J. Stuart Showalter | Sallie Thieme Sanford
LAW
THE
of
Healthcare
Administration
T ENT H EDIT ION
LAW
THE
of
Healthcare
Administration
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HAP/AUPHA Editorial Board for Graduate Studies
Ning Lu, PhD, Chair
Governors State University
Julie Agris, PhD, FACHE
SUNY at Stony Brook
Robert I. Bonar, DHA
George Washington University
Kim C. Byas, Sr., PhD, FACHE
Union Institute & University
Lynn T. Downs, PhD, FACHE
University of the Incarnate Word
P. Shannon Elswick, FACHE
University of Central Florida
Cheryl J. Holden, DHS
University of Arkansas – Fort Smith
Diane M. Howard, PhD, FACHE
Rush University
Sandra S. Murdock, DrPH, FACHE
Texas Woman’s University
Kourtney Nieves, PhD, MSHS
University of Central Florida
Martha C. Riddell, DrPH
University of Kentucky
Gwyndolan L. Swain, DHA
Belmont Abbey College
Karen M. Volmar, JD, FACHE
University of North Carolina at Chapel Hill
Asa B. Wilson, PhD
Southeast Missouri State University
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J. Stuart Showalter Sallie Thieme Sanford
LAW
THE
of
Healthcare
Administration
T ENT H EDIT ION
Health Administration Press, Chicago, Illinois
Association of University Programs in Health Administration, Washington, DC
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BRIEF CONTENTS
Preface������������������������������������������������������������������������������������������������������xv
Acknowledgments������������������������������������������������������������������������������������������� xxi
Chapter 1. A Brief History of Law and Medicine�������������������������������� 1
Chapter 2. Access to Healthcare Insurance and Treatment���������������� 53
Chapter 3. The Organization and Management of a Corporate
Healthcare Institution��������������������������������������������������� 111
Chapter 4. Human Resources Law������������������������������������������������� 151
Chapter 5. Contracts and Intentional Torts������������������������������������ 195
Chapter 6. Negligence�������������������������������������������������������������������� 227
Chapter 7. Liability of the Healthcare Institution��������������������������� 273
Chapter 8. Medical Staff Privileges and Peer Review����������������������� 309
Chapter 9. Fraud and Abuse Laws and Corporate Compliance������� 351
Chapter 10. Health Information Management���������������������������������� 403
Chapter 11. Emergency Care������������������������������������������������������������ 447
Chapter 12. Consent for Treatment�������������������������������������������������� 483
Chapter 13. Tax-Exempt Healthcare Organizations�������������������������� 537
Chapter 14. Competition and Antitrust Law������������������������������������� 571
Chapter 15. Issues of Reproduction and Birth���������������������������������� 609
List of Healthcare Law Abbreviations������������������������������������������������������ 659
Glossary������������������������������������������������������������������������������������������������� 663
Case Index��������������������������������������������������������������������������������������������� 671
Subject Index����������������������������������������������������������������������������������������� 682
About the Authors���������������������������������������������������������������������������������� 730
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DETAILED CONTENTS
Preface.......................................................................................................xv
Acknowledgments������������������������������������������������������������������������������������������� xxi
Chapter 1. A Brief History of Law and Medicine�������������������������������� 1
Part 1: The History of Law����������������������������������������������� 1
The Historical Foundation of the US Legal System����������� 1
The Vast, Complex, and Dynamic Field of Healthcare
Law������������������������������������������������������������������������������ 4
Major Sources of US Law and the Hierarchy of
Authorities������������������������������������������������������������������� 5
Federal and State Court Systems������������������������������������� 14
Litigation Process������������������������������������������������������������ 20
A Turning Point in the Quest for Healthcare Justice������� 23
Discussion Questions for Part 1�������������������������������������� 27
Part 2: The History of Medicine������������������������������������� 30
The Pharaohs and Babylonians���������������������������������������� 31
Discussion Questions for Part 2�������������������������������������� 42
Chapter Summary����������������������������������������������������������� 43
Vocabulary���������������������������������������������������������������������� 43
Notes������������������������������������������������������������������������������ 44
Appendix 1.1: A Select Timeline of the History of
Medicine�������������������������������������������������������������������� 48
Chapter 2. Access to Healthcare Insurance and Treatment���������������� 53
The US Healthcare System: Fragmented and
Unequal��������������������������������������������������������������������� 53
A Century of Efforts to Achieve Broader Access to
Care��������������������������������������������������������������������������� 58
Medicare and Medicaid: Healthcare’s Fraternal Twins
at Middle Age������������������������������������������������������������� 62
