service contracts, the Supreme Court of

Georgia observed:

This appeal represents a classic confrontation between two entities who

play major roles in the health and welfare of the citizens of our state. The
relationship which exists between hospital and physician is delicate, each
one exercising exclusive as well as concentric areas of responsibility in the
treatment and diagnosis of patients. In addition to the roles played by
these two entities in providing this essential health service, the state has
the duty of monitoring this function in order to protect the health and
welfare of its citizens....
The Hospital Authority’s resolution requiring use of in-house facili-
ties and services for hospitalized patients rather than permitting them to
be taken from the hospital to utilize like facilities or services elsewhere is
reasonable and reflects a well-intentioned effort by the Authority to deal
with the intricate and complex task of providing comprehensive medical
services to the citizens of our state. The preeminent consideration in the
adoption of such a resolution by the Authority was the health, welfare and
safety of the patient.... The Authority’s resolution is a reasonable and
rational administrative decision enacted in order for the Authority to carry
out the legislative mandate that it provide adequate medical care in the
public interest. The resolution does not invade the physician’s province.
Although he is required to use the facilities and equipment provided
within the hospital complex for testing rather than similar facilities and
equipment outside, he is nevertheless free to interpret the results of such
tests and free to diagnose and prescribe treatment for all his patients.

In contrast, in the 2006 case Baptist Health v. Murphy 82 the defendant

was a multihospital system that adopted a loyalty-oath policy to deny staff
appointments or clinical privileges “to any practitioner who, directly or indi-
rectly, acquires or holds an ownership or investment interest in a competing
hospital.” The policy was apparently a revenue-enhancing measure, but it was
challenged by cardiologists who had an ownership interest in another hospi-
tal and held medical staff privileges at both Baptist Hospital and the other
facility. The trial court issued a preliminary injunction against enforcement of
the policy, and on appeal the Supreme Court of Arkansas affirmed that deci-
sion:

Defendant knew that the adoption of the economic credentialing policy

would inevitably result in a disruption of the relationship between Plaintiffs
and a significant number of their patients. The economic credentialing policy
was adopted with the intention of forming a relationship with the Plaintiffs’
patients, potential patients, and referring physicians who were required to use
206 The Law of Healthcare Administration

its facilities by establishing relationships with cardiologists other than the

Plaintiffs.
Defendant, by adopting the economic credentialing policy, intended
to disrupt the business expectancies arising out of Plaintiffs’ relationships
with their patients and with referring physicians with whom they have
established patterns of referral. Further, by adopting the economic creden-
tialing policy, Defendant intended to disrupt and interfere with the doc-
tor–patient relationship existing between Plaintiffs and their patients and
Plaintiffs’ ability to provide health care to their patients. Defendant’s
actions are an attempt to secure treatment of patients at Defendant’s facil-
ities and not Plaintiffs’ facilities.
….
Defendant’s economic credentialing policy creates a disincentive for
Plaintiffs to refer their patients to facilities other than Baptist. Privileges to
admit and treat patients at Defendant’s facilities are economically advanta-
geous to Plaintiffs. Defendant’s economic credentialing policy confers the
advantage only to physicians that do not have investments in facilities that
Baptist deems as competitors.
Plaintiffs have a substantial likelihood of success in establishing at trial on the
merits that this economic credentialing constitutes a conferral of economic bene-
fits, a remuneration, in consideration for the referral of patients to Defendant’s
facilities, which practice is prohibited by the federal anti-kickback statute, 42
U.S.C. § 1320a-7b(b), and comparable Arkansas statutes.

Because the case was before the court on a procedural issue (the valid-
ity of the preliminary injunction), it will have to return to the trial court for
a decision on the facts and the merits of the plaintiffs’ case. Nevertheless, the
decision casts economic credentialing in doubt.
In addition to the antikickback statute referred to in the Baptist Health
opinion, these loyalty-oath policies raise possible issues under the False Claims
Act, antitrust law, and some state statutes. The Office of Inspector General of
the U.S. Department of Health and Human Services has solicited comments
on the subject, but as this book is being written no final guidance has been
issued. Hospital administration would be well advised to seek legal counsel
when considering adopting a policy that sets economic criteria for medical
staff appointments and privileges.

Peer Review of Professional Practice

In addition to the governing board’s responsibility to monitor the profes-

sional qualifications of the medical staff, the medical staff itself should contin-
ually assess the quality of care being provided in the facility. This topic is
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 207

closely related to the utilization review/case management function discussed

in Chapter 6. Peer review is a discreet retrospective evaluation of a physician’s
performance or undesired outcome to see if accepted standards of care were
met and to suggest quality improvements if they were not. Under the Health
Care Quality Improvement Act of 1986 (HCQIA),83 there is a framework
for discreetly investigating a physician’s performance to ensure that she is
meeting accepted standards of care. Because peer-review committee members
are often competitors of the doctors being reviewed, and because in smaller
institutions it may be difficult to find a physician within the same subspe-
cialty, many hospitals turn to third parties (such as independent review orga-
nizations) to conduct peer reviews in an unbiased way.
Two major legal issues arise in the context of peer review and quality
improvement: confidentiality and potential liability. The records of peer-
review committees are often sought by plaintiffs’ attorneys to support their
case, and physicians who are disciplined often allege that the peer-review
function has damaged their character or professional practice.

Confidentiality of Peer-Review Records

Obviously, to be most effective the peer-review process must involve an hon-
est assessment of a practitioner’s activities. Confidentiality of the peer-review
committee’s minutes and deliberations is essential to their success. As one
court stated, “There is an overwhelming public interest in having [peer
review] meetings held on a confidential basis so that the flow of ideas can
continue unimpeded.”84 The court also stated:

Confidentiality is essential to effective functioning of these staff meetings;

and these meetings are essential to the continued improvement in the care
and treatment of patients. Candid and conscientious evaluation of clinical
practices is a sine qua non of adequate hospital care. To subject these discus-
sions and deliberations to the discovery process, without a showing of excep-
tional necessity, would result in terminating such deliberations. Constructive
professional criticism cannot occur in an atmosphere of apprehension that
one doctor’s suggestion will be used as a denunciation of a colleague’s con-
duct in a malpractice suit.85

Following this line of reasoning, various state legislatures began to

address the confidentiality issue in the early 1970s. Today all jurisdictions have
some form of legislation establishing a degree of peer-review privilege. For
example, a Georgia statute, upheld in Eubanks v. Ferrier,86 immunized med-
ical-review committee proceedings both from pretrial discovery and from use
as evidence against a healthcare provider. It also stated that no person in atten-
dance at a meeting of a review committee could be required to testify with
respect to evidence presented during committee proceedings.
208 The Law of Healthcare Administration

Note that, as is usually the case, the statutes vary from state to state on
such matters as the type of legal proceeding to which they apply; whether the
information is protected from discovery, admission into evidence, or both;
the type of information and the nature of the committee whose records are
confidential; and various express exceptions to the protection. The applica-
tion of the privilege to particular sets of facts is, therefore, likely to vary from
state to state and even from court to court. Furthermore, almost universally
the privilege does not apply to records, such as medical records and routine
business records, created for purposes other than peer review.

Liability of Peer-Review Participants

Members of medical staff executive, peer-review, credentials, and similar
committees are often worried that their service will subject them to liability.
This worry is unjustified. The major areas of potential liability involve
defamation and interference with a person’s professional practice or business
relationships. If the committees’ proceedings are conducted in good faith,
neither theory will succeed.
Under the law of defamation, there is a protection (known as a
“privilege”) for people who carry out important duties that are in the pub-
lic interest. For the privilege to be recognized, the communication in
question must have been made in good faith for the purpose of upholding
a moral or legal duty, limited in scope to that purpose, made in a proper
manner on a proper occasion, and transmitted only to proper and inter-
ested parties. It seems clear that physicians and other members of peer-
review committees will be protected by this privilege under most circum-
stances. Numerous cases have so held.87 In addition, the majority of states
have passed statutes that confirm and clarify the common-law privilege for
medical-review activities.
With regard to the second concern, the actions of a peer-review com-
mittee may allegedly constitute an intentional tort, such as interference with
one’s professional or business relationships, interference with economic
expectancy, wrongful suspension of staff privileges, and so on. The law in this
area is similar to that concerning defamation. As noted earlier, all states have
some form of protective statute for peer-review functions, and most of these
contain protection from personal liability of the participants. There are few,
if any, cases in which members of a peer-review committee have been held
liable in the absence of malice or bad faith.
The HCQIA has similar protections. Beginning with its passage in
1986, peer-review committee members are not liable “under any law of the
United States or of any State (or political subdivision thereof)” if they take
action (a) in good faith, (b) after a reasonable attempt to obtain the facts, (c)
after a fair hearing is afforded to the physician involved, and (d) in the rea-
sonable belief that the action was warranted.88 Thus, persons involved in
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 209

peer-review activities may proceed in good faith with reasonable confidence

that their committee deliberations and actions will not present legal exposure.

Medical Staff Privileges of Employed Physicians

Some brief notes are warranted regarding the medical staff privileges of a physi-
cian who is employed by a hospital. An employed physician is in a different legal
position than is an independent member of the medical staff. An employee,
whether or not a physician, is entitled to neither substantive nor procedural due
process with regard to his job, except as stated in the employment contract.
Unless the contract provides otherwise, the employee can be dismissed from the
job at will without a hearing, without prior notice, and without a statement of
the reasons for the dismissal.89 (Most states have this “employment at will” doc-
trine.)
The employed physician’s medical staff privileges are a different matter,
however. Unless the physician’s employment contract makes employment and
staff privileges conterminous, a separate action must be taken if the hospital wants
to revoke the medical staff privileges of a physician who is no longer employed.
If so, the normal procedures for actions on medical staff issues must be followed.
Similarly, a hospital’s decision not to
renew an exclusive service contract—
with a radiology group, for example— Legal Brief
does not require due process but
depends on the term of the contract.90 Members of a physician group that provides exclu-
Thus, a municipal hospital (state actor) sive services for certain hospital departments
(pathology, radiology, anesthesiology, and the like)
that had an oral at-will contract with a
must not be only members of the group but also
doctor to be its director of pathology members of the hospital medical staff. Contracts
could discontinue the arrangement between the hospital and the group should provide
without following the due process con- that if the physician leaves the group, for whatever
tained in the hospital bylaws that reason, his medical staff appointment also termi-
applied to other medical staff mem- nates and a new application must be submitted and
approved by the governing board.
bers.91 (In this case, however, the doc-
tor’s medical staff privileges remained
in effect; see Legal Brief.)
Judicial review of controversies
concerning medical staff privileges is limited to determining whether the deci-
sion of the hospital’s governing board was based on reasonable (not “arbitrary
or capricious”) criteria and was accompanied by essential due process. When
credible evidence shows that the decision is reasonable in the circumstances, the
court will not interfere to substitute its own judgment for that of the hospital’s
board. As stated by the U.S. Court of Appeals for the Fifth Circuit:

No court should substitute its evaluation of such matters for that of the Hos-
pital Board. It is the Board, not the court, which is charged with the respon-
210 The Law of Healthcare Administration

sibility of providing a competent staff of doctors. The Board has chosen to

rely on the advice of its Medical Staff, and the court cannot surrogate for the
Staff in executing this responsibility. Human lives are at stake, and the gov-
erning board must be given discretion in its selection so that it can have con-
fidence in the competence and moral commitment of its staff. The evaluation
of professional proficiency of doctors is best left to the specialized expertise
of their peers, subject only to limited judicial surveillance. The court is
charged with the narrow responsibility of assuring that the qualifications
imposed by the Board are reasonably related to the operation of the hospital
and fairly administered.

The Court of Appeals concluded with a succinct summary of the state

of the law regarding medical staff appointments when it held:

In short, so long as staff selections are administered with fairness, geared by

a rationale compatible with hospital responsibility, and unencumbered with
irrelevant considerations, a court should not interfere.92

Chapter Summary

This chapter focuses on decisions about medical staff privileges. It points out
that the ultimate responsibility for appointing a competent medical staff lies
with the hospital governing board, as supported by management and med-
ical staff personnel themselves. In recent decades practitioners other than
MDs have been given medical staff privileges and that entire classes of physi-
cians may not be excluded; these include those with degrees of DO, DMD,
DPM, and DC and others depending on state law. Decisions on medical staff
membership must be made on the individual’s qualifications rather than on a
bias against a particular school of practice.
The chapter also addresses issues related to the peer-review and qual-
ity assurance functions, both of which are efforts to ensure that the care ren-
dered within the facility meets professional standards.

Chapter Discussion Questions

1. Who has the ultimate responsibility for decisions about medical staff
membership, and why? How should this responsibility be discharged?
2. What differences are there, if any, in the due process standards that
apply to public hospitals and private hospitals?
3. What categories of professionals are permitted membership on the
medical staff?
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 211

4. What issues of confidentiality and liability are presented by the hospital’s

peer-review function?

Notes
1. Joiner v. Mitchell County Hosp. Auth., 125 Ga. App. 1, 186 S.E.2d 307 (1971), aff’d, 229 Ga.
140, 189 S.E.2d 412 (1972); Purcell v. Zimbelman, 18 Ariz. App. 75, 500 P.2d 335, 341
(1972); Gonzales v. Nork, No. 228566—Sacramento County Super. Ct., Cal. 1973, rev’d on
other grounds, 131 Cal. Rptr. 717, 60 Cal. App. 3d 728 (1976); Corleto v. Shore Memorial
Hosp., 138 N.J. Super. 302, 350 A.2d 534 (1975); Johnson v. Misericordia Community Hosp.,
99 Wis. 2d 708, 301 N.W.2d 156 (1981); Sophia Elam v. College Park Hosp., 132 Cal. App.
3d 332, 183 Cal. Rptr. 156, modified, 133 Cal. App. 3d 94 (1982); compare Schenck v. Gov-
ernment of Guam, 609 F.2d 387 (9th Cir. 1979)—district court did not err in declining to
apply emerging theory of independent or corporate hospital liability.
2. Cooper v. Curry, 92 N.M. 417, 589 P.2d 201 (1979).
3. See Mich. Comp. Laws Ann. § 333.21513 (1980 and Supp. 1986); Mich. Stat. Ann. §
14.15(21513) (West Supp. 1986); Ind. Code Ann. § 16-10-1-6.5 (West 1984 and Supp. 1986);
and Ariz. Rev. Stat. Ann. § 35-445 (1986) as examples of statutory expression of the corporate
liability doctrine. See also Shields, “Guidelines for Reviewing Applications for Privileges,” 9
Hosp. Med. Staff 11 (Sept. 1980); Leonard v. Board of Directors, Power County Hosp. Dist.,
673 P.2d 1019 (Colo. App. 1983)—the governing board has the authority to reject a medical
staff committee’s recommendation and terminate a physician’s privileges; Ad Hoc Executive
Comm. of the Medical Staff of Memorial Hosp. v. Runyan, 716 P.2d 425 (Colo. 1986)—the
executive committee of the medical staff has no standing to challenge the decision of the board
restoring a physician’s privileges.
4. Hayman v. Galveston, 273 U.S. 414, 416/17 (1927)—the exclusion of an osteopathic physician
does not violate the equal protection clause of the Fourteenth Amendment.
5. Barrett v. United Hosp., 376 F. Supp. 791 (S.D.N.Y. 1974), aff’d mem., 506 F.2d 1395 (2d
Cir. 1974) and Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974).
6. Barrett, supra 5, at 800–5.
7. Id. at 799; accord Lubin v. Critenden Hosp. Ass’n, 713 F.2d 414 (8th Cir. 1983), cert. denied,
465 U.S. 1025 (1984).
8. For example, Sosa v. Board of Managers of Val Verde Memorial Hosp., 437 F.2d 173 (5th Cir.
1971)—notice of charges “reasonably related to operation of hospital” is required for denial of
admission to medical staff; Moore v. Board of Trustees of Carson-Tahoe Hosp., 88 Nev. 207,
495 P.2d 605 (1972), cert. denied, 409 U.S. 879 (1972).
9. See, for example, Southwick, “The Physician’s Right to Due Process in Public and Private Hos-
pitals: Is There a Difference?” 9:1 Medicolegal News 4 (1981). Their insights have proven true.
10. D.C. Code Ann. § 32-1307 (Supp. 1986). See also, for example, Wis. Stat. Ann. § 50.36 (3)
(Supp. 1985) (osteopathic physician); N.M. Stat. Ann. § 61-10-14 (1986) (osteopathic physi-
cian); Fla. Stat. § 395.011 (1986) (osteopathic physician, dentist, podiatrist); Va. Code § 32.1-
134.2 (1985) (podiatrist); Okla. Stat. tit. 63, § 1-707A (1984) (osteopaths and podiatrists).
11. For example, Cal. Health & Safety Code §§1316, 1316.5 (West 1979 and Supp. 1986)—a hos-
pital must provide for use of facilities by podiatrists and allow them staff privileges; it may afford
privileges to clinical psychologists.
12. Ohio Rev. Code Ann. § 3701.35.1(B) (Baldwin Supp. 1986).
13. Dooley v. Barberton Citizens Hosp., 11 Ohio St. 3d 216, 465 N.E.2d 58 (1984). Cf. Fort
Hamilton-Hughes Memorial Hosp. Center v. Southard, 12 Ohio St. 3d 263, 466 N.E.2d 903
(1984) (Ohio Rev. Code Ann. § 3701.35.1(B)—this does not apply to chiropractors; private
hospitals need not accept patients referred by a chiropractor for x-rays.
14. Civil Rights Acts of 1964, 42 U.S.C.A. § 2000 (d) (1981); 42 U.S.C.A. §§ 1395-1395zz (1983
and Supp. 1987).
212 The Law of Healthcare Administration

15. Foster v. Mobile Hosp. Bd., 398 F.2d 227 (5th Cir. 1968); Meredith v. Allen County War
Memorial Hosp., 397 F.2d 33 (6th Cir. 1968); Eaton v. Grubbs, 329 F.2d 710 (4th Cir. 1964);
Simkins v. Moses H. Cone Memorial Hosp., 323 F.2d 959 (4th Cir. 1963), cert. denied, 376
U.S. 938 (1964)—a private hospital receiving governmental financial support is subject to the
Fourteenth Amendment; Birnbaum v. Trussell, 371 F.2d 672 (2d Cir. 1966).
16. 437 F.2d 173 (5th Cir. 1971).
17. Id. at 176.
18. Id. at 176–77 (citations omitted).
19. Id. See also Shooler v. Navarro County Memorial Hosp., 375 F. Supp. 841 (N.D. Tex. 1973),
aff’d, 515 F.2d 509 (5th Cir. 1975)—when procedural due process is followed, a hospital may
deny staff appointment if there is evidence that the physician displayed an inability to work har-
moniously with other doctors and hospital personnel and charged patients excessive fees.
20. 447 F.2d 839 (5th Cir. 1971).
21. Id. at 844. Citta v. Delaware Valley Hosp., 313 F.Supp. 301 (E.D. Pa. 1970)—Fourteenth
Amendment applied to private hospital because it had received federal funds.
22. Board of Trustees of the Memorial Hosp. v. Pratt, 72 Wyo. 120, 262 P.2d 682 (1953); accord
Peterson v. Tucson Gen. Hosp., Inc., 559 P.2d 186 (Ariz. Ct. App. 1976) (private hospital).
23. Green v. City of St. Petersburg, 154 Fla. 399, 17 So. 2d 517 (1944); Selden v. City of Sterling,
316 Ill. App. 455, 45 N.E.2d 329 (1942); Jacobs v. Martin, 20 N.J. Super. 531, 90 A.2d 151
(1952). Cf. Armstrong v. Board of Directors of Fayette County Gen. Hosp., 553 S.W.2d 77
(Tenn. 1977)—a public hospital could not require certification or eligibility for certification by
the American Board of Surgery for the granting of specified surgical privileges when the physi-
cian was in fact competent.
24. 316 Ill. App. 455, 45 N.E.2d 329 (1942).
25. Rush v. City of St. Petersburg, 205 So. 2d 11 (Fla. App. 1967); Benell v. City of Virginia, 258
Minn. 559, 104 N.W.2d 633 (1960). See also Letsch v. County Hosp., 246 Cal. App. 2d 673,
55 Cal. Rptr. 118 (1966); Blank v. Palo Alto–Stanford Hosp. Center, 234 Cal. App. 2d 377, 44
Cal. Rptr. 572 (1965).
26. Stribling v. Jolley, 241 Mo. App. 1123, 253 S.W.2d 519 (Mo. 1952). A Wisconsin statute—Wis.
Stat. Ann. § 50.36 (3) (Supp. 1985–86)—prohibits denial of hospital staff privileges to any
licensed physician solely on the basis that he is an osteopath. The crucial importance of statutory
law with respect to the rights of osteopathic physicians is also illustrated by Taylor v. Horn, 189
So. 2d 198 (Fla. App. 1966).
27. N.C. Gen. Stat. § 90–153 (1985); N.D. Rev. Code § 43-06-17 (1978). These statutes also apply
to almost all private hospitals. See also Nev. Rev. Stat. §§ 633.161, 450.430 (1986)—public insti-
tutions may not discriminate against dentistry, psychology, podiatry, and Eastern medicine.
28. Boos v. Donnell, 421 P.2d 644 (Okla. 1966); Samuel v. Curry County and Curry Gen. Hosp.
Bd., 55 Or. App. 653, 639 P.2d 687 (1982).
29. Shaw v. Hospital Auth. of Cobb County, 507 F.2d 625 (5th Cir. 1975)—a podiatrist is entitled
to a hearing; Davidson v. Youngstown Hosp. Ass’n, 19 Ohio App. 2d 246, 250 N.E.2d 892
(1969)—a private hospital must act reasonably in passing on applications for staff membership;
Touchton v. River Dist. Community Hosp., 76 Mich. App. 251, 256 N.W.2d 455 (1977)—the
application of a podiatrist cannot be summarily dismissed. Cf. Limmer v. Samaritan Health Serv.,
710 P.2d 1077 (Ariz. App. 1985)—a private hospital may deny privileges to an osteopath; bylaws
were not unreasonable or arbitrary. Some state statutes prohibit hospitals from arbitrarily discrimi-
nating against persons practicing in certain allied health professions. For example, Cal. Health &
Safety Code § 1316 (1974) and § 1316.5 (1978); Nev. Rev. Stat. §§ 450.005,.430 (1975).
30. N.Y. Pub. Health Law § 2801-b (McKinney 1976)—podiatrists and others may not be denied
staff privileges without stating reasons. In this connection, see Fritz v. Huntington Hosp., 39
N.Y.2d 399, 348 N.E.2d 547 (1976); § 393 N.Y.S.2d 334, 361 N.E.2d 984 (1977).
31. See Reynolds v. St. John’s Riverside Hosp., 382 N.Y.S.2d 618 (Sup. Ct. 1976)—physician’s
assistants must be considered for privileges by a hospital.
32. Shaw v. Hospital Auth. of Cobb County, 614 F.2d 946 (5th Cir. 1980), cert. denied, 449 U.S.
955 (1980).
33. 293 S.E.2d 901 (N.C. App. 1982), appeal dismissed, 297 S.E.2d 399 (1982).
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 213

34. Joint Commission on Accreditation of Hospitals, Accreditation Manual for Hospitals, 109
(1987); this standard has been retained in subsequent editions of the manual.
35. See, for example, Mizell v. North Broward Hosp. Dist., 175 So. 2d 583 (Fla. App. 1965)—
proof that a physician’s mistakes in diagnosis were too frequent is an adequate basis for suspend-
ing surgical privileges.
36. 259 Iowa 1185, 146 N.W.2d 284 (1966). See also Anderson v. Caro Community Hosp., 10
Mich. App. 348, 159 N.W.2d 347 (1968)—Michigan appellate court upheld the right of a pub-
lic hospital to dismiss a staff physician who was extended the right of a hearing, when docu-
mented behavior clearly violated adequately defined standards of conduct.
37. 88 Nev. 207, 495 P.2d 605 (1972), cert. denied, 409 U.S. 879 (1972).
38. Nev. Rev. Stat. §§ 450.160,.180,.440 (1986).
39. North Broward Hosp. Dist. v. Mizell, 148 So. 2d 1, 5 (Fla. 1962).
40. A dissent by two justices was based on the following arguments: “Unprofessional conduct” is a
vague and an ambiguous standard, not defined, even generally, in the medical staff bylaws.
Hence, there is “substantial danger or arbitrary discrimination” and a grant to the board of
“almost unlimited power, susceptible of abuse.” Moreover, the dissent said that Dr. Moore’s use
of an anesthetic without sterile gloves was no more than an isolated instance of negligence that
did not result in injury or damage to the patient and thus was not a reasonable basis for revoking
privileges. Because the hospital could not have been liable to the patient as a result of this occur-
rence, arbitrariness was indicated. 88 Nev. At 214, 495 P.2d at 610.
41. See, for example, Edson v. Griffin, 21 Conn. Supp. 55, 144 A.2d 341 (1958); West Coast Hosp.
Ass’n v. Hoare, 64 So. 2d 293 (Fla. 1953); Levin v. Sinai Hosp., 186 Md. 174, 46 A.2d 298
(1946); Moore v. Andalusia Hosp., Inc., 284 Ala. 259, 244 So. 2d 617 (1969)—Moore held
that the appointment of medical staff to a private hospital is solely in the discretion of the gov-
erning body, and a refusal to appoint is not subject to judicial review; Van Campen v. Olean
Gen. Hosp., 210 A.D. 204, 205 N.Y.S. 554 (1924); Lakeside Community Hosp. v. Levenson,
710 P.2d 727 (Nev. 1985)—the decision refusing appointment or declining to renew was not
subject to judicial review; Hoffman and Rasansky v. Garden City Hosp., 115 Mich. App. 773,
321 N.W.2d 810 (1982).
42. Joseph v. Passaic Hosp. Ass’n, 26 N.J. 557, 141 A.2d 18 (1958); Berberian v. Lancaster Osteo-
pathic Hosp. Ass’n, 395 Pa. 257, 149 A.2d 456 (1959).
43. Shulman v. Washington Hosp. Center, 222 F. Supp. 59 (D.D.C. 1963), aff’d on rehearing, 319
F. Supp. 252 (D.D.C. 1970); West Coast Hosp. Ass’n, supra note 41; Halberstadt v. Kissane, 51
Misc. 2d 634, 273 N.Y.S.2d 601 (Sup. Ct. 1966), aff’d, 31 A.D.2d 568, 294 N.Y.S.2d 841
(1968); Bricker v. Sceva Speare Memorial Hosp., 111 N.H. 276, 281 A.2d 589 (1971), cert.
denied, 404 U.S. 995 (1971).
44. Shulman, supra note 43.
45. Foote v. Community Hosp., 195 Kan. 385, 405 P.2d 423 (1965).
46. Id., Dr. Moore’s troubles were not over. Kansas eventually revoked his license to practice medi-
cine on the ground of “extreme incompetency.” Kansas State Bd. of Healing Arts. v. Foote, 200
Kan. 447, 436 P.2d 828 (1968)—the Supreme Court upheld that decision.
47. See also Sams v. Ohio Valley Gen. Hosp. Ass’n, 149 W.Va. 229, 140 S.E.2d 457 (1965)—where
the doctor was apparently denied staff privileges as a consequence of his participation in a closed-
panel group practice, although such was never formally stated as a reason for his exclusion; this
state court decision upheld the hospital’s denial of privileges to Dr. Sams. See also Mauer v.
Highland Park Hosp. Found., 90 Ill. App. 2d 409, 232 N.E.2d 776 (1967)—medical staff privi-
lege decisions by private hospital are not subject to judicial review.
48. Raymond v. Cregar, 38 N.J. 472, 185 A.2d 856 (1962).
49. Cowan v. Gibson, 392 S.W.2d 307 (Mo. 1965). See also Burkhart v. Community Medical Center,
432 S.W.2d 433 (Ky. 1968); Nashville Memorial Hosp., Inc. v. Brinkley, 534 S.W.2d 318 (Tenn.
1976)—allegations of conspiracy without justification or excuse to injure another in the practice of
a profession constitute a cause of action; moreover, express allegations of malice are not necessary,
as malice is inferred from allegations that damage was done intentionally without legal justifica-
tion. Cf. Campbell v. St. Mary’s Hosp., 252 N.W.2d 581 (Minn. 1977)—unsubstantiated broad
allegations of malice do not create a cause of action when staff privileges were revoked.
214 The Law of Healthcare Administration

50. Willis v. Santa Ana Community Hosp. Ass’n, 58 Cal. App. 2d 806, 376 P.2d 568, 26 Cal. Rptr.
640 (1962).
51. 40 N.J. 389, 192 A.2d 817 (1963); contra Limmer v. Samaritan Health Serv., 710 P.2d 1077
(Ariz. App. 1985)—a private hospital may deny privileges to an osteopath; bylaws are not arbitrary
and capricious.
52. 40 N.J. at 403–4, 192 A.2d at 825.
53. Id. at 394, 192 A.2d at 819.
54. 34 N.J. 582, 170 A.2d 791 (1961). See also Blende v. Maricopa County Medical Soc’y, 96 Ariz.
240, 393 P.2d 926 (1964). The court ruled that a local medical society cannot arbitrarily deny
membership if there is a relation between society membership and hospital staff privileges. But
later litigation established that there was no definite, formal relation between society membership
and hospital staff privileges, and therefore the society could not be required to admit the doctor
as a member. Maricopa County Medical Soc’y v. Blende, 5 Ariz. App. 454, 427 P.2d 946
(1967).
55. Sussman v. Overlook Hosp. Ass’n, 95 N.J. Super. 418, 231 A.2d 389 (1967).
56. See, for example, Woodard v. Porter Hosp., 125 Vt. 419, 217 A.2d 37 (1966).
57. 42 C.F.R. § 482.12.
58. See Joint Commission on Accreditation of Healthcare Organizations. 1998. Hospital Accreditation
Standards, 231–35; see, generally, Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d
326, 211 N.E. 2d 253 (196), cert. denied, 383 U.S. 946 (1966)—Joint Commission standards
are admissible in court and failure to adhere to them can constitute evidence of negligence.
59. Joint Commission on Accreditation of Healthcare Organizations, supra note 58, at 231–33.
60. Yeargin v. Hamilton Memorial Hosp., 226 Ga. 661, 171 S.E.2d 136 (1969), cert. denied, 397
U.S. 963 (1970).
61. Yeargin v. Hamilton Memorial Hosp., 229 Ga. 870, 195 S.E.2d 8 (1972).
62. Board of Trustees of the Memorial Hosp. of Sheridan County v. Pratt, 72 Wyo. 120, 262 P.2d
682 (1953); Peterson v. Tucson Gen. Hosp., Inc., 559 P.2d 186 (Ariz. Ct. App. 1976).
63. Rao v. Board of County Commiss’rs, 80 Wash. 2d 695, 497 P.2d 591 (1972).
64. Fahey v. Holy Family Hosp., 32 Ill. App. 3d 537, 336 N.E.2d 309 (1975).
65. Pollock v. Methodist Hosp., 392 F. Supp. 393 (E.D. La. 1975). See also Jones v. State Bd. of
Medicine, 555 P.2d 399 (Idaho 1976)—a statutory requirement that both physicians and hospi-
tals obtain malpractice insurance as a condition of licensure is constitutional; Wilkinson v.
Madera Community Hosp., 144 Cal. App. 3d 436, 192 Cal. Rptr. 593 (1983)—a hospital may
deny privileges when a doctor’s insurance company is not approved by California Department of
Insurance; rule is reasonable; Kling v. St. Paul Fire and Marine Ins. Co., 626 F. Supp. 1285
(C.D. Ill. 1986)—an agreement between hospital and insurance company requiring staff to carry
a minimum amount of malpractice insurance does not have a substantial effect on interstate
commerce and thus is not subject to jurisdiction of Sherman Act.
66. Khan v. Suburban Community Hosp., 45 Ohio St. 2d 39, 340 N.E.2d 398 (1976). Cf. Arm-
strong v. Board of Directors of Fayette County Gen. Hosp., 553 S.W.2d 77 (Tenn. 1977)—a
public hospital may not require board certification or eligibility for major surgical privileges.
67. For example, Koelling v. Skiff Memorial Hosp., 259 Iowa 1185, 146 N.W.2d 284 (1966);
Mizell v. North Broward Hosp. Dist., 175 So. 2d 583 (Fla. App. 1965); Sosa, supra note 8;
Moore v. Board of Trustees of Carson-Tahoe Hosp., 88 Nev. 207, 495 P.2d 605 (1972), cert.
denied, 409 U.S. 879 (1972); Klinge v. Lutheran Charities Ass’n of St. Louis, 383 F. Supp. 287
(Mo. 1974), modified, 523 F.2d 56 (8th Cir. 1975); Storrs v. Lutheran Hosp. and Homes Soc’y
of Am., Inc., 661 P.2d 632 (Alaska 1983).
68. Citta v. Delaware Valley Hosp., 313 F. Supp. 301 (E.D. Pa. 1970); Duby v. Baron, 369 Mass.
614, 341 N.E.2d 870 (1976)—a rule allowing for summary suspension of a physician was sus-
tained when there was an immediate threat to patients’ safety.
69. Khan v. Suburban Community Hosp., 45 Ohio St. 2d 39, 43–44, 340 N.E.2d 398, 402
(1976).
70. Miller v. National Medical Hosp. of Monterey Park, Inc., 124 Cal. App. 3d 81, 177 Cal. Rptr.
119 (1981).
71. Theissen v. Watonga Mun. Hosp. Bd., 550 P.2d 938 (Okla. 1976); Wyatt v. Tahoe Forest Hosp.
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 215

Dist., 345 P.2d 93 (Cal.App.1959). Contra Peterson v. Tucson Gen. Hosp., 114 Ariz. 66, 559
P.2d 186 (1976).
72. Lapidot v. Memorial Medical Center, 144 Ill. App. 3d 141, 494 N.E.2d 838 (1986).
73. Anderson v. Caro Community Hosp., 10 Mich. App. 348, 159 N.W.2d 347 (1968). See also
Greer v. Medders, 178 Ga. App. 408, 336 S.E.2d 328 (1985)—a patient has cause of action for
the tort of intentional infliction of emotional distress when a physician used threatening, profane
language in the presence of the patient’s wife and a nurse.
74. See, for example, Miller v. Eisenhower Medical Center, 166 Cal. Rptr. 826, 835, 614 P.2d 258,
267 (1980); see also Staube v. Emanuel Lutheran Charity Bd., 287 Or. 375, 600 P.2d 381
(1979), cert. denied, 445 U.S. 966 (1980); Robbins v. Ong, 452 F. Supp. 110 (S.D. Ga. 1978);
Pick v. Santa Ana-Tustin Community Hosp., 130 Cal. App. 3d 970, 182 Cal. Rptr. 85 (1982)—
abrasive personality, difficulty in working with staff, applicant’s behavior, and unfavorable reference
letters were sufficient to deny privileges. Cf. Newcomb v. Patton, 608 S.W.2d 145 (Mo. App.
1980)—harassment of an administrator justifies nonrenewal of a physician’s privileges.
75. For example, Cal. Bus. & Prof. Code § 805 (Deering 1986); Tex. Rev. Civ. Stat. Ann. art. 4495b,
§ 4.14 (Vernon 1987); Mich. Comp. Laws Ann. §§ 333.16233, 333.16243, 333.21513 (Supp.
1986). Further, the federal HCQIA of 1986 (Pub. L. No. 99-660) requires hospitals to report
certain disciplinary actions and malpractice claims data to a national clearinghouse.
76. Rush v. City of St. Petersburg, 205 So. 2d 11 (Fla. App. 1967); Benell v. City of Virginia, 258
Minn. 559, 104 N.W.2d 633 (1960); Blank v. Palo Alto/Stanford Hosp. Center, 234 Cal.
App. 2d377, 44 Cal. Rptr. 572 (1965) (radiology).
77. Adler v. Montefiore Hosp. Ass’n of W. Pa., 453 Pa. 60, 311 A.2d 634 (1973), cert. denied,
414 U.S. 1131 (1974); see also Lewin v. St. Joseph Hosp., 82 Cal. App. 3d 368, 146 Cal.
Rptr. 892 (1978) (renal hemodialysis).
78. Sokol v. University Hosp., Inc., 402 F. Supp. 1029 (Mass. 1975)—a hospital’s restriction of cardiac
surgery to a single surgeon did not violate either antitrust or civil rights statutes; Moles v. White, 336
So. 2d 427 (Fla. Ct. App. 1976)—an exclusive contract for open-heart surgery did not violate state
antitrust statutes, constitutional principles, or common law; Dillard v. Rowland, 520 S.W.2d 81 (Mo.
App. 1974)—a private hospital having an affiliation agreement with a university’s medical school may
restrict staff appointments to those physicians who also hold a university faculty appointment.
79. For example, Dattilo v. Tucson Gen. Hosp., 23 Ariz. App. 392, 533 P.2d 700 (1975)—an
exclusive contract for nuclear medicine did not violate either state or federal antitrust laws;
Harron v. United Hosp. Center, Inc., Clarksburg, W. Va., 522 F.2d 1133 (4th Cir. 1975),
cert. denied, 424 U.S. 916 (1976)—an exclusive radiology contract does not violate the fed-
eral Sherman Antitrust Act or the civil rights statutes; 42 U.S.C. §§ 1981, 1983, 1985.
80. Amer. Med. Assoc. Policy Compendium 230.975 at 197 (1993).
81. Cobb County-Kennestone Hosp. Auth. V. Prince, 242 Ga. 139, 249 S.E.2d 581 (1978).
82. 2006.AR.0000254, http://www.versuslaw.com.
83. 42 U.S.C. §§ 11111 et seq.
84. Bredice v. Doctors Hospital, 50 F.R.D. 249, 251 (D.DC 1970), aff’d, 479 F.2d 920 (D.C.
Cir. 1973).
85. 50 F.R.D. at 250.
86. 245 Ga. 763, 267 S.E.2d 230 (1980). See also Columbia/JFK Medical Center Limited Part-
nership v. Sanguonchitte, 920 So. 2d 711 (Fla. App. 2006).
87. See, for example, Spencer v. Community Hosp. of Evanston, 87 Ill. App. 3d 214, 408 N.E.2d
981 (1980) and Raymond v. Cregar, 38 N.J. 472, 185 A.2d 856 (1962).
88. 42 U.S.C. § 1111(a).
89. Burkette v. Lutheran Gen. Hosp., 595 F.2d 255 (5th Cir. 1979).
90. Kushner v. Southern Adventist Health and Hosp. Sys., 151 Ga. App. 425, 260 S.E.2d 381 (1979).
91. Engelstad v. Virginia Mun. Hosp. and Va. Hosp. Comm’n, 718 F.2d 262 (8th Cir. 1983).
92. Laje v. R.E. Thomason Gen. Hosp., 564 F.2d 1159, 1163 (5th Cir. 1977) (quoting Sosa,
supra note 8).
216 The Law of Healthcare Administration

the court decides

Moore v. Board of Trustees of Carson-Tahoe Hospital
88 Nev. 207, 495 P.2d 605 (1972)

Today in response to demands of the imprudent or careless supervision of

public, the hospital is becoming a com- members of their medical staffs.
munity health center. The purpose of the The role of the hospital vis-a-vis the
community hospital is to provide patient community is changing rapidly. The hos-
care of the highest possible quality. To pital’s role is no longer limited to the fur-
implement this duty of providing compe- nishing of physical facilities and equip-
tent medical care to the patients, it is the ment where a physician treats his private
responsibility of the institution to create patients and practices his profession in
a workable system whereby the medical his own individualized manner.
staff of the hospital continually reviews The right to enjoy medical staff privi-
and evaluates the quality of care being leges in a community hospital is not an
rendered within the institution. The staff absolute right, but rather is subject to
must be organized with a proper struc- the reasonable rules and regulations of
ture to carry out the role delegated to it the hospital. Licensing, per se, furnishes
by the governing body. All powers of the no continuing control with respect to a
medical staff flow from the board of physician’s professional competence and
trustees, and the staff must be held therefore does not assure the public of
accountable for its control of quality. The quality patient care. The protection of
concept of corporate responsibility for the public must come from some other
the quality of medical care was forcibly authority, and that in this case is the
advanced in Darling v. Charleston Com- Hospital Board of Trustees. The Board, of
munity Memorial Hospital, wherein the course, may not act arbitrarily or unrea-
Illinois Supreme Court held that hospi- sonably in such cases. The Board’s
tals and their governing bodies may be actions must also be predicated upon a
held liable for injuries resulting from reasonable standard.
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 217

the court decides

Leach v. Jefferson Parish Hospital District No. 2
870 F.2d 300 (5th Cir. 1989)

Gee, J. resolve his problems. Although the Bylaws

do not stipulate such a moratorium, the
Facts East Jefferson Medical Staff’s Credentials
In December 1986, East Jefferson General Committee Handbook recommends reappli-
Hospital summarily suspended the physi- cation only after a period of at least one
cian privileges of the appellant, Dr. year. Mr. Betts thus informed Dr. Leach that
Richard E. Leach. The physician’s suspen- he could reapply on February 19, 1988,
sion was upheld after a hearing before the which was one year after the hospital
Executive Committee of the Medical Staff Board affirmed his summary suspension.
and an appeal to the hospital’s Board of Dr. Leach was also informed that the
Directors. The trial court found these Medical Staff only accepts applications
actions were taken in accordance with from physicians with licenses not encum-
hospital Medical Staff Bylaws. bered by the Louisiana State Board of
In March 1987, after Dr. Leach allegedly Medical Examiners. The State Board
continued disruptive behavior despite his informed Dr. Leach in August 1987, that it
suspension, the hospital’s Chief of Staff, would not restrict his license to practice
Dr. Herbert W. Marks, asked the Louisiana medicine. Dr. Leach then sought reinstate-
State Board of Medical Examiners to ment and the hospital’s Medical Executive
invoke the Louisiana Medical Practitioner’s Committee decided to allow him to reap-
Act to determine the appellant’s fitness ply in advance of the one-year moratorium
and ability to practice medicine. since the Louisiana State Board indicated
Dr. Leach asked the Medical Executive he was solving his problem.
Committee to lift his summary suspension Instead of reapplying, however, Dr.
on May 19, 1987. Dr. Marks responded that Leach filed this lawsuit. The only issue
the Bylaws failed to provide for review after was whether Dr. Leach was deprived of the
the suspension had been affirmed by the due process and equal protection of the
hospital’s Board of Directors. About a week laws guaranteed by the Constitution. The
later, Dr. Leach sought an outline of the trial court granted the defendant’s motion
procedures for again becoming an active for summary judgment, determining that
staff member from the defendant, Peter J. there were no genuine issues of material
Betts, who was the President and Chief fact. We affirm.
Executive Officer of the hospital. The
request for information was referred to the Analysis
Medical Executive Committee, which The appellant first argues that the hospital
informed Dr. Leach of the hospital’s long- failed to follow its established rules and
standing policy of requiring a one-year regulations. The trial court found, how-
moratorium for reapplication to staff mem- ever, that the hospital reasonably followed
bership. its own rules in summarily suspending the
The Medical Executive Committee consid- appellant, and we agree. The hospital’s
ered the moratorium an appropriate length Bylaws provided no guidance for reappli-
of time for a disciplined physician to cation after summary suspension, but the
218 The Law of Healthcare Administration

Committee Handbook delineated the pol- the risk of an erroneous deprivation of

icy of recommending a one-year morato- such interest through the procedures
rium. The hospital clearly has a duty to used, and the probable value, if any, of
protect patients and ensure their compe- additional or substitute procedural safe-
tent treatment. In addition, we note that guards; and finally, the Government’s
courts are not the best [forums] for deter- interest, including the function involved
mining the competence of medical practi- and the fiscal and administrative burdens
tioners. As we have stated, that the additional or substitute proce-
dural requirement would entail.
No court should substitute its evalua- The first Mathews factor requires consid-
tion of such matters for that of the Hos- eration of the private interest that will be
pital Board. It is the Board, not the affected. The private interest of Dr. Leach
court, which is charged with the respon- was his medical privilege. This was, of
sibility of providing a competent staff of course, a very important interest; but Dr.
doctors. * * * The court is charged with Leach was at liberty to practice medicine at
a narrow responsibility of assuring that other hospitals. In addition, Dr. Leach was
the qualifications imposed by the Board permitted to reapply after a one-year mora-
are reasonably related to the operation torium, a period of time that was later
of the hospital and fairly administered. reduced by five months.
The second Mathews factor weighs the
We agree with the trial court’s finding risk of wrongful deprivation from the pro-
that the measures employed by the hospi- cedures used against the probable value
tal were reasonable. The appellant’s argu- of other safeguards. As the trial court
ment that the hospital failed to follow its found, Dr. Leach was allowed to present
own rules and regulations is not sup- any evidence he chose to bring forth, both
ported by the record. In the one instance at the hearing before the Executive Com-
in which the hospital deviated from its mittee and the appeal before the hospi-
stated policy, namely by shortening the tal’s Board. The record is devoid of any
length of the appellant’s moratorium when evidence that the appellant ever
it received evidence he was addressing his requested a delay in the proceedings. Nor
problems, it did so for his benefit. We find is there any evidence that the Board acted
the appellant’s argument of a due process unfairly to the appellant. The one-year
violation unpersuasive and affirm the trial moratorium for reapplication was in fact
court’s summary judgment on this issue. shortened when the State Board informed
The appellant also argues that the hos- the hospital, more than two months after
pital rules and regulations were them- the moratorium was imposed, that Dr.
selves inadequate to protect his constitu- Leach was addressing his problems. In
tional interests. The argument must be light of these circumstances, we are
evaluated in light of the United States unable to say that the hospital failed to
Supreme Court’s test for determining the provide further necessary safeguards to
sufficiency of procedures in safeguarding protect the appellant’s interests.
due process rights. In [Mathews v. Finally, the hospital clearly has an
Eldridge (1976)], the Court stated that due interest in providing quality medical care
process requires considering the following to its patients. If a physician is disruptive
factors: First, the private interest that will or has personal problems, the hospital
be affected by the official action; second, has a duty to intervene. When the mora-
 C h a p t e r 7 : M e d i c a l St a f f A p p o i n t m e n t s a n d P r i v i l e g e s 219

torium was imposed, both the Medical against erroneous action,” and due
Executive Committee and the hospital process requirements of notice and an
Board had agreed that summary suspen- opportunity to be heard were met.
sion was necessary. The procedural safe- The appellant was not deprived of his
guards were adequate to ensure that the constitutional rights to due process or
appellant’s constitutional rights were equal protection when the hospital inter-
protected. preted his summary suspension as per-
On balance, [we are convinced] that manent revocation and imposed the one-
the hospital’s duty to maintain quality year moratorium on reapplying for staff
healthcare for its patients decisively out- privileges. We therefore find the trial
weighs the burden on the appellant of court properly granted the appellee’s
reapplying for staff privileges. The proce- motion for summary judgment and the
dures provided a “meaningful hedge ruling is Affirmed.

Moore and Leach Discussion Questions

1. In the Moore case, a dissenting judge wrote: “One searches…in vain for
a description of ‘unprofessional conduct’ even in general terms. Herein
lies the difficulty with the instant matter. A hospital should not be per-
mitted to adopt standards for the exclusion of doctors which are so
vague and ambiguous as to provide a substantial danger of arbitrary dis-
crimination in their application.” Do you believe the author of that
opinion would dissent in the Leach case as well? Why or why not?
2. What do you suppose were the “disruptive behaviors” involved in the
Moore and Leach cases? Why do the courts not describe them in detail?
3. Do you agree with the way the courts have viewed their role in relation
to judging the hospitals’ decisions? Should the courts have been more
active in reexamining the merits of the earlier decisions? Why or why
not?
 CHAPTER

EMERGENCY CARE
8
After reading this chapter, you will

• learn that the moral duty to be a Good Samaritan is not

congruent with the legal principle that, generally speaking,
one has no obligation to help a person who is in distress.
• be able to explain a hospital’s duty under the Emergency
Medical Treatment and Labor Act to someone who comes to
the emergency department and seeks treatment.
• understand the risks inherent in requiring all medical staff
physicians to take emergency duty.

As noted in an earlier chapter, patients do not usually have a right to be admit-

ted to a hospital or to be seen and treated in an outpatient clinic. Stated
another way, the black-letter rule provides that a hospital has no duty to admit
or serve all who present for treatment, except in a medical emergency. As with
all generalizations, there are exceptions to the rule. (One might recall Mark
Twain’s aphorism, “All generalizations are false, including this one.”)
One exception to the rule that there is no duty to treat arises in the
hospital’s emergency department. It is perfectly evident that the American
public expects service from the nation’s hospitals and their medical staffs in
case of emergencies. In the late 1960s the courts began to recognize that a
hospital’s emergency department has a duty to evaluate all patients who come
for service and to render emergency care to those who need it. Subsequently,
federal law codified this duty in the Emergency Medical Treatment and
Labor Act (EMTALA).1 Accordingly, hospitals and their staffs must be
organized and prepared to meet the public’s expectations for emergency
treatment, if they are equipped to do so. The law appears to be consistent
with the philosophy that healthcare at the time of an emergency is a moral
right and must be provided regardless of ability to pay.
The first question is whether a hospital must maintain a facility for
emergency care. If it must, or if it voluntarily offers such services, the second
issue regards the extent of the institution’s duty to the patient.

221
222 The Law of Healthcare Administration

Necessity for Emergency Care Facilities

Although common law does not impose a duty on a hospital to treat emer-
gency patients, many states have statutes that require hospitals to maintain
emergency care facilities or arrange for such care. These requirements may
be found in some states’ hospital licensure statutes. An Illinois statute, for
example, applicable to all hospitals where surgery is performed, requires
the hospital to offer emergency care.2 All hospitals receiving payments from
the Pennsylvania Department of Public Welfare must have at least one
licensed doctor or resident intern on call at all times.3 New York provides
that operating certificates can be revoked for any general hospital refusing
to provide emergency care.4 In practical effect, such statutes, and the rules
and regulations that implement them, require hospitals to maintain emer-
gency departments. Violation is penalized according to the particular
statute, perhaps by a criminal sanction, revocation of license, or both.
Moreover, violation of such a statute could be the basis of a civil lawsuit for
damages.
These statutes represent a trend toward requiring hospitals to estab-
lish and maintain emergency facilities. The public expects ready and con-
venient access to a hospital emergency department, but it does not follow
that all general hospitals should be legally required to maintain relatively
expensive capabilities for emergency care. (Some states have statutes or reg-
ulations recogni-zing differing levels of
emergency services: comprehensive, basic,
and standby, for example.)
Legal DecisionPoint

Duty to Treat and Aid

A physician declines to put a special tag on
her license plate that would identify her as
an MD. She fears that police would stop Under Common Law
her at the scene of an accident and require It has been said that “no one has a duty to
her to render aid, thus exposing her to law- stop a blind man from walking off a cliff.”
suits. This doctrine, even though contrary to
Interesting legal and ethical questions can human instinct, has been applied to physi-
be asked about this scenario. What is a
cians and hospitals as well as to laypersons.
physician’s legal and moral obligation to
provide care at the scene of an accident? Hence, a physician has no common-law
Does the fact that the person is a physician, responsibility to respond to a call for help in
as opposed to a random member of the pub- the absence of a preexisting physician–patient
lic, change the analysis in any way, either relationship (see Legal DecisionPoint).
ethically or legally? How real is the appre- Illustrating the common-law rule is
hension about liability under such circum-
Childs v. Weis, decided nearly 40 years
stances? Perhaps most importantly, what
would you do? ago.5 (This case is also mentioned in
Chapter 2.) A pregnant patient presented
 C h a p t e r 8 : E m e rg e n c y C a re 223

at the hospital emergency department at 2 a.m., apparently suffering from

bleeding and believing she was in labor. The hospital did not require
physicians who were on call to see and examine all emergency patients, so
the nurse on duty examined the woman and telephoned the on-call physi-
cian. The doctor—a private practitioner—told the nurse to have the
patient telephone her private physician for advice. The nurse apparently
mistook the message and told the patient to go to her private doctor,
located some miles away. The patient was en route when the baby was
born, but it lived only 12 hours.
In a suit against the physician the court held that dismissal of the
action was proper because a doctor’s duty to exercise reasonable care
depended on there being a contract with the patient; because no such con-
tract existed, there was no duty to treat. In other words, no
doctor–patient relationship had been established, and the physician was
not liable. (With respect to the personal liability of the nurse for negli-
gence, however, certain factual questions justified submitting the case to a
jury.6)
Note that the aptly named Childs case, like Hill v. Ohio County in
Chapter 6, would be decided differently today for a variety of reasons. (One
could even argue at length whether these cases were decided correctly at the
time, but that would be a rather fruitless academic exercise.) As mentioned
before, the only common-law exception to the rule that generally one has no
duty to aid another in peril is when the person who fails to aid has a special
responsibility to care for the person’s well-being. Some cases have found lia-
bility only when negligent conduct placed the plaintiff in danger; other cases
have found defendants liable for failing to aid no matter how they had endan-
gered the plaintiff. As discussed later in the chapter, recent court cases and
statutes have changed this position, at least with respect to hospitals that have
emergency departments.

Judicial Decisions
In the 1960s, courts began to establish a duty to aid without benefit of
statute. In Williams v. Hospital Authority of Hall County, for example, a
Georgia appellate court held that a governmental hospital that had an emer-
gency department must extend aid to an accident victim who had applied for
treatment of a fracture.7 The court stressed that the defendant hospital was a
public, tax-supported institution, and it expressly rejected the argument that
the hospital had an absolute right to refuse to provide emergency services.
The judge described as “repugnant” a refusal to serve where emergency care
was needed and available.
The Missouri Supreme Court extended the same philosophy to a private
hospital in Stanturf v. Sipes.8 A patient with frozen feet was refused treatment at
a private hospital. The initial reason was the patient’s inability to make a cash
224 The Law of Healthcare Administration

deposit, but the hospital maintained its refusal even after friends offered the
deposit. The hospital apparently was doubtful that further payment could be
ensured. The delay necessitated the amputation of both feet. In the court’s opin-
ion it was an error for the trial court to apply the traditional rule and to grant
summary judgment for the hospital. Rather, the plaintiff was entitled to a trial
on the factual issues of whether an emergency existed, whether aid had been
undertaken, and whether reasonable care had been exercised. (Because the case
does not appear again in judicial reports, it is likely that it was settled.)
Likewise, in an Arizona case, Guerrero v. Copper Queen Hospital, it was
ruled that a licensed private hospital with an emergency department must
extend care.9 A similar Arizona case, which relied on Guerrero, involved a
youngster who had suffered a severe injury to his thigh (a transected femoral
artery) and who, although treated in the emergency department, was trans-
ferred to a public hospital while more treatment was needed. He survived,
but he had permanent impairment of his leg. The court found that the
patient was transferred for financial reasons and “as a matter of law this was
a breach of the hospital’s duty.” Because the permanent impairment to the
leg might have been inevitable, the jury was left to decide whether the inap-
propriate transfer increased the harm to the patient.10
In contrast to the common-law rule, police officers, fire department per-
sonnel, and members of publicly owned paramedical rescue units have a duty to
aid victims of accidents or other emergencies; after all, that is their job. Legisla-
tion normally specifies their responsibilities and the geographic boundaries of
their departmental operations. Very few, if any, actions have been brought
against police and fire department personnel (or physician bystanders either, for
that matter) alleging negligence in administering first aid in a medical emer-
gency. Somewhat more likely are lawsuits contending that injuries were aggra-
vated or harm was done while transporting patients to hospitals for treatment.
Depending on evolving local law, individuals who serve in a public capacity may
be immune from personal liability simply on the basis that in rendering care they
are performing a “discretionary act” requiring personal decision and judgment.

Statutory Requirements
As mentioned earlier, for years, statutes in some states have required certain
hospitals to provide emergency care. The refusal of emergency care or hospi-
tal admission on the basis of race, color, creed, national origin, or other pro-
hibited category violates various federal and state civil rights statutes and reg-
ulations governing Medicare and Medicaid programs.
Beginning in the early 1980s, however, the U.S. Congress became
concerned about reports of alleged “patient dumping”—the practice of
refusing to treat or transferring patients who were uninsured and unable to
pay for medical care. In response to these concerns, Congress passed
EMTALA in 1985—see The Law in Action.
 C h a p t e r 8 : E m e rg e n c y C a re 225

In part, EMTALA provides the

following:
The Law in Action

§ 1395dd. Examination and treatment for Part of the Consolidated Omnibus

emergency medical conditions and women Budget Reconciliation Act (COBRA) of
1985, EMTALA is also known as the
in labor.
“anti-dumping act” or “medical
COBRA.” Its purpose was
(a) Medical screening requirement. In
the case of a hospital that has a hospital “to provide an ‘adequate first
emergency department, if any individual response to a medical crisis’ for all
…comes to the emergency department patients and ‘send a clear signal to
the hospital community…that all
and a request is made on the individual’s
Americans regardless of wealth or sta-
behalf for examination or treatment for tus, should know that a hospital will
a medical condition, the hospital must provide what services it can when
provide for an appropriate medical they are truly in physical distress’.”
screening examination within the capa-
bility of the hospital’s emergency —Baber v. Hospital Corp. of Am., 977
F.2d 872 (4th Cir. 1992) (quoting Sen.
department, including ancillary services
David Durenberger, 131 Cong. Rec. S.
routinely available to the emergency 13904 (Oct. 23, 1985)
department, to determine whether or
not an emergency medical condition
(within the meaning of subsection
(e)(1)) exists.
“Emergency medical condition” is defined to mean—
(A) a medical condition manifesting itself by acute symptoms of sufficient
severity (including severe pain) such that the absence of immediate medical
attention could reasonably be expected to result in
(i) placing the health of the individual (or, with respect to a pregnant
woman, the health of the woman or her unborn child) in serious jeopardy,
(ii) serious impairment to bodily functions, or
(iii) serious dysfunction of any bodily organ or part; or
(B) with respect to a pregnant woman who is having contractions—
(i) that there is inadequate time to effect a safe transfer to another hospi-
tal before delivery, or
(ii) that transfer may pose a threat to the health or safety of the woman
or the unborn child.

EMTALA benefits all patients, not merely those who are uninsured
and unable to pay for care,11 and it applies to virtually all hospitals in the
United States. Violations can result in civil fines and the Medicare “death
penalty”—that is, exclusion from the program.
EMTALA requires that the patient be given an “appropriate” medi-
cal screening examination. Of what that examination should consist varies
226 The Law of Healthcare Administration

from case to case. For instance, a quick history and physical may be enough
for a child with a fever and a cold, but another child with a fever might
require extensive diagnostic services if symptoms of meningitis are found.
Thus, EMTALA does not simply require a physical examination; it requires
the exercise of good clinical judgment and the use of all indicated ancillary
diagnostic techniques to determine whether an emergency in fact exists.
If the screening examination reveals that an emergency does exist, the
condition must be treated until it has been stabilized, unless the patient requests
transfer or it is determined that the medical benefits of transfer outweigh the
risk.12 When a transfer is appropriate, the transfer must be in the patient’s best
interests and must meet certain standards of care, including the following:

• The hospital must provide what treatment it can to minimize the risks
involved.
• A capable hospital must be located that is willing to accept the patient.
• Medical records, or copies of them, must accompany the patient to the
second facility.
• Qualified staff and proper equipment must be used to effect the transfer.13

Essentially, then, unless transfer is in

the patient’s best interests, EMTALA
The Law in Action requires that all patients known to have emer-
A physician suddenly developed belly gency conditions be given medically proper
pain one evening at home. His family care until their condition is stable. This care
called 911, and the emergency medical need not result in eventual admission to the
technicians said they would take him hospital, and (once the condition is stable)
to a small neighborhood hospital
discharge or transfer will not violate
nearby. Correctly diagnosing his own
condition (a leaking abdominal aortic EMTALA (see The Law in Action). But the
aneurysm) and understanding the statute specifically states that stabilizing care
need for immediate surgery, the physi- may not be delayed for the purpose of deter-
cian asked to be taken to a major med- mining the patient’s “method of payment or
ical center about half an hour away, insurance status.”14 This seems straightfor-
where, incidentally, he was a member
ward enough, but, as is usual in statutory
of the medical staff. Emergency sur-
gery was successful, and the doctor interpretation, considerable ambiguity exists.
returned to his practice immediately The first ambiguity concerns when the
after a routine recovery. duty to stabilize arises. According to the
Bypassing the ill-equipped hospital for statute, it arises when “the hospital deter-
the large medical center was correct, mines that the individual has an emergency
both legally and clinically.
medical condition....”15 If the patient is in
the emergency department, the hospital must
conduct an “appropriate medical screening
examination” to make this determination.16 (Regarding patients not in the
emergency department, see the section “Coming to the Hospital,” later in this
 C h a p t e r 8 : E m e rg e n c y C a re 227

chapter.) But EMTALA does not define the latter expression, so the dis-
tinction between an appropriate medical screening examination and an
inappropriate one has been the subject of considerable litigation and com-
mentary.

Consider Summers v. Baptist Medical Center Arkadelphia,17 which involved a Appropriate

man who fell from a platform in a tree while deer hunting. Complaining of Medical
popping sounds when he breathed and pains in his chest, the plaintiff was Screening
taken to the emergency department of Baptist Medical Center. There a physi-
cian examined him and ordered x-rays of his spine, which supposedly showed
only an old fracture. No x-rays of the chest were taken. After receiving injec-
tions of pain medication (on the belief that he was suffering muscle spasms),
Mr. Summers rode five hours home in a pickup truck. Two days later, when
his pain became unbearable, he went to another hospital and was diagnosed
with a broken thoracic vertebra, a broken sternum, and a broken rib. A physi-
cian classified these injuries as “life threatening,” according to the trial
record.
To summarize, Mr. Summers was given a medical screening exami-
nation at Baptist and the emergency department physician determined in
good faith—albeit perhaps negligently—that no emergency medical con-
dition existed. The physician, therefore, did not admit Mr. Summers to
the hospital and did not stabilize his condition. Mr. Summers was also
given a medical-screening examination at the second hospital. Based on
that examination the emergency was perceived and he was treated for his
injuries. Clearly, the examination at the second hospital was an appropri-
ate one, and it triggered the obligation to stabilize Mr. Summers. But was
the presumably negligent examination at Baptist also an “appropriate” one
under EMTALA?
At first blush it seems logical to conclude that if an appropriate trans-
fer is one that is medically proper and serves the patient’s best interests, an
appropriate screening would be one that meets the same standard of care.
If so, the negligent examination at Baptist would not be considered appro-
priate and would be deemed a violation of EMTALA. (EMTALA provides
for stiff civil monetary penalties against hospitals and physicians who vio-
late its provisions, and it allows an individual who suffers personal harm to
obtain damages from the hospital, but not the physicians, concerned.18)
Indeed, some authors argue forcefully for just such an interpretation.19
Authors of one article lament that although “appropriate transfer” is
defined in terms of being medically adequate, “appropriate medical screen-
ing” has been interpreted merely to mean one that is nondiscriminatory.20
They assert that if “appropriate” means medically adequate in one part of
the statute, it means medically adequate in another. These commentators
contend:
228 The Law of Healthcare Administration

Based on the plain language of the statute…and the legislative history, Con-
gress intended to require hospitals with emergency rooms to establish fitting,
proper and suitable procedures, within the capability of the hospital, to med-
ically screen indigent and non-indigent patients to determine whether their
present symptoms are life- or limb-threatening if not properly treated…. In
applying these principles to a given factual scenario the question becomes,
would a “reasonable physician” consider the hospital’s established screening
procedures appropriate to determine, “more likely than not,” whether the
presenting symptoms are life- or limb-threatening.21

Admitting that this is perhaps the “most natural” meaning of the term
“appropriate” in the context of medical examinations,22 the Summers court
nevertheless rejected this meaning and held that the screening examination
at Baptist was appropriate. Although negligent, it was undertaken in good
faith and did not result in the physician or the hospital realizing that an emer-
gency existed. Because the duty to stabilize does not arise until “the hospital
determines that the individual has an emergency medical condition,”23 the
court in effect held that the hospital and the physician are not to be charged
with constructive knowledge of a condition that they should have diagnosed
but did not.
In rejecting the argument that a negligent examination is ipso facto
inappropriate, the court pointed out that the purpose of the statute was to
prevent patient dumping, not to create “a general federal cause of action
for medical malpractice in emergency rooms.”24 Indeed, Mr. Summers’s
position, if adopted, would require the parties to conduct a miniature
medical malpractice trial on the issue of appropriateness in every case
where no diagnosis of “emergency medical condition” was made. The
Summers court was not about to assume that by enacting EMTALA, Con-
gress intended this result.25
The Summers decision is consistent with a growing body of
jurisprudence holding that a negligent screening exam might not be an
EMTALA violation. For example, in Gatewood v. Washington Healthcare
Co.,26 a U.S. Court of Appeals held that EMTALA “is not intended to
duplicate preexisting legal protections, but rather to create a new cause of
action, generally unavailable under state tort law, for what amounts to fail-
ure to treat.”27
The article quoted earlier argued that EMTALA should be viewed as
“a statute designed to protect the health of the consumers of emergency
room services rather than an emergency room civil rights statute.”28 Unless
this view prevails, the authors argued that “the effect will be to render
EMTALA a serpent without fangs.”29 It can be argued, however, that given
our federal system of government this “cobra” has venom enough for its
intended prey. This was the point of the Summers court when it wrote this:
 C h a p t e r 8 : E m e rg e n c y C a re 229

Congress can of course, within constitutional limits, federalize anything it

wants to. Whether it chooses to do so is a matter of policy for it to decide,
not us. But in construing statutes that are less than explicit, the courts will
not assume a purpose to create a vast new realm of federal law, creating a fed-
eral remedy for injuries that state tort law already addresses. If Congress
wishes to take such a far-reaching step, we expect it to say so clearly.30

Other decisions addressing the medical screening issue seem to agree

that EMTALA is essentially a civil rights statute.31 It imposes on a hospital the
duty to treat all individuals alike, to triage them consistently, and to treat those
who are thought to have emergency conditions. It appears that the fact that
some undiagnosed emergencies may go untreated is a matter for state medical
malpractice law, not EMTALA.32

The second ambiguity relates to whether EMTALA applies only to persons Coming to the
in the emergency department or includes those with emergencies elsewhere Hospital
on hospital property. According to the first paragraph of EMTALA, the
cobra begins stalking when “any individual…comes to the emergency
department and a request is made…for examination or treatment….”33
The second paragraph, however, states, “If any individual...comes to the
hospital and the hospital determines that the individual has an emergency
medical condition, the hospital must provide [stabilization or appropriate
transfer].”34
Cases have applied EMTALA to a patient with unstabilized depression
who committed suicide the day after being discharged from a psychiatric unit35
and to a patient in labor who was transferred to the defendant hospital’s labor
room from another hospital.36 Both cases involved emergency conditions that
were presumably known in the hospital but occurred outside the emergency
department.
In contrast, Baber v. Hospital Corporation of America 37 involved a patient
who was transferred to a psychiatric ward from another hospital and was not
known to have an emergency condition. Because the patient was not in the
emergency department, the court held that the medical screening obligation did
not apply, and because the emergency condition was not discovered until fatal
symptoms developed, no EMTALA liability was found.
The EMTALA regulations do not define “comes to the hospital,” but
they define “comes to the emergency department” to include anyone request-
ing examination or treatment on hospital property.38 Additionally, according
to the regulations, “hospital property” includes not only the building and
grounds but also ambulances owned or operated by the hospital, wherever
they may be located.39 Persons in non–hospital-owned ambulances on hospi-
tal property are also considered to have come to the emergency department.40
Finally, the regulations define “hospital with an emergency department” to
230 The Law of Healthcare Administration

mean one that offers emergency services, irrespective of whether it has a defined
emergency department as such.41
In short, if the standards set forth in the regulations meet judicial approval,
it would appear that with the possible exception of situations like those in Baber
(where the patient is in the hospital but not in the emergency department, is not
requesting examination or treatment, and has an undiagnosed emergency condi-
tion), the full range of EMTALA’s obligations will apply throughout the hospital.42
In at least one case the meaning of “comes to the hospital” was stretched
even further. In Arrington v. Wong 43 a patient in severe respiratory distress was
being transferred to a hospital in an ambulance not owned by the hospital. The
ambulance personnel called ahead to announce their estimated time of arrival
and to describe the patient’s condition. After being told that the patient was an
Army hospital beneficiary, the physician on call told the emergency medical
technicians, “I think it would be okay” to go to the Army hospital, which was
farther away. The ambulance diverted, and the patient died about 40 minutes
after arriving at the military facility.
The U.S. Court of Appeals for the Ninth Circuit held that because the
hospital was not on “diversionary status” (unable to accept any more patients
because of heavy volume), it would frustrate the purpose of EMTALA to allow
the hospital to turn away an ambulance that it knew was headed its way. Rely-
ing heavily on the government’s regulations to interpret what it felt was an
ambiguous provision, the court wrote:

The “overarching purpose of [EMTALA is to ensure] that patients, particularly the

indigent and underinsured, receive adequate emergency medical care.” [Citation
omitted.] The agency’s interpretation achieves this purpose, ensuring that emer-
gency patients may be diverted to other hospitals only when the diverting hospital
has a valid, treatment-related reason for doing so. The agency’s interpretation
works no hardship on the hospital, as the Department’s [EMTALA regulation]
“only requires hospitals that offer emergency services to provide screening and sta-
bilizing treatment within the scope of their capabilities.” [Citation to the regula-
tion omitted.] Furthermore, a failure to treat an emergency patient, by diverting
him to another hospital, may have lethal consequences. Finally, when a hospital is
unable to handle the case load and is in diversionary status, it may divert emer-
gency patients even if they are in the process of being transported to that hospital
because it is the closest. Because the agency’s regulation is consistent with the pur-
poses and language of the statute, we find that interpretation reasonable (and cer-
tainly not arbitrary or capricious).
….
We follow the Department of Health’s regulation and hold that a hospital may
divert an ambulance that has contacted its emergency room and is on its way to
that hospital only if the hospital is in diversionary status. [See Legal Brief on
page 231.]
 C h a p t e r 8 : E m e rg e n c y C a re 231

The final vexing question concerns motive: for there to be an EMTALA Motive
violation, should the defendant’s decision have been motivated by the
patient’s inability to pay? Despite some early district court cases holding
that such an allegation is necessary,44 the appellate courts seem to be in
agreement that no particular motive need be alleged or proven. They rea-
son that EMTALA achieves its purpose (to discourage the practice of
“dumping” indigent patients) by requiring that all patients—insured,
uninsured, and self-pay alike—receive uniform treatment. If one does not
receive uniform treatment, the reason for the lack of uniformity is imma-
terial.
The issue was raised in Cleland v. Bronson Health Care Group, Inc.,45
where the Sixth Circuit wrote:

We can think of many reasons other than indigency that might lead a hospi-
tal to give less than standard attention to a person who arrives at the emer-
gency room. These might include: prejudice against the race, sex, or ethnic
group of the patient; distaste for the patient’s condition (e.g., AIDS
patients); personal dislike or antagonism between the medical personnel and
the patient; disapproval of the patient’s occupation; or political or cultural
opposition. If a hospital refused treatment to persons for any of these reasons,
or gave cursory treatment, the evil inflicted would be quite akin to that dis-
cussed by Congress in the legislative history and the patient would fall
squarely within the statutory language.46

Some have read this passage as support for the position that liability can
be found only if the hospital had an improper motive in providing the dis-
parate treatment.47 One can argue,
however, that the Cleland court re-
cognizes the fact that a bad motive of Legal Brief
some kind is inherent in all disparate
treatment and therefore need not be a According to the Arrington court, a patient who is
specific element of an EMTALA coming to the hospital has come to the hospital.
What?! The plain meaning of “when any individ-
offense. (Of course, plaintiffs’ lawyers
ual…comes to the emergency department” means
would prefer to have evidence of an that he is already there, does it not?
ulterior motive, but the lack of such But just a minute! In Macbeth one of the witches
evidence is not fatal to the case.) utters the famous line, “By the pricking of my
For example, if physicians, thumbs, something wicked this way comes.” The
acting in good faith, diagnose no wicked thing is Macbeth himself, who clearly has
not yet arrived on the scene but is on his way.
emergency and discharge the
Would some congressional bard had written, “when
patient, they have acted, whether someone to the ED comes.”
negligently or not, in accordance
with what they believe to be the
patient’s best interests. If, however,
232 The Law of Healthcare Administration

the physicians know that an emergency condition exists and discharge the
patient anyway, their decision must have been motivated by something
other than the patient’s best interests. Congress chose to address the issue
of patient dumping by creating a kind of “emergency room civil rights
statute,” which requires equal treatment for all. If inequality is found, a
violation has occurred and it is not necessary to prove the motivation for
the disparate treatment.
In its only decision on EMTALA to date, the U.S. Supreme Court
has agreed that an “improper motive” is not a prerequisite for proving a vio-
lation of the statute.48 EMTALA has been a significant issue for years, and
the “cobra” has struck many hospitals and physicians. Its venom is always
painful,49 especially given ambiguities in the statute and the fact that a vio-
lation can subject the offender to a civil fine of up to $50,000 and possi-
ble exclusion from Medicare. (The fine, incidentally, would not be covered
by standard insurance.)

Duty to Exercise Reasonable Care

Liability and Negligence

EMTALA considerations aside, there is a long-standing and well-accepted
common-law rule that once care has begun there is a duty to exercise reason-
able care under the particular facts and circumstances. The rule clearly applies
to both physicians and hospitals. The slightest act of aid to the patient may
trigger the application of this judicial doctrine. To illustrate, consider Bour-
geois v. Dade County, in which the police brought an unconscious patient to
the hospital.
The physician on emergency call conducted only a cursory examina-
tion without benefit of x-rays and decided that the patient was intoxicated.
With the doctor’s approval the patient was then removed to jail, where he
died. It was later established that the patient had been suffering from broken
ribs that had punctured his lung. The issue of negligence was one for the jury
to decide.50
Many other cases have involved same principles and have resulted in
findings of liability. There is no need to discuss all these decisions in detail
here, but the reader should be aware of such other important cases as Jones
v. City of New York Hospital for Joint Diseases,51 New Biloxi Hospital v. Fra-
zier,52 and Methodist Hospital v. Ball.53 In all three cases the facts were fun-
damentally the same: victims of violence or accident were accepted into the
emergency department, and the hospital staff failed to exercise reasonable
care in diagnosing and treating them.
In Jones an intern of a voluntary hospital did no more than clean and
dress a patient’s stab wounds before ordering a transfer to a city hospital.
 C h a p t e r 8 : E m e rg e n c y C a re 233

The delay caused the patient’s death. In Frazier and Ball the patients were
unattended for 45 minutes and an hour, respectively; were given minimal
attention and diagnosis from hospital nursing and medical staff; and then
were transferred to other institutions with adverse results. These cases
emphasize the legal and moral necessity of exercising reasonable care in mak-
ing a diagnosis and deciding the course and place of treatment.54 They also
show that it is essential for hospital employees to determine which patients
need immediate attention. Delay cannot be excused because others were
being treated.55
A healthcare provider can be liable for reasons other than the negligence
of hospital physicians. This fundamental principle is well illustrated by a South
Dakota case, Fjerstad v. Knutson.56 An intern (who was not a licensed physi-
cian) was on duty in the hospital’s emergency department. He examined the
patient, ordered a blood test and throat cul-
ture, and gave a prescription for an antibi-
otic. Unable to reach the on-call physician,
The Law in Action
the intern then released the patient, who
died the following morning from asphyxia “It was the policy of the hospital not
caused by a blocked trachea. In the case to release emergency room patients
against both the intern and the hospital, the until the on-call physician or the
patient’s local doctor had been con-
trial court instructed the jury that the hospi-
tacted. Interns were to initiate a course
tal could not be held liable unless the intern of treatment only in emergencies, and
was found negligent. The jury’s verdicts they were not to prescribe drugs with-
were for both defendants, but the plaintiff’s out consulting a licensed physician.
appeal succeeded to the extent of obtaining …[T]he separate liability of Sioux
a new trial against the hospital. Valley Hospital was not properly sub-
mitted to the jury.
The judge’s instruction to the jury
… [T]he evidence of the hospital’s
was wrong. The appellate court observed breach of its own standards is suffi-
that the jury would have been justified in cient to create a jury issue.
finding the hospital negligent, even if the The failure to have an emergency
intern had not been negligent, because of room doctor available and failing to
its failure to have a physician available for consult with him violated the hospi-
tal’s own standard for treatment.”
consultation with the emergency depart-
ment staff. The failure was a violation of the —Fjerstad v. Knutson
institution’s own standards, which required 271 N.W.2d 8, (S.D. 1978)
interns to contact the on-call physician
before treating emergency patients and
before prescribing drugs. Such alleged
breaches were sufficient to create an issue for a jury (see The Law in Action).
Further, on the question of proximate cause, the plaintiff had presented
expert testimony at trial establishing that a person with the decedent’s symp-
toms should have been hospitalized and that his life could probably have
been saved.
234 The Law of Healthcare Administration

Hospital Admissions and Transfers

Obviously not all emergency department patients need to be (or can be)
admitted to the hospital. Transfer to another hospital is justified when the
patient’s condition has been stabilized or otherwise meets the standards of
EMTALA. Indeed, a hospital is under a positive duty to transfer a patient to
another institution if it does not have the appropriate facilities and staff to
care for the patient properly.57 The transferring institution also has a duty to
forward, with the patient, the diagnosis and other appropriate medical infor-
mation, and the receiving hospital has a duty to obtain this information.58
As these cases demonstrate, patients presenting themselves at a hospi-
tal’s emergency department should never be turned away until they have
been seen and examined by qualified healthcare personnel, who should deter-
mine the seriousness of the illness or injury and then order admission, a
return home, or a transfer to another facility, depending on the circum-
stances. Undue delays should not be tolerated. These policies should be
stated clearly in written rules that hospital personnel and emergency depart-
ment personnel can readily carry out. Because ignoring or violating written
rules can be evidence of negligence, it is extremely important that established
hospital policies be followed meticulously once they are expressed in writing.
It is also important to comply fully with the standards of emergency
care promulgated by public and private agencies and professional groups.
Among the standards issued by public agencies are the rules and regulations
of state licensing agencies. A viola-
tion of these regulations could be
Legal Brief
evidence of negligence. Standards
established by private agencies such
Governmental regulations, the standards of profes-
sional associations, and a hospital’s own policies as the Joint Commission have the
and medical staff bylaws can be evidence for a jury same legal implications (see Legal
to consider in a lawsuit. 59 Brief). For example, the Joint Com-
mission stresses initial and ongoing
assessment of a patient’s need for
care. This is especially so at the
patient’s first point of contact, which is often the emergency department.
This means that qualified practitioners must assess all aspects of the patient’s
condition, including her “physical, cognitive, behavioral, emotional, and psy-
chosocial status” and must consider such additional factors as physical disabil-
ities, language barriers, and vision or hearing impairments.60
A medical record must be maintained for every emergency patient and
incorporated into the permanent hospital record. A plan for emergency care
must exist, and no patient whom the hospital is capable of properly caring for
should be arbitrarily transferred to some other institution. Medicare’s “Con-
ditions of Participation for Hospitals” also contain standards for emergency
care similar to those promulgated by the Joint Commission.
 C h a p t e r 8 : E m e rg e n c y C a re 235

In addition, professional standards re-

quire written medical records for all patients
The Law in Action
seen in the emergency department, including
those not formally admitted to the hospital. In a case I handled in the Navy, a mili-
Not only are such records mandatory in the tary physician saw a patient in the
emergency department and sent him
interest of adequate medical care, but the
home, where he died. At issue in the
hospital may also be called on later to docu- case was what “discharge instructions”
ment in the courtroom the standards of care the doctor gave the patient and family
rendered to a particular patient, in which when the patient was released. (Dis-
event a medical chart is indispensable (see charge instructions include advice
The Law in Action). Records should include about what signs and symptoms to be
aware of if the patient’s condition does
the instructions for continuing care given to
not improve.)
the patient at discharge and the information The physician presented the record
furnished to an institution or physician to from the emergency department files,
whom the patient is referred. which showed detailed directions to be
alert for exactly the types of symptoms
the patient showed after he returned
home. Unfortunately for him, the doc-
Staffing the Emergency tor forgot that the record was written
Department on self-duplicating (“NCR paper”)
forms and that the duplicate copy was
All of the foregoing suggests that the legal filed in the patient’s outpatient chart.
duty of reasonable care owed to emergency The copy showed no discharge instruc-
patients mandates a well-organized depart- tions at all.
Not only was the case lost, but the
ment; staffed with qualified personnel; and
physician was disciplined severely.
equipped with the physical means of ensur-
ing prompt diagnosis, stabilization, treat-
ment, and referral.61 Persons in charge of
the emergency department must be an integral part of the organization and
must be accountable for the quality of care. Ultimately the governing body of
the hospital is responsible for the professional standards of the emergency
department, just as it is responsible for other clinical standards of the institu-
tion.62 Medical staff privileges must be delineated for each emergency depart-
ment physician, as they are for those in other departments.
For hospitals of any significant size, providing coverage in the emer-
gency department with just on-call physicians is asking for trouble. When
physicians are only on call, there is too much opportunity for error in diag-
nosis and delay in treatment, both of which lead to unfortunate situations
and increase liability problems.
It is ironic that liability is made more likely by the trend of special-
ization in medical practice. Emergency medicine has become a specialty of
its own. Many specialists in other disciplines are not competent to deal with
emergency cases and should not be on emergency department duty. Nei-
ther should interns, physicians’ assistants, and others who lack training in
236 The Law of Healthcare Administration

emergency medicine. Hospitals that wish to

furnish full-scale emergency services should
The Law in Action
have a department with a full-time staff of
In one hospital, all physicians took licensed and certified physicians, nurses, and
turns rotating through the emergency other personnel trained to handle emergency
department. A psychiatrist was staffing
cases (see The Law in Action).
the emergency department one night
when an obviously intoxicated woman Hospitals have several alternatives
was brought in complaining of for staffing the emergency department. In
headaches and neck pain after a fall at most states, not-for-profit institutions may
home. The psychiatrist dismissed her employ doctors directly, with the “corpo-
story as the ramblings of a besotted rate practice of medicine” rule having been
crock and sent her home. As a result
abolished in most jurisdictions. (The prohi-
of an undiagnosed neck fracture, the
patient suffered permanent paralysis. bition on the corporate practice of medi-
When asked why he did not order cer- cine was announced many years ago as a
vical x-rays, the doctor—unhappy to means of discouraging commercialization
have been given emergency depart- and exploitation of the medical profession
ment call in the first place—replied, and to emphasize that the physician’s indi-
“I’m a psychiatrist. I don’t look for
vidual loyalties belong solely to the patient.
anything below here,” pointing to his
eyebrows. The lawsuit was settled, of It was developed, however, in the context
course. of the private, profit-making corporation
Although psychiatrists are MDs, this and is believed to have little or no relevance
anecdote from my experience is a to modern not-for-profit hospitals. In those
reminder that not all MDs are qualified few states that adhere to the “corporate
to serve in the emergency department.
practice of medicine” doctrine, or when an
alternative to salary is desired, a fee-for-
service arrangement can be used.)
More typical than direct employment of emergency department physi-
cians is a contractual arrangement in which a physician corporation or part-
nership undertakes to provide full-time emergency department coverage. By
entering into such an arrangement, the hospital must not abdicate its ulti-
mate responsibility for the quality of healthcare. The contract must provide
guidelines for full-time coverage, supervision of hospital nurses and house
staff, maintenance of equipment and facilities, billing, and referral of patients.
The document must also specify the duration of the arrangement and provi-
sions for renewal. Above all, the medical staff of the hospital must be involved
in monitoring the standards of practice in the emergency department and
delineating clinical privileges, even when service is contracted to an inde-
pendent group of physicians. This medical staff function must be clearly artic-
ulated in the contract, and the emergency department physicians should be
required to carry adequate malpractice insurance and agree to indemnify the
hospital if malpractice judgments arise from their negligence.
The financial arrangements between the hospital and the contracting
group may legally allow two charges to the patient: one for hospital services
 C h a p t e r 8 : E m e rg e n c y C a re 237

and another for the physician’s service. The group may bill the patient directly
or assign the account to the hospital for collection.

Good Samaritan Statutes

Most states have statutes commonly called “Good Samaritan laws.” From the
public policy viewpoint their purpose is to encourage physicians and other pro-
fessionals to extend aid to strangers at the scene of an emergency. The essence
of the legislation provides that a physician, registered nurse, or other health-
care professional—or in some statutes, “any person”—is not to be held liable
for ordinary negligence or malpractice when extending aid at an emergency
scene, as long as the aid is extended in “good faith” and without “gross neg-
ligence” or “willful and wanton misconduct.”63 Many statutes require that the
aid be extended “gratuitously.” Although the applicability of each statute to
designated persons and to particular situations depends on its precise language,
several general observations are useful.
First, the statutes were essentially unnecessary. Few if any Good Samar-
itan (“accident by the side of the road”) situations have ever come to trial.
The laws were passed anyway at the urging of medical lobbying groups. Sec-
ond, many of them only apply to certain people. Professionals or laypersons
not specifically designated in the relevant local statute are not protected by
the legislation; they are held to the well-recognized common-law rule that
the beginning of aid raises the duty to exercise reasonable care under all the
facts and circumstances. Third, although some of the statutes grant immu-
nity to professionals licensed to practice in other jurisdictions, others do
not. Thus, they consider such individuals to be laypersons when they ren-
der aid outside the state of their licensure. Fourth, most of the original
Good Samaritan laws did not apply to ambulance attendants or emergency
service personnel, although many jurisdictions now have an entirely sepa-
rate statute granting immunity to such persons.64 Similar special legislation
for emergency medical care was adopted in many states in response to a
1973 federal law that offered financial incentives and otherwise encouraged
the development of local and regional emergency services by professional
paramedics working outside a hospital or other medical care institution.65
The federal statute has since been repealed, but the state Good Samaritan
laws remain.
Fifth, as noted, very few lawsuits are on record against Good Samaritans
who were allegedly negligent in aiding accident victims. Moreover, the refusal of
a physician or another professional person to assist at the scene of an emergency
has never posed a serious threat of legal liability as long as the person was not
already under an established duty to act.66 (The moral implications are beyond
the scope of this text, obviously.) In short, the fear of lawsuits that prompted the
238 The Law of Healthcare Administration

enactment of the Good Samaritan legislation was unfounded. Moreover, “rea-

sonable care” in an emergency outside of a hospital would be a rather minimal
requirement because the common law would not expect a physician, for
instance, to possess life-saving equipment or drugs at the scene of a highway
accident or when treating a victim of sudden illness. Finally, most of these
statutes as enacted at present do not specify where the “emergency care” must
take place to qualify for immunity from common-law liability. There has been
some uncertainty in various states regarding the applicability of their statutes to
emergencies that arise in hospitals. In some jurisdictions either the Good Samar-
itan statute or one covering emergency medical service specifically extends
immunity to professional individuals who aid during an in-hospital emergency
as long as the person had no preexisting duty to respond.67 Hence, in a Michi-
gan case a hospital staff physician not on call could invoke the statute when he
was called to attend an accident victim at the hospital.68 Similarly, courts have
interpreted California’s statute as granting immunity to physicians who volun-
tarily provide services to hospitalized patients in an emergency.69
When there is a preexisting duty to respond to a call for services in an
emergency, the Good Samaritan legislation does not apply. In litigation involv-
ing the Michigan statute, the court held that the hospital was not granted any
immunity when a code-blue team transporting an unconscious person allegedly
permitted the patient’s unsupported head to strike a guardrail.70 Because there
was a preexisting hospital–patient relationship, the statute did not abrogate the
usual common law with respect to hospital liability. Furthermore, a leading Cal-
ifornia case, Colby v. Schwartz, held that two surgeons on a hospital’s emergency
call panel could not claim immunity under the statute because they had a duty
to respond and thus were not “volunteers.”71
Extending immunity to in-hospital “emergency” treatment was one of
several approaches to address issues relating to the costs and burdens of malprac-
tice litigation; however, many argue that this is not the proper solution from the
viewpoint of public policy. Further, the limited applicability of the statutes, their
wide variation from state to state, and their many ambiguities have made the le-
gislation more counterproductive than productive. An alternative approach
would be to enact legislation requiring all persons, whether professional or lay,
to render aid to any stranger in peril, as has been done in some states and in for-
eign countries that operate under the Napoleonic Code (the system based on
French law). A grant of immunity from tort liability, in the absence of gross neg-
ligence or wanton misconduct, would then be justified.

Chapter Summary

This chapter reviews the common-law rule about the duty to provide emer-
gency care and its numerous exceptions, both judicial and statutory. It provides
 C h a p t e r 8 : E m e rg e n c y C a re 239

considerable detail on the federal statute EMTALA, which currently sets the
standard for emergency department personnel’s review of patients’ condi-
tions, and it lays out various examples of liability for failure to meet those
standards. The chapter concludes with a brief discussion of Good Samaritan
statutes, which are probably unnecessary in the first place but have given
some medical personnel a measure of emotional comfort.

Chapter Discussion Questions

1. What did the common law consider a bystander’s duty to come to the aid
of a person in need? How, if at all, is that duty different today? How might
it differ depending on who the bystander is?
2. Describe a hospital’s duty to a person who comes to the emergency depart-
ment requesting treatment. Does it matter whether the person is indigent?
3. In the Arrington opinion regarding what it means when someone “comes to
the hospital,” the court of appeals wrote approvingly of the U.S. Department
of Health and Human Services’s (HHS) position. HHS regulation states that
it would “defeat the purpose of EMTALA if we were to allow hospitals to
rely on narrow, legalistic definitions of ‘comes to the emergency department’
or of ‘emergency department’ to escape their EMTALA obligations.” Which
is the more “legalistic” interpretation—that of the regulation and the court,
or that of one who would read the plain meaning of the statute? The case is
an excellent example of how seemingly simple language can create serious
problems of interpretation. How might you have written the statute to avoid
the kinds of ambiguities seen in these cases?
4. Is Arrington the work of “activist judges” who are “making law,” as some
who think in sound bites often claim about decisions they do not like?
5. What are the liability hazards of requiring all members of the medical staff
to take emergency department duty?
6. What effects have Good Samaritan statutes had on the duty to render aid
in an emergency?