The Affordable Care Act: Obamacare’s “Four M’s of
Access”����������������������������������������������������������������������� 69
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Det a iled C o n te n ts
Legal Issues Related to Particular Populations and
Facility Processes�������������������������������������������������������� 78
Final Thoughts: ACA Stability, Medicaid Universality,
Medicare Commonality���������������������������������������������� 89
Chapter Summary����������������������������������������������������������� 90
Vocabulary���������������������������������������������������������������������� 90
Discussion Questions������������������������������������������������������ 90
Notes������������������������������������������������������������������������������ 99
Appendix 2.1: Medicare/Medicaid/CHIP
Comparison�������������������������������������������������������������� 105
Appendix 2.2: History of Health Reform Efforts���������� 108
Chapter 3. The Organization and Management of a Corporate
Healthcare Institution��������������������������������������������������� 111
Formation and Nature of a Corporation������������������������ 113
Responsibilities of Management������������������������������������ 127
Piercing the Corporate Veil������������������������������������������� 128
Multi-institutional Systems and Corporate
Reorganization: The Independent Hospital and
Independent Physician as Anachronisms������������������� 130
Alternative Corporate Strategies������������������������������������ 133
Collaborative Strategies with Physicians������������������������� 135
Chapter Summary��������������������������������������������������������� 138
Vocabulary�������������������������������������������������������������������� 139
Discussion Questions���������������������������������������������������� 139
Notes���������������������������������������������������������������������������� 146
Chapter 4. Human Resources Law������������������������������������������������� 151
Introduction����������������������������������������������������������������� 151
Who Is an Employee?���������������������������������������������������� 152
Types of Employment and Workforce Arrangements����� 154
Nondiscrimination Statutes������������������������������������������� 158
Labor Law�������������������������������������������������������������������� 168
Statutes Enforced by the US Department of Labor������� 174
State Employment Law������������������������������������������������� 176
Special Legal Challenges for HR Departments�������������� 177
Employee Relations Generally��������������������������������������� 180
Chapter Summary��������������������������������������������������������� 181
Vocabulary�������������������������������������������������������������������� 181
Discussion Questions���������������������������������������������������� 182
Notes���������������������������������������������������������������������������� 189
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Appendix 4.1: Fair and Unfair Labor Practices�������������� 192
Appendix 4.2: Helpful Human Resources–Related
Sites������������������������������������������������������������������������� 194
Chapter 5. Contracts and Intentional Torts������������������������������������ 195
Think Like a Lawyer����������������������������������������������������� 195
The Taxonomy of Law�������������������������������������������������� 196
Contracts and Intentional Torts as Bases of
Liability�������������������������������������������������������������������� 196
Elements of a Contract������������������������������������������������� 197
The Provider–Patient Relationship�������������������������������� 200
Liability for Breach of Contract������������������������������������� 210
Liability for Breach of Warranty������������������������������������ 211
Intentional Torts����������������������������������������������������������� 212
Chapter Summary��������������������������������������������������������� 219
Vocabulary�������������������������������������������������������������������� 220
Discussion Questions���������������������������������������������������� 220
Notes���������������������������������������������������������������������������� 224
Chapter 6. Negligence�������������������������������������������������������������������� 227
Duty����������������������������������������������������������������������������� 227
Breach of Duty������������������������������������������������������������� 237
Causation, Injury, and Damages������������������������������������ 246
Defenses������������������������������������������������������������������������ 248
Liability for Acts of Others: Vicarious Liability�������������� 253
Countersuits by Physicians ������������������������������������������� 253
Reforming the Tort System������������������������������������������� 254
Chapter Summary��������������������������������������������������������� 257
Vocabulary�������������������������������������������������������������������� 257
Discussion Questions���������������������������������������������������� 258
Notes���������������������������������������������������������������������������� 264
Appendix 6.1: National Quality Forum’s Preventable
Medical Errors���������������������������������������������������������� 270
Appendix 6.2: State Apology Laws�������������������������������� 272
Chapter 7. Liability of the Healthcare Institution��������������������������� 273
Background������������������������������������������������������������������ 273
Respondeat Superior Versus Independent Contractor
Status����������������������������������������������������������������������� 275
Erosion of Physicians’ Independent Contractor
Status����������������������������������������������������������������������� 277
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Erosion of Captain-of-the-Ship and BorrowedServant Doctrines����������������������������������������������������� 279
Doctrine of Corporate Liability������������������������������������� 281
Liability of Managed Care Organizations���������������������� 288
Chapter Summary��������������������������������������������������������� 293
Vocabulary�������������������������������������������������������������������� 293
Discussion Questions���������������������������������������������������� 294
Notes���������������������������������������������������������������������������� 303
Chapter 8. Medical Staff Privileges and Peer Review����������������������� 309
Overview���������������������������������������������������������������������� 309
The Medical Staff Organization������������������������������������� 310
Relationships Among Board, Management,
and Medical Staff������������������������������������������������������ 311
Appointment of the Medical Staff��������������������������������� 312
Standards for Medical Staff Appointments��������������������� 313
Peer Review, Discipline, and the Health Care Quality
Improvement Act����������������������������������������������������� 318
Lessons from Poliner and Kadlec����������������������������������� 328
Quality Issues and Accountable Care
Organizations����������������������������������������������������������� 332
Chapter Summary��������������������������������������������������������� 339
Vocabulary�������������������������������������������������������������������� 340
Discussion Questions���������������������������������������������������� 340
Notes���������������������������������������������������������������������������� 345
Chapter 9. Fraud and Abuse Laws and Corporate Compliance������� 351
Introduction����������������������������������������������������������������� 351
The Enforcement Climate and Practical Challenges
for Healthcare Providers������������������������������������������� 352
False Claims Act������������������������������������������������������������ 354
Anti-Kickback Statute���������������������������������������������������� 364
The Civil Monetary Penalties Law��������������������������������� 371
Stark (Physician Self-Referral) Law�������������������������������� 372
Foreign Corrupt Practices Act��������������������������������������� 379
Corporate Compliance Programs���������������������������������� 380
Chapter Summary��������������������������������������������������������� 383
Vocabulary�������������������������������������������������������������������� 383
Discussion Questions���������������������������������������������������� 383
Notes���������������������������������������������������������������������������� 390
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Appendix 9.1: Summary of Major Fraud Statutes���������� 394
Appendix 9.2: OIG Advisory Opinion No. 22-01��������� 397
Chapter 10. Health Information Management���������������������������������� 403
Federal Law Sets the Floor for Privacy, Confidentiality,
and Security Protections������������������������������������������� 403
HIPAA Privacy Rule for Covered Entities �������������������� 404
HIPAA (with HITECH) Security Rules and Breach
Notification�������������������������������������������������������������� 410
State-Based Privacy Protections and Reporting
Obligations��������������������������������������������������������������� 413
Emerging Federal and State Issues Relating to
Telemedicine������������������������������������������������������������ 429
Chapter Summary��������������������������������������������������������� 431
Vocabulary�������������������������������������������������������������������� 432
Discussion Questions���������������������������������������������������� 432
Notes���������������������������������������������������������������������������� 440
Appendix 10.1: HIPAA Breach Notification������������������ 444
Chapter 11. Emergency Care������������������������������������������������������������ 447
A Federal Statutory Right to Emergency
Treatment���������������������������������������������������������������� 447
The Need for Emergency Services��������������������������������� 449
Duty to Treat and Aid��������������������������������������������������� 450
EMTALA Enacted�������������������������������������������������������� 453
Post-Dobbs Legal Issues in Emergency Treatment���������� 467
Training of Hospital Staff���������������������������������������������� 468
Good Samaritan Statutes����������������������������������������������� 469
Chapter Summary��������������������������������������������������������� 471
Vocabulary�������������������������������������������������������������������� 471
Discussion Questions���������������������������������������������������� 471
Notes���������������������������������������������������������������������������� 475
Appendix 11.1: EMTALA Statutory Provisions������������� 479
Appendix 11.2: Coming to the Emergency
Department�������������������������������������������������������������� 481