Notes
1. 42 U.S.C. § 1395dd.
2. Ill. Ann. Stat. ch. 1111/2 §§ 86, 87 as amended (Smith-Hurd Supp. 1987).
3. Pa. Stat. Ann. tit. 35, § 435 (Purdon 1977).
4. N.Y. Pub. Health Law § 2806(1)(b) (McKinney 1985). Tennessee also requires all general hospitals
to provide emergency service. Tenn. Code Ann. § 68-39-301 as amended (1983).
5. 440 S.W.2d 104 (Tex. Ct. Civ. App. 1969).
6. Childs v. Greenville Hosp. Auth., 479 S.W.2d 399 (Tex. Ct. Civ. App. 1972).
7. 119 Ga. App. 626, 168 S.E.2d 336 (1969).
8. 447 S.W.2d 558, 35 A.L.R.3d 834 (Mo. 1969).
9. 22 Ariz. App. 611, 529 P.2d 1205 (1974), aff’d , P.2d 1329 (1975).
240 The Law of Healthcare Administration

10. Thompson v. Sun City Community Hosp., Inc., 141 Ariz. 597, 688 P.2d 605 (1984).
11. See, for example, Cleland v. Bronson Health Care Group, Inc., 917 F.2d 266 (6th Cir. 1990);
Gatewood v. Washington Healthcare Corp., 933 F.2d 11037 (D.C. Cir. 1991); Brooker v. Desert
Hosp. Corp., 947 F.2d 412 (9th Cir. 1991); Collins v. DePaul Hosp., 963 F.2d 303 (10th Cir.
1992); Summers v. Baptist Medical Ctr. Arkadelphia, 91 F.3d 1132 (8th Cir., 1996).
12. 42 U.S.C. § 1395dd(c)(1)(A).
13. 42 U.S.C. § 1395dd(c)(2).
14. 42 U.S.C. § 1395dd(h).
15. 42 U.S.C. § 1395dd(b)(1).
16. 42 U.S.C. § 1395dd(a).
17. Supra note 11.
18. 42 U.S.C. § 1395dd(d).
19. See, for example, Bosler and Davis, “Is EMTALA a Defanged Cobra?” 51 J. Mo. Bar. 165
(May/June 1995).
20. Id. at 167–68.
21. Id. at 168 (footnotes omitted).
22. “One possible meaning, perhaps the most natural one, would be that medical screening examina-
tions must be correct, properly done, [and] if not perfect, at least not negligent. It would be easy
to say, for example, simply as a matter of the English language, that a negligently performed
screening examination is not an appropriate one.” 91 F.3d at 1138.
23. 42 U.S.C. § 1395dd(b)(1).
24. 91 F.3d at 1140.
25. 91 F.3d at 1141.
26. 933 F.2d 1037 (D.C. Cir. 1991).
27. Id. at 1041. During consideration of the EMTALA bill Senator Edward M. Kennedy commented,
“Some states have laws which ensure that no emergency patient is denied emergency care because
of inability to pay. But 28 states have no such law.” 131 Cong. Rec. 28,569 (1985).
28. Bosler and Davis, supra note 19 at 168.
29. Id. The authors also argued that because of EMTALA hospitals should adopt “standardized treat-
ment protocols” for use in emergency departments. They cite as support for this proposition a
1990 standard of the Joint Commission on Accreditation of Healthcare Organizations, which
indeed called for written emergency procedures. The Joint Commission’s Accreditation Manual
for Hospitals (CC.6 [1996]) is revised annually, however, and the current manual does not contain
the 1990 standard. Instead, the relevant standard today states, “The hospital provides for referral,
transfer, or discharge of the patient to another level of care, health professional or setting based on
the patient’s assessed needs and the hospital’s capacity to provide the care.” Although written pro-
tocols are still favored and are something an accreditation team will look for, they no longer are an
absolute Joint Commission requirement.
30. 91 F.3d at 1140–41.
31. See, for example, Bryant v. Redbud Community Hosp. Dist., 289 F.3d 1162 (9th Cir. 2002);
Phillips v. Hillcrest Med. Ctr., 244 F.3d 770 (10th Cir. 2001); Guadalupe v. Agosta, 299 F.3d 15
(1st Cir. 2002).
32. “EMTALA is implicated only when individuals who are perceived to have the same medical condi-
tion receive disparate treatment; it is not implicated whenever individuals who turn out in fact to
have had the same condition receive disparate treatment. The Act would otherwise become indis-
tinguishable from state malpractice law.” Summers v. Baptist Medical Ctr. Arkadelphia, 91 F.3d
1132, 1147 (1996).
33. 42 U.S.C. § 1395dd(a) (emphasis added).
34. 42 U.S.C. § 1395dd(b)(1) (emphasis added).
35. Helton v. Phelps County Regional Medical Ctr., 794 F. Supp. 332 (E.D. Mo. 1992)—denying a
motion to dismiss for failure to state a claim.
36. Smith v. Richmond Memorial Hosp., 416 S.E.2d 689 (Va. 1992).
37. Supra note 29.
38. 42 C.F.R. § 489.24(b) (1995).
39. Id.
40. Id. In Johnson v. University of Chicago Hosps., 982 F.2d 230 (1992), an infant was being trans-
ferred to a hospital by a Chicago Fire Department ambulance. When the ambulance was only five
 C h a p t e r 8 : E m e rg e n c y C a re 241

blocks away, the hospital advised the ambulance by radio that its emergency department was over-
crowded and that it should go instead to a certain other hospital. The Seventh Circuit held that the
patient had not come to the emergency department within the meaning of EMTALA.
41. 42 C.F.R. § 489.24(b).
42. Whether the law would apply to a hospital-owned clinic on a separate campus is an open question. In
King v. Ahrens, 16 F.3d 265 (8th Cir. 1994), the court held that EMTALA does not apply to a pri-
vate physician practicing in his privately owned clinic. Because hospitals today frequently own clinic
facilities staffed with employed physicians, this issue will undoubtedly be litigated in the next few years.
43. 237 F.3d 1066 (9th Cir. 2001).
44. See, for example, Evitt v. University Heights Hosp., 727 F. Supp. 495 (S.D. Ind. 1989) and Steward
v. Myrick, 731 F. Supp. 433 (D. Kan. 11990).
45. 917 F .2d 266 (6th Cir. 1990).
46. 917 F.2d at 272.
47. See, for example, Bosler and Davis, supra note 19.
48. Roberts v. Galen of Virginia, Inc., 525 U.S. 249 (1950).
49. See discussion of penalties at note 18.
50. 99 So. 2d 575, 72 A.L.R.2d 391 (Fla. 1957).
51. 134 N.Y.S.2d 779 (Sup. Ct. 1954), modified, 286 A.D. 825, 143 N.Y.S.2d 628 (1955).
52. 245 Miss. 185, 146 So. 2d 882 (1962).
53. 50 Tenn. App. 460, 362 S.W.2d 475 (1961).
54. See also Barcia v. Society of N.Y. Hosp., 39 Misc. 2d 526, 241 N.Y.S.2d 373 (Sup. Ct. 1963)—inade-
quate examination and a decision by a hospital intern in the emergency department to send the
patient home before results of throat culture were known; Heddinger v. Ashford Memorial Commu-
nity Hosp., 734 F.2d 81 (1st Cir. 1984)—had medical standards been followed, patient’s finger
would not have required amputation; jury verdict awarding $175,000 was justified; Tatrai v. Presbyte-
rian Univ. Hosp., 439 A.2d 1162 (Pa. 1982)—a hospital employee being treated in employer’s emer-
gency department has cause of action in negligence; workers’ compensation is not exclusive remedy.
55. To collect damages, of course, the plaintiff must prove, usually by expert testimony, that a delay
in diagnosis and treatment, or a delay occasioned by transfer to another institution, was the
proximate cause of death or a worsened condition. See, for example, Ruvio v. North Broward
Hosp. Dist., 186 So. 2d 45 (Fla Dist. Ct. App. 1966), cert. denied, 195 So. 2d 567 (Fla.
1966); Cooper v. Sisters of Charity of Cincinnati, 27 Ohio St. 2d 242, 272 N.E.2d 97
(1971)—although a physician was negligent in not adequately examining a minor struck by a
truck, no proof was shown that an appropriate examination would have saved the patient;
hence, neither the physician nor the hospital was liable. Accord Rosen v. Parkway Hosp., 265
So. 2d 93 (Fla. Dist. Ct. App. 1972). Cf. Martin v. Washington Hosp. Center, 423 A.2d 913
(D.C. App. 1980)—expert testimony is not required on issue of proximate cause when jury has
enough information to enable factual inferences; jury’s verdict for plaintiff was justified when
hospital emergency personnel released a patient suffering anxiety caused by drug abuse who
died in an automobile accident 12 hours later; Valdez v. Lyman-Roberts Hosp., Inc., 638
S.W.2d 111 (Tex. Ct. App. 1982)—when evidence creates a reasonable inference that a
patient’s condition could have been stabilized with proper care, a jury question is presented on
the issue of proximate cause.
56. 271 N.W.2d 8 (S.D. 1978).
57. Carrasco v. Bankoff, 220 Cal. App. 2d 230, 33 Cal. Rptr. 673, 97 A.L.R.2d 464 (1963).
58. Mulligan v. Wetchler, 39 A.D.2d 102, 332 N.Y.S.2d 68 (1972).
59. Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d 326, 211 N.E.2d 253, 14 A.L.R.3d
860 (1965).
60. See Joint Commission, Comprehensive Accreditation Manual for Hospitals, at PC-12 through PC-13
(2007).
61. A survey conducted in 1983 by the Institute for Health Policy Studies at the University of California
Medical School and the American Hospital Association revealed that 96.5 percent of 3,788 hospitals
responding to the survey provide emergency services. The vast majority of these furnish care only
within the institution, although the number of freestanding facilities operated by hospitals is increas-
ing as a consequence of the current competitive environment. Ninety percent of the hospitals furnish-
ing services have a formally organized emergency department. “Survey Reflects Emergency Care
Changes,” Hosps., Oct. 1, 1984 at 65.
242 The Law of Healthcare Administration

62. Darling, supra note 59.

63. For example, Michigan’s statute protects a physician, registered nurse, or licensed practical nurse from
liability, even if care is rendered nongratuitously at the scene of an emergency, if no gross negligence or
willful and wanton misconduct occurred and no previous patient relationship existed. Mich. Comp.
Laws Ann. §§ 691.1501–.1502 (West 1987).
64. See, for example, Mich. Comp. Laws Ann. § 333.20737 (West Supp. 1987); see also Ohio Rev. Code
Ann. § 3303.21 (Baldwin 1986)—a licensed emergency medical technician or paramedic is not civilly
liable for administering care, unless conduct was willful or wanton; Ill. Rev. Stat. ch. 111 1/2, § 5517
(1987)—any person, agency, or governmental body authorized by this act who provides life support
services in good faith in normal course of duties or in an emergency is not liable unless conduct was
willful or wanton; N.J. Stat. Ann. § 2A:53A-12 (West Supp. 1987)—no member of volunteer rescue or
emergency squad, including members of National Ski Patrol, shall be liable if services rendered in good
faith and conduct are not willful or wanton; immunity does not extend to operation of motor vehicle.
65. Emergency Medical Services Systems Act of 1973 (Pub. L. No. 93-145), codified as 42
U.S.C. § 300d-d-3 (repealed Oct. 1, 1981).
66. Nevertheless, Idaho considered it necessary to provide affirmatively that a physician shall not be
required to furnish medical care and shall not be liable for refraining. Idaho Code § 39-1391c (1985).
67. Mich. Comp. Laws § 691.1502 (West 1987). See also Haw. Rev. Stat. § 663-1.5(c) (1985).
68. Matts v. Homsi, 106 Mich. App. 563, 308 N.W.2d 284 (1981).
69. McKenna v. Cedars of Lebanon Hosp., 93 Cal. App. 3d 282, 155 Cal. Rptr. 631 (1979)—a resident
physician is not on call and not a member of hospital rescue team; Burciaga v. St. John’s Hosp., 232
Cal Rptr. 75 (1986)—a staff pediatrician responded to a medical emergency by treating a newborn
infant at the request of obstetrician attending the mother; see also Markman v. Kotler, 52 A.D.2d 579,
382 N.Y.S.2d 522 (1976)—Good Samaritan statute applied on facts even though a previous
doctor–patient relationship existed.
70. Hamburger v. Henry Ford Hosp., 91 Mich. App. 580, 284 N.W.2d 155 (1979).
71. 78 Cal. App. 3d 885, 144 Cal. Rptr. 624 (1978); See also Gragg v. Neurological Assocs., 152 Ga.
App. 586, 263 S.E.2d 496 (1979)—a surgeon who responded to an emergency in the hospital’s oper-
ating room is not protected by Good Samaritan statute; Guerrero v. Copper Queen Hosp., 112 Ariz.
104, 537 P.2d 1329 (1975)—Good Samaritan law does not apply to hospital staff.
 CHAPTER

CONSENT FOR TREATMENT AND

9
WITHHOLDING CONSENT

After reading this chapter, you will

• understand the two basic types of consent for medical treat-

ment and when each is used.
• recognize when the concept of “implied consent” comes into
play.
• know how to judge what information must be given to a
patient (or personal representative) for a purported consent to
qualify as “informed.”
• be able to distinguish between the physician’s and the hospi-
tal’s role in obtaining informed consent.
• be aware of the difficulties inherent in decisions to forgo
life-sustaining treatment for minors and incompetent
adults.
• have greater empathy for those involved in decisions to with-
draw artificial nutrition and hydration from a person in a per-
sistent vegetative state.
• have a greater appreciation for the importance of living wills
and healthcare powers of attorney.

The United States is usually enthralled with the concept of individual rights,
such as the rights to free speech, a fair trial, privacy, freedom of religion, due
process, and equal protection of law. All these and many more public policy
issues are commonly argued using “rights” language: “I/we have a right to
(or not to) [insert your cause here].”
Rights language has a strong, popular appeal. It hearkens to our War for
Independence, the days when heroes like Washington, Jefferson, and Adams
founded this country on the “self-evident” truths of “certain unalienable

243
244 The Law of Healthcare Administration

rights.” Rights language also has a practical advantage: convince someone

that what you want is a right (especially a constitutional right), and you have
won the argument. Rights language is absolute; it is not concerned with
such niceties as cost, practicality, the common good, or the reasonableness
of others’ viewpoints.
The subject of this chapter is strongly affected with rights language.
The patient (or someone legally authorized to act for the patient) has a fun-
damental right to decide whether to permit nonemergency medical or sur-
gical treatment, and any unauthorized intentional touching of the patient’s
person is battery, even if the person touched is not harmed in any way. (The
law of assault and battery is discussed in more detail in Chapter 2.) The clas-
sic judicial statement of this general principle was written by Justice Car-
dozo in Schloendorff v. Society of New York Hospital:

Every human being of adult years and sound mind has a right to deter-
mine what shall be done with his own body; and a surgeon who performs
an operation without his patient’s consent commits an assault for which
he is liable in damages. This is true except in cases of emergency, where
the patient is unconscious and where it is necessary to operate before
consent can be obtained.1

Battery must be distinguished from medical malpractice (the fail-

ure to adhere to the standards of the medical profession). Essentially,
malpractice is the lack of due care under the circumstances. In contrast,
battery is an intentional tort that can occur even if all established profes-
sional standards have been followed. All that is required is a touching
that has not been consented to. Lack of care is not relevant. Both the
torts of battery and of malpractice may result, however, from a failure to
obtain proper consent.
Court decisions have emphasized that in the malpractice arena, an
effective consent must be an informed consent. To grant an informed
consent the patient must possess reasonably complete information about
the proposed treatment, its risks and benefits, the acceptable alternative
methods of treatment, and the consequences of not consenting. Without
this information, the consent is not “informed” and is ineffective. A
physician’s failure to provide this information would result in liability if
an untoward result occurs.

Types of Consent and Recommended Procedures

Legally sufficient consent can be either express or implied. The difference

between an express consent and an implied consent is in the method by
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 245

which the patient, or the one authorized to consent, manifests agreement.

Express consent is made known by words—oral or written—while implied
consent is manifested by acts that show that the patient has agreed to the
treatment. To be sufficient, both types of consent require that the person
be legally competent to give consent and possess knowledge and under-
standing about the medical or surgical treatment that is about to occur.
Express consent need not be in writing: spoken consent, if proved, is ade-
quate. Moreover, voluntary submission to routine treatment is usually
adequate to protect the physician, nurse, or hospital from allegations of
nonconsensual touching. To illustrate, a routine physical examination of a
mentally competent adult patient in a physician’s office need not be forti-
fied by an express consent (although it usually is anyway).
When physicians or hospitals rely on an oral consent or implied
consent, at least two problems of proof arise. First is the question of
whether the patient, or the one authorized to consent, in fact consented
to any treatment at all. Consent may be difficult to prove if reliance must
be placed on an alleged oral or implied consent. Second, even if consent
of some sort is established, a further question is whether the one consent-
ing had enough information about the treatment to make a reasonable
decision.
Even when a written consent is obtained, subsequent proof by the
patient that he lacked a basic understanding of what in fact took place may
negate the written consent. Hence, one should never use a written con-
sent purporting in very general language to authorize the surgeon or
physician to do any procedure the physician deems necessary. Such a
vague, general consent form is no better protection for the physician and
the hospital than simple reliance on voluntary submission.
To illustrate, in Rogers v. Lumberman’s Mutual Casualty Company 2
the patient signed a general consent form. The defendant surgeon success-
fully performed a hysterectomy. Subsequently the patient showed that she
thought she was consenting to an appendectomy and had not understood
the true nature of the operation. There was no evidence of an emergency,
so the generalized consent (although written) was worthless. That the sur-
gery was skillfully performed and that a hysterectomy was medically advis-
able were immaterial, because these reasons do not justify proceeding
without consent. In similar fashion, surgery by a person other than the
surgeon named by the patient constitutes battery by the “ghost” surgeon,
and the surgeon who failed to perform the operation could be charged
with malpractice.3
Physicians and hospitals are advised to use two different consent
forms. The first should be obtained at the time of the patient’s admission
to the hospital, perhaps by the person processing the admission. It should
recite simply that the patient, or one authorized to act, consents to routine
246 The Law of Healthcare Administration

hospital care and nursing services (e.g., taking of vital signs, weight, med-
ical history). The form should name the attending physician, and the
wording should recognize that others—nurses and laboratory technicians,
for instance—will touch the patient during hospitalization. The form
should recite that no guarantees of cure have been made to the patient and
that the nature of the basic hospital care to be rendered is fully under-
stood.
In addition to the consent form obtained at the time of admission, the
hospital should obtain a separate, special
consent form whenever any surgery is
The Law in Action undertaken or special diagnostic procedures
are indicated. The special consent form
An interpreter is not one who merely should be used whenever the in-hospital
restates the spoken word from one lan-
procedure or treatment is something more
guage to another. She must understand
and convey the full meaning of both than routine hospital care. The signature on
sides of the conversation; this includes the special consent form should be
medical terminology, body language, obtained only after the attending physician
idioms, slang, and even the culture of or a resident physician associated with the
both parties. case has had a clear conversation with the
In one session an obstetrician was
one giving consent, has conveyed all neces-
explaining to a non–English-speaking
woman how to give some medicines to sary information, and has answered all of
her newborn after they left the hospi- the patient’s questions. The informed-con-
tal. The woman was from a culture sent conversation must be held in a lan-
that taught women always to be guage the patients can understand. This
respectful of authority figures (in this means that if the patient or family has lim-
case a male physician—in a white
ited proficiency in English or uses sign lan-
coat, no less). Each time the doctor
asked her (through the interpreter) guage, an interpreter must be employed
whether she understood, the mother (see The Law in Action).
nodded obligingly and said, “Yes.” But Nonphysicians must not conduct
it was obvious to the interpreter—who the informed-consent session. Because the
was from the same culture as the patient must fully understand the nature
woman—that she did not.
and extent of the proposed procedure, only
The interpreter stopped the conver-
sation and said, “Doctor, she’s saying a physician can properly communicate the
‘yes,’ but she doesn’t really have a clue information and answer the patient’s ques-
about what you’re saying.” The inter- tions. The physician must make note of the
preter recommended that they bring in conversation in the medical record and
the doctor’s female colleague to describe the patient’s level of understand-
explain the instructions to the new
ing.
mother. Somewhat abashed, the doctor
agreed and the colleague was able to Once the physician has discussed the
conduct this important patient-educa- matter, the consent form must be signed
tion session successfully, thus avoiding and witnessed. At a minimum the form
a potential disaster for all concerned. should (1) name the physician; (2) point
out that others will be involved in the
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 247

patient’s care; (3) list in lay terms the pro-

cedure(s) to be undertaken (see The Law in
The Law in Action
Action); (4) recite that the patient under-
stands; (5) recite consent to the administra- I once reviewed a form that said the
tion of anesthesia, if any, under the supervi- patient was consenting to a “bilateral
salpingo-oophorectomy.” How many
sion of a named physician or nurse; and (6)
laypeople know that this means the
state that the patient has received an expla- patient was going to have her ovaries
nation of the contemplated procedures. In and fallopian tubes removed and that
addition, the consent should explain that this would mean she could not have
unforeseen conditions sometimes arise and children?
that additional or different procedures may
be necessary. It should state that the patient
realizes this and consents to such additional or different procedures as may
be advisable in the physician’s judgment if the situation prevents the medical
personnel from getting a new consent.
A consent obtained by misrepresentation is no consent at all. More-
over, signatures obtained while the patient is under the influence of drugs
(for example, preoperative anesthesia) may be worthless if the patient is able
to show that he was unable to understand the consequences of the purported
consent.4
Hospitals and physician practices generally have consent forms avail-
able for their most common procedures and medical treatments. These forms
should be reviewed for clinical accuracy, legal sufficiency, and reading level.
They should also be translated into the most common non-English languages
spoken in the service area. Experience shows that a physician’s use of consent
forms like these has beneficial effects on the physician–patient relationship. It
improves rapport, gives the physician a sort of checklist for discussion with
the patient, helps ensure that the patient understands what is being said, and
gives some measure of protection from claims that the patient did not truly
consent. Tactful application of any technique that makes for better commu-
nication between doctor and patient is always encouraged. Proper consent
procedures are recommended primarily for that reason, not just as a matter
of legal formality.

Consent in Medical Emergencies

No consent is required in a medical emergency. In the absence of a compe-
tent refusal, the law presumes that consent would be given, and the lack of
consent will not justify a lawsuit based on assault and battery or negligence.
This rule applies to all patients, regardless of age, and is sometimes called
implied consent (although grammatically it should be “inferred” or “pre-
sumed” consent).
It is not always easy, however, to define a medical emergency. To jus-
tify medical treatment without consent, the defendant must show that the
248 The Law of Healthcare Administration

urgency of the situation made it impossible to obtain consent in a timely man-

ner. Because a conscious, competent adult is entitled to refuse even life-saving
care, proceeding to treat without consent is permitted only when patients or
those authorized to act for them are unable, because of the emergency situa-
tion, to express either approval or disapproval of the proposed treatment. Also,
“emergency” means a situation in which there is an immediate danger of death
or permanent impairment of health. A desire to treat quickly is not the same as
an emergency. If delaying treatment while consent is obtained would not
increase the hazards to the patient, the emergency is not sufficient to justify
treatment without consent.5 The Emergency Medical Treatment and Labor
Act provides a now well-established minimum definition of emergency:

A medical condition manifesting itself by acute symptoms of sufficient sever-

ity (including severe pain) such that the absence of immediate attention could
reasonably [be] expected to result in…placing the health of the individual (or
with respect to a pregnant woman, the health of the woman or her unborn
child) in serious jeopardy of serious impairment to bodily functions, or seri-
ous dysfunction of any bodily organ or part....6

Akin to the medical emergency, where treatment can proceed without

consent, is the discovery of unanticipated conditions during surgery. The
legal issue is whether the surgeon is justified in extending the surgery to cor-
rect the unanticipated or undiagnosed condition. Certainly, if the patient had
prohibited any extension of the procedure, then the surgeon must not per-
form any extension, even if life depends on it. Normally, however, there are
no specific instructions from the patient prohibiting extensions of surgery.
The traditional legal rule is that the surgeon must not engage in any exten-
sion of the contemplated procedure unless an unanticipated emergency con-
dition is found.7 Under this rule, in the absence of an intra-operative emer-
gency, the better procedure is to complete the original surgery and correct
the discovered condition at a later time.
Doing so, of course, subjects the patient to a second procedure and
the risks inherent in any surgery. Therefore, a few cases have adopted a more
generous legal rule: a surgeon may extend the originally contemplated sur-
gery whenever an unanticipated condition becomes evident during surgery
and makes it medically advisable to correct the condition immediately.8 This
concept is rather vague, and it should not be considered a license for the sur-
geon to proceed just because she feels like it. The courts will insist that the
advisability of proceeding be significant (a near emergency, perhaps). Medical
and surgical treatments remain essentially a matter for the patient to decide,
except for exceptional circumstances.
To avoid the risk of a court later holding that extension of surgery was
not justified, it is wise to include in the surgical consent form a statement that
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 249

surgeons may, in the exercise of their professional judgment, extend the ori-
ginally contemplated procedure to correct or alleviate unanticipated condi-
tions discovered during the course of the operation.9 Such language in the
consent form and the liberalized attitude of some courts are consistent with
common sense and good surgical technique. Patients should realize that a
precise diagnosis is often difficult to make prior to surgery, and physicians
should adequately explain to the patient the frequent advisability of surgical
extensions. With proper explanations of this kind before the surgery is begun,
the surgeon has little need to fear that a medically justified extension will pro-
duce a claim by the patient alleging treatment without consent.

The Healthcare Institution’s Role in Consent Cases

Most lawsuits alleging lack of consent are brought against the attending
physician. Any clinician could be the alleged wrongdoer, however; thus, all
individuals who have clinical responsibilities must be familiar with the law of
informed consent.
In cases alleging battery or negligence, the hospital or other institu-
tion can be liable on either of two theories: vicarious liability (respondeat
superior) or corporate negligence (both discussed in other chapters). When
the patient proceeds against the hospital on the theory of respondeat supe-
rior, he must establish that the individual committing the wrong was an
employee or agent of the hospital. In the hospital setting, all nonprofession-
als and most nurses, x-ray technicians, physiotherapists, resident physicians,
and other clinical personnel are normally employees rather than independent
contractors. The hospital is usually liable for their torts.10 Having established
that the individual committing the wrong was an employee, the patient must
also prove that the wrong was committed within the scope of employment.
This is done simply by showing that the tort was committed while furthering
the employer’s business.
In contrast, medical staff physicians are generally not employees of the
hospital but are independent contractors. Normally, therefore, under respon-
deat superior the hospital is not liable for lack of informed consent by a staff
physician.11 However, some courts have developed the theory of “ostensi-
ble” or “apparent” agency (discussed in Chapter 5) to justify holding the
hospital liable for the tort of one who is in fact an independent contractor.
This theory rests on the notion that the hospital has given the appearance
that a certain physician is in its employ, such as when the hospital contracts
with a group of emergency physicians to provide coverage for the emergency
department.
We have emphasized that consent must be “informed” and that hos-
pitals and physicians use different types of consent forms depending on the
250 The Law of Healthcare Administration

situation. The next issue is, how far must a hospital go in making certain that
its medical staff physicians are in fact obtaining informed consent from their
patients? If a hospital is to protect itself from liability for treatment without
consent, the hospital must, at a minimum, have policies and procedures relat-
ing to documentation of consent. Having adopted such rules, it must then have
procedures to ensure their enforcement.12 Someone on the hospital staff (an
operating room supervisor, for example) should be assigned responsibility for
checking the patient’s identity and making certain that no procedure is per-
formed without documentation of consent in the medical record. Hospitals
need not independently confirm that the physician has explained the contem-
plated treatment or procedure well enough to meet the legal tests of informed
consent (this is the physician’s responsibility), but they need to verify that the
documentation is present.13 If it is not, the procedure should be stopped.
In conclusion, as far as the doctrine of informed consent is concerned,
the hospital appears to perform its duty to the patient by making physicians
aware that they must properly inform patients and by insisting that adequate
written documentation of patients’ consent be placed in the medical chart.
The hospital, in other words, need not be an actual party to or participant in
a physician’s consent discussions, but if nursing or administrative staff of the
hospital know that sufficient consent was not given, then the hospital has a
duty to prevent the unauthorized treatment. Liability could follow from a
breach of this duty. (This is why most hospitals’ risk management depart-
ments prepare a consent form for most types of procedures performed in the
facility. The form contains detailed explanations of the risks, alternatives, and
other related matters based on the most recent medical literature.)

How “Informed” Must Informed Consent Be?

Because the patient is in control of her person, consent granted for medical
care or surgery must be “informed.” But how far must a physician go in the
informed-consent discussion?

Misrepresentation
There are three types of cases on this question. In the first type, the issue is
whether the physician has misrepresented the true nature of the treatment;
this can be considered an intentional tort (assault and battery or fraud).
Rogers v. Lumberman’s Mutual Casualty Company,14 discussed earlier in this
chapter, is an example. The doctor did not explain the true nature of the pro-
posed surgery and the reasons for it. The doctor–patient relationship cer-
tainly requires, at a minimum, full disclosure of the nature of the diagnosed
condition, all significant facts concerning the proposed surgery, and an expla-
nation of the probable risks involved.
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 251

Corn v. French illustrates a doctor’s intentional misrepresentation.15

After examining the patient, the physician recommended that she submit
to a “test” for a possible malignancy. The patient then asked her doctor if
he intended to remove her breast, and he apparently said no. She signed a
written consent form indicating that a “mastectomy” was to be per-
formed, but she did not know what that term meant. Clearly there was lia-
bility for an unauthorized operation, even absent proof of medical mal-
practice.

Lack of Information on the Consequences

The second type of case is based on the concept that the patient is entitled to
know the inevitable consequences of the contemplated surgery. For example,
in Bang v. Charles T. Miller Hospital,16 a patient expressly consented to a
transurethral resection of the prostate, but he was not told that because of
the particular circumstances, including his age and the possibility of infection,
this professionally acceptable surgical technique would likely render him ster-
ile. It did, and there was liability. (This case also stands for the proposition
that a patient is entitled to an explanation of the alternatives to a proposed
course of treatment. In this situation the surgeon should have explained to
the patient that there were other treatments that might prevent sterility but
might also entail a substantial risk of infection.)

Lack of Information on the Risks

The third and perhaps most difficult type of case involves the duty to disclose
the foreseeable risks of the proposed treatment. Two cases, Natanson v.
Kline17 and Mitchell v. Robinson,18 represent what has come to be known as
the reasonable doctor rule—the physician must disclose those risks that a rea-
sonable doctor would disclose under the circumstances.
In Natanson the physician recommended cobalt radiation therapy fol-
lowing removal of the patient’s cancerous breast. The therapy was skillfully
performed, but the patient was not informed that the therapy involved sub-
stantial risk of tissue damage. The Kansas Supreme Court held that the
patient was entitled to be told in advance of the hazards known to the doc-
tor and that the physician was obligated to make such “reasonable disclo-
sures” as other medical practitioners would make under the circumstances.
In Mitchell the Missouri Supreme Court held that the plaintiff, who was
given electroshock and insulin therapy, had the right to be informed that 18
to 25 percent of patients who underwent such treatment suffered convul-
sions as a result of the treatment. In this particular case a convulsion caused
fractured vertebrae. Although there was no allegation or evidence of negli-
gence in the diagnosis or treatment, the court held that a jury must decide
whether the doctor was negligent in failing to apprise the patient of the risks.
The physician’s duty was to make reasonable disclosure of significant facts
252 The Law of Healthcare Administration

and probable consequences. What amounts to “reasonable disclosure” is a

question of fact for the jury to decide.
In contrast to the reasonable-doctor rule, which is highly favorable to the
physicians, later cases rebuff the idea that the duty to disclose is based on what
other doctors disclose. (See Helling v. Carey in Chapter 3. What is the parallel to
this case?) This newer approach stems from the idea that the physician should
fully tell the patient the facts and risks that are relevant to the patient, regardless
of what other physicians usually disclose. The issue is still one for the jury to
decide, but it will turn on lay testimony rather than expert evidence. The rule has
been characterized as the “reasonable patient” rule or the “right to know” rule.
This eliminates the necessity of expert testimony on what other physicians do.
One of the cases that rejected the reasonable-doctor rule was a Rhode
Island case, Wilkinson v. Vesey.19 A diagnosis of malignancy was made with-
out benefit of a biopsy. Radiation treatments resulted in severe burns that
required eight operations later, and it was finally discovered that the patient
had never suffered from cancer in the first place. The Rhode Island Supreme
Court ruled that the patient was entitled to know all “material” (important)
information, regardless of how much other physicians usually tell their
patients. In effect, the court held that what the medical profession knows
about risks would require expert testimony, but what the patient needs to
know to make an intelligent choice is a question for laypeople (the jury) to
decide. What information is material depends on both the inherent danger of
the treatment and any other matters that would be significant to a reasonable
person. The statistical remoteness of a risk does not determine its materiality
because even a very small chance of
serious consequences can be signifi-
cant to a reasonable person.
Legal Brief
The “reasonable patient” con-
cept (see Legal Brief) was perhaps
The reasonable patient test: What would a prudent
person in the patient’s position have decided if ade- best summarized in the 1972 land-
quately informed of all significant perils? mark California Supreme Court case
Cobbs v. Grant:

A physician’s duty to disclose is not

governed by the standard practice in
the community; rather it is a duty imposed by law. A physician violates his
duty to his patient and subjects himself to liability if he withholds any facts
[that] are necessary to form the basis of an intelligent consent by the patient
to the proposed treatment.

See The Court Decides: Cobbs v. Grant at the end of this chapter for
the citation to the case. Readers are encouraged to read the entire excerpt
and to consider the accompanying discussion questions.
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 253

This concept has been extended beyond informed consent to

informed refusal. In the now famous case of Truman v. Thomas a young
woman refused to have a Pap test (a test for cervical cancer), apparently
because she was unable to afford it, that her family doctor recommended.
The defendant treated the patient over a six-year period for several routine
conditions, rendered advice on family matters, and cared for her during her
second pregnancy, but he did not specifically advise her of the risk involved
in failing to have the Pap test performed. When a specialist eventually discov-
ered a tumor, it was too far advanced for surgical removal, and alternative
forms of treatment proved unsuccessful. The California Supreme Court held
that the trial court erred by not instructing the jury that the physician had a
duty to disclose all relevant and material information, including the risks of
refusing recommended care.20
As these cases show, physicians must exercise “reasonable care under
the circumstances.” Unless physicians know that a patient is already aware of
the risk or that a given risk would not have any apparent significance to the
patient’s decision, or unless they can establish that disclosure would adversely
affect the rationality of a patient’s decision, they must provide the patient
with all significant information to allow for an informed consent. All such
matters are to be submitted to the jury for decision without requiring the
plaintiff to present expert testimony showing materiality of the nondisclo-
sure, although experts must of course be used to establish medical facts such
as the risks of a given procedure.
In a few other cases the courts recognized that the physician may limit
or withhold information from the patient for sound therapeutic reasons.21
For example, if full disclosure would complicate or hinder treatment because
of a patient’s emotional state or personal traits, the physician might in his
professional judgment provide less than a full explanation of risks and haz-
ards of a proposed treatment. The occasions when this “therapeutic privi-
lege” can be justified are extremely rare, and if they are thought to exist the
physician must document them fully in the medical record. Consultation
with a colleague would be advisable, and the “privilege” will not withstand if
the facts indicate that a competent and rational patient would have declined
treatment had there been disclosure.
As should be evident, it is especially important to obtain an informed
consent for any innovative therapy. Such consent must be evidenced by a spe-
cially drafted consent form, because the fact that the treatment has not yet
been recognized as standard practice and that the potential risks and benefits
are uncertain are of profound importance to the patient. In a malpractice case
involving a well-known cardiologist and surgeon, Dr. Denton A. Cooley, the
estate of a deceased patient alleged that Dr. Cooley and his physician team
failed to obtain informed consent for ventriculoplasty surgery (a then-inno-
vative procedure to repair a certain kind of heart defect). A carefully prepared
254 The Law of Healthcare Administration

consent form and clear testimony at trial resulted in a directed verdict for the
physicians.22
There is a difference between innovative therapy and clinical research.
Like standard medical practice—interventions that are designed to enhance
the well-being of the patient and have a reasonable expectation of success 23—
innovative therapy is intended to benefit the patient. In contrast, clinical
research (sometimes called “experimentation”) is a departure from standard
practice that is intended to test a hypothesis or develop new knowledge.24
Thus, research or experimentation is conducted to prove or disprove a
researcher’s hypothesis about a new course of treatment for the possible bene-
fit of a large number of patients.
Because the risks and benefits of both innovative therapy and clinical
research are uncertain, it is essential that the patient be fully informed and
that written consent be evidenced by a specially drafted form. The duty of
physicians recommending innovative therapy is determined by the general
principles of tort law and malpractice liability on a state-by-state basis.25
(Note, however, that new drugs and medical devices are regulated by the
Food and Drug Administration [FDA)], and the FDA’s regulations may
impose certain additional standards beyond those of tort law. This topic is
beyond the scope of this discussion, however.) The doctrine of informed con-
sent is especially relevant, and the consent form should be written in a way
that the patient can readily understand. This means in an appropriate lan-
guage and at an appropriate reading level (tenth grade, for example).
When biomedical and behavioral research involves human subjects, both
the common law and federal legislation govern the selection of subjects, the
obtaining and documentation of an informed consent, and the monitoring of
data to ensure the subjects’ safety and privacy and to minimize the risks.26 Each
institution conducting research that is regulated must create an institutional
review board consisting of at least five persons. This board approves the pro-
gram and ensures ongoing compliance with the regulations and procurement
of valid informed consent.27 Specifically, the review board has the responsibi-
lity to determine that the “risks to subjects are reasonable in relation to antici-
pated benefits, if any, to subjects, and to the importance of the knowledge that
may reasonably be expected to result.”28 Thus, the board has the responsibi-
lity of balancing the risks and benefits when approving biomedical and behav-
ioral research projects.
Without doubt the doctrine of informed consent raises significant
issues for physicians. The courts are interested in increasing communication
between physicians and their patients and in emphasizing the competent
individual’s freedom of choice. This is a laudable aim because a fully informed
patient is much less likely to be surprised, disappointed, or angry when an
untoward result occurs. Increased communication and mutual understanding
are excellent antidotes to litigation by the patient.
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 255

How Much to Tell a Patient?

In determining how much to tell patients, physicians should keep the
patient’s welfare and needs foremost in mind. The physician should review
questions such as the following:

• Is the patient likely to be unaware of a known hazard or risk?

• Would a reasonably prudent patient be likely to withhold consent if
aware of the risk?
• Is there any acceptable justification for failing to disclose?
• Is the risk or hazard, however remote, material to the patient’s decision?

Patients do not need to be given a virtual medical school education,

but they should be informed and have trust and confidence in those caring
for them. There is now a clear-cut judicial attitude that physicians must prac-
tice the golden rule and inform others as they would want to be informed.

Consent of a Spouse or Relative

If the patient is competent to consent, neither the spouse nor a relative is

authorized or (generally) required to render consent. Marriage or blood rela-
tionship alone does not make one the agent of the other. Because a spouse’s
or relative’s consent is not normally necessary,29 the only reason for dis-
cussing the patient’s condition with a spouse or a relative would be to
improve relations with the patient’s family, not to get someone else to con-
cur. (If, for example, it is possible to obtain the patient’s consent before
administration of sedatives, the spouse’s consent will not protect the surgeon
or the hospital from liability.30)
In special circumstances, however, a spouse’s consent may be manda-
tory or advisable as a legal matter, even though the patient is competent. This
most often occurs when the procedure to which the patient has consented
involves artificial insemination or surrogate motherhood. There are state
statutory requirements pertaining to these procedures. The statutes often
contain a specific requirement that both the husband and wife must consent
voluntarily to artificial insemination with another man’s sperm. Similarly,
when a married woman is to become a surrogate mother, the consent of her
husband should be obtained to overcome the usual presumption that a mar-
ried man is the father of a child born to his wife.
When the patient’s health and welfare are at risk, even if reproductive
capacity is adversely affected, the consent of the spouse is not necessary. An
Oklahoma case held that the husband, who had not consented to his wife’s hys-
terectomy, had no cause of action for loss of consortium.31 In short, the wife’s
right to health is supreme, and her decision alone, based on the professional
256 The Law of Healthcare Administration

advice of her physician, is controlling. “Health of the patient” will be very

broadly construed, and courts will be reluctant to recognize a right to have
a fertile partner as justification for overriding the wife’s consent. If a compe-
tent adult patient seeks and consents to such a procedure, and if the surgery
is necessary to the health of the patient, or if the patient has a constitutional
right to the procedure, as in the case of an abortion, then consent of the
spouse is not necessary. (Even though one spouse generally has no right to
prevent the surgical procedure on the other, whenever surgery affects the
reproductive capacity of the patient, it is wise to obtain the spouse’s concur-
rence, if possible, in deference to sound physician–family relations.)
If the patient is not competent to consent and has not appointed a
“healthcare surrogate,” state law will usually provide for a hierarchy of indi-
viduals who may make healthcare decisions for the patient. Florida law, for
example, provides that these persons, in this order of priority, may consent
for an incompetent patient:

1. a judicially appointed guardian;

2. the patient’s spouse;
3. the adult child, or, if more than one, a majority of the adult children;
4. a parent;
5. the adult sibling, or, if more than one, a majority of the adult siblings;
6. an adult relative who has care and concern for the patient; or
7. a close friend.32

Special circumstances concerning withholding or discontinuing life-

saving treatment are discussed later in this chapter.

Refusal of the Patient to Consent

Recall that an emergency eliminates the need to obtain consent because the
law values preserving life and preventing permanent impairment to health.
This rule, however, applies only when the patient is incapable of expressing
consent and the person legally authorized to consent for the incompetent
patient is unavailable.
The legal situation is quite different when a competent adult patient
expressly refuses to consent to medical or surgical treatment, for whatever
reason. The competent patient’s express refusal to consent must be honored,
even if death is the likely result. Accordingly, one frequently hears that there
is a legally recognized “right to die” unless a compelling state interest over-
rides the rights of the patient. It follows that there would be civil liability for
treatment that is rendered in the face of a competent patient’s refusal to con-
sent and that a court would normally not order treatment for such a patient.
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 257

The personal right of self-determination trumps the interest of society in pre-

serving life. There are several leading cases to this effect.33 Moreover, the
common-law right to refuse medical care, expressed while competent and
proven by clear and convincing evidence, must be honored if the patient later
becomes incompetent. On such facts a court should not order continuation
of treatment, nor will the “substituted judgment” rule (discussed later)
apply.34
A physician will not be criminally liable for honoring a competent
adult’s wish to forgo treatment or withdraw from ongoing treatment, even
when that decision will lead to death. The physician’s duty to render care
(even “ordinary” care) ends when consent is refused, thus eliminating any
possible criminal liability.35 Of course, active euthanasia (affirmative steps to
end the patient’s life) will be considered homicide.
The test of mental competence is whether patients understand their
condition, the nature of the medical advice rendered, and the consequences of
refusing to consent. Irrationality does not necessarily indicate incompetence.
In one famous case, a 72-year-old man with extensive gangrene in both legs
faced death within three weeks unless his legs were amputated; with surgery,
his chances of recovery were good. The hospital petitioned the court for a
determination of incompetence, appointment of a guardian, and authoriza-
tion of amputation and other necessary treatment. The hospital argued that
the man’s refusal was “an aberration from normal behavior” and that the
refusal amounted to suicide. But the court decided that even though the deci-
sion might seem irrational to many, the man was competent. Such an exten-
sive surgery was unacceptable to him, and his right to privacy outweighed the
state’s interest in the preservation of life.36
Mental competence is, of course, a matter for physicians to decide in
their professional judgment. If it is determined that the patient is incompe-
tent, the matter can be referred to the appropriate court for appointment of
a guardian. If there is no time for a court determination and there is no proxy
to consent, it is better to render treatment in the interest of attempting to
protect life. The legal exposure is greater in a malpractice suit based on inac-
tion than in one based on lifesaving treatment contrary to wishes, assuming,
of course, that the doctors have fully documented their determination of
incompetence. When a competent adult refuses consent or withdraws con-
sent, the physician or hospital, or both, should obtain written acknowledg-
ment of the refusal from the patient and a release of liability. The form should
be filed in the patient’s medical record. If the patient refuses to sign such a
form, then those who witnessed the patient’s refusal must fully document the
refusal of treatment in the medical record.
The patient’s right to choose or refuse treatment is based on common
law, the right of self-determination on which the doctrine of informed con-
sent is grounded, and the right to privacy first enunciated in the abortion
258 The Law of Healthcare Administration

decisions. In addition, some state statutes specifically give the patient the
right to refuse treatment.37 However, the right is not unlimited. The state is
usually said to have four interests that may override the individual’s freedom
to decide:

1. the preservation of life,

2. the protection of innocent third parties,
3. the preservation of the ethical integrity of the medical profession, and
4. the prevention of suicide.

The interest most often promoted by courts ordering treatment

over a patient’s objections is the protection of third parties, usually minor
children or the unborn fetus. For example, in In re Application of the
President and Directors of Georgetown College, Inc., despite a woman’s
refusal on religious grounds the court ordered a blood transfusion for her
for the sake of her 7-month-old child.38 The survival of dependent chil-
dren, however, is not always sufficient to override the patient’s right of
refusal. A court did not order a transfusion to save the life of a 34-year-
old Jehovah’s Witness, even though he had two young children. The
judge was convinced that adequate provision had been made for the chil-
dren’s welfare.39
The state has sometimes been said to have an interest in “maintain-
ing the ethical integrity of the medical profession.”40 Thus, the argument
goes, physicians should not be forced to give (or withhold) treatment
against their medical judgment or to assist in suicide or expose themselves
to possible manslaughter charges or malpractice suits. This supposed state
interest, however, is no longer persuasive.41 Instead, the courts and leg-
islatures have attempted to provide legal protection for physicians who
agree to their patients’ wishes. For example, according to the “natural
death acts” (discussed later) healthcare providers who comply with the
law are not subject to criminal prosecution or civil liability. It also recog-
nized that withholding or withdrawing life-sustaining treatment is, in
some instances, consistent with medical ethics:

[I]t is perfectly apparent…that humane decisions against resuscitative or

maintenance therapy are frequently a recognized de facto response in the
medical world to the irreversible, terminal, pain-ridden patient, especially
with familial consent.… [P]hysicians distinguish between curing the ill and
comforting and easing the dying.... [M]any of them have refused to inflict
an undesired prolongation of the process of dying on a patient in irreversible
condition when it is clear that such “therapy” offers neither human nor
humane benefit.42
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 259

Many courts have held that society’s interest in preserving life, in and
of itself, is not sufficient to prevent a competent adult from making her own
decisions about treatment, at least when no third persons might be
affected.43 The less hopeful the patient’s condition, and the more intrusive
the therapy, the weaker is the state’s interest in preserving life. Even when the
prognosis for recovery is good, the patient’s right is usually upheld.44
Because most courts have determined that forgoing medical treatment
is not the equivalent of suicide but is a decision to permit nature to take its
course, the fourth interest—the prevention of suicide—is usually not relevant
to decisions concerning termination of treatment. However, the line between
actively taking life—suicide and euthanasia—and letting nature take its course
is not always clear. Courts will not condone suicide or euthanasia, but they
may differ on whether a given set of facts constitutes either.
For example, an 85-year-old resident of a nursing home was suffering
from multiple ailments and deteriorating health. Although the resident, a for-
mer college president, did not have a terminal illness, he was very discour-
aged about his future and decided to hasten his death by fasting. A court
found that the man was competent and had the right to refuse food and that
the nursing home was neither obligated nor authorized to force-feed him.
The man was permitted to die of starvation.45
By contrast, a 26-year-old woman, severely handicapped by cerebral
palsy since birth, checked herself into the psychiatric unit of a hospital and
demanded that she not be fed but only be given medication to relieve her
pain. Her intent was to starve herself to death. She was not otherwise in need
of hospitalization. When the hospital sought to force-feed her, she petitioned
the court for an injunction to prevent it, asserting her constitutional right to
privacy. The court refused to issue an injunction, finding that the patient was
not terminally ill and that society had no duty to help her end her life. The
court found that her right of self-determination was outweighed by the
state’s interests in preserving life, maintaining the integrity of the medical
profession, and protecting third parties, because other patients might be
adversely affected if they knew the hospital was helping a patient to die.46
Three years later this woman’s health had so deteriorated that she was in con-
stant pain and was hospitalized because she was totally unable to care for her-
self. After her physicians determined that she was not obtaining sufficient
nutrition by being spoon-fed, a nasogastric tube was inserted despite her
objections. A trial court denied the patient’s request to have the tube
removed but was overruled by the appellate court, which held that the
patient, who was still mentally competent, had a constitutional right of pri-
vacy and this included the right to refuse medical treatment. The court fur-
ther ruled that the decision to refuse the tube feedings was not equivalent to
suicide and the patient’s motives were irrelevant.47
260 The Law of Healthcare Administration

Consent for Treatment of Incompetent Adults

A patient may be unable to grant an effective consent by reason of incom-

petence or other disability. (Note, however, that mental illness does not
equate to incompetence; a person in a mental institution may still be com-
petent to consent to treatment.48) If a guardian has been appointed for an
incompetent patient, the physician and the hospital must obtain the
guardian’s consent, unless the guardian is unavailable and a medical emer-
gency is present. In the absence of a court-appointed guardian, state law
may provide a hierarchy of persons who can consent as the patient’s proxy,
as noted earlier. In the absence of a statutory provision, courts have from
time to time recognized the authority of a spouse or relative to grant con-
sent for the treatment of an incompetent patient.
For example, judicial interpretation of California statutes relating to
the involuntary commitment of mentally ill persons led the court in one
case to conclude that the family could grant consent for treatment of a
committed patient.49 Similarly, where local law provides that named rela-
tives have the financial responsibility for maintaining an incompetent per-
son, the relatives may have a right to consent.50 In still other individual
cases the courts have recognized the authority of a spouse or relative to
speak for an incompetent adult.51
Because of the uncertainty and differing opinions, in the absence of
statutory authority for a proxy to consent for an incompetent patient,
obtaining legal advice and a court order is the safest way to proceed unless
a medical emergency exists.

Decisions to Forgo Treatment for Incompetent Adults

As discussed, competent adults have a right to decide what medical
treatment they receive, and the right extends even to the decision to
refuse lifesaving treatment. This is a relatively simple concept, but its
application gets difficult when the patient was once competent but now
is not, and it becomes dreadfully thorny when the individual has always
been incompetent.52 Decisions about treating incompetent patients
involve three questions that have troubled the courts in the past 30 years
or so:

1. Who should make the decision?

2. What standards should apply?
3. What procedures should be followed to make such decisions?

The first landmark case dealing with these issues was In re Quin-
lan.53 In 1975 Karen Quinlan, a 22-year-old patient who had sustained
severe brain damage, perhaps as a result of consuming alcohol or drugs,
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 261

became comatose and remained for

several months in a persistent vegeta- Legal Brief
tive state (see top Legal Brief.) Attend-
ing physicians used a respirator to Persistent vegetative state (PVS) is a condition
assist Karen’s breathing. When the akin to coma in which the patient is alive and
physicians and the hospital later appears to be awake but has no detectable
refused to terminate this life-sup- awareness. It is a permanent organic brain syn-
drome resulting from prolonged anoxia (lack of
port system at the request of her
oxygen to the brain) and characterized by the
parents, who recognized the hope- absence of higher mental functions such as
lessness of the situation, her father thought, reason, and emotion. The PVS patient is
filed suit to be appointed his incapable of performing voluntary acts and
daughter’s guardian and have the responds only reflexively to external stimuli.
court authorize discontinuance of There is some controversy about whether the con-
dition is reversible, but my research shows no
the respirator. (The expression
known case of a PVS patient recovering.
“pull the plug” hardly does justice
to the legal, medical, and emotional
issues attendant in such cases.) All
parties stipulated that Karen was
incompetent and that she was not dead by either the classical medical def-
inition of death—cessation of circulation and respiration—or by the crite-
ria of “brain death”—permanent cessation of all brain functions, including
those of the brain stem (see bottom Legal Brief). At the time the state did
not have a statutory definition of death, and there were no judicial deci-
sions on the concept of brain death, although Karen would not have met
the criteria for death, no matter
how it would have been measured.
The New Jersey trial court Legal Brief
denied Mr. Quinlan’s requests for
guardianship and termination of the There is no legal or ethical duty to treat a dead body.
respirator.54 On appeal the decision Although this seems obvious, it has sometimes been
was reversed. The New Jersey difficult to determine when a person is dead and life-
support systems may be discontinued. The common
Supreme Court held that Mr. Quin-
law defined death as the “cessation of life,” which is
lan was entitled to be appointed not a very helpful standard. Until the 1970s, death
guardian of his daughter, could meant the cessation of respiration and circulation.
select a physician of his choice to But with the use of mechanical respirators and other
care for her, and could participate devices, respiration and circulation can often be con-
with this physician and the hospi- tinued indefinitely. For this reason, many states have
adopted “brain death”—the compete cessation of all
tal’s medical ethics committee in a
functions of the entire brain, including the brain
decision to withdraw the respirator. stem—as the legal standard for diagnosing death.
The legal basis for the decision was
the patient’s right of privacy, which
gave her (through her guardian) the
right to decline treatment.
262 The Law of Healthcare Administration

The court went on to rule that where the patient is incompetent and
cannot express her wishes on her own behalf, the guardian may do so under
the doctrine of “substituted judgment.” This concept allows the surrogate
decision maker (in this case, the guardian) to determine what the patient
herself would decide under these circumstances. The guardian was not to
use his own judgment in determining what was best for the patient, but
only to judge what the patient’s wishes would be if she were competent to
decide. To guard against abuse of the substituted judgment doctrine, the
court spoke approvingly of relying on the hospital’s ethics committee. In
fact, it required the guardian and the attending physicians to consult with
such a committee, which would then review the medical evidence and ren-
der an opinion about the probability that the patient might emerge from
her chronic comatose state.
In summary the court ruled that on concurrence of the guardian,
the attending physician, and the ethics committee, the life-support sys-
tem could be withdrawn without the fear of civil or criminal liability,
which was the impetus for the physicians’ initial refusal. (After Karen
was removed from the respirator, she continued to receive antibiotics to
ward off infections and was fed a high-calorie diet through a nasogas-
tric tube. She continued to breathe on her own until her death in
1985.)
Many other courts have followed Quinlan and have adopted the
substituted judgment doctrine. In Superintendent of Belchertown State
School v. Saikewicz the doctrine was applied to the case of a 67-year-old
man who had always been profoundly mentally retarded (he had an IQ
of 10 and a mental age of under three) and who was suffering from an
acute form of leukemia for which chemotherapy was the indicated treat-
ment.55 The state institution where he was a resident petitioned the
court for appointment of a guardian for Mr. Saikewicz and a guardian
ad litem (for the litigation) to decide what treatment he should receive.
His illness was incurable, and without chemotherapy he would die a re-
latively painless death within weeks or months. With chemotherapy he
had a 30 percent to 40 percent chance of remission (abatement of symp-
toms), but if remission occurred it would last for only 2 to 13 months.
The chemotherapy would not cure the illness and would cause serious
and painful side effects. The guardian ad litem thought that withhold-
ing treatment would be in the patient’s best interests. He stated:

If [Mr. Saikewicz] is treated with toxic drugs he will be involuntarily immersed

in a state of painful suffering, the reason for which he will never understand.
Patients who request treatment know the risks involved and can appreciate the
painful side effects when [those side effects] arrive. They know the reason for
the pain and their hope makes it tolerable.56
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 263

The probate judge weighed the factors for and against chemotherapy
for Mr. Saikewicz and concluded that treatment should be withheld. In favor
of treatment was the fact that most people elect chemotherapy and that it
would offer a chance for a longer life. Weighing against it were the patient’s
age, the probable side effects, the slim chance of a remission against the cer-
tainty that the treatment would cause suffering, the patient’s inability to
cooperate with those administering the treatment, and the “quality of life
possible for him even if the treatment does bring about remission.”57
Adopting the standard of substituted judgment that was applied in
Quinlan, the appellate court, held that

both the guardian ad litem in his recommendation and the judge in his deci-
sion should have attempted (as they did) to ascertain the incompetent per-
son’s actual interests and preferences. In short, the decision in cases such as
this should be that which would be made by the incompetent person, if that
person were competent, but taking into account the present and future
incompetency of the individual as one of the factors which would necessarily
enter into the decision-making process of the competent person.58

The court approved of the probate judge’s decision, convinced that it

“was based on a regard for [Mr. Saikewicz’s] actual interests and prefer-
ences”59 and was supported by the facts. Rejecting any analysis that would
equate “quality of life” with the value of a life, the appellate court interpreted
the judge’s reference to the quality of life “as a reference to the continuing
state of pain and disorientation precipitated by the chemotherapy treat-
ment.”60
In cases of persons who have never been competent or who have never
expressed any desire regarding termination of medical treatment, the substi-
tuted judgment doctrine is pure fiction. The decision makers cannot possibly
“know” what the patient would choose. While calling it substituted judg-
ment, they actually make a decision based on the best interests of the patient.
Any such decision will be a subjective judgment based on the values, biases,
and prejudices of the proxy decision maker.
These troubling legal and ethical issues were recognized by a New
York court that refused to authorize discontinuation of regular blood trans-
fusions for a 52-year-old mentally retarded man suffering from terminal can-
cer.61 The treatment was in accordance with standard medical practice, and
although the patient’s life could not be saved, the transfusions were necessary
to prolong his life. Because the patient had never been competent, the court
drew an analogy with cases denying parents the right to withhold usual and
customary medical care from their minor children. The court did not address
the question of whether an incompetent patient has the same right to refuse
medical care as a competent person.
264 The Law of Healthcare Administration

The problem inherent in allowing surrogate decisions was brought

into focus by the New Jersey Supreme Court in another landmark case,
Matter of Conroy,62 which involved a legally incompetent resident of a
nursing home: an 84-year-old woman with serious and irreversible physi-
cal and mental impairments and a limited life expectancy. Her nephew,
who was her legal guardian, sought permission to remove a feeding tube.
The trial court granted his petition, but her guardian ad litem appealed.63
The intermediate appellate court reversed, holding that the right to ter-
minate life-sustaining treatment for incurable and terminally ill patients
cannot be based on the guardian’s judgment unless the patient is brain
dead, irreversibly comatose, or in a persistent vegetative state.64 The court
also ruled that the feeding tube was not treatment but rather a basic
necessity of life and that withdrawal of nourishment would be active
euthanasia.
Although the patient in Conroy died pending the appeal, the New
Jersey Supreme Court granted review and took the opportunity to review
the issues

to determine the circumstances under which life-sustaining treatment

may be withheld or withdrawn from an elderly nursing-home resident
who is suffering from serious and permanent mental and physical impair-
ments, who will probably die within approximately one year even with
the treatment, and who, though formerly competent, is now incompe-
tent to make decisions about her life-sustaining treatment and is unlikely
to regain such competence. Subsumed within this question are two
corollary decisions for incompetent patients, and what procedures should
be followed in making them.65

Although the holdings in Conroy were technically limited to this cat-

egory of patients, the principles the court set forth could be applied more
widely. The court reiterated the patient’s right to privacy and self-determi-
nation as stated in Quinlan, and it noted that the “goal of decision-making
for incompetent patients should be to determine and effectuate, insofar as
possible, the decision that the patient would have made if competent.”66
Under this subjective test, life-sustaining treatment may be withheld or
withdrawn when it is clear that the incompetent patient would have refused
the treatment under the circumstances. But the court recognized that deter-
mining these patients’ wishes is impossible and that it is “naive to pretend
that the right to self-determination serves as the basis for substituted deci-
sion-making.”67 The court, therefore, concluded that the state’s parens
patriae power provided the authority to make the decision for incompe-
tent patients whose actual desires could not be established. This autho-
rity, the court said, allows withholding or withdrawing treatment if it is
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 265

“manifest” that the action would be in

the patient’s best interests (see Legal
DecisionPoint).
Legal DecisionPoint
In the years since Quinlan and
Conroy, numerous courts have weighed in
Is making a decision about treatment for
on the question of terminating artificial
someone like Mr. Saikewicz or Ms. Conroy
nutritional devices for incompetent, ter- legally or morally different from the decision
minally ill patients. The nearly universal to euthanize a terminally ill pet? Why or why
view now is that there is no significant not?
difference between disconnecting a respi-
rator (as in Quinlan) and discontinuing
artificial nutrition and hydration (as in Conroy). Furthermore, the deci-
sions have abandoned attempts to draw a distinction between what is
“ordinary” and “extraordinary” medical care (as earlier cases had done);
instead, today the analysis is made by weighing the benefits of the partic-
ular treatment against the burden that it places on the patient (or even,
in some circumstances, the family). When the burden outweighs the ben-
efit, the care is called “disproportionate” and hence may be terminated.
In the years immediately following Quinlan, many cases addressed
the questions of who could make decisions for incompetent patients and
whether the courts must be involved in all cases. The Quinlan court
believed that routine involvement by the courts would be “impossibly
cumbersome,” and most other courts have agreed. Of course, where there
is no family or guardian, or where family members disagree, the courts are
proper forums for resolving the matter. The courts have also become
involved when the family’s and the healthcare providers’ views on the
matter conflict. One such case, Cruzan v. Director, Missouri Department
of Health,68 was the occasion for the U.S. Supreme Court’s first and, to
date, only decision regarding termination of medical treatment for incom-
petent patients. In this case, a young woman (Nancy Cruzan) lay in a per-
sistent vegetative state as a result of injuries suffered in an automobile
accident. Although she could breathe without assistance, she required
artificial means for providing nutrition and hydration. After it became
obvious that she would never regain her mental faculties, her parents
asked officials at the state hospital where she was being treated to remove
her feeding tube and allow her to die. When the hospital refused, the par-
ents filed suit to compel termination of the treatment. At trial, evidence
was presented that Nancy had “expressed thoughts at age twenty-five in
somewhat serious conversations with a housemate friend that if sick or
injured she would not wish to continue her life unless she could live at
least ‘half-way normally’.” Based on this evidence, the trial court entered
an order in favor of the parents and permitting the artificial feeding to be
terminated.
266 The Law of Healthcare Administration

The state appealed, and the supreme court of Missouri reversed the
trial court’s findings. Although it recognized a right to refuse treatment
based on the common-law doctrine of informed consent, the court held
that Missouri had a strong public policy favoring life over death and that
evidence of an individual’s wishes regarding termination of treatment must
be “clear and convincing.” The court found that Nancy’s “somewhat seri-
ous conversation” was not sufficient to meet this standard. On certiorari to
the U.S. Supreme Court, the Missouri court’s decision was affirmed on
narrow grounds.
Although no other supreme court had set such a high standard for
these kinds of treatment decisions, and although it recognized that there
is a right to refuse medical treatment, the Supreme Court held that there
is nothing in the U.S. Constitution that “prohibits Missouri from choos-
ing the rule of decision which it did.” Furthermore, the Supreme Court
commented:

The choice between life and death is a deeply personal decision of obvi-
ous and overwhelming finality. We believe Missouri may legitimately seek
to safeguard the personal element of this choice through the imposition
of heightened evidentiary requirements. It cannot be disputed that the
Due Process Clause protects an interest in life as well as interest in refus-
ing life-sustaining medical treatment. Not all incompetent patients will
have loved ones available to serve as surrogate decisionmakers. And even
where family members are present, “[t]here will, of course, be some
unfortunate situations in which family members will not act to protect a
patient.” A State is entitled to guard against potential abuses in such sit-
uations. Similarly, a State is entitled to consider that a judicial proceeding
to make a determination regarding an incompetent’s wishes may very well
not be an adversarial one, with the added guarantee of accurate fact find-
ing that the adversary process brings with it. Finally, we think a State may
properly decline to make judgments about the “quality” of life that a par-
ticular individual may enjoy, and simply assert an unqualified interest in
the preservation of human life to be weighed against the constitutionally
protected interests of the individual.
In our view, Missouri has permissibly sought to advance these interests
through the adoption of a “clear and convincing” standard of proof to
govern such proceedings.

Following the U.S. Supreme Court’s decision, the Cruzan case

returned to the trial court in Missouri. After hearing additional testimony,
the trial judge ruled that the evidence was clear and convincing, and he
again ruled that Nancy’s artificially supplied nutrition and hydration could
be withdrawn. The state’s attorney general declined to appeal, the treat-
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 267

ment was terminated, and Nancy died in a

matter of days (see The Law in Action). No
The Law in Action
other state has set forth a “clear and con-
vincing” standard, and thankfully most of
these difficult, heartrending decisions today As a resident of Missouri at the time of
this case, I closely followed the case
are made by physicians and family members
and subsequent events through the
and without the necessity of judicial news media. Nancy Cruzan’s artificial
approval. feeding was discontinued in December
The Cruzan decision was the last of 1990. Fifteen members of Operation
major judicial pronouncement on the sub- Rescue (an anti-euthanasia group),
ject of terminating treatment for incompe- including a nurse, appeared at the hos-
pital to reinsert the feeding tube, but
tent patients for nearly a decade. Then came
they were arrested. Cruzan died 11
the tragic, much-publicized, and highly days later on December 26, 1990.
politicized case of Terri Schiavo. Sadly, depressed and apparently over-
Terri Schiavo was a 26-year-old whelmed by grief, her father commit-
woman in St. Petersburg, Florida, who suf- ted suicide in 1996.
fered a cardiac arrest of undetermined cause The Missouri Attorney General was
William L. Webster, who was nomi-
on February 25, 1990. Emergency person-
nated for governor in 1992. His cam-
nel took her to a local hospital where she paign was marked by allegations of
was ventilated and given a tracheotomy but corruption, and he lost the election.
never regained consciousness. She was diag- The following year Webster pleaded
nosed as being in a persistent vegetative guilty and was sentenced to two years
state and survived through a feeding tube. in prison. This effectively ended his
political career.
She lived in nursing homes with constant
care, and there was no reasonable likelihood
of recovery.
In 1998 Terri’s husband and guardian, Michael, petitioned to author-
ize the termination of life-support procedures. Terri’s parents opposed the
decision. There followed years of contentious litigation, including 13 Florida
appellate court decisions and five orders by the U.S. Supreme Court declin-
ing to grant certiorari. On October 15, 2003 the feeding tube was removed.
Six days later the Florida legislature passed what came to be known as “Terri’s
Law,” a single-purpose, politically motivated statute intended to permit Gov-
ernor Jeb Bush to order reinsertion of the tube, which he did with consider-
able public interest. After continued legal maneuvering (Terri’s parents
opposed her husband’s decisions every step of the way), the Florida Supreme
Court unanimously held Terri’s Law to be unconstitutional. The decision
deserves to be quoted at length not only because it ended (legally at least) a
family’s long human misfortune but also because of its perspective on the
separation of powers in the U.S. system of government. (See The Court
Decides: Bush v. Schiavo at the end of this chapter.)
The case returned to the lower courts for more procedural squab-
bling, more efforts by conservative Republicans to overturn the judicial
268 The Law of Healthcare Administration

decision, and even an attempt by the U.S. Congress to hold hearings and
thus delay the outcome. In the end, the trial court’s order to discontinue arti-
ficial nutrition and hydration stood, and on March 31, 2005, more than 15
years after she collapsed into unconsciousness, Terri Schiavo died. Thus con-
cluded one of the longest, saddest, and most contentious right-to-die cases
in recent years.

Natural Death and Power of Attorney Legislation

Because of the difficult issues the aforementioned cases represent, in the mid-
1970s state legislatures began responding to the need for guidance. Twenty
years later, most states had enacted “natural death acts” aimed at allowing ter-
minally ill patients to “die with dignity.” These laws vary from state to state, both
in their approach and in the situations covered, but they do offer assistance and
some measure of protection for those who face these troubling situations.
California was the first to pass such a statute, and many states have
modeled their laws after California’s. The California natural death act pro-
vides that competent adults may execute a directive, commonly called a “liv-
ing will,” instructing their physician to withhold or withdraw life-sustaining
procedures in the event of a terminal illness.69 A terminal condition is defined
as an incurable state that, according to reasonable medical judgment, will
cause death with or without life-sustaining procedures. Life-sustaining pro-
cedures are those that “would serve only to artificially prolong the moment
of death and where, in the judgment of the attending physician, death is
imminent whether or not such procedures are utilized.”70 The California
statute concludes with a strong statement that the legislature does not in any
way condone or approve mercy killing or “any affirmative or deliberate act or
omission to end life other than to permit the natural process of dying,” as
provided in this chapter.71
The strength of a living-will law is that it clarifies the procedure to be
used to forgo life-sustaining treatment for certain patients under certain cir-
cumstances. It avoids judicial involvement and permits the substituted judg-
ment doctrine to be carried out according to the written desires of the
patient. Competent adults who feel strongly that they do not wish to be
kept alive artificially when death is imminent and the treatments offer no
hope of recovery can express their wishes with confidence that they will be
fulfilled.
The major problem with a living-will statute, however, is that too many
difficult decision-making situations are not covered: cases in which patients do
not have a terminal illness but for whom life-prolonging or life-sustaining treat-
ment is considered futile or not in the patient’s best interests—Quinlan,
Saikewicz, and Schiavo fit into this category—and those in which no directive has
been executed. To remedy some of the shortcomings of the living-will laws,
many states provide for a “durable power of attorney for health care.”72 Under
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 269

this type of statute, persons can designate a proxy to make healthcare decisions
for them if they become incompetent. Decisions by the proxy would be as valid
as the patient’s if the patient were competent. On behalf of the patient a proxy
could consent to or refuse most treatments. Physicians who rely in good faith
on the decisions of the proxy are usually provided immunity from civil and crimi-
nal liability and professional disciplinary action.
The proxy system eliminates the need for a court to be involved either by
appointing a surrogate decision maker or by making the decision itself, although
judicial review is usually available.73 The statute typically sets forth the standards
to be used in proxy decisions; these are similar to those established by case law.
The proxy must make decisions consistent with the patient’s desires. The patient
may, and probably should, express his wishes in the durable power of attorney.
If the patient’s desires are unclear or unknown, the proxy is to decide in the best
interests of the patient.
All hospitals should have procedures to handle decisions for incompetent
patients in accordance with the laws of their state. Whenever possible, physicians
should discuss treatment options with the patient and family while the patient is
lucid, especially when the illness is terminal. The physician can call the patient’s
attention to the living-will or power-of-attorney options if these are recognized
in that state. Relevant discussions and decisions, advance patient directives,
durable powers of attorney, or any other such document should be made part
of the patient’s medical record. Any revocation of such a document should also
be in the chart.
If the hospital, physician, family, or anyone else involved in the deci-
sion on treatment doubts the propriety of the proposed course or the man-
ner in which the decision is being made, a judicial determination should be
sought. Some states will require a court hearing under certain circumstances.
These circumstances should be enumerated in the hospital’s written policies.
Figures 9.1 through 9.3 present examples of a living will, a durable power of
attorney, and a patient’s bill of rights statement.

Consent and Refusal of Treatment for Minors

Recall that no consent is necessary when there is a medical emergency. As

previously noted, an emergency involves an immediate threat to life or health
where delay would cause permanent damage. The medical desirability of
treatment does not constitute an emergency if a delay to obtain consent
would not permanently harm the patient. Even when a minor’s condition is
an emergency, physicians and hospital staff should make a reasonable effort
to reach the parents (or the person standing in a parental relationship) if there
is opportunity to do so. The medical emergency should be documented by
professional consultation.
270 The Law of Healthcare Administration

LIVING WILL
F I G U R E 9.1
Example of a
Living Will Declaration made this ____________ day of __________________ 20 ____________________________

I, ______________________________________________________, willfully and voluntarily make known my

desire that my dying not be artificially prolonged under the circumstance set forth below, and I do hereby declare:

If at any time I have a terminal condition and if my attending physician and another consulting physician have deter-
mined that there is no probability of my recovery from such a condition, I direct that life-prolonging procedures be
withheld or withdrawn when the application of such procedures would serve only to prolong artificially the process of
dying, and that I be permitted to die naturally with only the administration of medication or the performance of any
medical procedure deemed necessary to provide me with comfort care or to alleviate pain.
It is my intention that this declaration be honored by my family and physician as the final expression of my legal right
to refuse medical or surgical treatment and to accept the consequences for such refusal.
In the event that I have been determined to be unable to provide express and informed consent regarding the with-
holding, withdrawal, or continuation of life-prolonging procedures, I wish to designate as my surrogate to carry out
the provisions of this declaration:

Name______________________________________________________________________________________
Address____________________________________________________City ____________________________
State/Zip __________________________________________________Phone __________________________
I understand the full import of this declaration, and I am emotionally and mentally competent to make this decla-
ration.
NUTRITION AND HYDRATION
 I do  I do not desire that nutrition and hydration (food and water) be withheld or withdrawn when the
application of such procedures would serve only to prolong artificially the process of dying.

Additional Instructions (optional) ________________________________________________________________

__________________________________________________________________________________________
__________________________________________________________________________________________

Signed ____________________________________________________________________________________
Witness Signature ____________________________________________________________________________
Name______________________________________________________________________________________
Address __________________________________________________City ____________________________
State/Zip __________________________________________________Phone __________________________
Witness Signature ____________________________________________________________________________
Name ____________________________________________________________________________________
Address __________________________________________________City ____________________________
State/Zip __________________________________________________Phone __________________________

The case of Luka v. Lowrie is illustrative.74 A 15-year-old boy was

hit by a train. Five physicians determined that it was necessary to ampu-
tate his foot, and they acted without obtaining the consent of his parents.
Their action was justified because in the physicians’ professional judgment
the patient’s condition was a threat to his life or health unless immediate
action was taken. The case shows the importance of consultation with
other physicians before administering care.

Age of Majority
Proper consent for the treatment of minors when there is no emergency
requires that physicians and hospital personnel first determine the age of
majority in their particular jurisdiction. With common law, the age of major-
ity was 21 years, but in most states it is now 18. (Majority is reached the day
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 271

DESIGNATION OF HEALTHCARE SURROGATE

F I G U R E 9.2
Example of a
Name __________________________________________________________________________________
Last First MI
Durable
Healthcare
In the event that I have been determined to be incapacitated to provide informed consent for medical treat-
ment and surgical and diagnostic procedures, I wish to designate as my surrogate for healthcare decisions:
Power of
Name __________________________________________________________________________________
Attorney
Address ________________________________________________City __________________________
State/Zip ________________________________________________Phone __________________________

If my surrogate is unwilling or unable to perform these duties, I wish to designate as my alternate surrogate:

Name __________________________________________________________________________________
Address ________________________________________________City __________________________
State/Zip ________________________________________________Phone __________________________

I fully understand that this designation will permit my designee to make healthcare decisions and to provide,
withhold, or withdraw consent on my behalf; to apply for public benefits to defray the cost of healthcare; and
to authorize my admission to or transfer from a healthcare facility.

NUTRITION AND HYDRATION

 I do  I do not desire that nutrition and hydration (food and water) be withheld or withdrawn when
the application of such procedures would serve only to prolong artificially the process of dying.

Additional Instructions (optional) ________________________________________________________________

__________________________________________________________________________________________
__________________________________________________________________________________________

I further affirm that this designation is not being made as a condition of treatment or admission to a healthcare
facility. I will notify and send a copy of this document to the following persons other than my surrogate, so they
will know who my surrogate is:

Name______________________________________________________________________________________
Name______________________________________________________________________________________
Name______________________________________________________________________________________

Signed ____________________________________________________Date ____________________________

Witness Signature ____________________________________________________________________________

Witness Signature ____________________________________________________________________________

before the patient’s birthday.) In many jurisdictions married persons are con-
sidered adults, regardless of age, and parents who are minors may consent to
the treatment of their children. The statutory and case law of each particular
jurisdiction must be consulted to determine the age of majority. Hospitals
should have clear policies outlining the age of majority for their state.

Consent Granted by Mature Minors

Some believe that in the absence of an emergency the consent of a minor’s
parent or someone standing in loco parentis is necessary before treatment
can be administered. This is not always true. The clearest policy perhaps
would be to insist on parental consent in all cases of medical treatment or
surgery involving minors, except in medical emergencies or when a local
statute specifically eliminates the need for the consent of parents. Yet such
a policy is not practical. There are too many nonemergency situations in
272 The Law of Healthcare Administration

F I G U R E 9.3
SUMMARY OF THE FLORIDA PATIENT’S BILL OF RIGHTS AND RESPONSIBILITIES
Example of a
Patient’s Bill of
Florida law requires that your healthcare provider or A patient has the right to impartial access to medical
Rights healthcare facility recognize your rights while you treatment or accommodations, regardless of race,
are receiving medical care and that you respect the national origin, religion, physical handicap or source
healthcare providers or healthcare facility’s right to of payment.
expect certain behavior on the part of patients. You
may request a copy of the full text of this law from A patient has the right to treatment for any emer-
your healthcare provider or healthcare facility. A gency medical condition that will deteriorate from
summary of your rights and responsibilities follows: failure to provide treatment.

A patient has the right to be treated with courtesy A patient has the right to know if medical treatment
and respect, with appreciation of his individual dig- is for purposes of experimental research and to give
nity and with protection of his need for privacy. his consent or refusal to participate in experimental
research.
A patient has the right to a prompt and reasonable
response to questions and requests. A patient has the right to express grievances regard-
ing any violations of his rights, as stated in Florida
A patient has the right to know who is providing law, through the grievance procedure of the health-
medical services and who is responsible for his care. care provider or healthcare facility which served
him and to the appropriate state licensing agency.
A patient has the right to know what patient support
services are available, including whether an inter- A patient is responsible for providing for his health-
preter is available if he does not speak English. care provider, to the best of his knowledge, accurate
and complete information about present complaints,
A patient has the right to know what rules and regu- past illnesses, hospitalizations, medications and
lations apply to his conduct. other matters relating to his health.

A patient has the right to be given by his healthcare A patient is responsible for reporting unexpected
providers information concerning diagnosis, planned changes in his condition to his healthcare provider.
course of treatment, alternatives, risks and progno-
sis. A patient is responsible for reporting to his health-
care provider whether he comprehends a contem-
A patient has the right to refuse treatment, except as plated course of action and what is expected of him.
otherwise provided by law.
A patient is responsible for following the treatment
A patient has the right to be given, upon request, plan recommended by his healthcare provider.
full information and necessary counseling on the
availability of known financial resources for his A patient is responsible for keeping appointments and,
care. when he is unable to do so for any reason, for notify-
ing the healthcare provider or healthcare facility.
A patient who is eligible for Medicare has the right
to know, upon request and in advance of treatment, A patient is responsible for his actions if he refuses
whether the healthcare provider or healthcare facil- treatment or does not follow the healthcare
ity accepts the Medicare assignment rate. provider’s instructions.

A patient has the right to receive, upon request, A patient is responsible for ensuring that the finan-
prior to treatment, a reasonable estimate of charges cial obligations of his healthcare are fulfilled as
for medical care. promptly as possible.

A patient has the right to receive a copy of a reason- A patient is responsible for following healthcare
ably clear and understandable itemized bill and, facility rules and regulations affecting patient care
upon request, to have charges explained. and conduct.

which medical or surgical care for a “mature minor” is advisable but where
the parent is not available. Moreover, depending on the circumstances, a
mature minor may seek care and object to obtaining parental consent,
especially for treatment of medical conditions relating to pregnancy or
family planning, for example.
The basis for the common-law rule that a parent’s consent is neces-
sary is the belief that minors are incapable, by reason of their youth, of
understanding the nature and consequences of their own acts and must
therefore be protected from the folly of their own decisions. But in terms
of intelligence and insight, there is nothing magical about being 18, or 21,
or 57 for that matter. And research reveals no judicial decisions holding a
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 273

physician or a hospital liable for treatment of a mature minor without the

parents’ consent when the treatment was beneficial. An ultraconservative
policy of always insisting on parental consent regardless of the minor’s
maturity or status in life is not justified.
Most states now allow a minor to consent to abortion or contracep-
tive services. Statutes in numerous states specifically provide that emanci-
pated minors, regardless of age, may give
their own consent for medical treatment.
Most states have statutes providing that
minors may consent to treatment of condi- Legal DecisionPoint
tions relating to pregnancy, family planning,
venereal disease, and addictions. Thus, public If an apparently intelligent 14-year-old falls
policy and common sense permit mature in the parking lot of a health clinic, should
minors to receive some health services with- clinic staff clean and dress the abrasion
out having to reach the age of majority (see without contacting the parents? Would it
matter if the wound required sutures, or if
Legal DecisionPoint). In other words, the
the injury included a simple fracture? Would
test of the validity of a minor’s consent it matter if the patient had been treated in
should depend on maturity and the condition the clinic before with the parents’ consent?
being treated. Maturity should be measured What, if any, efforts should the clinic make
more in terms of the ability to comprehend to contact the parents in each of the scenar-
the nature of a decision than the patient’s ios described here?
chronological age.
Another important factor in applying the age-of-discretion doctrine
is whether the minor has living parents who are readily available to grant
consent. For example, in 1971 the Probate Court of the District of
Columbia held that an 18-year-old girl (the age of majority then being 21)
who was without parents and without a legally appointed guardian could
consent to an abortion.75 Another example is Younts v. St. Francis Hospi-
tal, where a Kansas court held that a 17-year-old could consent to surgery
on an injured finger. The patient’s mother was herself hospitalized and
semiconscious, and the father was unavailable.76
A strong judicial tendency is thus evident to permit minors to give
an effective consent whenever they are mature enough to understand the
nature of the contemplated treatment and the consequences of their
action whenever the treatment clearly benefits the patient, and especially
when the risk is low. Even in a jurisdiction that has not yet clarified the law
by judicial decision or statute, necessary medical treatment should never
be withheld from a mature and knowledgeable minor solely because
parental consent has not been obtained. Even though technically a battery
or interference with parents’ rights might be involved, withholding ser-
vices will create more legal risk than would furnishing the needed services.
Simply put, damages for failure to treat might be far greater than damages
for treatment without consent. Accordingly, each provider of medical care
274 The Law of Healthcare Administration

should develop guidelines for the treatment of minors based on local law,
recognized standards of clinical care, and common sense.
It seems perfectly clear that married minors can give consent for the
treatment of their minor children, and this has been codified by statute in
some states. New York law, for example, provides: “Any person who has been
married or who has borne a child may give effective consent for medical,
dental, health and hospital services for his or her child.”77 Note that this
wording would not seem to authorize an unmarried father to give consent
for the treatment of his minor child but would allow the unmarried
mother to do so. (One can smell an equal-protection case in the wind.)
Several reported cases have considered the question of whether a par-
ent or a court may authorize surgery performed on a minor for the benefit
of a person other than the minor. The typical example is organ donation.
Although a few courts have permitted transplants to be performed on twins
who were mature minors and who gave their own consent to the surgery,
parental consent should be obtained when the surgery has as its primary pur-
pose the benefit of a person other than the patient. The issues still remain,
however, whether a parent is authorized to consent to such an operation and
whether a court may grant consent, especially when patients are too young
or otherwise unable to express their own wishes. The cases are split. For
example, cases that have held that the parent or guardian of a minor or an
incompetent may not consent to a sterilization of the patient have expressed
concern that the interest of the patients must be protected until they are in a
position to make an individual choice on such an important matter as repro-
ductive capacity.78
When it is determined that parental consent is necessary, a common
issue is whether both parents must consent. The consent of either parent is
sufficient if the parents are living together, but if the parents are divorced or
voluntarily separated, the consent of the parent having custody of the child
should be obtained. No individual having temporary custody of a minor child,
whether a relative or not, is authorized at common law to give consent for
treatment of the minor. Babysitters, thus, have no authority to consent to
treatment of a minor unless given specific authority by a parent. In the absence
of the parents or a legally appointed guardian, the legal test of an individual’s
authorization to consent to treatment of a minor is whether the person hav-
ing custody stands in place of the parent. This requires more than a showing
of mere temporary custody. Some states have statutes addressing this situation.

Refusal of Consent for Treatment of Minors

If the parent or guardian consents to treatment but a mature minor
refuses, the physician and the hospital should not proceed. If mature
minors are capable of giving consent, they are capable of refusing and should
be treated as if they were adults.
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 275

If the tables are turned—the mature minor consents, but the parents
refuse—the minor’s wishes still trump the parents’. Much effort should be
expended to resolve the conflict, but all other things being equal, one
should rely on the mature minor’s consent and proceed with the treat-
ment. (Disregarding the interests of one who is not a patient involves less
legal risk than disregarding the patient’s desires, especially if the treatment
is relatively routine.)
If the parent refuses consent for treatment of a young minor who is
legally incapable of expressing her own consent, the situation poses greater
practical, ethical, and legal difficulties, especially when serious consequences
attend the decision. If the condition of the patient does not permit delaying
treatment until a court order is obtained, the physician and the hospital
should proceed with treatment despite parental objections. In situations in
which life or health is at stake, humanitarian action to save life is preferable
to inaction that may cause death (even if technically the parents may have a
viable cause of action). In most of these situations, the damages obtainable
by the parents would be small. (Besides, defense attorneys would rather point
to clients who tried to save a life than to ones who stood by passively and
watched a child suffer and die.)
If clinical judgment indicates that treatment is indicated but the
patient’s condition will not be seriously harmed by a delay, and if no
parental consent is forthcoming, the physician or the hospital should seek
a court order. The delay may not be long; it would depend on local pro-
cedure and on the working relations that the medical personnel have
developed with the court. Courts have been known to act quickly and at
all hours.
Under the early common law, (strangely, perhaps) parents’ refusal to
consent was not considered neglect. Some, therefore, doubted a court’s
power to order medical care for a minor over the objections of the parents.
All the states now have statutes that provide that the appropriate court has
jurisdiction to protect the interests of dependent and neglected children.
These protective statutes differ, but in general the state, a social agency, a
hospital, a physician, and even other relatives of a neglected child may peti-
tion the court for an order removing the child from the parents’ custody and
placing custody in a court-appointed guardian. Most of these statutes also
require that suspected child neglect or abuse be reported to the appropriate
authorities. Thus, the physician and hospital have an affirmative duty toward
the child who needs medical care.
These statutes are clearly a valid exercise of the state’s power to pro-
tect the general health and welfare of society. Hence, they are constitutional,
even when their application conflicts with or violates the parents’ religious
beliefs. In a leading case, State v. Perricone,79 the New Jersey Supreme Court
affirmed a trial court’s order that a blood transfusion be administered to an
276 The Law of Healthcare Administration

infant child of Jehovah’s Witness parents. With respect to the constitutional

issue of the parents’ religious freedom, the court said:

[T]he [first] amendment embraces two concepts—freedom to believe and

freedom to act. The first is absolute, but, in the nature of things, the second
cannot be.
The right to practice religion freely does not include the liberty to
expose…a child…to ill health or death. Parents may be free to become mar-
tyrs themselves. But it does not follow they are free, in identical circum-
stances, to make martyrs of their children before they have reached the age
of full and legal discretion when they can make that choice for themselves.

Decisions in these types of cases turn on whether parental refusal to

allow medical care fits the definition of a “dependent and neglected” child.
Other factors include the medical condition of the child, the probable out-
come if treatment is withheld, the child’s age, whether (even though a
minor) his wishes have been considered, and the basis for parental refusal.
Even where statutes do not explicitly consider refusal to consent as being
child neglect, most courts have readily found it to be so and have upheld
orders for treatment. In Jefferson v. Griffin Spalding County Hospital Author-
ity 80 statutory protection was extended to the unborn when custody was
transferred to the state and the mother was ordered to submit to a cesarean
section to save the child’s life. This was done over the religions objections of
the pregnant woman.
The legal result is less predictable where no emergency exists, how-
ever needed and desirable the recommended treatment may be. These are
the cases in which all of the other aforementioned factors are weighed. In
In re Hudson,81 the Washington Supreme Court respected the mother’s
refusal of consent and reversed a trial court order, holding that it would
not order nonemergency treatment of an 11-year-old. Each of the follow-
ing factors was of some significance: (1) the statute granting the court
“custody, care, guardianship and control” of “delinquent and dependent
children” did not specifically provide that denial of medical care was
included; (2) the only medical treatment for the child’s deformity was
amputation of the arm, which entailed considerable risk; and (3) the
mother’s refusal to consent was apparently based on the genuine medical
risk involved and on a desire to postpone surgery until her daughter was
mature enough to express her own wishes. In a subsequent Washington
case—in which the court refused to remove custody from a father who had
failed to seek treatment for his child’s speech impairment—the result was
similar.82 Similarly a New York court refused to order care for a minor
needing correction of a harelip and cleft palate.83 The father had a fear of
surgery and had apparently passed that fear on to his son. The influential
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 277

factors were that the child was old enough to have opinions of his own,
which should be respected, and that the surgery (although likely to be
highly beneficial and free from risk) could wait.
In a number of other cases the factual situation, the particular statute
involved, and the philosophy of the judges have sometimes led courts to
order nonemergency medical or surgical care for minors deemed to be neg-
lected. Illustrative is In re Sampson,84 in which a New York court ordered sur-
gery to correct a serious deformity in a 15-year-old who had not attended
school for several years.
When issues of constitutional law are introduced into situations of
nonemergency care, the matter becomes somewhat more complicated and
emotional. In the 1972 Pennsylvania case In re Green,85 the 16-year-old
patient needed corrective surgery of the spine as a result of polio. The
mother gave consent to the surgery but refused permission to administer
blood because she was a Jehovah’s Witness. The trial court—apparently
seeking some way to allow the surgery—declared the minor “neglected”
and appointed a guardian. The decision was reversed on the ground that
the state could not interfere with a parent’s religious beliefs unless the
patient’s life was in immediate peril. Further, said the appellate court, the
lower court had not taken into account the minor’s own wishes. There was
a strong dissent by three judges who argued that the only concern should
be the health of the minor and that parents should not be permitted to
make martyrs of their children. (Recall the language of the Perricone case,
mentioned earlier.)

Withholding Treatment from Handicapped Newborns

Infants are in the same legal position as other immature minors: the parents
are authorized to consent or withhold consent to treatment as long as they
are competent to do so and their actions do not constitute neglect of their
child. However, modern technology is keeping alive newborn infants who
just a few years ago would not have survived because of low birth weight or
severe birth defects. Decisions to administer or withhold treatment for these
newborns can be extremely difficult. It is not always clear whether a decision
to withhold or withdraw treatment constitutes neglect or is medically, ethi-
cally, and legally sound. Furthermore, the same questions that arise for
incompetent adults arise also for infants: Who should make such decisions,
and what standards should prevail?
If treatment is available that would clearly benefit an ill newborn—
particularly if such treatment is necessary to save the child’s life or prevent
serious, permanent consequences—then those providing medical care
should respond to the parents’ refusal in the manner suggested in the pre-
vious section. If time permits, seek a court order; if it does not, treat the
child despite the parents’ objections. A third alternative is to render sufficient
278 The Law of Healthcare Administration

treatment to keep the child alive, pending judicial decisions about future
treatment.
Infants with terminal illnesses or those in a persistent vegetative
state have essentially the same rights as incompetent adults with similar
conditions. Ordinarily, the parents or guardian may have treatment with-
held or discontinued if it is clearly futile or inhumane in the light of the
infant’s condition. In re L.H.R.86 involved a terminally ill infant who was
in a persistent vegetative state, and the court found that a life support
system was prolonging the dying process rather than her life.87 The court
ruled that the right of a terminally ill person to refuse treatment was not
lost because of incompetence or youth. The parent or legal guardian
could exercise the right on the child’s behalf after the attending physi-
cian’s diagnosis and prognosis were confirmed by two other physicians
who had no interest in the outcome. The court did not require review by
either an ethics committee or a court.
Newborns with serious birth defects or extremely low birth weight
raise more difficult issues. For example, the proposed treatment may be
beneficial, even lifesaving, but will leave the infant with a handicap. The
handicap might be caused by the treatment itself (blindness from the
administration of oxygen, for example), or it might be a result of an
existing condition, such as Down syndrome or spina bifida. In other
cases the proposed therapy might be neither clearly beneficial nor clearly
futile: The child might survive with therapy but with only a dim chance
of long life and the likelihood of suffering. In making these difficult deci-
sions parents or other surrogates must be fully informed of the medical
alternatives and the prognosis, and all means must be used to ensure that
such children are protected from decisions that are clearly contrary to
their best interests.
The once well-publicized case of “Baby Doe” focused national
attention on the manner of deciding whether to treat seriously ill new-
borns.88 In 1982, a boy was born in Indiana with Down syndrome and
a surgically correctable condition that prevented him from eating nor-
mally. His parents discussed his care with attending physicians and
decided not to consent to the corrective surgery. Food and water were
also to be withheld. Following a petition alleging neglect, a hearing was
held within days. The probate court found that the parents were not neg-
lectful but had made a reasonable choice among acceptable medical alter-
natives. Before an attempted appeal could be processed, the baby died.
Thereafter, the parents’ decision was widely criticized as being against
the best interests of the child.
Also receiving national attention was the case of “Baby Jane
89
Doe.” Born in October 1983, she was found to have spina bifida and
other serious disorders. Surgery is the usual corrective treatment in such
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 279

cases. However, after lengthy consultation with neurological experts, nurses,

religious counselors, and a social worker, the parents chose to forgo surgery
and adopt a more conservative course of treatment. When the parents’ deci-
sion was challenged in court, physicians testified during the hearing that the
parents’ choice was “well within accepted medical standards.” The trial court
found that surgery was required to preserve the infant’s life and ordered it to
be performed, but an appellate court reversed. According to the higher
court, failure to perform the surgery would not “place the infant in imminent
danger of death” and could result in serious complications. The appellate
court concluded that this was “not a case
where an infant is being deprived of med-
ical treatment to achieve a quick and sup-
posedly merciful death. Rather, it is a situa-
Legal DecisionPoint
tion where the parents have chosen one
course of appropriate medical treatment
The “Baby Jane Doe” case was decided in
over another.”90 (See Legal Decision-
large part on the basis of medical opinion that
Point.) the parents’ decision to refuse treatment was
Cases such as these have caused a medically acceptable. Are such decisions ones
great deal of discussion and legislative for medical experts to make? What other disci-
activity concerning medical treatment for plines are relevant? What does “acceptable
impaired newborns. The Child Abuse and medical standards” mean, anyway?
Neglect Prevention and Treatment Act91
was amended in 1984 to provide that
before a state may receive grants under the act it must establish, within its
child-protection system, procedures and programs for responding to
reports of medical neglect, including reports of withholding medically indi-
cated treatment for disabled infants with life-threatening illnesses. With-
holding is defined as “the failure to respond to the infant’s life-threatening
conditions by providing treatment (including appropriate nutrition, hydra-
tion, and medication) which, in the treating physician’s (or physicians’)
reasonable medical judgment, will be most likely to be effective in amelio-
rating or correcting all such conditions.” Exceptions are allowed if the
infant is irreversibly comatose and if the treatment would merely delay
death; would not correct all of the life-threatening conditions or would
otherwise do nothing toward saving the child’s life; or would be virtually
futile and, under the circumstances, inhumane. The Act requires state
child-protection agencies to see that individuals within healthcare facilities
report suspected medical neglect to pursue appropriate legal remedies. Var-
ious states have also passed laws covering medical treatment for newborns
and other children.
Decisions concerning treatment for seriously ill newborns are clearly
no longer immune from public scrutiny. Hospitals, physicians, and parents
have positive duties to act in a child’s best interests. Where once the hospital
280 The Law of Healthcare Administration

or physician could look the other way if a parent refused consent for neces-
sary care, the law now imposes a duty to act. As in the case with incompetent
adults, hospitals must ascertain with their attorneys the applicable state and
federal laws and develop procedures for complying with those laws.