Chapter 12. Consent for Treatment�������������������������������������������������� 483
Types of Informed Consent and Recommended
Procedures��������������������������������������������������������������� 484
The Healthcare Institution’s Role in Obtaining
Informed Consent���������������������������������������������������� 488
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How “Informed” Must Informed Consent Be?������������� 489
Surrogate Decision Makers for Patients Who Lack
Decisional Capacity�������������������������������������������������� 493
Consent Issues for Minors��������������������������������������������� 494
Decision-Making Near the End of Life�������������������������� 503
End-of-Life Decision-Making for Patients Who Lack
Decisional Capacity�������������������������������������������������� 507
Legislation and Protocols on End-of-Life Issues������������ 512
Chapter Summary��������������������������������������������������������� 519
Vocabulary�������������������������������������������������������������������� 519
Discussion Questions���������������������������������������������������� 520
Notes���������������������������������������������������������������������������� 528
Appendix 12.1: Comparison of POLST Form and
Advance Directive����������������������������������������������������� 535
Chapter 13. Tax-Exempt Healthcare Organizations�������������������������� 537
Exemption Is the Exception������������������������������������������ 537
The History of Healthcare as a “Charitable”
Endeavor������������������������������������������������������������������ 538
Federal Tax Exemption: The “Community Benefit”
Standard ������������������������������������������������������������������ 541
State and Local Tax Exemption: Charitable Purpose,
Exclusive Use, and Budgetary Pressures�������������������� 548
The Future of Healthcare Tax Exemption?�������������������� 554
Chapter Summary��������������������������������������������������������� 555
Vocabulary�������������������������������������������������������������������� 555
Discussion Questions���������������������������������������������������� 555
Notes���������������������������������������������������������������������������� 565
Appendix 13.1: Affordable Care Act Requirements
for Exempt Hospitals������������������������������������������������ 568
Chapter 14. Competition and Antitrust Law������������������������������������� 571
Overview���������������������������������������������������������������������� 571
The Sherman Act���������������������������������������������������������� 572
The Clayton Act������������������������������������������������������������ 575
The Federal Trade Commission Act������������������������������ 580
Jurisdiction, Exemptions, and Immunity����������������������� 581
Sanctions and Enforcement of Antitrust Statutes����������� 585
Rule of Reason Analysis and Per Se Violations��������������� 586
Chapter Summary��������������������������������������������������������� 598
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D etailed C ontents
xiii
Vocabulary�������������������������������������������������������������������� 598
Discussion Questions���������������������������������������������������� 599
Notes���������������������������������������������������������������������������� 604
Chapter 15. Issues of Reproduction and Birth���������������������������������� 609
Out with the Old ��������������������������������������������������������� 609
Federal Constitutional and Statutory Framework����������� 610
Abortion����������������������������������������������������������������������� 618
Other State-Law Reproduction Issues��������������������������� 631
Future Legal Issues Related to Reproduction and
Birth������������������������������������������������������������������������� 642
Chapter Summary��������������������������������������������������������� 642
Vocabulary�������������������������������������������������������������������� 643
Discussion Questions���������������������������������������������������� 643
Notes���������������������������������������������������������������������������� 652
List of Healthcare Law Abbreviations������������������������������������������������������ 659
Glossary������������������������������������������������������������������������������������������������� 663
Case Index��������������������������������������������������������������������������������������������� 671
Subject Index����������������������������������������������������������������������������������������� 682
About the Authors���������������������������������������������������������������������������������� 730
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PREFACE
Overview
This is the tenth edition of The Law of Healthcare Administration (LOHA),
a work that was begun nearly 50 years ago by Professor Arthur F. Southwick
of the University of Michigan. After Professor Southwick’s sudden death
in 1997, the staff of Health Administration Press (HAP) needed someone
to write the third edition. They eventually approached Stuart Showalter,
who was then a vice president of the Catholic Health Association of the
United States and an adjunct instructor in the master of health administration (MHA) program at the Washington University School of Medicine,
St. Louis, Missouri. HAP had published Showalter’s study guide and set of
case excerpts for the second edition of LOHA, and he had been using the
book in his classes for several years.