Chapter Summary

In this chapter the difference between “consent” (a concept arising out of

the law of battery) and “informed consent” (which relates to the standards
of medical practice) is explored. If a patient’s consent to a medical proce-
dure is not well informed, it is no consent at all. For consent to be
informed, it must be accompanied by a basic understanding of the patient’s
diagnosis and prognosis, the nature of the proposed treatment, the inher-
ent risks, any possible alternative treatments, and the risks of not consent-
ing at all. The chapter also considers consent issues in emergencies and
such thorny issues as the so-called “right to die” (refusal to consent to life-
sustaining treatment) and consent for patients who are not competent to
make choices for themselves.

Chapter Discussion Questions

1. What are the two types of consent for medical treatment? When does
each apply?
2. What is the standard for consent in an emergency?
3. What is the hospital’s role in obtaining informed consent?
4. What are the requirements for valid informed consent?
5. How does the principle of informed consent apply to competent
patients who refuse lifesaving treatment? How does it apply to incompe-
tent patients who have signed a living will or have designated a health-
care surrogate?
6. How does informed consent apply to an incompetent adult? To a new-
born? To a “mature minor”?
7. Under what circumstances may consent be refused for the artificial
administration of nutrition and hydration?

Notes
1. 211 N.Y. 125, 129, 105 N.E. 92, 93 (1914).
2. 119 So. 2d 649 (La. Ct. App. 1960); see also Pegram v. Sisco, 406 F. Supp. 776 (D. Ark.
1976)—a signed consent form in generalized language does not relieve a surgeon from
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 281

explaining the nature of diagnosis, material elements, and risks of recommended treatment
using radium implants as well as alternative methods of treatment.
3. Perna v. Pirozzi, 92 N.J. 446, 457 A.2d 431 (1983).
4. An example is found in Demers v. Gerety, 85 N.M. 641, 515 P.2d 645 (Ct. App. 1973)—a
consent form signed when a patient was under the influence of Nembutal was not effec-
tive; rev’d and remanded on procedural grounds, 86 N.M. 141, 520 P.2d 869 (1974).
5. An example is Zoski v. Gaines, 271 Mich. 1, 260 N.W. 99 (1935)—a surgeon was held liable for
removal of a minor’s tonsils without parental consent. For a contrasting situation involving an
immediate threat to life or health, see Luka v. Lowrie, 171 Mich. 122, 136 N.W. 1106 (1912),
discussed in this chapter under the section “Consent and Refusal of Treatment for Minors.”
6. 42 U.S.C. § 1395dd(e).
7. Mohr v. Williams, 95 Minn. 261, 104 N.W. 12 (1905); see also Tabor v. Scobee, 254
S.W.2d 474 (Ky. Ct. App. 1951)—during surgery, a surgeon discovered infected fallopian
tubes; the court ruled that he might not extend operation and remove the tubes without
consent unless an immediate threat to life or health existed.
8. Bennan v. Parsonnet, 83 N.J.L. 20, 83 A. 948 (Sup. Ct. 1912).
9. Davidson v. Shirley, 616 F.2d 224 (5th Cir. 1980)—where a patient signed a consent form
for a cesarean section and authorized “such additional...procedures as are considered ther-
apeutically necessary on the basis of findings during the course of the operation,” there
was no liability when surgeon performed a hysterectomy because extension of operation
was consistent with reasonable and prudent surgical practice.
10. For example, Inderbitzen v. Lane Hosp., 124 Cal. App. 462, 12 P.2d 744 (1932)—a hos-
pital was liable for permitting medical students, who were under hospital control and
hence employees, to examine a patient without her consent.
11. Cox v. Haworth, 283 S.E.2d 392 (N.C. App. 1981)—a hospital was not liable for a staff
physician’s failure to reveal risks of myelogram; Cooper v. Curry, 92 N.M. 417, 589 P.2d
201 (1979)—a hospital was not liable for alleged failure of a staff physician to obtain a
patient’s informed consent for cataract surgery.
12. Magana v. Elie, 108 Ill. App. 3d 1028, 439 N.E.2d 1319 (1982)—a hospital must con-
form to reasonable and prudent conduct in light of apparent risk even when a physician is
an independent contractor; see also dissenting opinion, Cooper, 92 N.M. at 423, 589 P.2d
at 207 (Sutin, J.)—a physician’s duty is to obtain a patient’s consent, while a hospital’s
duty is “to ascertain whether the doctor has obtained consent.”
13. Fiorentino v. Wenger, 19 N.Y.2d 407, 227 N.E.2d 296, 280 N.Y.S.2d 373 (1967). See
also Cross v. Trapp, 294 S.E.2d 446 (W. Va. 1982)—as a matter of law, a hospital is not
liable for a physician’s alleged inadequate explanation of risks of surgery.
14. Supra, note 2.
15. 71 Nev. 280, 289 P.2d 173 (1955).
16. 251 Minn. 427, 88 N.W.2d 186 (1958).
17. 186 Kan. 393, 350 P.2d 1093 (1960), second opinion, 187 Kan. 186, 354 P.2d 670
(1960).
18. 334 S.W.2d 11 (Mo. 1960), 79 A.L.R.2d 1017; 360 S.W.2d 673 (Mo. 1962)—retrial in this
litigation resulted in a verdict for defendants as they satisfactorily proved that they had ade-
quately informed the patient. See also Shack v. Holland, 389 N.Y.S.2d 988 (Sup. Ct. 1976)—
the absence of informed consent from a mother with respect to risks, hazards, and alternative
delivery procedures is malpractice and gives the child born permanently deformed a derivative
cause of action; the statute of limitations begins to run when the child is 21 years old.
19. 110 R.I. 606, 295 A.2d 676 (1972).
20. Truman v. Thomas, 27 Cal. 3d 285, 295–96, 611 P.2d 902, 907–8, 165 Cal. Rptr. 308,
313–14 (1980).
21. Lester v. Aetna Casualty Co., 240 F.2d 676 (5th Cir. 1957); Roberts v. Woods, 206 F.
Supp. 579 (S.D. Ala. 1962); Nishi v. Hartwell, 52 Haw. 296, 473 P.2d 116, reh’g denied,
52 Haw. 296 (1970); Harnish v. Children’s Hosp. Medical Center, 387 Mass. 152, 439
282 The Law of Healthcare Administration

N.E.2d 240 (1982); Starnes v. Taylor, 272 N.C. 386, 158 S.E.2d 339 (1968).
22. Karp v. Cooley, 349 F. Supp. 827 (S.D. Tex. 1972), aff ’d , 493 F.2d 408 (5th Cir.), cert.
denied, 419 U.S. 845 (1974); see also Schwartz v. Boston Hosp. for Women, 422 F. Supp.
53 (S.D.N.Y. 1976)—a hospital has a responsibility to obtain informed consent when the
patient is a participant in a surgical research program.
23. National Commission for the Protection of Human Subjects of Biomedical and Behavioral
Research, U.S. Dep’t of Health, Educ. and Welfare, Pub. No. 0012, The Belmont Research
2 [hereinafter The Belmont Report]. “The Boundaries Between Biomedical or Behavioral
Research and the Accepted and Routine Practice of Medicine,” Pub. No. 0013, The Bel-
mont Report 1-1-1-44 App. I (1978). See Cowan and Bertsch, “Innovative Therapy: The
Responsibility of Hospitals,” 5 J. Legal Med. 219 (June 1984).
24. The Belmont Report, supra note 23, at 3.
25. 21 U.S.C. § 355–60k (1982).
26. National Research Act, Pub. L. No. 93-348, 88 Stat. 342 (codified in various sections of
Title 42, U.S.C.). 45 C.F.R. § 46.111.
27. 45 C.F.R. § 46.107.
28. 45 C.F.R. § 46.111(a)(2).
29. Jeffcoat v. Phillips, 417 S.W.2d 903 (Tex. Civ. App. 1967)—a husband’s consent was not neces-
sary for surgery on his wife; jury found as fact that the patient had given effective consent; Rytko-
nen v. Lojacona, 269 Mich. 270, 257 N.W. 703 (1934)—a wife’s consent was not necessary for
operation on her husband; he had consented. Janney v. Housekeeper, 70 Md. 162, 16 A. 382
(1889)—a husband’s consent was not necessary for surgical procedure on his wife.
30. Gravis v. Physician’s and Surgeon’s Hosp. of Alice, 427 S.W.2d 310 (Tex. 1968).
31. Murray v. Vandevander, 522 P.2d 302 (Okla. Ct. App. 1974).
32. Fla. Stat. § 765.401.
33. See, for example, Satz v. Perlmutter, 362 So. 2d 160 (Fla. Dist. Ct. 1978), approved, 379
So. 2d 359 (Fla. 1980)—a 73-year-old man with Lou Gehrig’s disease had a right to have
mechanical respirator disconnected; In re Quackenbush, 156 N.J. Super. 282, 383 A.2d
785 (Morris County Ct. 1978), a competent patient with gangrenous condition in both
legs could refuse consent to amputation even though necessary to save his life; Kirby v.
Spivey, 167 Ga. App. 751, 307 S.E.2d 538 (1983)—it is not malpractice for a physician to
respect the refusal of a competent patient to seek recommended treatment; Erickson v.
Dilgard, 44 Misc. 2d 27, 252 N.Y.S.2d 705 (Sup. Ct. 1962)—the court refused to order a
blood transfusion for a competent adult; Winters v. Miller, 446 F.2d 65 (2d Cir.), cert.
denied, 404 U.S.985 (1971)—medication may not be administered to a mentally ill
patient contrary to her wishes when she has not been declared legally incompetent; In re
Estate of Brooks, 32 Ill. 2d 361, 205 N.E.2d 435 (1965)—a court may not order admin-
istration of blood contrary to a patient’s wishes based on religious convictions; Palm
Springs Gen. Hosp. v. Martinez, No. 71–12687 (Cir. Ct. Fla. 1971)—physicians and hos-
pital not civilly liable for complying with a competent, terminally ill patient’s wishes to
withdraw treatment.
34. Eichner v. Dillon, 434 N.Y.S.2d 46, 420 N.E.2d 64 (1981).
35. See Foreman, “The Physician’s Criminal Liability for the Practice of Euthanasia,” 27 Bay-
lor L. Rev. 54, 57 (1975).
36. In re Quackenbush, 156 N.J. Super. at 290, 383 A.2d at 789.
37. See, for example, Minn. Stat. §144.651 (12) (Supp. 1985); Mich. Comp. Laws Ann. §
333.20201 (2)(f) (West Supp. 1985).
38. 331 F.2d 1000, 118 App. D.C. 80 (1964); see also Raleigh Fitkin-Paul Morgan Memorial
Hosp. v. Anderson, 42 N.J. 421, 201 A.2d 537, cert. denied, 337 U.S. 985 (1964)—blood
transfusion was ordered to preserve life of an unborn child. Courts will also order treat-
ment to protect the public’s health. See, for example, Jacobson v. Massachusetts, 197 U.S.
11 (1905) (compulsory vaccination).
39. In re Osborne, 294 A.2d 372 (D.C. Cir. 1972).
40. Eichner, 73 A.D.2d at 456, 426 N.Y.S.2d at 537.
41. In John F. Kennedy Memorial Hosp. v. Heston, 58 N.J. 576, 279 A.2d 670 (1971), the
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 283

court, in ruling that the state had a compelling interest to preserve the life of a 22-year-
old competent adult, ordered blood transfusions over her refusal on religious grounds, giv-
ing great weight to the interests of the hospital, nurses, and physicians in carrying out
their professional duties. Heston was expressly overruled in In re Conroy, 98 N.J. 321,
486 A.2d 1209 (1985).
42. In re Quinlan, 70 N.J. 10, 355 A.2d 647, 667, cert. denied, 429 U.S. 922 (1976); see
also Leach v. Akron Gen. Medical Center, 68 Ohio Misc. 1, 426 N.E.2d 809 (1980).
43. Bartling v. Superior Court, 163 Cal. App. 186, 209 Cal. Rptr. 220 (1984)—a competent
adult with serious illnesses that were incurable but not diagnosed as terminal had a right to
have life-support equipment disconnected; Tune v. Walter Reed Army Medical Center, 602
F. Supp. 1452 (D.C.D.C. 1985)—a 71-year-old woman with terminal adenocarcinoma had
a right to have the respirator that sustained her life disconnected in spite of Army policy
precluding the withdrawal of life-support systems; Saltz v. Perlmustter, 379 So. 2d 359
(Fla. 1980)—a 73-year-old competent patient had a right to have a respirator removed
where all affected family members consented.
44. See, for example, In re Melideo, 88 Misc. 2d 974, 390 N.Y.S.2d 523 (Sup. Ct. 1976)—a
Jehovah’s Witness patient was permitted to refuse blood transfusion, even though death
was likely to result; Lane v. Candura, 6 Mass. App. 377, 376 N.E.2d 1232 (1978)—the
court would not order amputation of the gangrenous leg of a 77-year-old competent
woman over her objection.
45. In re Plaza Health & Rehabilitation Center (Sup. Ct., Onandaga County, N.Y., Feb. 4,
1984).
46. Bouvia v. Riverside County Gen. Hosp., No. 159780 (Super. Ct., Riverside City, Cal.,
Dec. 16, 1983).
47. Bouvia v. Superior Court (Glenchur), 179 Cal. App. 3d 1127, 225 Cal. Rptr. 297 (1986).
48. Barclay v. Campbell, 704 S.W.2d 8 (Tex. 1986)—a mentally ill person was entitled to be
informed of risks from use of neuroleptic drugs.
49. Maben v. Rankin, 55 Cal. 2d 139, 358 P.2d 681, 10 Cal. Rptr. 353 (1961).
50. Ritz v. Florida Patients’ Compensation Fund, 436 So. 2d 987 (Fla. App. 1983)—a father,
though not an official legal guardian, who consented to brain surgery for an adult incom-
petent daughter may not bring action alleging that the operation was unauthorized, review
denied, 450 So. 2d 488 (Fla. 1984).
51. Lester v. Aetna Casualty Co., 240 F.2d 676—a wife authorized to consent for electroshock
treatments for a husband, where reasonable under all the facts and circumstances to believe
that it would harm the patient to obtain a fully informed consent from him, cert. denied, 354
U.S. 923 (1957); Farber v. Olkon, 40 Cal. 2d 503, 254 P.2d 520 (1953)—a parent that is
not legally appointed guardian can consent for a mentally incompetent adult child; Smith v.
Luckett, 155 Ga. App. 640, 271 S.E.2d 891 (1980)—suit by a patient who did not object
during preparation for surgical procedure did not succeed when spouse had consented, as
authorized by statute; Pratt v. Davis, 224 Ill. 300, 79 N.E. 562 (1906)—a physician was liable
when surgery was performed on an incompetent wife without her husband’s consent; Steele v.
Woods, 327 S.W.2d 187 (Mo. 1959)—when a patient is incompetent, a physician has a duty
to advise her husband or a relative who is competent to speak for the patient.
52. See, for example, In re Torres, 357 N.W.2d 332 (Minn. 1984); Severns v. Wilmington
Medical Center, Inc., 421 A.2d 1334 (Del. 1980); John F. Kennedy Memorial Hosp., Inc.
v. Bludworth, 452 So. 2d 921 (Fla. 1984), aff ’g 432 So. 2d 611 (Fla. Dist. Ct. App.
1983); Superintendent of Belchertown State School v. Saikewicz, 373 Mass. 728, 370
N.E.2d 417 (1977); In re Quinlan, 70 N.J. 10, 355 A.2d 647, cert. denied, 429 U.S. 922
(1976); Eichner v. Dilon, 434 N.Y.S.2d 46, 420 N.E.2d 64 (1981); In re Storar, 52
N.Y.2d 363, 420 N.E.2d 64, 438 N.Y.S.2d 266, cert. denied, 454 U.S. 858 (1981);
Leach v. Akron Gen. Medical Center, 68 Ohio Misc. 1, 426 N.E.2d 809 (1980); In re
Colyer, 99 Wash. 2d 114, 660 P.2d 738 (1983).
53. 70 N.J. 10, 355 A.2d 647 (1976).
54. In re Quinlan, 137 N.J. Super. 227, 348 A.2d 801 (Ch. Div. 1975), modified, 70 N.J. 10
(1976).
284 The Law of Healthcare Administration

55. 373 Mass. 728, 370 N.E.2d 417 (1977).

56. Id. at 750, 370 N.E.2d at 430.
57. Id. at 753–54, 370 N.E.2d at 432.
58. Id. at 752–53, 370 N.E.2d at 431.
59. Id. at 754–55, 370 N.E.2d at 432.
60. Id. at 754, 370 N.E.2d at 432. Other cases applying the substituted judgment doctrine
include In re Hier, 18 Mass. App. 200, 464 N.E.2d 959 (1984), and John F. Kennedy
Memorial Hosp., Inc. v. Bludworth, 452 So. 2d 921 (Fla. 1984), aff ’d 432 So. 2d 611
(Fla. Dist. Ct. App. 1983).
61. In re Storar, 52 N.Y.2d 363, 420 N.E.2d 64, 438 N.Y.S.2d 266, cert. denied, 454 U.S.
858 (1981).
62. 98 N.J. 321, 486 A.2d 1209 (1985).
63. In re Conroy, 188 N.J. Super. 523 (N.J. Ch. Div. 1983).
64. In re Conroy, 190 N.J. Super. 453, 464 A.2d 303 (N.J. Super. A.D. 1983).
65. In re Conroy, 98 N.J. at 342–43, 486 A.2d at 1219.
66. Id. at 360, 486 A.2d at 1229.
67. Id. at 364, 486 A.2d at 1231.
68. 497 U.S. 261 (1990).
69. Cal. Health & Safety Code §§ 7185/7195 (West Supp. 1985).
70. Id. at § 7187(c).
71. Id. at § 7195.
72. See, for example, Cal. Civ. Code §§ 2430/2443 (West Supp. 1985). See also 20 Pa. Cons.
Stat. Ann. §§ 5601—5606 (Purdon Supp. 1985)—durable power of attorney for medical
decisions.
73. Whether the court needs to be involved in determining incompetence is not clear. “The
implication is that doctors will continue to have the major role in assessing incompetence.
The efficiency of the law would be severely impaired if judicial review of competence were
routinely requested. When the physician has doubts about the patient’s ability to give
informed consent, he or she may seek consent from both the patient and the agent—an
approach that does not involve legal proceedings.” Steinbrook and Lo, “Decision Making
for Incompetent Patients by Designated Proxy,” 310 New Eng. J. of Med. 1598, 1599
(1984).
74. 171 Mich. 122, 136 N.W. 1106 (1912).
75. In re Barbara Doe (unreported case D.C. 1971).
76. 205 Kan. 292, 469 P.2d 330 (1970).
77. N.Y. Pub. Health L. § 2504(2).
78. See, for example, In re Estate of Kemp, 43 Cal. App. 3d 758, 118 Cal. Rptr. 64 (1974);
Holmes v. Powers, 439 S.W.2d 579 (Ky. Ct. App. 1968); In re Smith, 16 Md. App. 209,
295 A.2d 238 (1972); In re M.K.R., 515 S.W.2d 467 (Mo. 1974); Frazier v. Levi, 440
S.W.2d 393 (Tex. Civ. App. 1969).
79. 37 N.J. 463, 181 A.2d 751 (1962), cert. denied, 371 U.S. 890 (1962).
80. 247 Ga. 86, 274 S.E.2d 457 (1981).
81. 13 Wash. 2d 673, 126 P.2d 765 (1942).
82. In re Frank, 41 Wash. 2d 294, 248 P.2d 553 (1952).
83. In re Seiferth, 309 N.Y. 80, 127 N.E.2d 820 (1955).
84. 29 N.Y.2d 900, 278 N.E.2d 918, 328 N.Y.S.2d 686 (1972).
85. 448 Pa. 338, 292 A.2d 387, 52 A.L.R.3d 1106 (1972).
86. 253 Ga. 439, 321 S.E.2d 716 (1984).
87. See also In re Barry, 445 So. 2d 365 (Fla. App. 2d Dist. 1984)—the court authorized par-
ents to consent to withdrawal of life-support systems for terminally ill, comatose 10-
month-old child on the basis of child’s right to privacy; In re Benjamin C., (Sup. Ct. Cal.,
Feb. 15, 1979)—parents could rely on physician’s judgment in authorizing disconnection
of life-support systems for a 3-year-old auto accident victim who was comatose; this would
be consistent with generally accepted medical standards; Custody of a Minor, 385 Mass.
697, 434 N.E.2d 601 (1982)—the court applied the substituted judgment doctrine and
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 285

authorized a “do not resuscitate” order for abandoned, terminally ill newborn; the medical
testimony was that heroic efforts to resuscitate the infant would not be in the child’s best
interests and would “offend medical ethics.”
88. In re Infant Doe, No. 1-782A157 (Ind. App., Apr. 14, 1982). The medical circumstances
of “Baby Doe” are described in a letter from John E. Pless, M.D., to the editor of the
New England Journal of Medicine, entitled “The Story of Baby Doe,” 309 New Eng. J. of
Med. 664 (1983).
89. Weber v. Stony Brook Hosp., 95 A.D.2d 587, aff ’d, 60 N.Y.2d 208 (1983).
90. Id. at 589.
91. 42 U.S.C. §§ 5116 et seq.
286 The Law of Healthcare Administration

the court decides

Cobbs v. Grant
8 Cal. 3d 229, 502 P.2d 1, 104 Cal. Rptr. 505 (1972)

Mosk, J. the operation to plaintiff, he did not dis-

cuss any of the inherent risks of the sur-
This medical malpractice case involves gery.
two issues: first, whether there was suffi- A two-hour operation was performed
cient evidence of negligence in the per- the next day, in the course of which the
forming of surgery to sustain a jury verdict presence of a small ulcer was confirmed.
for plaintiff; second, whether, under plain- Following the surgery the ulcer disap-
tiff’s alternative theory, the instructions to peared. Plaintiff’s recovery appeared to be
the jury adequately set forth the nature of uneventful, and he was permitted to go
a medical doctor’s duty to obtain the home eight days later. However, the day
informed consent of a patient before after he returned home, plaintiff began to
undertaking treatment. We conclude there experience intense pain in his abdomen.
was insufficient evidence to support the He immediately called Dr. Sands who
jury’s verdict under the theory that the advised him to return to the hospital. Two
defendant was negligent during the opera- hours after his readmission plaintiff went
tion. Since there was a general verdict and into shock and emergency surgery was
we are unable to ascertain upon which of performed. It was discovered plaintiff was
the two concepts the jury relied, we must bleeding internally as a result of a severed
reverse the judgment and remand for a artery at the hilum of his spleen. Because
new trial. To assist the trial court upon of the seriousness of the hemorrhaging
remand we analyze the doctor’s duty to and since the spleen of an adult may be
obtain the patient’s informed consent and removed without adverse effects, defen-
suggest principles for guidance in drafting dant decided to remove the spleen.
new instructions on this question. Injuries to the spleen that compel a subse-
Plaintiff was admitted to the hospital in quent operation are a risk inherent in the
August 1964 for treatment of a duodenal type of surgery performed on plaintiff and
ulcer. He was given a series of tests to occur in approximately 5 percent of such
ascertain the severity of his condition and, operations.
though administered medication to ease After removal of his spleen, plaintiff
his discomfort, he continued to complain recuperated for two weeks in the hospital.
of lower abdominal pain and nausea. His A month after discharge he was readmit-
family physician, Dr. Jerome Sands, con- ted because of sharp pains in his stomach.
cluding that surgery was indicated, dis- X-rays disclosed plaintiff was developing a
cussed prospective surgery with plaintiff gastric ulcer. The evolution of a new ulcer
and advised him in general terms of the is another risk inherent in surgery per-
risks of undergoing a general anesthetic. formed to relieve a duodenal ulcer. Dr.
Dr. Sands called in defendant, Dr. Dudley Sands initially decided to attempt to treat
F. P. Grant, a surgeon, who after examining this nascent gastric ulcer with antacids
plaintiff, agreed with Dr. Sands that plain- and a strict diet. However, some four
tiff had an intractable peptic duodenal months later plaintiff was again hospital-
ulcer and that surgery was indicated. ized when the gastric ulcer continued to
Although Dr. Grant explained the nature of deteriorate and he experienced severe
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 287

pain. When plaintiff began to vomit blood which to make an informed consent deci-
the defendant and Dr. Sands concluded sion—although technically a battery—is
that a third operation was indicated: a really a case of professional malpractice,
gastrectomy with removal of 50 percent of i.e., negligence. The opinion then segues
plaintiff’s stomach to reduce its acid-pro- into a discussion of the standard of care
ducing capacity. Some time after the sur- in these kinds of cases.]
gery, plaintiff was discharged, but subse- Since this is an appropriate case for the
quently had to be hospitalized yet again application of a negligence theory, it
when he began to bleed internally due to remains for us to determine [whether] the
the premature absorption of a suture, standard of care described in the jury
another inherent risk of surgery. After instruction on this subject properly delin-
plaintiff was hospitalized, the bleeding eates defendant’s duty to inform plaintiff
began to abate and a week later he was of the inherent risks of the surgery. In per-
finally discharged. tinent part, the court gave the following
Plaintiff brought this malpractice suit instruction: “A physician’s duty to disclose
against his surgeon, Dr. Grant. The action is not governed by the standard practice in
was consolidated for trial with a similar the community; rather it is a duty imposed
action against the hospital. The jury by law. A physician violates his duty to his
returned a general verdict against the hos- patient and subjects himself to liability if
pital in the amount of $45,000. This judg- he withholds any facts which are neces-
ment has been satisfied. The jury also sary to form the basis of an intelligent
returned a general verdict against defen- consent by the patient to the proposed
dant Grant in the amount of $23,800. treatment.”
He appeals. Defendant raises two objections to the
The jury could have found for plaintiff foregoing instruction. First, he points out
either by determining that defendant neg- that the majority of the California cases
ligently performed the operation, or on the have measured the duty to disclose not in
theory that defendant’s failure to disclose terms of an absolute, but as a duty to
the inherent risks of the initial surgery viti- reveal such information as would be dis-
ated plaintiff’s consent to operate. Defen- closed by a doctor in good standing within
dant attacks both possible grounds of the the medical community.... One commenta-
verdict. He contends, first, [that] there was tor has imperiously declared that “good
insufficient evidence to sustain a verdict medical practice is good law.” Moreover,
of negligence, and, second, [that] the with one state and one federal exception
[trial] court committed prejudicial error in every jurisdiction that has considered this
its instruction to the jury on the issue of question has adopted the community stan-
informed consent. dard as the applicable test. Defendant’s
[In the first section of the opinion the second contention is that this near unanim-
court agrees with the defendant’s argu- ity reflects strong policy reasons for vesting
ment that the evidence did not justify a in the medical community the unques-
verdict of negligence. Because of the gen- tioned discretion to determine [whether]
eral verdict, the court could not determine the withholding of information by a doctor
on which basis the jury found for the from his patient is justified at the time the
plaintiff. Accordingly, the court reverses patient weighs the risks of the treatment
the judgment and orders a retrial. against the risks of refusing treatment.
In the second section, the court finds The thesis that medical doctors are
that the failure to provide information on invested with discretion to withhold
288 The Law of Healthcare Administration

information from their patients has been Therefore, we hold, as an integral part
frequently ventilated in both legal and of the physician’s overall obligation to the
medical literature.... Despite what defen- patient there is a duty of reasonable dis-
dant characterizes as the prevailing rule, it closure of the available choices with
has never been unequivocally adopted by respect to proposed therapy and of the
an authoritative source. Therefore we dangers inherently and potentially
probe anew into the rationale which pur- involved in each.
portedly justifies, in accordance with med- A concomitant issue is the yardstick to
ical rather than legal standards, the with- be applied in determining reasonableness
holding of information from a patient. of disclosure. This defendant and the
Preliminarily we employ several postu- majority of courts have related the duty to
lates. The first is that patients are gener- the custom of physicians practicing in the
ally persons unlearned in the medical sci- community. The majority rule is needlessly
ences and therefore, except in rare cases, overbroad. Even if there can be said to be
courts may safely assume the knowledge a medical community standard as to the
of patient and physician are not in parity. disclosure requirement for any prescribed
The second is that a person of adult years treatment, it appears so nebulous that
and in sound mind has the right, in the doctors become, in effect, vested with vir-
exercise of control over his own body, to tual absolute discretion. Unlimited discre-
determine whether or not to submit to tion in the physician is irreconcilable with
lawful medical treatment. The third is that the basic right of the patient to make the
the patient’s consent to treatment, to be ultimate informed decision regarding the
effective, must be an informed consent. course of treatment to which he knowl-
And the fourth is that the patient, being edgeably consents to be subjected.
unlearned in medical sciences, has an A medical doctor, being the expert,
abject dependence upon and trust in his appreciates the risks inherent in the pro-
physician for the information upon which cedure he is prescribing, the risks of a
he relies during the decisional process, decision not to undergo the treatment,
thus raising an obligation in the physician and the probability of a successful out-
that transcends arms-length transactions. come of the treatment. But once this infor-
From the foregoing axiomatic ingredi- mation has been disclosed, that aspect of
ents emerges a necessity, and a resultant the doctor’s expert function has been per-
requirement, for divulgence by the physi- formed. The weighing of these risks
cian to his patient of all information rele- against the individual subjective fears and
vant to a meaningful decisional process. hopes of the patient is not an expert skill.
In many instances, to the physician, Such evaluation and decision is a non-
whose training and experience enable a medical judgment reserved to the patient
self-satisfying evaluation, the particular alone. A patient should be denied the
treatment which should be undertaken opportunity to weigh the risks only where
may seem evident, but it is the preroga- it is evident he cannot evaluate the data,
tive of the patient, not the physician, to as for example, where there is an emer-
determine for himself the direction in gency or the patient is a child or incompe-
which he believes his interests lie. To tent. For this reason, the law provides that
enable the patient to chart his course in an emergency consent is implied, and if
knowledgeably, reasonable familiarity the patient is a minor or incompetent, the
with the therapeutic alternatives and authority to consent is transferred to the
their hazards becomes essential. patient’s legal guardian or closest avail-
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 289

able relative. In all cases other than the In sum, the patient’s right of self-deci-
foregoing, the decision whether or not to sion is the measure of the physician’s duty
undertake treatment is vested in the party to reveal. That right can be effectively
most directly affected: the patient. exercised only if the patient possesses
The scope of the disclosure required of adequate information to enable an intelli-
physicians defies simple definition. Some gent choice. The scope of the physician’s
courts have spoken of “full disclosure” and communications to the patient, then, must
others refer to “full and complete” disclo- be measured by the patient’s need, and
sure, but such facile expressions obscure that need is whatever information is mate-
common practicalities. Two qualifications to rial to the decision. Thus the test for deter-
a requirement of “full disclosure” need little mining whether a potential peril must be
explication. First, the patient’s interest in divulged is its materiality to the patient’s
information does not extend to a lengthy decision.
polysyllabic discourse on all possible com- We point out, for guidance on retrial, an
plications. A mini-course in medical science additional problem which suggests itself.
is not required; the patient is concerned There must be a causal relationship
with the risk of death or bodily harm, and between the physician’s failure to inform
problems of recuperation. Second, there is and the injury to the plaintiff. Such causal
no physician’s duty to discuss the relatively connection arises only if it is established
minor risks inherent in common procedures, that had revelation been made consent to
when it is common knowledge that such treatment would not have been given.
risks inherent in the procedure are of very Here the record discloses no testimony
low incidence. When there is a common pro- that had plaintiff been informed of the
cedure a doctor must, of course, make such risks of surgery he would not have con-
inquiries as are required to determine if for sented to the operation.
the particular patient the treatment under The patient-plaintiff may testify on this
consideration is contraindicated—for exam- subject but the issue extends beyond his
ple, to determine if the patient has had credibility. Since at the time of trial the
adverse reactions to antibiotics; but no uncommunicated hazard has materialized,
warning beyond such inquiries is required it would be surprising if the patient-plain-
as to the remote possibility of death or seri- tiff did not claim that had he been
ous bodily harm. informed of the dangers he would have
However, when there is a more compli- declined treatment. Subjectively he may
cated procedure, as the surgery in the case believe so, with the 20/20 vision of hind-
before us, the jury should be instructed that sight, but we doubt that justice will be
when a given procedure inherently involves served by placing the physician in jeop-
a known risk of death or serious bodily ardy of the patient’s bitterness and disillu-
harm, a medical doctor has a duty to dis- sionment. Thus an objective test is prefer-
close to his patient the potential of death or able: i.e., what would a prudent person in
serious harm, and to explain in lay terms the patient’s position have decided if ade-
the complications that might possibly occur. quately informed of all significant perils.
Beyond the foregoing minimal disclosure, a ....
doctor must also reveal to his patient such Whenever appropriate, the court
additional information as a skilled practi- should instruct the jury on the defenses
tioner of good standing would provide available to a doctor who has failed to
under similar circumstances. make the disclosure required by law.
290 The Law of Healthcare Administration

Thus, a medical doctor need not make dis- reasonable man the disclosure would have
closure of risks when the patient requests so seriously upset the patient that the
that he not be so informed. Such a disclo- patient would not have been able to dis-
sure need not be made if the procedure is passionately weigh the risks of refusing to
simple and the danger remote and com- undergo the recommended treatment. Any
monly appreciated to be remote. A disclo- defense, of course, must be consistent
sure need not be made beyond that with what has been termed the “fiducial
required within the medical community qualities” of the physician-patient rela-
when a doctor can prove...[that] he relied tionship.
upon facts which would demonstrate to a The judgment is reversed.

Cobbs v. Grant Discussion Questions

1. What do you suppose was the reaction of the physician community to

this decision, and how would you have defended it to them at the time?
2. The second section of the opinion has been omitted from this excerpt,
but it concerned the issue of negligence versus intentional tort (or, as
the defense termed it, a “technical battery”). Had you been Dr. Grant’s
attorney, why would you argue that this is an intentional tort case? How
would you make that argument?
3. Is it fair for Dr. Grant to be held to a standard of care that did not exist
at the time of Mr. Cobbs’s treatment?
4. Can you explain why the “reasonable patient” test is called “objective”
while testimony from the patient on the question of causation is unreli-
able?
5. The court says there was not enough evidence to support a verdict of
negligence, yet the original gastrectomy led to multiple hospital stays
and two follow-up surgeries. All these complications were known risks
that can occur even if the surgeon performs the operation flawlessly. If
you were the patient and knew about these risks, would you decide to
consent to the first surgery? What factors would you consider?
 C h a p t e r 9 : C o n s e n t f o r Tre a t m e n t a n d W i t h h o l d i n g C o n s e n t 291

the court decides

Bush v. Schiavo
No. SC04-925 (Fla., Sept. 23, 2004)

[The facts of the case are summarized in governing statutes, a final judgment is
the text beginning at page 267. The fol- issued, and all post-judgment proce-
lowing excerpt concerns how the Florida dures are followed, it is without question
Supreme Court addressed the constitu- an invasion of the authority of the judi-
tionality of “ Terry’s Law” and, by implica- cial branch for the Legislature to pass a
tion, the legislature’s attempt to interfere law that allows the executive branch to
in the judicial process.] interfere with the final judicial determi-
nation in a case. That is precisely what
In this case, the undisputed facts show that occurred here and for that reason the Act
the guardianship court authorized Michael is unconstitutional as applied to Theresa
to proceed with the discontinuance of Schiavo.
Theresa’s life support after the issue was ….
fully litigated in a proceeding in which the In addition to concluding that the Act is
Schindlers were afforded the opportunity to unconstitutional as applied in this case
present evidence on all issues. This order because it encroaches on the power of the
as well as the order denying the Schindlers’ judicial branch, we further conclude that
motion for relief from judgment were the Act is unconstitutional on its face
affirmed on direct appeal. The Schindlers because it delegates legislative power to
sought review in this Court, which was the Governor.
denied. Thereafter, the tube was removed. ….
Subsequently, pursuant to the Governor’s CONCLUSION
executive order, the nutrition and hydration We recognize that the tragic circum-
tube was reinserted. Thus, the Act, as stances underlying this case make it diffi-
applied in this case, resulted in an execu- cult to put emotions aside and focus
tive order that effectively reversed a prop- solely on the legal issue presented. We
erly rendered final judgment and thereby are not insensitive to the struggle that all
constituted an unconstitutional encroach- members of Theresa’s family have endured
ment on the power that has been reserved since she fell unconscious in 1990. How-
for the independent judiciary. ever, we are a nation of laws and we must
…. govern our decisions by the rule of law
Under procedures enacted by the Legis- and not by our own emotions. Our hearts
lature, … circuit courts are charged with can fully comprehend the grief so fully
adjudicating issues regarding incompe- demonstrated by Theresa’s family mem-
tent individuals. The trial courts of this bers on this record. But our hearts are not
State are called upon to make many of the law. What is in the Constitution always
the most difficult decisions facing society. must prevail over emotion. Our oaths as
[T]hese decisions literally affect the lives judges require that this principle is our
or deaths of patients. The trial courts also polestar, and it alone.
handle other weighty decisions affecting As the Second District noted in one of
the welfare of children such as termination the multiple appeals in this case, we “are
of parental rights and child custody. When called upon to make a collective, objective
the prescribed procedures are followed decision concerning a question of law.
according to our rules of court and the Each of us, however, has our own family,
292 The Law of Healthcare Administration

our own loved ones, our own children.… based on popular clamor. The essential
But in the end, this case is not about the core of what the Founding Fathers sought
aspirations that loving parents have for to change from their experience with
their children.” Rather, as our decision English rule would be lost, especially
today makes clear, this case is about their belief that our courts exist precisely
maintaining the integrity of a constitu- to preserve the rights of individuals,
tional system of government with three even when doing so is contrary to popu-
independent and coequal branches, none lar will.
of which can either encroach upon the The trial court’s decision regarding
powers of another branch or improperly Theresa Schiavo was made in accordance
delegate its own responsibilities. with the procedures and protections set
The continuing vitality of our system of forth by the judicial branch and in accor-
separation of powers precludes the other dance with the statutes passed by the Leg-
two branches from nullifying the judicial islature in effect at that time. That decision
branch’s final orders. If the Legislature is final and the Legislature’s attempt to
with the assent of the Governor can do alter that final adjudication is unconstitu-
what was attempted here, the judicial tional as applied to Theresa Schiavo. Fur-
branch would be subordinated to the ther, even if there had been no final judg-
final directive of the other branches. Also ment in this case, the Legislature provided
subordinated would be the rights of indi- the Governor constitutionally inadequate
viduals, including the well established standards for the application of the legisla-
privacy right to self determination. No tive authority delegated in chapter
court judgment could ever be considered 2003–418. Because chapter 2003–418 runs
truly final and no constitutional right afoul of article II, section 3 of the Florida
truly secure, because the precedent of Constitution in both respects, we affirm the
this case would hold to the contrary. circuit court’s final summary judgment.
Vested rights could be stripped away It is so ordered.
 CHAPTER

TAXATION OF HEALTHCARE INSTITUTIONS

10
After reading this chapter, you will

• know the difference between tax-exempt and not-for-profit

status.
• recognize the differences in standards for exemption from
federal income taxation and state ad valorem (property)
taxation.
• appreciate the federal rules regarding lobbying and political
campaign activity and how they apply to 501(c)(3) organi-
zations.
• understand the issues involved when it is claimed that a pro-
perty is “used for charitable purposes.”

A tax-exempt corporation is one that is not-for-profit and is formed and run

only for religious, scientific, educational, charitable, or similar purposes. Not-
for-profit status and tax-exempt status are determined by different criteria:
the former by state corporation law, and the latter by federal and/or state tax
law. To determine eligibility for tax-exempt status, one must generally look
not only to the declaration of purpose in the corporate charter but also to the
way the company operates.

Nature of a Charitable Corporation

In a few states, a charity must be incorporated. In others, incorporation is not

required and other types of business organization may be used: an unincor-
porated association, a trust, a “community chest,” or a foundation. As a prac-
tical matter most charitable healthcare institutions are corporations.
There is no single definition of a charity. For federal income-tax pur-
poses the Internal Revenue Code and related tax regulations set the criteria.

293
294 The Law of Healthcare Administration

At the state level, the definition will be found in the state constitution and
statutes. The state laws differ from each other and from the federal require-
ments, and the various states may disagree in their interpretations of remark-
ably similar tax laws. For that reason, the advice of local legal counsel is cru-
cial in a situation involving any specific taxation issue.
The word “charity” essentially refers to benevolent service for the be-
nefit of an indefinite number of persons. A charity exists to promote the wel-
fare of the community as a whole. It must normally be open to the general
public and not restricted to a privileged few. Accordingly, charities must be
distinguished from social service and not-for-profit organizations generally.
All charitable corporations are not-for-profit corporations, but not all not-
for-profit organizations are charities (see Figure 10.1). Countless not-for-
profit corporations—for example, social clubs, fraternal organizations, and
labor unions—may provide a significant degree of social service without
operating for charitable purposes as that expression is defined in tax law.
A charity’s benefits can be restricted to a particular type of beneficiary.
In healthcare, prominent examples are children’s hospitals and women’s hos-
pitals. In other words, confining the activity to a particular purpose and
restricting benefits to a particular category of people do not jeopardize char-
itable status (as long as the restriction does not discriminate against a “sus-
pect class” of people), nor would restrictions required by a lack of special staff
and facilities. May the benefits of a charity be restricted to the members of a
particular church, lodge, labor union, or fraternal order or to the employees
of a particular company? The answer depends on local law and the precise
issue involved in the particular case. Especially if state law requires tax-
exempt organizations to be “purely public charities,” their beneficiaries usu-
ally may not be restricted to the members of a specific church denomination,

F IG U R E 10.1
Charities as a Not-for-profit
Subset of corporations
Not-for-Profit
Corporations

Charitable
Corporations
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 295

fraternal order, or similar group to qualify for exemption from certain taxes.
An old but still valid case is City of Philadelphia v. Masonic Home of Philadel-
phia,1 which denied real-estate tax exemption to a home for aged Masons
because it served only Freemasons, not the general public, and therefore was
not “purely public.” In a later Pennsylvania case, the court relied on Masonic
Home when it decided that a community hospital was tax exempt because it
was open to all without regard to “race, color, creed, national origin, or race”
and without being restricted membership in any particular social organiza-
tion.2
Kansas does not require a charity to be “public” in the same sense
that Pennsylvania does. Therefore, in Kansas a hospital may be considered
tax exempt even if it serves only specific groups—for example, Masons,
Methodist clergy, or members of Roman Catholic religious orders.3 The
definition of and limitations on the class of persons to be served by a
“charity” thus depend on local law and are still open to question in many
jurisdictions.
It is often said that a charitable healthcare organization may not
restrict its services because of a patient’s inability to pay. For federal income-
tax exemption, and for most state real-estate exemptions, a hospital that has
facilities for emergency services may not reject a patient who seeks emergency
care because of indigence.4 (This topic is discussed in more detail in Chapter
8.) The point comes into focus with respect to specialized institutions like
hospitals that care only for patients with a particular disease or disability. Dis-
crimination on the basis of indigence or other “suspect classes” is still pro-
hibited, but charitable status is not lost by restricting benefits according to
the institution’s ability to serve and its purpose, facilities, and staff.
Even though a charity may not restrict its emergency care to those able
to pay, the question still remains whether the organization must render some
amount of free care to maintain its status. A few state courts have answered this
question in the affirmative.5 The federal government and most states, however,
have not required provision of a specific amount of free care to maintain char-
itable status.6 As long as there is no private gain or profit, promotion of health
is usually considered a valid charitable purpose in itself. Accordingly, the insti-
tution can be self-supporting and earn a profit as long as the profits are used
for institutional needs and not distributed to individuals. Profit can be invested
in physical facilities or added to the organization’s endowment.
Many state court decisions follow this approach, and the philosophy
was well stated by a New York court in Doctors Hospital v. Sexton:

Hospitals which are devoted to the care of the sick and injured, which aid in
maintaining public health and which make valuable contributions to the
advancement of medical science are rightly regarded as benevolent and char-
itable. A hospital association not conducted for profit which devotes all of its
296 The Law of Healthcare Administration

funds exclusively to the maintenance of the institution is a public charity and

this is so irrespective of whether patients are required to pay for the services
rendered.7

If you listen closely you can hear in this excerpt echoes of hospitals’
origins in the almshouses of the Middle Ages (see the introduction in Chap-
ter 5.)
The view that care of the indigent is not a necessary condition for
charitable status is justified on the grounds that (1) both the wealthy and the
poor are “needy,” in one sense, when they suffer illness or injury; (2) a
requirement of free care is difficult to define in terms of amount and extent;
and (3) there should be governmental social-welfare programs to care for
those unable to pay rather than relying on private institutions.
Finally, although promotion of health may be a valid charitable pur-
pose for many organizations, such as research institutions and specialized
hospitals, a general community hospital must actually benefit the community
if it is to retain charitable status. This is the reason for the requirements that
the hospital must not turn away emergency patients on the basis of indigence,
must admit patients without regard to race or creed, and must welcome
emergency patients if they have available facilities and staff.8 In short, a com-
munity hospital may not turn away emergency patients on the basis of indi-
gence.9 Systematic refusal of admission or services to such persons may be
interpreted as an unwillingness to serve the community at large. (Other
aspects of “community benefit” are discussed later in this chapter.)
In the final analysis, each case will be decided on the particular facts in
the context of a particular issue, and the ultimate inquiry will always be
whether the hospital is serving the community as required by state law or by
federal tax law.

Federal Tax Issues

Section 501(c)(3) of the Internal Revenue Code lists the following among
the organizations that are exempt from federal income tax:

Corporations, and any community chest, fund, or foundation, organized

and operated exclusively for religious, charitable, scientific, testing for pub-
lic safety, literary, or educational purposes, or to foster national or interna-
tional amateur sports competition (but only if no part of its activities
involve the provision of athletic facilities or equipment), or for the preven-
tion of cruelty to children or animals, no part of the net earnings of which
inures to the benefit of any private shareholder or individual, no substan-
tial part of the activities of which is carrying on propaganda, or otherwise
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 297

attempting to influence legislation (except as otherwise provided in subsec-

tion (h)), and which does not participate in, or intervene in (including the
publishing or distributing of statements), any political campaign on behalf of
(or in opposition to) any candidate for public office.10

As is often the case with legislation, this paragraph raises more ques-
tions than it answers. The following will explore some of the significant ques-
tions relating to exemption from federal income tax.

Requirements for Tax Exemption

Most tax-exempt hospitals claim their status because they are “organized and Requirement:
operated for…charitable…purposes.” What amounts to a “charitable pur- Charitable
pose” is not entirely clear. The statute does not define the term, and the tax Purpose
regulations implementing the provision merely say:

The term charity is used in section 501(c)(3) in its generally accepted legal
sense…. Such term includes: Relief of the poor…; advancement of religion;
advancement of education or science; erection or maintenance of public
buildings, monuments, or works; lessening of the burdens of Government;
and promotion of social welfare….11

Like the statute itself, this regulation

raises a lot of questions. Where does health-
care fit in (see Legal DecisionPoint)? What is
the “generally accepted legal sense” of the Legal DecisionPoint
word “charity”? Does private healthcare pro-
mote “social welfare”? Does it lessen “the What are the arguments pro and con on the
burdens of government”? (One can argue issue of whether providing healthcare, in
that the government would need to provide and of itself, should count as doing charity?
healthcare as a social service if community
hospitals did not exist.) Does it amount to “relief of the poor”? (Perhaps it does
when patients are poor, and one could argue that when we are seriously ill or
injured we are all “poor” in one sense.) The regulation lists certain examples,
but healthcare is not mentioned, although it is not meant to be an exhaustive
list. The first question then is whether providing hospital services is charity work.
We know intuitively that charity involves benevolence—assisting the less
fortunate, doing good works, and promoting the general welfare. But general
principles do not decide concrete cases, and these kinds of instinctive responses
do little to answer the legal questions. Apparently, charity—like pornography,
famously—is hard to define, but you know it when you see it. One thing is cer-
tain: hospitals and other healthcare organizations are not charities per se. Pro-
viding healthcare must be accompanied by some more noble purpose.
298 The Law of Healthcare Administration

Requirement: In addition to being organized and operated for charitable purposes

No Private (whatever that means), a tax-exempt organization’s net earnings may not
Inurement “inure” to the benefit of any private individual or corporation. The statute
and regulations do not define “inure” for these purposes. Its usual dic-
tionary definition—to make accustomed—is ill fitting. Nevertheless, it
seems relatively clear that the intent is that a charity’s net earnings must
be permanently dedicated to exempt purposes and may not be distributed
to private interests.
This requirement goes hand in hand with the concept of public bene-
fit, and many questions are raised. Each case must be decided on its own mer-
its, and no single factor or set of factors will decide whether a corporation
claiming tax-exempt status is truly providing a community benefit or is
merely a shield for conferring a gain on proprietary interests.
The courts will consider several factors, most of which flow from or
relate directly to corporate control.12 When control of a corporation rests
exclusively with a small group of individuals, the facts require close scrutiny
of the parties’ motives. Private gain is indicated by such factors as (1) the
division of profits among trustees, members, or officers of the corporation;
(2) the private use of corporate funds or facilities; (3) exclusive privileges
to admit or treat patients; and (4) failure to provide services to those
unable to pay.13 Even if tax-exempt status is granted without requiring free
care, the charity record of a hospital is evidence of a willingness to serve the
public. To put the matter another way, the absence or near absence of char-
ity work is evidence of private gain and is considered along with the factors
listed above.
Because of changes in healthcare financing in the last quarter of the
twentieth century, hospitals developed various economic incentive plans to
attract physicians to the medical staff, encourage the economical use of
hospital facilities, and (hopefully) reduce overall costs. The theory is that
if the physician shares in net revenues, she will have a financial incentive
to be efficient and all parties will benefit. As long as the doctor’s compen-
sation is reasonable and furthers the charitable purpose of the institution,
tax-exempt status is not jeopardized.14 This means, of course, that the
institution must receive value in return for the incentives granted the doc-
tors. (Note that such arrangements may implicate state or federal “anti-
kickback” and “self-referral” laws, as discussed in Chapter 12. The preced-
ing brief discussion concerns only the effect of such arrangements on an
organization’s tax status, not the fraud laws, which are more likely sources
of difficulties.)

Related Issues In addition to the two fundamental requirements for federal tax exemption
already mentioned (charitable purpose and no private inurement), there are
at least three other factors to consider:
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 299

1. Services may not be restricted on the basis of race or creed.15

2. A hospital’s emergency department services may not be withheld
because of inability to pay.16
3. A hospital may not restrict the use of its facilities to a small, particular
group of providers to the exclusion of other qualified persons.17

Regarding the last point, and as discussed more fully in Chapter 7, a

hospital might not have the facilities for or the need to extend membership
to all physicians who apply for medical staff privileges. If so, it may for these
reasons reject an application from even a well-qualified physician without los-
ing its tax-exempt status. However, under the law relating to medical staff
privileges (see Chapter 7), the hospital must review physicians’ applications
fairly and carefully, provide them with an opportunity for a hearing if the
application is rejected, and state the reasons for any rejection.
An organization exempt under Section 501(c)(3) is prohibited from
all campaigning and electioneering on behalf of or in opposition to candi-
dates for political office. It may, however, engage in lobbying (attempting
to influence legislation) so long as lobbying does not amount to a “sub-
stantial part” of its overall activities.18 What “substantial part” means is,
obviously, a matter of dispute. To help 501(c)(3) organizations quantify
this concept, the legislation permits public charities, except certain reli-
gious organizations, to file an election with the Internal Revenue Service
indicating an intent to engage in lobbying. Having done so, the charity is
subject to certain defined limitations on its lobbying expenditures (the
details of which are not relevant here). The following costs are not consid-
ered lobbying expenses:

• publishing nonpartisan research data;

• providing testimony to a legislative body on issues that will affect the
charity itself; and
• sending communications to a nonlegislative governmental official, such
as an employee of an executive branch agency.

In addition to the traditional approach to private inurement and private Excess Benefit
benefit (i.e., revocation of tax exemption), the Taxpayer Bill of Rights 2 Transactions
(TBOR2)19 imposes sizable financial penalties on persons who receive
“excess benefits” and on the organizational managers who approve the
transactions. Suffice to say that the law makes it advisable for tax-exempt
organizations to develop compensation and conflict-of-interest policies
that will ensure the propriety of transactions with corporate insiders,
including physicians. Failure to abide by such policies puts the insiders and
corporate managers at substantial monetary risk (see The Law in Action
on page 300).
300 The Law of Healthcare Administration

Taxability of Unrelated Business

The Law in Action Income
Not all income of a charity is tax exempt.
In the wake of several high-profile When a 501(c)(3) charity gets revenue from
cases involving allegedly excessive “unrelated” business activities (ones that are
executive compensation in charitable unrelated to a charitable purpose), they are
organizations, Congress created taxable. Allowing profits from a noncharity-
extremely stiff penalties for charities related line of business to remain untaxed
and insiders who receive or approve
excessive benefits such as extremely
would give charitable organizations an unfair
high compensation packages. (The competitive advantage; therefore, such
penalties are called “intermediate income is taxable, just as it is for any indivi-
sanctions” because they are less severe dual or for-profit corporation. The tax-
than revoking the charity’s tax-exempt exempt status of the charity itself is not lost,
status.) Excessive amounts must be however, as long as the unrelated activities do
paid back, and the Internal Revenue
Service can levy fines of up to 200 per-
not constitute a “substantial” part of the
cent of the amount above what would charity’s work. (The Internal Revenue Serv-
have been reasonable. ice may challenge the tax-exempt status of a
charity if gross income from unrelated activi-
ties exceeds 50 percent of the charity’s total
revenue. It should also be noted that sales of
goods or services by an exempt organization to private proprietary parties below
cost may confer a private gain or inurement and may jeopardize the tax-exempt
status of the seller.) The taxability of income from an unrelated trade or business
is provided for by Sections 511 to 514 of the Internal Revenue Code.20
Investment income consisting of dividends, interest, and annuities,
as well as income from research, is not taxable.21 But income derived from
the operation of hospital gift shops; restaurants, parking lots; pharmacies;
physicians’ offices; and residences for interns, nurses, or other staff facili-
ties does present the question of unrelated trade or business taxation. The
mere fact that income from such activities is devoted to hospital or chari-
table purposes does not exempt it from taxation. The reason for this gen-
eral rule is that a hospital enterprise, such as a pharmacy or a parking lot,
that charges its customers and is open to the general public should not be
permitted an unfair competitive advantage over private businesses. The
general test of a particular income-producing activity is whether it is sub-
stantially related to the charitable purpose of the tax-exempt institution.22
In other words, does it further the purpose of the charity or simply
amount to an extra line of business? To help answer that question the
Internal Revenue Code provides the “convenience rule”: The income is
not taxable if the exempt entity can demonstrate that the activity is con-
ducted primarily for the convenience of the institution’s staff, patients,
and visitors, in contrast to an enterprise selling goods and services to the
general public.23
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 301

Even if an activity does not meet the convenience rule, the income it
produces is free from tax if most of the workers producing the income are vol-
unteers or if the profits come from merchandise donated to the tax-exempt
organization.24 This permits a hospital, for example, to engage in fund-raising
supported by volunteer workers and donations, even if the efforts are carried
out regularly. A “volunteer” is one who provides services without compensa-
tion. “Compensation” is the receipt of benefits that would not have otherwise
been granted.25 For example, in one case the brothers of a religious order
were provided with food, clothing, shelter, and medical care—by virtue of
their status as brothers—while they performed more than 90 percent of the
necessary labor on a large farm the order owned. The income received from
the farm’s agricultural products was not taxable as unrelated income to the
tax-exempt religious organization because as members of a religious order
with a vow of poverty the brothers would have received the purported com-
pensation whether they worked at the farm or not.26
As a general rule, income from the sale of goods and services to hos-
pital patients and staff is not taxable. The term “hospital patients” usually
includes outpatients, persons seen in the emergency department, dis-
charged inpatients returning to the hospital pharmacy for refills of prescrip-
tions, patients in an extended-care facility owned by the hospital, and
patients enrolled in a hospital-sponsored program of home care.27 Never-
theless, sales to persons who are not patients or to staff members are nor-
mally subject to taxation. From time to time the courts have been willing
to flex the convenience rule to shield revenue from the unrelated business
tax. In St. Luke’s Hospital of Kansas City v. United States,28 for example, the
court held that a tax-exempt teaching hospital could sell laboratory services
to the community generally because such services were likely to benefit the
teaching and research functions of the hospital and accordingly bore a
“substantial relationship” to the hospital’s charitable purpose. Such sales
were also considered to be for the “convenience” of those physicians who
were in fact members of the hospital’s medical staff. In Hi-Plains Hospital
v. United States 29 a federal circuit court approved sales of prescription
drugs to patients of staff physicians even though some of the buyers had
never been patients of the hospital. The drug sales were not advertised to
the general public, and the court concluded that the sales were consistent
with the convenience rule. The court noted specifically that the hospital
was located in a rural community and had difficulty attracting physicians to
the community.
Despite cases like these, revenue from sales to persons who have never
been patients of the hospital is usually taxable income, even if prescribing
physicians are members of the medical staff.30 This follows from the fact that
physicians practicing in their private capacity are not considered to be “mem-
bers, officers, or employees” of the hospital.
302 The Law of Healthcare Administration

State Taxation of Real Estate

Most real estate and personal property owned by federal or local governmen-
tal hospitals are exempt from taxation. The exemption is created by the rele-
vant state constitution or statute. In some states, ownership and control of
the property standing alone are sufficient to establish exemption. Other
states add the requirement that the public property be used “exclusively for
a public purpose” to justify exemption.31
In a Minnesota case a medical clinic owned and operated by a munic-
ipal hospital was not exempt from taxation when it was staffed by physicians
practicing essentially on a fee-for-service basis. The board of the hospital and
the physicians agreed annually on the fees to be charged patients. Each doc-
tor then received 60 percent of his gross accounts receivable. Noting that the
issue hinged on whether the primary
use of the facility was for public pur-
Legal Brief
poses or for private gain, the Min-
nesota Supreme Court denied the
Ad valorem tax is tax imposed in proportion to the
exemption.32 In the circumstances
value (in Latin, “ad valorem”) of the property being
assessed. the facility was not being used exclu-
sively for a public purpose. (Note
that this arrangement would raise
fraud and abuse issues today.) The
real estate occupied or owned by private healthcare institutions, as well as
their personal property, may or may not be tax exempt, depending on a num-
ber of factors. The first requirement of note is that the institution must qual-
ify as a charity, a matter defined by local state law and discussed earlier.
Hence, real estate owned by a proprietary hospital (one operated for profit)
is fully taxable, just as is the property of any other business. When the tax is
based on the value of property it is characterized as an ad valorem tax (see
Legal Brief).

Qualifying as a Charity
In some states a mandatory constitutional provision is the source of exemption
for real estate and other property owned or occupied by a public or charitable
healthcare institution (see The Court Decides: Utah County v. Intermountain
Health Care, Inc., at the end of this chapter). The legislature of the state can-
not alter such an exemption, and neither can the courts, although the courts
have the power to interpret the meaning of the constitutional language. Other
state constitutions contain permissive tax exemptions for charitable organiza-
tions, and a few state constitutions are entirely silent on the matter. In either of
these situations, tax-exempt status depends on statute. Thus, either a permis-
sive or nonexistent constitutional provision has the effect of granting the ulti-
mate power of tax exemption to the legislature. The distinction between a
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 303

mandatory constitutional provision and a permissive one, or no provision at

all, becomes significant when local governments search for additional revenue
and when there is increasing political pressure to restrict or reduce the num-
ber of ad valorem tax exemptions.
Generally, providing free care is not necessary to qualify for state real-
estate tax exemption. This is illustrated by the Nebraska case of Evangelical
Lutheran Good Samaritan Society v. County of Gage.33 A home for the aged
was organized as a not-for-profit corporation, and it required all residents to
pay if they were able. The rates were nearly the same as those charged by pro-
prietary homes, and the home operated at a profit in some years and at a
deficit in others. The court held the real estate to be exempt, ruling in effect
that “charity” should be defined in broader terms than almsgiving and relief
of poverty.
Likewise, in Central Board on Care of Jewish Age, Inc. v. Henson the
court of appeals of Georgia ruled that a home for the elderly was
exempt.34 The home provided medical and nursing services to elderly per-
sons of the Jewish faith. The residents’ average age was nearly 83, and
each paid a monthly charge based on financial ability—the maximum
being $450. No applicant was ever refused admission because of inability
to pay, and at all times a few residents were permitted to remain without
paying. Deficits in annual operating expenses were covered by contribu-
tions from time to time by the Jewish Welfare Fund or by individuals. The
court wrote:

The concept of charity is not confined to the relief of the needy and desti-
tute, for aged people require care and attention apart from financial assis-
tance, and the supply of this care and attention is as much a charitable and
benevolent purpose as the relief of their financial wants.

Subsequent cases have confirmed this broad definition of charitable for

ad valorem tax purposes. For example, in 1981 the Massachusetts Supreme Judi-
cial Court wrote:

[W]e recognize…that major changes in the area of health care, especially

in modes of operation and financing, have necessitated changes as well in
definitional predicates. The term “charitable,” as applied to health care
facilities, has been broadened since earlier times when it was limited
mainly to almshouses for the poor. As a result, the promotion of health,
whether through the provision of health care or through medical educa-
tion and research, is today generally seen as a charitable purpose. Such a
purpose is separate and distinct from the relief of poverty and no health
organization need engage in “almsgiving” in order to qualify for exemp-
tion.35
304 The Law of Healthcare Administration

This is perhaps the majority rule.36 In sharp contrast, however, is the

opinion in Utah County v. Intermountain Health Care, Inc.37 (see The Court
Decides at the end of this chapter). In the view of the Utah court, tax exemp-
tions are subsidies from the government, and proof of a charitable purpose
requires that there has been a genuine and quantifiable quid pro quo.
Accordingly, a private charity must establish that it is performing functions
that the state would otherwise perform. Simply providing a benefit to the
community is not enough. Although it received much attention when it was
published more than 20 years ago, and although some other states have ques-
tioned hospitals’ property tax exemptions, Intermountain Health Care
remains a minority view in the lengths it requires hospitals to go in proving
entitlement to an exemption.

Ownership of Exempt Property

In general, each parcel of land owned or occupied by a hospital claiming tax
exemption as a charitable institution must separately qualify for such exemp-
tion. Normally, each parcel must also meet two tests: ownership by the hos-
pital and use for a charitable purpose.
The test of ownership is not as simple as it might appear. Real-estate
law recognizes various types of land ownership and leasehold interests. All
states, so far as the ownership test is concerned, grant exemption to land
owned by a charity when the organization holds “fee simple” (complete)
legal title. Nearly all states likewise grant exemption to ownership in the
form of “equitable title”—for example, purchase of land on an installment
contract under which the seller retains legal title until the purchase price
is paid. A few states will deny exemption to a charity holding equitable
title.
Many states will deny real-estate tax exemption to the owner of land
who leases it to a charitable corporation. Here, clearly, the land is not owned
by the charity, which has obtained the right of possession and use through
the lease but which has neither legal nor equitable title. On the other hand,
some states will exempt such property from taxation because according to
past experience it is sound public policy to reduce the operating costs of char-
itable organizations.

Use for a Charitable Purpose

Most states require that the tax-exempt property of a charity be held for the
“exclusive use…for charitable purposes.” Note carefully that this contemplates
actual use or occupancy of the property itself. Vacant property and property
owned for investment purposes would not qualify for exemption because it is
not being used for charitable purposes. In other words, the use of the prop-
erty determines the tax-exempt status; even the charitable use of income
derived from the investment property does not qualify. Moreover, the word
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 305

“exclusive” in these provisions raises issues about property that is rented to or

occupied by others, such as by medical staff members who practice as private
physicians and by hospital residents and nurses. The usual analysis of these sit-
uations, which are decided case by case and state by state, is to examine how
closely the use of the property relates to the primary purpose of the hospital
and to analyze the relative benefits to the respective parties.
In general, property will be subject to real-estate taxation if it is
rented to private physicians or others and if the rent allows the hospital a
profit in excess of overhead. (See The Court Decides: Greater Anchorage
Area Borough v. Sisters of Charity at the end of this chapter .38) A few states
allow exemption for property rented to medical staff physicians for their
private offices or to hospital personnel for their residences if the rent cov-
ers only the overhead cost or if no rent at all is charged.39 Some courts
will deny exemption to these types of facilities even if rent does not exceed
the costs of maintenance and amortization of investment. They do so
either (1) on the ground that the primary benefit is a private benefit, not
a charitable one, and therefore the “exclusive use” test is not met or (2)
on the ground that local statutes allow tax exemption only on land occu-
pied by the hospital itself.40
A frequently cited New York case, Genesee Hospital v. Wagner, illus-
trates the issues of public policy that come into play with respect to the lease
of hospital-owned real estate.41 Genesee Hospital constructed an office
building next to the hospital for lease to private physicians. Rent paid by the
doctors was set at market prices, but at first the rents did not cover operating
costs. The New York statute requires that “real property owned by a corpo-
ration or association organized or conducted exclusively for…hospital…pur-
poses…and used exclusively for carrying out…such purposes…shall be
exempt from taxation.”42 However, the statute provides that “if any portion
of such real property is not so used exclusively to carry out…such purposes
but is leased or otherwise used for other purposes, such portion shall be sub-
ject to taxation and the remaining portion only shall be exempt.”43 At issue,
then, was whether the office building was used exclusively for hospital pur-
poses.
The trial court held that the building was exempt from taxation.
Rather than give “exclusively” its literal meaning, the court looked to
whether the office building was “reasonably incident to the major purpose”
of the hospital. Because the evidence clearly established that the hospital’s
concern was to maintain a “first-rate” medical center for both patient care
and medical education rather than to benefit the private physicians person-
ally, the trial court judge concluded in essence that the hospital, its house
staff, and patients benefited relatively more from the use of the building than
the private physicians did.44 The public policy involved was made evident
when the trial court concluded that the community views a modern hospital
306 The Law of Healthcare Administration

building to be an important investment if it enables a highly trained staff of

attending physicians to work together.
On appeal, the decision was reversed and the office building was held
to be subject to property taxes. The appellate court recognized that a profes-
sional building was an admirable addition to the community, and without a
doubt enhanced the patient care and teaching functions of the hospital, but
the facility was in direct competition with privately developed professional
office buildings serving an identical function of providing space for the private
practice of medicine. Accordingly, the leased space did not qualify for exemp-
tion under the language of the New York statute.45 (See also The Court
Decides: Barnes Hospital v. Collector of Revenue at the end of this chapter.)
As in the area of unrelated business income, property tax issues are
sometimes raised regarding cafeterias, gift shops, pharmacies, parking lots,
and the like that a hospital owns and operates. Again, the legal issue is
whether these activities are consistent with the requirement of “exclusive use
for charitable purposes.” If such an activity is not conducted for commercial
profit, and if it takes place in an area of the hospital building or the immedi-
ate premises not open to the general public, tax-exempt status is likely to be
given. If a cafeteria, gift shop, parking lot, or similar facility is not tax exempt,
the hospital must then determine whether the local and state statutes permit
“split-listing” of property for tax purposes, because the related activity fre-
quently takes place in some part of an institutional building. Split-listing
means essentially that the local tax authorities will list as taxable only the
space that is not exempt, allowing exemption on the remainder of the hospi-
tal building. In most jurisdictions split-listing is permitted.46 Some states do
not allow it, however, and in those states it is especially important to seek
competent legal advice regarding nonexempt uses of the property.
With respect to vacant or unoccupied land there is a diversity of opin-
ion depending on the exact language of the state statute and judicial interpre-
tation of that language. For tax exemption some states require that the land
must not only be “used” for charitable purposes but must also be “occupied.”
Even if being occupied for a charitable purpose is not a statutory requirement,
one must determine the meaning of “used.” Vacant land that is held simply
for possible use in the indefinite future and for which no plans for develop-
ment exist would normally be taxable.47 On the other hand, if plans for con-
struction and development are well along, fund-raising is under way, and
actual bids have been received for construction, then the land, although not
yet in actual use, is exempt in some jurisdictions.48 Other states, however, may
require actual use and occupancy before granting exemption.
Finally, it should be noted that to an increasing extent healthcare
institutions are choosing to lease rather than purchase equipment and other
types of personal property. Just as in a number of states where the owner of
land who leases it to a charity must pay real-estate taxes on the property,
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 307

leased personal property may also be subject to ad valorem taxation. In an

Alaska case a hospital’s lease of beds, television sets, and x-ray equipment did
not entitle the property’s owner (the lessor) to an exemption. The exemption
provisions did not apply because the lessor was presumably earning a profit,
and thus the property was not being used “exclusively for non-profit, reli-
gious, [and] charitable purposes” as required by the state constitution and
the relevant statute.49

Chapter Summary

This chapter addresses the taxation of healthcare organizations, primarily

not-for-profit corporations. All tax-exempt organizations are not-for-profit,
but not all not-for-profits are tax exempt. The standards for income and
property tax exemption are also discussed, as are the occasions in which some
income of a tax-exempt organization may be taxable. The question of what
it means to be a “charity” was raised, as well as what implications that desig-
nation may have under federal and state law.

Chapter Discussion Questions

1. How should the term “charity” be defined?

2. Compare the structure and financing of today’s “medical–industrial
complex” to your mental image of the nineteenth and early twentieth
century hospital. Outline your arguments—both pro and con—for this
debate topic: Resolved, that government shall eliminate all favorable tax
treatment for not-for-profit healthcare organizations.
3. Consider the Genesee Hospital case. What parallels, if any, do you see
between this case and the Charlotte Hungerford Hospital case in Chapter
4? Both cases concern the use of hospital property for a medical office
building. In Charlotte Hungerford Hospital the arrangement was upheld;
in Genesee Hospital it was not (in effect). What is the difference?
4. Suppose the law requires that for a property to be tax exempt it must be
used for exempt purposes. Suppose also that January 1 is the assessment
date, and the use of the property on that date determines its exempt
status for the coming year. In July 2006 a hospital bought a parcel of
land near its main campus to build a facility for housing and maintain-
ing its fleet of ambulances. Construction began on December 1, 2006
and was completed in June 2007. The hospital started using the build-
ing as an ambulance station on June 30, 2007. Should the land be con-
sidered exempt for 2007? What if construction began on January 2,
2007?
308 The Law of Healthcare Administration

Notes
1. City of Philadelphia v. Masonic Home of Pennsylvania, 160 Pa. 572, 28 A. 954 (1894).
2. West Allegheny Hospital v. Board of Property Apportionment, 500 Pa. 236, 455 A.2d 1170
(1982).
3. See Kansas Masonic Home v. Board of Commissioners, 81 Kan. 859, 106 P. 1082 (1910);
Accord Fitterer v. Crawford, 157 Mo. 51, 57 S.W. 532 (1900)—in Crawford, a home was
denied tax exemption for other reasons.
4. Of course not all tax-exempt hospitals provide emergency services. Rev. Rul. 157, 1983-42
C.B. 9–10—a tax-exempt hospital need not provide emergency services, although it will be
expected to serve the community at large in other ways—for example, by serving Medicaid
and Medicare patients.
5. See, for example, Cleveland Osteopathic Hosp. v. Zangerle, 153 Ohio St. 222, 91 N.E.2d
261 (1950); Vicksburg v. Vicksburg Sanitarium, 117 Miss. 709, 78 So. 702 (1918).
6. It is of historical interest that before 1969 the federal government did require a tax-exempt
hospital to furnish an undefined amount of service below costs. Rev. Rul. 185, 1956-1 C.B.
202. This ruling was changed by Rev. Rul. 545, 1969-2 C.B. 117.
7. 267 A.D. 736, 48 N.Y.S.2d 201, 205 (1944), aff’d , 295 N.Y. 553, 64 N.E.2d 273 (1945).
See also Bishop and Chapter of the Cathedral of St. John the Evangelist v. Treasurer of the
City and County of Denver, 37 Colo. 378, 86 P. 1021 (1906)—a hospital may charge fees to
all patients, and the amount received may exceed expenses.
8. Bromberg, “The Charitable Hospital,” 20 Cath. U. L. Rev. 248–51 (1970).
9. Hart v. Taylor, 301 Ill. 344, 133 N.E. 857 (1921); Natchez v. Natchez Sanitorium Benevo-
lent Ass’n, 191 Miss. 91, 2 So. 2d 798 (1941). Hart involved the validity of a charitable testa-
mentary trust.
10. 26 U.S.C. § 501(c)(3).
11. 25 C.F.R. § 1.502(c)(3)-1. 82).
12. Bromberg, supra note 8.
13. See, for example, Sonora Community Hosp. v. Commissioner, 397 F.2d 814 (9th Cir., 1968).
14. Rev. Rul. 383, 1969 C.B. 113.
15. Bob Jones Univ. v. United States, 461 U.S. 574 (1983).
16. Rev. Rul. 185, 1956-1 C.B. 202.
17. Id.
18. I.R.C. § 501(h).
19. 26 U.S.C. § 4958.
20. For example, United States v. American College of Physicians, 106 S. Ct. 1591 (1986)—
income received by a medical organization from commercial advertisements in professional
journal is taxable as unrelated business income.
21. I.R.C. § 512(b).
22. I.R.C. § 513(a); Treas. Reg. § 1.513-1(a) (1967).
23. I.R.C. § 513(s)(2).
24. I.R.C. § 513(a)(1).
25. Id.
26. St. Joseph Farms of Ind. v. Commissioner, Tax Ct. Rep. Dec. (P-H) § 85.2 (July 1, 1985).
27. Rev. Rul. 376, 1968-2 C.B. 246.
28. 494 F. Supp. 85 (W.D. Mo. 1980).
29. 670 F.2d 528 (5th Cir. 1982)—sales to persons who were not patients of either the hospital
or staff physicians would be taxable.
30. Carle Found. v. United States, 611 F.2d 1192 (7th Cir. 1979), cert. denied, 449 U.S. 824
(1980)—revenue from sales to ambulatory patients of physicians’ clinic is taxable as unrelated
income; I.R.C. § 513(a)(2); Rev. Rul. 85-109, 1985-30 I.R.B. 17—sale of laboratory serv-
ices prescribed by private staff physicians is unrelated business when persons receiving the
services have never been patients of the hospital; “Quarterly Tax Report,” 8 Health L. Vigil
(Am. Hosp. Ass’n) No. 16, at 7–8 (Aug. 9, 1985).
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 309

31. For example, Ohio Rev. Code Ann. § 5709.08 (page 1985) provides: “Real or personal property
belonging to the state or United States used exclusively for a public purpose, and public property
used exclusively for a public purpose, shall be exempt from taxation.” See Carney v. Cleveland,
173 Ohio St. 56, 108 N.E.2d 14 (1962).
32. City of Springfield v. Commissioner of Revenue, 380 N.W.2d 802 (Minn. 1986).
33. 181 Neb. 831, 151 N.W.2d 446 (1967).
34. 120 Ga. App. 627, 629, 171 S.E.2d 747, 749 (1969).
35. Harvard Community Health Plan, Inc. v. Board of Assessors, 384 Mass. 536, 427 N.E.2d 1159
(1981).
36. See, for example, South Iowa Methodist Homes, Inc. v. Board of Review, 173 N.W.2d 526 (Iowa
1970); West Allegheny Hosp. v. Board of Property Assessments, 500 Pa. 236, 455 A.2d 1170
(1982)—patient revenues can be used to finance repairs to property and costs of acquisitions that
further charitable purposes; Passavant Health Center v. Board of Assessment and Revision of
Taxes of Butler County, 502 A.2d 753 (Pa. Commw. 1985)—retirement cottages located on hos-
pital property were not exempt when residents were required to pay lump sum upon entrance and
furnish evidence of ability to pay a monthly service fee and charges for future medical care.
37. 709 P.2d 265 (Utah 1985).
38. 553 P.2d 467 (Alaska 1976).
39. Aultman Hosp. Ass’n v. Evatt, 140 Ohio St. 114, 42 N.E.2d 646 (1942)—residence for nurses
was exempt; Sisters of Saint Mary v. City of Madison, 89 Wis. 2d 372, 278 N.W.2d 814
(1979)—rent-free residence provided for full-time hospital chaplain was exempt; Oakwood Hosp.
Corp. v. Michigan State Tax Comm’n, 374 Mich. 524, 132 N.W.2d 634 (1965)—housing for
interns and residents was exempt.
40. See, for example, Milton Hosp. v. Board of Tax Assessors, 360 Mass. 63, 271 N.E.2d 745
(1971); Medical Center of Vt., Inc. v. City of Burlington, 131 Vt. 196, 303 A.2d 468 (1973)—
case was remanded to determine facts of whether physician’s use of offices at noncommercial
rental was primarily for hospital purposes or private purposes; White Cross Hosp. Ass’n v. Warren,
6 Ohio St. 2d 29, 215 N.E.2d 374 (1966)—offices leased to physicians were not exempt; Doc-
tors Hosp. v. Board of Tax Appeals, 173 Ohio St. 283, 181 N.E.2d 702 (1962)—housing for
married staff paid a stipend by the hospital was not exempt; City of Long Branch v. Monmouth
Medical Center, 138 N.J. Super. 524, 351 A.2d 756 (1976)—housing for resident interns and
nurses was exempt; space rented to private physicians at less than commercial rates is taxable,
aff’d, 73 N.J. 179, 373 A.2d 651 (1977).
41. Genesee Hosp. v. Wagner, 76 Misc. 2d 281, 350 N.Y.S.2d 582 (N.Y. Sup. Ct. 1973), rev’d , 47
A.D.2d 37, 364 N.Y.S.2d 934 (1975), aff’d mem., 39 N.Y.2d 863, 352 N.E.2d 133, 386
N.Y.S.2d 216 (1976).
42. N.Y. Real Property Tax Law § 420-a(1)(a) (McKinney 1984).
43. N.Y. Real Property Tax Law § 420-a(2).
44. 76 Misc. 2d at 285–89, 350 N.Y.S.2d at 586–90.
45. Genesee Hosp. v. Wagner, 47 A.D.2d 37, 364 N.Y.S.2d 934 (1975). Compare Barnes Hosp. v.
Leggett, 646 S.W.2d 889 (Mo. Ct. App. 1983)—teaching hospital’s lease of space to part-time
medical school faculty who also practiced privately does not destroy tax exemption because faculty
provided free care to indigent hospital patients.
46. Sisters of Charity v. Bernalillo County, 93 N.M. 42, 596 P.2d 255 (1979)—pro rata taxation is
allowed when office building and parking structure are used for both charitable and noncharitable
purposes; Barnes Hosp. v. Leggett, 646 S.W.2d 899 (Mo. Ct. App. 1983)—constitutional provi-
sions authorize exemption for portions of property used exclusively for charitable purposes.
47. For example, Oak Ridge Hosp. v. City of Oak Ridge, 57 Tenn. Ap. 487, 420 S.W.2d 583 (1967);
Cleveland Memorial Medical Found. v. Perk, 10 Ohio St. 2d 72, 225 N.E.2d 233 (1967); Hill-
man v. Flagstaff Community Hosp., 123 Ariz. 124, 598 P.2d 102 (Ariz. 1979).
48. For example, Good Samaritan Hosp. Ass’n v. Glander, 155 Ohio St. 507, 99 N.E.2d 473 (1951);
Cleveland Memorial Medical Found. v. Perk, 10 Ohio St. 2d 72, 255 N.E.2d 233 (1967).
49. Sisters of Providence in Washington, Inc. v. Municipality of Anchorage, 672 P.2d 446 (Alaska
1983); Accord Kunnes v. Samaritan Health Serv., 121 Ariz. 413, 590 P.2d 1359 (Ariz.
1979)—to be exempt from ad valorem taxation, equipment must be owned.
310 The Law of Healthcare Administration

the court decides

Utah County v. Intermountain Health Care, Inc.
709 P.2d 265 (Utah 1985)

Durham, J. The property of the state, cities,

counties, towns, school districts,
Utah County seeks review of a decision of municipal corporations and public
the Utah State Tax Commission [exempting libraries, lots with the buildings
certain Intermountain Health Care (IHC) thereon used exclusively for either
hospitals] from ad valorem property taxes. religious worship or charitable pur-
At issue is whether such a tax exemption poses, shall be exempt from taxation.
is constitutionally permissible. We hold [Ellipsis in the original opinion.]
that, on the facts in this record, it is not,
and we reverse. ...[Quoting from an earlier decision the
[IHC is a not-for-profit hospital system court points out that the Utah
that at the time of the case had 21 hospi- constitution] “grants a charitable exemp-
tals in the West. IHC had no stock, no divi- tion and our statutes cannot expand or
dends, and none of its revenues or assets limit the scope of the exemption or defeat
inured to the benefit of any private indi- it. To the extend the statutes have that
vidual.] effect, they are not valid.”
Utah County seeks the resolution of two ...These exemptions confer an indirect
issues: (1) whether [certain statutes] subsidy and are usually justified as the quid
which exempt from taxation hospitals pro quo for charitable entities undertaking
meeting certain requirements, constitute functions and services that the state would
an unconstitutional expansion of the char- otherwise be required to perform. A concur-
itable exemption in...the Utah Constitu- rent rationale, used by some courts, is the
tion; and (2) whether [the IHC hospitals] assertion that the exemptions are granted
are exempt from taxation under...the Utah not only because charitable entities relieve
Constitution.4 government of a burden, but also because
Utah County does not seriously dispute their activities enhance beneficial commu-
that the two hospitals in this case comply nity values or goals. Under this theory, the
with [the statutes in question] but con- benefits received by the community are
tends instead that these statutes unlaw- believed to offset the revenue lost by rea-
fully expand the charitable exemption son of the exemption.
granted by...the Utah Constitution, which [In considering the standards under
provides in pertinent part: which these rationales are to be applied,

4. One of the statutes provides that property dedicated to religious worship or charitable purposes is
exempt from taxation if (1) the user is a not-for-profit organization, (2) earnings do not inure to pri-
vate individuals, (3) the property is not used in a way that profits or benefits any private person, and (4)
upon dissolution of the organization, the property will not be distributed to any private person. The
second statute provides, “Property used exclusively for religious, hospital, educational, employee repre-
sentation, or welfare purposes [and that complies with the statute summarized above] shall be deemed
to be used for charitable purposes within the exemption provided for in [the Utah Constitution].”
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 311

however, the court affirms that “the clause context of such care. We are convinced
exempting property ‘used exclusively for that the traditional assumptions bear little
...charitable purposes’ is to be strictly relationship to the economics of the med-
construed.” Thus, it holds that an entity ical-industrial complex of the 1980s. Non-
qualifies for the exemption only if it meets profit hospitals were traditionally treated
the definition of a “charity”: “the contribu- as tax-exempt charitable institutions
tion or dedication of something of because, until late in the 19th century,
value...to the common good.”] they were true charities providing custo-
...[T]here are a number of factors which dial care for those who were both sick and
must be weighed in determining whether a poor. The hospitals’ income was derived
particular institution is in fact using its prop- largely or entirely from voluntary charita-
erty “exclusively for...charitable purposes.” ble donations, not government subsidies,
These factors are: (1) whether the stated taxes, or patient fees. The function and
purpose of the entity is to provide a signifi- status of hospitals began to change in the
cant service to others without immediate late 19th century; the transformation was
expectation of material reward; (2) whether substantially completed by the 1920’s.
the entity is supported...by donations and “From charities, dependent on voluntary
gifts; (3) whether the recipients of the “char- gifts, [hospitals] developed into market
ity” are required to pay for the assistance institutions financed increasingly out of
received, in whole or in part; (4) whether payments from patients.” The transforma-
the income received from all sources...pro- tion was multidimensional: hospitals were
duces a “profit” to the entity...; (5) whether redefined from social welfare to medical
the beneficiaries of the “charity” are treatment institutions; their charitable
restricted or unrestricted and, if restricted, foundation was replaced by a business
whether the restriction bears a reasonable basis; and their orientation shifted to
relationship to the entity’s charitable objec- “professionals, and their patients,” away
tives; and (6) whether dividends or some from “patrons and the poor.”
other form of financial benefit, or assets [The court next summarizes six factors
upon dissolution, are available to private from Paul Starr’s The Social Transforma-
interests.... These factors provide, we tion of American Medicine to suggest that
believe, useful guidelines for our analysis of by about 1925 hospitals had changed sig-
whether a charitable purpose or gift exists nificantly: (1) hospital patients began to
in any particular case. We emphasize that reflect the population at large, (2) the per-
each case must be decided on its own facts, centage of revenue from patient fees
and the foregoing factors are not all of increased dramatically, (3) doctors were
equal significance, nor must an institution allowed to charge private patients for hos-
always qualify under all six before it will be pital-based services, (4) virtually all doc-
eligible for an exemption. tors had hospital privileges, (5) the num-
Because the “care of the sick” has tradi- ber of hospitals increased from 178 to
tionally been an activity regarded as chari- more than 4,000, and (6) there was a sub-
table in American law, and because the stantial growth in for-profit hospitals. The
dissenting opinions rely upon decisions court summarizes its argument by saying,
from other jurisdictions that in turn incor- “All of the above factors indicate a sub-
porate unexamined assumptions about the stantial change in the nature of the hospi-
fundamental of hospital-based medical tal; a part of that change was the gradual
care, we deem it important to scrutinize disappearance of the traditional charita-
the contemporary social and economic ble hospital for the poor.”]
312 The Law of Healthcare Administration

...[T]he revolution in healthcare...has claimed exemption is the third we identi-

transformed a “healing profession” into fied: whether the recipients of the services
an enormous and complex industry, of an entity are required to pay for that
employing millions of people and account- assistance, in whole or in part. The Tax
ing for a substantial proportion of our Commission in this case found as follows:
gross national product. Dramatic advances
in medical knowledge and technology The policy of [IHC’s hospitals] is to
have resulted in an equally dramatic rise collect hospital charges from patients
in the cost of medical services. At the whenever it is reasonable and possible
same time, elaborate and comprehensive to do so; however, no person in need of
organizations of third-party payers have medical attention is denied care solely
evolved. Most recently, perhaps as a fur- on the basis of a lack of funds.
ther evolutionary response to the unceas-
ing rise in the cost of medical services, the ...The record shows that the vast major-
provision of such services has become a ity of the services provided by these two
highly competitive business.... hospitals are [sic] paid for by government
[The court next examines the facts of programs, private insurance companies, or
the case in relation to the six factors artic- the individuals receiving care.... Further-
ulated earlier for determining whether an more, the record also shows that such free
activity is a charity. The court finds that service as did exist was deliberately not
the statement of “corporate purposes” in advertised out of fear of a “deluge of peo-
IHC’s articles of incorporation meets the ple” trying to take advantage of it.
first criterion.] Instead, every effort was made to recover
The second factor we examine is whether payment for services rendered....
the hospitals are supported, and to what The defendants argue that the great
extent, by donations and gifts.... The finding expense of modern hospital care and the
[of the Tax Commission on this point] reads: universal availability of insurance and gov-
“The sources of revenue of IHC are derived ernment healthcare subsidies make the
primarily from patient charges, third parties idea of a hospital solely supported by phi-
(Blue Cross, Blue Shield, Medicare, Medi- lanthropy an anachronism. We believe this
caid), and gifts (wills, endowments and con- argument itself exposes the weakness in
tributions).” [The extent of the gifts was not the defendants’ position. It is precisely
specified.] The evidence was that both hos- because such a vast system of third-party
pitals charge rates for their services compa- payers has developed to meet the
rable to rates being charged by other simi- expense of modern hospital care that the
lar entities, and no showing was made that historical distinction between for-profit
the donations identified resulted in charges and non-profit hospitals has eroded....
to patients below prevailing market rates. The fourth question we consider is
Presumably such differentials, if they exist, whether the income received from all
could be quantified and introduced into evi- sources by these IHC hospitals is in excess
dence. The defendants have failed to pro- of their operating and maintenance
vide such evidence, and it is they who bear expenses. Because the vast majority of
the burden of showing their eligibility for their services are paid for, the nonprofit
exemption. hospitals in this case accumulate capital
.... as do their profit-seeking counterparts....
One of the most significant of the fac- [T]here is no showing on the record that
tors to be considered in review of a surplus funds generated by one hospital
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 313

in the system will not be utilized for the cies in the record on these questions can-
benefit of facilities in other counties, out- not be remedied by speculation in the
side the state of Utah, or purely for admin- defendants’ favor.
istrative costs of the system itself. In summary,…we believe that the defen-
Indeed, it is difficult to see a significant dants in this case confuse the element of
difference between the operation (as gift to the community, which an entity
opposed to the form of corporate struc- must demonstrate in order to qualify as a
ture) of defendants’ facilities and the oper- charity under our Constitution, with the
ation of [a] for-profit hospital.... The signif- concept of community benefit, which any
icant difference between for-profit and of countless private enterprises might pro-
nonprofit hospital corporations is, in vide....
effect, the method of distribution of assets ....
upon dissolution of the corporation, which Neither can we find on this record that
is itself a rare occurrence. the burdens of government are substan-
.... tially lessened as a result of the defen-
The final two factors we address are dants’ provision of services.... In fact, gov-
whether the beneficiaries of the services ernment is already carrying a substantial
of the defendants are “restricted” in any share of the operating expenses of defen-
way and whether private interests are ben- dants, in the form of third-party payments
efited by the organization or operation of pursuant to “entitlement” programs such
the defendants. Although the policy of IHC as Medicare and Medicaid.
is to impose no restrictions, there were ...A hospital, whether nonprofit or for-
some incidents recounted in the testimony profit, that provides its services to paying
which suggested that these institutions do patients relieves no public burden
not see themselves as being in the busi- because, in its absence, the government
ness of providing hospital care “for the would not (or would have no duty to) pro-
poor,” an activity which was certainly at vide free healthcare to patients able to
the heart of the original rationale for tax pay for treatment. ...[And] all hospitals use
exemptions for charitable hospitals. Oth- tax-supported public services, including
erwise, it appears that they meet [the fifth] road construction and maintenance, police
criterion. On the question of benefits to protection, fire protection, water and
private interests, certainly it appears that sewer maintenance, and waste removal, to
no individuals who are employed by or name a few. Exempt hospitals use those
administer the defendants receive any dis- services at the expense of nonexempt
tribution of assets or income, and some, healthcare providers and other taxpayers,
such as IHC’s board of trustees members, commercial and individual....
volunteer their services. We have noted, We cannot find, on this record, the
however, that IHC owns a for-profit entity, essential element of gift to the community,
as well as nonprofit subsidiaries, and either through the nonreciprocal provision
there is in addition the consideration that of services or through the alleviation of a
numerous forms of private commercial government burden, and consequently we
enterprise, such as pharmacies, laborato- hold that the defendants have not demon-
ries, and contracts for medical services, strated that their property is being used
are conducted as a necessary part of the exclusively for charitable purposes under
defendants’ hospital operations. The bur- the Utah Constitution.
den being on the taxpayer to demonstrate ...Property used exclusively for hospital
eligibility for the exemption, the inadequa- purposes is not automatically being used
314 The Law of Healthcare Administration

for charitable purposes, even where the its current accounts to qualify for charita-
hospital is nonprofit. ble status is both anachronistic and a pre-
We reverse the Tax Commission’s grant of scription for lesser-quality hospital care, if
an ad valorem property tax exemption to not bankruptcy.... The majority’s assertion
defendants as being unconstitutional. We that ‘traditional assumptions bear little
emphasize, contrary to the assertions of the relationship to the economics of the med-
dissents, that this opinion is no more than ical–industrial complex of the 1980’s is
an extension of the principles of strict con- based upon the majority’s refusal to
struction set forth in [previous cases]. This acknowledge the development of case law
is a “record” case, and we make no judg- that has occurred over at least the past 45
ment as to the ability of these hospitals or years.”
any others to demonstrate their eligibility The other dissenting justice wrote,
for constitutionally permissible tax exemp- “Courts long ago fully considered and
tions in the future. We note, however, that firmly rejected the notion now advanced
reliance on automatic exemptions granted by the majority that the charitable char-
heretofore, and on the kind of minimal acter of a hospital is determined by the
efforts to show charity reflected in this quantity of its almsgiving.” Then, refer-
record, will no longer suffice. ring to the majority’s favorable quota-
[The court concludes by saying that this tion of student law review articles, the
opinion has prospective effect only and dissenting opinion continues, “In a reck-
that with changes in their operations less attempt to find support for what
defendants might be able to qualify for appears to be its novel personal ideas,
the exemption in the future if they meet buttressed by references to ‘literature’
the criteria set forth in this decision. by writers whose credentials are not
Two sharp dissenting opinions were established, the majority indulges in
filed. One contains the following lan- totally irrelevant arguments.” The first
guage: “The majority’s suggestions that a dissenter had described those argu-
nonprofit hospital must have a deficit in ments as a “flight of fantasy.”]