In the words of Robert Fromberg, then associate director and acquisitions editor at HAP, two assumptions argued against asking Showalter to take
on the project: (1) that a textbook needed a full-time academic as its author,
and (2) that an executive would not have the time to do a creditable job. “On
the other hand, having an author who worked full time for a health system
had a huge potential advantage—a practical bent,” Fromberg said. Subsequent history has proven the wisdom of HAP’s decision. Since 1999—from
the third through the ninth edition—Showalter has offered a thorough and
practical treatment of healthcare law in plain language for nonlawyer students
of the field.
We are excited to introduce Sallie Thieme Sanford, associate professor
of law and adjunct associate professor of health systems and population health
at the University of Washington in Seattle, as coauthor of this and future editions of LOHA. As a practicing attorney, Sanford represented the University
of Washington’s medical centers and health sciences schools. Since entering
academia nearly two decades ago, she has had the pleasure of teaching health
law courses to MHA, executive MHA, and law students, as well as regularly
presenting to student, professional, and academic audiences.
xv
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xvi
Prefa c e
Drawing on their practice and teaching backgrounds, Showalter and
Sanford aim to provide an accurate, accessible, and engaging textbook that
helps students understand the law’s evolving, multifaceted role in the administration of healthcare entities. Like its predecessors, this edition provides a
comprehensive overview of healthcare law, and its 15 chapters include substantial revisions and new material, including discussions of Dobbs v. Jackson
Women’s Health (the US Supreme Court’s June 2022 decision that overturned the constitutional right to abortion), Biden-era Affordable Care Act
(ACA) litigation and regulation, evolving antidiscrimination standards, the
federal No Surprises Act, new fraud and abuse regulations, crisis standards
of care, Good Samaritan overdose statutes, apology laws, and much more.
This edition also features greater attention to issues of healthcare
justice, raising questions about how the law might help or hinder efforts to
create a better healthcare system for all. It employs inclusive language and
highlights examples that involve nonhospital institutional providers (e.g.,
community health centers, nursing homes), and nonphysician individual
providers (e.g., pharmacists, nurse practitioners). Each chapter incorporates thought-provoking discussion questions, captivating sidebars, practical
advice, regulatory or case law excerpts, and “COVID Connections” that
highlight the pandemic’s continuing influence on legal standards.
Fundamentally, this textbook aims to help healthcare leaders succeed,
whether they work at the smallest rural clinic or the largest multistate system.
In any healthcare setting, they will need to navigate a complex, changing
legal environment. While doing so, they will have opportunities to work
with legal and policy tools to promote a more just, accessible, affordable,
and quality care healthcare system. Inspired by their prior students, Showalter
and Sanford offer this tenth edition to those aspiring to be the thoughtful,
nimble, and transformative healthcare leaders of the future.
Chapter Contents
Chapter 1: A Brief History of Law and Medicine
The chapter’s discussion of precedent, constitutional law, and federalism
includes reference to the US Supreme Court’s 2022 Dobbs decision, which
will have repercussions for law, medicine, and politics for years to come. Different types of legal authorities are highlighted in a new section that examines
the law’s role in maintaining and then dismantling formal racial segregation
in hospitals. Noting issues raised by COVID-19, there is an expanded discussion of public health law. In addition, the chapter provides more detail
about the history of the nursing profession and the history of educational
and practice opportunities for persons of color in health professions and
administration.
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Prefac e
xvii
Chapter 2: Access to Healthcare Insurance and Treatment
With the increasing solidity of the ACA and the growth of Medicare and
Medicaid, federal law is now the driving force behind access to healthcare
insurance. Thus, federal programs are increasingly influential in shaping
payment and delivery systems. This chapter includes clear details about
Medicare, Medicaid, the Children’s Health Insurance Program, accountable
care organizations, and the ACA’s “four M’s of access.” The US Supreme
Court’s 2021 individual mandate decision in California v. Texas is explained
and excerpted. The chapter also includes a section on the evolving standards
for the applicability of antidiscrimination laws to the provision of healthcare.
Finally, appendices detail health reform efforts over the years and compare
the primary federal healthcare insurance programs.
Chapter 3: The Organization and Management of a Corporate Healthcare Institution
New to this chapter are details about Federally Qualified Health Centers and
their board structure requirements, as well as discussion of board members’
duty of obedience. It also features an expanded discussion of professional
limited liability corporations and joint venture arrangements. The potential
implications of the corporate practice of medicine doctrine and state open
meetings laws are noted.
Chapter 4: Human Resources Law
Incorporated into an expanded antidiscrimination section is discussion of the
US Supreme Court’s 2020 decision in Bostock v. Clayton County, which held
that the statutory prohibition on sex discrimination includes discrimination
based on sexual orientation or gender identity. Also included are the evolving
legal standards around COVID-19 vaccine mandates for healthcare workers and increasingly prominent conscience protections. Finally, the chapter
includes a list of key federal labor statutes and practical tips for conducting
legally appropriate job interviews.
Chapter 5: Contracts and Intentional Torts
This chapter now includes information about “noncompete” provisions in
physician contracts and updated examples of explicit warranties for treatment
results. It also raises questions about termination of treatment and its possible
connection to healthcare inequities. Also discussed are the types of damages
generally available under different causes of action.
Chapter 6: Negligence
Medical malpractice cases arising during the COVID-19 pandemic are likely
to be affected, implicitly or explicitly, by “crisis standards of care,” which are
explained in this chapter. Also new to the chapter are discussions of state laws
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xviii
Prefa c e
regarding apologies for medical errors and an expanded section on settlement
negotiations and mandatory arbitration clauses.
Chapter 7: Liability of the Healthcare Institution
This chapter includes more details about liability issues involving managed
care organizations, as well as a revised explanation of the multifaceted impacts
of the federal Employee Retirement Income Security Act of 1974. It also
reviews the No Surprises Act, which went into effect in 2022, protecting
patients from many out-of-network charges and creating potential conflicts
between insurers and providers.
Chapter 8: Medical Staff Privileges and Peer Review
This chapter recognizes the increased focus on population health with an
expanded discussion of ACOs and quality metrics. It also adds details about
credentialling issues related to complementary and alternative medicine and
integrative healthcare.
Chapter 9: Fraud and Abuse Laws and Corporate Compliance
The federal False Claims Act, Anti-Kickback Statute, and Stark law present
huge liability risks and significantly affect provider contracting; they also are
notoriously difficult to understand. Thus, with this edition, we moved the
topic earlier in the book and simplified its organizational structure. We have
included discussion of new safe harbors and exceptions that are aimed at
supporting population health and value-based payment arrangements. The
appendices contain an excerpt of a recent advisory opinion and a summary of
the major federal fraud and abuse laws.
Chapter 10: Health Information Management
Reflecting the importance of federal law in this area, this chapter centers
on the Health Insurance Portability and Accountability Act (HIPAA), with
expanded details on breach notification, the 21st Century Cures Act, and
telemedicine. State-law causes of action, and their intersection with HIPAA,
are highlighted by inclusion of a case in which a pharmacy and pharmacist
were found liable for improper disclosure of protected healthcare information.