Utah County v. Intermountain Health Care, Inc.

Discussion Questions
1. Based on your definition of the term “charity,” is the Intermountain
Health Care decision correct?
2. If you were the chief executive officer of an Intermountain Health Care
hospital, what would you do differently to try to requalify for the tax
exemption?
3. Oliver Wendell Holmes, Jr., once wrote, “It is one of the misfortunes of
the law that ideas become encysted in phrases and thereafter for a long
time cease to provoke further analysis.” [Holmes, dissenting in Hyde v.
United States, 225 U.S. 347, 391 (1912).] How does this comment
relate to the Intermountain Health Care decision and tax law in Utah?
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 315

the court decides

Greater Anchorage Area Borough v. Sisters of Charity
553 P.2d 467 (Alaska 1976)

Burke, J. necessarily patients of the hospital. Thus,

the actual use made of the first, second
The central issue in this appeal is the tax- and third floors is for office space by doc-
exempt status of a building owned by the tors engaged in the private practice of
Sisters of Charity of the House of Provi- medicine.
dence, under the provisions of Art. IX, Sec. ….
4, of the Constitution of Alaska and AS A taxpayer claiming a tax exemption
29.53.020. [Footnotes omitted.] has the burden of showing that the prop-
The Sisters of Charity, a long-time erty is eligible for the exemption.…
healthcare provider in Alaska, erected the [T]herefore, the burden is on the Sisters
building in question, the Providence Pro- to show that the office space is exempt.
fessional Building, adjacent to their hospi- …They must first show…that the property
tal on land deeded to them in 1959 by the is “used exclusively for nonprofit…hospi-
United States for “hospital site, school tal…purposes.” [Quoting from the Alaska
and recreational purposes only.” The con- statute.] …[W]e find as a matter of law,
struction of the Professional Building that the office space is not used exclu-
began in 1970; its first full year of opera- sively for hospital purposes.… [W]hen
tion was 1972. the property in question is used even in
The Professional Building has four part by non-exempt parties for their pri-
floors, including a basement, and is con- vate business purposes, there can be no
nected by an underground tunnel to exemption.
nearby Providence Hospital. Three floors ….
are the subject of this appeal, since the The record indicates that the Sisters
parties agree that the basement and tun- have performed a service to doctors and
nel are used exclusively for hospital pur- patients alike in constructing the Profes-
poses and are, therefore, exempt from tax- sional Building, and that healthcare at
ation. Providence has been benefited. In order to
The first, second and third floors are qualify for an exemption, however, the tax-
rented to doctors having hospital staff payer must show, not benefits, but exclu-
privileges at Providence Hospital, for use sive use. The use of the Professional Build-
as their private office space. Approxi- ing for nonprofit hospital purposes is not
mately thirty-five doctors rent such space. exclusive. Therefore, we reverse and
These doctors, although enjoying staff remand to the superior court for the entry
privileges, are not employed by Provi- of an order affirming the Board of Equaliza-
dence Hospital, and their patients are not tion’s decision denying the Sisters’ appeal.
316 The Law of Healthcare Administration

the court decides

Barnes Hospital v. Collector of Revenue
646 S.W.2d 889 (Mo. Ct. App. 1983)

Pudlowski, J. ined. The phrase could mean “solely” or

“entirely” in its narrowest sense. We do
This appeal by Barnes Hospital involves not construe it in that sense.
taxation of Queeny Tower, a 17-story build- ….
ing connected to, used and owned by …. The statutory phrase “used exclu-
Barnes Hospital for the tax-exempt pur- sively” has reference to the primary and
poses of treating patients and providing inherent use as against a mere secondary
them with care and services. Washington and incidental use. Our courts since
University Medical School, whose teaching Barnes have continued their reliance and
facilities are located within the Barnes acceptance of this definition.
Hospital complex and whose faculty mem- ….
bers comprise the medical staff of the hos- The policy underlying the statute is to
pital, leases Queeny Tower from Barnes. encourage charitable organizations. The
The part-time faculty subleases offices in meaning we attach to the language of the
Queeny Tower from Washington University statute accords with the mandate in
for use in their private practice as well as Barnes. Although it is the general rule that
for use in their teaching, research and constitutional provisions exempting prop-
Barnes Hospital functions. erty are to be strictly construed, such pro-
…. visions, though not subject to extension
The sole question raised is whether prop- by construction or implication, are to be
erty owned by a tax exempt hospital and given a reasonable, natural and practical
leased to the medical school for use by its interpretation in light of modern condi-
faculty may be taxed where its part-time fac- tions in order to effectuate the purpose for
ulty members, also engaged in limited pri- which the exemption is granted.
vate practice, maintain their offices therein. ….
…. For the foregoing reasons, the judgment
The first prerequisite for exemption is of the trial court is reversed and the cause
that the property be “used exclusively” for remanded with directions that the decree
charitable purposes. Nowhere in its deci- of August 24, 1978, remain in full force
sion did the Missouri Supreme Court and effect and that appellant’s questioned
define the meaning of the statutory words property be removed from the tax rolls of
“used exclusively” or “purposes.” Thus, St. Louis City and the City Collector be pro-
the initial proviso of the qualification artic- hibited from levying tax or compelling pay-
ulated first in Franciscan, the statutory ment thereon.
phrase “used exclusively,” must be exam- All concur.
 C h a p t e r 1 0 : Ta x a t i o n o f H e a l t h c a re I n s t i t u t i o n s 317

Barnes Hospital v. Collector of Revenue

Discussion Questions

1. How can the Greater Anchorage (Alaska) and Barnes Hospital (Mis-
souri) courts take two nearly identical tax laws, apply them to situations
with virtually identical facts, and arrive at opposite conclusions? Is this
fair?
2. Which of the two interpretations do you find more persuasive?
3. Would it matter if the property in question were owned by a for-profit
company but leased to Barnes Hospital for the same purposes?
4. What if a daily- or hourly-fee parking garage used by employees,
patients, families, and visitors were located on a parcel of land owned by
and adjacent to the hospital property? Would that be an exempt use in
Alaska or Missouri? Would it matter who got the receipts from the park-
ing garage or what fees were charged? Does your answer change if the
garage could also be used by patrons of local businesses that are not
related to the hospital?
 CHAPTER

ANTITRUST LAW
11
After reading this chapter, you will

• have a basic understanding of the three main antitrust statutes

and their exceptions.
• know why “interstate commerce” is an important constitutional
concept for antitrust analysis.
• see how antitrust laws are enforced and what sanctions are possi-
ble for their violation.
• appreciate the difference between “per se” and “rule of reason”
analysis.
• grasp how antitrust principles apply to healthcare organizations.
• be able to follow the possible future course of antitrust
enforcement.

There are three principal federal antitrust statutes: the Sherman Act (1890),
the Clayton Act (1914), and the Federal Trade Commission Act (1914).
These statutes, procedures for their enforcement, and their application to
healthcare organizations are described in this chapter.

The Sherman Act

Most healthcare antitrust litigation involves charges that the defendants have
violated either Section 1 or Section 2 (or both) of the Sherman Act. The sub-
stantive provision of Section 1 reads as follows:

Every contract, combination in the form of trust or otherwise, or conspiracy,

in restraint of trade or commerce among the several states, or with foreign
nations, is hereby declared to be illegal.1

Thus, in 32 simple words Congress set the stage for more than a cen-
tury of litigation. It is probably not an overstatement to say that billions of
319
320 The Law of Healthcare Administration

words have been written over the years to interpret this relatively simple
sentence.
It is easy to grasp the idea that a “contract, combination…or conspir-
acy” that restrains trade should be illegal. After all, free markets are good;
things that inhibit free markets are bad.
(Some would contest this assumption, but
The Law in Action we will take it as a given for now.) What is
hard to grasp is how to apply that proposi-
Because the Sherman Act applies only tion to an infinite number of fact situations
to restraints of “trade or commerce,” it
involving possible restraints of trade (see
was long assumed that it did not
apply to the practice of a profession. The Law in Action).
However, in the landmark case, Gold- Section 2 of the Act is similarly terse.
farb v. Virginia State Bar Association, It reads:
the Supreme Court ruled that a state
bar association’s minimum fee sched- Every person who shall monopolize, or
ule for attorneys amounted to an ille-
attempt to monopolize, or combine or con-
gal price-fixing arrangement.2 The
Court rejected the defendant’s position spire with any other person or persons, to
that the antitrust laws do not apply to monopolize any part of the trade or com-
the so-called “learned professions.” merce among the several States, or with for-
Therefore, healthcare (whether pro- eign nations, shall be deemed guilty of a
vided by institutions like hospitals or felony….3
by physicians and other clinicians) is
as subject to antitrust laws as are
automobile manufacturers, the steel Thus, both sections deal with joint
industry, software companies, and action—an agreement, a conspiracy—by two
other businesses. or more parties that restrains trade,4 and
Section 2 adds the concept of monopolies.
Obviously, one cannot conspire with
oneself, so an action by a single person does not violate Section 1 of the Sher-
man Act. Likewise, a corporation, being a legal “person,” cannot combine or
conspire with itself even though it may act through numerous employees. In
1984 the Supreme Court took this line of reasoning one step further and
held that a parent corporation could not agree or conspire with a wholly
owned subsidiary corporation even if the two were considered separate legal
entities for many other purposes.5 This result, of course, “leaves untouched
[by Section 1] a single firm’s anticompetitive conduct (short of threatened
monopolization) that may be indistinguishable in economic effect from the
conduct of two firms….”6 (See The Court Decides: Copperweld Corp. v.
Independence Tube Corp., at the end of this chapter.)
The analysis gets more interesting when two or more competitors in a
given market engage in parallel conduct but without conscious collaboration;
this is especially so with respect to product pricing (see Legal Brief). The fact
that the competitors charge the same price for similar products does not prove
a conspiracy. It may be circumstantial evidence for the jury to consider, but
 Chapter 11: Antitrust Law 321

absent actual proof that the parties

conspired, identical pricing by itself Legal Brief
does not violate Section 1 of the Sher-
man Act.7 On the other hand, when Antitrust law is one reason you see “manufacturer’s
the evidence shows that competitors suggested retail price” (MSRP) on some products.
exchanged price information and The retailer—who is in the same “distribution
caused a stabilization of prices, that is chain” as the manufacturer and the wholesaler—
does not have to sell the product at that suggested
sufficient proof of a violation.8
price but can vary it depending on local economic
Whether there was illegal collusion to conditions. This helps to avoid charges that the two
restrain trade is a fact question to be entities agreed on a price, which would be a per se
answered on a case-by-case basis. antitrust violation.
Restraints of trade may be hori- Of course you could wonder why there should be
zontal or vertical. Horizontal a “suggested” retail price at all. Why not just let the
local dealer set a price based on what the market
restraints occur when competitors in
will bear?
the same market agree on prices,
divide the market, exclude others from
competing, or refuse to deal with cer-
tain third parties. Vertical restraints exist when two or more entities at different
levels in a distribution chain act collectively to cause changes in the competitive
environment. For example, if a manufacturer and a retailer agree that the latter
will sell the product at a given price, such behavior would be called “resale price
maintenance” and would usually violate the Sherman Act.
In contrast to Section 1, Section 2 of the Sherman Act can apply to a
single business enterprise. In addition to combinations to create a mono-
poly, the section prohibits actual monopolies and attempts to monopolize,
even when they result from unilateral action.9 Section 2 is violated when
monopoly power—the power to control prices or exclude competition—
exists as a result of “willful acquisition or maintenance of that power as dis-
tinguished from growth or development as a consequence of a superior
product, business acumen, or historic accident.”10 In simple English, if the
world beats a path to your door because you built a better mousetrap, that’s
okay. But if you take steps to keep other mousetrap manufacturers away
from the path, you’re breaking the law. As with so many other issues, mak-
ing this distinction requires delicate scrutiny, and decisions will be made on
a case-by-case basis.
In summary, in a case alleging violation of Section 2’s monopolization
provisions, a court must do the following:

1. determine the relevant market, both geographically and for the product;
2. decide whether the evidence shows actual or inferential control of prices
or the exclusion of competitors; and
3. determine whether this monopoly power was acquired or maintained
willfully.
322 The Law of Healthcare Administration

The Clayton Act

As noted, the language of the Sherman Act is

The Law in Action
general and broad and its application begat
About 100 years ago the U.S. Supreme some unwanted consequences, as laws tend to
Court decided Loewe v. Lawlor, which do. For example, it was used for nearly 25
became known as the “Danbury Hat-
years as an antiunion tool (see The Law in
ters’ Case,” 208 U.S. 274 (1908). A
labor union boycotted the products of Action). As a result, in 1914 Congress tried to
a nonunion hat manufacturer in Dan- add some clarity by passing the Clayton Act,
bury, Connecticut. The manufacturer which flatly states, “The labor of a human
sued, arguing that the union’s activi- being is not a commodity or article of com-
ties were an illegal combination in merce”11 and exempts union activities from
restraint of trade. The Supreme Court
the force of the antitrust laws. In addition, the
agreed and let stand an injunction
against the union and an award of Clayton Act prohibits the following:
triple the damages suffered by the
manufacturer. • price discrimination,
The Clayton Act was a direct result • tying arrangements (exclusive sales
of the outcry among labor activists contracts),
that followed in the wake of the Dan-
• mergers and acquisitions that lessen
bury Hatters’ Case.
competition, and
• certain interlocking corporate directorates
and stock holdings.

The first three are discussed in the next sections.

Price Discrimination
Part of the Clayton Act was concerned with discriminatory pricing practices,
where the effect is to lessen competition or achieve monopoly power. As
amended over the years it now reads, in part:

[It is unlawful] to discriminate in price between different purchasers of

commodities of like grade and quality…where the effect of such discrimi-
nation may be substantially to lessen competition or tend to create a
monopoly in any line of commerce, or to injure, destroy, or prevent com-
petition with any person who either grants or knowingly receives the ben-
efit of such discrimination.12

The statute specifically allows price differentials based on “the cost of

manufacture, sale, or delivery resulting from the differing methods or quan-
tities in which such commodities are…sold or delivered.” (The famous “vol-
ume discount,” therefore, remains legal.)
The section applies only to sales of commodities (merchandise, wares,
things), and so it does not cover intangible items like patents, stocks, bonds,
 Chapter 11: Antitrust Law 323

and healthcare services. It also does not apply when the things sold are dif-
ferent in grade and quality or when they are sold to certain not-for-profit
institutions (including hospitals) “for their own use.”
For example, in Abbott Laboratories v. Portland Retail Druggists Asso-
ciation, Inc.,13 several pharmaceutical manufacturers had sold products to
not-for-profit hospitals in Oregon at prices lower than those charged to com-
mercial pharmacists for the same or similar products. The question, of course,
was whether the purchases by the hospitals were “for their own use.” Obvi-
ously the hospitals were not swallowing the drugs, so the issue was what
kinds of uses are permissible. The Court found that the following are
“[p]urchases…for their own use:”14

• products purchased for use in treatment of inpatients, emergency

patients, and outpatients seen on the premises;
• take-home prescriptions for those three categories of patients, to the
extent that the prescriptions supplemented treatment rendered at the
hospital and were to be used for a limited time; and
• drugs furnished to hospital employees, students, and members of the
medical staff for their dependents’ personal use.15

Excluded from the exemption were prescription refills for a hospital’s

former patients and sales to walk-in buyers, except in emergencies when there
was no other source of supply.16 It was felt that permitting refills for dis-
charged patients or sales to the general public would give a hospital-based
pharmacy an unfair advantage over commercial pharmacies.
In addition to these statutory limitations on the scope of the law and
the general defense based on cost justifications, Section 2(b) of the Clayton
Act provides that any price is lawful if set in good faith to meet competition
on a customer-to-customer or geographic basis. To assert this defense suc-
cessfully, however, the seller must prove that the pricing policies in question
were designed to meet competition, not drive it out. One should note that
discriminatory pricing might also be an attempt to monopolize, which is a
violation of Section 2 of the Sherman Act.

Tying and Exclusive Dealing Contracts

Section 3 of the Clayton Act provides:

It shall be unlawful for any person engaged in commerce…to lease or

make a sale…of goods…or other commodities…on the condition, agree-
ment, or understanding that the lessee or purchaser thereof shall not use
or deal in the goods…or other commodities of a competitor...where the
effect…may be to substantially lessen competition or tend to create a
monopoly in any line of commerce.17
324 The Law of Healthcare Administration

More will be said later in the chapter about these prohibited restraints
of trade, but suffice to say at this point that they (1) do not apply to contracts
of service and (2) rarely, if ever, apply in the healthcare setting.

Mergers and Acquisitions

Corporate mergers, consolidations, and acquisitions are the subjects of Sec-
tion 7 of the Clayton Act, and thus Section 7 duplicates to a certain degree
the ban on monopolization and attempts to monopolize, which were already
made illegal by Section 2 of the Sherman Act. This portion of the Clayton
Act reads:

No person engaged in commerce…shall

acquire, directly or indirectly, the whole or any
The Law in Action part of the stock…and no person subject to
the jurisdiction of the Federal Trade Commis-
Major premise: The Clayton Act vests
in the following agencies the authority sion shall acquire the whole or any part of the
to enforce the Clayton Act’s merger assets of another person engaged also in com-
and acquisition provisions: merce…where…the effect of such acquisition
• the Surface Transportation may be substantially to lessen competition, or
Board, where applicable to com- to tend to create a monopoly.18
mon carriers;
• the Federal Communications For some time it was assumed that this
Commission, where applicable provision applied only to for-profit companies
to radio and television; because (a) they do not issue stock, and (b)
• the Secretary of Transportation, the Federal Trade Commission (FTC) Act
where applicable to air carriers; does apply to nonstock companies. However,
• the Federal Reserve, where the opinion in United States v. Rockford Memo-
applicable to banks, banking rial Corp.,19 threw this assumption into a
associations, and trust compa- cocked hat. It said that mergers between not-
nies; and for-profit enterprises are subject to FTC juris-
• the Federal Trade Commission, diction for the purpose of enforcing the Clay-
where applicable to all other ton Act itself. The syllogism is shown in The
character of commerce. Law in Action.
Who cares about this? Apparently, only
Minor premise: Not-for-profits are the academics. The standards of the Sherman
engaged in commerce. and Clayton Acts do seem to be different. Sec-
tion 1 of the Sherman Act prohibits contracts,
Conclusion: The Clayton Act gives the
Federal Trade Commission authority to combinations, and conspiracies in restraint of
enforce the Clayton Act against not- trade, while Section 2 prohibits monopolies or
for-profits, even though it could not attempts to monopolize. A corporate acquisi-
enforce the Federal Trade Commission tion might not violate either of those provi-
Act against them. sions, but its effect, even if unintended, might
“substantially…lessen competition” or “tend
 Chapter 11: Antitrust Law 325

to create a monopoly,” which are the Clayton Act’s yardsticks. A fine distinc-
tion to be sure, yet one that is theoretically important. But the issue has sel-
dom been addressed in other cases, and the language of Rockford Memorial
remains dictum.20
In summary, whether the Clayton Act applies to not-for-profit health-
care corporations is an open question, but it does not matter much.

The Federal Trade Commission Act

In 1914, the same year that the Clayton Act was enacted, Congress passed
the FTC Act. The law is enforced by the FTC, an agency with broad powers
to conduct investigations, promulgate rules and regulations, and enforce
statutory provisions that prohibit unfair competition and trade practices.
Section 5 of the FTC Act, as amended, states: “Unfair methods of
competition in or affecting commerce, and unfair or deceptive acts or
practices in or affecting commerce, are hereby declared unlawful.”21
Under this language the agency essentially is empowered to enforce the
Sherman and Clayton Acts also, at least against for-profit companies,
because some unfair methods of competition will violate all three statutes.
In addition to encouraging competition, Section 5 empowers the FTC to
regulate trade practices that are “unfair or deceptive” to consumers. For
example, the FTC has brought numerous cases charging commercial
advertisers with unfair or deceptive practices, some of which could apply
to healthcare:

• failing to reveal material facts about a product,

• making false claims and misrepresentations,
• offering misleading prices,
• disparaging a competitor’s product by misleading or making untrue
assertions,
• announcing unsupported endorsements by well-known persons,
• presenting advertising that is intended to attract a customer who will
then be switched to a higher-priced product,
• conducting contests where very few prizes are actually awarded,
• sending unsolicited merchandise, and
• using overbearing methods in door-to-door sales.

Interstate Commerce

Congress normally bases its power to regulate business activity on the com-
merce clause of the Constitution. This clause grants Congress the power to
326 The Law of Healthcare Administration

“regulate Commerce with foreign

Legal Brief nations and among the several states.”
Congress may, therefore, regulate
The Constitution was written in the heydays of inter state commerce. Intrastate com-
farmers, farriers, and similar tradesmen when much merce is beyond the reach of federal
commerce was truly local. But today the “village regulation under the commerce
blacksmith” can order his supplies by Internet, clause. This begs the question,
mail, or telephone; have them shipped from any-
“Where is the line between the two?”
where in the world by land, sea, or air; and pay for
them through electronic fund transfer from a bank (see Legal Brief). Especially in today’s
in London, Switzerland, or almost anyplace else. His high-tech, highly mobile, free-trade
equine “clients” may be thoroughbreds from far society, virtually everything affects or
and wide that race on tracks across the country or is affected by interstate commerce. In
around the world. essence, the Supreme Court has said
Distinguishing between interstate and intrastate
that Congress may regulate even local
commerce today is not as simple as it might have
seemed 225 years ago! activities so long as they have a sub-
stantial and harmful effect on inter-
state commerce.22
For many years it was widely
assumed that federal antitrust statutes did not affect healthcare services
because they fell into the “intra” category. A significant 1976 case, however,
proved that assumption quite wrong. In Hospital Building Co. v. Trustees of
the Rex Hospital 23 the Supreme Court held that an alleged conspiracy among
a not-for-profit hospital, some hospital officials, and the head of the local
health planning agency to prevent the relocation and expansion of a compet-
ing hospital did have a “substantial effect” on interstate commerce.24 A sig-
nificant portion of the hospital’s medicines and supplies, some of its patients,
much of its revenue, and the contemplated financing for its planned expan-
sion came from out-of-state sources. The Court felt these factors showed
enough of an effect on interstate commerce for the antitrust laws to apply.25
The learning from Rex Hospital is that most healthcare organizations
today will not be able to avoid scrutiny by claiming that their conduct does
not have a substantial effect on interstate commerce.

Exemptions from Antitrust Legislation

There are five possible exemptions to the federal antitrust statutes. Three of
these—implied repeal, state action, and the Noerr-Pennington doctrine—
were created by court decision and thus are subject to modification from
time to time. The fourth exemption (established by Congress when the
McCarran-Ferguson Act26 was passed in 1924) exempts the “business of
insurance” from federal antitrust law if the defendant’s conduct does not
amount to “boycott, coercion, or intimidation.”27 The final exemption
 Chapter 11: Antitrust Law 327

relates to collective bargaining agreements between a labor union and man-

agement.

Implied Repeal
Implied repeal is invoked to create an exemption from antitrust liability when
the antitrust laws conflict with another federal regulatory scheme. To put the
matter another way, it is felt that by regulating a specific practice Congress
must have meant for the more explicit system to trump the general principles
of antitrust law even if it did not clearly say so.
Cases involving implied repeal show the philosophical struggle
between advocates of free-market competition and those who promote
greater regulation. The tension between antitrust principles and health plan-
ning laws is a case in point. The National Health Planning and Resources
Development Act of 1974 (Pub. L. No. 93-641) was meant to prevent exces-
sive investment in and misdistribution of health facilities. Because competi-
tion alone does not appropriately determine the supply of healthcare, “93-
641” (as it was often called) encouraged local and state planning agencies to
allocate health facilities and services according to need. Obviously, having the
government decide what facilities can and cannot be built flies in the face of
the pro-competition philosophy of the antitrust laws.
National Gerimedical Hospital and Gerontology Center v. Blue Cross of
Kansas City grew out of this health planning climate.28 A hospital corporation
built a new facility despite (a) data showing that it was not needed and (b) the
planning agency’s decision that it would not approve any new construction in
the area. Jumping on the cost-containment bandwagon, the Blue Cross health
plan announced that it would not contract with new hospitals that did not
meet a “clearly evident need.” After the National Gerimedical Hospital was
built, it sought to participate in the Blue Cross plan, but Blue Cross said no
because the hospital had not been approved by the planning agency.
The hospital filed an antitrust suit alleging a conspiracy in restraint of
trade. Facing the realization that their actions did restrain trade, the defen-
dants argued, “Implied repeal! The health planning law is more specific and
so it preempts the broad principles of the antitrust laws.” The district and
appellate courts agreed with the defendants and dismissed the case. The
Supreme Court, however, reversed the decision. It remanded the case for a
new trial while making these important points:

1. The antitrust laws represent a “fundamental national economic policy.”

2. Implied antitrust immunity can be justified only by a convincing show-
ing of clear repugnancy between antitrust principles and the particular
regulatory system.
3. Repeal is to be regarded as implied only if necessary to make the subse-
quent law work, and even then only to the minimum extent necessary.
328 The Law of Healthcare Administration

4. Even governmental regulation does not provide evidence of congres-

sional intent to repeal the antitrust laws.

In summary, implied repeal is disfavored. It applies in any type of

case only if there is “clear repugnancy” between the two conflicting statu-
tory provisions. Because the conduct by Blue Cross of Kansas City was
“neither compelled nor approved by any governmental regulatory body,”
the Sherman Act prevailed. Blue Cross’s refusal to contract with National
Gerimedical was a voluntary decision by a private corporation in response
to comments by the state planning agency acting in an advisory role.
Thus, the Supreme Court forthrightly reasserted that it is not permissible
for competing healthcare entities to restrain trade voluntarily even in the
name of health planning.

State Action
Local and state governments regulate various private business and economic
activity in the interest of promoting health, safety, and the general welfare of
the public. However, sometimes state regulation restricts or restrains compe-
tition, thus generating apparent inconsistencies between state governmental
regulation and antitrust legislation.
The state action doctrine, developed by the courts, grants immunity
from antitrust sanctions whenever the defendants’ anticompetitive conduct
is the consequence of governmen-
tal regulation. The first case estab-
Legal Brief lishing the exemption was Parker
v. Brown,29 which involved Cali-
If you are a state, you can restrain trade. Otherwise, fornia laws that restrained compe-
you cannot. The seeming absurdity of this state- tition among raisin producers and
ment is perhaps why “state action” has been so increased market prices. The
narrowly construed.
Supreme Court held that the state
officials administering the law
were exempt from antitrust claims
because the program “derived its
authority and efficacy from the legislative command of the state.”30 But 32
years later, in Goldfarb v. Virginia State Bar, the Court clarified this hold-
ing by saying that the restraint of trade must be required by the state, not
merely authorized by it.31 (See Legal Brief.)
In summary, the state action doctrine requires that the regulation be
an activity of the state itself acting in its sovereign capacity or must be con-
ducted pursuant to a “clearly articulated and affirmatively expressed” state
regulatory policy. Further, the state itself must then actively supervise the
local government or private party engaged in the regulating process. Little, if
any, healthcare regulation meets these criteria.
 Chapter 11: Antitrust Law 329

Noerr-Pennington Doctrine
The Noerr-Pennington doctrine (named after parties in two Supreme Court
cases) recognizes that attempts to influence legislation or governmental reg-
ulations are exempt from antitrust restraints. The doctrine is based on the
First Amendment to the Constitution, which guarantees freedom of speech
and the right to petition the government. For example, in the case of Eastern
Railroad Presidents Conference v. Noerr Motor Freight, Inc.,32 the Supreme
Court held, “The Sherman Act does not prohibit two or more persons from
[acting] together in an attempt to persuade the legislature or the executive
to take particular action with respect to a law that would produce a restraint
or a monopoly.” Even though two railroads had intended to (and did) harm
the trucking industry and had used unethical methods in their publicity cam-
paign, the constitutional dimensions of the doctrine trumped the antitrust
laws.
There are limitations to the doctrine, of course. An exemption will not
be recognized if the conduct of the defendants otherwise violates a valid
statute or if the intent is to prevent competitors’ own attempts to influence
the government.33 In such circumstances, and perhaps others, the claim of
exemption will be labeled a sham and denied.
Because of the Noerr-Pennington doctrine, healthcare organizations
are free to collaborate in pushing for legislation or regulations that serve their
own interests, even if those organizations are competitors and otherwise
might violate the antitrust laws.

The Business of Insurance

Before World War II it was generally assumed that insurance companies did
not do business in interstate commerce and need not concern themselves
with statutes relating to restraints of trade. This changed in 1944 when the
Supreme Court ruled that the sale of insurance is indeed part of interstate
commerce and is therefore subject to antitrust laws.34 But it was quickly seen
that there are valid reasons for exempting some aspects of the insurance
industry from antitrust principles. A completely free market characterized by
open competition would cause some insurance companies to issue policies at
rates that do not cover the actual risk. The consequences might well be the
insurance companies’ failure and inability to pay legitimate claims. Sound
public policy, therefore, requires that the government be concerned for the
financial integrity of insurance carriers.
Because a freely competitive environment is not appropriate for the
insurance industry, it follows that certain cooperative efforts among insur-
ance companies are legitimate and perhaps should be encouraged by regula-
tory authority, even if they are anticompetitive. For example, companies may
benefit by sharing information on the various risks in any given book of busi-
ness and by exchanging data on price and loss ratios. Cooperation in fixing
330 The Law of Healthcare Administration

actual rates for insurance has also been thought to be consistent with desir-
able public policy.
Congress enacted the McCarran-Ferguson Act (MFA)35 in 1945 as a
response to these arguments and to the Supreme Court decision the year
before. The MFA established in statutory form the previously assumed
exemption of the insurance industry from federal antitrust laws. The MFA
also provided, however, that the exemption would not apply “to any agree-
ment to boycott, coerce, or intimidate, or [to any] act of boycott, coercion,
or intimidation.”36 To this extent Congress recognized that insurance com-
panies were capable of abusing an exemption and that engaging in a con-
certed refusal to do business with another or compelling a particular result by
force should not be condoned.
There are three main issues in determining whether the act grants an
exemption on a given set of facts:

1. Do the activities of the defendants constitute the “business of

insurance”?
2. If yes, are the activities regulated by state law to a degree that justifies
an exemption?
3. Even if the conduct of the defendants constitutes the business of insur-
ance regulated by state law, do the facts indicate a boycott or business
practices amounting to coercion and intimidation?

In healthcare, contractual agreements between a healthcare insurer

(third-party payer) and a provider of products or services to that insurer are
not considered the “business of insurance.” They are merely contracts the
insurer uses to reduce its costs in ful-
filling its underwriting obligations
Legal Brief (see Legal Brief). Thus, the terms of
the contract, the formation of the
At its core, the “business of insurance” involves the agreement, and refusals by third-
underwriting of risk in return for payment of a pre- party payers to contract with particu-
mium. That is, it involves the relationship between lar providers are all subject to
insurer and the insured. In issuing a health insur- antitrust analysis on the merits of
ance policy, the company insures against the possi- each case.
bility that the insured will suffer financial loss aris-
Analysis of Group Life and
ing from the need for healthcare products or
services. Health Insurance Co. v. Royal Drug
37
Co. will help to clarify this some-
However, the business of insurance does not refer
to all business aspects of an insurance company, what arcane point. In Royal Drug
only those that involve spreading risk, as is seen in several small, independent, nonpar-
Royal Drug. ticipating pharmacies challenged the
terms of a contract for prescription
drugs between Blue Shield of Texas
 Chapter 11: Antitrust Law 331

(aka Group Life and Health Insurance) and the participating pharmacists.
The plaintiffs alleged that the agreement amounted to price fixing. All
licensed pharmacies within Blue Shield’s service area were offered “partici-
pating” status and were promised direct reimbursement by Blue Shield for
the cost of the prescribed drug plus a flat dispensing fee of $2 paid by the
subscriber as a “copay” (note that this happened in the 1970s). If a Blue
Shield subscriber obtained a prescribed drug from a nonparticipating phar-
macy, she had to pay the pharmacist the actual retail price of the item and
then seek reimbursement from her insurer. Blue Shield would reimburse the
subscriber 75 percent of the difference between the price paid and the $2
fee—that is, the subscriber essentially had a 25 percent copay rather than a
$2 copay when using a nonparticipating pharmacy.
The purpose of these arrangements was for Blue Shield to have a
measure of control over its costs and to keep the subscriber’s premium as low
as possible. The practical effect, however, was to encourage subscribers to
obtain their prescription medicines only from “participating” pharmacies.
Some pharmacies, especially small independent ones, claimed that they could
not operate economically for the $2 dispensing fee; hence, they alleged that
the participating contract amounted to a conspiracy to fix prices in violation
of the Sherman Act.
Blue Shield argued for an exemption from antitrust laws based on the
MFA’s “business of insurance” language. The Supreme Court disagreed.
After tracing the legislative history of the MFA and noting that exemptions
from antitrust legislation are to be narrowly construed, the Court wrote:
“The exemption is for the ‘business of insurance,’ not the ‘business of insur-
ers’.” That is to say, not all of the business activities of insurance companies
are exempt merely because the company is in the insurance business; the
business of insurance applies only to spreading and underwriting risks.38
The agreement concerning participating pharmacies did not involve the
acceptance or spreading of risks. It was not the business of insurance but
simply a contract by Blue Shield to purchase goods and services on behalf of
its subscribers.

Exemption for Labor-Management Activities

This topic was alluded to in the section concerning the Clayton Act. Because
healthcare benefits for employees are among the mandatory subjects for col-
lective bargaining under the provisions of the National Labor Relations
Act,39 it follows that the negotiated provisions of a contract between an
employer and a labor union should be exempt from attack on antitrust
grounds.
Michigan State Podiatry Association v. Blue Cross and Blue Shield of
Michigan is illustrative.40 In their 1979 labor contract the United Auto
Workers and Chrysler Corporation agreed that, under the employees’ health
332 The Law of Healthcare Administration

plan, certain designated podiatric surgeries would be covered if a peer-review

panel confirmed that the proposed procedure was both medically necessary
and appropriate. The podiatry association challenged this preauthorization
program on the ground that peer review was an unreasonable restraint of
trade. The court dismissed the lawsuit, however, stating that arm’s-length
collective bargaining between a labor organization and management is
exempt from the concepts of antitrust law.

Sanctions and Enforcement of Antitrust Statutes

The Sherman Act provides for both civil and criminal penalties41 (see Table
11.1). Criminal prosecutions are initiated by the U.S. Department of Justice
(DOJ) and filed in the district that has jurisdiction over the alleged criminal
activities of the defendants.
Either the DOJ or a state attorney general may bring civil actions;
those cases seek an injunction ordering the defendants to stop the illegal
activity and, where an illegal monopoly is found, to break up the monopolis-
tic position. Civil litigation may be terminated by a consent decree, an agree-
ment among the parties in which the defendants agree to eliminate the
alleged illegal behavior without admitting guilt.42 Because it may be less
costly to modify business practices than to continue defending the matter in
court, consent decrees are frequently perceived as beneficial to all interested
parties. (Failure to abide by a consent decree or an injunction can result in a
fine of $10,000 per day.43)
Finally, aggrieved competitors may also file civil suits under the Sher-
man Act and can receive triple the amount of their actual damages.44 They
may also obtain an injunction and reimbursement for their attorneys’ fees and
court costs. This last provision encourages settlement because attorneys’ fees
in a major antitrust suit can amount to several million dollars. (Needless to
say, triple damages and awards of attorneys’ fees are strong deterrents.)
Unlike the Sherman Act, the Clayton Act is not a criminal statute.45 The
civil remedies, however, are identical: an injunction or consent decree can be
sought by the DOJ; a state attorney general may seek an injunction or damages;
and private parties may sue for triple damages, or an injunction, or both.

TA B L E 1 1 .1
Defendant Fine per Offense Imprisonment
The Sherman
Act’s Criminal
Corporation Up to $10 million n/a
Penalties
Individual $350,000 Up to three years per offense
 Chapter 11: Antitrust Law 333

The FTC Act is enforced only by the FTC.46 There is no private right
of action, nor is the DOJ involved. Moreover, the Act provides only for civil
remedies. The FTC has authority to enforce Sections 2, 3, 7, and 8 of the
Clayton Act and does indeed do so from time to time.47 Because several of
the activities that violate Section 1 of the Sherman Act also violate sections of
the Clayton Act and the FTC Act, the FTC can be said to enforce all three
of the antitrust statutes.
As explained in the section concerning the Clayton Act, for many years
it was assumed that the FTC had no jurisdiction over not-for-profit compa-
nies. Whether it does remains an unresolved issue, but it is probably a moot
point because there is little substantive difference between the Clayton Act
and the Sherman Act. The only remaining difference is which governmental
agency can enforce the laws.

Rule-of-Reason Analysis and Per Se Violations

Immediately after the Sherman Act was passed in 1890, courts realized that
not literally all contracts, combinations, or conspiracies in restraint of trade
could be illegal (only those that are unreasonable), otherwise all contracts
and joint activity between two or more persons would violate the law. (For
example, any time there is a contract between a manufacturer and a supplier,
the supplier’s competitors have no opportunity to compete for that piece of
business; thus, their ability to compete is restrained with regard to that prod-
uct at that time.)
Thus, in most cases the courts apply a “rule-of-reason analysis,” a
time-consuming (and expensive) case-by-case consideration of a series of
complex issues, including the following:

1. the geographic and product markets involved;

2. the nature of the particular industry, product, or service;
3. the motivation for the allegedly illegal activity; and
4. the condition of the industry before and after the alleged restraint of trade.

The first and last factors are the most complicated. They involve tor-
tuous (and seemingly tortured) analyses of economic data to determine the
positive and negative effects on competition.
The “rule of reason” is applied to most practices challenged under
Section 1 of the Sherman Act, but some behavior is so clearly anticompeti-
tive that a full-scale analysis of all the relevant factors and economic conse-
quences of any restraint of trade is neither necessary nor wise. Accordingly,
the courts have developed over time a per se standard of analysis best
expressed in these words:
334 The Law of Healthcare Administration

[T]here are certain agreements or practices which because of their pernicious

effect on competition and lack of any redeeming virtue are conclusively pre-
sumed to be unreasonable and therefore illegal without elaborate inquiry as
to the precise harm they have caused or the business excuse for their use….
Among the practices which the courts have heretofore deemed to be unlaw-
ful in and of themselves are price fixing…division of markets…group boy-
cotts…and tying arrangements.48

To reiterate, one must look to the competitors’ behavior to see if it

amounts to any of the following:

• price fixing (agreements between competitors with respect to price),

• dividing markets (either geographically or by product),
• group boycott (concerted refusals to deal), or
• tying arrangements (rarely applicable to healthcare).

If any of these circumstances is shown, there will be said to exist an

automatic (per se) violation, and the rule-of-reason analysis does not need
to be applied. When the per se standard of analysis is applied, the plaintiff
need not prove the restraint’s actual or quantitative effect on competition
in a particular market. The rule of reason, by contrast, places the burden
on the plaintiff to show the actual anticompetitive effects of the chal-
lenged activity.

Applications to Healthcare
Legal Brief
Justice Oliver Wendell Holmes once
A trust was a form of business entity used in the wrote, “It is one of the misfortunes
late 1800s with intent to create a monopoly. It was
of the law that ideas become
often created when corporate leaders convinced or
coerced the shareholders of competing companies encysted in phrases and thereafter for
to convey their shares to a board of trustees in a long time cease to provoke further
exchange for dividend-paying certificates. The analysis.”49 The same may be true
board would then manage all the companies in for the assumptions that underlie
“trust” for the shareholders; in the process they antitrust policy.
would minimize competition. Eventually “trust” was
The antitrust laws date to the
used to refer to monopolies in general. Prominent
trusts were Standard Oil, U.S. Steel, and Southern Industrial Revolution in the nine-
Pacific Railroad. “Trust busting” became a major teenth century (see Legal Brief). It
policy and political issue in the late nineteenth and is, therefore, fair to ask whether the
early twentieth centuries under Presidents McKinley antediluvian principles of the Sher-
and Roosevelt. man Act (and other laws) are
appropriate for the twenty-first cen-
tury; this may be especially so in the
 Chapter 11: Antitrust Law 335

healthcare arena. That governmental regulators continue to try to pin the

antitrust tail on today’s healthcare donkey would probably cause Senator
John Sherman—author of the eponymous first antitrust law—no little
wonder.
Some observers assert that healthcare markets are profoundly differ-
ent from other markets and that normal antitrust analyses of market power
and concentration are unsuitable. As they point out, prices for hospital
services are not simply a matter of supply and demand but are greatly
influenced by factors totally outside hospitals’ control, including the fol-
lowing:

• Medicare and Medicaid programs’ unfettered power to set the prices

they will pay,
• negotiated discounts for managed care plans,
• the aging of the patient population, and
• research and development costs for new drugs and medical technology.

Others—often governmental regulators—contend that competition is

as worthy a goal in healthcare as it is in any other industry. They seek appli-
cation of traditional antitrust principles to encourage competition, prevent
monopolies or concentration of markets, and help control healthcare costs.
This attitude prevailed throughout the 1980s and 1990s when antitrust
enforcement was a rather high priority. Table 11.2 shows areas of concern for
hospitals. (See Legal DecisionPoint on page 336.)
This chapter does not discuss all the concerns listed in Table 11.2,
but it addresses regulators’ current level of interest in reviewing hospital
merger cases.

TA B L E 1 1 .2
Type of Activity Possible Antitrust Concern
Antitrust
Health planning Restraint of trade Concerns for
Hospitals
Shared services Possible price fixing or group boycott

Utilization review Possible group boycott

Medical staff privileges Possible group boycott

Third-party-payer contracts Possible price fixing, group boycott, or
monopolization
Managed care organizations Possible price fixing, group boycott, or
monopolization
Mergers and consolidations Possible monopolization
336 The Law of Healthcare Administration

In the second half of the Clinton admin-

istration, regulators became less attentive to
antitrust issues in healthcare and more involved
Legal DecisionPoint
in issues such as major mergers in other indus-
tries, international restraints of trade, and the
Suggested research project: Analyze how
Microsoft case. By 1996 the federal govern-
effective the activities listed in Table 11.2,
and the antitrust principles applied to them, ment had lost a string of hospital-merger
have been in reducing the skyrocketing cost cases,50 culminating in Federal Trade Commis-
of healthcare in this country. Consider the sion v. Butterworth Health Corporation,51 and
root causes of increasing costs and the the government seemed to welcome the oppor-
available alternatives to the current way our tunity to turn its attentions elsewhere for the
healthcare system is financed.
nonce. (Butterworth is described in a later sec-
tion of the chapter.)

Mergers and Consolidations

Corporations grow and diversify by (1) acquiring the stock or assets of another
corporation, (2) merging with another corporation, or (3) consolidating two
or more corporations into one new one (see Legal Brief). For the purpose of
this discussion, the term “combination” is used to encompass all three types
of transactions.
Four different antitrust provisions bear on corporate combinations.
Section 7 of the Clayton Act is by far the most significant,52 but business com-
binations can also be challenged under Sections 1 and 2 of the Sherman Act53
and Section 5 of the FTC Act.54
Because business combinations have not been treated as per se violations,
anyone who alleges that a combination restrains trade must show that the
restraint results in an actual and substantial lessening of competition. The courts
have recognized that some business combinations, mergers, and joint ventures
may in fact increase business efficiency and favor competition. A plaintiff who
must show an actual anticompetitive effect carries a heavy burden; thus, Section
1 is a less attractive legal vehicle for those challenging the decision of separate
business entities to combine. Section 1
also requires that two or more persons
Legal Brief agree to restrain trade and does not
apply to unilateral action.
A merger is the joining of two corporations—one In contrast, Section 2 of the
transfers all of its assets to the other and the for- Sherman Act applies to unilateral
mer is dissolved. (In effect, one corporation “swal- action by single firms and prohibits
lows” the other.) A consolidation is a transaction in them from engaging in monopolies,
which two or more companies create a new corpo- attempting to monopolize, and con-
ration and the predecessor companies dissolve.
spiring to monopolize.55 Three essen-
tial elements of a Section 2 allegation
require a case-by-case analysis:
 Chapter 11: Antitrust Law 337

1. proof of market power—the ability to exclude competitors or to fix or

control prices, whether that ability is exercised or not;
2. definition of the relevant geographic and service markets; and
3. proof that the defendant has achieved or is maintaining monopoly power
“willfully” or “unfairly.”

Mere size and the absence of competition do not prove an illegal mono-
poly. Rather, what is prohibited is the intentional acquisition of monopoly power
to control prices or exclude competitors. Predatory pricing policies, such as pric-
ing below cost, or other unfair business practices may, therefore, be evidence of
prohibited activities. In contrast, a dominant position in the market is not a vio-
lation in and of itself. Some firms achieve a dominant position merely by supply-
ing a quality product or service efficiently or because the market can support only
a single enterprise of its type. In a leading 1966 case the Supreme Court wrote,
“growth and development as a consequence of a superior product, business acu-
men, or historic accident” does not violate Section 2 of the Sherman Act.56
(Recall the mousetrap analogy earlier in this chapter.) Invention and innovation
in a rapidly changing technological world actually encourage competition, and
success does not by itself violate the principles of antitrust law.57
For a number of reasons, therefore, the provisions of the Sherman Act
are difficult to enforce and are relatively ineffective in controlling monopolis-
tic mergers and acquisitions. Although the statute remains in effect and is cer-
tainly a factor to be considered when evaluating the antitrust aspects of cor-
porate reorganization, Section 7 of the Clayton Act is the preferred means of
challenging a new or proposed business combination.58
As discussed earlier, Section 7 prohibits mergers and acquisitions that
tend to create a monopoly. The relevant provision reads as follows:

No person engaged in commerce…shall acquire, directly or indirectly, the

whole or any part of the stock or other share capital and no corporation sub-
ject to the jurisdiction of the Federal Trade Commission shall acquire the
whole or any part of the assets of another person engaged also in com-
merce…where in any line of commerce…in any section of the country, the
effect of such acquisition may be substantially to lessen competition, or to
tend to create a monopoly.59

Thus, the Clayton Act technically applies only to mergers or acquisi-

tions “in commerce.” This may be a more stringent standard than that of
the Sherman Act, which applies to activity that “substantially affects com-
merce.” The Clayton Act did not apply, for example, to the case of an out-
of-state corporation doing business nationally that acquired two firms sup-
plying local janitorial services in Southern California because the companies
acquired were not engaged in interstate commerce.60 As a practical matter,
338 The Law of Healthcare Administration

the distinction between “in commerce” and “affecting commerce” is only

an academic one.

Defining and Appraising Markets

Assuming there is no per se violation, a Clayton Act analysis first requires def-
inition of the relevant product or service market and the geographic market
and then appraisal of the proposed combination’s effect on competition. In
defining the product market, one must identify items that compete with each
other as well as interchangeable substitutes. If buyers are prone to substitute
a different, interchangeable product when the price of another product
increases, the substitute must be included in the market. On the other hand,
if the evidence shows that purchasers do not substitute a comparable item
when a given product increases in price, the conclusion may well be that the
targeted product stands alone as a market. (The term used in appraising this
factor is “cross-elasticity of demand.”)
Each case must be considered on its own facts. For example, in one
case the Supreme Court held that cellophane (e.g., Saran Wrap and Cling
Wrap) competes with other forms of flexible packaging materials. Because the
defendant possessed only 18 percent of the market for packaging materials,
an antitrust violation had not occurred, even though the defendant company
had nearly 75 percent of the cellophane market.61
In the healthcare arena, a prime example of this concept of case-by-
case market analysis can be seen in two significant hospital merger cases. In
United States v. Carilion Health System, the DOJ brought suit to prevent the
merger of two hospitals in Roanoke, Virginia.62 The parties included (1) Car-
ilion Health System, which owned three not-for-profit hospitals in the
state—including 677-bed Roanoke Memorial Hospital—and managed six
others, and (2) Community Hospital of Roanoke Valley, a 400-bed facility.
Roanoke Memorial (staffed to operate 609 beds) and Community Hospital
(staffed for 220 beds) wished to merge. A third hospital in the Roanoke area,
which operated about 335 beds, was not involved in the merger. All three
hospitals provided primary, secondary, and tertiary care, although Commu-
nity Hospital provided the smallest number of tertiary services.
In considering the geographic market, the court pointed out that
Roanoke Memorial drew 27 percent of its patients from three West Virginia
counties and 11 Virginia counties outside the Roanoke area. It also noted that
the hospital drew at least 100 patients per year from each of six other coun-
ties. Community drew about 18 percent of its patients from eight counties
outside Roanoke. In this geographic area, about 20 other hospitals provided
primary and, in some cases, secondary care. Based on this analysis, the court
concluded that the two merging hospitals compete with the various hospitals
in those surrounding counties. Furthermore, noting the increase in the num-
ber of conditions that are treated on an outpatient basis rather than in an acute
 Chapter 11: Antitrust Law 339

care hospital setting, the court found, “certain clinics and other providers of
outpatient services compete with the defendants’ hospitals to treat various med-
ical needs” and that “the number of problems treated on an inpatient basis has
declined steadily in recent years and can be expected to continue to fall.”
Noting that the hospitals wanted to merge to improve their efficiency
and competitive positions, the court held that the combination would not be an
unreasonable restraint of trade and “would probably improve the quality of
healthcare in western Virginia and reduce its cost and will strengthen competi-
tion between the two large hospitals that would remain in the Roanoke area.”
In contrast, the following year a U.S. Court of Appeals decided United
States v. Rockford Memorial Corporation.63 This case involved the proposed
merger of the two largest hospitals in Rockford, Illinois. It was estimated that
the two facilities, if allowed to merge, would control between 64 percent and 72
percent of the inpatient services market and that they and the third largest hos-
pital (which was not party to the merger talks) would control 90 percent. The
court refused to include healthcare services provided in nonhospital settings in
the product (service) market: “If a firm has a monopoly of product X, the fact
that it produces another product, Y, for which the firm faces competition is irrel-
evant to its monopoly.... For many services
provided by acute-care hospitals, there is no
competition from other sorts of providers.”64 The Law in Action
Having concluded that the relevant
product market was inpatient, acute care serv- “It is always possible to take pot shots
at a market definition (we have just
ices, the court turned to the geographic mar-
taken one), and the defendants do so
ket analysis. Accepting (somewhat reluctantly, with vigor and panache. Their own
it appears) the trial court’s finding that the proposal, however, is ridiculous—a
service area was a ten-county area of northern ten-county area in which it is assumed
Illinois and southern Wisconsin centered on (without any evidence and contrary to
Rockford, the appellate court noted that 87 common sense) that Rockford resi-
dents, or third-party payers, will be
percent of the hospitals’ admissions come
searching out small, obscure hospitals
from Rockford, the rest of the county it is in remote rural areas if the prices
located in, and “pieces of several other coun- charged by the hospitals in Rockford
ties.” Although the service area contained six rise above competitive levels. Forced to
hospitals in all, “90 percent of Rockford resi- choose between two imperfect market
dents who are hospitalized are hospitalized in definitions, the defendants’ and the
district judge’s (the latter a consider-
Rockford itself.” The court concluded, “for
able expansion of the government’s
the most part hospital services are local,” and tiny proposed market), …we choose
it upheld the trial court’s injunction prohibit- the less imperfect, the district judge’s.”
ing the merger. (See The Law in Action.)
The Rockford court’s analysis has since —Judge Richard Posner on market
become the majority view: the relevant prod- definitions, U.S. v. Rockford Memorial
Corp., 898 F.2d 1278 (7th Cir. 1990)
uct market in most hospital merger cases is
general acute care hospital services. (Of
340 The Law of Healthcare Administration

course, the market is different when specialty hospitals are involved.) Neverthe-
less, the Rockford and Roanoke cases illustrate the difference that geography,
demographics, and one’s perceptions of the “product” a healthcare facility pro-
vides can make in the rule-of-reason analysis that must be undertaken. They also
illustrate why the outcome of hospital antitrust cases is extremely difficult to pre-
dict: “[T]hese decisions require factual judgments regarding what the future
may hold in an industry undergoing revolutionary change. Like pilots landing
at night aboard an aircraft carrier, courts are aiming for a target that is small,
shifting and poorly illuminated.”65
After both the relevant product or service market and the geographic
market have been determined, the competitive effect of a merger or acquisition
must be predicted. The goal is to determine whether the combination, in the
words of the statute, “may be substantially to lessen competition or tend to cre-
ate a monopoly.”66 Among the important factors to consider in evaluating the
potential competitive effect of a merger or acquisition are the following:

• whether competing firms or potential competitors have been eliminated

from the market,
• whether the acquisition of a relatively small but locally dominant firm
by a larger organization makes the acquired company even more domi-
nant,
• whether the merger may lead the firms to buy each other’s products
and thereby harm competitors, and
• what in fact has happened to the competitive environment in situations
in which mergers have already occurred.

In any event the focus is on the future and the potential adverse
effects on competition. Challenges to a combination can occur long after
the actual transaction because the statute of limitations does not begin to
run until anticompetitive effects are felt.67 The statute itself does not pro-
vide either a quantitative or qualitative test for changes in competition.
Each combination has to be viewed functionally in the context of the par-
ticular industry.
Horizontal mergers are likely to have the most significant effects on
competition. To judge this effect, the court will gather evidence of the
merged firm’s share of the market, the number of firms in the market, and
recent merger trends in that area. To help explain this analysis, in 1982 the
government published a mathematical formula—known as the Herfindahl-
Hirschman Index (HHI)—for measuring market concentration. According
to the formula, each firm’s market share is squared and the squares are
summed. Post-merger scores of less than 1,000 are considered evidence
that the market is not seriously concentrated. The government is not likely
to challenge these combinations. Scores of more than 1,800 represent
 Chapter 11: Antitrust Law 341

highly concentrated markets and may trigger an antitrust suit. Moderately

concentrated markets are those that have scores between 1,000 and
1,800.68 (Table 11.3 shows an example of the HHI at work in two hypo-
thetical markets.) The DOJ and the courts will compare the pre- and post-
merger scores to determine whether the merger results in “an undue per-
centage of share of the relevant market” and “a significant increase in the
concentration of [firms].”69
Unlike a horizontal business combination, a vertical merger (acquisi-
tion) does not eliminate a competitor; it unites a customer with a supplier (at
least in many industrial settings, if not so often in healthcare). It is a means of
ensuring the availability of supplies, increasing retail sales of a manufacturer’s
product, or enabling more profitable marketing. When firms unite vertically
the primary questions are as follows:

1. Has the transaction deprived a competitor of a source of supply?

2. Has it closed a competitor’s or potential competitor’s access to the
market?70

TA B L E 1 1 .3
Market 1 Market Market 2 Market HHI Analysis
Hospitals % %2 Hospitals % %2
of Two
A 5 25 K 30 900 Hypothetical
B 10 100 L 30 900 Markets

C 10 100 M 30 900
D 15 225 N 10 100
E 10 100 Sum of squares
(Market 2): 2,800
F 10 100
G 10 100
H 10 100
I 10 100
J 10 100

Sum of squares
(Market 1): 1,050

HHI < 1,000: light concentration; HHI 1,000 to 1,800: moderate concentration;
HHI > 1,800: high concentration
342 The Law of Healthcare Administration

Illustrating these concepts was the Ford Motor Company’s acquisition

of the Autolite company. Autolite manufactured spark plugs, obviously an
essential component of automobiles. The acquisition violated the Clayton
Act because it eliminated Ford as a potential spark plug manufacturer and
removed it from the market as a significant buyer of these products.71 On the
other hand, a conglomerate—a corporation made up of numerous companies
that operate in different fields—does not usually have an adverse effect on
competition. By definition, firms that make up the conglomerate are not
competitors, customers, or suppliers of the parent organization. But in some
circumstances a conglomerate might have anticompetitive effects under the
Clayton Act if it inhibits smaller firms and “substantially reduce[s] the com-
petitive structure of the industry.”72
Another form of business combination, quite prevalent in the healthcare
arena, is the joint venture—an association of two or more firms meant to
accomplish a defined economic goal. A joint venture has many of the attributes
of a partnership, but a joint venture normally has a different life span; it usually
ends when the economic goal is accomplished. A joint venture is subject to
scrutiny under Section 7 of the Clayton Act, and the courts will evaluate all re-
levant factors in deciding whether a venture is likely to lessen competition.73 A
joint venture will usually be approved if the defined goal of the agreement is
legitimate and if the market share after the combination is relatively small.

Summary of Enforcement Issues

In some circumstances both parties to a proposed merger or acquisition must
report the pending transaction to the government.74 The details of the
requirement are not important here; suffice to say that the notice enables the
government to review the implications of an agreement or an offer to merge
before the transaction is completed. If the government concludes that the
transaction is likely an antitrust violation, the government can seek a preli-
minary injunction.
Under the current approach to enforcement of the Clayton Act, Sec-
tion 7, the plaintiff (whether the government or a private party) bears the
burden of proving the defendant’s share of the market and the market’s con-
centration ratios. The plaintiff must also show that a merger or acquisition is
likely to have an anticompetitive effect.75 This standard of proof in turn
requires a rather broad and expansive factual inquiry on a case-by-case basis
beyond a mere statistical showing of market share.
The rule-of-reason analysis, then, permits the use of subjective judg-
ment in evaluating facts presented in court and their effects. Finally, the
courts are requiring that all relevant economic factors and probabilities be
considered when the Clayton Act is used as the basis for challenging a merger
or acquisition. Among these factors are ease of entry into a market, the eco-
nomic health of the particular industry, characteristics of the products
 Chapter 11: Antitrust Law 343

involved, availability of substitute products, the nature of consumer demand,

and characteristics of the firms in question.

Other Considerations

Defendants usually dispute the government’s assertions about the relevant

market and the anticompetitive effects of a proposed merger. They may also
assert that (a) the company being acquired is failing financially and that the
acquiring firm is the sole suitor,76 and/or (b) that the company being
acquired lacks resources to compete effectively and its acquisition does not
therefore substantially lessen competition.77 A third possible “out” is to show
that the acquiring company is merely purchasing the stock of the other for
investment purposes and not to lessen competition.78 Because this is hard to
prove, and because most acquisitions are not solely for investment purposes,
the defense is not often asserted.

Pro-competitive Effects of Mergers

Until recently, most courts have held that administrative efficiency,
economies of scale, and other allegedly beneficial effects do not alone justify
a merger or acquisition. Therefore, such arguments have not been overly suc-
cessful if the combination is otherwise illegal.79 By the late 1990s, however,
courts and the enforcement agencies themselves began to consider these fac-
tors in their rule-of-reason analyses.
For example, in Federal Trade Commission v. Butterworth Health
80
Corp., the government sought to enjoin the merger of two of the four hos-
pitals in Grand Rapids, Michigan. When the case began, the two facilities
totaled a little more than 75 percent of the general acute care hospital beds
in the region, and it was predicted that after the merger they would control
about two-thirds of the total market for general inpatient services. This
would make Grand Rapids a “highly concentrated” market. Despite these
facts, the federal district court refused to stop the transaction. It found a
number of salient points persuasive:

1. Evidence from economists showed that higher market concentration did

not correlate with higher healthcare costs but in fact could result in
lower prices.
2. Both organizations were community-based, not-for-profit corporations
whose boards were composed of local business leaders who had an
interest in providing high quality at low cost.
3. The boards of the two hospitals issued formal assurances to the commu-
nity that the purpose of the merger was to reduce costs and then pass
the savings along to consumers.
344 The Law of Healthcare Administration

4. The merger would most likely temper the growing influence of man-
aged care organizations, stabilize managed care rates, and reduce cost
shifting.
5. The merger would help to avoid a “medical arms race” through signifi-
cant efficiencies and avoidance of capital expenditures.

The Butterworth court concluded:

Permitting defendant hospitals to achieve the efficiencies of scale that would

clearly result from the proposed merger would enable the board of directors
of the combined entity to continue the quest for establishment of world-class
health facilities in West Michigan, a course [that] the Court finds clearly and
unequivocally would ultimately be in the best interests of the consuming
public as a whole.

After Butterworth, which was decided in 1996, hospital antitrust

enforcement seemed to fall off the government’s radar screen. But health-
care-related antitrust enforcement remains a distinct possibility for such tar-
gets as health insurers, pharmaceutical companies, and physician practices,
and it is conceivable that the government will conduct retrospective reviews
to determine the actual effects of some mergers in concentrated markets.
(Note that analyses like the one in Butterworth are predictive only.) Other
courts have given not-for-profit hospitals the benefit of the doubt in merger
cases. In Federal Trade Commission v. Freeman Hospital,81 both the district
court and the court of appeals upheld the merger of the two smallest of three
hospitals in Joplin, Missouri. (The largest hospital had 331 beds, and the
other two had 158 and 96, respectively.) In denying the FTC’s challenge to
the combination, the trial court judge wrote:

[A] private, nonprofit hospital that is sponsored and directed by the local
community is similar to a consumer cooperative. It is highly unlikely that a
cooperative will arbitrarily raise its prices merely to earn higher profits
because the owners of such an organization are also its consumers.82

Other factors, of course, contributed to the final result, but the deference
given to the hospitals’ not-for-profit status is noteworthy.
The same year a district court refused to enjoin the merger of the only
two hospitals in Dubuque, Iowa.83 Although the case turned primarily on
the judge’s rather generous market definition, and did not accord any special
significance to not-for-profit status in and of itself, the court did note that the
hospitals’ board members “are serious about obtaining optimum efficiencies
from the merger and will do everything within their power to achieve all the
potential efficiencies that may result….”84 In addition, the court found that
 Chapter 11: Antitrust Law 345

the board members “have only the highest motives in proposing this merger.
It is clearly their intent to provide high quality and efficient health-care to the
Dubuque community.”85
In 1996 the DOJ and the FTC issued a policy paper entitled “State-
ments of Antitrust Enforcement Policy in Health Care.” “Statements” rec-
ognized the relevance of efficiency and economy of scale in hospital mergers
and established nine “safety zones” that “describe conduct that the agencies
will not challenge under the antitrust laws, absent extraordinary circum-
stances.”86 These safety zones are as follows:

1. mergers involving a small hospital;

2. joint ventures for expensive or high-tech equipment;
3. joint ventures to provide specialized services;
4. efforts to provide medical data;
5. arrangements to provide fee information to purchasers of health services;
6. surveys regarding prices, wages, salaries, and benefits;
7. joint purchasing arrangements;
8. exclusive and nonexclusive physician network joint ventures; and
9. multiprovider network arrangements.

Under the last category, “Statements” declares:

In accord with general antitrust principles, multiprovider networks will be

evaluated under the rule of reason, and will not be viewed as per se illegal, if
the providers’ integration through the network is likely to produce significant
efficiencies that benefit consumers, and any price agreements (or other agree-
ments that would otherwise be per se illegal) by the network providers are
reasonably necessary to realize those efficiencies.87

The safety zones are narrowly drawn so that they will not foreclose
agency action unnecessarily. (For example, the hospital-merger safety zone
only applies to mergers of two hospitals where one has fewer than 100 beds
and an average census of fewer than 40 patients.) But the authors of “State-
ments” are careful to note, “[t]he inclusion of certain conduct within the
antitrust safety zones does not imply that conduct falling outside the safety
zones is likely to be challenged.”88

Future Expectations
The trends in healthcare antitrust enforcement that began in the mid-
1990s are expected to continue. Mergers, consolidations, acquisitions,
divestitures, network integration, new structures for care delivery, and
other activities hardly yet imagined will continue to occur in response to
various social and economic pressures. As the healthcare field evolves, it will
346 The Law of Healthcare Administration

remain under the close scrutiny of federal and state agencies charged with
antitrust enforcement.
As discussed, the federal antitrust agencies recognize that healthcare is
somewhat different from other industries. Nevertheless, the basic premise of
the antitrust laws—that competition is to be encouraged—remains the gov-
ernment’s mantra. Healthcare executives must be constantly aware of the
possible pitfalls and must be willing to seek competent antitrust counsel as
developments occur.
Indeed, in October 2005, after a retrospective review of a merger that
occurred five years earlier, an administrative law judge ordered the divestiture
of one of the hospitals involved in the transaction because, in his opinion, it
“substantially lessened competition” and raised prices for insurers and con-
sumers in the defined market.89 Although the case is now on appeal, the fact
that it was based on real-life experience rather than the opinions of economic
oracles is significant. The victory it represents for governmental regulators
could augur for more retrospective reviews of hospital mergers in the years to
come.

Chapter Summary

Chapter 11 reviews the basic concepts of antitrust law, including laws against
restraints of trade, monopolization, and price discrimination. It distinguishes
between per se violations of the Sherman Act (division of markets, price fix-
ing, group boycotts, and typing arrangements). It then shows how cases that
do not fit one of those violation categories are decided on a rule-of-reason
analysis specific to the anticompetitive effects of each set of facts. There are a
few exemptions from the antitrust laws, including implied repeal, state action,
the Noerr-Pennington doctrine, and one relating to the business of insurance.
Also, the chapter gives some consideration to how markets are determined.
The chapter concludes with a discussion of what to expect in the coming years
now that the government has lost a string of recent merger cases.

Chapter Discussion Questions

1. Name and describe the per se violations of antitrust law.

2. Define “rule of reason.”
3. In today’s economy, give examples of intrastate commerce (business
that is not in interstate commerce and does not affect it).
4. How would you define the geographic and product markets of large
healthcare organizations such as the Mayo Clinic, the Cleveland Clinic,
and Johns Hopkins?
 Chapter 11: Antitrust Law 347

Notes
1. 15 U.S.C. § 1.
2. 421 U.S. 773 (1975). See also Boddicker v. Arizona State Dental Ass’n, 549 F.2d 626 (9th
Cir. 1977), cert. denied, 434 U.S. 825 (1978); American Medical Ass’n v. Federal Trade
Comm’n, 638 F.2d 443 (2d Cir. 1980).
3. 15 U.S.C. § 2.
4. United States v. Colgate & Co., 250 U.S. 300 (1919).
5. Copperweld Corp. v. Independence Tube Co., 467 U.S. 752 (1984).
6. Id. at 775.
7. Theatre Enterprises v. Paramount Film Distributing Corp., 346 U.S. 537 (1954).
8. United States v. Container Corp., 393 U.S. 333 (1969).
9. 15 U.S.C. § 2.
10. United States v. Grinnell Corp., 384 U.S. 563, 570–71 (1966).
11. 15 U.S.C. § 17.
12. 15 U.S.C. § 13(a).
13. 425 U.S. 1 (1976).
14. Id. at 14.
15. Id. at 14–17.
16. Id. at 15, 17–18.
17. 15 U.S.C. § 14.
18. 15 U.S.C. § 18.
19. 898 F.2d 1278 (1990).
20. See, for example, Federal Trade Commission v. University Health, Inc., 938 F.2d 206 (11th
Cir. 1991).
21. 15 U.S.C. § 45(a)(1).
22. See, for example, Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241 (1964) in
which the Court wrote: “If it is interstate commerce that feels the pinch, it does not matter
how [local is] the operation which applies the squeeze.” Id. at 258, quoting United States v.
Women’s Sportswear Mfrs. Assn., 336 U.S. 460, 464 (1949).
23. 425 U.S. 738 (1976), reversing and remanding, 511 F.2d 678 (4th Cir. 1975). As noted in
the chapter, the Sherman Act prohibits “[e]very contract, combination...or conspiracy, in
restraint of trade or commerce among the several States.” 15 U.S.C. § 1. The act also forbids
the monopolizing of “any part of the trade or commerce among the several States.” 15
U.S.C. § 2.
24. 425 U.S. at 744.
25. Id. at 746–47
26. 15 U.S.C. §§ 1011–1015.
27. 15 U.S.C. § 1013(b).
28. 452 U.S. 378 (1981).
29. 317 U.S. 341 (1943).
30. Id. at 350.
31. 428 U.S. 579 (1975).
32. Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).
See also United Mine Workers v. Pennington, 381 U.S. 657 (1965).
33. California Motor Trans. Co. v. Trucking Unlimited, 404 U.S. 508 (1972).
34. United States v. South-Eastern Underwriters Ass’n., 322 U.S. 533 (1944).
35. 15 U.S.C. §§ 1011–1015
36. 15 U.S.C. § 1013(b).
37. 440 U.S. 205 (1979).
38. Id. at 221.
39. 29 U.S.C. §§ 151–169.
40. 1982-2 Trade Cas. (CCH) ¶ 64,801 (E.D. Mich. 1982).
41. 15 U.S.C. §§ 1–7.
348 The Law of Healthcare Administration

42. 15 U.S.C. § 16(b).

43. 15 U.S.C. § 18a(g).
44. 15 U.S.C. § 15(a).
45. 15 U.S.C. §§ 12–27.
46. 15 U.S.C. §§ 45(1)–(m), 50.
47. 15 U.S.C. § 46.
48. Northern Pac. Ry. Co. v. United States, 56 U.S. 1, 5 (1958) (emphasis supplied, citations
omitted).
49. Hyde v. United States, 225 U.S. 347 (1912).
50. See, for example, FTC v. Freeman Hospital, 911 F. Supp. 1213 (W.D. Mo.), aff’d 69 F.3d
260 (8th Cir. 1995); United States v. Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa
1995); United States v. Carilion Health System, 707 F. Supp. 840 (W.D. Va. 1989), aff’d 892
F.2d 1042 (1989).
51. 946 F. Supp. 1285 (1996).
52. 15 U.S.C. § 18.
53. 15 U.S.C. § 1, 2.
54. 15 U.S.C. § 45.
55. 15 U.S.C. § 2.
56. United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).
57. Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir. 1979)—there is no duty to
disclose the introduction of new products in advance; ILC Peripherals Leasing Corp. v. Inter-
national Business Mach. Corp., 458 F. Supp. 423 (N.D. Cal. 1978)—defendant’s introduc-
tion of new technology at lower prices does not constitute monopolization.
58. 15 U.S.C. § 18.
59. 15 U.S.C. § 18.
60. United States v. American Bldg. Maint. Indus., 422 U.S. 271 (1975).
61. United States v. E.I. du Pont de Nemours Co., 351 U.S. 377 (1956). 122. 707 F. Supp. 840
(W.D. Va. 1989), aff’d. 892 F.2d 1041 (4th Cir. 1989). 123. 898 F.2d 1278 (7th Cir. 1990).
124.
62. 707 F. Supp. 840 (W.D. Va. 1989), aff’d 892 F.2d 1041 (4th Cir. 1989).
63. 898 F.2d 1278 (7th Cir. 1990).
64. The court used kidney transplant, mastectomy, stroke, heart attack, and gunshot wounds as
examples of the point. “If you need your hip replaced, you can’t decide to have chemotherapy
instead because it’s available on an outpatient basis at a lower price,” the opinion states.
65. Greany, “Night Landings on an Aircraft Carrier: Hospital Mergers and the Antitrust Laws,”
23 Am. J. L. & Med. 191 (1977). The author’s thesis is that “courts deciding hospital merger
cases are asked to make exceedingly fine-tuned appraisals of complex economic relationships.”
Id. at 192.
66. 15 U.S.C. § 18.
67. United States v. E.I. du Pont de Nemours Co., 353 U.S. 586 (1957)—defendant’s ownership
of 23 percent of stock in General Motors Corp. could be challenged 35 years after the acquisi-
tion.
68. Merger Guidelines of Department of Justice—1982, Trade Reg. Reg. (CCH) § 4500 (Aug.
9, 1982), revised and clarified in 1984 Guidelines, Trade Reg. Rep. (CCH) § 4490 (Dec. 17,
1984).
69. United States v. Philadelphia Nat’l Bank, 374 U.S. 321, 322 (1963).
70. Fruehauf Corp. v. F.T.C., 603 F.2d 345, 352–54 (1979).
71. Ford Motor Co. v. United States, 405 U.S. 562 (1972).
72. Federal Trade Comm’n v. Procter and Gamble, Inc., 386 U.S. 568, 578 (1967). Although
P&G did not manufacture household bleach, its purchase of Clorox (which already had about
a 50 percent market share) gave it enough clout to have an anticompetitive effect on the mar-
ket for that product. It also meant that P&G would not decide to enter the market as a new
bleach manufacturer. The case probably would have produced a different result had Clorox
been a relatively minor producer.
73. United States v. Penn-Olin Chem. Co., 378 U.S. 158 (1964).
 Chapter 11: Antitrust Law 349

74. 15 U.S.C. § 18a.

75. United States v. General Dynamics Corp., 415 U.S. 486 (1974).
76. Citizen Publishing Co. v. United States, 394 U.S. 131 (1969); International Shoe Co. v.
F.T.C., 280 U.S. 291 (1930); Merger Guidelines of Department of Justice—1984, Trade
Reg. Rep. (CCH) § 4490 (Dec. 17, 1984).
77. United States v. General Dynamics Corp., 415 U.S. 486.
78. 15 U.S.C. § 18 (1982).
79. F.T.C. v. Procter & Gamble Co., 386 U.S 568 (1967); United States v. Philadelphia Nat’l
Bank, 374 U.S 321 (1963).
80. 946 F. Supp. 1285 (W.D. Mich. 1996).
81. 911 F. Supp. 1213 (W.D. Mo. 1995), aff’d. 69 F.3d 260 (8th Cir. 1995).
82. 911 F. Supp. at 1222.
83. U.S. v. Mercy Health Services, 902 F. Supp. 968 (N.D. Iowa 1995).
84. 902 F. Supp. at 988.
85. 902 F. Supp. at 989. The court added, however, “[T]he fact remains that for antitrust analy-
sis, the court must assume that new and different Board members can take control of the cor-
poration, and that if there is the potential for anticompetitive behavior, there is nothing inher-
ent in the structure of the corporate board or the non-profit status of the hospitals which
would operate to stop any anticompetitive behavior.” Id. See also, U.S. v. Long Island Jewish
Medical Center, 983 F. Supp. 121 (E.D.N.Y. 1997)—holding that the not-for-profit status of
the merging hospitals does not provide exemption from antitrust law but can be considered as
a factor if supported by other evidence.
86. Reprinted in 4 Trade Reg. Rep. (CCH) § 13,153 (Sep. 5, 1996). Documents such as these
are also accessible on the Internet at www.usdoj.gov or www.ftc.gov.
87. Id.
88. Id.
89. In Re Evanston Northwestern Healthcare Corporation and ENH Medical Group, Inc., FTC
Docket No. 9315.
350 The Law of Healthcare Administration

the court decides

[Copperweld involves complicated facts but a relatively simple legal conclusion: the
coordinated acts of a parent company and its wholly owned subsidiary do not amount
to a “combination or conspiracy” under the Sherman Act. The opinion reproduced here
has been rather extensively excerpted, and my chart of the factual situation—on which
facts the decision firmly rests—is given to aid your understanding. As you read the
opinion, consider how Copperweld might apply to the corporate healthcare scene.
The facts are displayed in the following graphic.]

1955–1968 1968–1972 1972–on

CE Robinson Co. Lear Siegler, Inc. Copperweld
Co. Asset
sale sale

Regal Tube Div.

Regal Tube Co. Regal Tube Co.
David Grohne, David Grohne, New PA corp.
VP and GM Div. Pres. Plant = Chicago
Plant = Chicago

Warning letter
Grohne stays with Lear
but starts competing
tubing business
Order for
Lear has noncompete tubing mill
clause in contract cancelled

Yoder Co.
Independence Tube

Copperweld Corp. v. Independence Tube Corp.

467 U.S. 752 (1984)

Burger, C. J. manufacture structural steel tubing....

From 1955 to 1968 it remained a wholly
We granted certiorari to determine owned subsidiary of C. E. Robinson Co. In
whether a parent corporation and its 1968 Lear Siegler, Inc., purchased Regal
wholly owned subsidiary are legally capa- Tube Co. and operated it as an unincorpo-
ble of conspiring with each other under § 1 rated division. David Grohne, who had pre-
of the Sherman Act. viously served as vice president and gen-
I eral manager of Regal, became president
A of the division after the acquisition.
The predecessor to petitioner Regal Tube In 1972 petitioner Copperweld Corp.
Co. was established in Chicago in 1955 to purchased the Regal division from Lear
 Chapter 11: Antitrust Law 351

Siegler; the sale agreement bound Lear the know-how, trade secrets, etc., which
Siegler and its subsidiaries not to com- we purchased from Lear Siegler.”
pete with Regal in the United States for When Yoder accepted respondent’s order
five years. Copperweld then transferred for a tubing mill on February 19, 1973, Cop-
Regal’s assets to a newly formed, wholly perweld sent Yoder one of these letters; two
owned Pennsylvania corporation, peti- days later Yoder voided its acceptance. After
tioner Regal Tube Co. The new subsidiary respondent’s efforts to resurrect the deal
continued to conduct its manufacturing failed, respondent arranged to have a mill
operations in Chicago but shared Copper- supplied by another company, which per-
weld’s corporate headquarters in Pitts- formed its agreement even though it too
burgh. received a warning letter from Copperweld.
Shortly before Copperweld acquired Respondent began operations on Septem-
Regal, David Grohne accepted a job as a ber 13, 1974, nine months later than it could
corporate officer of Lear Siegler. After the have if Yoder had supplied the mill when
acquisition, while continuing to work for originally agreed.…
Lear Siegler, Grohne set out to establish B
his own steel tubing business to compete In 1976 respondent filed this action in
in the same market as Regal. In May 1972 the District Court against petitioners and
he formed respondent Independence Tube Yoder. The jury found that Copperweld and
Corp., which soon secured an offer from Regal had conspired to violate [the Sher-
the Yoder Co. to supply a tubing mill. In man Act] but that Yoder was not part of
December 1972 respondent gave Yoder a the conspiracy. It also found that Copper-
purchase order to have a mill ready by the weld, but not Regal, had interfered with
end of December 1973. respondent’s contractual relationship with
When executives at Regal and Copper- Yoder...and that Yoder had breached its
weld learned of Grohne’s plans, they ini- contract to supply a tubing mill.
tially hoped that Lear Siegler’s noncom- ...The jury then awarded $2,499,009
petition agreement would thwart the against petitioners on the antitrust claim,
new competitor. Although their lawyer which was trebled to $7,497,027. It
advised them that Grohne was not awarded $15,000 against Regal alone on
bound by the agreement, he did suggest the contractual interference [and a slander
that petitioners might obtain an injunc- count]. The court also awarded attorney’s
tion against Grohne’s activities if he fees and costs after denying petitioners’
made use of any technical information or motions for judgment n.o.v. and for a new
trade secrets belonging to Regal. The trial.
legal opinion was given to Regal and C
Copperweld along with a letter to be The United States Court of Appeals for
sent to anyone with whom Grohne the Seventh Circuit affirmed. It noted that
attempted to deal. The letter warned that the exoneration of Yoder from antitrust lia-
Copperweld would be “greatly concerned bility left a parent corporation and its
if [Grohne] contemplates entering the wholly owned subsidiary as the only par-
structural tube market…in competition ties to the § 1 conspiracy. The court ques-
with Regal Tube” and promised to take tioned the wisdom of subjecting an “intra-
“any and all steps which are necessary enterprise” conspiracy to antitrust liability,
to protect our rights under the terms of when the same conduct by a corporation
our purchase agreement and to protect and an unincorporated division would
352 The Law of Healthcare Administration

escape liability for lack of the requisite It is the [above-quoted] language that
two legal persons. However, relying on [a later breathed life into the intra-enterprise
previous decision], the Court of Appeals conspiracy doctrine. The passage as a
held that liability was appropriate “when whole, however, more accurately stands
there is enough separation between the for a quite different proposition. It has
two entities to make treating them as two long been clear that a pattern of acquisi-
independent actors sensible.”... tions may itself create a combination ille-
We granted certiorari to reexamine the gal under § 1, especially when an original
intra-enterprise conspiracy doctrine, and anticompetitive purpose is evident from
we reverse. the affiliated corporations’ subsequent
II conduct.... In Yellow Cab, the affiliation of
Review of this case calls directly into the defendants was irrelevant because the
question whether the coordinated acts of original acquisitions were themselves ille-
a parent and its wholly owned subsidiary gal. An affiliation “flowing from an illegal
can, in the legal sense contemplated by § conspiracy” would not avert sanctions.
1 of the Sherman Act, constitute a combi- Common ownership and control were irrel-
nation or conspiracy. The so-called “intra- evant because restraint of trade was “the
enterprise conspiracy” doctrine provides primary object of the combination,” which
that § 1 liability is not foreclosed merely was created in a “deliberate, calculated”
because a parent and its subsidiary are manner. Other language in the opinion is
subject to common ownership. The doc- to the same effect.
trine derives from declarations in several ....
of this Court’s opinions. In short, while this Court has previously
In no case has the Court considered the seemed to acquiesce in the intra-enter-
merits of the intra-enterprise conspiracy prise conspiracy doctrine, it has never
doctrine in depth.... explored or analyzed in detail the justifica-
The problem began with United States v. tions for such a rule; the doctrine has
Yellow Cab Co. [In that case, after acquir- played only a relatively minor role in the
ing or merging with other taxicab compa- Court’s Sherman Act holdings.
nies, one company controlled taxi opera- III
tions in four cities. Thus, that opinion ...The central criticism is that the doc-
stated, the Sherman Act was violated trine gives undue significance to the fact
because an unreasonable restraint “may that a subsidiary is separately incorpo-
result as readily from a conspiracy among rated and thereby treats as the concerted
those who are affiliated or integrated activity of two entities what is really uni-
under common ownership as from a con- lateral behavior flowing from decisions of
spiracy among those who are otherwise a single enterprise.
independent.... The corporate interrela- We limit our inquiry to the narrow
tionships of the conspirators, in other issue squarely presented: whether a par-
words, are not determinative of the appli- ent and its wholly owned subsidiary are
cability of the Sherman Act.” Thus, the capable of conspiring in violation of § 1
Yellow Cab opinion continues, “the com- of the Sherman Act. We do not consider
mon ownership and control of the various under what circumstances, if any, a par-
corporate appellees are impotent to liber- ent may be liable for conspiring with an
ate the alleged combination and conspir- affiliated corporation it does not com-
acy from the impact of the Act.”] pletely own.
 Chapter 11: Antitrust Law 353

A
The Sherman Act contains a “basic dis- The reason Congress treated concerted
tinction between concerted and independ- behavior more strictly than unilateral
ent action.” The conduct of a single firm is behavior is readily appreciated. Concerted
governed by § 2 alone and is unlawful activity inherently is fraught with anticom-
only when it threatens [or achieves] actual petitive risk. It deprives the marketplace
monopolization. It is not enough that a of the independent centers of decision
single firm appears to “restrain trade” making that competition assumes and
unreasonably, for even a vigorous com- demands. In any conspiracy, two or more
petitor may leave that impression. For entities that previously pursued their own
instance, an efficient firm may capture interests separately are combining to act
unsatisfied customers from an inefficient as one for their common benefit. This not
rival, whose own ability to compete may only reduces the diverse directions in
suffer as a result. This is the rule of the which economic power is aimed but sud-
marketplace and is precisely the sort of denly increases the economic power mov-
competition that promotes the consumer ing in one particular direction. Of course,
interests that the Sherman Act aims to fos- such merging of resources may well lead
ter.... Congress authorized Sherman Act to efficiencies that benefit consumers, but
scrutiny of single firms only when they their anticompetitive potential is sufficient
pose a danger of monopolization.... to warrant scrutiny even in the absence of
Section 1 of the Sherman Act, in con- incipient monopoly.
trast, reaches unreasonable restraints of B
trade effected by a “contract, combina- The distinction between unilateral and
tion *** or conspiracy” between separate concerted conduct is necessary for a
entities. It does not reach conduct that is proper understanding of the terms “con-
“wholly unilateral.” Concerted activity tract, combination…or conspiracy” in § 1.
subject to § 1 is judged more sternly than Nothing in the literal meaning of those
unilateral activity under § 2. Certain terms excludes coordinated conduct
agreements, such as horizontal price fix- among officers or employees of the same
ing and market allocation, are thought so company. But it is perfectly plain that an
inherently anticompetitive that each is internal “agreement” to implement a sin-
illegal per se without inquiry into the gle, unitary firm’s policies does not raise
harm [the agreement] has actually the antitrust dangers that § 1 was
caused. Other combinations, such as designed to police. The officers of a single
mergers, joint ventures, and various ver- firm are not separate economic actors pur-
tical agreements, hold the promise of suing separate economic interests, so
increasing a firm’s efficiency and enabling agreements among them do not suddenly
it to compete more effectively. Accord- bring together economic power that was
ingly, such combinations are judged previously pursuing divergent goals. Coor-
under a rule of reason, an inquiry into dination within a firm is as likely to result
market power and market structure from an effort to compete as from an
designed to assess the combination’s effort to stifle competition. In the market-
actual effect. Whatever form the inquiry place, such coordination may be neces-
takes, however, it is not necessary to sary if a business enterprise is to compete
prove that concerted activity threatens effectively. For these reasons, officers or
monopolization. employees of the same firm do not provide
354 The Law of Healthcare Administration

the plurality of actors imperative for a § 1 unincorporated division or a wholly owned

conspiracy. subsidiary....
There is also general agreement that § 1 If antitrust liability turned on the garb in
is not violated by the internally coordi- which a corporate subunit was clothed,
nated conduct of a corporation and one of parent corporations would be encouraged
its unincorporated divisions. ...[T]here can to convert subsidiaries into unincorpo-
be little doubt that the operation of a cor- rated divisions.... Such an incentive serves
porate enterprise organized into divisions no valid antitrust goals but merely
must be judged as the conduct of a single deprives consumers and producers of the
actor.... benefits that the subsidiary form may
Indeed, a rule that punished coordi- yield.
nated conduct simply because a corpora- The error of treating a corporate division
tion delegated certain responsibilities to differently from a wholly owned subsidiary
autonomous units might well discourage is readily seen from the facts of this case.
corporations from creating division with Regal was operated as an unincorporated
their presumed benefits. This would serve division of Lear Siegler for four years
no useful antitrust purpose but could well before it became a wholly owned sub-
deprive consumers of the efficiencies that sidiary of Copperweld. Nothing in this
decentralized management may bring. record indicates any meaningful difference
C between Regal’s operations as a division
For similar reasons, the coordinated and its later operations as a separate cor-
activity of a parent and its wholly owned poration. Certainly nothing suggests that
subsidiary must be viewed as that of a sin- Regal was a greater threat to competition
gle enterprise for purposes of § 1 of the as a subsidiary of Copperweld than as a
Sherman Act. A parent and its wholly division of Lear Siegler....
owned subsidiary have a complete unity of D
interest. Their objectives are common, not [The Court points out that the demise of
disparate; their general corporate actions the “intra-enterprise conspiracy doctrine”
are guided or determined not by two sepa- leaves a gap in the Sherman Act’s treat-
rate corporate consciousnesses, but one. ment of restraints of trade. That is, the
They are not unlike a multiple team of anticompetitive effect of the Copperweld-
horses drawing a vehicle under the control Regal activities is the same whether the
of a single driver.... companies are thought of as one enter-
...[A] parent and a wholly owned sub- prise or two, yet unreasonable restraint of
sidiary always have a “unity of purpose or trade is prohibited by the Sherman Act
a common design.” They share a common only if caused by a contract, combination,
purpose whether or not the parent keeps or conspiracy between separate entities.
a tight rein over the subsidiary; the parent The Court argues that this omission was
may assert full control at any moment if intentional for at least two reasons: (1) to
the subsidiary fails to act in the parent’s continue to scrutinize individual firms’
best interests. actions for reasonableness “would
The intra-enterprise conspiracy doctrine threaten to discourage the competitive
looks to the form of an enterprise’s struc- enthusiasm that the antitrust laws seek
ture and ignores the reality. Antitrust lia- to promote”; and (2) “whatever the wis-
bility should not depend on whether a cor- dom of the distinction, the Act’s plain
porate subunit is organized as an language leaves no doubt that Congress
 Chapter 11: Antitrust Law 355

made a purposeful choice to accord differ- is fully subject to § 2 of the Sherman Act
ent treatment to unilateral and concerted and § 5 of the Federal Trade Commission
action.”] Act. That these statutes are adequate to
The appropriate inquiry in this case, control dangerous anticompetitive con-
therefore, is not whether the coordinated duct is suggested by the fact that not a
conduct of a parent and its wholly owned single holding of antitrust liability by this
subsidiary may ever have anticompetitive Court would today be different in the
effects, as the dissent suggests. Nor is it absence of an intra-enterprise conspiracy
whether the term “conspiracy” will bear a doctrine.... Elimination of the intra-enter-
literal construction that includes parent cor- prise conspiracy doctrine with respect to
porations and their wholly owned sub- corporations and their wholly owned sub-
sidiaries.... Rather, the appropriate inquiry sidiaries will therefore not cripple
requires us to explain the logic underlying antitrust enforcement. It will simply elimi-
Congress’ decision to exempt unilateral nate treble damages from private state
conduct from § 1 scrutiny, and to assess tort suits masquerading as antitrust
whether that logic similarly excludes the actions.
conduct of a parent and its wholly owned IV
subsidiary. Unless we second-guess the We hold that Copperweld and its
judgment of Congress to limit § 1 to con- wholly owned subsidiary Regal are inca-
certed conduct, we can only conclude that pable of conspiring with each other for
the coordinated behavior of a parent and purposes of § 1 of the Sherman Act. To
its wholly owned subsidiary falls outside the extent that prior decisions of this
the reach of that provision. Court are to the contrary, they are disap-
...A corporation’s initial acquisition of proved and overruled. Accordingly, the
control will always be subject to scrutiny judgment of the Court of Appeals is
under § 1 of the Sherman Act and § 7 of reversed.
the Clayton Act. Thereafter, the enterprise It is so ordered.

Copperweld Corp. v. Independence Tube Corp.

Discussion Questions

1. If asked, could you explain the facts of this case to someone else? (With-
out looking at the graphic, try explaining it to someone nearby.)
2. What would you say about Copperweld Corporation’s rights? After all,
it won the case but still has a competitor that it thought it was shielded
from by the covenant not to compete.
3. Why is the covenant itself not a violation of the antitrust laws? (Or is it?)
4. Why can Copperweld assert against Independence Tube the noncompe-
tition agreement when the agreement was with Lear Siegler and not
with Independence Tube?
5. The Court makes a strong point that “Congress made a purposeful choice
to accord different treatment to unilateral and concerted conduct.” Can
356 The Law of Healthcare Administration

you think of an area of criminal law in which a similar distinction is

made? Do you agree that “concerted conduct” (joint action) should be
treated differently? Why or why not?
6. What are the implications of Copperweld for healthcare organizations
today? What would the implications be had the decision been different?
(Exercise: do some research on the structure of the University of Cali-
fornia’s healthcare system. What are Copperweld’s implications for the
system’s joint strategic and financial planning efforts on behalf of its
numerous healthcare facilities?)
 CHAPTER

FRAUD, ABUSE, AND CORPORATE

12
COMPLIANCE PROGRAMS

After reading this chapter, you will

• understand the basics of federal laws relating to healthcare

fraud and abuse and learn that the federal False Claims Act is
the major enforcement mechanism against fraud in billing
healthcare payers.
• be able to identify the most significant statutes relating to
fraud and abuse in federal healthcare payment programs; all
three kinds of statutes are complicated and sometimes difficult
to interpret.
• know the terms “kickback” and “self-referral” and how they
affect hospital operations and realize that antikickback and
self-referral laws are also used to punish wrongdoers.
• recognize the benefits of maintaining an active corporate
compliance program; these programs can be extremely effec-
tive in preventing violations or reducing sentences if malfea-
sance occurs.

Healthcare organizations must be sensitive to the potential for their employ-

ees to be involved in fraud, abuse, and other illicit conduct. They must work
to maintain high ethical principles, not only because an image of moral
respectability is “good for business” but also because it is, simply, the right
thing to do.
This chapter discusses the enforcement climate in healthcare and the
various laws aimed at curbing fraud and abuse. Also explored here is the role
that corporate integrity programs play in promoting legal compliance and
business ethics in a well-run healthcare organization.

357
358 The Law of Healthcare Administration

Enforcement Climate
Legal Brief
The cost of healthcare continues to
That as much as 10 percent of the annual health- rise at an alarming rate. The latest data
care cost could come from fraud, waste, or abuse is (2004) indicate that total healthcare
a rough estimate only. I believe the amount of
spending is about $2 trillion (16 per-
intentional fraud being committed is considerably
less than 10 percent, and lumping “waste and cent of the gross domestic product),
abuse” into the total is deceptive. Whatever the and a government report ten years
correct figure may be, it is clear that many billions ago estimated that as much as 10 per-
of dollars are spent unnecessarily as a result of cent of that amount could be the
waste or outright fraud. result of fraud (intentional deception)
or waste and abuse (unsound practices
that result in increased costs)1; see
Legal Brief.
Because the government is the largest single purchaser of healthcare
services, eliminating fraud and abuse was once called the U.S. Department of
Justice’s (DOJ) number two law-enforcement priority, second only to violent
crime.2 (It is now perhaps number three, because the war on terror has taken
ascendancy.) Ever more resources have been allocated to the enforcement activ-
ities of the DOJ, the United States Attorneys, the Federal Bureau of Investiga-
tion, the Office of Inspector General, and other agencies. In addition, state
attorneys general conduct their own investigations and prosecutions, often
working closely with federal officials. Private citizens who have firsthand knowl-
edge of fraud are even permitted to sue for the government and collect a per-
centage of the proceeds recovered, if any.
Verdicts and settlements in civil fraud cases can sometimes be for hun-
dreds of millions of dollars (see Table 12.1), and offenders who are prose-
cuted for criminal offenses can receive massive fines and lengthy jail terms.
One example of the severity of the penalties is United States v. Lorenzo,3 in

TABLE 12.1
Defendant’s Name Allegation Settlement
Examples of
Successful TAP Pharmaceuticals Illegal kickbacks $875 million
Healthcare
Qui Tam HCA, Inc. False claims $631 million
(Whistle-Blower)
Lawsuits National Health Labs. Billing for unnecessary tests $110 million

Lovelace Health Systems False claims in cost reports $24.5 million

SmithKline Beecham Labs. Billing for unnecessary lab tests $13 million

Beverly Enterprises Durable med. equipment fraud $20 million

 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 359

which a dentist billed Medicare for “consultations” on nursing home resi-

dents. Although Medicare does not cover dental services or routine physicals,
Dr. Lorenzo billed the government for his cancer-related examination of each
patient’s oral cavity, head, and neck, all of which is standard dental practice.
The government proved that Dr. Lorenzo had submitted 3,683 false claims,
resulting in overpayment of $130,719.20. The court assessed damages of
nearly $19 million, almost 150 times the amount of the overpayment.
A second example is United States v. Krizek.4 Among other things, Dr.
Krizek, a psychiatrist, charged the government for a full session (45 to 50
minutes) regardless of whether he spent 20 minutes or two hours with a
patient. He argued that in practice the time evened out and the government
was not harmed. In one instance, however, it was shown that he submitted 23
claims for full sessions in a single day. Dr. Krizek was fined $157,000 and
assessed $11,000 in court costs.5 Other examples include criminal convictions
and civil fines of more than $100 million each levied against Caremark Inter-
national, Corning (Damon) Laboratories, Roche Laboratories, and National
Medical Enterprises ($379 million) and a settlement in excess of $30 million
with the University of Pennsylvania. In the largest settlement to-date, Colum-
bia/HCA paid approximately $850 million.
In such a volatile climate, it is little wonder that in the late 1990s preven-
tion of fraud and abuse became a serious topic for healthcare executives, and it
will continue to be viewed seriously in the foreseeable future. A basic understand-
ing of the major criminal and civil fraud statutes is therefore essential. Some of
the most obvious types of healthcare fraud and abuse are as follows:

• filing claims for services that were not rendered or were not medically
necessary;
• misrepresenting the time, location, frequency, duration, or provider of
services;
• upcoding—assigning a higher payment than the procedure or diagnosis
warrants;
• unbundling—the practice of billing as separate items the services that are
actually performed as a battery of services, such as laboratory tests;
• violation of the “three-day rule”—the rule stating that outpatient diag-
nostic procedures performed on any of the three days before hospitaliza-
tion are deemed to be part of the Medicare diagnosis-related group pay-
ment and are not to be billed separately;
• payment of “kickbacks” to induce referrals or the purchase of goods or
services;
• billing for services said to have been “incident to” a physician’s services but
that in fact were not provided under the physician’s direct supervision; and
• self-referral—the practice of physicians referring patients for services to
entities in which they have a financial interest.
360 The Law of Healthcare Administration

The major statutes that these kinds of activities may violate include the
civil and criminal False Claims Act, the antikickback law, and the Stark self-
referral laws. Depending on the facts of the case, mail- and wire-fraud
statutes; the Racketeer Influenced and Corrupt Organizations Act; money-
laundering statutes; and laws relating to theft, embezzlement, bribery, con-
spiracy, obstruction of justice, and similar matters may also be implicated.
This chapter focuses on the major healthcare fraud statutes and does not
address the kinds of laws noted in the previous sentence. Readers should be
aware, however, that myriad legal standards (both state and federal) apply to
healthcare organizations. The importance of competent legal counsel and a
process to prevent criminal activity cannot be overemphasized.

False Claims Act

The major weapon in the federal government’s arsenal in the “war” on fraud
and abuse is the civil False Claims Act (FCA).6 The federal statute provides
that a person is liable for penalties if he

• “knowingly presents, or causes to be presented, to an officer or

employee of the United States a false or fraudulent claim for payment or
approval”;
• “knowingly makes, uses, or causes to be made or used, a false record or
statement to get a false or fraudulent claim paid or approved by the
Government”;
• “conspires to defraud the Government by getting a false or fraudulent
claim allowed or paid”; or
• “knowingly makes, uses, or causes to be made or used, a false record or
statement to conceal, avoid, or decrease an obligation to pay or transmit
money or property to the government.” (This last provision was added
in 1986 to deal with “reverse false claims,” situations in which a person
attempts to avoid paying money owed to the government.)

Most states have similar laws. Violations of the federal law result in
penalties ranging from $5,000 to $10,000 per claim plus three times the
amount of damages sustained by the government, if any. The costs of bring-
ing the action are charged to the defendant. If the claim was false, penalties
and costs can be assessed even if the claim was not paid and the government
suffered no damages.7
Interestingly the FCA was enacted during the Civil War to stem the
practice of certain persons to overcharge the Union Army for goods and serv-
ices. Apparently what a “claim” is was better known then than it is now
because the term is not defined in the statute. In healthcare, however, what
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 361

amounts to a “claim” has been a matter of some dispute. For example, each
procedure code on a billing form could be considered a separate claim.
Therefore, each false code could result in up to $10,000 in penalties. Twenty
false CPT codes would, by this line of reasoning, allow a penalty of up to
$200,000 to be assessed, plus damages and court costs. This issue was
addressed in the appeal of Krizek, in which the U.S. Court of Appeals for the
D.C. Circuit held that each billing form was one claim irrespective of the
number of false codes contained on it. The court felt that the form was
merely one request for payment of the sum total it represented.8 This result
seems logical, and it is consistent with other cases defining a claim as “a
demand for money or for some transfer of public property.”9
Another interesting question is, what kind of intent is required for the
statute to be violated? As pointed out in the aforementioned list, the defen-
dant’s acts must have been done knowingly to constitute an offense. First-
year law students are painfully aware of the kind of Socratic dialog that could
attend the issue of what “knowingly” means; here is an example:

Professor Miller: Mr. Showalter, what if I sign a claim form, put it in a

stamped envelope, and mail it to Medicare. Have I knowingly submitted
that claim?

Student Showalter: Um…I guess so. Unless you were drunk or mentally
incompetent, you knew what you were doing. You were mailing in the claim
form and expecting to get paid.

Professor Miller: How much did I expect to get paid?

Student Showalter: Whatever amount is on the form.

Professor Miller: What if I didn’t look at the amount but just signed a bunch
of forms my staff gave me at the end of the day? And what if those forms had
errors on them?

Student Showalter: Well….

Professor Miller: Well, what? Are those false claims? The ones that have errors
on them, I mean?

Student Showalter: Uh…. Well, they’re erroneous. But if you didn’t know they
had errors and just assumed that your staff were doing their jobs correctly….

Professor Miller: Assumed!? Is that the kind of thing I should assume?

Student Showalter: Uh….

Professor Miller: Okay, let me put to you another case. Let us suppose that I
know there are occasional errors on our claims—some over, some under—
but I think that at the end of the year they will all balance out, sort of the
“no harm, no foul” kind of approach to billing. And suppose I think that the
362 The Law of Healthcare Administration

False Claims Act only applies to intentionally overbilling the government,

which I haven’t done. What do you say now?

Student Showalter [musing]: Hmm! You knew you were submitting a bill,
but you didn’t know that the particular bill was wrong, and you didn’t
know that submitting incorrect bills is illegal when you should have had a
system in place to check them for errors. Good question!

And so this dialog goes for 10 or 15 uncomfortable minutes.

In legal circles this issue is known as one of scienter—knowledge by a

defendant that her acts were illegal or her statements were lies. In 1986,
Congress addressed this question by amending the FCA to say that “no proof
of specific intent to defraud is required” and that “knowingly” with respect
to a claim means either (a) actual knowledge of its falsity, (b) deliberate igno-
rance of its truth or falsity, or (c) reckless disregard of its truth or falsity.10 As
stated in the committee report accompanying the 1986 amendments,

The Committee is firm in its intentions that the act not punish honest mis-
takes or incorrect claims submitted through mere negligence. But the Com-
mittee does believe the civil False Claims Act should recognize that those
doing business with the Government have an obligation to make a limited
inquiry to ensure the claims they submit are accurate.11

The Krizek case shows how this standard is used. Although Dr. Krizek
was not personally involved in the billing process, the court found that he
had submitted the claims “knowingly”:

These were not “mistakes” [or] merely negligent conduct. Under the statu-
tory definition of “knowing” conduct, the court is compelled to conclude
that the defendants acted with reckless disregard as to the truth or falsity of
the submissions.12

This standard requires healthcare providers, and their top manage-

ment and governing board members, to have mechanisms in place to verify
the accuracy of their organization’s claims. A further incentive to do so, as if
one were needed, is the fact that the government may exclude from partici-
pation in the Medicare and Medicaid programs any individual (a) who has a
direct or indirect ownership or control interest in a sanctioned entity and has
acted in “deliberate ignorance” of the information or (b) who is an officer or
managing employee of a convicted or excluded entity, irrespective of whether
the individual participated in the offense.13 Any excluded person who retains
ownership or control or who continues as an officer or a managing employee
may be fined $10,000 per day.14 The threat of “exclusion”—the Medicare
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 363

and Medicaid programs’ equivalent of the death penalty—and the potential

for criminal convictions and massive fines have been major forces in the
movement to adopt corporate compliance programs in healthcare organiza-
tions.
FCA cases are usually investigated by the Office of Inspector General
and brought by a U.S. attorney or the DOJ itself. An unusual feature of the
statute, however, allows private citizens to sue on their own behalf and on
behalf of the government to recover damages and penalties. These qui tam
(whistle-blower) lawsuits have become an important factor in FCA enforce-
ment because, if successful, the plaintiff (a “relator” in legal parlance) can
share in the amount of the award (see Table 12.1).
Any person with information about healthcare fraud can be a qui tam
plaintiff, and “person” is defined to mean “any natural person, partnership, cor-
poration, association, or other legal entity, including any State or political sub-
division of a State.”15 The plaintiff must file the complaint, which is immediately
sealed and thus not made public pending an investigation, and file a copy with
the U.S. attorney general and the appropriate U.S. attorney. The government
then has 60 days, plus extensions for good cause, in which to determine whether
to pursue the case. If the government decides to take over the case, the relator
will receive between 15 percent and 25 percent of the amount recovered. If the
government declines to pursue the matter, the relator may still do so and, if suc-
cessful, will receive up to 30 percent of the recovery.
From October 1, 1986 to September 31, 2005, the DOJ recouped more
than $6.5 billion from Medicare-related qui tam cases, and whistle-blower plain-
tiffs received more than $1 billion of that amount (according to the organiza-
tion Taxpayers Against Fraud). These figures include only those cases involving
the DOJ itself; they do not include Medicare cases prosecuted by individual U.S.
attorneys’ offices or recoveries by the states in Medicaid claims.
The potential qui tam plaintiff must meet certain conditions to file
suit. The plaintiff must be the first to file, there must not already be any gov-
ernmental proceeding relating to the same facts, and the suit must not be
based on matters that have been publicly disclosed (unless the relator is the
“original source” of those disclosures). If these jurisdictional barriers are met
and the facts of the case warrant recovery, the qui tam plaintiff can proceed
to assist the government or pursue the case individually, often to significant
financial advantage.
Federal law provides a remedy for whistle-blowers who are discharged,
demoted, harassed, or otherwise discriminated against because of their hav-
ing filed a qui tam case.16 Given the financial incentives and the protection
against employment-related retaliation, the qui tam lawsuit has become a
popular and effective means of combating fraud and abuse.
Occasionally, qui tam plaintiffs have argued in healthcare-related cases
that a claim involving a kickback or self-referral (described in more detail in
364 The Law of Healthcare Administration

the following section) violates the FCA, even though the claim itself is not
“false” on its face. The roots of such an argument can be traced to United
States ex rel. Marcus v. Hess,17 a World War II-vintage case in which a govern-
mental contractor’s claims were held to be false because the contract under
which they were submitted was entered into as a result of collusion. Similarly,
in United States ex rel. Woodard v. Country View Care Center, Inc.,18 the
defendants had submitted Medicare cost reports that included payments to
“consultants” that were actually kickbacks. Not too surprisingly, because the
defendant’s reimbursement was based on the cost reports, the court held that
the FCA applied. United States v. Kensington Hospital,19 filed after the advent
of the prospective payment system, brought a new twist to the argument.
The defendants asserted that because their Medicaid reimbursement was a set
amount, the government could not have suffered any loss, and the cost of the
kickbacks did not make the claims false. Citing Marcus and other cases, the
court disagreed, holding that the government was not required to show
actual damages to prove an FCA violation.
In neither Country View nor Kensington Hospital did the plaintiffs
specifically base their claim of FCA liability on the kickback or self-referral
statute. Some subsequent cases, however, have done so and have survived ini-
tial scrutiny by the courts. For example, in United States ex rel. Pogue v.
American Healthcorp,20 a trial court refused to dismiss an FCA case based on
violations of the kickback and Stark self-referral laws. The court agreed with
the relator’s contention that “participation in any federal program involves an
implied certification that the participant will abide by and adhere to all
statutes, rules, and regulations governing that program.”21 The court held in
effect that Stark violations create prohibited financial relationships and that,
therefore, the FCA applies.22
In summary, the proposition that an FCA case can be based solely on
violation of the antikickback or self-referral laws seems to have gained some
acceptance, but the ultimate resolution of the issue remains in doubt. Clearly,
relators and the government will continue to make this argument until the
point is conclusively established or rejected. In the meantime, it remains an
ominous threat for healthcare organizations because the cost of litigating
such cases is high and the potential exists for massive penalties. The resulting
pressures to settle, rather than litigate, FCA cases may mean that the issue will
remain unresolved for some time.23
In addition to the civil FCA, another provision of federal law makes
false claims a criminal offense.24 If convicted, an organization can be fined
$500,000 or twice the amount of the false claim, whichever is greater. An
individual can be fined the greater of $250,000 or twice the amount of the
false claim and can be sentenced to up to five years in prison. The standards
of proof are higher, of course, in criminal prosecutions than in civil cases. In
a civil FCA action the standard is a “preponderance of the evidence.” But in
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 365

a criminal FCA case the government must prove beyond a reasonable doubt
that the defendant knew the claim was false. Therefore, and because the
penalties in civil actions are already quite severe, criminal false-claims cases are
brought less frequently than their civil counterparts.

Antikickback Statute

In 1972 concerned about the high cost of healthcare and the potential for
overutilization of healthcare services, Congress prohibited any person to solicit,
receive, offer, or pay any form of remuneration in return for or to induce refer-
rals for healthcare goods or services for which Medicare or Medicaid would
make payment.25 Effective January 1, 1997, the statute was amended to cover
payment by any federal healthcare program.26 Violations of the antikickback
law are felonies punishable by criminal fines of $25,000 per violation or impris-
onment for up to five years, or both. In addition, the Office of Inspector Gen-
eral has the authority to exclude from Medicare and Medicaid programs those
persons who have violated the act.27 This action can be taken without criminal
prosecution and using the more lenient “preponderance of the evidence” stan-
dard. Finally, a 1997 amendment provides for civil penalties of $50,000 per
violation plus three times the amount of the remuneration involved, in addi-
tion to the possible criminal sanctions already noted.28
The statute contains numerous exceptions to the prohibition of remu-
neration to induce referrals.29 The prohibition does not apply to the following:

• properly disclosed discounts that are reflected in the cost reports,

• amounts paid by an employer to an employee to provide healthcare
services,
• certain amounts paid by a vendor to agents of a group purchasing entity,
• waivers of coinsurance for Public Health Service beneficiaries, and
• certain remuneration through a risk-sharing arrangement (e.g., under
capitation).

In addition, a 1987 amendment required the U.S. Department of

Health and Human Services to promulgate regulations “specifying those
payment practices that will not be subject to criminal prosecution [or] pro-
vide a basis for exclusion….”30 These regulations provide for certain “safe
harbors”—categories of activities in which providers may engage without
being subject to prosecution—but they are very technical and are interpreted
quite narrowly. The safe harbors are as follows:

• fair market value leases for rental of space or equipment;

• fair market value contracts for personal services;
366 The Law of Healthcare Administration

• purchase of physician practices;

• payments to referral services for patients, so long as the payment is not
related to the number of referrals made;
• properly disclosed warranties;
• properly disclosed discounts that are contemporaneous with the original
sale;
• bona fide employment relationships;
• discounts available to members of a group purchasing organization;
• waivers of coinsurance and deductibles for indigent persons;
• marketing incentives offered by health plans to enrollees; and
• price reductions offered by providers to health plans.

These regulations are quite technical, and an in-depth analysis of their

provisions is beyond the scope of this chapter. Suffice to say that although the
antikickback statute is one of the most important laws affecting healthcare
today, it is also, unfortunately, one of the most complicated and ambiguous.
Congress itself recognized this fact when it wrote in 1987: “[T]he breadth
of the statutory language has created uncertainty among health care
providers as to which commercial arrangements are legitimate, and which are
proscribed.”31 Unfortunately, although the 1987 amendments that led to
the safe harbors were intended to provide guidance and clarity, much uncer-
tainty persists.

What Is a Referral?
The problem is illustrated by considering the meaning of the word “referral.”
Unfortunately, neither the statute nor its implementing regulations define the
term, so we are left with considerable uncertainty regarding one of the statute’s
key terms. For example, is it a referral when one member of a multispecialty
group practice sends a patient to another member of the same group? If the
referring physician’s compensation depends in part on the volume of services he
orders from other group members, is he receiving referrals and is the group pay-
ing for referrals? These questions have not been answered because no enforce-
ment action has been taken to-date regarding intragroup referrals, but a literal
reading of the statute calls the practice into question. The creation of a group
practice safe harbor under the Stark self-referral laws (discussed in the next sec-
tion) seems to suggest that regulators believe a referral has occurred under those
circumstances. After all, if it is not a referral, why have a safe harbor for it?
Because intragroup referrals are not Stark violations, the government may refrain
from taking enforcement action under the antikickback law for the same behav-
ior. Whether this proves to be the case remains to be seen, of course.
A similar situation is involved when a medical group owns a hospital.
Under traditional indemnity insurance plans, the physicians benefit financially if
they admit patients to their own hospital, yet distribution of the hospital’s prof-
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 367

its to the physician-owners would appear to violate the literal language of the
statute. A proposed regulatory safe harbor for such situations was abandoned in
1993. Thus, the issue remains unresolved.

What Is Remuneration?
Hanlester Network v. Shalala illustrates what amounts to remuneration as an
inducement for referrals.32 In Hanlester physicians were limited partners in a net-
work of three clinical laboratories, to which they referred their patients for labo-
ratory work (see Figure 12.1). The laboratories contracted with Smith Kline Bio-
Science Laboratories (SKBL) to manage the facilities for a fee of $15,000 per
month or 80 percent of the laboratories’ collections, whichever was greater. (As
it turned out, the 80 percent figure was usually higher than the fixed monthly
fee.) Because performing the tests at SKBL’s own laboratories was more eco-
nomical, 85 percent to 90 percent of the Hanlester labs’ testing was done at
SKBL. The Ninth Circuit held that even though the cash payments under the
arrangement flowed from the Hanlester labs to SKBL, among other things, the
arrangement was a scheme by which SKBL in effect had offered a 20 percent dis-
count (the prohibited remuneration) for the physicians’ referrals to the SKBL
labs. (Note that today the arrangement would also violate self-referral laws.)
Although neither the statute nor the regulations defines remuneration,
it is clear that the law reaches the provision of anything having a monetary
value. The 20 percent “discount” in Hanlester is one example. Likewise, the
provision of free goods or services has an economic value and would be pro-
hibited.33 Furthermore, there is no exception for remuneration of a minimal
nature. In one case, a physician was excluded from the Medicare program for
having received a kickback in the amount of $30.34
Beyond prohibiting payment of remuneration to induce referrals, the
antikickback law prohibits payment of remuneration to induce or in return for

F I G U R E 1 2 .1
Limited Hanlester
MD MD MD MD MD partners Network
Structure
Contract
Hanlester Network Referrals
for tests
SKBL
Services
Lab 1 Lab 2 Lab 3
$$
368 The Law of Healthcare Administration

“purchasing, leasing, or ordering of, or arranging for or recommending the

purchasing, leasing, or ordering of, any good, facility, service, or item for
which payment is made in whole or in part by a federal healthcare program.”35
For example, it would be illegal for a company that provides patient trans-
portation to provide remuneration to the hospital employee who arranges for
patient transportation to encourage that employee to choose that particular
company. But is it illegal for a hospital or clinic to provide free transportation
to patients who are otherwise unable to come to the facility? In United States
v. Recovery Management Corp. III, a psychiatric hospital pleaded guilty to an
antikickback violation after it gave patients free airfares to and from the hos-
pital as an inducement to choose the facility.36 This case illustrates the fact
that the antikickback statute applies even where no literal “referral” per se is
involved (the referral in this case being the patient’s choice of the facility),
and it applies to the provision of anything of value that induces patients or
providers to purchase or order services.
The practice of waiving coinsurance and deductible amounts is similarly
prohibited as an inducement for referrals, except in limited circumstances (such
as in documented cases of financial need). The 1996 Health Insurance Portabil-
ity and Accountability Act (HIPAA; the Kassebaum-Kennedy Act) added civil
money penalties that can apply to any person who “offers...or transfers remuner-
ation...that such person knows or should know is likely to influence [the recipi-
ent] to order or receive [goods or services] from a particular provider, practi-
tioner or supplier....”37 HIPAA defines remuneration to include

the waiver of coinsurance and deductible amounts (or any part thereof), and
transfers of items or services for free or for other than fair market value. The
term remuneration does not include—

(A) the waiver of coinsurance and deductible amounts by a person if—

(i) the waiver is not offered as part of any advertisement or solicitation;
(ii) the person does not routinely waive coinsurance or deductible
amounts; and
(iii) the person–
(I) waives the coinsurance and deductible amounts after determining
in good faith that the individual is in financial need;
(II) fails to collect coinsurance or deductible amounts after making
reasonable collection efforts; or
(III) provides for any permissible waiver as specified in section
1128B(b)(3) [of the Social Security Act] or in regulations issued by
the Secretary;
(B) differentials in coinsurance and deductible amounts as part of a benefit
plan design as long as the differentials have been disclosed in writing to all
beneficiaries, third party payers, and providers...; or
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 369

(C) incentives given to individuals to promote the delivery of preventive care

as determined by the Secretary in regulations so promulgated.38

Thus, the waiver of coinsurance and deductibles may be permissible in

some cases that meet these criteria, but routinely waiving those amounts
(especially if advertised in the hope of stimulating business) would appear to
violate the antikickback statute as an inducement for referrals.

The Intent Issue

As noted earlier, Congress has provided that “no proof of specific intent to
defraud is required” under the FCA. But what kind of intent is required
when providing remuneration to induce referrals under the antikickback
statute? Must the sole purpose of the remuneration be to induce Medicare
and Medicaid referrals for it to be illegal? Or is it sufficient for the govern-
ment to show that one of multiple purposes was to do so? This question
was at the heart of United States v. Greber and United States v. McClatchey
(see The Court Decides at the end of this chapter). In both cases, pay-
ments were made that had legitimate purposes but also could be viewed as
being intended to induce referrals. In each case the court held that the
statute was violated if one purpose was to induce referrals even if the
remuneration was also given for other legitimate purposes.

“Stark” Self-Referral Laws

The Ethics in Patient Referrals Act (EPRA),39 first enacted in 1989 and
amended in 1993, was championed by Rep. Fortney “Pete” Stark of Califor-
nia. Its purpose, like that of the antikickback statute, is to discourage overuse
of healthcare services and thus reduce the cost of Medicare and Medicaid
programs. As stated by the Healthcare Financing Administration (HCFA,
now the Centers for Medicare and Medicaid Services [CMS]):

Congress enacted this law because it was concerned that many physicians
were gaining significant financial advantages from the practice of referring
their [Medicare and Medicaid] patients to providers of health care services
with which they (or their immediate family members) had financial rela-
tionships. For example, if a physician owns a separate laboratory that per-
forms laboratory tests for his or her patients and shares in the profits of
that laboratory, the physician has an incentive to overuse laboratory serv-
ices. Similarly, if a physician does not own any part of an entity but receives
compensation from it for any reason, that compensation may be calculated
in a manner that reflects the volume or value of referrals the physician
makes to the entity.
370 The Law of Healthcare Administration

The reports of 10 studies in the professional literature, taken as a whole,

demonstrate conclusively that the utilization rates of medical items and serv-
ices generally increase when the ordering physician has a financial interest in
the entity providing the item or service. These self-referrals generate enor-
mous costs to the Medicare and Medicaid programs and jeopardize the
health status of program beneficiaries.40

The provisions of the two eponymous “Stark” laws (usually referred to

in the singular) are extremely complicated, and their application must be ana-
lyzed on a case-by-case basis. The law can, however, be summarized as fol-
lows.
In general, Stark prohibits a physician (a medical doctor, doctor of
osteopathy, dentist, podiatrist, optometrist, or chiropractor) from referring
Medicare or Medicaid patients for certain “designated health services” to enti-
ties with which the physician or an immediate family member has a financial
relationship. “Financial relationship” is defined as a compensation arrangement
or an ownership or investment interest, such as through equity or debt. If such
a relationship exists, the physician may not, unless an exception applies, refer
patients to the entity for the following kinds of services:

• clinical laboratory services;

• radiology services, including MRIs, CAT scans, and ultrasound;
• radiation therapy services and supplies;
• physical and occupational therapy services;
• durable medical equipment and supplies;
• parenteral and enteral nutrients, equipment, and supplies;
• prosthetics, orthotics, and prosthetic devices and supplies;
• outpatient prescription drugs;
• home health services;
• outpatient prescription drugs; and
• inpatient and outpatient hospital services.

Violations of the Stark law can result in various sanctions, including

denial of payment for the services, an obligation to refund any payments
made, civil money penalties of up to $15,000 for each illegal referral, and
possible exclusion from Medicare and Medicaid programs. In addition, a
physician or entity that enters into a scheme to bypass Stark can be fined up
to $100,000 for each such arrangement and can be excluded from the pro-
grams. Stark also imposes an obligation on each entity that provides desig-
nated health services to report the names and identification numbers of all
physicians who have a compensation arrangement or an ownership or invest-
ment interest in the entity to the Secretary of Health and Human Services.
Failure to do so can result in a civil money penalty of up to $10,000 for each
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 371

day for which reporting was required. Unlike the antikickback law, which
requires proof that the defendant acted “knowingly and willfully,” making a
prohibited referral is a per se violation of Stark and no proof of intent is
required (see Legal Brief). The fact
that a defendant acted in good faith or
that she was unaware of the law is not Legal Brief
a defense. The antikickback and Stark
laws differ in one other respect: the The Stark laws apply only to physician referrals.
former applies to anyone, whereas the Intent is irrelevant; thus, violations are automatic if
latter applies only to physicians. the physician has a financial interest in the entity
The basic provisions of Stark referred to.
are extremely broad and complex, as
the government recognizes:

The law is...complex because it attempts to accommodate the many compli-

cated financial relationships that exist in the health care community. The pro-
hibitions are based on the general principle that if a physician has a financial
relationship with an entity that furnishes items or services, he or she cannot
refer patients to the entity. However, the law provides numerous exceptions
to this general principle, and it is the exceptions that contain the most
detailed and complicated aspects of the law. The exceptions are complicated
because they attempt to achieve a balance that allows physicians and providers
to maintain some of their financial relationships, but within bounds that are
designed to prevent the abuse of the Medicare and Medicaid programs or
their patients.41

Statutory Exceptions
As the previous quotation shows, Congress provided for certain exceptions
to the self-referral ban because without them the law’s sweeping language
would have made many legitimate, laudable, and even necessary arrange-
ments illegal. For example, the law excepts referrals for services provided by
other physicians in the same group practice and most in-office ancillary serv-
ices furnished “personally by the referring physician, personally by a physician
who is a member of the same group practice…or personally by individuals
who are directly supervised by the physician or by another physician in the
group practice....”42 Such in-office ancillary services must, however, be billed
by the physician or the group practice,43 and they must be provided in the
group’s building or in another building used by the group for the centralized
provision of such services.44
Likewise, because the financial incentive for self-referral does not exist
with prepaid health plans (health maintenance organizations, for example),
the statute does not apply when a physician refers members of such plans for
designated health services.45 It also does not apply to referrals for services
372 The Law of Healthcare Administration

provided by a hospital in which the physician has an ownership or investment

interest and at which the physician is authorized to perform services.46 It is
notable that physicians who are merely employed by a hospital rather than own-
ers or investors cannot avail themselves of this exception; instead, a more
detailed exception relating to employment relationships is provided later in the
statute.47
In addition to the aforementioned exceptions, there are exceptions for
certain kinds of financial relationships.48 The financial relationships that will not
trigger Stark can be summarized as follows:

• owning stocks or bonds in a large, publicly traded company or mutual fund;

• owning or investing in certain rural providers or hospitals in Puerto Rico;
• reasonable rent for office space or equipment;
• amounts paid under fair and bona fide employment relationships;
• reasonable payments for personal services provided to the entity or for
other services unrelated to the provision of designated health services;
• compensation under a legitimate “physician incentive plan,” such as by
withholds, capitation, or bonuses in managed care;
• reasonable payments to induce a physician to relocate to the hospital’s
service area;
• isolated transactions, such as a one-time sale of property or a practice;
• an arrangement that began before December 19, 1989, in which services are
provided by a physician group but are billed by the hospital; and
• reasonable payments by a physician for clinical laboratory services or for
other items or services.

These exceptions to Stark are much more complicated than this sim-
ple list implies. They have been the subject of much controversy and have
generated many ambiguities. For example, it is unclear whether the “isolated
transactions” exception would apply to the purchase of a physician’s practice
where payment for the practice is made in installments rather than in a lump
sum. CMS takes the position that the exception would not apply and that
installment payments are prohibited, but because the question has not been
litigated, it stands unresolved as an example of the law’s ambiguity.
One can see another example of ambiguity in the case of plans for a
patient’s care by a home health agency (HHA). A physician employed by a hos-
pital that owns an HHA would presumably want to order home health services
from the hospital’s own HHA. The question now is, does the physician’s finan-
cial relationship with the hospital also amount to a financial relationship with
the HHA? HCFA opined privately in 1996 that it does, and therefore the physi-
cian cannot refer to the HHA. This opinion had not been the basis for enforce-
ment, but proposed regulations issued in January 1998 seem to perpetuate this
view. Specifically, in addressing the physician “ownership or investment interest”
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 373

exception, the regulations indicate that the physicians may refer to hospitals
in which they have an ownership or investment interest, but only for services
provided by the hospital. They may not avail themselves of the “ownership
or investment” exception with regard to services provided by the hospital-
owned HHA. This interpretation, of course, raises a whole new set of ambi-
guities. What are “services provided by the hospital,” for example? If the hos-
pital uses a separate provider number to bill for some services (e.g.,
radiology), are those services considered to be provided by the hospital or by
a separate entity?
As this example shows, each attempt at “guidance” and “clarifica-
tion”—although helpful in some respects—adds new uncertainties, increases
healthcare providers’ unease, and makes the practice of law in this area
extremely difficult (or quite profitable, depending on your point of view).
Because of the ambiguities and complexities involved, the importance of
expert legal counsel cannot be overemphasized.

Corporate Compliance Programs*

In any corporation, violations of law can lead to criminal convictions and finan-
cial penalties. Healthcare organizations are no exception. Punishment can be
levied against both the perpetrators and the corporation itself, even if the crime
occurred at the lowest levels and was contrary to express company policy. Even
though they may never have authorized the act or had knowledge of it, officers
and managers may be held personally accountable if they deliberately or reck-
lessly disregarded the possibility that illegal conduct might occur. It is, therefore,
clearly a mistake for executives to believe “what I don’t know can’t hurt me.”
One of the most effective tools to minimize the exposure of an organ-
ization and its board and management is an effective corporate compliance
program (CCP; see Legal Brief on page 374). An effective CCP helps
healthcare organizations develop effective internal controls that promote
adherence to federal and state laws and the program requirements of federal,
state, and private health plans. Adoption and implementation of voluntary
compliance programs significantly assist in the prevention of fraud, abuse,
and waste while helping the organization achieve its mission: providing
quality care to patients. Programs promoting legal compliance and corpo-
rate integrity guide the governing body, top management, other employees,
and healthcare professionals in the efficient management and operation of
the entity. They are especially critical as an internal control in the reimburse-
ment and payment areas, where claims and billing operations can be the
*Portions of this section appeared in Gunn, Goldfarb, and Showalter, “Creating a Corporate Com-
pliance Program,” 79 Health Progress 60 (May/June 1998). Copyright 1998 by The Catholic Health
Association. Reproduced from Health Progress with permission.
374 The Law of Healthcare Administration

source of fraud and abuse and the

Legal Brief focus of governmental scrutiny.
The CCP concept gained
In this text, the term “corporate compliance pro- prominence after the publication of
gram” is used because it has purchase in the field. the federal government’s Sentencing
Having said that, it seems to me that “compliance” Guidelines for Organizations,49
has a rather tinny and reactive connotation—that which is used by federal judges dur-
is, “OK, we’ll comply if we have to.”
ing the sentencing phase of a trial
If I were naming such a program I would prefer
a more assertive, good-citizen, we’re-on-the-side- when a corporation has been con-
of-the-angels term—one that includes words like victed of a violation of law. The
“integrity,” “ethics,” and “responsibility,” for Guidelines are intended to provide a
example. measure of uniformity and pre-
dictability in federal criminal sen-
tences.50 Although criminal viola-
tions can relate to many legal topics
(such as antitrust, taxation, the environment, employment, and breach of
patient confidentiality), the most publicized category of illegal activity in
healthcare may be fraud. Federal and state governments crack down on
healthcare fraud because by some estimates up to 10 percent of the U.S.
annual healthcare spending may result from fraudulent activity or abusive
billing practices. (Like other law enforcement agencies, fraud squads “follow
the money.”) Lawsuits and prosecutions have led to penalties in the hundreds
of millions of dollars in individual cases, and fines of hundreds of thousands
of dollars are not uncommon (see, for example, Table 12.1).
To protect against this frightening scenario, most providers have
established systematic efforts to prevent, detect, report, and correct criminal
misconduct and to provide ongoing review of policies, procedures, and oper-
ations. Often called “corporate compliance programs,” proper CCPs address
the healthcare organization’s potential vulnerability in all areas of law and
ethics, not just fraud and abuse. If the CCP is implemented effectively and is
supported and encouraged by its governing board and top management, the
program becomes powerful evidence that the organization took steps to pre-
vent violations by its employees and agents. It also demonstrates good faith
and moral respectability—critical factors in determining what penalties will
be assessed, be they criminal or civil in nature, if a violation is found.
Without a CCP, a convicted organization will incur much stiffer penalties
and will usually face a court-imposed compliance program more severe than the
Guidelines require. Under the Guidelines, however, an organization with an
effective CCP will benefit from penalty reductions of up to 95 percent. Assume
that two hospitals, each with 3,000 employees, are convicted of defrauding
Medicare through coding errors. (Note that the size of the organization is a fac-
tor in the Guidelines’s sentencing formula.) Assume further that the frauds
resulted in overpayment of $1.6 million to each facility. Hospital A does not have
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 375

a CCP; in fact, its management was found “willfully ignorant” of the existence
of the fraudulent activity. (Willful ignorance is an aggravating factor in the for-
mula). Hospital B, on the other hand, has an effective CCP, discovered the fraud,
and reported it to the authorities immediately. Table 12.2 shows the potential
penalties for the two hospitals, according to the formula of the Guidelines.
In addition to reducing the organization’s punishment in the event a
violation occurs, an effective CCP may also provide early detection of con-
duct that could lead to governmental enforcement efforts, whistle-blower lit-
igation, or other actions. The CCP’s preventive activities allow management
to take corrective action before suit is filed and to show due diligence if the
matter goes to trial.
Despite the cost of compliance programs, which usually involve a sep-
arate executive-level department and budget items, the benefits of a CCP far
outweigh the potential disadvantages. In addition to improving the accuracy
of billing—the original focus of most programs—a compliance department
becomes an internal resource for myriad issues relating to law and ethics. A
CCP enables the entity to do the following:

• demonstrate the hospital’s strong commitment to honest, ethical, and

responsible corporate conduct;
• improve the quality of patient care;
• identify weaknesses in internal systems and management;
• provide an accurate view of employee and contractor behavior relating
to fraud and abuse;

TA B L E 1 2 .2
Hospital A Hospital B
(no CCP) (with CCP) Effect of a
CCP on
Base fine (usually the amount of the overpayment) $1,600,000 $1,600,000 Penalty
Computations
Culpability score (determined from a table)
Base score (identical for all defendants) 5 5
Willful ignorance factor (aggravating 4
Effective CCP factor (mitigating) 0 –3
Self-reporting factor (mitigating) 0 –5
Total culpability score 9 <0

Culpability multiplier range (CMR) (from a table) 1.8 to 3.6 0.05 to 0.2

Minimum fine (low CMR × base fine) $2,880,000 $80,000

Maximum fine (high CMR × base fine) $5,760,000 $320,000

376 The Law of Healthcare Administration

• identify and prevent criminal and unethical conduct;

• create a centralized source for distributing information on healthcare
statutes and regulations;
• develop a process that allows employees to report potential problems;
• develop procedures that allow the prompt, thorough investigation of
the alleged misconduct;
• initiate immediate and appropriate corrective action; and
• minimize the loss to the government from false claims and thus reduce
the hospital’s exposure to civil damages and penalties, criminal sanc-
tions, and administrative remedies, such as program exclusion.

The elements of an effective CCP are as follows:

1. It must contain established compliance standards and procedures. This

requires management to publish standards of conduct outlining legal
and ethical requirements in all areas of the organization’s operations.
Such areas include antitrust, document retention, employment and
employee benefits, environmental compliance, Medicare/Medicaid
fraud and abuse, occupational safety, patient protection, and taxation.
2. It must be overseen by high-level personnel. Most organizations assign the
function to an individual who reports to the chief executive officer and
has a relationship with the governing board and general counsel.
3. It must provide that no discretionary authority in the organization may be
vested in persons who are known (or should be known) to be likely to engage
in criminal conduct. In effect, this means that the organization must
have a mechanism (such as routine criminal background checks) to pre-
vent the hiring of persons who, for example, have previously been con-
victed of healthcare offenses or who have been excluded from federal
healthcare programs.
4. Its procedures and standards of conduct must be effectively communicated to
employees and agents of the organization. This means that the organization
must educate all employees and agents about CCP standards and proce-
dures and must continually publicize the topic in employee newsletters and
similar media. In effect, the CCP must have the commitment and under-
standing of everyone in the organization, including not only the board and
senior management but also lower-level employees. Without this level of
support, the CCP may be viewed as a sham, which could lead to harsher
penalties being assessed.
5. It must establish reasonable methods to achieve compliance with the stan-
dards of conduct. These methods should include ongoing monitoring
activities, periodic audits of various operational departments, and
encouragement to employees to report suspicious activities (for exam-
ple, through “hotlines” or anonymous written reports).
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 377

6. It must provide for, and the organization must carry out, appropriate and
consistent discipline. Discipline includes possible termination of employment
for those who violate the standards of conduct or fail to report violations.
7. It must appropriately and consistently respond to violations that are
detected. This includes having necessary corrective action in place to pre-
vent recurrence of violations.

Healthcare organizations, including their governing boards and senior

management, must take seriously the possibility that criminal violations (includ-
ing fraud and abuse) may occur and that civil liability may arise in the course of
their business. Although the cost of developing a CCP is significant, the conse-
quences of not having one can be dire if illegal or unethical activity occurs, and
substantial benefits may accrue in the form of reduced exposure to whistle-
blower lawsuits and other civil actions. Each healthcare organization, as well as
each physician practice, should adopt and implement an effective CCP covering
their entire operation.
CCPs are an important part of most healthcare organizations’ operations.
They began with an emphasis on detecting and preventing fraud and abuse and
complying with regulations. As they have matured, many have become less reac-
tive and are now more proactive in focusing on the ethical integrity of the cor-
poration through education and sharing of information. The compliance officer
should be seen as a valuable resource for questions relating to corporate ethics,
conflicts of interest, human subject research, privacy and security of healthcare
information, and other subjects from antitrust to zoning.
In addition, because of their auditing and monitoring activities, compli-
ance programs can actually become a revenue center for the facility. The general
view, which I share, is that hospitals and physicians probably underbill more often
than they overbill. This means that they lose revenue (“leave money on the
table”) through failure to capture all charges properly. An effective CCP can add
to the organization’s net revenue while preventing improper billing practices.

Chapter Summary

This chapter deals with one of the most salient issues in healthcare today:
the prevention of fraud and abuse in governmental payment programs.
Here, the major fraud laws—including the federal FCA, the antikickback
statute, and the Stark self-referral laws—are reviewed. The text points out
the aggressive enforcement activities of federal and state regulators and the
severe monetary and criminal penalties that can be imposed for violations.
It also discusses the basics of a CCP, one of the most effective efforts a
healthcare organization can undertake to prevent fraud, promote ethical
integrity, and improve billing accuracy. Not only are compliance programs
378 The Law of Healthcare Administration

important preventive measures, but they are also valuable resources on a

wide range of legal and ethical issues.

Chapter Discussion Questions

1. What factors motivate healthcare organizations to maintain programs

aimed at compliance and corporate ethics?
2. What kinds of fraudulent or abusive behavior relating to federal health-
care payment programs can occur in hospital operations?
3. What are the most significant statutes relating to healthcare fraud?
4. What do the terms “kickbacks” and “self-referral” describe in the
healthcare setting?

Notes
1. Regarding the cost of healthcare, see Smith, et al., “National Health Spending in 2004,”
Health Affairs 25:1 (2006); regarding the estimate of fraud, see General Accounting Office,
Report on Medicare Fraud and Abuse, GAO/HR-95-8 (Feb. 1995).
2. U.S. Dept. of Justice, Department of Justice Health Care Fraud Report, Fiscal Year 1994 (Mar.
2, 1995).
3. 768 F. Supp. 1127 (E.D. Pa. 1991).
4. 859 F. Supp. 5 (D. D.C. 1994).
5. 909 F. Supp. 32 (D. D.C. 1995) (memorandum opinion).
6. 31 U.S.C. §§ 3729-3731.
7. See, for example, Rex Trailer Co. v. United States, 350 U.S. 148 (1952) and Fleming v.
United States, 336 F.2d 475 (10th Cir. 1964).
8. United States v. Krizek, 111 F.3d 394 (D.C. Cir. 1997).
9. See, for example, United States v. McNinch, 356 U.S. 595 (1958).
10. 31 U.S.C. § 3729(b).
11. S. Rep. No. 345, 99th Cong., 2d Sess. 7.
12. 859 F. Supp. at 13. But see United States v. Nazon, No. 93C5456m (N.D. Ill. Oct. 14,
1993).
13. Pub. L. No. 104–191, § 213, amending 42 U.S.C. § 1320a-7(b)(15).
14. 42 U.S.C. § 1320a-7a(a)(4).
15. 31 U.S.C. § 3733(l)(4).
16. 31 U.S.C. § 3730(h).
17. 317 U.S. 537 (1943); see also United States v. Forster Wheeler Corp., 447 F.2d 100 (2d Cir.
1971)—invoices submitted on contract that was based on inflated cost estimates are false
claims; United States v. Veneziale, 268 F.2d 504 (3d Cir. 1959)—fraudulently induced con-
tract may create liability when the contract later results in payment by the government.
18. 797 F.2d 888 (10th Cir. 1986).
19. 760 F. Supp. 1120 (E.D. Pa. 1991).
20. 914 F. Supp. 1507 (M.D. Tenn. 1996).
21. Id. at 1508–1509.
22. Id. at 1513.
23. At least one consent judgment has been entered in a case of this type. In 1994, a company
that ran home infusion centers agreed to pay $500,000 in settlement of an FCA case because
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 379

it gave physicians incentives to refer patients to the centers. United States v. Medical, Inc., Ga.
No. 1:94-CV-2549 (N.D. Ga. Sept. 26, 1994).
24. 18 U.S.C. § 287.
25. 42 U.S.C. § 1320a-7b(b)(1)(A) and (2)(A).
26. Pub. L. No. 104-191, § 204, 110 Stat. 1999, codified at 42 U.S.C. § 1320a-7b(a).
27. 42 U.S.C. § 1320a-7(b)(7).
28. 42 U.S.C. § 1320a-7a(a)(7).
29. 42 U.S.C. § 1320a-7b(b)(3).
30. 42 U.S.C. § 1320a-7b.
31. S. Rep. No. 109, 100th Cong., 1st Sess. 27.
32. 51 F.3d 1390 (9th Cir. 1995).
33. Office of Inspector Gen., U.S. Dept. of Health and Human Servs., Advisory Op. No. 97-6
(Oct. 8, 1997).
34. Levin v. Inspector General, No. CR343 (HHS Dept. App. Bd. Nov. 10, 1994).
35. See 42 U.S.C. §§ 1320a-7b(b)(1)(B) and (2)(B).
36. Unreported decision cited in “Psychiatric Hospital Firm Pleads Guilty to Violating Anti-Kick-
back Statute,” 4 BNA’s Health L. Rep. 687
37. 42 U.S.C. § 1320a-7a(a)(5).
38. 42 U.S.C. § 1320a-7a(i)(6).
39. Codified at 42 U.S.C. § 1395nn.
40. HCFA Trans. No. AB-95-3 (Jan. 1995), reprinted in BNA’s Health L. & Bus. Series No. 2400
at 2400–3401, 3402 (1997).
41. Id. at 2400–3403.
42. 42 U.S.C. § 1395nn(b)(2)(A)(i).
43. 42 U.S.C. § 1395nn(b)(2)(B).
44. 42 U.S.C. § 1395nn(b)(2)(A)(ii).
45. 42 U.S.C. § 1395nn(b)(3).
46. 42 U.S.C. § 1395nn(d)(3).
47. 42 U.S.C. § 1395nn(e)(2).
48. See, generally, 42 U.S.C. § 1395nn(c)-(e).
49. 56 Fed. Reg. 22,762–22,786 (May 16, 1991).
50. Although originally considered mandatory, in early 2005 the Supreme Court held (for reasons
not relevant here) that the Sentencing Guidelines are only “advisory.” United States v. Booker
and United States v. Fanfan, 543 U.S. 220 (2005). The effect of the Guidelines remains as
described in the text.
380 The Law of Healthcare Administration

the court decides

United States v. Greber
760 F.2d 68 (3rd Cir. 1985)

[The defendant was convicted of fraud relating to his durable medical equipment com-
pany’s billing practices. The company supplied Holter monitors—portable devices worn by
patients to record their heartbeats for later interpretation. For this service Dr. Greber’s
company, Cardio-Med, billed Medicare and remitted a portion of each payment to the refer-
ring physician. For this practice he was found guilty of having violated the kickback statute
even though the payments were made for consultative services rendered. Dr. Greber was
also convicted of submitting false statements concerning how long the monitors were
operated (Medicare requires at least eight hours of operation to qualify for payment) and
mail fraud (by using the mail to bill for services that were medically unnecessary or were
never provided). Only the kickback issue is addressed in the following excerpt.]

On appeal, defendant raises several alleged a number of forms including cash, long-
trial errors. He presses more strongly, how- term credit arrangements, gifts, supplies
ever, his contentions that the evidence was and equipment, and the furnishing of busi-
insufficient to support the guilty verdict on ness machines.”
the Medicare fraud counts, and that the To remedy the deficiencies in the statute
charge to the jury on that issue was not and achieve more certainty, the present ver-
correct.... sion of 42 U.S.C. § 1395nn(b)(2) was
I. Medicare Fraud enacted. It provides:
The Medicare fraud statute was amended
[in 1977]. Congress, concerned with the whoever knowingly and willfully
growing problem of fraud and abuse in the offers or pays any remuneration
system, wished to strengthen the penalties (including any kickback, bribe or
to enhance the deterrent effect of the rebate) directly or indirectly, overtly or
statute. To achieve this purpose, the crime covertly in cash or in kind to induce
was upgraded from a misdemeanor to a such person–
felony. …(B) to purchase, lease, order, or
Another aim of the amendments was to arrange for or recommend purchasing
address the complaints of the United …or ordering any…service or item for
States Attorneys who were responsible for which payment may be made…under
prosecuting fraud cases. They informed this title, shall be guilty of a felony.
Congress that the language of the prede-
cessor statute was “unclear and needed [The evidence showed that defendant
clarification.” had paid physicians “interpretation fees”
A particular concern was the practice of for the doctors’ consultation services and
giving “kickbacks” to encourage the refer- for explaining the test results to the
ral of work. Testimony before the Congres- patients. Some evidence existed that physi-
sional committee was that “physicians cians received “interpretation fees” even
often determine which laboratories would though Dr. Greber had actually evaluated
do the test work for their Medicaid patients the monitoring data. Moreover, the fixed
by the amount of the kickbacks and rebates percentage paid to the referring physician
offered by the laboratory.... Kickbacks take was more than Medicare allowed for such
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 381

services.] nevertheless could exist.

The district judge instructed the jury that In United States v. Hancock the court
the government was required to prove that applied the term “kickback” found in the
Cardio-Med paid…some part of the amount predecessor statute to payments made to
received from Medicare; that defendant chiropractors by laboratories which per-
caused Cardio-Med to make the payment; formed blood tests. The chiropractors con-
and did so knowingly and willfully as well tended that the amounts they received
as with the intent to induce Dr. Avallone to were legitimate handling fees for their serv-
use Cardio-Med’s services for patients cov- ices in obtaining, packaging, and delivering
ered by Medicare. The judge further the specimens to the laboratories and then
charged that even if the physician interpret- interpreting the results. The court rejected
ing the test did so as a consultant to Car- that contention and noted, “The potential
dio-Med, that fact was immaterial if a pur- for increased costs to the Medicare-Medi-
pose of the fee was to induce the ordering caid system and misapplication of federal
of services from Cardio-Med. funds is plain, where payments for the
Defendant contends that the [instruction exercise of such judgments are added to
to the jury] was erroneous. He insists that the legitimate cost of the transaction....
absent a showing that the only purpose [T]hese are among the evils Congress
behind the fee was to improperly induce sought to prevent by enacting the kick-back
future services, compensating a physician statutes....”
for services actually rendered could not be Hancock strongly supports the govern-
a violation of the statute. ment’s position here, because the statute
The government argues that Congress in that case did not contain the word
intended to combat financial incentives to “remuneration.” The court nevertheless
physicians for ordering particular services held that “kickback” sufficiently described
patients did not require. the defendants’ criminal activity. By adding
The language and purpose of the statute “remuneration” to the statute in the 1977
support the government’s view. Even if the amendment, Congress sought to make it
physician performs some service for the clear that even if the transaction was not
money received, the potential for unneces- considered to be a “kickback” for which no
sary drain on the Medicare system remains. service had been rendered, payment never-
The statute is aimed at the inducement fac- theless violated the Act.
tor. We are aware that in United States v.
The text refers to “any remuneration.” Porter the Court of Appeals for the Fifth Cir-
That includes not only sums for which no cuit took a more narrow view of “kickback”
actual service was performed but also those than did the court in Hancock. Porter’s
amounts for which some professional time interpretation of the predecessor statute[,]
was expended. “Remunerates” is defined as which did not include “remuneration[,]“ is
“to pay an equivalent for service.” (Webster neither binding nor persuasive....
Third New International Dictionary 1966.) We conclude that the more expansive
By including such items as kickbacks and reading is consistent with the impetus for
bribes, the statute expands “remuneration” the 1977 amendments and therefore hold
to cover situations where no service is per- that the district court correctly instructed
formed. That a particular payment was a the jury. If the payments were intended to
remuneration (which implies that a service induce the physician to use Cardio-Med’s
was rendered) rather than a kickback, does services, the statute was violated, even if
not foreclose the possibility that a violation the payments were also intended to com-
382 The Law of Healthcare Administration

United States v. Greber Discussion Questions

1. How, if at all, can you distinguish Greber from other instances of payments for
professional services? Suppose the percentage Dr. Greber paid to the physi-
cians had not exceeded Medicare’s guidelines? Would that payment still
amount to prohibited remuneration in this court’s eyes?
2. Suppose you were a lawyer or a compliance officer advising a hospital cardio-
logy department. The department has a contract under the terms of which it
will pay a certain cardiology group a fixed dollar amount for every electrocar-
diogram (ECG) it interprets, and the hospital will bill Medicare accordingly.
The dollar amount is equal to Medicare’s allowable charge for ECGs (less
than $10 at this writing), and all readings are medically necessary. You ask why
the hospital does not just let the doctors bill Medicare themselves, and the
reply is, “Oh, it’s such a hassle for them. We already have a billing depart-
ment, and we can do it for them easily.” What is your response, and why?

the court decides

United States v. McClatchey
217 F.3d 823 (10th Cir., 2000)

[Fifteen years after Greber it was still an open question what intent was required to violate
the FCA. Greber determined that if any purpose of the remuneration was to induce refer-
rals, the Act was violated even if other purposes were legitimate. The following case
excerpt illustrates some of the difficulties of this interpretation.
The case involved two physicians who were the principals in a group practice (BVMG)
that provided care to nursing home patients. In 1984, the physicians approached Baptist
Medical Center in Kansas City, Missouri, and proposed that they would move their patients
from other hospitals to Baptist if the hospital would buy BVMG. This concept was rejected,
but after much negotiation the parties agreed that the physicians would provide various
services to the hospital in return for $75,000 each per year. (Among other things, testi-
mony indicated that the fee was determined before the services were agreed on.) The
physicians then began admitting their patients to Baptist.
The contractual arrangement continued until 1993 even though as early as 1986 attor-
neys for Baptist’s new owner, the Health Midwest system, were concerned that it did not
comply with the “safe harbor” regulations that had since been issued by the U.S. govern-
ment. Additionally, in late 1991 or early 1992, Baptist learned that the physicians were not
performing some of the contractual services, but the fees continued to be paid and the
contract was renewed.
The jury convicted the hospital chief executive officer, the two physicians, and Mr.
McClatchey of violating the antikickback statute. Two attorneys for Health Midwest who
were involved in the negotiations to renew the contract were charged with conspiracy but
were found not guilty by the judge on motions for acquittal. The judge also granted Mr.
McClatchey’s motion for acquittal on the ground that no reasonable jury could find that he
deliberately intended to violate the law. Thus, the issue on appeal concerned the type of
criminal intent necessary to violate the kickback statute.]
 C h a p t e r 1 2 : Fra u d , A b u s e , a n d C o r p o ra t e C o m p l i a n c e P ro g ra m s 383

Murphy, Circuit Judge. Circuit. McClatchey urges this court to

.... reject the test set out in Instruction 32 as
In Instruction 32, the district court charged too broad, because “[e]very business rela-
the jury as follows: tionship between a hospital and a physi-
cian is based ‘at least in part’ on the hospi-
In order to sustain its burden of proof tal’s expectation that the physician will
against the hospital executives for the choose to refer patients.” This argument,
crime of violating the Anti-Kickback however, ignores the actual instruction
statute, the government must prove given in the instant case, in which the dis-
beyond a reasonable doubt that the trict court specifically informed the jury that
defendant under consideration offered “McClatchey cannot be convicted merely
or paid remuneration with the specific because [he] hoped or expected or believed
criminal intent “to induce” referrals. To that referrals may ensue from remuneration
offer or pay remuneration to induce that was designed wholly for other pur-
referrals means to offer or pay remuner- poses.” According to this instruction, there-
ation with the intent to gain influence fore, a hospital or individual may lawfully
over the reason or judgment of a per- enter into a business relationship with a
son making referral decisions. The doctor and even hope for or expect refer-
intent to gain such influence must, at rals from that doctor, so long as the hospi-
least in part, have been the reason the tal is motivated to enter into the relation-
remuneration was offered or paid. ship for legal reasons entirely distinct from
On the other hand, defendants its collateral hope for referrals.
Anderson, Keel, and McClatchey cannot The only three Circuits to have decided
be convicted merely because they this issue have all adopted the “one pur-
hoped or expected or believed that pose” test. [One of these was Greber, which
referrals may ensue from remuneration is set forth earlier.] In Greber, a doctor who
that was designed wholly for other pur- owned a diagnostic laboratory was con-
poses. Likewise, mere oral encourage- victed of violating the Act because he paid
ment to refer patients or the mere cre- “interpretation fees” to other physicians to
ation of an attractive place to which induce them to refer Medicare patients to
patients can be referred does not vio- use his laboratory’s services. Defendant
late the law. There must be an offer or Greber asserted that these interpretation
payment of remuneration to induce, as fees compensated the physicians both for
I have just defined it. providing initial consultation services and
for explaining the test results to the
McClatchey contends this instruction was patients. On appeal, Greber argued that a
incorrect and warrants a new trial, because jury instruction much like Instruction 32
a defendant should not be convicted under was erroneous, because the Act requires
the Act when his offer or payment of remu- the government to prove that the only pur-
neration was motivated merely in part to pose for the interpretation fees was to
induce referrals, but rather the motivation induce referrals and that compensation for
to induce referrals must be the defendant’s services actually rendered could not consti-
primary purpose.... tute a violation of the Act. Carefully examin-
Whether the “at least in part” or “one ing the language and purpose of the Act,
purpose” standard applied in the instant the Third Circuit rejected Greber’s proposed
case constitutes a correct interpretation of interpretation and instead held that “if one
the Act is an issue of first impression in this purpose of the payment was to induce
384 The Law of Healthcare Administration

referrals, the [Act] has been violated.”...The ....

Greber court thus concluded that the “one This court concludes that the govern-
purpose” test is consistent with the legisla- ment presented sufficient evidence from
tive intent behind the amended Act. which a reasonable jury could infer
This court agrees with the sound reason- McClatchey knowingly, voluntarily, and
ing in Greber and thus holds that a person purposefully entered into an agreement
who offers or pays remuneration to another with the specific intent to violate the
person violates the Act so long as one pur- Act.… We therefore REVERSE the judg-
pose of the offer or payment is to induce ment of acquittal and the alternative
Medicare or Medicaid patient referrals. order for a new trial entered by the Dis-
Because the district court accurately trict Court for the District of Kansas and
informed the jury of the applicable law, REMAND to that court with instructions
McClatchey is not entitled to a new trial to reinstate the verdict rendered by the
based on the jury instructions. jury.

United States v. McClatchey Discussion Questions

1. Determining difficult questions of fact is the jury’s job. If you had been
a juror in this case and had heard “Instruction 32,” where would you
have drawn the line between an intent to induce referrals and a mere
hope that referrals might ensue?
2. The summary given here leaves out many important facts. What other
facts might have been important to you as a juror?
3. Recognizing that physicians are their life blood, hospitals have long
provided certain amenities to “keep the docs happy.” Among these
perqs are preferred parking, free meals, and “professional courtesy”
(discounts for care for themselves and their family members). Because
the one-purpose test now appears to be the accepted standard under the
FCA, and because a purpose of “keeping the docs happy” is to
encourage them to refer patients to the facility, are these types of
benefits now illegal?
 CHAPTER

ISSUES OF REPRODUCTION
13
After reading this chapter, you will

• have a better appreciation for the difficulty of abortion as a legal

issue, and understand that abortion will continue to be as con-
troversial in the courtroom as it is in the public policy arena.
• appreciate the difference between “wrongful life” and “wrongful
birth” cases; wrongful life cases are rare, but wrongful birth
cases are relatively commonplace.
• understand that voluntary sterilization is seldom a vexing legal
issue today.
• know what the hospital’s role is in reproductive matters.
• be aware of the issues involved in surrogate parenting, in vitro
fertilization, and stem-cell technology. Recognize that litigation
over stem-cell technology has yet to reach many courtrooms,
but it will.

Courts of law are asked to decide many of society’s most perplexing problems.
The judicial system of this country is asked almost daily to apply Solomonic wis-
dom to virtually intractable social, moral, and ethical controversies, all of which
are presented in the guise of legal prin-
ciples. Although the system often
seems imperfectly constructed to do Legal Brief
so, it must make a decision in every
justiciable case (see Legal Brief). “Justiciable” means capable of being settled by a
Much of the difficult litigation court of law. For a case to be justiciable, there must
involving issues of reproduction came be an actual controversy between the parties
about because of advances in scientific (courts do not issue “advisory opinions”), the issue
and medical technology. For example, must not be moot, and the case must not involve
questions that are solely political (questions for the
as doctors developed advanced tech-
other branches of government to resolve).
niques, such as in vitro fertilization,
questions surfaced regarding parental
and custodial rights. For lack of any
385
386 The Law of Healthcare Administration

other effective forums to resolve disputes, the questions often found their way
into courtrooms. With the advance of medical technology in such areas as
stem-cell research, courts have been and will continue to be asked to reevaluate
earlier precedents in light of those developments. The extent to which such deci-
sions can or should be modified remains a continuing source of judicial inquiry.
In this chapter the history and current legal status of abortion and
sterilization are reviewed; two torts (wrongful life and wrongful birth) pecu-
liar to reproduction are considered; and surrogate parenting, in vitro fertil-
ization, and stem-cell research are discussed.

Abortion

Before the nineteenth century, English and U.S. laws did not prohibit induced
abortion, at least in the early stages of pregnancy. Some scholars maintain that
English law never regarded abortion of a quickened fetus (one that has had
movements the mother can feel) as a criminal act; others disagree. It is not sur-
prising that American courts deciding cases pursuant to the common law
reached differing conclusions. Some held that an abortion of a quickened fetus
was criminal, at least a misdemeanor, but others ruled that an abortion, regard-
less of the stage of pregnancy, was not a crime.1 In any event, the matter soon
became a question solely of statutory law because a generally accepted princi-
ple in Anglo-American jurisprudence is that criminal law must be established
by statute and not by common-law judicial decision.
The English Parliament enacted the first restrictive abortion statute in
2
1803. It provided that a willful abortion of a quickened fetus was a capital
crime and established lesser penalties for abortions performed during earlier
stages of pregnancy. If the surgery was performed in good faith to preserve
the life of the mother, however, no criminal act had been committed.3
American jurisdictions began to pass restrictive abortion statutes in the
early 1800s. Connecticut was the first state to do so when in 1821 it passed
a statute that accepted the English distinction between a quickened and
unquickened fetus. Similarly, an 1828 New York statute provided that an
abortion after quickening was manslaughter but a misdemeanor before then.
An exception to manslaughter was made for cases where an abortion was per-
formed to preserve the life of the mother.
By the late 1860s nearly all states had enacted restrictive abortion
statutes of some type, and most statutes in time abandoned the distinction
between a quickened and unquickened fetus. By the 1960s the various laws
generally fell into the following categories:

• those that banned all abortions regardless of the stage of pregnancy and
regardless of the reason for the procedure;
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 387

• the majority, which permitted termination of pregnancy to preserve the

mother’s life while prohibiting termination under all other circum-
stances; and
• some that permitted the surgery to preserve the mother’s health, pro-
viding that only a physician could perform the procedure and, in some
states, only after consulting with other physicians and providing proper
medical safeguards.

During the 1960s a trend developed to relax these state laws, and by
1970 approximately one-third of the states had adopted a model abortion
law that permitted a licensed physician to terminate a pregnancy when there
was “substantial risk that continuance of pregnancy would gravely impair the
physical or mental health of the mother or that the child would be born with
grave physical or mental defects or that the pregnancy resulted from rape,
incest, or other felonious intercourse.”4 Termination of pregnancy under cir-
cumstances other than those described was a third-degree felony if performed
before the twenty-sixth week (roughly the end of the second trimester), and
a first-degree felony if performed thereafter. The law further required that all
abortions take place in a licensed hospital, unless an emergency existed and
such facilities were not available, and that at least two physicians had to cer-
tify in writing the circumstances justifying the surgery. Some jurisdictions
added the following additional requirements:

• the patient must be a resident of the state for a specified time before the
surgery,
• the attending physician must obtain the concurrence of the hospital’s
medical staff committee, and
• the hospital where the surgery was to be performed must be accredited
by the Joint Commission.

By the end of 1970, liberalization of the law in New York, Washing-

ton, Hawaii, and Alaska had gone much further than the model law. These
states had adopted in essence the principle of abortion on demand, at least
up to a statutorily designated stage of pregnancy. (New York, Hawaii, and
Alaska accomplished this change by statute, and Washington did so by pub-
lic referendum.) These states imposed certain restrictions, for example, that
the procedure had to be done by a licensed physician in a licensed or accred-
ited hospital or that the woman must establish a period of residency in the
state before she would be eligible for an abortion.
Then came the landmark abortion cases of January 1973. These deci-
sions addressed a broad, fundamental issue of constitutional law: Does a
woman have a right to decide for herself, without governmental regulation,
whether to bear a child?
388 The Law of Healthcare Administration

The Roe and Bolton Cases

Roe v. Wade 5 concerned the constitutionality of a very restrictive Texas
statute, while the companion case of Doe v. Bolton6 raised issues relevant to
Georgia’s somewhat more liberal legislation.
Texas law permitted an abortion at any stage of pregnancy, but only
to save the life of the mother. The issue for the court was whether the state
had a sufficient “compelling interest” to justify the nearly total prohibition
of abortion. When fundamental individual rights are involved, a state must
convince the court that there is a “compelling interest” to justify the
restraint on those rights. Because an individual’s right of privacy is a fun-
damental right, the Roe and Bolton cases employed the compelling inter-
est test when ruling on the constitutionality of the Texas and Georgia
abortion statutes.
In Roe the court held that the Texas statute violated the due process
clause of the Fourteenth Amendment. A “balancing of interests” between
the state, acting to further the general welfare, and the individual seeking
an abortion led to the conclusion that the individual’s rights of privacy
trumped the interests the statute sought to promote. However, the court
recognized that the state had two legitimate interests that would justify
regulating abortions: protecting the life and health of pregnant women
and protecting the “potentiality of human life.” These were the interests
the court weighed against the woman’s right of privacy. The court found
that during the first trimester of pregnancy the health risk from abortion
was less than the risk of childbirth. Thus, the state’s interest in maternal
and fetal health did not outweigh the right of privacy. For that reason
states may only restrict abortions during the first trimester as they might
restrict other surgical procedures—for example, by requiring that they be
performed by licensed physicians.7 Essentially the decision to perform an
abortion during the first trimester of pregnancy was solely up to the
patient and her physician.
During the second trimester, the court found, the risk to the woman
is greater. Under the balancing test, the state’s interest in protecting the
woman’s health becomes compelling, and the state may place restrictions that
protect her health, as long as these do not unreasonably interfere with the
woman’s right to make her own decision. The court held that the state’s
interest in protecting potential life becomes compelling when the fetus is
viable (capable of surviving outside the womb). In 1973 this point was
reached about 28 weeks after conception. At that point the state may pro-
scribe abortions altogether, unless they are necessary to protect the life or
health of the mother.8
In 1973, medical science recognized a relatively clear division of preg-
nancy: risks inherent in pregnancy increased after the first three months, and
fetal viability occurred about the end of the second three months. This
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 389

trimester structure was used to determine when the state’s interests out-
weighed those of the woman and, therefore, the point at which the state
could place restrictions on abortions.
There are many who question and even dispute the soundness of this
legal approach. As pointed out by Justice O’Connor in a case ten years later:

Just as improvements in medical technology inevitably will move forward the

point at which the State may regulate for reasons of maternal health, differ-
ent technological improvements will move backward the point of viability at
which the State may proscribe abortions except when necessary to preserve
the life and health of the mother....
The Roe framework, then, is clearly on a collision course with itself. As
the medical risks of various abortion procedures decrease, the point at
which the State may regulate for reasons of maternal health is moved fur-
ther forward to actual childbirth. As medical science becomes better able
to provide for the separate existence of the fetus, the point of viability is
moved further back toward conception.... The Roe framework is inher-
ently tied to the state of medical technology that exists whenever particu-
lar litigation ensues.9

The Roe decision is illustrated in Figure 13.1.

F I G U R E 13.1
The Abortion
First Trimester Second Trimester Third Trimester Scenario After
Roe v. Wade
Risk (1973)
Abortion < childbirth Abortion ≅ childbirth Viability (“potential life”)
Factors

Moderate interest;
cannot prohibit Compelling interest
State’s Low interest; abortion, but can in “potential life”;
Interest can regulate only regulate to protect can prohibit abortion
and Ability the same as other med- life or health of the altogether except
to ical/surgical procedures mother if regulation to protect
Regulate (e.g., licensure) is not an the life or health
“unreasonable of the mother
interference” with
the right to choose

Low-risk Viability area

O’Connor’s area moves moves
Warning
Look out! Collision ahead!
390 The Law of Healthcare Administration

A companion case to Roe, Doe v. Bolton,10 involved the constitutionality

of Georgia’s “liberalized” statute patterned after the model law. The law per-
mitted termination of pregnancies whenever continued pregnancy would
endanger the woman’s life or injure her health; when the baby was likely to be
born with grave, permanent handicaps; or when pregnancy was the conse-
quence of rape. In the interest of protecting the patient’s health and well-being,
however, the law required physicians to exercise their “best clinical judgment”
when recommending an abortion. It also required that the procedure be car-
ried out in a hospital accredited by the Joint Commission, that it be approved
by an abortion committee comprising members of the hospital’s medical staff,
and that the judgment of the patient’s physician be confirmed by two other
independent physicians who had examined the patient. Further, the patient had
to establish Georgia residency to be considered eligible for an abortion.
The Supreme Court upheld the statutory requirement that the “best
clinical judgment” of the patient’s physician be exercised when the need for
an abortion is considered. However, it struck down the three procedural
requirements and the residency requirement, holding that they unduly
restricted the rights of doctors and patients to decide. The court supported
its conclusion regarding the procedural matters by noting that Georgia law
did not require that other surgical procedures of similar risk take place only
in hospitals accredited by the Joint Commission or that they be preceded by
consultation with other physicians. Nevertheless, the court specifically recog-
nized that the state might, if it wished, require that abortions after the first
trimester be performed at licensed facilities and that the state might also
promulgate reasonable standards consistent with its legitimate interest in
protecting maternal health.11 The residency requirement was said to be an
invasion of the constitutionally protected right to travel included in the priv-
ileges and immunities clause of Article IV of the U.S. Constitution.
The Georgia statute contained a “conscience clause” to permit indi-
viduals with moral or religious objections to abortion to decline to partici-
pate; this provision was upheld. Whether a conscience clause for hospitals and
other healthcare institutions is constitutional is discussed later in this chapter.

State Regulation of Abortion After 1973

In the years since Roe and Bolton, the Supreme Court issued further guid-
ance on judicial review of state abortion regulation and addressed various
state and local abortion regulations that attempted to limit a woman’s right
to choose. The constitutionality of these regulations has been examined on
a case-by-case basis. Restrictions that have been held constitutional include
the following:

• a requirement for submission of any tissue removed following an abor-

tion, whether in a hospital or clinic, to a pathologist (because it placed a
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 391

“relatively insignificant burden” on a woman’s decision on abortion,

was “reasonably related to generally accepted medical standards,” and
furthered “important health-related state concerns”;12
• requirements for record keeping and reporting—provided that they are
not unduly burdensome, that they protect confidentiality, and that the
facts are legitimately related to the state’s health interest;13
• a statute that required that second-trimester abortions be performed in
licensed clinics (upheld as a reasonable means of furthering the state’s
compelling interest in maternal health);14 and
• a requirement for written informed consent.15

Restrictions that have been struck down include the following:

• the Pennsylvania Abortion Control Act’s detailed reporting for each

abortion performed at any stage of pregnancy;16
• an ordinance that required, among other things, that all abortions after
the first trimester take place in a hospital (decided in City of Akron);
• a requirement of a waiting period between the woman’s consent to an
abortion and the abortion itself (decided in City of Akron because there
was no legitimate state interest served);
• requirements that certain specific information be given to the woman
before obtaining her written consent and that a physician inform a
patient that “the unborn child is a human life from the moment of con-
ception” (decided in City of Akron); and
• a requirement that counseling be given only by the attending physician
(decided in City of Akron).17

The Supreme Court in Roe held that a state could criminalize all
abortions after the fetus becomes viable, except those necessary to pre-
serve the mother’s life or health, because at that point the state’s interest
in protecting the “potentiality of human life” becomes compelling. The
Court observed that “in the medical and scientific community, a fetus is
considered viable if it is ‘potentially able to live outside the mother’s
womb, albeit with artificial aid’.” The Roe court stressed that the “abor-
tion decision in all its aspects is inherently, and primarily, a medical deci-
sion,” and “left the point [of viability] flexible for anticipated advance-
ments in medical skill.”18
These advances have occurred, of course. In 1973 a fetus was consid-
ered viable at about 28 weeks; since then, medical science has made it possi-
ble to save the lives of infants born at 20 weeks or even earlier. Some abor-
tions, however, such as those where genetic diseases or defects are diagnosed,
cannot be performed before about 18 to 20 weeks after conception because
amniocentesis—the procedure that reveals the disease or defect—is not
392 The Law of Healthcare Administration

always possible before that time. Some abortions performed during the sec-
ond or third trimester result in live births, although a fetus that survives an
abortion may not be capable of living more than momentarily outside the
womb.
The question of viability thus raises a number of issues, not all of
which have been (or are capable of being) addressed by the legislatures or
courts. If abortions are criminal after viability, who determines viability?
Who decides whether the abortion was necessary to protect the mother’s
life or health, and what does “health” encompass? Even if the abortion is
medically necessary, must the physician use the method most likely to pre-
serve the life of the fetus? What duty of care is owed to the fetus who sur-
vives an abortion?
Some of these issues were addressed by the Supreme Court in Colautti
v. Franklin.19 The Pennsylvania Abortion Control Act passed in 1974 pro-
vided that

if the fetus was determined to be viable, the person performing the abortion
was required to exercise the same care to preserve the life and health of the
fetus as would be required in the case of a fetus intended to be born alive, and
was required to adopt the abortion technique providing the best opportunity
for the fetus to be aborted alive, so long as a different technique was not nec-
essary in order to preserve the life or health of the mother.20

In reviewing this provision, the Supreme Court reiterated the impor-

tance of viability as a deciding factor and that the point of viability will “dif-
fer with each pregnancy.”21 The Pennsylvania statute imposed a duty on
physicians that arises when the child “is” or “may be” viable. The Court
found the provision unconstitutional on the ground that it was ambiguous
and confusing. “Viable” and “may be viable” appeared to refer to distinct
conditions, one of which differed “in some indeterminate way from the def-
inition of viability as set forth in Roe and in Planned Parenthood.”22 In addi-
tion to being unclear, the statute appeared to impose criminal liability with-
out scienter; even physicians who judge in good faith that a fetus is not viable
could apparently be found criminally liable if it turned out that the fetus was
in fact viable.23
Some states seeking to protect the life of the viable fetus have imposed
a requirement that a second physician be present to attend to the health of
the child at all post-viability abortions. This requirement was upheld by the
Supreme Court in Planned Parenthood Association of Kansas City, Missouri,
Inc. v. Ashcroft as reasonably furthering the state’s compelling interest in pro-
tecting the lives of viable fetuses.24 However, there must be an exception to
the second-physician requirement in case of an emergency that threatens the
mother’s health. In examining the Pennsylvania statute, the Supreme Court
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 393

found no such exception (either express or implied) and thus ruled the pro-
vision unconstitutional.25
Missouri was the focus of another landmark abortion case, Webster v.
Reproductive Health Services,26 decided in 1989. In Webster the Court
addressed four provisions of a Missouri statute:

1. its preamble, which declared that life begins at conception and that
“unborn children have protectable interests in life, health, and well-
being”;
2. a prohibition on the use of public facilities or employees to perform
abortions;
3. a prohibition on public funding of abortion counseling; and
4. a requirement that physicians conduct viability tests before performing
abortions.

The Supreme Court declined to wade into the philosophical quag-

mire of when life begins. Instead, it held the statute’s preamble was merely
a value judgment favoring childbirth over abortion, a position that the leg-
islature had the authority to express. The Court explained that “the extent
to which the preamble’s language might be used to interpret other state
statutes or regulations is something that only the courts of Missouri can
definitively decide.” It added that Missouri already protected unborn chil-
dren in the areas of tort and probate law and that the preamble “can be inter-
preted to do no more than that.”
The Court also upheld the other provisions of the Missouri law. With
regard to restrictions on the use of public facilities and employees for abor-
tion, the opinion states, “Nothing in the Constitution requires States to
enter or remain in the business of performing abortions. Nor...do private
physicians and their patients have some kind of constitutional right of access
to public facilities for the performance of abortions.” Likewise the prohibi-
tion on the use of public funds to support abortions was held not to be an
unconstitutional governmental obstacle for a woman who chooses abortion.
Finally, the Court upheld the requirement that physicians test for fetal via-
bility before performing an abortion procedure.
The significance of Webster was not so much its specific holdings but
the language of the opinion, written by Chief Justice Rehnquist, that called
Roe’s trimester analysis into doubt:

We think that the doubt cast upon the Missouri statute by these cases is not
so much a flaw in the statute as it is a reflection of the fact that the rigid
trimester analysis of the course of a pregnancy enunciated in Roe has resulted
in subsequent cases making constitutional law in this area a virtual Pro-
crustean bed....
394 The Law of Healthcare Administration

In the first place, the rigid Roe framework is hardly consistent with the
notion of a Constitution cast in general terms as ours is, and usually speaking
in general principles, as ours does. The key elements of the Roe framework—
trimesters and viability—are not found in the text of the Constitution or in
any place else one would expect to find a constitutional principle. Since the
bounds of the inquiry are essentially indeterminate, the result has been a web
of legal rules that have become increasingly intricate, resembling a code of
regulations rather than a body of constitutional doctrine. As Justice White
has put it, the trimester framework has left this Court to serve as the coun-
try’s “ex officio medical board with powers to approve or disapprove prac-
tices and standards throughout the United States.”
In the second place, we do not see why the State’s interest in protecting
potential human life should come into existence only at the point of viability,
and that there should therefore be a rigid line allowing state regulation after
viability but prohibiting it before viability.

Because no clear majority of justices was prepared to overrule Roe, the

quoted language is dictum. It is dictum, however, that greatly encouraged
the antiabortion forces who awaited (and still await) the day when Roe v.
Wade would be overturned. That opportunity seemed to arise in 1992 in
Planned Parenthood of S.E. Pennsylvania v. Casey,27 which involved a Penn-
sylvania law containing numerous provisions the plaintiffs felt were obstacles
to a woman’s choice of abortion:

a requirement that informed consent, accompanied by certain clinical informa-

tion, be provided at least 24 hours prior to procedure; parental or judicial con-
sent for a minor’s abortion; and a narrow definition of “medical emergency”
allowing the above requirements to be avoided in certain situations.

Supporters of the law, including the Commonwealth of Pennsylvania

and the United States, not only asked that the statute be upheld but urged
that Roe be reversed. A widely divided Supreme Court declined to do so.
The Court upheld the first two provisions, stating that they did not consti-
tute an “undue burden” on a woman’s right to choose, but it struck down
others as overly burdensome and too narrowly written. (In upholding the
provision regarding minors, the court implicitly affirmed the general rule
that a state may require parental consent for a minor’s abortion if there is
also an option for the minor to seek judicial approval if she does not wish
to seek or cannot obtain a parent’s consent. In the course of announcing
the decision, Justice O’Connor’s lead opinion now famously declared,
“Liberty finds no refuge in a jurisprudence of doubt.” From this strong
reaffirmation of the principle of stare decisis, it went on to uphold Roe’s
essential holdings:
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 395

that a woman’s right to choose an abortion before viability cannot be unduly

interfered with by the State; after viability the State may restrict abortions
except in the case of those to protect the mother’s life or health; and all
throughout pregnancy the State has legitimate interests in protecting the
health of the mother and fetus.

But Roe did not escape unscathed. In her opinion Justice O’Connor
wrote, “We reject the rigid trimester framework of Roe v. Wade.” Instead of
trimesters, the opinion focused on the concept of fetal viability: “[T]he con-
cept of viability…is the time at which there is a realistic possibility of main-
taining and nourishing a life outside the womb, so that the independent exis-
tence of the second life can in reason and all fairness be the object of state
protection that now overrides the rights of the woman.” The opinion con-
tinued on this point, “The woman’s right to terminate her pregnancy before
viability is the most central principle of Roe v. Wade. It is a rule of law and a
component of liberty we cannot renounce.”
It is important to note that on the question of rejecting Roe’s trimester
framework, Justice O’Connor did not speak for a majority of the justices. How
can this be? The “judgment of the Court” was announced in the opinion Jus-
tice O’Connor authored, which was joined by Justices Kennedy and Souter, but
even Justice Kennedy did not concur in the dictum regarding trimesters. Justices
Blackmun and Stevens joined in portions of the O’Connor opinion, thus pro-
viding the five votes necessary for the particular actions ultimately taken
(“affirmed in part” and “reversed in part”), but these two also joined Chief Jus-
tice Rehnquist and Justices White, Scalia, and Thomas in dissenting to at least a
part of the lead opinion. Furthermore, the latter four members of the Court
would have reexamined Roe’s principle that abortion is a fundamental right,
would have concluded that the choice of an abortion is not a constitutional right
at all, and urged that the statute be upheld in its entirety.

Summary of the Abortion Issue

Planned Parenthood v. Casey is an extremely long and complicated decision
with numerous written opinions (some of them reflecting almost personal
tensions among the justices) and no clear majority position on some of the
more significant abortion-related issues. In this respect it mirrors the divi-
siveness of the public as a whole on the topic of abortion, one of the most
difficult and divisive issues the judicial system has ever faced. The issue has been
contentious for decades and shows no signs of being resolved any time soon. Its
divisiveness is reflected in a passage from the dissenting opinion of Justice Black-
mun (author of the majority opinion in Roe v. Wade) in the Casey case:

In one sense, the Court’s approach [in Casey] is worlds apart from that of
the Chief Justice and Justice Scalia [two of the dissenters]. And yet, in
396 The Law of Healthcare Administration

another sense, the distance between the two approaches is short—the dis-
tance is but a single vote.
I am 83 years old. I cannot remain on this Court forever, and when I do
step down, the confirmation process for my successor well may focus on the
issue before us today. That, I regret, may be exactly where the choice
between the two worlds will be made.

Despite Justice Blackmun’s prediction, the confirmation process for

his successor, did not focus overly much on abortion, and ironically it was the
new justice, Steven G. Breyer, who summed up the status of abortion law in
a decision issued in 2000:

Aware that constitutional law must govern a society whose different members
sincerely hold directly opposing views, and considering the matter in light of
the Constitution’s guarantees of fundamental individual liberty, this Court, in
the course of a generation, has determined and
then redetermined that the Constitution offers
The Law in Action basic protection to the woman’s right to
choose.28
As this edition is being prepared, the
Supreme Court is considering its first
abortion cases in five years. One deals Thus, stare decisis proved a formida-
with whether a New Hampshire ble principle for constancy as the Court once
parental-notification requirement is an again declined to overrule Roe (see The Law
“undue burden” on pregnant teenagers; in Action).
the other concerns the federal statute
outlawing “partial birth abortions.”
These cases do not require the Supreme
Court to reconsider its earlier abortion Sterilization
decisions but to resolve issues that are
somewhat procedural. The decisions are Sterilization is a surgical procedure intended
expected by July 2007. to end one’s ability to procreate. For men
the most common procedure is a vasectomy;
the operation for women is called a salp-
ingectomy. In a legal analysis one should distinguish between voluntary and
involuntary sterilizations and classify them according to their purpose. Vol-
untary sterilizations are those performed on patients who are competent to
understand the nature of the procedure and have given a fully informed con-
sent. Voluntary sterilizations fall into two groups: those performed for the
patient’s convenience (to prevent conception, for example) and those under-
taken as therapeutic measures (where there are sound medical reasons for the
procedure).
Involuntary sterilizations—those lacking the informed consent of the
patient—may occur because the patient is incompetent to consent or because
the state has declared the sterilization to be compulsory. Some involuntary
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 397

sterilizations, including those that are compulsory, are called “eugenic”

because their purpose is to protect society from inheritable disability. Eugenic
sterilizations are now rare. Such procedures must be authorized by statute,
and few states have eugenic sterilization statutes. Some states, however, per-
mit the sterilization of incompetent persons for the benefit of the patient.