Chapter 11: Emergency Care
This chapter focuses on the Emergency Medical Treatment and Labor Act
(EMTALA), with an expanded discussion of practical issues that arise when
attempting to ensure compliance with its requirements. It also highlights
some of the legal issues that emergency providers will face in providing
medically appropriate treatment to pregnant patients in light of new state
abortion restrictions enacted post-Dobbs. Newer emergency-related laws are
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Prefac e
xix
also discussed, including the federal No Surprises Act, as well as state Good
Samaritan overdose laws and emergency preparedness requirements.
Chapter 12: Consent for Treatment
This chapter includes discussion of the emerging idea of shared decisionmaking and its linkages to patient knowledge, payment conditions, and malpractice protections. It also explains state law changes related to surrogate
decision makers. It also broadens the discussion of circumstances in which
minors have the authority to consent to their own treatment.
Chapter 13: Tax-Exempt Healthcare Organizations
The ACA’s enhancements to the 501(c)(3) standards for tax exemption drive
much of the activity in this area. This chapter now includes an appendix that
excerpts Internal Revenue Service compliance guidance with respect to these
standards. It also features more details about tax implications of joint ventures between for-profit and not-for-profit healthcare entities and explains
the uses of unrelated business income taxation and intermediate sanctions for
excess benefit transactions.
Chapter 14: Competition and Antitrust Law
The healthcare sector has seen a spate of mergers, acquisitions, and alliances
in recent years, drawing the attention of antitrust enforcers, whether federal, state, or private. This consolidation activity is reflected in the chapter’s
updated analyses and case law. It notes that possibly anticompetitive activity might involve not only hospitals and physician groups but also insurers,
pharmacies, and newer entrants into the healthcare arena.
Chapter 15: Issues of Reproduction and Birth
In June 2022, the US Supreme Court overruled nearly 50 years of precedent
and held that there is no federal constitutional right to abortion. This chapter explains the ruling and includes excerpts from the majority, concurring,
and dissenting opinions. It also flags potential challenges for institutional
and individual providers as they navigate new laws that restrict abortion and
create criminal, civil, or licensure risk. The chapter includes a new section on
access to insurance coverage for birth control and abortion, features a recent
state case grounded in theories of wrongful birth and wrongful life, and
discusses newer state laws that provide a legal framework for compensated
surrogacy.
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Prefa c e
Instructor Resources
This book’s Instructor Resources include a test bank; PowerPoint presentations; an updated instructor’s manual with chapter overviews,
answers to end-of-chapter discussion questions, answers to end-ofcase discussion questions; and a transition guide to the new edition.
For the most up-to-date information about this book and its
Instructor Resources, visit ache.org/HAP and search for the book’s
order code (2481I).
This book’s Instructor Resources are available to instructors who
adopt this book for use in their course. For access information, please
email hapbooks@ache.org.
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ACKNOWLEDGMENTS
It has been a privilege to work on this new edition, both humbling and
enlightening to grapple with new material and how best to present it.
Throughout, we were inspired by our current and former students and the
key roles that they play in our complicated healthcare system.
Our work was vastly improved by the help of many others. Carly E.
Zipper provided outstanding research assistance and thoughtful, timely editorial comments. Mary Whisner and other University of Washington (UW)
reference librarians skillfully tracked down sources, and UW editor Cindy
Fester advised on matters of legal citation and style. We also benefited from
advice given by exceptional lawyers and teachers, including Doug Ross, Jeff
Sconyers, and Rosemary Daszkiewicz, who provided extensive, substantive
comments on specific chapters, as well as Joseph Topinka, Shawn Mathis, and
Frank Hackmann, each of whom has adopted prior editions of the book as
the text for their classes. At HAP, La’Toya Carter, Kevin McLenithan, Nancy
Vitucci, and others smoothly shepherded the textbook to completion. And
lastly, Deborah A. Ring was our final editorial check on the entire manuscript.
We are profoundly grateful to all these helping hands, and any errors or omissions that may have escaped notice are our responsibility.
We are also indebted to our families. Chris Sanford provided Sallie
with love, support, and encouragement, magnified by that from their boys,
Nate and Henry. For his part, Stuart thanks his extended family (which now
includes three grandchildren) for putting up with his isolationism while
researching and writing eight previous versions of the text over the past quarter century. Both of us and, to be sure, our kin, look forward to the book’s
appearance and a return to other endeavors—at least until it is time for the
eleventh edition.