Voluntary Sterilization
Currently there are no significant legal issues in connection with a legitimate
therapeutic procedure that incidentally results in sterility. Such a procedure,
such as hysterectomy (removal of the uterus) or orchidectomy (removal of
the testes or ovaries) to treat cancer, for example, should probably not even
be termed sterilization; it is simply a medical procedure that unavoidably
makes one unable to procreate. All states permit such treatment for legiti-
mate medical reasons. The term “sterilization” should be reserved for sur-
gery, the intended purpose of which is to produce sterility.
Contraceptive sterilization has not always been lawful in all jurisdic-
tions. For many years at least two states—Connecticut and Utah—expressly
prohibited intentional sterilization and made it a criminal act. In Utah the
statutory language seemed to prohibit all sterilizations except those dictated
by medical necessity, but when the law was
challenged the Utah Supreme Court ruled
that it only applied to institutionalized The Law in Action
patients because it was part of the Utah Code
dealing with state institutions.29 Voluntary “Since 1879 Connecticut has had on its
books a law which forbids the use of
sterilization of other patients was said not to
contraceptives by anyone. I think this is
be criminal. an uncommonly silly law. As a practical
Connecticut’s law prohibited use of matter, the law is obviously unenforce-
contraceptives (e.g., prophylactics) and giving able…. But we are not asked in this
advice or assistance in their use. Voluntary con- case to say whether we think this law is
traceptive sterilization was thus prohibited by unwise, or even asinine. We are asked
to hold that it violates the United States
implication. This statute was declared uncon-
Constitution. And that I cannot do.
stitutional in the landmark case of Griswold v. …What provision of the Constitution
Connecticut in which the U.S. Supreme Court [makes] this state law invalid? The
ruled that the statute invaded a “zone of pri- Court says it is the right of privacy ‘cre-
vacy created by several fundamental constitu- ated by several fundamental constitu-
tional guarantees” that are protected by the tional guarantees.’ With all deference, I
can find no such right of privacy in the
due process clause of the Fourteenth Amend-
Bill of Rights, in any other part of the
ment. (As seen in The Law in Action, this Constitution, or in any case ever before
viewpoint was not held unanimously.30) decided by this Court.”
Another Connecticut statute, which purported
to authorize sterilizations only pursuant to —Justice Stewart, dissenting in
statutory provisions for eugenic sterilization, Griswold (with Justice Black)
was repealed in 1971.
398 The Law of Healthcare Administration

Contraceptives aside, in most states the law is and always has been silent
on the matter of sterilization. Modern mores and ideas about family planning
have now firmly established voluntary sterilization as a matter of personal choice.
Thus, there are now no significant legal barriers to sterilization for convenience,
although there continues to be significant objection to it from some religious
sources, particularly the Roman Catholic Church, on ethical grounds.
That being said, sterilization raises special issues concerning informed
consent. Sterilization is a serious and usually permanent operation, forever
depriving the patient of the ability to procreate. Patients, especially the
young, may not always fully understand the consequences. Certain patients
may misunderstand the nature of the operation (its irrevocability, for exam-
ple) or whether insurance will pay for it. For these reasons, voluntary,
informed consent is particularly necessary not only to ensure that the patient
fully understands the operation and its consequences but also to make certain
that no duress, coercion, or deception has been used.
Federal regulations govern all sterilizations performed under federally
financed programs.31 These rules lay out specific consent requirements so that
patients fully understand the consequences of the procedure and are not led to
believe that sterilization is related in any way to their right to receive fed-
eral assistance. The regulations permit sterilizations only of competent,
voluntarily consenting individuals who are at least 21 years old and not
institutionalized. They specify the information patients must be given
before their consent is obtained: the nature of the procedure, the risks, the
alternatives, and the uncertainty of reversing the sterilization procedure.
Patients must also be told that they are free to withhold or withdraw con-
sent and that this will not affect their future care or benefits. A 30-day
waiting period is required between the written informed consent and the
procedure, except in emergencies. The regulations include an approved
consent form and information pamphlets. Because regulations are subject
to change, hospitals, physicians, and other healthcare providers involved in
federally financed sterilizations should keep fully updated on the current
federal regulations that govern these procedures. In addition to the fed-
eral regulations, some states have laws governing voluntary sterilizations.
Sterilizations, like abortions, differ in some legal respects from other
medical procedures. They affect the individual’s “right of privacy,” which
encompasses the right to decide whether to procreate. Actions that deny or
interfere with this right, amorphous though it be, may have legal conse-
quences. Healthcare providers must be fully aware of state and federal laws
governing sterilizations, and they should set up procedures to ensure compli-
ance. Even in the absence of applicable legislation, the provider’s policies and
actions should make certain that the patient’s consent is fully informed. If the
competence or understanding of the patient is at all in doubt, legal and per-
haps judicial guidance is advised.
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 399

Eugenic Sterilization and Sterilization of Incompetent Persons

Eugenics is the study of hereditary improvement by controlled selective
breeding (genetic engineering). Thus, eugenic sterilization means surgery on
persons alleged to be unsound or unfit to be parents because of presumably
inheritable disabilities.
To be legal, a eugenic sterilization must be based on a state statute that
is consistent with the protections of the state and federal constitutions.
Approximately half of the states have never enacted statutes authorizing com-
pulsory eugenic sterilization, and in another dozen or so states laws permit-
ting eugenic sterilization have been repealed altogether or in part. In the
dozen or so states where statutes remain on the books, the procedure is
strongly disfavored and seldom used.
Whether eugenic or otherwise, sterilizations are typically vasectomies
and salpingectomies (removal of the Fallopian tubes). Most of the authorized
eugenic sterilizations are compulsory because the surgery can be performed
without the consent of the patient or guardian (hence their infrequent use
today). A few statutes permit only voluntary eugenic sterilization, which
requires consent of the patient or the patient’s legal representative.
Some statutes apply only to persons confined to state institutions
(such as hospitals for the mentally ill, “training schools,” or prisons), but
some apply to other individuals as well. In any event, the statutes usually
identify the persons subject to the law using such terms as “insane,” “feeble
minded,” “habitual criminal,” “mentally defective,” “sexual psychopath,”
and similar designations presumably meaningful to medical science at one
time but offensive to most observers today.
The constitutionality of these statutes was established by the famous
Supreme Court case of Buck v. Bell,32 which was decided in 1927 and is today
roundly criticized. Carrie Buck had been duly committed to the state “colony”
for epileptics and the “feeble minded.” She was the daughter of a “feeble
minded” mother who had also been confined to the institution, and at age 17
Carrie had given birth to an illegitimate child (the result of a rape by a relative
of her foster parents). Following statutory procedures, a circuit court in Vir-
ginia ordered the superintendent of the institution to have a salpingectomy per-
formed on Carrie. The state institution’s superintendent engineered the test
case in collusion with the law’s author and a court-appointed attorney, who by
all accounts conducted a purposefully inadequate defense for Carrie. The intent
was to ensure that the eugenic sterilization law would be upheld, which it was.
After the trial court and Virginia’s highest court upheld the law, it pro-
ceeded to the U.S. Supreme Court, where it was again upheld—by an 8-1
vote—in an opinion by Justice Oliver Wendell Holmes, one of the titans of
American jurisprudence (see The Law in Action on page 400). By analogy to
mandatory vaccination programs, the statute was held to be constitutional
under the state’s power to regulate the general health and welfare.
400 The Law of Healthcare Administration

In fact, Carrie was not mentally handi-

The Law in Action capped, and her mother was only mildly so.
Carrie’s daughter was only one month old
To support his ruling that the state’s when she was labeled “mentally defective” by
interest in a “pure” gene pool out- a Red Cross nurse. She died of the measles in
weighed the individual’s interest in bodi- 1932 and had by that time completed the sec-
ly integrity, Justice Holmes wrote:
ond grade. Carrie herself lived into old age,
“We have seen more than once that married twice, but of course bore no children.
the public welfare may call upon the In contrast to Buck, in 1942 the
best citizens for their lives. It would be Supreme Court held unconstitutional an
strange if it could not call upon those Oklahoma statute that authorized sterilization
who already sap the strength of the of “habitual criminals” but exempted individ-
State for these lesser sacrifices, often
uals described as “embezzlers.” This it did
not felt to be such by those concerned,
in order to prevent our being because the exemption was an unreasonable
swamped with incompetence. It is bet- classification in violation of the equal protec-
ter for all the world, if instead of wait- tion clause of the Fourteenth Amendment—
ing to execute degenerate offspring for there being no logical difference between
crime, or to let them starve for their embezzlers and other kinds of criminals (see
imbecility, society can prevent those
The Court Decides: Skinner v. Oklahoma ex
who are manifestly unfit from continu-
ing their kind. The principle that sus- rel. Attorney General at the end of this chap-
tains compulsory vaccination is broad ter).34 The Supreme Court also recognized
enough to cover cutting the Fallopian procreation as a fundamental constitutional
tubes. Three generations of imbeciles right, thus subjecting the statute to strict
are enough.”33 scrutiny regarding equal protection. Buck v.
Bell, therefore, is no longer a valid precedent,
One thing about Justice Holmes, he was
not always right, but he was never in although it has never been explicitly overruled.
doubt! As noted earlier, eugenic sterilization
statutes have been much criticized. One
underlying premise for the procedure—that
traits such as mental illness and criminality are hereditary—has been largely dis-
credited by the scientific community.35 The legal support for the statutes has been
attacked, and it is very unlikely that the laws could withstand constitutional
scrutiny today.36 It is just as well that they are ignored.
The “right of privacy” is more and more accepted and is not to be
infringed except to serve a compelling state interest. Even then, such infringe-
ment must be narrowly drawn and shown to be clearly necessary; if there is any
other way of meeting the state’s need, that way must be chosen instead. The Min-
nesota Court of Appeals has observed that sterilization must not be used as a
“subterfuge for convenience and relief from the responsibility of supervision.”37
More than eight decades after Buck v. Bell, the disturbing premise of
eugenics—that society has the right to decide who will be born and who may
become parents—has been totally discredited. According to the New Jersey
Supreme Court:
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 401

It cannot be forgotten...that public attitudes toward mental impairment and

the handicapped in general have sometimes been very different. We must
always remain mindful of the atrocities that people of our own century and
culture have committed upon their fellow humans. We cannot adequately
express our abhorrence for the kind of ideology that assigns vastly differing
value to the lives of human beings because of their innate group characteris-
tics or personal handicaps.38

Although eugenic sterilization is all but obsolete in present U.S. law,

the sterilization of incompetent persons for other reasons can still take place.
It is, however, increasingly regarded as the right of the incompetent person
(or guardian), rather than the right of the state, to make the decision. Steril-
izations to prevent procreation of “undesirables” and to protect the public
pocketbook are thus prohibited.
That being said, some sterilizations of incompetent persons may be
morally and legally justified, such as those performed in the best interests of
the incompetent person herself. Because the fundamental right of privacy
allows competent persons to choose to be sterilized, that same right should
be afforded the incompetent (through the guardian). This is the same rea-
soning used in decisions permitting the withdrawal of life-sustaining treat-
ment for incompetent persons. As in right-to-die cases, the primary legal dif-
ficulties lie in how such decisions are made, who makes them, and what
standards serve as their basis.

Hospital’s Role in Reproductive Issues

Is a particular healthcare institution legally required to make abortion and

sterilization services available to potential patients? As is so often the case in
the law, the answer is, “it depends.”
Some state or federal statutes contain a “conscience clause” that permits
hospitals and physicians to refuse to perform abortions on moral or religious
grounds. (This was discussed by way of dictum in Doe v. Bolton.39) In the absence
of such a clause, the legal issue is whether the hospital that refuses to provide
abortions or sterilizations is acting in the name of the state in denying the patient
due process and equal protection of law—and thus violating the Fourteenth
Amendment—or whether it is acting “under color of law” and denying civil
rights. As emphasized repeatedly in various contexts throughout this book, the
Fourteenth Amendment applies to state action; therefore, a state or any institu-
tion acting on its behalf may not prevent an individual from exercising constitu-
tional or statutorily protected rights.
It seems to be well settled that a hospital owned and operated by fed-
eral, state, or municipal government may not refuse to permit abortions and
402 The Law of Healthcare Administration

sterilizations that are lawful surgical procedures. (Publicly owned hospitals

clearly act in the capacity of the government and are hence subject to the
Fourteenth Amendment.) A leading decision is Hathaway v. Worcester City
Hospital.40 In this litigation the patient’s physician recommended that she
undergo a therapeutic sterilization because additional pregnancies might well
threaten her life. The court ruled that a hospital’s policy prohibiting all ster-
ilization procedures denied the patient equal protection of the law.
The matter of whether the law should require a private hospital to fur-
nish reproductive services is somewhat more difficult, but the weight of author-
ity holds that the moral and religious convictions held by the institution should
be respected. Thus, a private hospital need not provide abortion or sterilization
services, even if it has been funded to a significant extent by federal money and
receives such benefits as tax exemption.41 The leading case is Doe v. Bellin Memo-
rial Hospital,42 decided by a federal court of appeals shortly before Roe and
Bolton. As a private hospital, Bellin Memorial could prevent its staff physicians
from performing legally permissible abortions because no state action was
involved. Similarly, relying on Bellin, Allen v. Sisters of St. Joseph held that a
Catholic institution could ban a voluntary sterilization procedure.43
In Watkins v. Mercy Medical Center a physician brought suit against a
Catholic hospital that forbade both abortions and sterilizations.44 The hospital’s
policy was upheld by a federal district court, which said that state action was not
indicated merely by receipt of governmental money, state licensure, or tax
exemption. Significant in this decision was that the Health Programs Extension
Act of 1973 specifically provides that receipt of Hill-Burton money does not
require a hospital to provide abortions or sterilizations as long as refusal is
founded on religious beliefs or moral conviction.45 (Although Mercy Medical
Center was not required to permit the plaintiff physician to perform the desired
surgical procedure, it could not terminate a medical staff appointment solely on
the basis of the physician’s personal beliefs.)
In sum, most decisions pertaining to private hospitals have held that
no state action is involved under the Fourteenth Amendment and that vol-
untary institutions that prohibit abortion and sterilization do not act under
“color of law” for purposes of the civil rights statutes.46
As mentioned, many states have specific conscience clauses to protect
institutions’ and individuals’ moral or religious convictions. Most of these
state laws relate only to abortions. They purportedly apply to all hospitals—
governmental and private—but some are made applicable only to hospitals
owned and operated by churches or religious orders. (The provisions of the
Georgia statute discussed earlier were implicitly upheld in the case of Doe v.
Bolton.47) Provisions pertaining to an individual’s right of refusal to partici-
pate seem clearly constitutional. Perhaps the same can be said of the statutes
recognizing the moral and religious convictions of a private sectarian hospi-
tal because these are valuable rights to be protected in a free society.48
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 403

A somewhat related issue is whether a state may deny Medicaid payments

for elective or medically necessary abortions rendered to indigent patients. The
eponymous Hyde Amendment, the first version of which was passed in 1976
and which has been renewed annually every year since, denies federal funding of
abortions except to save the mother’s life or in cases of rape or incest. The
Supreme Court has ruled that the Medicaid law does not require a state partic-
ipating in the Medicaid program to fund either elective nontherapeutic abor-
tions49 or medically necessary abortions50 as a condition of participation.
Because a private hospital need not provide abortion services, hospitalized
patients who are refused an abortion or sterilization should be fully informed of
their condition and provided with sound medical advice indicating where proper
and appropriate care can be obtained.
Additional legal issues concern hospitals that do perform abortions
and sterilizations. Most state statutes continue to criminalize third-trimester
abortions that are not necessary to preserve the life or health of the mother.
A hospital has a duty to prevent criminal acts from occurring on its premises;
hence, counsel must carefully advise the hospital and its medical staff about
the current legal status of pregnancy terminations. Administrative policies
and procedures must be developed to make sure that the institution and its
staff perform their duties in a lawful manner.
As it should be evident, issues of informed consent and confor-
mance with the applicable standard of care are no different in the case of
abortions than in any other surgical procedures. Quality assurance and risk
management programs are just as
important in this area as they are in Legal Brief
other areas of the hospital.
Neurofibromatosis is a genetic disease character-
ized by usually benign tumors of the nerve fibers
Wrongful Birth and (neurofibromas) on and under the skin and is
Wrongful Life sometimes accompanied by bone deformity and a
predisposition to cancers, especially of the brain.
It is also called multiple neurofibroma, neuro-
Sometimes sterilization, and even
matosis, Recklinghausen’s disease, and von Reck-
abortion, procedures fail. Rarely linghausen’s disease.
have both failed in one sequence of Joseph Merrick (the “elephant man”) was once
events involving the same couple; thought to have been afflicted with neurofibromato-
however, this is what happened in sis, but it is now generally believed that Merrick
Speck v. Finegold.51 suffered from the very rare Proteus syndrome. (See,
for example, National Institutes of Health, “NINDS
Frank Speck suffered from a
Neurofibromatosis information page at
genetic disease known as neurofibro- www.ninds.nih.gov/disorders/neurofibromatosis/
matosis (see Legal Brief). He fathered neurofibromatosis.htm.)
two children; both of them also had
neurofibromatosis. Fearing that future
offspring would be similarly afflicted,
404 The Law of Healthcare Administration

Mr. and Mrs. Speck decided that they should have no more children and that he
should have a vasectomy. Dr. Richard Finegold performed the procedure in early
1974 and then assured Mr. Speck that he “could engage in sexual relations with
his wife without contraceptive devices.” Mrs. Speck became pregnant anyway.
Under her new “right to choose” (Roe v. Wade was about a year and a half old)
she went to Dr. Henry Schwartz to have an abortion. Afterward Dr. Schwartz
told her the abortion was successful. But it was not; she was still pregnant. (The
opinion does not explain how a physician could think he aborted a pregnancy
when in fact he did not.) In April 1975 Mrs. Speck gave birth to a third child,
Francine, who also had neurofibromatosis. This led the Specks and Drs. Fine-
gold and Schwartz to the courthouse steps.
The central questions in this bizarre case were these: Were the Specks
entitled to bring suit against the physicians who performed the operations? If so,
what were their damages? May they recover for mental distress? What about the
costs of raising Francine? Would the amount of damages be different if she had
been born healthy? (After all, healthy or not the Specks tried to avoid having a
third child.) Does Francine herself have a right to recover damages?
Pulling together the decisions of the appellate court and the Com-
monwealth of Pennsylvania’s Supreme Court, the ultimate answers were (a)
the existing principles of tort law apply and (b) if negligence were proven, the
parents were entitled to recover for the costs of care and treatment of their
daughter and for their own mental distress. The issue of whether the child
herself had a legally cognizable injury for what has become known as
“wrongful life” was left hanging. The court split evenly on the question, say-
ing somewhat turgidly: “The Court being evenly divided on the question of
whether an infant plaintiff can bring an action in the circumstances of this
case, the Order of the Superior Court that the infant plaintiff’s cause of
action is not legally cognizable is affirmed.”
Many courts before and since Speck have addressed wrongful birth and
wrongful life cases. The actions have often been labeled “wrongful concep-
tion” if the alleged negligence occurred before conception, “wrongful birth”
for an action by the parents on their own behalf, and “wrongful life” when
the suit is brought on behalf of the child. Not all courts use the same termi-
nology, and “wrongful birth” is sometimes an umbrella term for all such
actions. The number of these cases has increased in the last decades of the
twentieth century, largely because of two simultaneous developments: (1) the
legal recognition of parents’ right to decide whether to conceive or abort and
(2) the great advances in medical science that make genetic testing and coun-
seling, sterilization, and abortions commonplace medical practices. Legal
actions have arisen in various circumstances, including the following:

• unsuccessful contraceptive measures, including negligently performed

sterilizations;
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 405

• failure to provide genetic counseling or testing;

• failure to diagnose and inform the patient of pregnancy;
• failure to detect and warn the patient of diseases, such as rubella or
genetic defects, early enough to permit abortion; and
• negligence in performing an abortion.

Births resulting from these failures may result in either a handicapped or

a healthy but unplanned child. These are all examples of traditional medical
malpractice, but their unique feature is that if the physician had not been
negligent the child would never have been born. Rather than claiming an
injury to an already existing person (or in some cases one who would have
been born healthy if there had been no negligence), these plaintiffs are claim-
ing that the very existence of the child is the injury. Such cases have caused
considerable legal and philosophical angst.
As we know, to succeed in any malpractice case the plaintiff must prove
a duty of care, a breach of that duty, an injury proximately caused by the breach,
and legally recognized damages. In the wrongful birth and wrongful life arena
the courts have had little difficulty discerning duty and breach, but they have
struggled with causation and, especially, the measure of damages.
Courts in virtually all jurisdictions have held that physicians owe a duty
of care not only to the parents but also to the unborn child. For example, in
Turpin v. Sortini the parents of a little girl were told she had normal hearing
when in fact she was deaf from a hereditary condition.52 The couple’s next
child was also deaf. The court held that the professional who tested the first
child’s hearing had a duty to the second child because it was foreseeable that
the parents and their “potential offspring” would be directly affected by the
negligent diagnosis.
The physician’s duty in these and other medical malpractice cases is, of
course, to conform to the generally accepted standards of care exercised by
other physicians in similar circumstances at the time of the alleged malprac-
tice. For example, in 1969, a physician allegedly failed to tell his patients of
the risk that their baby would be afflicted with cri du chat syndrome (see
Legal Brief on page 406), a chromosomal disorder causing severe mental
retardation, among other afflictions. He did not perform amniocentesis. The
parents sued for damages after their child was born with cri du chat, but their
suit was rejected because “on the bases of the patient’s medical history and
the state of medical knowledge regarding the use of the amniocentesis test in
1969, the defendants’ failure to perform the test was no more than a permis-
sible exercise of medical judgment and not a departure from then accepted
medical practice.”53
In contrast, in 1974, a physician was held liable after he failed to advise
his 37-year-old pregnant patient of the increased risk for women over age 35 of
bearing a child with Down syndrome and did not advise her of the availability
406 The Law of Healthcare Administration

of amniocentesis to detect the defect.

Legal Brief The court reasoned that by then
amniocentesis was an accepted medical
Cri du chat, which literally means “cry of the cat” in practice, abortion was recognized as a
French, is from the distinctive mewing sound made patient’s right, and genetic counseling
by infants with the disorder. As babies, patients had become customary.54 In fact,
tend to be squirmy with a mewing cry, ascribed to because genetic testing can now reveal
abnormal development of the larynx. The cry
many types of birth defects, the stan-
becomes less distinctive with age. Individuals with
cri du chat syndrome are often underweight at birth. dard of care today requires that
The disorder is characterized by distinctive facial fea- prospective parents who risk occur-
tures, small head size (microcephaly), low birth rence of a defect be counseled about
weight, weak muscle tone, a round face, low-set available tests and medical alternatives
ears, strabismus (a condition in which the eyes do such as abortion, even if the defect
not point in the same direction), and facial asymme-
cannot be cured and abortion is the
try. Cardiac malformations may occur and affect the
vital prognosis. The importance of the whole syn- only way to prevent the birth.55 This
drome seems to vary depending on the amount of duty is imposed although it may be
lost DNA material. against the physician’s conscience or
In terms of development and behavior, severe morals to recommend abortion.
mental retardation is typical. Expressive language is Courts have held that physicians are
an area of weakness, and signing is often used.
not required to recommend abortion,
Hypersensitivity to noise is common. In addition,
some have autistic traits, such as repetitive behav- but they must at least inform patients
iors and obsessions with certain objects. Apparently, of the facts and the available alterna-
many enjoy pulling hair. Often they are happy chil- tives or refer a patient to another prac-
dren and sometimes are described as “loving” and titioner early enough to allow a choice
sociable (see www.nlm.nih.gov/medlineplus/ency/ of solutions.
article/001593.htm).
Liability has been found for
other types of negligence in wrongful
birth cases. For example, liability has
been found not only for negligent ster-
ilizations and unsuccessful abortions but also in cases involving the following:

• a failure to diagnose rubella in a pregnant woman whose child was born

with a handicap;56
• a failure to diagnose cystic fibrosis in the parents’ first child, thus leav-
ing the parents unaware of the risk that a second child would be simi-
larly afflicted;57
• the dispensing of tranquilizers instead of birth-control pills;
• a mistake resulting in the birth of a healthy but unwanted child;58 and
• the failure to inform the patient that the drug she was taking to control
her epilepsy could cause birth defects.59

Even if a plaintiff has a provable claim of malpractice, the suit must,

of course, be brought within the applicable statute of limitations. Histori-
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 407

cally the statute for medical malpractice actions began to run at the time of
the alleged malpractice (or breach of contract, if the jurisdiction recognizes
breach of contract as a cause of action). Hence, the cause of action would
be barred when the time, measured from the date of the alleged wrong,
had expired. Because pregnancy and birth may occur years after the sterili-
zation procedure, however, the tendency of recent decisions is to hold that
the statute will run from the time the tort or breach of contract is disco-
vered or when in the exercise of reasonable care it should have been disco-
vered. In other words, the statute runs from the time the pregnancy was or
ought to have been known.60 (Application of the “discovery rule” to cases
of wrongful birth follows the development of the rule in other malpractice
situations. At least one court has held that the statute of limitations in a
case involving a child with congenital birth defects begins to run from the
date of birth.61)
As noted earlier, courts have had little difficulty with issues of duty and
breach in this area, but they have come to widely inconsistent conclusions
about causation and damages, especially in wrongful life. Most courts have
held in favor of the parents’ cause of action, finding proximate cause in the
fact that but for the physician’s negligence, the child would never have been
born. (In certain cases the plaintiff may have to prove that she would have
had an abortion or chosen not to conceive.). In at least one case, involving
alleged negligence in performing a sterilization, the defendants claimed that
the husband’s sexual relations with his wife were an “intervening cause” of
the pregnancy, thereby relieving the defendants of responsibility. The court
was not amused.62 Courts have also uniformly rejected the claim that the par-
ents have a duty to mitigate damages by obtaining an abortion or placing the
child for adoption.63
Although the courts recognize that the parents of unwanted or hand-
icapped children have been harmed, they have had trouble determining the
proper damages because public policy values life and generally views the birth
of a child as a blessing. Virtually all courts that recognize a cause of action for
wrongful birth have allowed parents to recover expenses for the pregnancy
and childbirth, even when the child was healthy.64 Other damages, such as
lost wages, have also been held recoverable.65 Damages for the woman’s pain
and suffering as a result of the pregnancy and birth have been allowed,66 as
well as damages for the husband’s loss of consortium.67 Courts disagree
when it comes to damages for the parents’ emotional distress. When a child
was born with a serious disease or disability, some have permitted compensa-
tion for mental distress. For example, in one Virginia case, a man’s blood was
mislabeled and the couple did not discover that he was a carrier of Tay-Sachs
disease (a usually fatal genetic disorder) until their child was born with it.
Damages were allowed for the parents’ emotional distress over the child’s
suffering and death.68 In another case involving Tay-Sachs, however, the
408 The Law of Healthcare Administration

court denied damages for emotional harm arguing that the child suffered the
injury, not the parents.69
Claims for the expense of raising a disabled child arouse more contro-
versy. Almost all jurisdictions view the birth of a child, even one with disabil-
ities, as an occasion of some benefit and joy to the parents. A traditional rule
of tort law, the “benefit rule,” requires that any damages awarded to an
injured plaintiff be reduced by the value of any benefit that the tort-feasor
bestowed upon the plaintiff. Most courts, even those allowing the costs of
child rearing in wrongful birth cases, require the jury to offset the damages
with the benefits of having the child to the parents.70 (Some juries find that
these benefits outweigh the costs of rearing the child and therefore deny any
child-rearing costs,71 a somewhat surprising finding given the indeterminate
and somewhat metaphysical nature of the calculus involved.)
In Cockrum v. Baumgartner a negligent sterilization failed to pre-
vent pregnancy, and an unwanted but healthy child was the result.72 The
court recognized the parents’ cause of action for wrongful birth because
the decision not to have a child is a legally protected right and its viola-
tion cannot be ignored. Noting that damage awards are an effective recog-
nition of legal rights, the court allowed the costs of raising the child. It
held that the benefit rule applies only if the benefit is to the same interest
that was harmed. The court found that the emotional benefits of child
rearing are separate from the injured financial interests of the parents. The
extraordinary costs of raising a handicapped child—payments for institu-
tional or other specialized care, medical expenses, and special education
and training—have generally been allowed. These amounts are arrived at
by identifying the extra expenses beyond what would be spent on a healthy
child.73 Even in these cases, however, some courts have held that the
advantages of parenthood and the child’s own life outweigh the burdens
of child rearing.74
In contrast to wrongful birth cases, a child’s cause of action for wrong-
ful life has been recognized to-date in only a few states. No such action has
been allowed on behalf of a healthy child who was unwanted or illegitimate
because the courts have found that the child suffered no injury.75 Even when
the child is suffering from a grave disease or birth defect, most courts have
repeatedly refused to recognize a cause of action.76 This refusal has been on
several grounds:

• the professional negligence was not the cause of the disease or injury;
• life, even one that is impaired, cannot be seen as a legal injury; and
• damages for an impaired life, as opposed to no life, cannot be determined.

The purpose of compensatory damages is to restore the plaintiffs to the

position they would have occupied had there been no negligence. In wrongful
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 409

life cases, that position would be nonexistence: But for the defendant’s negli-
gence the child would not have been born at all. Most courts have held that no
one can determine the value of nonexistence, and therefore such actions must
fail, lacking the necessary requirements of proximate cause and legally compen-
sable injury. Courts have also held that there is no fundamental right to be born
healthy.77 Some courts also believe that allowing a cause of action for wrongful
birth would diminish the value of human life and would be contrary to society’s
goal of protecting, preserving, and improving the quality of human existence.78
A few states, however, have rejected these arguments and have recognized a
cause of action for wrongful life. In Curlender v. Bio-Science Laboratories, Inc.
the plaintiff was a child born with Tay-Sachs disease allegedly as a result of neg-
ligent testing to determine whether the parents were carriers.79 The child was
mentally and physically disabled and had a life expectancy of only four years. The
California Court of Appeals, finding a “palpable injury” to the child, held that
the child could recover damages for pain and suffering and pecuniary loss
because of the impaired condition. Costs of care were to be awarded only once,
however, not to both the parents and the child.
The California Supreme Court recognized another child’s cause of action
for wrongful life in Turpin v. Sortini and rejected the argument that such actions
were against public policy.80 According to the court it was “hard to see how an
award of damages to a severely handicapped or suffering child would ‘disavow’
the value of life or in any way suggest that the child is not entitled to the full
measure of legal and nonlegal rights and privileges accorded to all members of
society.”81 According to the court’s finding, one could not say as a matter of law
that an impaired life is always preferable to no life.
A California statute recognizes the fundamental right of adults to con-
trol medical decisions, including the decision to withdraw or withhold life-
sustaining procedures.82 By analogy, the Turpin court found that these par-
ents were prevented from making an informed and meaningful choice
whether to conceive or bear a handicapped child and that the choice is partly
on behalf of the child. Although the court agreed with other opinions that
general damages would be impossible to assess, it found that the extraordi-
nary expenses of caring for a disabled child
were not speculative. It held that it would be
illogical to permit the parents but not the The Law in Action
child to recover for the costs of medical care
In Turpin the negligence was failure
related to the disability. Otherwise, the court
to adequately diagnose the plaintiffs’
stated, the child’s receipt of necessary med- first daughter’s hereditary deafness.
ical expenses would depend on whether the This failure led to the birth of the
parents sued and recovered damages or second daughter who had the same
whether the expenses were incurred when condition. The girls were named
the parents were still legally responsible for Hope and Joy.
the child’s care. (See The Law in Action.)
410 The Law of Healthcare Administration

The Washington Supreme Court also found that a child should have a
cause of action for wrongful life. In Harbeson v. Parke-Davis, Inc., it held that
imposing liability for wrongful life would promote social objectives, such as
genetic counseling and prenatal testing, and would discourage malpractice.83
The court had no difficulty finding the requisite proximate cause:

It is clear in the case before us that, were it not for negligence of the physi-
cians [in not advising the mother of the danger of taking a certain drug dur-
ing pregnancy], the minor plaintiffs would not have been born, and would
consequently not have suffered fetal hydantoin syndrome. More particularly,
the plaintiffs would not have incurred the extraordinary expenses resulting
from that condition.84

The distinction between parents’ and children’s causes of action is

important. Awards to the parents would only cover their expenses during the
time they are legally responsible for the child—for example, until majority.
The child’s own damages, however, could continue throughout life, perhaps
many more years beyond the age of majority.
Some states have passed laws concerning actions for wrongful life and
wrongful birth. In Curlender, discussed earlier, the California Court of Appeals
said in dictum that children born with a birth defect should be allowed to sue
their parents for their pain and suffering if they foresaw the defect and chose
not to abort. The California legislature quickly responded with a statute out-
lawing such a case lest parents feel pressured to abort or prevent conception.85
Minnesota went further with legislation prohibiting actions for wrongful birth
and wrongful life that claim “but for the alleged negligence a child would have
been aborted.”86 (The statute does permit actions for failure of a contraceptive
method or a sterilization procedure and for failure to diagnose a disease or
defect that could have been prevented or cured if detected early enough. Abor-
tion is not viewed as a prevention or cure, however, and neither the failure nor
the refusal of anyone to perform or obtain an abortion constitutes a defense in
any action or a consideration in the award of damages.87)
Wrongful birth and wrongful life cases show that as medical knowledge
and technology expand, the duty of the physician also grows, not only to per-
form tests and procedures with the necessary care but also to provide genetic
counseling. In addition to performing all duties carefully, physicians should care-
fully document in the medical record any discussions with patients about the
possible genetic and other risks to the patient’s unborn or unconceived children
and about the availability of appropriate preconception or prenatal testing, ther-
apies, and alternatives. The documentation should also cover the patient’s deci-
sion concerning the risks, testing, and alternatives. Recording informed consent
for medical treatment is essential in any circumstance, but it is especially so in
the important and constitutionally protected matter of procreation.
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 411

Other Reproduction Issues

Three other kinds of cases deserve note: surrogate parenting, in vitro fertiliza-
tion, and the use of stem cells in medical treatment and research. The last of
these can be addressed quickly. As of October 2006, only 16 states reported
cases in which the phrase “stem cell” appeared in the opinions. All but one
involved issues immaterial to this discussion (like insurance coverage) or used
the expression in a rather tangential way (such as when stem cell was part of a
company name or was the treatment underlying a medical malpractice case).
The one even marginally substantive case involved whether the loss or destruc-
tion of fertilized eggs by a fertility clinic fell under the ambit of a state’s wrong-
ful death statute. The court punted that issue and the question of when life
begins to the legislature and discussed stem-cell research only in passing. One
can expect to see more litigation directly on issues relating to stem cells—espe-
cially stem-cell research—in the future, but for now they occupy but a few folios
in the vast legal literature.
Surrogate parenting, on the other hand, has gathered much attention. Sur-
rogacy is the practice of carrying a fetus to term for another woman, generally for
a fee. The embryo from which the fetus grows may result from artificial insemina-
tion or in vitro fertilization (IVF—fertilizing the egg outside the uterus under lab-
oratory conditions), or it may have been conceived normally and transferred to the
surrogate because the natural mother was known to be unable to continue the
pregnancy without miscarriage. If either artificial insemination or IVF is used, the
sperm may or may not be that of the husband of the egg-bearing woman. In fact,
the genetic “parents” (whose identities may or may not be known) can be differ-
ent than the “parents” for whom the
surrogate mother carries the child. Legal Brief
As seen in Legal Brief, there are
many permutations of these legal rela- Up to seven different people can be involved in IVF:
tionships. For example, in In re Baby
M,88 the supreme court of New Jersey • sperm donor;
was asked to determine parental status • egg donor;
after a surrogate mother reneged on • spouses of both sperm and egg donors;
her contract to surrender the child • surrogate mother, who has a “womb to rent”
after birth. The contract was between and ultimately gives birth;
Mary Beth Whitehead and William • surrogate mother’s husband, who may or may
Stern, whose wife was infertile. It pro- not be the sperm donor; and
vided that for a fee of $10,000, Ms. • the baby.
Whitehead would be inseminated with
Mr. Stern’s sperm, would conceive a In artificial insemination, the egg donor and sur-
rogate mother are the same, as in the Baby M case.
child and carry it to term, and then
would give the child, Baby M, to Mr.
and Mrs. Stern for the latter to adopt.
412 The Law of Healthcare Administration

(Mr. Stern, having been the sperm donor, would be recognized as the natural
father.) When Ms. Whitehead failed to abide by the contract, the Sterns filed
suit. Although the lower court determined that the surrogacy contract was valid,
the New Jersey Supreme Court disagreed.
In reaching its conclusion, the court found that the contract conflicted
with New Jersey laws prohibiting the use of money in connection with adop-
tions. According to the court, “The contract’s basic premise, that the natu-
ral parents can decide in advance of birth which one is to have custody of the
child, bears no relationship to the law that the child’s best interests shall
determine custody.” The court continued,

This is the sale of a child, or, at the very least, the sale of a mother’s right to
her child, the only mitigating factor being that one of the purchasers is the
father. Almost every evil that prompted the prohibition on the payment of
money in connection with adoptions exists here.

The court next needed to settle the issue of who should have custody
of Baby M. It held that the claims of the genetic father (Mr. Stern) and the
natural mother (Ms. Whitehead) are entitled to equal weight and determined
that the child’s best interests would be the deciding factor. Weighing the per-
sonalities, financial situations, and family lives of all the parties, the court con-
cluded that the child’s best interests called for custody to be given to the
Sterns but that Ms. Whitehead should be allowed visitation rights.
A Kentucky case appears to contradict Baby M. In the 1986 decision
Surrogate Parenting Associates, Inc. v. Commonwealth ex rel. Armstrong,89
a company that assisted infertile couples by arranging surrogate mother-
hood was sued by the state attorney general. The suit alleged that the
activities of Surrogate Parenting Associates (SPA) violated a state statute
prohibiting the sale, purchase, or procurement for sale or purchase of “any
child for the purpose of adoption.” The
court held that SPA’s activities did not con-
stitute buying and selling babies because
Legal DecisionPoint “there are fundamental differences between
the surrogate parenting procedure in which
How do you think the Kentucky court would SPA participates and the buying and selling
have decided if Baby M had arisen in that of children as prohibited by [law].” (See
commonwealth? Legal DecisionPoint.) The court wrote
approvingly of SPA’s services:

[W]e have no reason to believe that the surrogate parenting procedure…will

not, in most instances, proceed routinely to the conclusion desired by all of the
parties at the outset—a woman who can bear children assisting a childless cou-
ple to fulfill their desire for a biologically-related child.
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 413

Another example of the kinds of disputes that arise from new reproduc-
tive technologies was apparent in Davis v. Davis.90 The case began as a divorce
action in which the parties—appellee Junior Lewis Davis and his appellant wife,
Mary Sue Davis—agreed on all settlement terms except the disposition of seven
frozen embryos that were the product of IVF. Mrs. Davis had asked for custody
of the embryos to become pregnant after the divorce. (She later changed her
mind and stated that she wanted to donate them to another couple for implan-
tation.) Mr. Davis did not agree. The trial court held that the embryos were
“human beings” from the point of conception, and it awarded custody to Mrs.
Davis. The court of appeals reversed, holding that Mr. Davis had a constitutional
right not to beget a child in this manner and that the state had no compelling
interest to overrule either party’s wishes.
The supreme court of Tennessee began its consideration by address-
ing the issue of whether the embryos were “persons” or “property” in the
eyes of the law. It concluded that neither Tennessee law nor the U.S. Consti-
tution would consider them “persons,” but it also found that the embryos
deserved greater respect than that of mere property because of their poten-
tial to become human beings. Thus, the court set aside the persons/property
issue to focus on the essential dispute of whether the Davises will become
parents. In balancing the parties’ interests, the court found that to grant Mrs.
Davis’s wish could result in unwanted fatherhood for Mr. Davis, “with all of
its possible financial and psychological consequences.” This, the court held,
was a greater burden than Mrs. Davis’s disappointment of knowing that the
IVF procedures she underwent were futile and that the embryos would never
become children. Mr. Davis won.

Chapter Summary

Issues relating to reproduction are sensitive and often contentious. This chapter
reviews many of the issues relating to abortion, sterilization, wrongful life,
wrongful birth, surrogate parenting, in vitro fertilization, and stem-cell research.
It also discusses the hospital’s role in reproductive issues, such as whether it can
be required to provide such services and when it can expect governmental pro-
grams to pay for them if they are provided. We conclude with the realization that
abortion-related issues will continue to be subjects of judicial review and that the
number of cases considering stem-cell research will increase.

Chapter Discussion Questions

1. In Griswold Justice Stewart skewered the majority for asserting that the
Ninth Amendment of the U.S. Constitution supported their decision to
414 The Law of Healthcare Administration

overturn the Connecticut contraception statute. He wrote, “the idea

that a federal court could ever use the Ninth Amendment to annul a
law passed by the elected representatives of the people of the State of
Connecticut would have caused James Madison no little wonder.” What
does the Ninth Amendment say, and why would Justice Stewart say that
President Madison, in particular, would be perplexed by its use to justify
the majority’s opinion?
2. Can the Buck and Skinner decisions be reconciled?
3. In Turpin v. Sortini the supreme court of California said it was difficult
to understand how awarding damages to a child who would not have
been born if not for the defendants’ negligence “would disavow the
value of life….” “Deprecate” is probably a better word choice in the
context of that sentence, so can you construct the moral argument that
as a public policy matter such an award would in fact deprecate the
value of human life?
4. Summarize the state of the law following the Supreme Court’s decision
in Planned Parenthood v. Casey.
5. What is the difference between a “wrongful life” case and a “wrongful
birth” case? What are the differences in the measure of damages in
each?
6. Can you predict what kinds of legal issues will be presented in coming
years as a result of stem-cell research?

Notes
1. See Roe v. Wade, 410 U.S. 113, notes 27–28 (1973).
2. Lord Ellenborough’s Act, 42 Geo. 3, ch. 58. Parliament reversed this position by enacting a
liberal abortion bill in 1967.
3. The statutory language of “preserving the life of the mother” was liberally interpreted. In Rex
v. Bourne (1939) 1 K.B. 687 (1938), a physician who induced an abortion for a 14-year-old
rape victim was acquitted of criminal charges after the judge instructed the jury that a doctor
was acting within the law to prevent the patient from becoming a mental or physical “wreck.”
4. Model Penal Code § 230.3(2) (1962).
5. 410 U.S. 113 (1973).
6. Doe v. Bolton, 410 U.S. 179 (1973), reh’g denied, 410 U.S. 959 (1973).
7. Such a requirement is clearly constitutional. May v. State of Ark., 254 Ark. 194, 492 S.W.2d
888 (1973), cert. denied, 414 U.S. 1024 (1973). This decision was rendered after the Roe
and Bolton cases. See also State v. Norflett, 67 N.J. 268, 337 A.2d 609 (1975).
8. Note that the court in Roe v. Wade did not decide when life begins or when the fetus
becomes a “person.” Physicians, theologians, and philosophers have long debated these ques-
tions. Rhode Island legislation, enacted after the landmark Supreme Court cases, declared that
life begins at conception and that accordingly abortion at any stage of pregnancy is criminal.
This law was declared unconstitutional, even though the Roe case had sidestepped this particu-
lar question. Doe v. Israel, 358 F. Supp. 1193 (D.R.I. 1973), cert. denied, 416 U.S. 993
(1974). Hence, the constitutional right to have an abortion, as articulated by Roe, may not be
avoided by a state statute expressing another philosophy or other grounds that attempt to cir-
cumvent individual rights. Further, the Roe and Bolton decisions have been held to apply
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 415

retroactively. A criminal conviction of a physician under an abortion statute now declared

unconstitutional must be vacated even if it preceded the Supreme Court decision. State v.
Ingel, 18 Md. App. 514, 308 A.2d 223 (1973).
9. City of Akron v. Akron Center for Reproductive Health, Inc., 462 U.S. 416 (1983) at 456,
458 (O’Connor, J., dissenting).
10. 410 U.S. 179 (1973).
11. This was taken by many to mean that states could require that second-trimester abortions be
performed only in hospitals. However, such a requirement was later found unconstitutional.
City of Akron v. Akron Center for Reproductive Health, Inc., 462 U.S. 416 (1983).
12. Planned Parenthood Ass’n of Kansas City, Mo., Inc. v. Ashcroft, 462 U.S. 476 (1983).
13. See Planned Parenthood of Central Mo. v. Danforth, 428 U.S. 52 (1976).
14. Simopoulos v. Virginia, 462 U.S. 506 (1983).
15. Planned Parenthood of Central Mo. v. Danforth, 428 U.S. 52 (1976).
16. Pa. Cons. Stat. Ann. §§ 3211(a), 3214(h) (Purdon 1983). The statute was ruled unconstitu-
tional in American College of Obstetricians v. Thornburgh, 106 S. Ct. 2169, 2182 (1986).
Physicians had to sign and file a report the following month identifying themselves and nam-
ing the hospital or clinic; the referring physician, agency, or service; the woman’s place of resi-
dence, age, race, and marital status; the number of her prior pregnancies; the date of her last
menstrual period; the probable gestational age of the unborn child; the “length and weight of
the aborted unborn child”; the method of payment for the procedure; and the basis for “any
medical judgment that a medical emergency existed” and for the physician’s determination
“that a child is not viable.”
17. Each of the last four points was decided in City of Akron, supra note 9.
18. Colautti v. Franklin, 439 U.S. 379, 387 (1979) (quoting Roe v. Wade, 410 U.S. at 160, 166).
19. 439 U.S. 379 (1979).
20. Id. at 382.
21. Id. at 388–89.
22. Id. at 393.
23. See also Charles v. Daley, 749 F.2d 452 (7th Cir. 1984), appeal dismissed sub nom. Diamond
v. Charles, 106 S. Ct. 1697 (1986)—statute that proscribed abortion after viability and pre-
scribed standard of care was unconstitutionally vague.
24. 462 U.S. 476 (1983).
25. American College of Obstetricians v. Thornburgh, 106 S. Ct. 2169 (1986).
26. 492 U.S. 490 (1989).
27. 505 U.S. 833 (1992).
28. Stenberg v. Carhart, 530 U.S. 914, 931 (2000).
29. Parker v. Rampton, 28 Utah 2d 36, 497 P.2d 848 (1972).
30. 381 U.S. 479 (1965). See also Eisenstadt v. Baird, 405 U.S. 438 (1972)—unmarried persons
have the same constitutional right to privacy with respect to contraceptive measures as married
persons do.
31. 42 C.F.R. §§ 50.201–50.210.
32. 274 U.S. 200 (1927).
33. For more commentary on this case, see Burgdorf and Burgdorf, “The Wicked Witch Is Almost
Dead: Buck v. Bell and the Sterilization of Handicapped Persons,” 50 Temple L. Q. 995
(1977), and R. Posner, Law and Literature 273 (1998). Judge Posner says of the opinion,
“[It] would be a poorly reasoned, a brutal, and even, to a modern sensibility, a vicious opinion
even if Carrie Buck really had been an imbecile. But it is a first-class piece of rhetoric
[nonetheless].”
34. Skinner v. Oklahoma, 316 U.S. 535 (1942).
35. See, for example, North Carolina Ass’n for Retarded Children v. State of N.C., 420 F. Supp.
451, 454 (1976), in which the court made a finding of fact that “[m]ost competent geneticists
now reject social Darwinism and doubt the premise implicit in Mr. Justice Holmes’ incantation
that ‘...three generations of imbeciles is enough.’ [P]revalent medical opinion views with dis-
taste even voluntary sterilizations for the mentally retarded and is inclined to sanction it only
as a last resort and in relatively extreme cases. In short, the medical and genetical experts are
416 The Law of Healthcare Administration

no longer sold on sterilization to benefit either retarded patients or the future of the Repub-
lic.”
36. See Burgdorf and Burgdorf, supra note 33.
37. Matter of Welfare of Hillstrom, 363 N.W.2d 871, 876 (Minn. App. 1985)—sterilization was
not warranted for a 41-year-old mentally retarded woman who was closely supervised and was
not likely to engage in sexual intercourse.
38. In re Grady, 85 N.J. 235, 245, 426 A.2d 467, 472 (1981). See also Burgdorf and Burgdorf,
supra note 33.
39. 410 U.S. 179, 197 (1973).
40. 475 F.2d 701 (1st Cir. 1973), appeal for stay of mandate denied, 411 U.S. 929 (1973),
reversing the federal district court, which had held that the patient possessed no constitutional
right to have a sterilization performed in a city hospital. 341 F. Supp. 1385 (D. Mass. 1972).
The decision of the court of appeals was rendered after the Roe and Bolton cases on abortion.
41. Taylor v. St. Vincent’s Hosp., 369 F. Supp. 948 (D. Mont. 1973), aff’d, 523 F.2d 75 (9th
Cir. 1975), cert. denied, 424 U.S. 948 (1976). The federal district court issued a temporary
injunction enjoining a private hospital from enforcing a ban on sterilization on the basis that
receipt of governmental funds resulted in “state action.” Subsequently the injunction was dis-
solved and the initial decision was thereby reversed, Taylor v. St. Vincent’s Hosp., 369 F.
Supp. 948 (D. Mont. 1973), thus upholding the hospital’s policy of not permitting surgical
sterilization.
42. 479 F.2d 756 (7th Cir. 1973).
43. 361 F. Supp. 1212 (N.D. Tex. 1973), appeal dismissed, 490 F.2d 81 (5th Cir. 1974). More-
over, the district court’s decision is not now reviewable by the circuit court of appeals, because
the patient in fact obtained sterilization at another hospital. Allen v. Sisters of St. Joseph, 490
F.2d 81 (5th Cir. 1974).
44. 364 F. Supp. 799 (D. Idaho 1973), aff’d, 520 F.2d 894 (9th Cir. 1975).
45. Health Programs Extension Act, 42 U.S.C.A. § 300a-7 (1973). Where nothing in the record
proves that a private hospital’s policy of prohibiting abortions is based on institutional reli-
gious beliefs or moral convictions, the Health Programs Extension Act does not apply. More-
over, a private hospital is engaged in “state action” when it has received Hill-Burton and other
governmental funds. Doe v. Charleston Area Medical Center, 520 F.2d 638 (4th Cir. 1975).
46. See also Chrisman v. Sisters of St. Joseph of Peace, 506 F.2d 308 (9th Cir. 1974) (Health Pro-
grams Extension Act, 42 U.S.C.A. § 300a-7 is constitutional). Greco v. Orange Memorial
Hosp., 374 F. Supp. 227 (E.D. Tex. 1974), aff’d, 513 F.2d 873 (5th Cir. 1975), cert. denied,
423 U.S. 1000 (1975)—a private hospital is not engaged in “state action,” even though it
receives a significant amount of governmental funds; thus, it may bar abortions. The denial of
certiorari by the Supreme Court in effect permits conflicting decisions on “state action” to
remain, without resolving the issue on constitutional merits.
47. 410 U.S. 179, 197 (1973).
48. Chrisman v. Sisters of St. Joseph of Peace, 506 F.2d 308 (9th Cir. 1974).
49. Beal v. Ann Doe, 432 U.S. 438 (1977); moreover, the equal protection clause of the Four-
teenth Amendment does not require a state participating in the Medicaid program to pay
expenses of nontherapeutic abortions for indigent women even though it does pay expenses of
childbirth, Maher, Comm’r of Social Servs. of Conn. v. Susan Roe, 432 U.S. 464 (1977).
50. Harris v. McRae, 448 U.S. 297 (1980), reh’g denied, 448 U.S. 917 (1980). The court also
held that the Hyde Amendment does not violate due process, equal protection under the Fifth
Amendment, or the Establishment Clause of the First Amendment.
51. Speck v. Finegold, 268 Pa. Super. 342, 408 A.2d 496 (1979), modified, 497 Pa. 77, 439 A.2d
110 (1979).
52. 31 Cal. 3d 220, 182 Cal. Rptr. 337, 643 P.2d 954 (1982).
53. Johnson v. Yeshiva Univ., 42 N.Y.2d 818, 820, 396 N.Y.S.2d 647, 648, 364 N.E.2d 1340,
1341 (1977).
54. Becker v. Schwartz, 46 N.Y.2d 401, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978).
55. Examples of wrongful birth actions for negligence in genetic counseling, testing, or diagnosis
include (among others) cases involving Down syndrome—see, for example, Call v. Kezirian,
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 417

135 Cal. App. 3d 189, 185 Cal. Rptr. 103 (1982); Berman v. Allen, 80 N.J. 421, 404 A.2d 8
(1979); Azzolino v. Dingfelder, 71 N.C. App. 597, 322 S.E.2d 567 (1984), review granted,
327 S.E.2d 887 (1985); Phillips v. United States, 508 F. Supp. 537 (D.S.C. 1980), 508 F.
Supp. 544 (D.S.C. 1981); and Tay-Sachs disease, see, for example, Curlender v. Bio-Science
Laboratories, 165 Cal. Rptr. 477, 106 Cal. App. 3d 811 (1980); Goldberg v. Ruskin, 128 Ill.
App. 3d 1029, 471 N.E.2d 530 (1984); Gildiner v. Thomas Jefferson Univ. Hosp., 451 F.
Supp. 692 (E.D. Pa. 1978).
56. Dumer v. St. Michael’s Hosp., 69 Wis. 2d 766, 233 N.W.2d 372 (1975).
57. Schroeder v. Perkel, 87 N.J. 53, 432 A.2d 834 (1981).
58. Troppi v. Scarf, 31 Mich. App. 240, 187 N.W.2d 511 (1971).
59. Harbeson v. Parke-Davis, Inc., 98 Wash. 2d 460, 656 P.2d 483 (1983).
60. Hackworth v. Hart, 474 S.W.2d 377 (Ky. 1971); Hays v. Hall, 488 S.W.2d 412 (Tex. 1972);
Vilord v. Jenkins, 226 So. 2d 245 (Fla. Dist. Ct. App. 1969); Teeters v. Currey, 518 S.W.2d
512 (Tenn. 1974).
61. Blake v. Cruz, 108 Idaho 253, 698 P.2d 315 (1984).
62. Custodio v. Bauer, 251 Cal. App. 2d 303, 59 Cal. Rptr. 463 (1967).
63. See, for example, Jones v. Mailinowski, 299 Md. 257, 473 A.2d 429 (1984) and Cockrum v.
Baumgartner, 99 Ill. App. 3d 271, 425 N.E.2d 968 (1981), cert. denied, 464 U.S. 846
(1983), rev’d on other grounds, 447 N.E.2d 385 (1983).
64. For example, Nolan v. Merecki, 88 A.D.2d 1021, 451 N.Y.S.2d 914 (1982).
65. See, for example, Troppi v. Scarf, 31 Mich. App. 240, 187 N.W.2d 511 (1971); Ziemba v.
Sternberg, 45 A.D.2d 230, 357 N.Y.S.2d 265 (1974).
66. See, for example, Bushman v. Burns Clinic Medical Center, 83 Mich. App. 453, 268 N.W.2d
683 (1978); Sorkin v. Lee, 434 N.Y.S.2d 300, 78 A.D.2d 180 (1980).
67. See, for example, Bushman, supra note 66; James G. and Lurana G. v. Caserta, 332 S.E.2d
872 (Sup. Ct. App. W. Va. 1985); Sorkin v. Lee, 434 N.Y.S.2d 300, 78 A.D.2d 180 (1980).
68. Naccash v. Burger, 223 Va. 406, 290 S.E.2d 825 (1982). Other cases permitting recovery for
emotional distress include Berman v. Allen, 80 N.J. 421, 404 A.2d 8 (1979); Blake v. Cruz,
108 Idaho 253, 698 P.2d 315 (1984).
69. Howard v. Lecher, 53 A.D.2d 420, 386 N.Y.S.2d 460 (1976), aff’d, 42 N.Y.2d 109 (1977).
See also Becker v. Schwartz, 46 N.Y.2d 401, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978)—
damages for emotional harm would be too speculative; and Goldberg v. Ruskin, 84 Ill. Dec. 1
(1984), modified, 128 Ill App. 3d 1029, 471 N.E.2d 530 (1984)—parents failed to allege
that they suffered physical injury and therefore could not recover damages for emotional
harm.
70. See, for example, Ochs v. Borelli, 187 Conn. 253, 445 A.2d 883 (1982).
71. See, for example, Rieck v. Medical Protective Co., 64 Wis. 2d 514, 219 N.W.2d 242 (1974)—
failure to make a timely diagnosis of pregnancy. Other cases denying costs of raising a healthy
child include Wilczynski v. Goodman, 73 Ill. App. 3d 51, 29 Ill. Dec. 216, 391 N.E.2d 479
(1979)—negligent performance of therapeutic abortion; Public Health Trust v. Brown, 388
So. 2d 1084 (Fla. App. 1980)—failed sterilization; Wilbur v. Kerr, 275 Ark. 239, 628 S.W.2d
568 (1982)—husband had not one but two unsuccessful vasectomies; Sorkin v. Lee, 434
N.Y.S.2d 300, 78 A.D.2d 180 (1980)—failed tubal ligation.
72. 99 Ill. App. 3d 271, 425 N.E.2d 968 (1981).
73. See, for example, Blake v. Cruz, 108 Idaho 253, 698 P.2d 315 (1984); Goldberg v. Ruskin,
84 Ill. Dec. 1 (1984), modified, 128 Ill. App. 3d 1029, 471 N.E.2d 530 (1984); Schroeder v.
Perkel, 87 N.J. 53, 432 A.2d 834 (1981); Jacobs v. Theimer, 519 S.W.2d 846 (Tex. 1975).
74. See, for example, Berman v. Allen, 80 N.J. 421, 404 A.2d 8 (1979).
75. See, for example, Still v. Gratton, 55 Cal. App. 3d 698, 127 Cal. Rptr. 652 (1976); Zepeda v.
Zepeda, 41 Ill. App. 2d 240, 190 N.E.2d 849 (1963), cert. denied, 379 U.S. 945 (1964);
Williams v. State, 25 A.D.2d 906, 269 N.Y.S.2d 786 (1966).
76. See, for example, Elliot v. Brown, 361 So. 2d 546 (Ala. 1978); DiNatale v. Lieberman, 409
So. 2d 512 (Fla. App. 1982); Blake v. Cruz, 108 Idaho 253, 698 P.2d 315 (1984); Goldberg
v. Ruskin, 84 Ill. Dec. 1 (1984), modified, 128 Ill. App. 3d 1029, 471 N.E.2d 530 (1984);
Whit v. United States, 510 F. Supp. 146 (D. Kansas 1981); Eisbrenner v. Stanley, 106 Mich.
418 The Law of Healthcare Administration

App. 357, 308 N.W.2d 209 (1981); Berman v. Allen, 80 N.J. 421, 404 A.2d 8 (1979); Becker
v. Schwartz, 46 N.Y.2d 401, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978); Gildiner v. Thomas
Jefferson Univ. Hosp., 451 F. Supp. 692 (E.D. Pa. 1978); Phillips v. United States, 508 F.
Supp. 537 (D.S.C. 1980), 508 F. Supp. 544 (D.S.C. 1981); Nelson v. Krusen, 678 S.W.2d
918 (Tex. 1984); Dumer v. St. Michael’s Hosp., 69 Wis. 2d 766, 233 N.W.2d 372 (1975).
77. Becker v. N. Schwartz, 46 Y.2d 401, 413 N.Y.S.2d 895, 386 N.E.2d 807 (1978).
78. Blake v. Cruz, 108 Idaho 253, 698 P.2d 315 (1984).
79. 106 Cal. App. 3d 811, 165 Cal. Rptr. 477 (1980).
80. 31 Cal. 3d 220, 182 Cal. Rptr. 337, 643 P.2d 954 (1982).
81. Id. at 233, 182 Cal. Rptr. at 344–45, 643 P.2d at 961–62.
82. Cal. Health & Safety Code § 7186 (Supp. 1986). The court also cited Matter of Quinlan, 70
N.J. 10, 355 A.2d 647 (1976), cert. denied, 429 U.S. 922 (1976); Superintendent of
Belchertown v. Saikewicz, 373 Mass. 728, 370 N.E.2d 417 (1977)—recognizing that an indi-
vidual has the right to decide whether life is preferable to death under certain circumstances.
83. 98 Wash. 2d 460, 656 P.2d 483 (1983).
84. Id. at 483, 656 P.2d at 497. Other cases permitting a wrongful life action include Call v.
Kezirian, 135 Cal. App. 3d 189, 185 Cal. Rptr. 103 (1982); Azzolino v. Dingfelder, 71 N.C.
App. 289, 322 S.E.2d 567 (1984), review granted, 313 N.C. 327 S.E.2d 887 (1985); Pro-
canik v. Cillo, 97 N.J. 339, 478 A.2d 755 (1984). These cases followed Turpin in permitting
special damages for extraordinary expenses but denying general damages.
85. Cal. Civil Code § 43.6(a) (1982): “No cause of action arises against a parent of a child based
upon the claim that the child should not have been conceived or, if conceived, should not
have been allowed to have been born alive.”
86. Minn. Stat. Ann. § 145.424, subds. 1 & 2 (West Supp. 1986). In light of the constitutional
right of reproductive freedom, this statute may not be constitutional.
87. Minn. Stat. Ann. § 145.424, subd. 3. The California statute has a similar provision, Cal. Civil
Code § 43.6(b) (1982).
88. 109 N.J. 396, 537 A.2d 1227 (1988).
89. 704 S.W.2d 209 (1986).
90. 842 S.W.2d 588 (Tenn. 1992).
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 419

the court decides

Skinner v. Oklahoma ex rel. Attorney General
316 U.S. 535 (1942)

Mr. Justice Douglas delivered the opinion of sexually sterile” by the operation of vasec-
the Court. tomy in case of a male, and of salpingec-
tomy in case of a female. Only one other
This case touches a sensitive and impor- provision of the Act is material here, and [it]
tant area of human rights. Oklahoma provides that “offenses arising out of the
deprives certain individuals of a right violation of the prohibitory laws, revenue
which is basic to the perpetuation of a acts, embezzlement, or political offenses,
race—the right to have offspring. Okla- shall not come or be considered within the
homa has decreed the enforcement of its terms of this Act.”
law against petitioner, overruling his Petitioner was convicted in 1926 of the
claim that it violated the Fourteenth crime of stealing chickens, and was sen-
Amendment. Because that decision tenced to the Oklahoma State Reformatory.
raised grave and substantial constitu- In 1929 he was convicted of the crime of
tional questions, we granted the petition robbery with firearms, and was sentenced
for certiorari. to the reformatory. In 1934 he was convicted
The statute involved is Oklahoma’s again of robbery with firearms, and was
Habitual Criminal Sterilization Act. That sentenced to the penitentiary. He was con-
Act defines an “habitual criminal” as a fined there in 1935 when the Act was
person who, having been convicted two passed. In 1936 the Attorney General insti-
or more times for crimes “amounting to tuted proceedings against him. Petitioner in
felonies involving moral turpitude,” his answer challenged the Act as unconsti-
either in an Oklahoma court or in a court tutional by reason of the Fourteenth Amend-
of any other State, is thereafter con- ment. A jury trial was had. The court
victed of such a felony in Oklahoma and instructed the jury that the crimes of which
is sentenced to a term of imprisonment petitioner had been convicted were felonies
in an Oklahoma penal institution. involving moral turpitude, and that the only
Machinery is provided for the institution question for the jury was whether the oper-
by the Attorney General of a proceeding ation of vasectomy could be performed on
against such a person in the Oklahoma petitioner without detriment to his general
courts for a judgment that such person health. The jury found that it could be. A
shall be rendered sexually sterile. judgment directing that the operation of
Notice, an opportunity to be heard, and vasectomy be performed on petitioner was
the right to a jury trial are provided. The affirmed by the Supreme Court of Oklahoma
issues triable in such a proceeding are by a five to four decision.
narrow and confined. Several objections to the constitutionality
If the court or jury finds that the defen- of the Act have been pressed upon us. It is
dant is an “habitual criminal” and that he urged that the Act cannot be sustained as
“may be rendered sexually sterile without an exercise of the police power, in view of
detriment to his or her general health,” the state of scientific authorities respecting
then the court “shall render judgment to inheritability of criminal traits. It is argued
the effect that said defendant be rendered that due process is lacking because, under
420 The Law of Healthcare Administration

this Act, unlike the Act upheld in Buck v. which shaped the common law as to “tres-
Bell, the defendant is given no opportunity pass” or “taking.” There may be larceny by
to be heard on the issue as to whether he is fraud rather than embezzlement even where
the probable potential parent of socially the owner of the personal property delivers
undesirable offspring. It is also suggested it to the defendant, if the latter has at that
that the Act is penal in character and that time “a fraudulent intention to make use of
the sterilization provided for is cruel and the possession as a means of converting
unusual punishment and [violates] the Four- such property to his own use, and does so
teenth Amendment. We pass those points convert it.” If the fraudulent intent occurs
without intimating an opinion on them, for later and the defendant converts the prop-
there is a feature of the Act [that] clearly erty, he is guilty of embezzlement. Whether
condemns it. That is, its failure to meet the a particular act is larceny by fraud or embez-
requirements of the equal protection clause zlement thus turns not on the intrinsic qual-
of the Fourteenth Amendment. ity of the act but on when the felonious
We do not stop to point out all of the intent arose—a question for the jury under
inequalities in this Act. A few examples will appropriate instructions.
suffice. In Oklahoma, grand larceny is a It was stated in Buck v. Bell that the claim
felony. Larceny is grand larceny when the that state legislation violates the equal pro-
property taken exceeds $20 in value. tection clause of the Fourteenth Amend-
Embezzlement is punishable “in the manner ment is “the usual last resort of constitu-
prescribed for feloniously stealing property tional arguments.” Under our constitutional
of the value of that embezzled.” Hence, he system the States in determining the reach
who embezzles property worth more than and scope of particular legislation need not
$20 is guilty of a felony. A clerk who appro- provide “abstract symmetry.” They may
priates over $20 from his employer’s till and mark and set apart the classes and types of
a stranger who steals the same amount are problems according to the needs and as dic-
thus both guilty of felonies. If the latter tated or suggested by experience. It was in
repeats his act and is convicted three times, that connection that Mr. Justice Holmes,
he may be sterilized. But the clerk is not speaking for the Court in [another case]
subject to the pains and penalties of the Act stated, “We must remember that the
no matter how large his embezzlements nor machinery of government would not work if
how frequent his convictions. A person who it were not allowed a little play in its joints.”
enters a chicken coop and steals chickens ….
commits a felony; and he may be sterilized But the instant legislation runs afoul of
if he is thrice convicted. If, however, he is a the equal protection clause…. We are deal-
bailee of the property and fraudulently ing here with legislation which involves one
appropriates it, he is an embezzler. Hence, of the basic civil rights of man. Marriage and
no matter how habitual his proclivities for procreation are fundamental to the very
embezzlement are and no matter how often existence and survival of the race. The
his conviction, he may not be sterilized. power to sterilize, if exercised, may have
Thus, the nature of the two crimes is intrin- subtle, far-reaching and devastating effects.
sically the same and they are punishable in In evil or reckless hands it can cause races
the same manner. [Paragraph break added.] or types which are inimical to the dominant
Furthermore, the line between them fol- group to wither and disappear. There is no
lows close distinctions—distinctions com- redemption for the individual whom the law
parable to those highly technical ones touches. Any experiment which the State
 C h a p t e r 1 3 : I s s u e s o f Re p ro d u c t i o n 421

conducts is to his irreparable injury. He is ferent. The equal protection clause would
forever deprived of a basic liberty. We men- indeed be a formula of empty words if such
tion these matters not to re-examine the conspicuously artificial lines could be
scope of the police power of the States. We drawn. In Buck v. Bell the Virginia statute
advert to them merely in emphasis of our was upheld though it applied only to fee-
view that strict scrutiny of the classification ble-minded persons in institutions of the
which a State makes in a sterilization law is State. But it was pointed out that “so far as
essential, lest unwittingly, or otherwise, the operations enable those who otherwise
invidious discriminations are made against must be kept confined to be returned to the
groups or types of individuals in violation of world, and thus open the asylum to others,
the constitutional guaranty of just and the equality aimed at will be more nearly
equal laws. The guaranty of “equal protec- reached.” Here there is no such saving fea-
tion of the laws is a pledge of the protection ture. Embezzlers are forever free. Those
of equal laws.” When the law lays an who steal or take in other ways are not. If
unequal hand on those who have commit- such a classification were permitted, the
ted intrinsically the same quality of offense technical common law concept of a “tres-
and sterilizes one and not the other, it has pass” based on distinctions which are “very
made as invidious a discrimination as if it largely dependent upon history for explana-
had selected a particular race or nationality tion” could readily become a rule of human
for oppressive treatment. Sterilization of genetics.
those who have thrice committed grand lar- It is true that the Act has a broad sever-
ceny, with immunity for those who are ability clause. But we will not endeavor to
embezzlers, is a clear, pointed, unmistak- determine whether its application would
able discrimination. Oklahoma makes no solve the equal protection difficulty. The
attempt to say that he who commits larceny Supreme Court of Oklahoma sustained the
by trespass or trick or fraud has biologically Act without reference to the severability
inheritable traits which he who commits clause. We have therefore a situation where
embezzlement lacks. [Paragraph break the Act as construed and applied to peti-
added.] tioner is allowed to perpetuate the discrimi-
Oklahoma’s line between larceny by nation which we have found to be fatal.
fraud and embezzlement is determined, as Whether the severability clause would be so
we have noted, “with reference to the time applied as to remove this particular consti-
when the fraudulent intent to convert the tutional objection is a question which may
property to the taker’s own use” arises. We be more appropriately left for adjudication
have not the slightest basis for inferring by the Oklahoma court. That is reempha-
that that line has any significance in eugen- sized here by our uncertainty as to what
ics, nor that the inheritability of criminal excision, if any, would be made as a matter
traits follows the neat legal distinctions of Oklahoma law. It is by no means clear
which the law has marked between those whether, if an excision were made, this par-
two offenses. In terms of fines and impris- ticular constitutional difficulty might be
onment, the crimes of larceny and embez- solved by enlarging on the one hand or con-
zlement rate the same under the Oklahoma tracting on the other the class of criminals
code. Only when it comes to sterilization who might be sterilized.
are the pains and penalties of the law dif- Reversed.
422 The Law of Healthcare Administration

Skinner v. Oklahoma ex rel. Attorney General

Discussion Questions

1. What does “ex rel.” mean in the caption of the case?

2. What does Justice Douglas mean when he talks about a “severability
clause” in the statute?
3. Note that the opinion takes pains to “distinguish” Buck v. Bell from the
present case. Are you persuaded by Justice Douglas’s discussion, or has
he effectively overruled Buck without saying so?
4. In the 1930s, “Hereditary Health Courts” were established in Nazi
Germany to enforce sterilization laws on individuals suspected of
hereditary diseases and other “defects.” See, generally, Litton, The
Nazi Doctors: Medical Killing and the Psychology of Genocide, 22–44
(1986). This kind of policy gave eugenics a bad name, at least in
terms of human reproduction, and led to its repudiation in most
“enlightened” societies. Should forced sterilization—whether for
eugenic reasons or otherwise—ever be allowed? If so, under what cir-
cumstances and with what controls?
 CHAPTER

HEALTH INFORMATION MANAGEMENT

14
After reading this chapter, you will

• learn that accurate and complete medical records serve many

purposes, but the most important is to make quality medical
care possible.
• be reminded that health information is highly confidential,
but there are many times when the information can and must
be disclosed.
• understand that federal and state privacy laws are complex,
and it is essential that all healthcare personnel be educated
about their requirements.
• know that the HIPAA privacy standards overlie, but rarely
replace, other laws on medical record confidentiality.

For most of recorded history medical records have been preserved on

paper. This is why we usually think of “medical records” as the folders
with color-coded tabs that are kept in our doctor’s office. Some of us may
also think of the “charts” that physicians and nurses use in a hospital (or
on TV shows like ER and House). These mental images are correct, as far
as they go, but medical records represent much more in this electronic
age. Records of health information can be stored on various media other
than paper—for example, digital photographs, computer and Internet
files, CDs, holograms, and handheld devices. We are not yet a “paperless
society,” but we are a less paper one.
For this reason, the Health Insurance Portability and Accountability
Act (HIPAA) does not use the term “medical records” but refers instead to
“health information,” which it defines as follows:

[A]ny information, whether oral or recorded in any form or medium, that:

423
424 The Law of Healthcare Administration

1. is created or received by a health care provider, health plan, public

health authority, employer, life insurer, school or university, or health care
clearinghouse; and
2. [r]elates to the past, present, or future physical or mental health or
condition of an individual; or the past, present, or future payment for the
provision of health care to an individual.

Reflect on this definition for a moment, and note how expansive it is.
The definition includes, to be sure, the information we usually think of—
medical history, current complaints, vital signs, physical findings, the results
of diagnostic tests and procedures, medications, diagnosis, prognosis, and
plan of care. But does it include any of the following?

• Name, address, and phone number

• Age
• Social security number
• Emergency contact information
• Name(s) of the patient’s child(ren)
• Favorite food and favorite color
• Kind of car the patient drives
• Name(s) of the patient’s pet(s)

If the information was collected in the process of providing healthcare,

the answer is “yes” to all of the above.

A New Focus

In previous editions of the book, this chapter was entitled “Medical

Records.” Recognizing the expanded scope and many purposes of clinical
data, we now choose to use the term “health information” wherever possi-
ble. Although this text does contain references to “medical records,” when-
ever the context requires it, the reader should understand that the expression
means health information as defined by HIPAA.
The primary purpose of medical records is, obviously, to document
the care given to patients. A current and complete record is, therefore, indis-
pensable to the practice of medicine. But this is not the only purpose of
health information; it is also essential in the following:

• for accurate coding of diagnoses and procedures,

• for billing the patient’s insurance or governmental payers,
• to document medical necessity,
• as evidence in criminal trials and civil litigation,
 Chapter 14: Health Information Management 425

• to support public health efforts and scientific research,

• to conduct peer review and quality assurance programs, and
• to meet accreditation and licensure standards.

Thus, we see that creation of medical records is not a nuisance,

although it can seem like one at times, but a critical element in the process
of delivering healthcare services. This chapter reviews the three major issues
relating to the patient’s health information:

1. legal requirements,
2. access, and
3. use in legal proceedings.

Overlying this discussion are the federal privacy standards contained

in HIPAA. Rather than devote a discrete section to HIPAA, this chapter
considers that law’s privacy requirements as supplements to preexisting
state and federal standards. Thus, discussion of HIPAA is woven through-
out the chapter.

Legal Requirements

Form and Contents

In most states, legal requirements for maintaining medical records are found
in the rules and regulations of licensing agencies. Many of these regulations
simply require that an “adequate” or “complete” record be maintained; oth-
ers specify categories of information to be included, leaving it to the profes-
sional judgment of physicians, nurses, and other clinicians to decide the
details of the record’s content and organization. For example, the Florida
statute provides:

Each hospital…shall require the use of a system of problem-oriented

medical records for its patients, which system shall include the following
elements: basic client data collection; a listing of the patient’s problems;
the initial plan with diagnostic and therapeutic orders as appropriate for
each problem identified; and progress notes, including a discharge sum-
mary.1

Some states’ licensure regulations explicitly authorize an electronic

medical record system, as long as the computerized system satisfies the
basic requirements for record content. In theory, a computerized record
eliminates the need for handwritten or printed documents, improves accu-
racy, and saves time and money. Although it has these advantages, it also
426 The Law of Healthcare Administration

raises issues like confidentiality, durability, compliance with licensure

requirements, and the simple human factor of resistance to change. (As
I write this I am reminded that holding a real book is more comforting
than looking at words on my computer monitor.)
As is so often the case, the law has not kept pace with technolog-
ical progress. Most medical record laws were written when paper was the
universal medium. If those statutes have not been updated in a particu-
lar state, an electronic medical record system might not technically com-
ply with the law. It is important, therefore, to consult with legal coun-
sel if there is doubt about the acceptability of an electronic medical
record before implementing such a system.
The Joint Commission has standards for medical records.2 Failure
to comply with them could result in the loss of accreditation and could
be evidence of negligence if failure to adhere to recognized record-
keeping standards was a cause of injury.3 The standards of the Joint
Commission provide that

• an adequate medical record must be maintained for every person

evaluated or treated as an inpatient, an outpatient, an emergency
patient, or a patient in a hospital-based home care program.
• the record must contain sufficient information to identify the
patient and to support the diagnosis and treatment, and it must
furnish accurate documentation of results.
• the records shall be confidential, secure, current, authenticated,
legible, and complete. The record department shall be adequately
directed, staffed, and equipped, and it shall maintain a system of
identification and filing to facilitate prompt location of each
record.

The Joint Commission’s standards permit hospitals to maintain an

automated medical record system. Because some states equate accredita-
tion with qualification for licensure, the Joint Commission’s recognition of
computerized systems may be a reason that formal regulations have not
been updated in many states.
In addition to the general legal requirements for medical record
keeping, local laws require certain information to be reported to public
authorities for statistical purposes. State statutes commonly require hos-
pitals and physicians to maintain records of births, deaths, autopsies,
and similar events of public interest. Local statutes also require that
records be kept and reports be made to the appropriate public author-
ity when patients are diagnosed with certain contagious and infectious
diseases, when they may have been involved in crimes of violence, when
child or elder abuse is suspected, or when public health and welfare are
 Chapter 14: Health Information Management 427

otherwise at stake. Failure to comply with these laws can have grave con-
sequences for medical personnel and hospitals, not to mention the peo-
ple the laws are meant to protect.
Both legal regulations and professional standards require that
entries in the medical record be signed (“authenticated”) by the individ-
ual making the entry. A physician’s spoken order must be recorded and
countersigned later by the doctor. (One physician may not sign for
another unless both share responsibility for the patient’s care.) Generally
entries in the record must be manually authenticated, either by the actual
handwriting of the individual or by another form of signature, such as a
printed or stamped name or initials. Depending on the language of a
local statute or regulation, a “signature” does not necessarily have to be
handwritten. In general, however, current law does require a signature of
some kind, however that term is defined. Medical staff bylaws and health
information management department policies must contain provisions
relating to the proper and timely authentication of entries in the patient’s
chart.
Policies should require that the attending physician keep the
record current and complete it within a reasonable time (no more than
30 days) after the patient’s discharge.4 The Joint Commission considers
a medical record complete when the medical history, diagnostic and
therapeutic orders, all reports of consultations and tests, progress notes,
and a clinical resume (discharge summary) are entered and authenticated
(signed) by the attending physician. This is consistent with local law and
acceptable standards of practice. A physician found to have violated such
a policy can be subject to disciplinary measures.
Failure to maintain complete, accurate, and current records can
have severe adverse effects for a defendant in civil litigation (see Legal
DecisionPoint on page 428). For example, failure of nurses to record
observations of the patient’s condition can be evidence of negligence for
a jury to consider. Medical records are generally admissible as evidence
in a malpractice suit, so the absence of appropriate entries in the chart,
or the inclusion of inaccurate information, can be the basis for a jury’s
verdict for the plaintiff.5 In a New York case a patient was diagnosed as
having suffered damage to the liver as a result of an adverse reaction to
the anesthetic halothane during foot surgery. No record of the adverse
event was made in the chart. A month later the patient had surgery on
the other foot, and the same anesthetic was given. This time it caused the
patient’s death.
The absence of a notation in the medical record was a persuasive fac-
tor in the jury’s decision favoring the patient’s family.6 Corrections of inac-
curate information should also be entered in the medical record at once
and in a proper fashion. Erasure or obliteration of medical information,
428 The Law of Healthcare Administration

Legal DecisionPoint

If “a picture is worth a thousand words,” consider the following:

1. Look at the first entry. What does it say?

2. An auditor has written, “handwriting problem” in the margin. If an entry is illegible, can it
ever be said to be “accurate and complete”?
3. What are some ways to improve the quality of this physician’s records?
 Chapter 14: Health Information Management 429

even if inaccurate, must never be permitted

(see The Law in Action). Instead, the per-
The Law in Action
son making the change should do the fol-
lowing: A physician had left written orders
that the patient should be given a
solution of “.3 NS”. The decimal point
• carefully draw a line through the original
was overlooked, and the patient was
entry, leaving the writing legible; given a saline solution ten times the
• describe the reason for the change; intended concentration. Believing he
• date the corrected entry; and was not at fault, the physician tried to
• authenticate the new entry. clarify his original order by going over
it in pen to read:
The wisdom of following this practice is
illustrated by a Connecticut case in which the
court held that the jury was entitled to know
that an entry in the chart of a mental patient, This, of course, only compounded
who had been left unattended in a locked the problem and left the impression
room for several hours, had been obliterated, that there had been a cover-up. The
jury returned a verdict in favor of the
rewritten, and falsified. A verdict in the amount
plaintiffs.
of $3.6 million was upheld on appeal.7
The adverse implications of an incom-
plete medical record are seen in Carr v. St. Paul
Fire and Marine Insurance Company.8 The patient came to the hospital’s emer-
gency department (ED) complaining of severe abdominal pains and vomiting
but was examined only by a licensed practical nurse and two “orderlies.” (In the
first part of the opinion the court points out that the nurse and one of the order-
lies were “sweethearts” and later married and that all three were “close friends.”
The relevance of this fact becomes apparent later.) One of the orderlies took the
patient’s vital signs, but they were unable to reach the patient’s personal doctor,
who was out of town. The patient left, saying he would return when his doctor
got back. The patient died later that evening after returning to the hospital by
ambulance and in even greater distress. The death certificate opined that the
decedent had suffered an acute myocardial infarction (a heart attack).
Testimony described the patient’s vital signs as “normal” during the
first visit, but the three ED personnel “and possibly Dr. Vizant” (who com-
pleted the death certificate) were the only ones to see the record of the visit.
This is where the friendship among the three ED staff becomes relevant: the
record was destroyed that night, after the patient died.
In the resulting lawsuit, the jury was allowed to infer that the docu-
ments would probably have revealed a medical emergency necessitating
attendance by a physician. The court stated:

No one knows the effect [destruction of the records] had on the jury, but the
jury certainly had a right to infer that the record had it been retained would
430 The Law of Healthcare Administration

have shown that a medical emergency existed and that a doctor should have
been called and that more attention should have been given him than was
given.

The jury found against the defendants on the ground that hospital
personnel had failed to exercise reasonable care under the circumstances.
As this case implies, one of the best “witnesses” in malpractice litiga-
tion is a thorough and complete medical record that documents the contin-
ued care and treatment of the patient. Such a record is frequently convincing
evidence that the patient received reasonable care under all the facts and cir-
cumstances. An incomplete or missing record can spell disaster for the
defense.
Information in the record must be readily available when the cir-
cumstances require it. To illustrate, in Howlett v. Greenberg a hospital staff
physician examined an automobile accident victim and dictated the results
of his examination.9 This information had not, however, been transcribed
and affixed to the patient’s chart when Dr. Greenberg performed non-
emergency surgery on the patient’s wrist, even though he knew that it
should have been and that proceeding with surgery in these circumstances
was contrary to hospital rules. Adverse results followed the surgery and
the patient died.
Liability is established if the patient can show that failure to have rel-
evant medical information readily at hand was the proximate cause of injury.
The surgeon could be negligent (a) by performing surgery knowing that the
report of the patient’s history and physical was not part of the record or (b)
by assuming that none was done. The hospital could be liable for not having
an effective system of compiling and ensuring the availability of required
medical information whenever it is needed.
In contrast to clinical records, “incident reports” are not meant to
be part of the medical record and should not be filed there. They are pre-
pared in anticipation of possible litigation and for the hospital’s attorneys
to use. They often contain information (much of it hearsay) that tends to
indicate fault. If they are included in the medical record, they will be avail-
able as evidence in a lawsuit. In most states incident reports are considered
privileged, are not subject to discovery, and are not admissible. The inci-
dent report process is conducted for educational purposes and to improve
general standards of patient care and safety. To serve these ends there must
be candor and the assurance that such reports will not be available to
potential malpractice plaintiffs.

Records Retention Requirements

Hospital policies regarding retention of medical records depend on local law
and the standards of professional care appropriate to the type of institution
 Chapter 14: Health Information Management 431

involved. Accordingly, governing bodies must not only be familiar with appli-
cable legal requirements respecting the length of time that records must be
preserved, but they must also analyze their particular medical and adminis-
trative needs. For example, to enable epidemiological studies (or for other
pedagogic reasons) teaching hospitals and research institutions may wish to
retain records longer than typical acute care hospitals do. They might want
to keep records for 75 years or more, for example. All institutions will need
to retain records long enough to facilitate continuing programs of peer
review and quality assurance.
The law on record retention varies widely from state to state on such
matters as the length of retention and whether alternative media (such as
microfilming or electronic formats) may substitute for records that were
originally kept on paper. Medicare’s “Conditions of Participation” require
records to be maintained for at least five years,10 but many states specify
longer periods. Formats other than paper are generally permitted unless
explicitly proscribed, and some items (such as nurses’ notes and original x-
ray films) may be destroyed earlier than others. To complicate matters, a
state’s statutes of limitation must be considered. Traditionally, the limitation
period for torts did not begin to run against a minor until she reached the
age of majority. (If the limitation period was two years and the age of major-
ity was 21, a newborn could technically file suit a day short of his 23rd birth-
day and have a valid claim.) Some states have changed this common-law
rule. Florida, for example, provides “in no event shall the action be com-
menced later than four years from the date of the incident or occurrence out
of which the cause of action accrued, except that this four-year period shall
not bar an action brought on behalf of a minor on or before the child’s
eighth birthday.”11
In summary, how long the clinical records of patients are retained and
in what format will be determined by standards of professional practice, by
the operational and medical needs of the particular organization, and by local
law in each state. Institutional policies on these questions must be carefully
developed and reviewed from time to time with the aid of legal counsel. Pri-
vate organizations such as the Joint Commission and the American Hospital
Association have occasionally published statements of policy on retention and
destruction of records. The current policy statement of the American Hospi-
tal Association recommends retaining records for at least ten years.

Access to Medical Record Information

Ownership and Control of the Medical Record

The healthcare provider owns the medical record, x-rays, laboratory
reports, reports of consultants, and other documents relating to the care
432 The Law of Healthcare Administration

of patients.12 The owner of the record has

The Law in Action the right to physical possession and con-
trol,13 and the owner should not permit its
When I was in the Navy it was com- removal except by court order. Neither a
mon practice for personnel to take patient nor an authorized representative
their medical records with them to
has a right to physical possession of the
clinic appointments and even when
transferring from one duty station to original medical records (see The Law in
another. This was done for adminis- Action).
trative convenience, but I remember Ownership and the right of physical
thinking how easy it would be for control do not mean that the patient and
records (or parts of records) to be various legitimately interested third parties
lost or altered while in the sailor’s
have no legal right of access to the infor-
possession. Speaking as a hospital
attorney, I hope this practice has mation the record contains. Most jurisdic-
changed. tions and federal law affirm that patients
have a right to view and copy their records
and to appoint authorized representatives
to examine the documents. Moreover, attending physicians may not pre-
vent disclosure to hospitalized patients of information from the hospital
record, with the possible exception of cases in which such disclosure might
adversely affect a patient’s physical or mental health.14
Physicians who retire from practice, those who have been replaced
by other doctors selected by their patients, and the estates of deceased
physicians are morally and ethically obligated to transfer the medical
record or copies of it to the current physician when a patient asks that this
be done. Hence, in a New York case the court invalidated a provision in a
deceased physician’s will that his executor burn all his professional
records.15 The court did recognize, however, that the records belonged to
the physician’s estate and should not be delivered to the doctor’s former
patients.
Instead of delivering the entire original record to a newly chosen
physician, a former doctor may wish to transfer a copy of the record or
whatever excerpts or summaries are necessary for adequate treatment or
diagnosis. This would be the normal procedure for hospitals when a
patient is transferred to another institution or when a former patient seeks
care elsewhere. When a hospital transfers a patient to another hospital—or
when a private physician, for example, recommends a consultation with a
specialist—the hospital or the physician has a legal and ethical duty to
make available to the receiving institution or consultant copies of all med-
ical information that is relevant to and necessary for the appropriate care
of the patient. Most hospitals’ health information management depart-
ments have a contract agency, the full-time job of which is to copy med-
ical records and release the information to other hospitals or physicians on
patients’ requests.
 Chapter 14: Health Information Management 433

HIPAA and the Patient’s Right to Access

Medical Information

Federal law and most states’ laws recognize that the patient has a legal right
to the information in the medical record, for whatever reason. The long-held
assumption that medical records are not to be inspected by the patient or an
authorized representative is no longer valid.
With some exceptions, HIPAA gives patients the right to examine
and obtain a copy of their own records and to request correction of any
errors.16 The request may be denied for good cause—for example, if disclo-
sure of the information would be likely to endanger the life or physical safety
of the patient or another person; if the information is contained in psy-
chotherapy notes; or if it was compiled for use in a civil, criminal, or admin-
istrative proceeding. HIPAA also gives patients greater control over how
information about them can be used. For example, a signed authorization
must be obtained from the patient before health information can be used for
marketing or fund-raising purposes.
HIPAA gives patients a right to obtain a listing (an “accounting”) of
the occasions on which their health information was disclosed to other per-
sons for purposes other than treatment, payment, routine healthcare opera-
tions (such as peer review and quality assurance), or at their own request.
Accordingly, healthcare facilities and physicians must keep account of disclo-
sures of health information to the following, among others:

• accrediting agencies like the Joint Commission,

• state oversight agencies,
• public health organizations,
• law enforcement agencies,
• funeral directors, and
• tumor registries.

The accounting must indicate the date of the disclosure, the name of the
recipient, the information disclosed, and the purpose of the disclosure.17
Except to the extent that state law gives patients fewer rights of access
to their information, HIPAA does not replace state law protections, and
many states already had laws providing for access before HIPAA was passed.
For example, a Connecticut statute provides that a patient, her physician, or
an authorized attorney may examine the medical record.18 The right includes
access to and copies of the patient’s medical history, nursing notes, charts,
pictures, and images (e.g., x-rays, scans). In other jurisdictions the statute
may extend the right of access only to written medical records and notes,
thereby excluding images. Laws like this have been “preempted” in part by
HIPAA because the federal statute defines health information to mean any
434 The Law of Healthcare Administration

information, in whatever form, that is created or received by the healthcare

provider and relates to the patient’s medical condition, to the provision of
care, or to payment for care. Health information, therefore, includes x-rays
and other images as well as billing records and the traditional “medical
record.” A few states allow the medical record to be available to the patient’s
attorney or representative but not to the patient.19 These laws have also been
preempted by HIPAA.
Most state statutes do not specifically mention either the right of
minor patients to obtain information from their medical records or their par-
ents’ right to the information. Logically, however, the minor would have the
right whenever the relevant jurisdiction has recognized by either legislation
or judicial decision that a mature minor can consent for treatment without
parental consent. Accordingly, it might follow that a statute simply granting
the patient access to information would not grant the parents a right to view
the minor’s records. On the other hand, if the minor is of tender years or can-
not give legal consent for treatment, it would appear that parents should have
the right to medical information contained in the minor’s chart. HIPAA does
not change state law regarding the rights of parents to access their children’s
medical records.
As noted earlier, in the past physicians and hospitals customarily refused
to allow patients access to the medical record. They often based this policy on
the belief that records are technical and not understood by laypersons, that
revelation of medical information might adversely affect the patient’s health,
and that the privacy of third parties who may be named in the chart should be
protected. Clearly, the first and third of the forgoing reasons are no longer
supportable in light of growing social concern—as evidenced by HIPAA—for
individuals and their rights to information that directly affects health and wel-
fare. The second reason may still be recognized to the extent that HIPAA
allows denial of the right of access where the information would endanger the
life or physical safety of the patient or another person.
Hospitals and their medical staffs must reevaluate their policies in light
of the new standards of HIPAA. Hospitals and physicians must make the
medical record available to anyone the patient designates by presentation of
a current written authorization. They must also institute reasonable safe-
guards to protect healthcare information from unauthorized use and disclo-
sure. Although under the law an attending physician cannot arbitrarily deny
a patient access to the record, the doctor should be consulted and should be
asked to consent before the patient or a representative examines the record.
Not only is this a matter of professional courtesy, but it also protects the
patient, whose health or willingness to continue treatment may be adversely
affected by revelation of certain information.
Especially important is the moral and legal duty of a hospital or
physician to make certain that the patient’s authorization is current and
 Chapter 14: Health Information Management 435

genuine whenever a third party wishes to inspect the record. Healthcare

personnel must, therefore, be sensitive to the validity and authenticity of
documents that purport to be the patient’s authorization to release infor-
mation to third parties.20 However, note that HIPAA does not require
patient authorization for every release of information, as discussed in the
next section.

Release of Information Without the Patient’s Consent

To many persons, the concept of confidentiality implies that private infor-
mation entrusted to another may not be divulged to a third party without
the consent of the subject of the information. Because ethical considera-
tions treat medical information as confidential, and because many states
have privileged communication statutes pertaining to the physician–patient
relationship, it is sometimes believed that release of the information to a
third party is prohibited unless the patient consents. As the following dis-
cussion shows, this belief oversimplifies the law.
Confidentiality of private information is governed by both state and
federal laws. Accordingly, HIPAA’s privacy regulations and state statutes
and judicial decisions must be consulted to determine reliable answers to
the questions that continually arise about the release of medical informa-
tion.
Disclosure of personal information does not offend the Constitu-
tion.21 Although the Supreme Court has recognized an individual’s consti-
tutional right to make certain personal decisions without interference by the
government or other third parties,22 there is no constitutional principle on
the confidentiality of information. There are situations, discussed in the next
section, where third parties have a legitimate interest in and a legal right to
medical information respecting a particular patient. In those cases, release of
health information without the patient’s consent is permitted and, indeed,
sometimes required.

A valid court order directing that medical records be made available to a Court Orders
third party must be honored, and the patient’s consent is not required. and
Generally the legal process for obtaining medical record information is Subpoenas
through a subpoena duces tecum—an order that a witness bring specified
documents to a court or other tribunal having jurisdiction over pending
litigation.
Note that not all subpoenas amount to a court order. Under most
states’ rules of procedure, an attorney prosecuting or defending a case may
issue a subpoena for records relating to the other party. (The defendant in a
malpractice suit, for example, usually subpoenas the plaintiff’s medical
records to have the case evaluated by a medical expert.) Plaintiffs’ attorneys
often have supplies of such subpoenas to use on behalf of their clients. Under
436 The Law of Healthcare Administration

HIPAA’s privacy standards, however, a healthcare provider can release the

patient’s records without a court order only (a) if the patient signs an author-
ization for the release or (b) if the party issuing the subpoena has made a rea-
sonable effort to give the patient notice of the request. If in doubt, the owner
of the record can petition the court for a determination of whether the
records must be turned over.

Statutory Certain statutes require hospitals and medical personnel to report informa-
Reports tion to public authorities. These statutory reporting requirements are permit-
ted by HIPAA, but the disclosures must be accounted for, as noted earlier.
The statutes are constitutional as a legitimate exercise of the police power to
regulate public health, safety, and welfare.23 The requirements differ from
state to state, and healthcare providers must be familiar with the law of their
particular jurisdiction.
Following are some of the kinds of state reporting requirements:

• vital statistics (deaths, births, and fetal deaths),24

• abortions,25
• sexually transmitted diseases,
• other contagious or infectious diseases,
• injuries that may be the result of criminal acts,26
• accidental or self-inflicted wounds,
• drug abuse, and
• child or elder abuse or neglect.

Not all of these reporting duties exist in all jurisdictions, but wherever they
do, failure to report to the appropriate public authority may lead to civil lia-
bility or criminal penalties.

Duty to Warn Quite apart from statutory duties to report certain medical information to
Third Parties public authorities, if a physician or hospital knows that a patient’s psycholog-
ical condition represents a foreseeable serious risk to a third party, there is a
duty to disclose and warn of the danger. HIPAA recognizes the need for such
disclosures and specifically permits them when the healthcare provider
believes it “is necessary to prevent or lessen a serious and imminent threat to
the health or safety of a person or the public” and is made to someone who
is able to prevent or lessen the threat.27
In a California case with a tragic outcome, a male student was under-
going voluntary outpatient psychiatric treatment at a university hospital as a
voluntary outpatient. Several psychotherapists employed by the hospital were
aware that he had threatened to kill a particular individual. One of the psy-
chologists determined that the student should be committed to a mental
institution and asked the campus police to detain him, which they did. Later,
 Chapter 14: Health Information Management 437

however, the police released the student, who appeared to be rational, and
the chief of psychiatry reversed the psychologist’s order for detention.
Two months later the student did in fact kill his intended victim. In
Tarasoff v. Regents of the University of California—a suit by the parents of
the victim—the California court held that under the circumstances the duty
to disclose outweighed the duty of holding medical information confiden-
tial. According to the court, the psychotherapists and their employer had a
duty to exercise reasonable care to give threatened persons a warning that
foreseeable dangers could arise from the patient’s condition or treatment.
Breach of this duty can result in liability for damages. (See The Court
Decides: Tarasoff v. Regents of the University of California at the end of this
chapter.)
The Tarasoff doctrine is limited to situations where the physician or psy-
chotherapist knows or should know
that the patient represents a serious or
imminent threat to a readily identifi- Legal Brief
able victim. For reasons of policy there
is no duty to warn an entire commu- “The idea that professionals may be able to [pre-
nity or neighborhood of a person’s dict] the risk posed by a member of society is very
generalized threats to unspecified indi- controversial.… A number of studies suggest that
such predictions can be made, although the accu-
viduals (see Legal Brief). In a later case
racy of such predictions is questionable.”
interpreting Tarasoff, the California
Supreme Court held that there was no —CourtTV, www.crimelibrary.com/criminal_mind/
duty to warn the community or the profiling/danger/2.html
police that a juvenile delinquent
released from governmental custody
to the home of his mother had exhib-
ited violent propensities toward young children.28 Hence, there was no liability
when the juvenile subsequently caused the death of a five-year-old boy. In the
absence of an imminent risk to an identifiable victim, the criminal act causing the
death was not a foreseeable event.29 Fundamentally, these limitations on the
duty to warn third parties are the criteria for balancing an individual’s right to
confidentiality with a third person’s right to know that a risk exists. The immi-
nence and probability of the risks must be given weight, along with identifica-
tion of the probable victim, to justify a conclusion that the third person’s inter-
ests are paramount to those of the patient.30 As a practical matter, the
professional who must balance these interests is in the unenviable position of
having to predict violent behavior despite the fact that current medical knowl-
edge has apparently not advanced to the point where self-injury or injury to oth-
ers can be accurately forecast (see discussion in Chapter 6).
Consistent with the traditional majority approach, the duty to exer-
cise reasonable care in a given instance is typically a matter of law for the
court to determine. If a duty of care to a third party is recognized, questions
438 The Law of Healthcare Administration

of breach of duty and proximate cause become matters of fact for a jury to
resolve. Thus, foreseeability of harm in a given case is frequently a ques-
tion for the jury. Hesitation to send this question to the jury may be the
reason that some jurisdictions have apparently rejected the rule handed
down in Tarasoff or at least have distinguished it on its facts and have con-
cluded that the physician–patient privilege prevails.31 Even California has
declined to apply the principle of Tarasoff to a situation in which a psychi-
atrist was allegedly aware of a patient’s suicidal tendencies and failed to
restrain the patient or warn the parents.32 The court held that Tarasoff ’s
duty to warn only applies when the risk to be prevented is the danger of
violent assault, not when the risk is suicide. HIPAA’s duty to warn seems
to concur. When the patient is in danger of self-inflicted harm, the proper
course would seem to be involuntary commitment.

Peer-Review Peer review is a concept under the Medicare statute that is intended to ensure
Statutes the medical necessity, reasonableness, and quality of care given to Medicare
beneficiaries. Under federal regulations,33 to carry out their responsibilities
peer-review organizations have the right to access patient records and other
information. The information must be held in confidence and must not be
disclosed, except as authorized by law—for example, as aggregate data that
do not identify an individual patient or healthcare provider. Compliance with
these regulations is recognized and permitted by the HIPAA privacy regula-
tions. (Peer review is discussed more fully in Chapter 7.)

Lien Statutes A third party’s legal right to receive medical information regarding a partic-
ular patient is further illustrated by hospital lien statutes, which exist in
approximately one-third of the states. In simplest terms, the lien laws grant
the healthcare provider a legal claim under which the cost of hospitalization
is paid from damages that the patient
recovers from the one whose civil
Legal Brief wrong necessitated the patient’s
treatment. In turn, the tort-feasor is
“What I may see or hear in the course of the treat- entitled access to the patient’s med-
ment or even outside of the treatment in regard to ical chart without authorization by
the life of men, which on no account one must the patient to assess the legitimacy of
spread abroad, I will keep to myself, holding such the medical bills.
things shameful to be spoken about.”

—The Hippocratic Oath: Text, Liability for Unauthorized

Translation, and Interpretation, by Disclosure
Ludwig Edelstein. Baltimore, MD: The Hippocratic Oath requires physi-
Johns Hopkins Press, 1943 cians to hold inviolate and confidential
all information entrusted to them by
their patients (see Legal Brief). This
 Chapter 14: Health Information Management 439

ethical obligation may be incorporated in state rules and regulations govern-

ing the licensure of physicians and healthcare institutions, and its violation
may be a cause for revoking or suspending a license. Whether violation of
licensure regulations creates a civil cause of action for damages is a different
issue. Clearly, the HIPAA privacy regulations set a standard of care for confi-
dentiality irrespective of other state law.
Under common law there was no doctrine of confidential or privi-
leged communication between patient and physician. The common law rec-
ognized a doctrine of privileged communication in only three relationships:
attorney–client, husband–wife, and clergy–penitent. Accordingly, neither a
doctor nor an institution was obligated under common law to hold medical
information about patients confidential.
Most states have now enacted “privileged communication statutes” to
correct this situation and establish a confidential relationship between physician
and patient. Although these statutes differ somewhat in detail, their essence is
to declare that medical practitioners may not disclose any information that they
acquire in attending patients in their professional capacity and that was neces-
sary to the care and treatment of their patients. (As noted later, a patient may
waive this privilege; in that event the doctor is not prohibited from making such
disclosures and could even be compelled to do so by a court order.)
It is important to note that these statutes do not necessarily apply to out-
of-court disclosures. They are often applicable only to disclosures made in the
course of judicial or quasi-judicial proceedings. Further, they may not apply to
institutional providers of care. Hence, an out-of-court disclosure of private med-
ical information might not violate the privileged communication statutes, and as
a general rule an aggrieved patient may not base a civil cause of action for dam-
ages on an alleged violation of the statutes.34 A patient bringing an action
against a healthcare provider for damages resulting from an unauthorized out-
of-court disclosure of information must base the action on a common-law tort
or on a theory of contract law. There are at least three theories of action: defama-
tion of character; invasion of privacy; or, as noted in some recent cases, breach
of an implied contract to respect confidentiality. Two of these are discussed in
the following sections. The contract theory is addressed in Chapter 2.

The tort of defamation arises from a written or oral communication to a third Defamation
party of information about a living person that injures his reputation by dimin-
ishing the esteem, respect, or confidence in which the person is held or by excit-
ing adverse or derogatory feelings against that person.35 (Traditionally a cause
of action for defamation did not survive the death of the person whose reputa-
tion suffered damage. The modern trend, however, reverses that tradition.36)
Written defamation is libel; oral defamation is slander. In either event,
the communication must be made (“published”) to someone other than the
aggrieved party. Accordingly, a physician’s dictated letter addressed personally
440 The Law of Healthcare Administration

to a nurse suggesting that she may have committed a crime by administering

a substitute for a prescribed medicine did not constitute libel.37 (It might
have, however, if a copy of the letter had been sent to a third party.)
In the context of release of information from a medical record, the
chances of successful libel or slander suits against physicians and medical care
institutions are rather slim. In the first place, the truth of the published statement
is a complete defense to either libel or slander in most jurisdictions, even in the
absence of any legitimate motive for its publication.38 The burden of proving the
truth of the statement will normally be on the defendant. Even if not true, a pub-
lished retraction by the defendant or evidence that a defamatory statement was
published with a proper motive and a reasonable belief that it was true will gen-
erally provide a partial defense that can be considered in mitigation of damages.
Even if a statement published about another without consent is quite
untrue and adversely affects the subject’s reputation, the law has long recog-
nized two privileges that may afford a defense. There is an absolute privilege
related to judicial proceedings and even proceedings by executive or administra-
tive officers of the government. Hence, when a hospital honored a court sub-
poena and disclosed a medical record indicating the plaintiff was under the influ-
ence of alcohol, a statement alleged to be false, there could be no liability based
on defamation because the release was absolutely privileged.39
A qualified privilege exists where information is transmitted to a third
party with proper motive or purpose and with the exercise of reasonable care
that the information is true. Information may be published in good faith to
protect or advance the legitimate interests of the “publisher” or to protect
the interests of an individual recipient or of the public if persons publishing
it reasonably believe themselves to be morally obligated to speak and make
“fair comment” on matters concerning the public interest.40 For example, in
a Nebraska case, Simonsen v. Swenson, a physician disclosed to a hotel that his
patient, a resident of the hotel, had a contagious venereal disease. In a suit
alleging unwarranted disclosure of confidential information, the court held
that, even if the diagnosis had been incorrect, the defendant physician was
protected from liability by reason of the qualified privilege. Because the infor-
mation was transmitted in good faith without malice to a legitimately inter-
ested party, with a belief that there was a moral obligation to protect third
parties, there was no liability for defamation.41
Whether a publication was made in good faith with a reasonable belief
and care respecting the truth is a question for the jury. When a publication is
motivated by spite or ill will (malice-in-fact), the publisher can be liable for puni-
tive as well as compensatory damages. In a New Mexico case a physician who
was examining a patient to determine the reason for her absence from school
falsely reported to the school authorities that the 13-year-old girl was pregnant
and refused to retract or correct the report after learning it was false. Because a
matter of alleged pregnancy is libelous per se when it is false, the plaintiff was
 Chapter 14: Health Information Management 441

entitled to compensatory damages without proof of actual monetary loss and

was also entitled to punitive damages for malice-in-fact.42
The question of malice justifying an award for punitive damages is one
for the jury, and the proper standard for the jury to consider is whether the
publication was made with knowledge of falsity or with reckless disregard for
its truth. Because most hospitals and physicians uphold ethical standards and
do not as a rule publish information that they know to be false or show a
reckless disregard for the truth, the prospect of their being held liable for
punitive damages is minimal.
Readers must be aware that the examples of “qualified privilege” cited
earlier predate HIPAA by many years. Even if a particular disclosure of infor-
mation could be justified under traditional defamation law (itself a tenuous
proposition), there is no assurance that it could withstand a challenge based
on the new federal privacy standards.

Invasion of privacy—still a controversial subject and not explicitly mentioned in Invasion of

the U.S. Constitution—was recognized as a tort following publication of a Privacy
famous Harvard Law Review article in 1890 (which illustrates the profound
influence that legal scholars can have on the process of judicial lawmaking; see
Legal Brief).43 Most courts recognize the tort, but some have imposed limita-
tions to discourage unwarranted litigation and to strike a proper balance
between privacy and free speech. A few states have recognized the right of pri-
vacy by enacting statutes that carefully set out limitations to the cause of action.
Broadly defined, the so-called right of privacy is the right to carry on
one’s personal affairs without unreasonable and serious interference that exceeds
the limits of decent conduct and is offensive to persons of ordinary sensibilities.
With respect to publication of private information to third parties or to the pub-
lic, there is a legal wrong only when the recipient has no legitimate interest in
the information.44 In contrast to
actions based on the law of defama-
tion, the truth of an unwarranted pub-
Legal Brief
lication is not necessarily a defense to a
suit alleging invasion of privacy. On
In a Harvard Law Review article, cowritten by future
the other hand, of course, express con- U.S. Supreme Court Justice Louis Brandeis and his
sent to the publication is a defense. law partner, Samuel Warren, the authors assert that
An Ohio court, affirming the there is a common-law right of privacy, which they
principle that an individual has a famously described as “the more general right of
legally protected right of privacy, the individual to be let alone.”
defined the right in the case syllabus
—Warren and Brandeis, “The Right to Privacy,”
as follows: 4 Harvard Law Review 193 (1890)

An actionable invasion of the right

of privacy is the unwarranted
442 The Law of Healthcare Administration

appropriation or exploitation of one’s personality, the publicizing of one’s

private affairs with which the public has no legitimate concern, or the wrong-
ful intrusion into one’s private activities in such a manner as to outrage or
cause mental suffering, shame or humiliation to a person of ordinary sensibil-
ities.45

To succeed in an action for invasion of privacy it is not necessary for

the plaintiff to prove monetary loss; damages can be awarded for mental suf-
fering. The right, however, is personal to the individual; the privacy of a
deceased person cannot be invaded, and hence surviving relatives have no
cause of action when the alleged tort occurs after one’s death.46 Similarly, in
contrast to defamation, a corporation or a partnership cannot have its “pri-
vacy” invaded; other legal principles, such as copyright and trademark, are
used to protect a business entity from unwarranted appropriation of its good
name.47
Cases of invasion of privacy can be classified into four groups, accord-
ing to the facts:

1. unauthorized commercial appropriation of the plaintiff’s name, person-

ality, professional skills, or photograph;
2. use of plaintiff’s name or likeness for the defendant’s own purposes or
benefit, even though the use was not commercial and even if the benefit
to the defendant was not financial;
3. physical intrusion into one’s private affairs; and
4. disclosure of private information to those who have no legitimate need
to know it.

The Pennsylvania trial court case of Clayman v. Bernstein is of the sec-

ond type.48 A physician had photographed a patient’s facial disfigurement for
instructional purposes without consent. The plaintiff succeeded in prevent-
ing the use of the photographs to show the effect of the disability.
As already noted, healthcare personnel must be careful when using
photographs obtained during treatment. Normally the mere taking of a
person’s photograph is not an invasion of privacy, just as the mere mention
of a name is not a civil wrong. When photographs are taken as a routine
part of a patient’s care, for the benefit of the patient and in accordance
with acceptable professional standards, and when the photographs are then
made a part of the medical record, no appreciable legal issue is presented.
Like other parts of the record, such photographs can be used by the med-
ical staff of the hospital in evaluating standards and patterns of care and for
scientific or research purposes, at least when the patient’s anonymity is
preserved.49 To prevent any possible risk of liability, however, in light of
Clayman and other cases, it is sound administrative practice to have the
 Chapter 14: Health Information Management 443

patient consent expressly to the photography. Most healthcare providers

have a consent form for this purpose.

Photography that does not accord with professional standards of medical Photography
practice or that is done without consent could constitute an invasion of pri-
vacy and be within the third category of cases. Moreover, the unauthorized
use and publication of the pictures might also fall within the fourth group of
privacy cases: where private information is made public to those who have no
legitimate concern or interest in the information.50
Cases of unauthorized photography have issues that are similar to those
involved when unauthorized visitors are present during surgery or medical
examinations. Without consent, such a practice is an invasion of a patient’s pri-
vacy. Teaching hospitals, especially, should make clear to patients that medical
students may from time to time accompany treating physicians, and it should be
explained that the opportunity to observe is an integral part of the students’
education. (These facts should be included in the general consent signed upon
admission.)
In cases alleging invasion of privacy, the courts must balance con-
flicting public policy values: (a) “the right of the individual to be let
alone”—to use Justice Brandeis’s famous phrase—and (b) the public’s
“right to know.” Obviously, the right to be let alone diminishes as one’s
fame or notoriety increases. The well-publicized case of attempts to obtain
release of NASCAR driver Dale Earnhardt’s autopsy photos is a case in
point.
Like those of any accident victim in Florida, Mr. Earnhardt’s autopsy
records were subject to the state’s public records laws, and the autopsy report
and certain other items were promptly made available to the public. The autopsy
photographs, however, were not. When news organizations tried to get copies
of the photos, the Earnhardt family objected. The Florida legislature quickly
passed an amendment to the public records laws that shielded autopsy photos
from disclosure. The media challenged the law. In ruling that the law is consti-
tutional and that the records (the photographs) must not be released, the court
looked into “the seriousness of the intrusion into the family’s right to privacy.”
The opinion states:

The medical examiner testified that the photographs were “gruesome,

grisly and highly disturbing,” and the physician attending Mr. Earnhardt
after the accident confirmed this. The trial court found that such publica-
tion would “be an indecent, outrageous, and intolerable invasion, and
would cause deep and serious emotional pain, embarrassment, humiliation
and sadness to Dale Earnhardt’s surviving family members.” It is evident
from our review of the record that the publication of the nude and dis-
sected body of Mr. Earnhardt would cause his wife and children pain and
444 The Law of Healthcare Administration

sorrow beyond the poor power of our abil-

ity to express in words.

Legal DecisionPoint
One might be considered justified to
believe that the court’s “poor power” to
In its statute protecting autopsy photo-
express itself in words was quite sufficient,
graphs, the Florida legislature noted “that
the existence of the World Wide Web and thank you. (See Legal DecisionPoint.)
the proliferation of personal computers Release of medical information to
throughout the world encourages and pro- persons with a legitimate interest in the
motes [sic] the wide dissemination of pho- information does not ordinarily constitute
tographs and video and audio recordings an invasion of the patient’s privacy, even
24 hours a day.… [W]idespread unautho-
absent an explicit consent to do so.51 Indi-
rized dissemination of autopsy photo-
graphs and video and audio recordings viduals and organizations having a legiti-
would subject the immediate family of the mate interest include attorneys for the
deceased to continuous injury.” patient, insurance carriers, various govern-
Readers can recall examples from their mental agencies, bona fide research person-
own experiences. Do you think current legal nel, and family members (in some circum-
standards regarding these kinds of privacy
stances, especially if they are or will be
issues are sufficient?
participating in the patient’s care and the
patient does not object).52 As mentioned
earlier, HIPAA permits release of information for treatment, payment, and
healthcare operations (such as quality assurance and peer review) and to
healthcare oversight agencies. It permits disclosure to a friend or family mem-
ber if the patient agrees or, if the patient is unable to consent, if in the
patient’s best interests.
Persons who consent to publicity or who place themselves in the pub-
lic eye through their activities and exploits—for example, authors, actors, or
candidates for public office—implicitly waive their rights of privacy to the
extent that the public has a legitimate interest in newsworthy events.53 (This
principle also applies to persons who are not public figures but who are tem-
porarily in the public eye.) Unless news stories and photographs exceed the
bounds of ordinary decent conduct, persons cannot complain when, for exam-
ple, the press reports an accident that they are involved in, when they commit
a crime that is publicized, or when they figure in any other newsworthy event,
so long as the publicity is not misleading or the facts are not misrepresented.
Release of information acknowledging an individual’s admission to the
hospital, naming the physician, and describing the patient’s medical condi-
tion in general terms (“good,” “fair,” “critical”) usually presents no legal risk
of liability for invasion of privacy unless the patient objects.54 If, however, the
mere fact of admission could reveal the presence of mental illness or a disease
thought to be shameful and humiliating—as might occur, for example, when
the institution in question is known to treat only alcoholics or those suffer-
ing from mental illness—then an announcement of admission could lead to
 Chapter 14: Health Information Management 445

liability, at least if the patient was not a public figure. HIPAA has provisions
allowing for the patient to request that no information about his care be
released, including the fact that he is in the facility.55

Statutory Provisions Mandating Confidentiality

Physicians and hospital personnel must be familiar with state and federal
statutes and regulations that create a positive duty not to release medical
information in certain circumstances. HIPAA has been mentioned earlier,
and many states have “superconfidentiality” laws relating to records of treat-
ment for substance abuse, HIV/AIDS, and mental health. For example, New
York’s mental hygiene law declares that officials of state mental institutions
shall not make case records available, except as provided in the law; violation
of this state statute created civil liability to a patient when a hospital director
released the record to an adverse attorney.56
The Illinois statute is an example of comprehensive legislation that
grants mental health patients or a parent/guardian a right of access to mental
health records and applies principles of confidentiality to all services related to
mental health or developmental disability furnished by physicians, psychia-
trists, psychologists, social workers, and nurses in the community at large.57
The personal notes of a therapist are not held to be a part of the medical
record,58 but no information in the record itself can be disclosed without writ-
ten consent of the patient, parent, or guardian59 except to professional col-
leagues, peer-review committees, and institutions having legal custody of the
patient.60 Furthermore, the statute includes detailed provisions relating to tes-
timonial disclosures in judicial and quasi-judicial proceedings.61 Violation of
these mandated provisions is both a criminal and civil offense; the patient can
sue for an injunction and may also seek damages, including recovery of attor-
ney fees.62
Federal laws such as the Comprehensive Drug Abuse Prevention and
Control Act of 197063; the Drug Abuse Office and Treatment Act of 197264;
and the Comprehensive Alcohol Abuse and Alcoholism Prevention, Treat-
ment, and Rehabilitation Act Amendments of 198365 impose stringent con-
fidentiality requirements for records of patients receiving treatment for drug
dependency and alcoholism under programs supported by federal funds.
Underlying these rules is the principle that confidentiality will encourage
patients to seek help for drug and alcohol abuse and psychiatric problems.
The legislation applies to all federally assisted healthcare providers,
whether the assistance is research on the abuse of drugs or alcohol or through
Medicare, Medicaid, or other governmental payment programs. Together,
the statutes and attendant regulations66 provide that medical information is
to be disclosed only to those connected with the program. Family members,
law enforcement officials, and courts have no access except as specifically pro-
vided, unless the patient has given express written consent to the disclosure.
446 The Law of Healthcare Administration

Disclosures without a patient’s consent can be made only to personnel

in drug or alcohol programs who have a legitimate need to know, to other
providers when a medical emergency arises, to organizations conducting
research and evaluations (as long as particular patients are not identified), and
by special court order based on good cause.67 These patients may not be
identified in any civil, criminal, or administrative procedure, and information
cannot be released to law enforcement officials without a specific court order.
Normal civil or criminal proceedings and their usual subpoena processes do
not justify breach of a substance-abuse or mental-health patient’s right to
confidentiality. Hospital and medical personnel must, therefore, develop poli-
cies to prohibit release of all medical information concerning these patients
without a court order.
Courts have ordered release of information in proceedings to revoke
criminal probation,68 in connection with child neglect,69 and in an investiga-
tion by the Internal Revenue Service.70 In contrast, good cause for a disclo-
sure was not established in a criminal proceeding to determine a person’s
potential for rehabilitation71 and when the credibility of a witness was in
question.72 A New York court protected the confidentiality of photographs
that had been taken in the waiting room of a methadone treatment clinic and
were later sought by law enforcement officials in connection with the inves-
tigation of a murder.73 Where the medical records of a patient in a drug
abuse program contained information likely to exonerate a patient from
involvement in an alleged crime, however, procedural due process would
require disclosure.74 A judicial “in camera” review is often necessary to deter-
mine “good cause” and what portion of the record may be released.

HIPAA Privacy Standards

As has been mentioned, certain provisions of HIPAA now permeate medical
records law (see Legal Brief). No one section of a text like this can begin to
do justice to the myriad issues that this federal privacy law presents. (The
effect of HIPAA’s privacy standards would by themselves justify an entire
textbook this size.)
Legal Brief Until this point, therefore, we
address HIPAA’s effects only as they
HIPAA is a massive statute, only one part of which might illuminate or be illuminated
relates to the privacy of health information. In our by the general types of privacy con-
discussion, reference to HIPAA means just those cerns that have existed since Hip-
portions that deal with privacy issues. The imple- pocrates. That being said, a decent
menting regulations are also included in the refer-
respect for the significance of this law
ence. (As is usually the case, the regulations are
more detailed than the law itself.) requires that we consider certain
HIPAA-specific provisions regarding
the privacy of health information.
These regulations are those that
 Chapter 14: Health Information Management 447

• give patients more control over their health information than before;
• set limits on the use and disclosure of medical records, including billing
records;
• establish safeguards to protect the privacy of health information; and
• hold violators accountable through civil and criminal penalties.

HIPAA provides that a person who knowingly and wrongfully obtains or

discloses protected health information may be fined up to $50,000, imprisoned
for up to one year, or both. If the offense is committed under false pretenses,
the penalties increase to $100,000 and five years in prison, and if the offense is
committed with the intent to sell or use the information “for commercial advan-
tage, personal gain, or malicious harm,” the penalties are $250,000 and ten
years in prison.75
HIPAA requires health providers and health plans to notify patients of
their privacy rights and how their health information will be used. (This is
why when you go to the doctor you get something called a “Notice of Pri-
vacy Practices” that tells you a lot of things you already knew—and, if you
read it carefully, some things you probably didn’t—about how information
about you will be kept and used.) HIPAA gives patients the right, in many
cases, to object to certain uses of the information, such as for marketing,
research, and fund-raising. Use of the information for treatment, payment,
and healthcare operations is not restricted, and neither are the following:

• disclosures required by law;

• reports about victims of abuse, neglect, or domestic violence;
• uses for healthcare oversight activities;
• disclosures for judicial and administrative proceedings;
• disclosures for law enforcement purposes;
• disclosures to coroners, medical examiners, and funeral directors;
• uses for organ, eye, or tissue donation;
• certain uses for research purposes;
• disclosures to avert a serious threat to health or safety;
• certain disclosures for specialized governmental functions, such as
national security; and
• disclosures for workers’ compensation.

Use and disclosure of health information for the facility directory or to

others (such as family members) who are involved in the patient’s care may be
made if the patient does not object. Other types of disclosures must be pur-
suant to the patient’s (or her legal representative’s) specific written authoriza-
tion. In any case in which disclosure of health information is permitted or
authorized, the organization must “limit the protected health information dis-
closed to the information reasonably necessary to achieve the purpose for
448 The Law of Healthcare Administration

which the disclosure is sought.”76 For example, if after discharge from the hos-
pital a cardiologist sees a patient for follow-up, it would probably not be appro-
priate for the hospital to send the cardiologist copies of medical records relating
to an earlier admission for a fractured leg; the hospital would limit the informa-
tion disclosed to the patient’s admission for the coronary condition.
HIPAA preempts (supersedes, trumps) state laws that provide (a) less
protection for the information or (b) fewer rights of access by the patient.
Each state’s laws need to be analyzed to determine whether any of its provi-
sions are preempted. In Florida the state hospital association convened a
committee of attorneys and compliance officers to review more than 200
state laws and regulations that have some reference to the privacy of health-
care records. The committee found several provisions that conflict with the
HIPAA regulations. For example, one section of the Florida mental health
law provides that patients may have access to their clinical records unless the
physician determines that release would be “harmful to the patient.”77 The
HIPAA regulations, however, say that access may be denied only if access is
likely to endanger the “life or physical safety” of the patient.78 To the extent
that the Florida statute would permit the physician to deny access for reason
of potential emotional harm, not just danger to the patient’s life or physical
safety, the statute is contrary to HIPAA and is preempted.79
To date, precious few court cases on HIPAA’s privacy provisions have
reached the federal courts of appeals. Those that have done so dealt with funda-
mental challenges to the provisions’ validity. For example, in South Carolina
Medical Association v. Thompson,80 the question was whether Congress had
unconstitutionally delegated its legislative power to the Executive Branch by giv-
ing the secretary of the U.S. Department of Health and Human Services (HHS)
broad authority to write privacy regulations. The court held that it had not:

Because Congress laid out an intelligible principle in HIPAA to guide agency

action, we reject appellants’ claim that the statute impermissibly delegates the
legislative function. We also conclude that regulations promulgated pursuant to
HIPAA are not beyond the scope of the congressional grant of authority, and
that neither the statute nor the regulations are impermissibly vague.

In Citizens for Health v. Leavitt 81 the question was whether the “pri-
vacy rule” (the regulation issued by the HHS secretary) is invalid because it
allows for the use and disclosure of personal health information for purposes
of treatment, payment, and routine healthcare operations without the
patient’s consent. The court held that the secretary did not abuse his discre-
tion in issuing the regulation and that it does not violate individuals’ privacy
rights: “[because] the Privacy Rule is permissive and does not compel any
uses or disclosures of personal health information by providers, it does not…
interfere with any right protected by the First or Fifth Amendments.”
 Chapter 14: Health Information Management 449

In summary, the HIPAA regulations are here to stay. They are lengthy
and complicated. Healthcare administrators must ensure that their organiza-
tions have proper policies and procedures in place and that appropriate train-
ing is available for all members of their workforce.

State Open-Meeting and Public-Records Laws

Most states have statutes requiring governmental agencies to open their meet-
ings to the public and to make minutes and other records available for public
inspection. Sometimes these statutes are referred to as “sunshine” laws, connot-
ing that the public is entitled to have daylight shed on the conduct of govern-
mental affairs and has a right to information on governmental decision making.
To ensure compliance, the statutes typically provide that a violation of
the public’s right to know constitutes a criminal offense punishable by a fine.
More significantly, members of the public can usually enforce their statutory
rights by seeking a writ of mandamus that compels compliance or an injunc-
tion ordering appropriate relief. Depending on the circumstances, a court
may be authorized to declare governmental decisions made in violation of the
statute to be null and void. In some states the plaintiff’s attorney fees can be
assessed against the public agency named in the suit or even against individ-
ual members of a board or agency.
Governmental hospitals and public hospital authorities are generally
covered by these laws,82 whether at the state, county, or municipal level.
Thus, a county-owned hospital in Florida was subject to that state’s Public
Records Act, and the institution’s personnel records were considered to be
“public records” subject to inspection.83 The records were not protected by
either a statutory exception or a common-law right of privacy even though
they contained information concerning prior felony convictions, drug and
alcohol problems, unlisted phone numbers, physical and mental examina-
tions, and communications from third persons who believed the information
they furnished was confidential.
In similar fashion the Georgia Supreme Court has held that a county
hospital authority is subject to that state’s legislation and that a newspaper
had the right to access the names, job titles, and salaries of all employees
earning more than $28,000.84 In Florida, Gadd v. News-Press Publishing
Company, Inc., held that a newspaper was entitled to view a public hospital’s
medical staff files and its utilization review documents.85 The Public Records
Act did not provide a specific exception or an exemption for the records of a
medical peer-review committee. Although another Florida statute exempts
peer-review records and proceedings in an action against a provider of health
services from both pretrial discovery and admissibility in evidence during lit-
igation,86 the Gadd court held that the apparent inconsistency between the
450 The Law of Healthcare Administration

two statutory schemes was a matter for the legislature to resolve. These cases
are examples of the typical judicial approach to interpret the sunshine statutes
liberally in accordance with legislative intent.
Private corporations are not normally subject to open-meeting laws,
even if they receive financial support or other assistance from the govern-
ment. Accordingly, a charitable hospital created by the terms of a private indi-
vidual’s will was not governed by the Massachusetts open-meetings law even
though municipal bonds were issued to support the institution, hospital
trustees were elected by local voters, and legal title to the hospital’s property
was vested in the town.87 The circumstances of each individual case must be
compared to the law of the relevant jurisdiction, however, before deciding
whether the statutes apply to private organizations that have associations or
contracts with the government. When, for example, a private, not-for-profit
medical center in Florida leased space from a governmental hospital author-
ity, certain records of the medical center were accessible to the news media.88
Moreover, whenever a governmental function is delegated to a private organ-
ization, the open-meetings statute may apply. For example, in Seghers v. Com-
munity Advancement, Inc., a not-for-profit corporation administering a gov-
ernmental antipoverty program and making policy decisions on the
government’s behalf was subject to the Louisiana statute.89 Similarly, a cor-
poration operating a municipal electric utility system could not claim exemp-
tion as a private organization because otherwise the city would provide this
service directly.90
Most of these statutes, of course, have exceptions to the right of
public access. Sometimes these exceptions are cast in very general language;
some are more specific. A court may also create an exception whenever
there is a persuasive reason for limiting the applicability of the legislation.
Typically the statutes will except meetings and records relating to pending
litigation, negotiations with labor unions, acquisition of capital (such as the
purchase of real estate), and disciplinary action against governmental per-
sonnel. Illustrating the latter, a New York case held that certain patient
records and interviews with various persons, which were used in a statutory
disciplinary proceeding against a physician, were exempt from the state’s
freedom-of-information law.91 Also in New York a court found that a
county medical center need not disclose medical records of patients, even
with identifying information removed, because they are embraced within a
specific statutory exception and the freedom-of-information statute must
be reconciled with the patient’s right to confidentiality.92 The court con-
cluded that it must have been the intent of the legislature to recognize the
patient’s right as paramount. (Other courts might well disagree.) In Cali-
fornia the state’s Medi-Cal (Medicaid) agency was permitted to refuse dis-
closure of a fiscal audit manual sought by the plaintiff hospital. The court
felt that the manual contained critical information relating to the state’s
 Chapter 14: Health Information Management 451

audit of Medi-Cal providers and that the interest of the public was best
served by nondisclosure.93
In contrast to situations in which information access was denied, a
public hospital had to release the records of a patient who sued under Wash-
ington’s Public Disclosure Act, even though the statute exempted personal
information from disclosure.94 A Joint Commission survey report on a gov-
ernmental hospital was released in a Pennsylvania case.95 The rationale was
that these reports are used by state governments as evidence of qualification
for hospital licensure and thus are public records subject to disclosure unless
the government received them under an understanding that they would be
held in confidence.96 In Minnesota the Data Privacy Act allowed public
access to the names of physicians who received payment for abortion services
to state-assisted indigent patients.97 The court held that neither the patient
nor the doctor had a sufficient interest to prevent disclosure of the doctors’
names. Similarly, a consumer advocacy group was given access to reports
compiled by the Michigan Department of Public Health in the course of
granting licenses to nursing homes.98
As these examples show, questions involving access to governmental
information involve balancing various interests. The outcome of each case
will depend on the language of the relevant statute, judicial understanding of
legislative intent, the purposes or motives of the one who seeks access, and
the countervailing interests of the defendant or third parties.

Medical Records in Legal Proceedings

As mentioned earlier , the common law did not recognize a physician–patient

privilege. Hard though it is to believe, and despite the Hippocratic Oath,
medical information entrusted to a doctor was not confidential under the
common law.99 Most states, however, now have statutes that prohibit the
physician (and perhaps other professional clinical personnel, depending on
the particular statute) from disclosing patient information during judicial
proceedings unless the patient has consented or waived the privilege. A typ-
ical statute reads as follows:

The following persons shall not testify in certain respects: ...A physician,
concerning a communication made to him by his patient in that relation
or his advice to his patient, except that the physician may testify by express
consent of the patient or, if the patient is deceased, by the express consent
of the surviving spouse or the executor or administrator of the estate of
the deceased patient and except that, if the patient voluntarily
testifies...the physician may be compelled to testify on the same subject,
or if the patient, his executor or administrator, files a medical claim...the
452 The Law of Healthcare Administration

filing shall constitute a waiver of

Legal Brief this privilege with regard to the
care and treatment of which com-
Physician–patient privilege is the legal and ethical plaint is made.100
duty of a physician to refuse to testify in a trial or
other legal proceeding about statements made to Statutory Privilege of
him by a patient without the patient’s consent. Confidentiality
The purpose of the privilege of confi-
dentiality is to encourage frank com-
munication between the doctor and
the patient and thus to facilitate quality medical care (see Legal Brief). The
effect is to prevent a physician or other professional person who has confiden-
tial information from disclosing it in court or in quasi-judicial proceedings if
the patient asserts the privilege. (Note that the statutes generally do not apply
to nonjudicial disclosures; those are left to civil remedies such as suits for
defamation, invasion of privacy, and the like.)
In addition to courtroom proceedings, these laws apply to pretrial
proceedings such as depositions and motions to inspect and discover
records. They also apply to investigations conducted by state legislative bod-
ies. As a general rule the privilege survives the patient’s death and may be
asserted by her estate.101 To create a privilege of confidentiality, a physi-
cian–patient relationship must exist, and the information the physician is
asked to disclose must relate to the patient’s medical history and treatment.
In State of Washington v. Kuljis a hospital staff physician drew a sample of a
patient’s blood to test for intoxication at the request of the police and with
the apparent consent of the patient. It was held that there was no physi-
cian–patient relationship and that the information the doctor obtained was
not for the purpose of treatment. The test results were admissible as evi-
dence in a criminal prosecution.102
Modern procedures encourage liberal pretrial discovery practices to
gather all possible evidence that may be admissible at trial. Therefore, the
parties to a lawsuit can usually be required to give depositions on medical
issues arising during litigation, and their medical records are normally subject
to subpoena. The question of admissibility will be sorted out later by the
judge.
Parties in a lawsuit are usually said to have waived the privilege of con-
fidentiality if they put their medical condition at issue. In contrast, the med-
ical records of one who is not a party to a legal proceeding are not generally
subject to pretrial discovery or admissible in evidence. (But there is a trend
toward liberalizing this traditional rule, as discussed in the next section.) In
essence, the privileged communication statutes protect the confidentiality of
the medical records of anyone not a party to a legal proceeding or when med-
ical issues are not relevant to the case being tried.
 Chapter 14: Health Information Management 453

Admissibility of Medical Records

In states without a privileged communication statute, or when the privilege
does not apply or cannot be asserted by the patient, medical records are gen-
erally admissible as evidence under one or more of the exceptions to the
hearsay rule, which prohibits secondhand evidence. Medical records are
hearsay because the information contained in them is compiled by persons
not under oath and these persons are not subject to cross-examination.
That being said, the rules of evidence recognize certain exceptions to
the hearsay rule, the foremost of which relates to records kept in the normal
course of a business and made at or near the time of the matter under
scrutiny. Although those records are technically hearsay (because they are
out-of-court entries offered into evidence to prove the truth of the matters
contained in them), they are admissible as an exception as long as their
authenticity is properly established. Medical records maintained by a physi-
cian or a hospital fall within the business-record exception.103 In some juris-
dictions legal authority allows records or excerpts from records to be received
as evidence only when the person who entered the information in the chart
is not available to testify in person. It should also be noted that the parties to
the litigation could stipulate to the records’ authenticity and agree that they
will be received in evidence. In that event the hearsay rule and exceptions to
it become irrelevant.
It is sound public policy to admit records in evidence during litigation,
subject to the safeguards of materiality and relevance, when no privileged
communication statute exists or when the patient has waived the right of
confidentiality. The fundamental purpose of litigation should be to ascertain
the truth and accomplish justice between the parties in an adversary situation.
Records maintained in the regular course of a patient’s care will presumably
help establish that truth. Because physicians, nurses, and hospitals do not
ordinarily falsify information describing the diagnosis and care rendered to a
particular patient, courts can be confident that the information accurately
reports the facts and medical opinions regarding the case. In addition, the
records are frequently more reliable than personal recollections. Witnesses
may be forgetful or they may not be available to testify in person. Even if they
are available, the entries may have been made by so many different persons
that it would be extremely time consuming and expensive if they all had to
appear as witnesses. To exclude medical records from evidence because they
are hearsay would defeat the legitimate goals of the judicial process.

Extent and Applicability of Statutory Privilege

The privileged communication statutes differ from state to state. All, how-
ever, extend the confidential privilege only to the patient, and not to the
physician.104 In other words, the physician may not refuse to testify for per-
sonal reasons. Furthermore, as noted earlier, the statutes pertain only to legal
454 The Law of Healthcare Administration

proceedings of one kind or another. Other disclosures do not give the patient
a cause of action for violating the privilege statute, but other recourse exists,
such as lawsuits for defamation, invasion of privacy, outrage, and violation of
contract.
The use of confidential information in court, contrary to the privilege
statute, gives rise to a civil cause of action against the medical practitioner
who discloses it, at least in the view of the South Dakota Supreme Court. In
Schaffer v. Spicer105 a divorced woman and her former husband were engaged
in child-custody proceedings. At the husband’s request, and without court
order, the wife’s psychiatrist prepared an affidavit for the husband’s attorney
in which the doctor disclosed confidential information reflecting unfavorably
on the wife’s fitness as a mother. The South Dakota Supreme Court held that
the privilege statute had been violated because the information had been
acquired by the doctor in the course of treating the patient and the patient
had not consented to the disclosure or waived her right of privilege. (The
information could probably have been obtained with a court order, but this
avenue was apparently not explored.)
The privilege generally applies not only to a physician’s records but
also to those of an institution because those contain information acquired by
the physician in the course of treating the patient.106 Once again, however,
the privilege can only be asserted by the patient. Traditionally, a hospital
could not assert confidentiality of records on its own behalf when the court
proceedings involved third parties. This rule has been greatly affected by
HIPAA, of course, and in any event the issue of privilege must be determined
by the litigating parties and the court.107 If the hospital is one of the litigants,
the patient will be deemed to have waived the privilege by bringing suit
against the hospital.
The privileged status of medical records is exemplified by a California
case in which the plaintiff sought damages from the defendant after an auto-
mobile accident. During pretrial discovery, the plaintiff admitted to having
been involved in an earlier automobile accident, to having attempted suicide
in the same year, and to having been under the care of a psychotherapist. The
defendant then obtained a subpoena for all of the plaintiff’s medical records.
The Supreme Court held that under California’s statute the records were
privileged and not subject to discovery.108 The plaintiff had not waived the
right to confidentiality because the suit against the defendant raised no issue
relating to her mental health.
In another case in which an automobile accident victim’s estate
claimed accidental death benefits, the insurance company was unable to gain
access to his medical records to establish, if possible, that the accident was a
suicide. Because there was no evidence of suicide other than the accident, the
privilege of confidentiality prevailed.109 In another California case the plain-
tiff attempted to establish that a minor’s parents were aware of their daugh-
 Chapter 14: Health Information Management 455

ter’s violent tendencies and sought her psychiatric medical records to support
the claim. The court denied access.110

Access to Medical Records of Third Parties

During pretrial discovery some plaintiffs try to obtain information from the
medical records of persons who are not parties to the litigation. As noted pre-
viously, the medical records of a patient not a party to litigation are generally
not discoverable. But attempts to discover records of third parties have been
successful in a few circumstances, as noted in the following discussion.
An Arizona case illustrates the traditional approach and an unsuccessful
attempt to gain access to the charts of other patients. The plaintiff had filed a
malpractice suit against a hospital for complications of childbirth. Her private
obstetrician (who was not a defendant) was absent from the delivery room at
the time but was allegedly on the hospital premises. Arguing that the hospital
had a duty to reach the physician, the plaintiff tried to gain access to the hos-
pital records of another patient to learn what they might reveal about the doc-
tor’s actions at the time in question. The trial court granted discovery of the
records, but this decision was reversed on appeal. The higher court held that
when neither the doctor nor the other patient was a party to the litigation the
information was privileged.111
Consistent with this view is an Illinois decision denying access to the
medical records of nearly 800 persons who, along with the plaintiffs, had
allegedly suffered injury following administration of an investigative drug. It
was held that the hospital, on behalf of its patients, could claim the records
to be privileged because it was highly probable that the identities of individ-
ual patients would be disclosed, even if their names were deleted.112 The
court further said that the patients whose records were sought had not
waived the privilege.
In other cases, however, the courts have held that certain records
revealing information about third parties are not confidential and that a
plaintiff is entitled to such information. For example, an Arizona court per-
mitted a malpractice plaintiff to examine the medical records of 24 surgical
patients who had received cardiac pacemakers, provided that the patients’
names and other identifying information were redacted.113 The plaintiff’s
suit against the hospital alleged that implanting a pacemaker in this particu-
lar instance was unnecessary and that the institution had been negligent in
failing to monitor the surgeon’s privileges properly. Because an essential
question was whether the hospital was aware or should have been aware of
the surgeon’s alleged deviations from professional standards, the records of
other patients were relevant to the plaintiff’s claim.
A malpractice plaintiff has a right to discover the names of other patients
who may possess information regarding the alleged negligence or malpractice,
and their consent to such disclosure is not necessary.114 Otherwise the hospital
456 The Law of Healthcare Administration

could seek witnesses favorable to its side while denying the plaintiff the same
opportunity. In itself, the release of the names of patients usually does noth-
ing to reveal the nature of their illnesses or the treatment rendered. Accord-
ing to a New York suit against a hospital that allegedly failed to supervise dan-
gerous patients, the victim of an assault by a hospitalized mental patient is
entitled to records relating to prior assaults by the same patient.115 Nonmed-
ical data regarding other assaults by such a patient are clearly discoverable by
a plaintiff, such disclosure not being a violation of either the privileged com-
munication statute or New York’s mental hygiene law, which provides that
the medical records of patients of state mental institutions are confidential.116

The Patient’s Waiver of Privilege

Patients who file suit for damages and thereby place their physical or mental
health in issue are deemed to have waived the privilege of confidentiality, and
their medical records will be admissible at trial, subject to the usual rules of
evidence. When a person who claimed to have been injured in an automobile
accident brought an action against both the state of Vermont and an indivi-
dual alleging that the defendants’ negligence caused the accident, the
Supreme Court of Vermont permitted discovery of the medical records com-
piled by the treating physician.117 In another suit—one alleging that a hos-
pital was negligent in maintaining its property and thus caused the plaintiff’s
fall—it was ruled that in bringing suit the plaintiff placed her physical condi-
tion at issue and fairness required the hospital to have access to all relevant
medical information, including treatment for a preexisting complaint.118
Another illustration of waiver occurred in New York, where the patient
brought suit against the manufacturer of an intrauterine device. In this case
the defendant was entitled to discover the patient’s record of venereal disease
on file with the city health department.119
In determining whether information contained in a medical record or
possessed by a medical practitioner is subject to pretrial discovery proceed-
ings or is admissible in evidence in judicial or quasi-judicial proceedings, a
court must first interpret any local statute that relates to privileged commu-
nications and then apply it to the particular circumstances. If no statute
exists, or if the statute does not prevent access to medical information, the
court must determine the admissibility of the information by applying the
general rules of evidence respecting hearsay testimony and their exceptions
and then evaluate the authenticity, reliability, credibility, materiality, and rel-
evance of the record.
In jurisdictions with privileged communication statutes, the public
policy issue of balancing the patients’ rights to confidentiality against the
other parties’ rights to ascertain the truth and protect their legitimate inter-
ests is a sensitive matter. As is evident through this discussion, the courts
attempt to deal fairly with these conflicting interests on a case-by-case basis.
 Chapter 14: Health Information Management 457

The Federal Government’s Right of Access to Medical Records

Prior to the enactment of HIPAA there was no statutory privilege of confi-
dentiality under federal law, and state statutes do not apply in cases involving
a federal legal issue. HIPAA permits the government, whether federal or
state, to have access to medical records for purposes of healthcare oversight
and certain other special situations. Situations in which the federal govern-
ment has been permitted to review medical records without consent of the
patient are exemplified in cases initiated by the Internal Revenue Service
(IRS) and the National Institute of Occupational Safety and Health
(NIOSH). The IRS was granted access, for example, to the medical records
of a deceased person to ascertain whether gifts or property during the
patient’s lifetime were made in contemplation of death and thus subject to
the federal estate tax.120 In another case the IRS was successful in obtaining
the surgical records of a physician who had failed to file tax returns.121
NIOSH may subpoena employees’ medical records that employers must
maintain under the Occupational Safety and Health Act.122 In none of these
situations did the state’s privileged communication statute apply to protect
the confidentiality of the records.
In a widely publicized 1983 case, the HHS sought the records of a
severely handicapped newborn, contending that failure to perform surgery
because the parents refused their consent constituted unlawful discrimination
against a handicapped person in violation of federal law. The district court
denied the government access to the records, holding that honoring the par-
ents’ refusal in the circumstances would not violate the act.123 The decision
was later affirmed by a federal court of appeals but for different reasons. In
the view of the appellate court the factual situation was beyond the contem-
plation and intent of Congress when the legislation prohibiting discrimina-
tion against handicapped persons was enacted, and therefore the statute was
not relevant.124 Note that the district court observed in its opinion that dis-
closure of the records would not have been barred by a state privilege of con-
fidentiality because no statutory privilege exists when a federal question is
being decided.125 An argument that disclosure would offend the patient’s
constitutional right of privacy was said to be “extremely weak.”126
In contrast, a few courts have recognized a constitutional right to
maintain confidentiality. For example, a district court has held that a federal
grand jury investigating allegations that a mental hospital and a physician
defrauded certain insurance companies was not entitled to inspect patients’
medical records.127 The court found a privilege of confidentiality, ruling that
it was constitutionally based, and held that a physician could assert the priv-
ilege on behalf of patients. A similar conclusion was reached in Hawaii. In
that state a statute authorized administrative warrants to search the files of
psychiatrists who were caring for Medicaid patients upon showing probable
cause. The purpose of the legislation, of course, was to aid in finding fraud
458 The Law of Healthcare Administration

and abuse by physicians receiving public funds. Nevertheless, the court issued
an injunction prohibiting enforcement of the statute, thereby recognizing a
constitutional right of privacy that cannot be interfered with in the absence
of a compelling governmental interest.128 Apparently the court felt that the
state had not sufficiently demonstrated a compelling need to inspect the
records.
State authorities, like federal administrative agencies, have frequently
been successful in gaining information that is necessary to enforce the law
and to protect against fraud and abuse of third-party financing arrangements.
The U.S. Court of Appeals for the Sixth Circuit has said, for example, that a
psychotherapist may be required to disclose the names of patients and the
dates of their treatment to a grand jury investigating an alleged scheme to
defraud the Michigan Blue Cross/Blue Shield plan.129 Similarly, a New York
court permitted the state’s Department of Social Services to review a psychi-
atrist’s records of Medicaid patients when investigating the physician’s billing
practices.130 The physician could not claim that the records were privileged.
Further, neither the state’s privileged communication statute nor a constitu-
tional right of privacy prohibited the access to documents containing medical
information relating to patients by a grand jury investigating a death in a hos-
pital’s intensive care unit.131 In California and many other jurisdictions, the
agency that is responsible for licensure may review medical records when
examining the professional conduct of a physician whose hospital privileges
have been revoked, although the law may require that the names of patients
be deleted.132 Information in the hands of a state’s medical licensure board
is also frequently available to both state and federal agencies investigating
possible criminal activities by physicians.

HIPAA and Law As a general proposition, disclosures of protected health information should
Enforcement not be made to law enforcement officials without either the patient’s con-
sent, explicit statutory authority, or a court order. HIPAA provides explicit
guidance in this area. Institutions should have policies for relationships with
law enforcement agencies. The principle behind such guidelines must be con-
sistent with HIPAA and state law and must recognize the need to balance the
patient’s rights with the community’s legitimate interests in preserving pub-
lic safety and general welfare.133
In 2006, the Florida Hospital Association published a handbook
(“HIPAA Requirements and Florida Law: Disclosures of Protected Health
Information for Law Enforcement Purposes”) that contains a comparison of
HIPAA and state law plus 28 helpful real-life scenarios that hospitals are likely
to encounter. Each scenario is followed by discussion of a possible solution,
and each can be used in education on this subject. All healthcare providers
are encouraged to find or develop a resource such as this one and to use it as
the basis for developing appropriate operational policies.
 Chapter 14: Health Information Management 459

It is an understatement to say that medical records—that is, all kinds

of health information—are necessary for the delivery of quality healthcare
services. The premier professional association for health information manage-
ment professionals puts it this way:

Quality information is essential to all aspects of today’s healthcare system.

Health information management is the body of knowledge and practice that
ensures the availability of health information to facilitate real-time healthcare
delivery and critical health-related decision making for multiple purposes
across diverse organizations, settings, and disciplines.134

Chapter Summary

This chapter’s title reflects a belief that the term “medical records” is
passé, because information about a person’s health (or payment for health-
related services) can be maintained in many types of media other than
paper. Regardless of the form in which it is maintained, however, health
information must be accurate and its confidentiality must be ensured. The
chapter reviews the various ways in which health information is properly
used, such as for documentation of treatment, for accurate billing, and as
evidence in various legal forums. It also discusses the state and federal
laws, including HIPAA, that govern protection of health information. The
chapter outlines circumstances in which third parties may properly have
access to individuals’ health information with and without patient consent,
and it points out the pitfalls that one can encounter when that informa-
tion is improperly disclosed.

Chapter Discussion Questions

1. Describe the different nuances of the terms “medical records” and

“health information.” Which term is closer to the HIPAA definition,
and why?
2. Describe some of the circumstances in which confidential health infor-
mation can be disclosed without the patient’s explicit consent.
3. What is the proper way to make changes to a written medical record?
4. Who owns the physical medical record?
5. In most states, if a physician gossips about a patient has he violated the
statutory physician–patient privilege? Why or why not?
6. In the section on the duty to warn third parties, we learned that it is
questionable whether healthcare professionals can accurately predict an
460 The Law of Healthcare Administration

individual’s danger to society. How can this point be reconciled with the
emotional issue of registering convicted sex offenders and preventing them
from living in proximity to schools and other places that children frequent?

Notes
1. Fla. Stat. § 395.016.
2. See, for example, the Joint Commission’s, Accreditation Manual for Hospitals. The Joint
Commission has similar accreditation manuals for other types of healthcare organizations.
These manuals are updated annually.
3. Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d 326, 211 N.E.2d 253 (1965),
cert. denied, 383 U.S. 946 (1966).
4. Supra note 2 at IM 6.10.
5. See, for example, Hansch v. Hackett, 190 Wash. 97, 66 P.2d 1129 (1937)—the hospital was
liable for a nurse’s negligence in failing to observe and record symptoms of eclampsia.
6. Goldstein v. Madison Ave. Hosp., No. 24212–76 (Kings County, N.Y., May 21, 1981).
7. Pisel v. Stamford Hosp., 430 A.2d 1 (Conn. 1980).
8. 384 F. Supp. 821 (W.D. Ark. 1974).
9. 34 Colo. App. 356, 539 P.2d 491 (1975).
10. 42 C.F.R. § 482.24.
11. Fla. Stat. § 95.11(4)(6).
12. Pyramid Life Ins. Co. v. Masonic Hosp. Ass’n, 191 F. Supp. 51 (W.D. Okla. 1961).
13. McGarry v. J.A. Mercier Co., 272 Mich. 501, 262 N.W. 296 (1935); Flaum v. Medical Arts
Center Hosp., 160:36 N.Y.L.J. 2 (Sup. Ct. 1968)—the court would not order the actual hos-
pital x-rays to be sent to a physician; Cannell v. Medical and Surgical Clinic, 21 Ill. App. 3d
383, 315 N.E.2d 278 (1974).
14. Matter of Weiss, 208 Misc. 1010, 147 N.Y.S.2d 455 (Sup. Ct. 1955).
15. In re Culbertson’s Will, 57 Misc. 2d 391, 292 N.Y.2d 806 (Sup. Ct. 1968).
16. The regulations implementing the statute are found at 45 C.F.R. Parts 160 and 164.
17. 45 C.F.R. § 164.528.
18. Conn. Gen. Stat. Ann. §§ 4-104, 4-105 (West 1969); see also Ill. Ann. Stat. ch. 110, §§ 8-
2001–2004 (Smith-Hurd Supp. 1986)—a patient, physician, or authorized attorney may
examine medical records of every private and public hospital, except those of institutions
under jurisdiction of the Department of Mental Health and Developmental Disabilities.
19. Cal. Evid. Code § 1158 (West Supp. 1985); Utah Code Ann. § 78-25-25 (1977).
20. Thurman v. Crawford, 652 S.W.2d 240 (Mo. App. 1983)—a hospital may take reasonable
precautions to ascertain authenticity of a patient’s consent to release medical information and
may refuse to honor consent when the date has been altered.
21. Whalen v. Roe, 429 U.S. 589 (1977).
22. Griswold v. Connecticut, 381 U.S. 479 (1965)—state may not prohibit use of contraceptives
of advice or assistance in their use; Roe v. Wade, 410 U.S. 113 (1973) and Doe v. Bolton,
410 U.S. 179 (1973) (abortion cases).
23. Robinson v. Hamilton, 60 Iowa 134, 14 N.W. 202 (1882); Planned Parenthood of Central
Mo. v. Danforth, 428 U.S. 52 (1976).
24. For example, Iowa Code Ann. § 144.29 (West 1972).
25. Mo. Ann. Stat. § 188.052 (Vernon Supp. 1987); N.Y. Pub. Health Law § 4160 (McKinney
1985); Minn. Stat. Ann. § 145.413 (West Supp. 1987).
26. N.Y. Pub. Health Law § 2101 (McKinney 1985) (communicable disease); N.Y. Penal Law §
265.25 (McKinney 1980) (wounds); Iowa Code § 147.111 (West 1972) (wounds resulting
from criminal act).
27. 45 C.F.R. § 164.512(j).
28. Thompson v. County of Alameda, 27 Cal. 3d 741, 614 P.2d 728, 167 Cal. Rptr. 70 (1980).
 Chapter 14: Health Information Management 461

29. Mangeris v. Gordon, 94 Nev. 400, 580 P.2d 481 (1978). See also Leedy v. Hartnett, 510 F.
Supp. 1125 (M.D. Pa. 1981)—Veterans Administration Hospital had no duty to warn of dis-
charged patient’s propensity for alcohol-induced violence without a readily identifiable victim;
Brady v. Hopper, 570 F. Supp. 1333 (D. Colo. 1983)—the psychiatrist had no duty to warn
because the patient, John Hinckley, Jr., who attempted to assassinate President Reagan, had not
threatened to shoot anyone; Soutear v. United States, 646 F. Supp. 524 (E.D. Mich. 1986)—
physicians were not negligent in releasing a psychiatric patient and not warning the parents when
the patient, who killed a mother three months later, had never behaved violently.
30. Mavroudis v. Superior Court for County of San Mateo, 102 Cal. App. 3d 594, 162 Cal. Rptr.
724 (1980); McIntosh v. Milan, 168 N.J. Super. 466, 403 A.2d 500 (1979).
31. For example, Shaw v. Glickman, 45 Md. App. 718, 415 A.2d 625 (1980)—where an
estranged husband shot his wife’s male friend, psychiatrists were not liable for failure to warn,
even if the patient had threatened to harm the plaintiff); Cole v. Taylor, 301 N.W.2d 766
(Iowa 1981)—plaintiff who had been convicted of murdering her former husband could not
maintain an action against her psychiatrist alleging negligence in failing to restrain her and
warn her victim; Case v. United States, 523 F. Supp. 317 (S.D. Ohio 1981); Hawkins v. King
County Dep’t of Rehabilitative Servs., 602 P.2d 361 (Wash. App. 1979).
32. Bellah v. Greenson, 81 Cal. App. 3d 614, 146 Cal. Rptr. 535 (1978).
33. 42 C.F.R. Parts 462 and 476.
34. See, for example, Noble v. United Benefit Life Ins. Co., 230 Iowa 471, N.W. 881 (1941) and
Simonsen v. Swenson, 104 Neb. 224, 177 N.W. 831 (1920).
35. Prosser and Keeton, Torts § 112 (5th ed. 1984); Restatement (Second) of Torts § 559
(1976).
36. See, for example, MacDonald v. Time, Inc., 554 F. Supp. 1053 (D. N.J. 1983).
37. Farris v. Tvedten, 623 S.W.2d 205 (Ark. 1981).
38. Koudsi v. Hennepin County Medical Center, 317 N.W.2d 705 (Minn. 1982)—the statement
that the plaintiff was a patient in a hospital and had given birth was true and could not be
defamation.
39. Gilson v. Knickerbocker Hosp., 280 A.D. 690, 116 N.Y.S.2d 745 (1952).
40. Griffin v. Cortland Memorial Hosp., Inc., 85 A.D.2d 837, 446 N.Y.S.2d 430 (1981)—a nota-
tion on chart that an outpatient was abusing drugs was protected by qualified privilege.
41. 104 Neb. 224, 177 N.W. 831 (1920); see also Cochran v. Sears Roebuck, 72 Ga. 458, 34
S.E.2d 296 (1945)—no liability was held when a company nurse in good faith and without
proved malice mistakenly told the supervisor that an employee had a communicable venereal
disease, and the employee was discharged.
42. Vigil v. Rice, 74 N.M. 693, 397 P.2d 719 (1964).
43. Warren and Brandeis, “The Right of Privacy,” 4 Harv. L. Rev. 193 (1890).
44. Smith v. Doss, 251 Ala. 250, 37 So. 2d 118 (1948).
45. Housh v. Peth, 165 Ohio St. 35, 36, 133 N.E.2d 340, 341 (1956). Posser and Keeton, Torts
§ 117 (5th ed. 1984)—this identifies four categories of cases: (a) appropriation, for defendant’s
advantage, of plaintiff’s name or likeness; (b) intrusion on plaintiff’s seclusion or solitude, or
private affairs; (c) public disclosure of embarrassing private facts; and (d) publicity that places
plaintiff in a false light in the public eye. My classification of cases will vary somewhat from
these.
46. But cf. MacDonald v. Time, Inc., 554 F. Supp. 1053 (D. N.J. 1983)—when a living person is
libeled, the claim survives death and is saved from abatement by the New Jersey survival
statute.
47. Cf. Chico Feminist Women’s Health Center v. Butte Glenn Medical Soc’y, 557 F. Supp. 1190
(E.D. Cal. 1983)—California constitutional law gave an abortion clinic cause of action for
invasion of privacy, on behalf of women seeking its service, against hospital, physicians, insur-
ance company, and medical society for statements and activities intended to force the clinic’s
closure; a corporation did not have cause of action for invasion of privacy in its own right.
48. 38 Pa. D. & C. 543 (1940). See also Estate of Berthiaume v. Pratt, M.D., 365 A.2d 792 (Me.
1976)—photographing a terminally ill patient for research when the patient objects invades
the right of privacy.
462 The Law of Healthcare Administration

49. Commonwealth v. Wiseman, 356 Mass. 251, 249 N.E.2d 610 (1969).
50. See Vassiliades v. Garfinckel’s, 492 A.2d 580 (D.C. App. 1985)—publication of photographs
by the physician without the patient’s consent may be a tort.
51. Beth Israel Hosp. and Geriatric Center v. District Court in and for the City and County of
Denver, 683 P.2d 343 (Colo. 1984)—the physician may have access to medical records of his
patients especially because case names and not patients’ names were requested.
52. Knecht v. Vandalia Medical Center, Inc., 14 Ohio App. 3d 129 (1984)—a qualified privilege
based on commonality of interest existed when a woman employed by physicians told her son
that his friend was examined for venereal disease.
53. But see Sinclair v. Postal Telegraph and Cable Co., 72 N.Y.S.2d 841 (Sup. Ct. 1935)—actors
may insist on dignified public presentations of themselves and their work; hence, the defen-
dant’s presentation of an actor’s picture presenting him in an undignified light, without per-
mission, was wrongful.
54. Koudsi v. Hennepin County Medical Center, 317 N.W.2d 705 (Minn. 1982)—informing a
family member that the plaintiff had borne a child in the hospital did not violate any common
law or statutory right to confidentiality.
55. 45 C.F.R. § 164.522(b).
56. Munzer v. Blaisdell, 183 Misc. 773, 49 N.Y.S.2d 915 (1944), aff’d, 269 A.D. 970, 58
N.Y.S.2d 359 (1945); N.Y. Mental Hyg. Law § 33. 13 (McKinney Supp. 1987).
57. Mental Health and Developmental Disabilities Confidentiality Act, 117, Ill. Ann. Stat. ch.
911–2 §§ 801–17 (Smith-Hurd 1987). See §§ 804(a) and 802(9).
58. Id. at § 802(7).
59. Id. at § 805(a).
60. Id. at § 809.
61. Id. at § 810.
62. Id. at §§ 815–16.
63. 42 U.S.C.S. § 242(a); 21 U.S.C.S. § 872 (c), (d).
64. 42 U.S.C.S. § 290ee-3.
65. 42 U.S.C.S. § 290dd-3.
66. 42 C.F.R. pt. 2.
67. 42 U.S.C. § 290ee-30(b)(2)(A-C). Information can also be exchanged between the armed
forces and the Veterans Administration without violating the statute, 42 U.S.C. § 290ee-3(e).
68. United States v. Hopper, 440 F. Supp. 1208 (N.D. Ill. 1977).
69. Matter of Dwayne G., 97 Misc. 2d 333, 411 N.Y.S.2d 180 (1978).
70. United States v. Providence Hosp., 507 Supp. 519 (E.D. Mich. 1981)—this involved IRS
investigation of a physician who filed no taxes for several years.
71. United States v. Fenyo, 6 M.J. 933 (1979).
72. United States v. Graham, 548 F.2d 1302 (8th Cir. 1977).
73. People v. Newman, 32 N.Y.2d 379, 298 N.E.2d 651, 345 N.Y.S.2d 502 (1973), cert. denied,
414 U.S. 1163 (1973).
74. People v. Carr, 190 N.Y.L.J., Nov. 29, 1983, at 13.
75. 42 U.S.C. § 1320d-6
76. 45 C.F.R. § 164.514(3)(ii).
77. Fla. Stat. § 394.4615(10).
78. 45 C.F.R. § 164.524(a)(3).
79. Florida Hospital Association Management Corp., “Florida HIPAA Preemption Analysis” (2002).
80. 327 F.3d 346 (4th Cir. 2003).
81. 428 F.3d. 167 (3d Cir. 2005).
82. The Mississippi statute, Section 25-41-3 (1986), effective in January 1976, however, grants a spe-
cific exemption to the boards, committees, and staffs of both “public and private hospitals.”
83. Douglas v. Michel, 410 So. 2d 936 (Fla. App. 1982).
84. Richmond County Hosp. Auth. v. Southeastern Newspapers Corp., 311 S.E.2d 806 (Ga. 1984);
see also Moberly v. Herboldsheimer, 345 A.2d 855 (Md. App. 1975)—a newspaper may compel
a municipal hospital to disclose an administrator’s salary and fees paid to legal counsel.
85. 412 So. 2d 894 (Fla. App. 1982).
 Chapter 14: Health Information Management 463

86. Fla. Stat. § 768.40(4) (1985).

87. District Attorney for N. Dist. v. Board of Trustees of Leonard Morse Hosp., 389 Mass. 729,
452 N.E.2d 208 (1983).
88. Cape Coral Medical Center, Inc. v. News-Press Publishing Co., Inc., 390 So. 2d 1216 (Fla.
App. 1980).
89. 357 So. 2d 626 (La. App. 1978).
90. Raton Public Service Co. v. Hobbes, 76 N.M. 535, 417 P.2d 32 (1966).
91. Matter of John P. v. Whalen, 54 N.Y.2d 89, 429 N.E.2d 117, 444 N.Y.S.2d 598 (1981).
92. Matter of Short v. Board of Managers of Nassau County Medical Center, 57 N.Y.2d 399, 442
N.E.2d 1235, 456 N.Y.S.2d 724 (1982).
93. Eskaton Monterey Hosp. v. Myers, 134 Cal. App. 3d 788, 184 Cal. Rptr. 840 (1982).
94. Oliver v. Harborview Medical Center, 94 Wash. 2d 559, 618 P.2d 76 (1980).
95. Patients of Philadelphia State Hosp. v. Commonwealth of Pa., 417 A.2d 805 (Pa. Commw.
Ct. 1980).
96. Nassau-Suffolk Hosp. Council v. Whalen, 89 Misc. 2d 304, 390 N.Y.S.2d 995 (1977).
97. Minnesota Medial Ass’n v. State, 274 N.W.2d 84 (Minn. 1978).
98. Citizens for Better Care v. Reizen, 215 N.W.2d 576 (Mich. 1974).
99. Apparently the first exception to the assertion in the text was the appellate court case of Allred
v. State. 554 P.2d 411 (Alaska 1976). The Supreme Court of Alaska recognized a common-
law privilege respecting communications made in psychotherapeutic treatment by psychiatrists
and licensed psychologists. See also In re “B,” Appeal of Dr. Loren Roth, 482 Pa. 471, 394
A.2d 419 (1978)—a patient–psychiatrist relationship creates a privilege founded on the
patient’s constitutional right of privacy.
100. Ohio Rev. Code Ann. § 2317.02(B).
101. Boggess v. Aetna Life Ins. Co., 128 Ga. App. 190, 196 S.E.2d 172 (1973).
102. 70 Wash. 2d 168, 422 P.2d 480 (1967). See also Conyers v. Massa, 512 P.2d 283 (Colo.
App. 1973)—privilege does not apply to examinations for third party’s benefit.
103. Weis v. Weis, 147 Ohio St. 416, 72 N.E.2d 245 (1947); Sims v. Charlotte Liberty Mutual Ins.
Co., 256 N.C. 32, 125 S.E.2d 326 (1962); In re Estate of Searchill, 9 Mich. App. 614, 157
N.W.2d 788 (1968)—when the mental competence of the deceased at the time a contested
will was executed was at issue, a hospital’s medical records are admissible under the Michigan
Business Records Act; Rivers v. Union Carbide Corp., 426 F.2d 633 (3d Cir. 1970)—hospital
records disclosing a history of alcoholism and intoxication at the time of an accident are
admissible by virtue of Federal Business Records Act, 28 U.S.C. § 1732.
104. In re Lifschutz, 2 Cal. 3d 415, 467 P.2d 557, 85 Cal. Rptr. 829 (1970)—although
psychiatrist–patient privilege exists under California statute, the psychiatrist may not assert privi-
lege and refuse to disclose a relationship with a particular patient when sued by the patient for
assault; the psychiatrist may be jailed for contempt of court if he refuses to honor a subpoena. See
also People v. Williams, 39 Mich. App. 91, 197 N.W.2d 336 (1972)—the state may not claim
privilege; in a criminal prosecution for statutory rape, where the victim testified for the prosecu-
tion that she became pregnant and gave birth after an alleged assault by the defendant, the state
could not prevent the defendant from calling the victim’s physician as a witness; Klinge v.
Lutheran Medical Center of St. Louis, 518 S.W.2d 157 (Mo. 1974)—although hospital records
are within the physician–patient privilege, the hospital medical staff committee may examine med-
ical records of staff physicians’ patients without their consent to determine qualifications and com-
petence of such physicians, because the privilege is that of the patient and not the physician.
105. 215 N.W.2d 134 (S.D. 1974).
106. But see State of Iowa v. Bedel, 193 N.W.2d 121 (Iowa 1971)—a blood-alcohol test with con-
sent of a hospitalized patient on request of arresting officer was not privileged when not
related to medical diagnoses and treatment; Unick v. Kessler Memorial Hosp., 107 N.J. 121,
257 A.2d 134 (1969). See also Klinge, supra note 104.
107. Hospitals are frequently innocent bystanders when the confidentiality of records is contested.
In Nelson v. Grissom, 152 Colo. 362, 382 P.2d 991 (1963), an ex-husband brought an
action to prevent his former wife from removing their children from the state. The woman
had remarried, and the plaintiff challenged the fitness of the stepfather to care properly for the
464 The Law of Healthcare Administration

children and sought access to medical records bearing on the stepfather’s physical and mental
condition. In such situations, hospitals should not release the information without a court
order; the court will decide the issue of privilege in accordance with local law.
108. Roberts v. Superior Court of Butte County, 9 Cal. 3d 330, 508 P.2d 309, 107 Cal. Rptr. 309
(1973).
109. Grey v. Los Angeles Superior Court, 62 Cal. App. 3d 698, 133 Cal. Rptr. 318 (1976).
110. Grosslight v. Superior Court of Los Angeles County, 72 Cal. App. 3d 502, 140 Cal. Rptr.
278 (1977).
111. Tucson Medical Center, Inc. v. Rowles, 21 Ariz. App. 424, 520 P.2d 518 (1974).
112. Parkson v. Central DuPage Hosp., 105 Ill. App. 3d 850, 435 N.E.2d 140 (1982).
113. Ziegler v. Superior Court in and for the County of Pima, 134 Ariz. 390, 656 P.2d 1251
(1982).
114. Connell v. Washington Hosp. Center, 50 F.R.D. 360 (D.D.C. 1970); King v. O’Connor, 103
Misc. 2d 607, 426 N.Y.S.2d 415 (1980)—the name and address of a patient who was possibly
a witness to alleged malpractice is discoverable; Vanadio v. Good Samaritan Hosp., 85 A.D.2d
662, 445 N.Y.S.2d 215 (1981)—the hospital must disclose names and addresses of patients
sharing a room with the plaintiff; Lipari v. Center for Reproductive and Sexual Health, Inc.,
187 N.Y.L.J. No. 91, May 12, 1982, at 12, col. 5M—the plaintiff is entitled to names,
addresses, and records kept by physicians who examined or were consulted by him; Geisberger
v. Willuhn, 390 N.E.2d 945 (Ill. App. 1979)—privilege does not apply to patient’s name.
115. Mayer v. Albany Medical Center Hosp., 37 A.D.2d 1011, 325 N.Y.S.2d 517 (1971).
116. Katz v. State of N.Y., 41 A.D.2d 879, 342 N.Y.S.2d 906 (1973); Moore v. St. John’s Episco-
pal Hosp., 89 A.D.2d 618, 452 N.Y.S.2d 669 (1982)—although the medical records of a
hospitalized patient are privileged in absence of a waiver, the hospital must disclose to mal-
practice plaintiff nonmedical information reporting prior assaults or violent behavior of
another patient.
117. Mattison v. Poulen, 353 A.2d 327 (Vt. 1976).
118. Sklagen v. Greater S.E. Community Hosp., 625 F. Supp. 991 (D.D.C. 1984).
119. Carr v. Schmid, 432 N.Y.S.2d 807 (Sup. Ct. 1980). See also Pennison v. Provident Life and
Accident Ins. Co., 154 So. 2d 617 (La. Ct. App. 1963)—a wife’s medical records are subject
to subpoena in a divorce action if they are relevant to litigated issues.
120. United States v. Kansas City Lutheran Home and Hosp. Ass’n, 297 F. Supp. 239 (W.D. Mo.
1969).
121. United States v. Providence Hosp., 507 F. Supp. 519 (E.D. Mich. 1981). See also United States
v. Cherry Hill Women’s Center, Inc., 512 F. Supp. 1303 (E.D. Pa. 1981)—IRS may compel an
abortion clinic owned by a physician to produce records without the patient’s consent.
122. United States v. Westinghouse Electric Corp., 638 F.2d 570 (3d 1980); General Motors
Corp. v. Director of NIOSH, 636 F.2d 163 (6th Cir. 1980).
123. United States v. University Hosp. of State Univ. of N.Y. at Stony Brook, 575 F. Supp. 607
(E.D.N.Y. 1983).
124. 729 F.2d 144 (2d Cir. 1984).
125. 575 F. Supp. At 611.
126. Id. at 615–16.
127. In re Michael Artery: A Witness Before Special April 1980 Grand Jury, No. 80 GJ 1435
(N.D. Ill., Aug. 13, 1981).
128. Hawaii Psychiatric Soc’y v. Ariyoshi, 481 F. Supp. 1028 (D.C. Haw. 1979).
129. In re Zuniga, 714 F.2d 632 (6th Cir. 1983).
130. Camperlengo v. Blum 56 N.Y.2d 251, 436 N.E.2d 1299, 451 N.Y.S.2d 697 (1982). Accord, In
re Grand Jury Investigation, 441 A.2d 525 (R.I. 1982). See also State of Ill. v. Herbert, 438
N.E.2d 1255 (Ill. App. 1982)—a grand jury may subpoena records of Medicaid patients; privi-
leged communication does not apply because state had the patient’s consent; constitutional pro-
tection against self-incrimination does not apply because the subpoena was limited to records
required by law; In re June 1979 Allegheny County Investigating Grand Jury, 415 A.2d 73 (Pa.
1980)—a grand jury may subpoena a patient’s tissue reports.
131. People v. Doe, 116 Misc. 2d 626, 455 N.Y.S.2d 945 (1982).
 Chapter 14: Health Information Management 465

132. Board of Medical Quality Assurance v. Hazel Hawkins Memorial Hosp., 135 Cal. App. 3d
561, 185 Cal. Rptr. 405 (1982)—a patient’s records of disciplinary proceedings, without
names, may be subpoenaed; cf. Division of Medical Quality v. Gherardini, 93 Cal. App. 3d
669, 256 Cal. Rptr. 55 (1979)—records of five identified patients are not subject to a sub-
poena unless state interest overcomes the state’s constitutional right of privacy.
133. Several cases illustrate the impropriety of releasing medical information to the police. For
example, Matter of Grand Jury Investigation of Onondaga County, 463 N.Y.S.2d 758
(1983)—names and addresses of patients treated for knife wounds during a given period are
not discoverable by district attorney investigating a murder; a hospital may assert privilege on
behalf of a patient; State of N.J. v. Dyal, 97 N.J. 229, 478 A.2d 390 (1984)—without a sub-
poena police may not obtain results of a blood-alcohol test made for medical purposes when
patient was not in custody or under arrest. See also discussion in Chapter 9, “Consent for
Treatment and Withholding Consent.”
134. “Quality Healthcare Through Quality Information,” American Health Information Manage-
ment Association, www.ahima.org/about/about.asp.

the court decides

Tarasoff v. Regents of the University of California
17 Cal. 3d 425, 551 P.2d 334, 131 Cal. Rptr. 14 (1976)

Tobriner, J. plaintiffs of the impending danger and their

failure to bring about Poddar’s confinement
On October 27, 1969, Prosenjit Poddar killed pursuant to the Lanterman-Petris-Short Act
Tatiana Tarasoff. Plaintiffs, Tatiana’s parents, [the California law allowing involuntary,
allege that two months earlier Poddar con- psychiatric admission of persons consid-
fided his intention to kill Tatiana to Dr. ered dangerous to themselves or others].
Lawrence Moore, a psychologist employed Defendants, in turn, assert that they owed
by the Cowell Memorial Hospital at the Uni- no duty of reasonable care to Tatiana and
versity of California at Berkeley. They allege that they are immune from suit under the
that on Moore’s request, the campus police California Tort Claims Act of 1963.
briefly detained Poddar, but released him We shall explain that defendant thera-
when he appeared rational. They further pists cannot escape liability merely because
claim that Dr. Harvey Powelson, Moore’s Tatiana herself was not their patient. When
superior, then directed that no further a therapist determines, or pursuant to the
action be taken to detain Poddar. No one standards of his profession should deter-
warned plaintiffs of Tatiana’s peril. mine, that his patient presents a serious
Concluding that these facts set forth danger of violence to another, he incurs an
causes of action against neither therapists obligation to use reasonable care to protect
and policemen involved, nor against the the intended victim against such danger.
Regents of the University of California as The discharge of this duty may require the
their employer, the superior court sustained therapist to take one or more of various
defendants’ demurrers to plaintiffs’ second steps, depending upon the nature of the
amended complaints without leave to case. Thus it may call for him to warn the
amend. This appeal ensued. intended victim or others likely to apprise
Plaintiffs’ complaints predicate liability on the victim of the danger, to notify the
two grounds: defendants’ failure to warn police, or to take whatever other steps are
466 The Law of Healthcare Administration

reasonably necessary under the circum- causes of action against defendants. We

stances. therefore begin by setting forth the perti-
In the case at bar, plaintiffs admit that nent allegations of the complaints.
defendant therapists notified the police, but Plaintiffs’ first cause of action, entitled
argue on appeal that the therapists failed to “Failure to Detain a Dangerous Patient,”
exercise reasonable care to protect Tatiana alleges that on August 20, 1969, Poddar
in that they did not confine Poddar and did was a voluntary outpatient receiving ther-
not warn Tatiana or others likely to apprise apy at Cowell Memorial Hospital. Poddar
her of the danger. Defendant therapists...are informed Moore, his therapist, that he was
public employees. Consequently, to the going to kill an unnamed girl, readily identi-
extent that plaintiffs seek to predicate liabil- fiable as Tatiana, when she returned home
ity upon the therapists’ failure to bring from spending the summer in Brazil. Moore,
about Poddar’s confinement, the therapists with the concurrence of Dr. Gold, who had
can claim immunity under Government Code initially examined Poddar, and Dr. Yandell,
section 856.…9 assistant to the director of the department
Plaintiffs therefore can amend their com- of psychiatry, decided that Poddar should
plaints to allege that, regardless of the ther- be committed for observation in a mental
apists’ unsuccessful attempt to confine Pod- hospital. Moore orally notified Officers
dar, since they knew that Poddar was at Atkinson and Teel of the campus police that
large and dangerous, their failure to warn he would request commitment. He then
Tatiana or others likely to apprise her of the sent a letter to Police Chief William Beall
danger constituted a breach of the thera- requesting the assistance of the police
pists’ duty to exercise reasonable care to department in securing Poddar’s confine-
protect Tatiana.... ment.
Officers Atkinson, Brownrigg, and
Plaintiffs’ Complaints Halleran took Poddar into custody, but, sat-
Plaintiffs, Tatiana’s mother and father, filed isfied that Poddar was rational, released
separate but virtually identical second him on his promise to stay away from
amended complaints. The issue before us Tatiana. Powelson, director of the depart-
on this appeal is whether those complaints ment of psychiatry at Cowell Memorial Hos-
now state, or can be amended to state, pital, then asked the police to return

9. § 856. Determinations in accordance with applicable enactments

(a) Neither a public entity nor a public employee acting within the scope of his employment is liable for
any injury resulting from determining in accordance with any applicable enactment:
(1) Whether to confine a person for mental illness or addiction.
(2) The terms and conditions of confinement for mental illness or addiction.
(3) Whether to parole, grant a leave of absence to, or release a person confined for mental illness or
addiction.
(b) A public employee is not liable for carrying out with due care a determination described in subdivi-
sion (a).
(c) Nothing in this section exonerates a public employee from liability for injury proximately caused by
his negligent or wrongful act or omission in carrying out or failing to carry out:
(1) A determination to confine or not to confine a person for mental illness or addiction.
(2) The terms or conditions of confinement of a person for mental illness or addiction.
(3) A determination to parole, grant a leave of absence to, or release a person confined for mental illness
or addiction.
 Chapter 14: Health Information Management 467

Moore’s letter, directed that all copies of the bility should be imposed for damage done.
letter and notes that Moore had taken as As stated in Dillon v. Legg: “The assertion
therapist be destroyed, and “ordered no that liability must * * * be denied because
action to place Prosenjit Poddar in 72-hour defendant bears no ‘duty’ to plaintiff ‘begs
treatment and evaluation facility.” the essential question—whether the plain-
Plaintiffs’ second cause of action, entitled tiff’s interests are entitled to legal protec-
“Failure to Warn On a Dangerous Patient,” tion against the defendant’s conduct. * * *
incorporates the allegations of the first [Duty] is not sacrosanct in itself, but only an
cause of action, but adds the assertion that expression of the sum total of those consid-
defendants negligently permitted Poddar to erations of policy which lead the law to say
be released from police custody without that the particular plaintiff is entitled to pro-
“notifying the parents of Tatiana Tarasoff tection.”
that their daughter was in grave danger In the landmark case of Rowland v. Chris-
from Posenjit Poddar.” Poddar persuaded tian (1968), Justice Peters recognized that
Tatiana’s brother to share an apartment with liability should be imposed “for injury occa-
him near Tatiana’s residence; shortly after sioned to another by his want of ordinary
her return from Brazil, Poddar went to her care or skill” as expressed in section 1714 of
residence and killed her.... the Civil Code. Thus, Justice Peters, quoting
[The court holds that the first cause of from Heaven v. Pender (1883) stated:
action is barred by the principle of govern- “‘whenever one person is by circumstances
mental immunity. The third and fourth—not placed in such a position with regard to
summarized in this book—were also held to another * * * that if he did not use ordinary
be invalid.] We direct our attention, there- care and skill in his own conduct * * * he
fore, to the issue of whether plaintiffs’ sec- would cause danger or injury to the person
ond cause of action can be amended to or property of the other, a duty arises to use
state a basis for recovery. ordinary care and skill to avoid such dan-
Plaintiffs can state a cause of action ger’.”
against defendant therapists for negligent We depart from “this fundamental princi-
failure to protect Tatiana. ple” only upon the “balancing of a number
The second cause of action can be of considerations”; major ones “are the
amended to allege that Tatiana’s death prox- foreseeability of harm to the plaintiff, the
imately resulted from defendants’ negligent degree of certainty that the plaintiff suffered
failure to warn Tatiana or others likely to injury, the closeness of the connection
apprise her of her danger. Plaintiffs contend between the defendant’s conduct and the
that as amended, such allegations of negli- injury suffered, the moral blame attached to
gence and proximate causation, with result- the defendant’s conduct, the policy of pre-
ing damages, establish a cause of action. venting future harm, the extent of the bur-
Defendants, however, contend that in the den to the defendant and consequences to
circumstances of the present case they the community of imposing a duty to exer-
owed no duty of care to Tatiana or her par- cise care with resulting liability for breach,
ents and that, in the absence of such duty, and the availability, cost and prevalence of
they were free to act in careless disregard of insurance for the risk involved.”
Tatiana’s life and safety. The most important of these considera-
In analyzing this issue, we bear in mind tions in establishing duty is foreseeability.
that legal duties are not discoverable facts As a general principle, a “defendant owes a
of nature, but merely conclusory expres- duty of care to all persons who are foresee-
sions that, in cases of a particular type, lia- ably endangered by his conduct, with
468 The Law of Healthcare Administration

respect to all risks which make the conduct care to control the behavior of a patient
unreasonably dangerous.” As we shall which may endanger other persons. A doc-
explain, however, when the avoidance of tor must also warn a patient if the patient’s
foreseeable harm requires a defendant to condition or medication renders certain con-
control the conduct of another person, or to duct, such as driving a car, dangerous to
warn of such conduct, the common law has others.
traditionally imposed liability only if the Although the California decisions that rec-
defendant bears some special relationship ognize this duty have involved cases in
to the dangerous person or to the potential which the defendant stood in a special rela-
victim. Since the relationship between a tionship both to the victim and to the per-
therapist and his patient satisfies this son whose conduct created the danger, we
requirement, we need not here decide do not think that the duty should logically
whether foreseeability alone is sufficient to be constricted to such situations. Decisions
create a duty to exercise reasonable care to of other jurisdictions hold that the single
protect a potential victim of another’s con- relationship of a doctor to his patient is suf-
duct. ficient to support the duty to exercise rea-
Although, as we have stated above, under sonable care to protect others against dan-
the common law, as a general rule, one per- gers emanating from the patient’s illness.
son owed no duty to control the conduct of The courts hold that a doctor is liable to
another, nor to warn those endangered by persons infected by his patient if he negli-
such conduct, the courts have carved out an gently fails to diagnose a contagious dis-
exception to this rule in cases in which the ease, or, having diagnosed the illness, fails
defendant stands in some special relation- to warn members of the patient’s family.
ship to either the person whose conduct Since it involved a dangerous mental
needs to be controlled or in a relationship to patient, the decision in Merchants Nat.
the foreseeable victim of that conduct. Bank & Trust Co. of Fargo v. United States
Applying this exception to the present case, [1967] comes closer to the issue. The Veter-
we note that a relationship of defendant ans Administration arranged for the patient
therapists to either Tatiana or Poddar will to work on a local farm, but did not inform
suffice to establish a duty of care; as the farmer of the man’s background. The
explained in...the Restatement Second of farmer consequently permitted the patient
Torts, a duty of care may arise from either to come and go freely during nonworking
“(a) a special relation * * * between the hours; the patient borrowed a car, drove to
actor and the third person which imposes a his wife’s residence and killed her. Notwith-
duty upon the actor to control the third per- standing the lack of any “special relation-
son” conduct, or (b) a special relation * * * ship” between the Veterans Administration
between the actor and the other which and the wife, the court found the Veterans
gives to the other a right of protection.” Administration liable for the wrongful death
Although plaintiffs’ pleadings assert no of the wife.
special relation between Tatiana and defen- In their summary of the relevant rulings
dant therapists, they establish as between [two scholars] conclude that the “case law
Poddar and defendant therapists the special should dispel any notion that to impose
relation that arises between a patient and on the therapists a duty to take precau-
his doctor or psychotherapist. Such a rela- tions for the safety of persons threatened
tionship may support affirmative duties for by a patient, where due care so requires,
the benefit of third persons. Thus, for exam- is in any way opposed to contemporary
ple, a hospital must exercise reasonable ground rules on the duty relationship. On
 Chapter 14: Health Information Management 469

the contrary, there now seems to be suffi- therapist need only exercise “that reason-
cient authority to support the conclusion able degree of skill, knowledge, and care
that by entering into a doctor–patient rela- ordinarily possessed and exercised by mem-
tionship the therapist becomes sufficiently bers of [that professional specialty] under
involved to assume some responsibility for similar circumstances.” Within the broad
the safety, not only of the patient himself, range of reasonable practice and treatment
but also of any third person whom the doc- in which professional opinion and judgment
tor knows to be threatened by the patient.” may differ, the therapist is free to exercise
Defendants contend, however, that impo- his or her own best judgment without liabil-
sition of a duty to exercise reasonable care ity; proof, aided by hindsight, that he or she
to protect third persons is unworkable judged wrongly is insufficient to establish
because therapists cannot accurately pre- negligence.
dict whether or not a patient will resort to In the instant case, however, the plead-
violence. In support of this argument ami- ings do not raise any question as to failure
cus representing the American Psychiatric of defendant therapists to predict that Pod-
Association and other professional societies dar presented a serious danger of violence.
cites numerous articles which indicate that On the contrary, the present complaints
therapists, in the present state of the art, allege that defendant therapists did in fact
are unable reliably to predict violent acts; predict that Poddar would kill, but were
their forecasts, amicus claims, tend consis- negligent in failing to warn.
tently to overpredict violence, and indeed Amicus contends, however, that even
are more often wrong than right. Since pre- when a therapist does in fact predict that a
dictions of violence are often erroneous, patient poses a serious danger of violence
amicus concludes, the courts should not to others, the therapist should be absolved
render rulings that predicate the liability of of any responsibility for failing to act to pro-
therapists upon the validity of such predic- tect the potential victim. In our view, how-
tions. ever, once a therapist does in fact deter-
The role of the psychiatrist, who is indeed mine, or under applicable professional
a practitioner of medicine, and that of the standards reasonably should have deter-
psychologist who performs an allied func- mined, that a patient poses a serious dan-
tion, are like that of the physician who must ger of violence to others, he bears a duty to
conform to the standards of the profession exercise reasonable care to protect the fore-
and who must often make diagnoses and seeable victim of that danger. While the dis-
predictions based upon such evaluations. charge of this duty of due care will neces-
Thus the judgment of the therapist in diag- sarily vary with the facts of each case, in
nosing emotional disorders and in predict- each instance the adequacy of the thera-
ing whether a patient presents a serious pist’s conduct must be measured against
danger of violence is comparable to the the traditional negligence standard of the
judgment which doctors and professionals rendition of reasonable care under the cir-
must regularly render under accepted rules cumstances. As explained in [the same
of responsibility. scholars’ article]: “* * * the ultimate ques-
We recognize the difficulty that a thera- tion of resolving the tension between the
pist encounters in attempting to forecast conflicting interests of patient and potential
whether a patient presents a serious danger victim is one of social policy, not profes-
of violence. Obviously, we do not require sional expertise. * * * In sum, the therapist
that the therapist, in making that determi- owes a legal duty not only to his patient,
nation, render a perfect performance; the but also to his patient’s would-be victim and
470 The Law of Healthcare Administration

is subject in both respects to scrutiny by sary in order to protect the welfare of the
judge and jury.” individual or of the community.” We con-
…. clude that the public policy favoring pro-
We realize that the open and confiden- tection of the confidential character of
tial character of psychotherapeutic dia- patient–psychotherapist communications
logue encourages patients to express must yield to the extent to which disclo-
threats of violence, few of which are ever sure is essential to avert danger to oth-
executed. Certainly a therapist should not ers. The protective privilege ends where
be encouraged routinely to reveal such the public peril begins.
threats; such disclosures could seriously Our current crowded and computerized
disrupt the patient’s relationship with his society compels the interdependence of
therapist and with the persons threat- its members. In this risk-infested society
ened. To the contrary, the therapist’s obli- we can hardly tolerate the further expo-
gations to his patient require that he not sure to danger that would result from a
disclose a confidence unless such disclo- concealed knowledge of the therapist
sure is necessary to avert danger to oth- that his patient was lethal. If the exercise
ers, and even then that he do so dis- of reasonable care to protect the threat-
creetly, and in a fashion that would ened victim requires the therapist to
preserve the privacy of his patient to the warn the endangered party or those who
fullest extent compatible with the preven- can reasonably be expected to notify
tion of the threatened danger. him, we see no sufficient societal inter-
The revelation of a communication est that would protect and justify con-
under the above circumstances is not a cealment. The containment of such risks
breach of trust or a violation of profes- lies in the public interest. For the forego-
sional ethics; as stated in the Principles of ing reasons, we find that plaintiffs’ com-
Medical Ethics of the American Medical plaints can be amended to state a cause
Association (1957), section 9: “A physi- of action against defendants Moore,
cian may not reveal the confidence Powelson, Gold, and Yandell and against
entrusted to him in the course of medical the Regents as their employer, for breach
attendance * * * unless he is required to of a duty to exercise reasonable care to
do so by law or unless it becomes neces- protect Tatiana.

Tarasoff v. Regents of the University of California

Discussion Questions

1. This case was before the court on a procedural issue: Whether the trial
court was correct to dismiss the complaint before a trial could be held.
What do you suppose happened after the case returned to the trial
court?
2. What should the defendants have done differently?
3. Why is the board (the Regents) of the University of California a
defendant?
GLOSSARY

Ad valorem tax: One imposed in proportion to the value (in Latin, “ad val-
orem”) of the property being assessed.
Admiralty law: The system of law that applies to accidents and injuries at sea,
maritime commerce, alleged violations of rules of the sea over shipping lanes
and rights of way, and crimes on shipboard. Jurisdiction over all these mat-
ters rests exclusively in the federal courts.
Agency by estoppel and apparent agency: Closely related doctrines that if a
principal’s conduct leads a third party to reasonably believe that a purported
agent was in fact authorized to act on the principal’s behalf, the third party
will be able to hold the principal accountable for the purported agent’s
actions and will be barred from successfully asserting otherwise.
Allied health professions: Clinical professionals who work with physicians and
nurses in providing healthcare. These professions include physical therapy, bio-
medical engineering, chiropody, dental hygiene, diagnostics, medical laboratory
technology, medical coding and billing, medical transcription, health informa-
tion management (medical records), nutrition and dietetics, occupational ther-
apy, phlebotomy, nuclear medicine technology, nurse practitioners, physician
assistants, radiation technology, respiratory therapy, and speech therapy.
Arbitration: An extrajudicial hearing, sometimes used in medical liability
cases, held in an attempt to avoid a court trial and conducted by a person or
a panel of people who are not necessarily judges.
Assumption of risk: Taking a chance in a situation that is so obviously dan-
gerous that the injured plaintiff knew he could be injured but took the
chance anyway.
Cause of action: The basis of a lawsuit; sufficient legal grounds and alleged
facts that, if proven, would make up all the requirements for the plaintiff to
prevail.
Charity: An organization that exists to help those in need or to provide reli-
gious, educational, scientific, or similar aid to the public. Charities are usu-
ally corporations established under state law. They require IRS and/or state
approval for contributions to them to be tax deductible and for certain of
their economic transactions (such as purchases of goods) to be nontaxable.

471
472 Glossary

Common law: The traditional, unwritten law of England, which developed

more than a thousand years before the founding of the United States but which
was transplanted to the American colonies in the 17th and 18th centuries. Most
of this country’s legal decisions and statutes are based on common law.
Comparative and contributory negligence: Common-law doctrines relating
to allocation of responsibility when the plaintiff was partially at fault. Under
comparative negligence, responsibility and damages are based on the relative
negligence of every party involved in the accident. Under contributory negli-
gence, if a person’s own negligence “contributed” to the accident in any way,
she is not entitled to collect any money damages at all from the other party.
Contributory negligence is considered so harsh that many juries ignore it.
Consideration: Essentially, payment; a vital element in the law of contracts;
something of value (not necessarily money) that is given (or promised) in
return for what is received (or promised) in return.
Contract of adhesion: A contract that is so imbalanced in favor of one party
that there is a strong implication it was not freely bargained for and that the
other party had no choice but to accept all its terms no matter how restric-
tive. Many commercial contracts, such as those for the purchase of a car,
appear to be contracts of adhesion, not because the customer always has the
option to “walk away from the deal.” By contrast, a poor tenant who cannot
afford to move has no choice but to accept all the terms of a landlord’s lease
renewal, no matter how burdensome they may be.
Corporate charter: The fundamental document (usually Articles of Incorpo-
ration) of a corporation’s legal authority.
Corporation: An organization formed with governmental approval to act as
an artificial person to carry on business (or other activities), which can sue or
be sued and (unless it is nonprofit) can issue shares of stock to raise capital.
One benefit of incorporation is that the company’s liability for damages or
debts is limited to its assets, so the shareholders and officers are protected
from personal claims, unless they commit fraud.
Defamation: The act of making untrue statements about another that dam-
age his reputation. If the defamatory statement is printed or broadcast over
the media, it is libel; if it is oral only, it is slander.
Dictum (plural, dicta): Latin for “remark.” A comment in a legal opinion
that is not required to reach the decision but may state a related legal princi-
ple as the judge understands it.
Due process (of law): A fundamental principle of fairness in legal matters,
both civil and criminal. Due process requires that all legal procedures set by
statute and court practice must be followed so that no unjust treatment
 Glossary 473

results. Although it is somewhat indefinite, the term can be gauged by its aim
to safeguard both private and public rights against unfairness. The universal
guarantee of due process is in the Fifth Amendment to the U.S. Constitu-
tion, which provides “No person shall…be deprived of life, liberty, or prop-
erty, without due process of law.” This principle applies to the states by virtue
of the Fourteenth Amendment. Many states’ constitutions have similar pro-
visions.
Exculpatory/exculpate (in Latin, “ex” is from and “culpa” is guilt): To
absolve; to clear of blame.
Fiduciary: A person, including a business like a bank or trust company, who
has the power and duty to act for another (the beneficiary) under circum-
stances that require total trust, good faith, and honesty.
Good Samaritan statute: Provisions of law that provide immunity from lia-
bility for persons who provide emergency care at the scene of an accident. For
example, “No licensee, who in good faith renders emergency care at the
scene of an emergency, shall be liable for any civil damages as a result of any
acts or omissions by such person in rendering the emergency care” (Cal. Bus.
& Prof. Code § 2395).
Informed consent: Agreement to do something or to allow something to
happen only after all the relevant facts are known. Except in emergency
cases when patient consent cannot be obtained, to be considered
“informed” a patient’s consent to a medical procedure must be based on
her having been given all relevant information necessary to make a know-
ing decision.
Intentional tort: A category of torts that describes a civil wrong resulting
from an intentional act on the part of the tort-feasor. Examples include mur-
der, assault, battery, defamation (slander or libel), false imprisonment, fraud,
and intentional infliction of mental distress (outrage). Intentional torts may
also be crimes, and all can occur in the healthcare setting.
Inure: A word used in the federal tax law relating to exempt organizations.
Although not defined in the Internal Revenue Code or regulations, it is taken
to mean that a charity’s assets must be permanently dedicated to exempt pur-
poses and may not be distributed to private interests.
Law: A system of standards to govern the conduct of people in a community,
society, or nation.
Liability: Legal responsibility for one’s acts or omissions. Failure of a person
or entity to live up to one’s responsibilities—whether established by law, con-
tract, or the standard of care (q.v.) under the circumstances—leaves
him/her/it legally liable for any resulting damages.
474 Glossary

Lobbying: Activity intended to influence the outcome of pending legisla-

tion. For purposes of federal tax-exemption law, the following are not con-
sidered lobbying: (1) publishing nonpartisan research data, (2) providing tes-
timony to a legislative body on issues that will affect the organization itself,
and (3) sending communications to a nonlegislative governmental official.
Not-for-profit (also nonprofit): A type of organization in which there are
legal and ethical restrictions on the distribution of profits to owners or share-
holders. These restrictions fundamentally distinguish not-for-profit organiza-
tions from commercial enterprises. Not-for-profit organizations (usually cor-
porations) do not operate for the purpose of generating profit; however, they
may accept, hold, and disburse money and other things of value. Their use of
profits and assets is usually restricted by state law and the corporate charter.
Such organizations are typically funded by donations and often have tax-
exempt status. Donations may sometimes be tax deductible.
Parens patriae (Latin for “father of his country”): The doctrine that the
government is the ultimate guardian of all people who are under a legal dis-
ability, such as minors and the mentally ill.
Physician: For purposes of federal healthcare programs, at least, “physician”
includes doctors of medicine (MD), doctors of osteopathy (DO), doctors of
dental surgery or dental medicine (DDS or DMD), doctors of podiatric med-
icine (DPM), doctors of optometry (OD), and chiropractors (DC).
Proximate cause: The legal cause of the damages to the plaintiff; the cause
that immediately precedes and produces the effect (as contrasted with a
remote or intermediate cause). Sometimes there is an intervening cause that
comes between the original negligence of the defendant and the injured
plaintiff and that will either reduce the amount of responsibility or, if this
intervening cause is the substantial reason for the injury, negate the defen-
dant’s liability entirely.
Qui tam (Latin for “who as well”) lawsuit: A lawsuit brought by a private
citizen (a “relator,” “whistle-blower,” or “private attorney general”) on
behalf of the government as well as himself, against a defendant who may
have committed fraud or criminal acts in which the government was victim-
ized. Specific statutory authority for such suits must exist, as it does in the
False Claims Act, for example. In a qui tam action the government may inter-
vene to take over prosecution of the case, but in any event the plaintiff will
be entitled to a percentage of the recovery of any damages awarded.
Res ipsa loquitur (Latin for “the thing speaks for itself”): A rule of law
that one is presumed to be negligent if he/she/it had exclusive control of the
cause of the injury, even though there is no specific evidence of negligence
and if negligence is absent the accident would not have happened.
 Glossary 475

Respondeat superior (Latin for “let the superior answer”): A doctrine in

the law of agency that provides that a principal—the employer (superior)—is
responsible for the actions of his/her/its agent (employee) done in the
course of employment. For example, if a nurse negligently administers med-
ication to a patient, her employer (a hospital or physician, for example) can
be held liable for any resulting injuries. (See also, “vicarious liability.”)
School rule: The principle that healthcare practitioners will normally be
judged by the standards of their own particular branch of medicine. Thus,
podiatrists should be compared to the standards of podiatry, dentists to den-
tistry, chiropractors to chiropractic, and so on. The various “schools” often
overlap, and their borders are blurred. For example, one’s feet can be treated
not only by podiatrists but also by general practitioners, orthopedists, or gen-
eral surgeons; thus, determining which standards apply is often difficult.
Scienter (Latin for “having knowledge”): Knowledge by a defendant that
his acts were illegal or his statements were fraudulent. In other words, not only
knowing what you are doing but knowing that what you are doing is illegal.
Standard of care: The caution and prudence that a reasonable person would
exercise in the circumstances. If a person’s actions do not meet the standard
of care, then her acts are negligent, and any resulting damages may be com-
pensated in a lawsuit brought by the injured party. The proper standard of
care to use in judging one’s actions is often a subjective issue upon which rea-
sonable people can differ.
Standing: The right to file a lawsuit or petition under the circumstances of
the particular case. For example, a hospital trade association will have stand-
ing to sue on behalf of its member organizations to challenge a Medicare reg-
ulation if its members are affected by the regulation. The issues are the same
for all of them, and it would be impractical for each hospital to file its own
lawsuit or for a court to deal with all of them. Similarly, a single hospital may
have standing to file suit as a representative of all others similarly affected by
the regulation.
Stare decisis (Latin for “to stand by a decision”): The principle that a
court is bound by decisions of higher courts (precedents) on a particular legal
question applicable to the instant case. Reliance on precedents is required
until an appellate court changes the rule, even when the lower court believes
it is “bad law.”
Statute of limitations: A law setting the maximum period one can wait
before filing a lawsuit, depending on the type of case or claim. The periods
vary by state. Statutory periods may be suspended (“tolled”) depending on
the status of the plaintiff. For example, a minor’s time period might not
begin to run until she reaches the age of majority.
476 Glossary

Strict liability: Automatic responsibility (without having to prove negli-

gence) for damages as a result of possession and/or use of inherently danger-
ous equipment such as explosives, wild and poisonous animals, or assault
weapons.
Subpoena duces tecum: A court order issued at the request of one of the
parties to a suit and requesting a witness to bring to court or to a deposition
any relevant documents under the witness’s control. A subpoena duces tecum
is often fulfilled by delivering the documents to the requesting party rather
than appearing in court.
Tort (Latin for “wrong”): A civil offense not founded on contract. A fail-
ure to conduct oneself in a manner considered proper under the given cir-
cumstances.
Verdict N.O.V. (non obstante veredicto): A verdict “notwithstanding the
verdict” entered by the court when a jury’s verdict is clearly unsupported by
the evidence. It is akin to a directed verdict or summary judgment entered
before the case is sent to the jury for deliberation.
Vicarious liability: Attachment of responsibility to a person whose agent
caused the plaintiff’s injuries. (See also “respondeat superior.”)
Writ of certiorari: An order (writ) by a higher court to a lower court to have
the case sent to the former for review. Certiorari—Latin for “we wish to be
informed”—is most commonly used by the U.S. Supreme Court, which is
selective about which cases it will decide. To seek a hearing in the Supreme
Court, a litigant must petition (apply) for a writ of certiorari, which the
Court grants at its discretion and only if at least four justices agree that the
case involves an issue of such importance that Supreme Court scrutiny is war-
ranted. By denying a petition for certiorari the Court does not implicitly
affirm the lower decision but says it will let the decision stand, for whatever
reason. (Reasons for denying the petition might include that the lower deci-
sion conforms to accepted precedents, that the Court wants to see how other
jurisdictions will rule in similar cases, or that the legal issue has not yet fully
matured into one about which the Court can issue an informed judgment.)
Writ of mandamus: A court order (sometimes called “writ of mandate”)
requiring a public agency to perform an act required by law when it has neg-
lected or refused to do so.
SUGGESTED READINGS

Judicial Decisions
• Bush v. Gore, 531 U.S. 98 (2001); see especially the dissenting opi-
nions in regard to political versus constitutional issues.
• Lochner v. New York, 198 U.S. 45 (1905), a now discredited opinion
on the Fourteenth Amendment and a state government’s power to
regulate economic activities.
• Marbury v. Madison, 5 U.S. 137 (1803), on the Constitution as the
“supreme law of the land” and power of the courts to overrule statutes
that conflict with it.
• McCulloch v. Maryland, 17 U.S. 316 (1819), on the “necessary and
proper” clause of the Constitution.
• West Coast Hotel Co. v. Parrish, 300 U.S. 379 (1937), the end of the
“Lochner era” and the beginning of a much broader view of the gov-
ernment’s power to regulate economic activities through minimum-
wage and maximum-hour laws.

Law in Literary Works

• C. Dickens, Bleak House (various publishers and dates).
• H. Melville, Billy Budd (various publishers and dates).
• R. Posner, Law and Literature (Rev. ed. 1998).

On the Evolution of the U.S. Healthcare System

• P. Starr, The Social Transformation of American Medicine: The Rise of a
Sovereign Profession and the Making of a Vast Industry (1982).

On the Lives of Some Prominent Jurists

• P. Ackroyd, The Life of Thomas More (1998). More is the patron saint of
lawyers.
• V. Countryman (ed.), The Douglas Opinions (1977). An anthology of
the opinions of Supreme Court Justice William O. Douglas.
• D. Danelski and J. Tulchin (eds.), The Autobiographical Notes of Charles
Evans Hughes (1973).
• G. Gunther, Learned Hand: The Man and the Judge (1994).
• L. Kalman, Abe Fortas: A Biography (1990).

477
478 Suggested Readings

• A. Kaufman, Cardozo (1998).

• R. Newman, Hugo Black: A Biography (1994).
• S. Novick, Honorable Justice: The Life of Oliver Wendell Holmes (1989).

Other Related Texts

• American Bar Association, Antitrust Health Care Handbook (2004).
• B. Ashley and K. O’Rourke, Health Care Ethics: A Theological Analysis,
4th ed. (1997).
• B. Ashley and K. O’Rourke, Ethics of Health Care: An Introductory
Textbook (2002).
• S. Brackel and D. Brooks, Law and Psychiatry in the Criminal Justice
System (2001).
• B. Farrow, et al., Health Law: Cases, Materials and Problems, 5th ed.
(2005).
• D. Harris, Contemporary Issues in Healthcare Law and Ethics, 2nd ed.
(2003).
• J. Hendrick, Law and Ethics in Nursing and Healthcare (2000).
• D. Kyvig, Explicit and Authentic Acts (1996).
• D. Matyas and C. Valiant, Legal Issues in Healthcare Fraud (2006).
• R. Miller and R. Hutton, Problems in Health Care Law (2004).
• A. Moreczewski and S. Showalter, Determination of Death: Theological,
Medical, Ethical, and Legal Issues (1982).
• R. Pound, The Formative Era of American Law (1938).
• G. Pozgar, Legal Aspects of Health Care Administration, 9th ed. (2004).
• W. Roach, Jr., Medical Records and the Law, 3rd ed. (2004).
• S. Showalter, “Managing Healthcare Compliance” Self-Study Course
(2000).
• S. Showalter, To Treat or Not to Treat: A Working Document for Making
Critical Life Decisions (1984).
• S. D. Warren and L. D. Brandeis, “The Right to Privacy,” 4 Harvard
Law Review 193 (1890).
• K. Wing, The Law and the Public’s Health, 6th ed. (2006), and supple-
mental cases.
• S. Withrow, Managing Healthcare Compliance (2001).
• J. Worthley, Organizational Ethics in the Compliance Context (1999).
CASE INDEX

A In re Application of the President

Abbott Laboratories v. Portland and Directors of Georgetown
Retail Druggists Association, College, Inc., 258
Inc., 323 Ardoin v. Hartford Accident &
Accord–Gitterer v. Crawford, Indem. Co., 147n
308n Armstrong v. Board of Directors
Accord Kunnes v. Samaritan of Fayette County Gen. Hosp.
Health Serv., 309n Board, 212n, 214n
Accord Rosen v. Parkway Hosp., Arrington v. Wong, 230, 231
241n Aultman Hosp. Ass’n v. Evart,
Accord Truhitte v. French Hosp., 309n
147n Azzolino v. Dingfelder, 417n, 418n
Addington v. Texas, 182n
Ad Hoc Executive Comm. of the B
Medical Staff of Memorial Baber v. Hospital Corporation of
Hosp. v. Runyan, 211n America, 225, 229, 230
Adler v. Montefiore Hospital In re Baby M., 411–12
Association of Western Penn- Bader v. United Orthodox
sylvania, 202–3, 215n Synagogue, 147n
Alexandridis v. Jewett, 33 Baile v. Miami Valley Hosp. 183n
Allen v. Sister of St. Joseph, 402, Baird v. Sickler, 67
416n Baldo v. Rogers, 78n
Allied v. State, 463n Bang v. Charles T. Miller Hospi-
American College of Obstetri- tal, 251
cians v. Thornburgh, 415n Baptist Health v. Murphy, 205–6
American Medical Ass’n v. Fed- Barcia v. Society of N.Y. Hosp.,
eral Trade Comm’n, 347n 241n
Anderson v. Caro Community Barclay v. Campbell, 283n
Hosp., 213n, 215n Barefoot v. Estelle, 169

479
480 The Law of Healthcare Administration

Bares Hospital v. Collector of Blende v. Maricopa County

Revenue, 316 Medical Soc’y, 214n
Barnes Hosp. v. Leggett, 309n Board of Medical Quality Assur-
Barnes Hospital v. Collector of ance v. Hazel Hawkins Memo-
Revenue, 306 rial Hosp., 465n
Barnett v. Bachrach, 37 Board of Trustees of the Memo-
Barrett v. United Hosp., 211n rial Hosp. of Sheridan County
Barrier v. Bowen, 81n v. Pratt, 212n, 214n
In re Barry, 284n Bob Jones Univ. v. United States,
Bartling v. Superior Court, 283n 308n
Bauman v. U.S. Healthcare Inc., Boddicker v. Arizona State Dental
184n Ass’n, 347n
Beal v. Ann Doe, 416n Boggess v. Aetna Life Ins. Co.,
Becker v. Schwartz, 416–18n 463n
Bedard v. Notre Dame, 183n Boos v. Donnell, 212n
Bellah v. Greenson, 461n Bourgeois v. Dade County, 232
Benell v. City of Virginia, 212n, Bouvia v. Riverside County Gen.
215n Hosp., 283n
Bennan v. Parsonnet, 281n Bouvia v. Superior Court, 283n
Berberian v. Lancaster Osteo- Brady v. Hopper, 30
pathic Hosp. Ass’n, 213n Brady v. Hopper, 461n
Berger v. Fireman’s Fund Ins. Co., Bredice v. Doctors Hospital,
81n 215n
Berkey Photo, Inc. v. Eastman Bricker v. Sceva Speare Memorial
Kodak Co., 348n Hosp., 213n
Berlin v. Nathan, 82n Brinkman v. City of Indianapolis,
Berman v. Allen, 417n, 418n 181n
Beth Israel Hosp. and Geriatric Brooke v. Walker County Hosp.
Center v. District Court in Dist., 181n
and for the City and County Brooker v. Desert Hosp. Corp.,
of Denver, 462n 240n
Bing v. Thunig, 131, 139, 148n Brune v. Belinkoff, 78n
Birnbaum v. Trussell, 212n Bryant v. Redbud Community
Bishop and Chapter of the Cathe- Hosp. Dist., 240n
dral of St. John the Evangelist Buck v. Bell, 399–400
v. Treasurer of the City and Burkette v. Lutheran Gen. Hosp.,
County of Denver, 308n 215n
Bivens v. Six Unknown Federal Burkhart v. Community Medical
Narcotics Agents, 181n Center, 213n
Blake v. Cruz, 417n, 418n Burks v. Christ Hospital, 138–39
Blank v. Palo Alto–Stanford Burnside v. Evangelical Deaconess
Hosp. Center, 212n, 215n Hosp., 79n
 Case Index 481

Burton v. Lefwich, 36 Childs v. Greenville Hosp. Auth.,

Burton v. Mt. Helix General 239n
Hospital, 74 Childs v. Weis, 25, 222–23
Bush v. Schiavo, 267, 291–92 Chrisman v. Sisters of St. Joseph
Bushman v. Burns Clinic Medical of Peace, 416n
Center, 417n Chrite v. United States, 183n
Buzan v. Mercy Hosp., 147n Church of Scientology v. Black-
Byrne v. Boadle, 57–58 man, 118n
Cidilko v. Palestine, 19n
C Citizen Publishing Co., v. United
California Motor Trans. Co. v. States, 349n
Trucking Unlimited, 347n Citizens for Better Care v. Reizen,
Call v. Kezirian, 416–17n, 418n 463n
Callahan v. William Beaumont Citizens for Health v. Leavitt,
Hosp., 79n 448
Cameron v. New Hanover Citta v. Delaware Valley Hosp.,
Memorial Hospital, Inc., 196 212n, 214n
Campbell v. St. Mary’s Hosp. City of Akron v. Akron Center
213n for Reproductive Health,
Camperlengo v. Blum, 464n 415n
Cannell v. Medical and Surgical City of Long Beach v. Mon-
Clinic, 460n mouth Medical Center, 309n
Cape Cod Medical Center, Inc. v. City of Miami v. Oates, 146n
News–Press Publishing Co., City of Philadelphia v. Masonic
Inc., 463n Home of Philadelphia, 295,
Carney v. Cleveland, 309n 308n
Carr v. Schmid, 464n City of Revere v. Massachusetts
Carr v. St. Paul Fire and Marine General Hospital, 163, 181n
Insurance Company, 429–30 City of Somerset v. Hart, 147n
Carrasco v. Bankoff, 241n City of Springfield v. Commis-
Case v. United States, 461n sioner of Revenue, 309n
Cates v. Baol, 81n Clayman v. Bernstein, 443–43
Central Board on Care of Jewish Cleland v. Bronson Health Care
Age, Inc. v. Henson, 303 Group, Inc., 231, 240n
Chaffin v. Nicosia, 67 Cleveland Memorial Medical
Champs v. Stone, 80n Found. v. Perk, 309n
Charles v. Daley, 415n Cleveland Osteopathic Hosp. v.
Charlotte Hungerford Hospital v. Zangerle, 308n
Attorney General, 94, 120–21 Cobb County–Kennestone Hos-
Chico Feminist Women’s Health pital Authority v. Prince,
Center v. Butte Glenn Med- 204–5, 215n
ical Soc’y, 461n Cobbs v. Grant, 252, 286–90
482 The Law of Healthcare Administration

Cochran v. Sears Roebuck, 461n Cox v. Haworth, 281n

Cockrum v. Baumgartner, 408, Craft v. Peebles, 78n
417n Cross v. Trapp, 281n
Colautti v. Franklin, 392, 415n Cruzan v. Director, Missouri
Colby v. Schwartz, 238 Department of Health,
Cole v. Taylor, 461n 265–67
Collins v. DePaul Hosp., 240n In re Culbertson’s Will, 460n
Columbia/JFK Medical Center Curlender v. Bio-Science Labora-
Limited Partnership v. tories, Inc., 409, 410, 417n
Sanguonehitte, 215n Custodio v. Bauer, 417n
Commonwealth v. Wiseman,
462n D
Connell v. Washington Hosp. Dakters v. Shane, 82n
Center, 464n Dania Jai–Alai Palace, Inc. v.
In re Conroy, 283n, 284n Sykes, 118n
Matter of Conroy, 264, 265 Darling v. Charleston Commu-
Contra Peterson v. Tucson Gen. nity Memorial Hospital,
Hosp., 214n 56–57, 79n, 140, 147n,
Contra Swindell v. St. Joseph’s 214n, 241n, 460n
Hosp., Inc., 147n Dattilo v. Tucson Gen. Hosp.,
Conyers v. Massa, 463n 215n
Cook v. Highland Hosp., 183n Davidson v. Shirley, 281n
Cook v. Ochsner Found. Hosps., Davidson v. Youngstown Hosp.
182n Ass’n, 212n
Cooper v. Curry, 211n, 281n Davis v. Davis, 413
Cooper v. Sisters of Charity of Davis v. Hubbard, 182n
Cincinnati, 241n Davis v. Lhim, 43n
Copperweld Corp. v. Independ- DeFillipo v. Preston, 78n
ent Tube Corp., 320, 347n, Demers v. Gerety, 281n
350–55 Diamond v. Charles, 415n
Corcoran v. United Healthcare, Dickinson v. Mailliard, 146n, 148n
Inc., 148n, 183n Dilliard v. Rowland, 215n
Corletto v. Shore Memorial DiNatale v. Lieberman, 417n
Hosp., 211n District Attorney for N. Dist. v.
Corn v. French, 251 Board of Trustees of Leonard
Cornfeldt v. Tongen, 80n Marse Hosp., 463n
Corporate Health Insurance, Inc. Division of Medical Quality v.
v. Texas Department of Insur- Gherardini, 465n
ance, 144, 184n Doctors Hosp. v. Board of Tax
Corum v. Beth Israel Med. Cen- Appeals, 309n
ter, 182n Doctors Hospital v. Sexton,
Cowan v. Gibson, 213n 295–96
 Case Index 483

In re Doe, Barbara, 284n Epworth Orphanage v. Long,

Doe v. Bellin Memorial Hospital, 117n
402 Erickson v. Dilgard, 282n
Doe v. Bolton, 388, 390, 401, Erie R.R. Co. v. Tompkins, 6,
402, 414n, 460n 10–11
Doe v. Charleston Area Medical Eskaton Monterey Hosp. v.
Center, 416n Myers, 463n
Doe v. Israel, 414n Estate of Berthiaume v. Pratt,
Dolan v. Galluzzo, 78n M.D., 461n
Dooley v. Barberton Citizens In re Estate of Brooks, 282n
Hosp., 211n In re Estate of Kemp, 284n
Doremus v. Furrell, 182n In re Estate of Searchill, 463n
Douglas v. California, 181n Estelle v. Gamble, 81n, 181n
Douglas v. Michel, 462n Eubanks v. Ferrier, 207
Doyle v. Guiliucci, 74, 82n Evangelical Lutheran Good
Drs. Lane, Bryand, Eubanks & Samaritan Society v. County
Dulaney v. Otts, 78n of Gage, 303
Dukes v. U.S. Healthcare, 148n In re Evanston Northwestern
Dumer v. St. Michael’s Hosp., Healthcare Corporation, 349n
417n, 418n Evitt v. University Heights Hosp.,
Duprey v. Shane, 42n 241n
Duvall v. Goldin, 43n
Dybt v. Baron, 214n F
Fahey v. Holy Family Hosp.,
E 214n
Eastern Railroad President Falcone v. Middlesex County
Conference v. Noerr Motor Medical Society, 199–200
Freight, Inc., 329, 347n Farber v. Olkon, 283n
Eaton v. Grubbs, 212n Farris v. Tvedten, 461n
Ebaugh v. Rabkin, 82n Faulkner v. Pezeshki, 78n, 79n
Edson v. Griffin, 213n Favolora v. Aetna Casualty and
Eichner v. Dillon, 282n, 283n Surety Company, 52–53
Eidgeion v. Eastern Shore Hospi- Federal Trade Commission v.
tal Center, 41 Butterworth Health Corpora-
Eisbrenner v. Stanley, 417n tion, 336, 343–44
Eisenstadt v. Baird, 415n Federal Trade Commission v.
Elam, Sophia, v. College Park Freeman Hospital, 344
Hosp., 211n Federal Trade Commission v.
Elliot v. Brown, 417n University Health, Inc., 347n
Ellis v. Bitzer, 81n Federal Trade Comm’n v. Procter
Engelstad v. Virginia Mun. Hosp. and Gamble, 348n
and Va. Hosp. Comm’n, 215n Ferguson v. Gonyaw, 79n
484 The Law of Healthcare Administration

Fiorentino v. Wenger, 78n, 281n Gilcklich v. Spievack, 80n

Fjerstad v. Knutson, 233 Gildner v. Thomas Jefferson
Flaum v. Medical Arts Center Univ. Hosp., 417n, 418n
Hosp., 460n Gilmore v. O’Sullivan, 55
Florentine v. Wagner, 148n Gilson v. Knickerbocker Hosp.,
Foley v. Bishop Clarkson Memo- 461n
rial Hosp., 146n, 148n Goedecke v. State, 183n
Foote v. Community Hospital of Goldberg v. Ruskin, 417n
Beloit, 198, 213n Goldfarth v. Virginia State Bar
Ford Motor Co. v. United States, Association, 320, 328
348n Goldstein v. Madison Ave. Hosp.,
Fort Hamilton–Hughes Memorial 460n
Hosp. Center v. Southard, 211n Gonzales v. Nork, 142, 211n
Foster v. Mobile Hosp. Bd., 212n Good Samaritan Hosp. Ass’n v.
In re Frank, 284n Glander, 309n
Franzblau v. Monardo, 116n In re Grady, 416n
Frazier v. Levi, 284n Gragg v. Neurological Assoc.,
Freese v. Lemmon, 29 242n
Friedman v. Dozorc, 82n Grant v. Touro Infirmary, 147n
Fritz v. Huntington Hosp., 212n Gravis v. Physician’s and Sur-
Fruehauf Corp. v. FTC, 348n geon’s Hosp. of Alice, 282n
FTC v. Greeman Hospital, 348n Greater Anchorage Area Borough
v. Sisters of Charity, 315
G Greco v. Orange Memorial
Gadd v. News–Press Publishing Hosp., 416n
Company, Inc, 449–50 In re Green, 277
Gadsden v. Hamilton, 183n Green v. City of St. Petersburg,
Garcia v. Iserson, 42n 212n
Garcia v. Memorial Hospital, 137 Green v. Rogers, 147n
Garlington v. Kingsley, 147n Grewe v. Mt. Clemens General
Gates v. Jensen, 53 Hospital, 133–34
Gatewood v. Washington Health- Grey v. Los Angeles Superior
care Co., 228, 240n Court, 464n
Geddes v. Daughters of Charity, Griesman v. Newcomb Hospital,
182n 199, 200
Geisberger v. Willuhn, 464n Griffin v. Cortland Memorial
General Motors Corp. v. Director Hosp., Inc., 461n
of NIOSH, 464n Grimsby v. Samson, 71
Genesee Hospital v. Wagner, Griswold v. Connecticut, 397,
305–6, 309n 460n
Gilbert v. McLeod Infirmary, Grosslight v. Superior Court of
117n Los Angeles County, 464n
 Case Index 485

Group Life and Health Insurance Hastings v. Baton Rouge Gen.

Co. v. Royal Drug Co., Hosp., 146n
330–31 Hathaway v. Worcester City Hos-
Guadalupe v. Agosta, 240n pital, 402
Guerrero v. Copper Queen Hawkins v. King County Dep’t of
Hosp., 224, 242n Rehabilitative Servs., 461n
Guidry v. Phillips, 78n Hayman v. Galveston, 211n
Guilmet v. Campbell, 34 Hays v. Hall, 417n
Guy v. Arthur H. Thomas Co., 28 Heart of Atlanta Motel, Inc. v.
United States, 347n
H Heddinger v. Ashford Memorial
Habuda v. Trustees of Rex Hospi- Community Hosp., 241n
tal, 139 Heins v. Synkonis, 130
Hackworth v. Hart, 417n Heller v. Medine, 80n
Halberstadt v. Kissane, 213n Helling v. Carey, 53, 83, 252
Hale v. Venuto, 59, 80n Helton v. Phelps County
Hall v. Hilburn, 78n Regional Medical Ctr., 240n
Hamburger v. Henry Ford Hosp., Henderson v. Mason, 61
242n Herskovits v. Group Health
Hamil v. Bashline, 80n, 147n Cooperative of Puget Sound,
Hammer v. Rosen, 57 80n
Hannola v. City of Lakewood, Hi–Plains Hospital v. United
133 States, 301
Hansch v. Hackett, 460n In re Hier, 284n
Hanselmann v. McCardle, 80n Hill v. Ohio County, 160, 181n,
Hansen v. Pock, 78n 184–85, 223
Hansletter Network v. Shalala, 367 Hill v. Willmort, 82n
Harbeson v. Parke–Davis, Inc., Hillcrest Medical Center v. State
410, 417n of Okla., ex rel. Dep’t of Cor-
Harnish v. Children’s Hosp. rections, 181n
Medical Center, 281n Hillman v. Flagstaff Community
Harper v. Virginia Bd. of Elec- Hosp., 309n
tions, 181n Hipp v. Hospital Auth., 147n
Harris v. McRae, 181n, 416n Hiser v. Randolph, 80n, 147n
Harron v. United Hosp. Center, Hoffman and Rasansky v. Garden
Inc., Clarksburg, W. Va., City Hosp., 213n
215n Hoffman v. Rogers, 42n
Hart v. County of Orange, 181n Holmers v. Powers, 284n
Hart v. Taylor, 308n Honeywell v. Rogers, 81n
Harvard Community Health Hospital Building Co. v. Trustees
Plan, Inc. v. Board of Asses- of the Rex Hospital, 326
sors, 309n Housh v. Peth, 461n
486 The Law of Healthcare Administration

Howard v. Lecher, 417n Jersey City Medical Center v.

Howlett v. Greenberg, 430 Highland, 183n
Hubbard v. Libi, 81n J.J. McCaskill Co. v. United
In re Hudson, 276 States, 118n
Huene v. Carnes, 82n John F. Kennedy Memorial
Humphrey v. Cady, 182n Hosp., Inc. v. Bludworth,
Hundley v. Martinez, 39 283n, 284n
Hunt v. Rabon, 117n John F. Kennedy Memorial Hosp.
Hurley v. Eddingfield, 42n v. Heston, 282n
Hyde v. United States, 348n Johnson v. McMurray, 39
Johnson v. Misericordia Commu-
I nity Hospital, 142, 153–57,
Idaho Falls Consol. Hosps., Inc. 211n
v. Bingham County Bd. of Johnson v. Silvers, 43n
County Comm’rs, 181n Johnson v. Vaughn, 30–31
ILC Peripherals Leasing Corp. v. Johnson v. Yeshiva Univ., 416n
International Business Mach. Johnston v. University of Chicago
Corp., 348n Hosp., 240–41n
Inderbitzen v. Lane Hosp., 281n Joiner v. Mitchell County Hospi-
In re Infant Doe, 285n tal Authority, 141, 211n
International Shoe Co. v. FTC, Jones v. City of New York Hospi-
349n tal for Joint Diseases, 232–33
Jones v. Mailinowski, 417n
J Jones v. State Bd. of Medicine,
Jabczenski v. Southern Pac. 214n
Memorial Hosp., 118n Jones v. United States, 170
Jackson v. Indiana, 182n Joseph v. Passaic Hosp. Ass’n,
Jackson v. Metropolitan Edison 213n
Co., 5, 20–21, 211n
Jacobs v. Theimer, 417n K
Jacobs v. Martin, 212n Kaiser v. Suburban Transp. Sys.,
Jacobson v. Massachusetts, 282n 42n
James G. and Lurana G. v. Kakligian v. Henry Ford Hosp.,
Caserta, 417n 147n
James v. United States, 27–28 Kansas Masonic Home v. Board
Jamison v. Debenham, 80n of Commissioners, 308n
Janney v. Housekeeper, 282n Kansas State Bd. of Healing Arts
Jeffcoat v. Phillips, 282n v. Foote, 213n
Jefferson v. Griffin Spalding Karp v. Cooley, 63, 282n
County Hospital Authority, Kastler v. Iowa Methodist Hosp.,
276 146n
Jefferson v. United States, 58–59 Katz v. State of N.Y., 464n
 Case Index 487

Keen v. Mayor of Waycross, 116n Leach v. Akron Gen. Medical

Keene v. Methodist Hospital, 139 Center of Ohio, 283n
Keeton v. Maury County Hosp., Leach v. Drummond Medical
146n Group, Inc., 32
Kelly v. Carroll, 78n Leach v. Jefferson Parish Hospital
Kelsey–Seybold Clinic v. Maclay, District No. 2, 197, 217–19
81n Leedy v. Harnett, 461n
Khan v. Suburban Community Leedy v. Hartnett & Lebanon
Hosp., 214n, 215n Valley Veterans Admin. Hosp.,
King v. Ahrens, 241n 183n
Kirby v. Spivey, 282n LeJeune Road Hospital, Inc. v.
Klema v. St. Elizabeth’s Hosp., Watson, 164
146n Lennard’s Carrying Co., Ltd. v.
Kling v. St. Paul Fire and Marine Asiatic Petroleum Co., Ltd.,
Ins. Co., 214n 91
Klinge v. Lutheran Medical Cen- Leonard v. Board of Directors,
ter of St. Louis, 463n Power County Hosp., Dist.,
Knecht v. Vandalia Medical Cen- 211n
ter, Inc., 462n Lessard v. Schmidt, 182n
Kober v. Stewart, 146n Lester v. Aetna Casualty Co.,
Koelling v. Skiff Memorial Hosp., 281n, 283n
196, 214n Letsch v. County Hosp., 212n
Komanetsky v. Missouri State Levin v. Inspector General, 379n
Medical Ass’n, 119n Levin v. Sinai Hosp., 213n
Koudsi v. Hennepin County Lewin v. St. Joseph Hosp., 215n
Medical Center, 461n, 462n Lewis v. Donahue, 182n
Kushner v. Southern Adventist Lewis v. Soriano, 70n, 78n
Health and Hosp. Sys., 215n In re L.H.R., 27
Kyslinger v. United States, 183n In re Lifschutz, 463n
Limmer v. Samaritan Health
L Serv., 212n, 214n
Labadie Coal Co. v. Black, 118n Lipari v. Center for Reproductive
Laje v. R.E. Thomason Gen. and Sexual Health, 464n
Hosp., 215n L.L. v. Medical Protective Co.,
Lakeside Community Hosp. v. 81n
Levenson, 213n Loewe v. Lawlor, 322
Lamont v. Brookwood Health Lou v. Smith, 81n
Services, Inc., 146n Lowen v. Hilton, 182n
Landeros v. Flood, 57 Lowendahl v. Baltimore & Ohio
Lane v. Candura, 283n R.R., 118n
Lapidor v. Memorial Medical Lubin v. Critenden Hosp. Ass’n.,
Center, 215n 211n
488 The Law of Healthcare Administration

Lugo v. Simon, 182n McGillivray v. Rapides Iberia

Luka v. Lowrie, 270, 281n Management Enterprises,
Lundberg v. Bay View Hosp., 146n 146n
McIntosh v. Milan, 461n
M McKenna v. Cedars of Lebanon
Maben v. Rankin, 182n, 283n Hosp., 242n
MacDonald v. Time, Inc., 461n McNamara v. Emmons, 29
Magana v. Elie, 281n Mduba v. Benedictine Hosp.,
Maher, Comm’r of Social Servs. 146n
of Conn. v. Susan Roe, 416n Medical Center of VT., Inc. v.
Maher v. Roe, 181n City of Burlington, 309n
Maltempo v. Cuthbert, 31 Medveca v. Choi, 82n
Mangeris v. Gordon, 461n Mehigan v. Sheehan, 80n
Marbury v.. Madison, 19n Mehlman v. Powell, 146n
Marcus v. Liebman, 183n Meiselman v. Crown Heights
Maricopa County Medical Soc’y Hospital, 172
v. Blende, 214n In re Melideo, 283n
Martin v. Washington Hosp. Meredith v. Allen County War
Center, 241n Memorial Hosp., 212n
Massachusetts Gen. Hosp. v. City Merrill v. Komasinski, 81n
of Revere, 181n Methodist Hospital v. Ball, 232,
Mata v. Albert, 79n 233
Mattison v. Poulen, 464n Michigan State Podiatry Associa-
Mattocks v. Bell, 36 tion v. Blue Cross and Blue
Matts v. Homsi, 242n Shield of Michigan, 231–32
Mauer v. Highland Park Hosp. Miller v. Eisenhower Medical
Found., 213n Center, 215n
Mayer v. Albany Medical Center Miller v. National Medical Hosp.
Hosp., 464n of Monterey Park, Inc., 214n
Mayers v. Litow & Midway Miller v. Toles, 78n
Hosp., 146n Miller v. Tongen, 147n
Mayroudis v. Superior Court for Milner v. Huntsville Memorial
County of San Mateo, 461n Hosp., 147n
McAlister v. Methodist Hosp. of Milton Hosp. v. Board of Tax
Memphis, 42n Assessors, 309n
McBride v. United States, 80n Minnesota Medical Ass’n v. State,
McDermott v. Manhattan Eye, 463n
Ear and Throat Hospital, 55 Mitchell v. Robinson, 251
McDonald v. Massachusetts Gen. Mizell v. North Broward Hosp.
Hosp., 146n Dist., 213n, 214n
McGarry v. J.A. Mercier Co., In re M.K.R., 284n
460n Moberly v. Herboldsheimer, 462n
 Case Index 489

Modia v. Parker, 183n New Biloxi Hospital v. Frazier,

Mohr v. Williams, 36–37, 281n 232, 233
Moles v. White, 215n Newcomb v. Patton, 215n
Monmouth Medical Center v. Newsom v. Vanderbilt Univ.
Harris, 177, 183n Hosp., 182n
Monmouth Medical Center v. Niles v. City of San Rafael, 131
State, 177 Nishi v. Hartwell, 281n
Moore v. Andalusia Hosp., Inc., Noble v. United Benefit Life Ins.
213n Co., 461n
Moore v. Board of Trustees of Noe v. Kaiser Found. Hosps., 82n
Carson–Tahoe Hosp., 141, Nolan v. Merecki, 417n
197–98, 211n, 214n, 216 North Broward Hosp. Dist. v.
Moore v. St. John’s Episcopal Mizell, 213n
Hosp., 464n North Carolina Ass’n for
Morrell v. Lalonde, 82n Retarded Children v. State of
Morris v. Metriyakool, 82n N.C., 415n
Morrison v. Washington County Northern Pac. Ry. Co. v. United
Ala., 183n States, 348n
Mostrom v. Pettibon, 51 Norton v. Argonaut Insurance
Mulligan v. Wetchler, 241n Co., 129, 149–52
Munzer v. Blaisdell, 462n Norton v. Hamilton, 30
Murphy v. Arizona Bd. of Med- Norwood Hosp. v. Howton, 181n
ical Exam’rs, 184n
Murray v. Vandervander, 282n O
Oak Ridge Hosp. v. City of Oak
N Ridge, 309n
Naccash v. Burger, 417n Oakwood Hosp. Corp. v. Michi-
Nashville Memorial Hosp., Inc. v. gan State Tax Comm’n, 309n
Brinkley, 213n Oblinger v. Watson, 182n
Nassau–Suffolk Hosp. Council v. Ochs v. Borelli, 417
Whalen, 463n O’Connor v. Donaldson, 182n
Natanson v. Kline, 251 Oleksy v. Sisters of Mercy, 116n
Natchez v. Natchez Sanitorium Oliver v. Brock, 26–27
Benevolent Ass’n, 308n Oliver v. Harborview Medical
National Gerimedical Hospital Center, 463n
and Gerontology Center v. In re Osborne, 282n
Blue Cross of Kansas City,
327–28 P
Nelson v. Grissom, 463n Pacificare of Oklahoma, Inc. v.
Nelson v. Harrington, 78n Burrager, 148n
Nelson v. Krusen, 418n Paintsville Hosp. Co. v. Rose,
Nelson v. Swedish Hosp., 147n 146n
490 The Law of Healthcare Administration

Palm Springs Gen. Hosp. v. Pick v. Santa Ana–Tustin Com-

Martinez, 282n munity Hosp., 215n
Pangburn v. Saad, 81n Pisel v. Stanford Hosp., 460n
Paradies v. Benedictine Hosp., Pittman v. Gilmore, 78n
183n Planned Parenthood Association
Parker v. Brown, 328 of Kansas City, Missouri, Inc.
Parker v. Rampton, 415n v. Ashcroft, 392–93 , 415n
Parkson v. Central DuPage Planned Parenthood of Central
Hosp., 464 Mo. v. Danforth, 415n, 460n
Parvi v. City of Kingston, 18n Planned Parenthood of S.E.
Passavant Health Center v. Pennsylvania v. Casey, 8, 18,
Board of Assessment and 22, 394, 395–96
Revision of Taxes of Butler In re Plaza Health & Rehabilita-
County, 309n tion Center, 283n
Patient Care Services, S.C. v. Pollock v. Methodist Hosp., 214n
Segal, 117n Porter v. County of Cook, 181n
Patients of Philadelphia State Pratt v. Davis, 82n, 283n
Hosp. v. Commonwealth of President & Directors of George-
Pa. 463n town College v. Hughes, 146n
Payton v. Weaver, 31–32 Procanik v. Cillo, 418n
Peck v. Charles B. Towns. Hosp., Public Health Trust v. Brown,
147n 417n
Pedroza v. Bryant, 148n Purcell v. Zimbelman, 211n
Pegram v. Sisco, 280n Pyramid Life Ins. Co. v. Masonic
Pennison v. Provident Life and Hosp. Ass’n, 460n
Accident Ins. Co., 464n
People v. Carr, 462n Q
People v. Doe, 464n In re Quackenbush, 282n
People v. Newman, 462n Queen of Angels Hosp. v.
People v. Paiz, 182n Younger, 117n, 119n
People v. Williams, 463n In re Quinlan, 260–65, 268, 283n
Perin v. Hayne, 76, 84–88
Perlmutter v. Beth David Hosp., R
80n Raleigh Fitkin–Paul Morgan
Perna v. Pirozzi, 43n, 281n Memorial Hosp. v. Anderson,
Peterson v. Tucson Gen. Hosp., 282n
Inc., 212n, 214n Rao v. Board of County Commis-
Phillips v. Hillcrest Med. Ctr., s’rs, 214n
240n Raton Public Service Co. v.
Phillips v. Powell, 147n Hobbes, 463n
Phillips v. United States, 417n, Raymond v. Cregar, 213n, 215n
418n Reeg v. Shaughnessy, 79n
 Case Index 491

Reifschneider v. Nebraska Rush v. City of St. Petersburg,

Methodist Hosp., 146n 212n, 215n
Rennie v. Kein, 182n, 183n Ruvio v. North Broward Hosp.
Reserve Life Ins. Co. v. Salter, Dist., 241n
117n Rytkonen v. Lojacona, 282n
Rex v. Bourne, 414n
Rex Trailer Co. v. United States, S
378n Saltz v. Perlmustter, 283n
Reynolds v. St. John’s Riverside In re Sampson, 277
Hosp., 212n Sams v. Ohio Valley Gen. Hosp.
Rice v. California Lutheran Hos- Ass’n, 213n
pital, 59–60 Samuel v. Curry County and
Rice v. Mercy Hosp. Corp., 183n Curry Gen. Hosp. Bd., 212n
Richmond County Hosp. Auth. Sassman v. Overlook Hosp., 214n
v. Southeastern Newspaper Satz v. Perlmutter, 282n
Corp., 462n Scacchi v. Montgomery, 79n
Rieck v. Medical Protective Co., Schaffer v. Spicer, 454
417n Schagrin v. Wilmington Medical
Ritz v. Florida Patients’ Compen- Center, 133
sation Fund., 283n Schenck v. Government of
Rivers v. Union Carbide Corp., Guam, 211n
463n Schloendorff v. Society of New
Robbins v. Ong, 215n York Hospital, 36, 244
Roberts v. Galen of Virginia, Inc., Schroeder v. Perkel, 417n
241n Schultz v. Tasche, 63–64
Roberts v. Superior Court of Schuster v. St. Vincent Hosp.,
Butte County, 464n 80n
Roberts v. Woods, 281n Schwartz v. Boston Hosp. for
Robinson v. Hamilton, 460n Women, 282n
Rockhill v. Pollard, 40–41 Scott v. Brookdale Hosp. Center,
Rodriguez v. Pacificare of Tex., 146n
Inc., 148n Security Ins. Group v. Wilkinson,
Roe v. Wade, 8, 388–90, 391, 42n
393–96, 402, 404, 414n, Seghers v. Community Advance-
415n ment, Inc., 450
Rogers v. Lumberman’s Mutual In re Seiferth, 284n
Casualty Company, 245, 250 Selden v. City of Sterling, 195,
Rogers v. Ohio, 182n 212n
Rosemont, Inc. v. Marshall, 146n Semler v. Psychiatric Institute of
Ross v. Schubert, 42n Washington, D.C., 172
Rucker v. High Point Memorial Severns v. Wilmington Medical
Hosp., 146n Center, Inc., 283n
492 The Law of Healthcare Administration

Shack v. Holland, 281n Smith v. Doss, 461n

Shaw v. Glickman, 461n Smith v. Luckett, 283n
Shaw v. Hospital Auth. of Cobb Smith v. Richmond Memorial
County, 212n Hosp., 240n
Shepherd v. McGinnis, 147n Smith v. St. Paul Fire and Marine
Shoemaker v. Friedberg, 37 Ins. Co., 81n
Shooler v. Navarro County Sokol v. University Hosp., Inc.,
Memorial Hosp., 212n 215n
Short v. Board of Management of Sonora Community Hosp. v.
Nassau County Medical Cen- Commissioner, 308n
ter, 463n Sorkin v. Lee, 417n
Short v. Downs, 82n Sosa v. Board of Managers of Val
Shulman v. Washington Hosp. Verde Hospital, 193–94, 211n
Center, 198, 213n Soto v. Frankford Hosp., 43n
Siirila v. Barrios, 79n Soutear v. United States, 461n
Simkins v. Moses H. Cone South Carolina Medical Associa-
Memorial Hosp., 212n tion v. Thompson, 448
Simonsen v. Swenson, 440, 461n South Highlands Infirmary v.
Simopoulos v. Virginia, 415n Camp, 147n
Sims v. Charlotte Liberty Mutual South Iowa Methodist Homes,
Ins. Co., 463m Inc. v. Board of Review, 309n
Sinclair v. Postal Telegraph and Spead v. Tomlinson, 78n
Cable Co., 462n Speck v. Finegold, 403–4, 416n
Sinz v. Owens, 79n Spencer v. Community Hosp. of
Sisters of Charity v. Bernalillo Evanston, 215n
County, 309n Spivey v. Barry, Mayor, District of
Sisters of Providence in Washing- Columbia, 181n
ton, Inc. v. Municipality of Sprager v. Worley Hospital,
Anchorage, 309n 135–36
Sisters of Saint Mary v. City of Spring v. Geriatric Authority of
Madison, 390n Holyoke, 43n
Sisters of Third Order of St. Fran- St. Joseph Farms of Ind. v. Com-
cis v. County of Tazewell, 181n missioner, 308n
Skinner v. Oklahoma ex rel. St. Joseph’s Hosp. and Medical
Attorney General, 400, 415n, Center v. Maricopa County,
419–20 162, 181n
Sklagen v. Greater S.E. Commu- St. Luke’s Hospital of Kansas City
nity Hosp., 464n v. United States, 301
Small v. Howard, 78n Stanturf v. Sipes, 223–24
In re Smith, 284n Starnes v. Taylor, 282n
Smith v. Baptist Memorial Hosp., State of Ill. v. Herbert, 464n
147n State of Iowa v. Bedel, 463n
 Case Index 493

State of N.J. v. Dyal, 465n Taylor v. Horn, 212n

State of Washington v. Kuljis, 452 Taylor v. St. Vincent’s Hospital,
State v. Norflett, 414n 416n
State v. Perricone, 275–76 Teeters v. Curry, 417n
Staube v. Emanuel Lutheran Theatre Enterprises v. Paramount
Charity Bd., 215n Film Distributing Corp.,
Steele v. Woods, 283n 347n
Stenberg v. Carhart, 415n Theissen v. Watonga Mun. Hosp.
Stern v. Lucy Webb Hayes Bd., 214n
National Training School for Therrel v. Fonde, 146n
Deaconesses and Missionaries, Thompson v. Brent, 52, 81n
103, 121–24 Thompson v. County of
Stevens v. Kimmel, 42n Alameda, 460n
Steward v. Myrick, 241n Thompson v. Sun City Commu-
Stewart v. Rudner, 33 nity Hosp. Inc., 240n
Still v. Gratton, 417n Thornburg v. Long, 37
In re Storar, 283n, 284n Thurman v. Crawford, 460n
Stowers v. Wolodzko, 38, 44–46 Tift County Hosp. Auth. v.
Stribling v. Jolley, 212n MRS of Tifton, Ga., Inc.,
Sullivan v. Henry, 78n 116n
Sullivan v. O’Conner, 34 Tobias v. Manhattan Eye and Ear
Summers v. Baptist Medical Cen- Hosp., 182n
ter Arkadelphia, 227, 228, Tonsic v. Wagner, 135
229, 240n In re Torres, 283n
Superintendent of Belchertown Touchton v. River Dist. Commu-
State School v. Saikewicz, nity Hosp., 212n
283n, 262–63, 418n Tovar v. Paxton Memorial Hosp.,
Surrogate Parenting Associates, 115n
Inc. v. Commonwealth ex rel. Tresemer v. Barke, 32–33
Armstrong, 412 Troppi v. Scarf, 417n
Sussman v. Overlook Hosp. Truman v. Thomas, 253, 281n
Ass’n., 214n Trustees of Dartmouth College v.
Swift v. Tyson, 11 Woodard, 115n
Sztorc v. Northwest Hosp., 147n Tuchman v. Cutter Laboratories,
43n
T Tucson Medical Center, Inc. v.
Tabor v. Scobee, 281n Rowles, 464n
Tarasoff v. Regents of the Univ. of Tune v. Walter Reed Army Med-
Cal., 29–30, 42n, 173, ical Center, 283n
437–38, 456–70 Tunkle v. Regents of the Univer-
Tatrai v. Presbyterian Univ. sity of California, 64
Hosp., 241n Turpin v. Sortini, 405, 409
494 The Law of Healthcare Administration

U United States v. McNinch, 378n

Unick v. Kessler Memorial Hosp., United States v. Medical, Inc.,
463n 379n
United States v. American Bldg. United States v. Mercy Health
Maint. Indus., 348n Services, 348n
United States v. American College United States v. Nazon, 378n
of Physicians, 308n United States v. Penn–Olin
United States v. Carilion Health Chem. Co., 349n
System, 338, 348n United States v. Philadelphia
United States v. Cherry Hill Nat’l Bank, 348n
Women’s Center, Inc., 464n United States v. Providence
United States v. Colgate & Co., Hosp., 462n, 464n
347n United States v. Rockford Memo-
United States v. Container Corp., rial Corp., 324
347n United States v. Recovery Man-
United States v. E.J. du Pont de agement Corp. III, 367
Nemount Co., 348n United States v. Rockford Memo-
United States v. Fanfan, 379n rial Corporation, 339–40
United States v. Fenyo, 462n United States v. South–Eastern
United States v. Forster Wheeler Underwriters Ass’n., 347n
Corp., 378n United States v. University Hosp.
United States v. General Dynam- of State Univ. of N.Y. at Stony
ics Corp., 349n Brook, 464n
United States v. Graham, 462n United States v. Veneziale, 378n
United States v. Greber, 369, United States v. Westinghouse
380–81 Electric Corp., 464n
United States v. Grinnell Corp., United States v. Women’s Sports-
347n, 348n wear Mfrs. Assn., 347n
United States v. Healthwin–Mid- United States ex rel. Marcus v.
town Convalescent Hospital, Hess, 364
110 United States ex rel. Pogue v.
United States v. Hopper, 462n American Healthcorp, 364
United States v. Kansas City United States ex rel. Woodard v.
Lutheran Home and Hosp. Country View Care Center,
Ass’n., 464n Inc., 364
United States v. Kensington Hos- U.S. v. Long Island Jewish Med-
pital, 364 ical Center, 349n
United States v. Krizek, 359, 361, U.S. v. Mercy Health Services,
362, 378n 349n
United States v. Lorenzo, 358–59 Utah County v. Intermountain
United States v. McClatchey, 369, Health Care, Inc., 302, 304,
381–83 310–14
 Case Index 495

V Wickoff v. James, 79n

Valdez v. Lyman–Roberts Hosp., Wilbur v. Kerr, 417n
Inc., 241n Wilczynski v. Goodman, 417n
Vanadio v. Good Samaritan Wilkinson v. Madera Community
Hosp., 464n Hosp., 214n
Vanaman v. Milford Memorial Wilkinson v. Vesey, 252
Hospital, 132–33 Williams v. Hospital Authority of
Van Campen v. Olean Gen. Hall County, 223
Hosp., 213n Williams v. State, 417n
Vassiliades v. Garfinckel’s, 38, Willis v. Santa Ana Community
462n Hosp. Ass’n., 214n
Vicksburg v. Vicksburg Sanitar- Wilson v. Blue Cross of Southern
ium, 308n California, 144
Vifil v. Rice, 461n Wilson N. Jones Memorial Hos-
Vilord v. Jenkins, 417n pital v. Davis, 137
Winters v. Miller, 282n
W Woodbury v. McKinnon, 194
Wahoe County, Nev. v. Witten- Woodward v. Porter Hosp., 214n
berg & St. Mary’s Hosp., Woodyard, Insurance Commis-
181n sioner v. Arkansas Diversified
Washington v. Blampin, 43n Insurance Co., 111, 125–26
Watkins v. Mercy Medical Cen- Wright v. United States, 146n
ter, 402 Wyatt v. Stickney, 182n
Waynick v. Reardon, 146n Wyatt v. Tabor Forest Hosp.
Weber v. Stony Brook Hosp., Dist., 214n
285n
Webster v. Reproductive Health Y
Services, 393 Ybarra v. Spangard, 80n
Weis v. Weis, 463n Yeargin v. Hamilton Memorial
Welch v. Passaic Hosp., 117n Hosp., 214n
West Allegheny Hosp. v. Board of Yharra v. Spangard, 59
Property Assessments, 308n, Young v. St. Elizabeth Hosp., 42n
309n Youngberg v. Romero, 181n,
West Coast Hosp. Ass’n v. Hoare, 182n
213n Younts v. St. Francis Hospital,
Whalen v. Roe, 460n 273
Whit v. United States, 417n
White Cross Hosp. Ass’n. v. War- Z
ren, 309n Zelver v. Sequoia Hosp. Dist.,
Whitt v. Hutchison, 64–65, 81n 146n
Wickline v. California, 143, 183n Zepeda v. Zepeda, 417n
496 The Law of Healthcare Administration

Ziegler v. Superior Court in and Zills v. Brown, 78n

for the County of Pima, 464n Zoski v. Gaines, 281n
Ziemba v. Sternberg, 417n In re Zumiga, 464n
INDEX

A Alternative dispute resolution,

Abandonment, 30–32 13–14
Abortion: cases, 388–90; constitu- American Hospital Association,
tional restrictions, 390–91; fed- 107, 431
eral funding issues, 403; his- American Medical Association,
tory, 386–87; issues, 395–96; 199, 204
state regulation, 390–95 American Psychiatric Association,
Acquisitions: antitrust issues, 169
324–25, 336–38; competitive Amniocentesis, 405–6
effect of, 340–42 Antikickback statute: economic
Action for medical malpractice, 66 incentive plans, 298; excep-
Actual damages, 62, 70 tions, 365; FCA application,
Administrative agency, 6–7, 13 364; referral under, 366–67;
Administrative government, 6–7 remuneration, 367–69; safe
Administrative law, 6–7 harbors, 365–66
Admissions: emergency care, Antitrust laws: acquisitions,
234–35; information, 324–25; business of insur-
164–65; managed care issues, ance, 329–31; conspiracy,
178–80; mandated free care, 320–21; enforcement, 324,
165–67; mentally ill, 167–71; 325, 332–33, 342–43,
reasonable care requirements, 345–46; exclusive contracts,
164–65; rights, 161–64; vol- 203; exclusive dealing,
untary, 159–67 323–24; exemptions from,
Ad valorem tax, 302–3 326–32; geographic markets,
Affidavit, 27 338–39; implied repeal,
Age of majority, 270–71 327–28; interstate commerce,
Agency by estoppel, 132, 133–34 325–26; labor–management
Allied healthcare practitioners, activities, 331–32; mergers,
195–96 324–25; monopoly, 320, 321,

497
498 The Law of Healthcare Administration

336–37; Noerr–Pennington Centers for Medicare and Medi-

doctrine, 329; per se violation, caid Services (CMS), 6, 369,
333–34; price discrimination, 372
322–23; product market, Charitable corporation, 96,
339–40; purpose of, 203; 293–96
restraint of trade, 319–21; Charity: benefit, 293–94; charita-
rule-of-reason analysis, ble immunity, 127–28; chari-
333–34; sanctions, 332–33; table purpose, 297; commu-
state action doctrine, 328; nity benefit, 296; exclusive use
tying, 323–24 test, 304–7; generally accepted
Apparent agency, 132–34, 249 legal sense, 297; ownership
Appeal, 17 test, 304; not-for-profit sub-
Appellate court, 9, 10, 17 set, 294; qualifying as, 302–4
Arbitration, 14, 73–75 Checks and balances system, 4, 5
Artificial insemination, 411 Child Abuse and Neglect Preven-
Assault and battery, 35–37 tion and Treatment Act, 279
Assumption of risk defense, 63, Citation methods, 18
69 Civil commitment, 169
Civil law system, 8
B Civil Rights Act of 1964, 4, 5
Baby Moses laws, 175 Civil rights violation, 41
Battery, 35, 244 Clayton Act: civil remedies, 332;
Benefit rule, 408 conglomerate, 342; consolida-
Best clinical judgment, 390 tions, 336–38; enforcement
Bill of Rights, 4 issues, 333, 342–43; geo-
Black-letter law, 160, 221 graphic markets, 338–39; joint
Borrowed-servant doctrine, venture, 342; mergers, 336–38;
134–36 prohibitions, 322–25; product
Brain death, 261 market, 339–40
Buildings and grounds Clinical research consent, 253–54
committee, 98 CMS. See Centers for Medicare
Business of insurance, 326, and Medicaid Services
329–31 Collective bargaining, 331
Bylaws, 97, 98 Common-knowledge doctrine,
57, 58–59
C Common law: definition, 7; duty
Capital, 93–94 to treat, 222–23
Captain-of-the-ship doctrine, Community benefit, 296, 304
134–36 Community service obligation,
Cause of action, 68–71 165
CCP. See Corporate compliance Comparative negligence, 62,
program 63–64, 69
 Index 499

Compelling interest, 388 Corporate compliance program

Compensation, 301 (CCP), 373–77
Compensatory damages, 62, 70, Corporate liability doctrine,
408 136–45, 188
Competency, 24 Corporate negligence: definition,
Complaint, 14 136; hospital rules, 138–39;
Comprehensive Alcohol Abuse and medical staff selection/reten-
Alcoholism Prevention, Treat- tion, 140–43
ment, and Rehabilitation Act Corporate practice of medicine,
Amendments, 445 236
Comprehensive Drug Abuse Pre- Corporation: articles of incorpo-
vention and Control Act, 445 ration, 92–93; bylaws, 97, 98;
Concurrent jurisdiction, 11–12 complete domination,
Confidentiality: breach of, 38–39; 109–10; consolidation,
statutory privilege of, 452 111–12; definition, 90, 91;
Conglomerate, 342 formation, 90–97; internal
Conscience clause, 390, 401, 402 management, 97; limited lia-
Consent. See also Informed con- bility, 93; merger, 111–12;
sent; decree, 332; forms, organization advantages,
245–47; incompetent adults, 93–94; piercing the corporate
260–68; medical emergency, veil, 109–11; powers of,
247–49, 269–70; minors, 94–95; professional licensure
269–74; patient refusal, prohibition, 92; reorganiza-
256–59; policies/procedures, tion, 106–9; sale, 111; taxa-
250; refusal, 265–69, 274–77; tion, 93
spouse/relative, 255–56; types, Countersuit/counterclaim, 14,
244–49; withholding treat- 71–72
ment, 277–80 Court of appeals, 12
Consequences, 251 Court orders, 435–36
Consideration, 24, 336 Court system: alternative dispute
Consolidations, 111–12, 336–38 resolution, 13–14; federal,
Conspiracy, 320–21 10–12; state, 9–10; structure
Constitutions, 3–5 model, 8–9
Consumer representatives, 99 Cri du chat syndrome, 405, 406
Contraceptive sterilization, 397 Cross-elasticity of demand, 338
Contract: of adhesion, 74; breach
of, 33; elements, 24–25 D
Contributory negligence, 63–64, Damages, 62, 70
69 Data Privacy Act, 451
Convenience rule, 300–301 Defamation, 37–38, 72, 439–41
Corporate compliance committee, Defenses, 62–67
98 Demurrer, 18
500 The Law of Healthcare Administration

Deposition, 15 Education committee, 98

Designated health services, 370 Efficiencies of scale, 344–45
Directed verdict, 16 Eighth Amendment, 163, 164
Direct liability, 188 Electioneering, 299
Discharge, 171–75, 176 Emancipated minors, 174, 273
Disciplinary actions, 196–202 Emergency care: department
Discovery, 15–17, 407 staffing, 235–37; duty to exer-
Disproportionate care, 265 cise reasonable care, 232–35;
Distribution chain, 321 duty to treat, 222–32; Good
District courts, 10 Samaritan statutes, 237–38;
Diversionary status, 230 hospital admissions, 234–35;
Diversity of citizenship, 10 medical record, 234–35;
Diversity of jurisdiction, 10–12 necessity for, 222; screening,
Document discovery, 16 226– 29; standards, 234;
Drug Abuse Office and Treat- transfers, 234–35
ment Act, 445 Emergency medical condition,
Dual capacity doctrine, 28 225
Due process: civil commitment, Emergency Medical Treatment
169–70; definition, 194; ele- and Labor Act (EMTALA):
ments, 194; equal protection emergency definition, 248;
requirements, 190–91; Four- hospital’s duty, 221; motive,
teenth Amendment, 4–5; 231–32; patient dumping, 24;
hospital policies, 201; types, provisions, 225; reasonable
191 care, 232–35; requirements,
Durable power of attorney for 225–26; screening, 226–29;
healthcare, 268–69, 271 violations, 227–28
Duty of loyalty, 101–2 Emotional distress, 70–71
Duty of reasonable care: employee Employed physician, 209–10
selection, 137, 140–43; equip- Employee Retirement Income
ment selection, 137; medical Security Act (ERISA),
staff appointments, 188–90 144–45, 179
Duty of responsibility, 102–3 Employment at will doctrine, 209
Duty to treat and aid: common EMTALA. See Emergency Med-
law provisions, 222–23; judi- ical Treatment and Labor Act
cial decisions, 223–24; statu- End-stage renal disease (ESRD),
tory requirements, 224–32 32
Duty to warn, 436–38 EPRA. See Ethics in Patient
Referrals Act
E Equal protection requirements,
Economic credentialing, 204–6 190–91
Economic damages, 70 Equitable title, 304
Economies of scale, 345 ESRD. See End-stage renal disease
 Index 501

Ethics in Patient Referrals Act Fourteenth Amendment: corpora-

(EPRA), 369 tions under, 91–92; due
Eugenic sterilization, 399–401 process clause, 4–5, 162–63,
Excess benefits, 299 191, 388; equal protection
Exclusive contracts, 202–3 clause, 190, 193, 400, 401;
Exclusive dealing, 323–24 zone of privacy, 397
Exclusive jurisdiction, 12 Fraud, 39, 358–60
Exclusive use test, 304–7 FTC. See Federal Trade Commis-
Exculpatory contract, 24, 64 sion
Execution, 17 Fundamental fairness. See Due
Executive branch, 4, 6 process
Exemplary damage, 70
Expert testimony, 54–56, 69, 129 G
Express abandonment, 30 Garnishment, 17
Express consent, 24, 244–45 General business corporation acts,
Express power, 94 91
General law, 10
F General partnership, 90
False Claims Act (FCA), 206, Genetic counseling, 406
360–65 Geographic markets, 338–39
False imprisonment, 38, 173, 174 Good Samaritan statutes, 25, 65,
FCA. See False Claims Act 69, 237–38
Federal courts, 10–12 Good-faith report, 38
Federal Judiciary Act, 10 Governing board: committee
Federal Trade Commission structure, 97–98; composition,
(FTC), 6; dispute resolution, 99–100; credentialing issues,
13; enforcement authority, 200; duties, 100–103; exclusive
324, 325, 333, 337; safety contracts, 202; functions, 97;
zones, 345 medical staff appointments,
Federal Trade Commission Act, 188, 194; meetings, 100; mem-
324, 325, 333 ber contracts, 102; personal lia-
Federation, 3 bility protection, 103–4; policy
Fee care, 165–67 execution, 97–98; responsibil-
Fiduciary, 101 ity of, 141
Fiduciary duty, 101–3 Government: administration of,
Fifth Amendment, 91, 92, 6; grant of power, 3–5
162–63 Governmental hospital, 161–62,
Finance committee, 98 191
Financial relationship, 370, 372 Governmental immunity, 65–66,
First Amendment, 329 69
Food and Drug Administration, Group boycott, 203
6–7 Group practice safe harbor, 366
502 The Law of Healthcare Administration

H under, 368; statutory report-

Handicapped newborns, 277–80 ing, 436
HCFA. See Healthcare Financing Health Programs Extension Act,
Administration 402
HCQIA. See Health Care Quality Health system: corporate reorga-
Improvement Act nization, 106–9
Healthcare: access, 159–67 Hearsay, 56, 453
Healthcare Financing Administra- Helling rule, 52–53, 54
tion (HCFA), 369 Herfindahl–Hirschman Index
Healthcare institution: borrowed- (HHI), 340–41
servant doctrine, 134–36; HHA. See Home health agency
captain-of-the-ship doctrine, HHI. See Herfindahl–Hirschman
134–36; charitable immunity, Index
127–28; consent role, Hill–Burton Act, 5, 165–67
249–50; corporate liability HIPAA. See Health Insurance
doctrine, 136–45; history of, Portability and Accountability
127–28; independent contrac- Act
tor liability, 130–31; physician Home care programs, 173
employment, 131; respondeat Home health agency (HHA),
superior, 128–30; apparent 373–74
agency, 132–34; enforcement Horizontal merger, 340–41
climate, 358–60 Horizontal restraints, 321
Health Care Quality Improve- Hospital: admission, 159–71;
ment Act (HCQIA), 207, antitrust concerns, 335; corpo-
208–9 rate model, 105–6; discharge,
Healthcare surrogate, 256 171–75; diversionary status,
Health information: disclosure, 230; emergency department,
433, 446; HIPAA definition, 229–30; leaving against med-
423–24; legal requirements, ical advice, 173–75; patients,
425–31; purpose of, 424–25; 301; property, 229; quality of
release of, 435–38; statutory care issues, 201; rules, 138–39,
reporting, 436; unauthorized 195; use restrictions, 299
disclosure, 438–45 Hospital Accreditation Standards,
Health Insurance Portability and 100
Accountability Act (HIPAA): Hospital Survey and Construc-
duty to warn, 438; health tion Act. See Hill–Burton
information, 423–24, Act
433–35; and law enforce- Hyde Amendment, 403
ment, 458–59; Notice of Pri-
vacy Practices, 447; privacy I
standards, 425, 435, 436, Imminent risk, 437
446–49; remuneration Implied abandonment, 30–31
 Index 503

Implied contract, 24–25, Internal Revenue Service: lobby-

244–45, 247–48 ing, 299; medical record
Implied power, 94 review, 457; unrelated busi-
Implied repeal, 327–28 ness income, 300
Incident reports, 430 Interrogatory, 16
Incompetent adult consent, Interstate commerce, 325–26
260–68 Intrastate commerce, 326
Incorporators, 93 Invasion of privacy, 38–39,
Indemnification, 104 441–43
Independent contractor: apparent Investment income, 300
agency doctrine, 132; defini- In vitro fertilization, 411–12
tion, 130; liability, 130; Involuntary commitment,
respondeat superior, 130–31 168–70
Independent hospital, 105–9 Involuntary sterilization,
Independent negligence theory, 396–97
140 Isolated transactions, 373
Indigence, 295–96
Informed consent: clinical J
research, 253–54; innovative Joint Commission: credentialing
therapy, 253–54; lack of issues, 200; emergency care
information cases, 251–54; standards, 234; medical record
misrepresentation cases, requirements, 427, 431; med-
250–51; sterilization and, 398 ical record standards, 426;
Informed refusal, 253 medical staff appointments,
Innovative therapy consent, 192, 196
253–54 Joint venture: Clayton Act
Institutional liability, 188 scrutiny, 342; definition,
Intent issue, 369 90, 112–13; economic
Intentional tort: assault and bat- benefit scrutiny, 114; general
tery, 35–37; civil rights viola- partnership rules, 112–13;
tion, 41; defamation, 37–38; purpose, 113–14; referral
liability for, 35–41; misrepre- prohibition, 114; risk shar-
sentation, 39; peer review, ing, 113
208; professional liability Judgment: collection, 17;
insurance, 69; vicarious liabil- notwithstanding the verdict,
ity, 68 (N.O.V.), 16–17
Intermediate appellate court, Judicial decisions, 7–8, 223–24
9–10 Judicial interpretation, 6
Intermediate sanctions, 300 Judicial notice, 56
Internal Revenue Code: conven- Judicial review, 209–10
ience rule, 300; Section 501 Judiciary, 4
(c)(3), 296–97 Justiciable, 385
504 The Law of Healthcare Administration

Justifiable circumstances Managed care organization

defense, 50 (MCO), 143–45
Management functions, 104–5
K Mandatory arbitration, 74
Kassebaum–Kennedy Act, 368 Market concentration, 340–41
King’s Bench, 7 Market definition, 339
Mature minors, 271–74
L McCarran–Ferguson Act (MFA),
Labor-management activities, 326, 330
331–32 MCO. See Managed care organi-
Law: classification, 3, 24, 323; zation
definition, 2; purpose, 2; Mediation, 14
sources, 3–8 Medicaid, abortion issues, 403
Law enforcement officials, 458–59 Medical emergency, 247–49,
Learned professions, 320 269–70
Legal competence, 24 Medical loss ratio, 175, 176
Legal duty, 23 Medical malpractice, 23
Legal purpose, 24 Medical records: access, 431–32;
Legal rigidity, 2 admissibility, 453; authenti-
Legal system, 1–2 cated entries, 427; complete-
Legislature, 4 ness requirement, 427; elec-
Liability: managed care organiza- tronic, 425–26; emergency
tion, 143–45; peer-review par- care, 234–35; federal govern-
ticipant, 208–9; reasonable ment access, 457–59; in legal
care issues, 232–35 proceedings, 451–59; legal
Libel, 37, 439 requirements, 425; of third
Lien statutes, 438 parties, 455–56; ownership,
Life-sustaining procedures, 268 431–32; purpose, 424; reten-
Limited liability, 93 tion requirements, 430–31;
Limited partnership, 90 statistical reporting, 426–27
Litigation process, 14–17 Medical screening, 226–29
Living will, 268–69, 270 Medical staff: appointments,
Lobbying, 299 188–90, 192–96; bylaws, 98,
Locality rule, 49–50, 54, 140 189–90, 192; corporate liabil-
Loyalty oath, 204, 206 ity, 140–43; credentialing
process, 143, 192; disciplinary
M actions, 196–202; discrimina-
Malicious prosecution, 72 tion violations, 193–94; due
Malpractice crisis, 72–73 process requirements, 190–91;
Managed care: admission legal economic credentialing,
issues, 179; preauthorization, 204–6; emergency depart-
178 ment, 235–37; employed
 Index 505

physicians, 209–10; equal 270–71; consent for treat-

protection requirements, ment, 269–74; dependent,
190–91; exclusive contracts, 276–77; discharge, 174; neg-
202–3; governing board lected, 276–77; refusal of
appointments, 103; peer treatment, 274–77; withhold-
review, 206–10; physician ing treatment, 277–80
qualifications, 193–95 Misrepresentation, 39, 250–51
Medical staff relations committee, Monopoly, 320, 321, 336–37
98 Motion to dismiss, 14–15
Medical treatises, 56 Multi–institutional systems,
Medicare Conditions of Participa- 107–9
tion: credentialing issues, 200;
emergency care standards, N
234; medical staff appoint- Napoleonic Code, 238
ments, 192; record retention National Health Planning and
requirements, 431 Resource Development Act,
Medicare/Medicaid: program 167, 327
exclusion, 362–63, 365; qui National Institute of Occupa-
tam cases, 363 tional Safety and Health
Medication administration, (NIOSH), 457
170–71 National Labor Relations Act,
Meeting of the minds, 24 331
Mental competence test, 257 National Labor Relations Board, 6
Mental distress, 70–71 National Practitioner Data Bank
Mental examination, 16 (NPDB), 73
Mentally ill: admission, 167–71; National standard, 50, 54
involuntary commitment, Natural death acts, 258, 268–69
168–70; medication adminis- Negligence: admission of, 56; arbi-
tration, 170–71; standard of tration, 73–75; countersuits,
care, 170–71 71–72; defenses, 62–67; defini-
Merger: antitrust issues, 324–25, tion, 35; elements of proof, 47;
336–38; competitive effect of, forms of, 23; inference of, 58;
340–42; definition, 336; geo- injury and causation, 60–62;
graphic market, 338–39; loss of a chance, 61–62; per se,
preparation, 111–12; 57; reasonable care issues,
pro-competitive effects, 232–35; standard of care,
343–45; product market, 47–60; tort system, 72–77;
339–40 vicarious liability, 67–68
MFA. See McCarran–Ferguson Act Neurofibromatosis, 403–4
Ministerial acts, 66 NIOSH. See National Institute of
Minors: age of discretion doc- Occupational Safety and
trine, 271–74; age of majority, Health
506 The Law of Healthcare Administration

Noerr–Pennington doctrine, 329 Persistent vegetative state (PVS),

No-fault system, 75–76 261
Nominal damages, 70 Personnel committee, 98
Noneconomic damages, 70 Photography, 443–45
Nonemancipated minors, 174 Physical examination, 16
Not-for-profit corporation, 91, Physician employment, 131
95–97, 294 Physician–patient privilege, 452
NPDB. See National Practitioner Physician–patient relationship:
Data Bank breach of contract, 33; breach
of warranty, 33–34; creation
O of, 26–28; duty to third party,
Occupational Safety and Health 29–30; informal consultations,
Act, 457 26–27; intentional tort,
Office of Inspector General, 363 35–41; preemployment screen-
Open-door policy, 166 ing, 27–28; professional liabil-
Open-meeting laws, 449–51 ity in, 25; scope of duty,
Oral defamation, 439 28–30; termination, 30–33;
Ordinary prudence, 179 workers’ compensation and, 28
Ostensible agency, 249 Piercing the corporate veil,
Outrage, 39–41, 71 109–11
Ownership test, 304 Pleadings, 14
Ownership transfer, 93 Political campaign, 299
Precedent, 8
P Pretrial discovery, 455
Pain and suffering, 70 Price differentials, 322
Parens patriae power, 168 Price discrimination, 322–23
Partnership, 89–90 Price fixing, 331
Patient dumping, 224 Privacy: invasion of, 38–39
Patient’s bill of rights, 272 Private hospital: court view,
Peer review: confidentiality issues, 198–99; discretion, 199–200
207–8; participant liability, Private inurement, 298
208–9; of professional prac- Private law, 3, 7–8
tice, 206–10 Privilege, 208
Peer-review organizations (PRO), Privileged communication
177–78 statutes, 439, 453–56
Peer-review statutes, 438 Privilege of confidentiality, 452
Pennsylvania Abortion Control PRO. See Peer review organization
Act, 391, 392 Probate court, 9
Periodic payment judgment, 76 Procedural due process, 191
Permissive tax exemption, 302–3 Procedural law, 14–17
Perpetual existence, 93 Product market, 339–40
Per se violations, 333–34 Professional liability: breach of
 Index 507

contract, 33; breach of war- Release, 64–65, 69

ranty, 33–34; insurance, 69; Remuneration, 367–69
intentional tort, 35–41; physi- Reproduction issues: abortion,
cian–patient relationship, 23, 386–96; hospital’s role in,
25 401–3; in vitro fertilization,
Proximate cause, 60 410–12; sterilization,
Public benefit, 298 396–401; surrogate parenting,
Public Disclosure Act, 451 410–13; wrongful birth,
Public law, 3–7 403–10
Public Record’s Act, 449 Reserved powers, 96
Public records laws, 449–51 Res ipsa loquitur, 57–60
Public relations committee, 98 Res judicata, 8
Punitive damages, 62, 70, 71 Respondeat superior: independ-
Purely public charities, 294–95 ent contractor, 130–31;
Purpose clause, 95–96 informed consent, 249; liabil-
PVS. See Persistent vegetative ity basis, 129–30; liability
state under, 67–68
Restraint, 174
Q Reversionary trust, 76–77
QIO. See Quality improvement Right of privacy, 441–42
organization Right to care, 159–61
Qualified privilege, 440, 441 Right to know rule, 252
Quality improvement organiza- Rights language, 243–44
tion (QIO), 177–78 Risk, 251–54
Queen’s Bench, 7 Risk management, 76
Qui tam lawsuits, 358, 363 Rule-making authority, 7
Rule-of-reason analysis, 333–34,
R 342
Real estate taxation, 302–7 Rules of construction, 5–6
Reasonable care, 232–35
Reasonable-doctor rule, 252 S
Reasonable and ordinary treat- Safe harbors, 365–66
ment, 48–49 Safe haven laws, 175
Reasonable patient concept, 252 Safety zones, 345
Referral: antikickback statute, School rule, 50–52, 55
366–67; inducement for, 368; Scope of practice, 196
remuneration for, 367–69 Section 501 (c)(3): exempt organ-
Regular practice of medicine izations, 296–97; lobbying,
standard, 50–51 299; unrelated business
Reimbursement issues: detainees, income, 300–301
162–63; incarcerated persons, Self-determination, 257–58, 259
162–63; indigent care, 162 Self-perpetuating board, 99
508 The Law of Healthcare Administration

Self-referral law, 298, 364, Stem-cell research, 411

369–73 Sterilization, 396–401
Senior administration, 105 Strict liability, 35, 60
Sentencing Guidelines for Organi- Structured settlements, 76–77
zations, 374, 375 Subjective test, 264
Sherman Act: consolidations, Subpoena, 16, 435–36
336–38; criminal penalties, Subpoena duces tecum, 16
332; enforcement of, 333; Substantially related, 300, 301
healthcare application, Substantive due process, 191
334–35; mergers, 336–38; Substantive law, 14
monopoly power, 324, Substituted judgment rule, 257,
336–37; Noerr–Pennington 262, 263
doctrine, 329; price fixing, Summary judgment, 18
331; restraint of trade, Summons, 14
319–21; rule-of-reason analy- Sunshine laws, 449
sis, 333–34 Superconfidentiality laws, 445
Slander, 37, 439 Supreme court: federal, 12; state
Sole proprietorship, 89 system, 9–10
Sovereign immunity, 65–66, 128 Surgical consent, 248–49
Special damages, 72 Surrogate parenting, 411–13
Split-listing, 306
Spousal consent, 255–56 T
Stand-alone hospital corporation, Taxation, 93
106 Tax exemption: federal tax issues,
Standard of care: application of 293, 296–301; state issues,
standard, 49–50; Helling rule, 302–7
52–53, 54; mentally ill, Taxpayer Bill of Rights 2
170–71; in motor vehicle (TBOR2), 299
accident, 48; proof of, 53–60; Tay–Sachs, 407–8, 409
reasonable physician, 48–49; TBOR2. See Taxpayer Bill or
school rule, 50–52 Rights 2
Stare decisis, 7–8 Teri’s Law, 267
Stark laws, 114, 369–73 Terminal condition, 268
State action doctrine, 190–91, Tort system, 72–77
328 Trade: restraint of, 319–21
State constitutions, 5 Trial, 16–17
State courts, 9–10 Trial courts, 9, 10
Statute of limitations: cause of Tribunal, 13
action and, 68–69; defense, Trier of fact, 17
62; statutory period, 66–67 Trust busting, 334
Statutes, 5–6 Trustee, 101
Statutory liability, 57 Tying, 323–24
 Index 509

U Viability issue, 391–94

Ultra vires, 94–95 Vicarious liability: employee negli-
Uncompensated care obligation, gence, 129–30; employment
165, 166 relationship, 188; independent
Unjust enrichment, 26 contractor status, 130–31;
Unrelated business income, informed consent, 249; profes-
300–301 sional status, 131; respondeat
U.S. Constitution: concurrent superior principle, 67–68
jurisdiction under, 11–12; Voidable contract, 102
explanation, 3–5; judicial Volume discount, 322
decisions and, 7; Supreme Voluntary arbitration, 74
Court creation, 12 Voluntary hospital, court view,
U.S. Court of Appeals, 12, 13 198–99
U.S. Court of Appeals for the Voluntary sterilization, 396,
Armed Forces, 12 397–98
U.S. Court of International Voluntary submission, 245
Trade, 12 Volunteer, 301
U.S. Department of Health and
Human Services, 365, 448 W
U.S. Department of Justice: Waiver of privilege, 456
criminal prosecution, 332; Warranty, breach of, 33–34
enforcement activities, Whistle–blower lawsuits, 358, 363
358–59; FCA cases, 363; Willful ignorance, 375
safety zones, 345 Withholding treatment, 277–80
U.S. Federal Claims Court, 12 Workers’ compensation: defense,
U.S. Supreme Court, creation of, 65, 69; employees’ remedies
12 under, 28
U.S. Tax Court, 12 Writ, 7
Utilization review/case manage- Writ of certiorari, 12
ment, 175–76 Writ of execution, 17
Writ of mandamus, 449
V Written defamation, 439
Vertical merger, 341–42 Wrongful birth/wrongful life,
Vertical restraints, 321 403–10
ABOUT THE AUTHOR

J. Stuart Showalter, J.D., M.F.S., has spent most of his career dealing with
health law issues. He has a law degree from Washington University in St.
Louis, Missouri, and a master’s degree in forensic science from George Wash-
ington University in Washington, DC. He served in the U.S. Navy from
1972 to 1980 in various positions, including as in-house counsel to a 1,000-
bed medical center, as malpractice-claims defense attorney, and as counsel to
the U.S. Navy Surgeon General.
From 1980 to 1996, Mr. Showalter was vice president and in-house
counsel to the Catholic Health Association of the United States, headquartered
in St. Louis. Thereafter, he was a partner in a St. Louis law firm, where he spe-
cialized in health law and corporate compliance until joining Orlando Regional
Health System as director of compliance in March 1998. While in St. Louis, Mr.
Showalter taught health law and public policy in the health administration pro-
gram at Washington University School of Medicine, where he was twice named
teacher of the year. He has also held teaching positions at St. Louis University
and the University of Central Florida.
Mr. Showalter retired in 2006 and now works full time as an author
and pundit.

511