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CHAPTER
A BRIEF HISTORY OF LAW AND MEDICINE
1
A page of history is worth a volume of logic.
—Justice Oliver Wendell Holmes Jr.
(New York Trust Co. v. Eisner, 256 U.S. 345, 349 [1921])
L
aw is ancient; medicine is a relative newborn. A bit of history will help put
these two disciplines in perspective.
What follows in this first chapter is historical synthesis, neither the
product of primary research nor drawn from any one or even a few secondary sources. Instead, it is a collection of harmonious facts, opinions, and
sentiments drawn from varied perspectives, reviews of the literature, and the
authors’ personal experiences. It is intended to give the reader a feel for what
some might call the “crossroads” of law and medicine and to set the stage
for a thoughtful overview of the law as it relates to healthcare administration.
PART 1: THE HISTORY OF LAW
After reading part 1 of this chapter, you will
• understand that US law comes from four basic sources;
• know that healthcare administration is subject to a complex,
dynamic mix of federal and state law;
• appreciate the balance of power between the branches of
government;
• know the basics of the state and federal court structures; and
• be familiar with basic aspects of legal procedure.
The Historical Foundation of the US Legal System
It is reasonable to assume that laws—rules for human interaction—have
existed in some form since the first sentient beings roamed the Earth.
The oldest known written laws were proclaimed nearly four millennia ago
1
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2
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
EXHIBIT 1.1
Code of
Hammurabi
common law
The body of law
based on judicial
precedents, as
distinct from
statutory law; its
historical roots
are found in the
traditional laws
of England that
developed over
many centuries
and were carried
over to the
American colonies
and thus the
United States.
CH01.indd 2
by King Hammurabi of Babylon. They
were inscribed on an 8-foot-tall black
stela (stone pillar), lost for centuries but
rediscovered in 1901 (see exhibit 1.1).
Dubbed the “Code of Hammurabi,” it is
an example of lex talionis (law of retaliation), under which a person who injures
another is to be given a specific punishment appropriate for the crime.
For example, in Hammurabi’s
realm, adultery and theft were punishable
by death, and a surgeon who caused injury
risked a hand amputation. This latter provision may have been the first version of
malpractice law known to humankind.
In addition to these harsh “eye
for an eye, tooth for a tooth” standards,
the code contained rules for everyday
social and commercial affairs—sale and
lease of property, maintenance of lands,
commercial transactions (contracts, credit, debt, banking), marriage and
divorce, estates and inheritance, and criminal procedure. As a result of
Hammurabi’s reputation as a lawgiver, depictions of him can be found in
several US government buildings, including the US Capitol and the US
Supreme Court.
In later centuries, other concepts helped law to evolve. Aristotle
spoke of natural law—the idea that there exists a body of moral principles
common to all persons and recognizable by reason alone—as distinct from
positive law (formal legal enactments).1 In Leviathan, an important work of
seventeenth-century political thought, Thomas Hobbes described law as a
“social contract” between the individual and the state in which people agree
to obey certain standards in return for peace and security. Without that
implicit agreement and adherence to law, Hobbes famously wrote, people
would be in a constant state of war and life would be “solitary, poor, nasty,
brutish, and short.”
These and other schools of thought—including utilitarianism, strict
constructionism, and libertarianism—have influenced the US legal system
over the centuries. One can, of course, study law by merely reading statutes
and judicial decisions, but it helps to be aware of some of these philosophies
because they lie at the root of American common law.
Anglo-American law can be traced back more than a millennium,
to the time when the Anglo-Saxon inhabitants of what was to become
England tried to centralize their disparate kingships to ward off enemies
02/01/23 1:52 PM
C h ap ter 1: A Br ief H istor y of L aw and Medic ine
and maintain peace. In the process, they created a legal system that would
eventually prevail throughout England—hence the term common law.
That system included certain concepts that are familiar today: writs (court
orders); the offices of sheriff, bailiff, and mayor; taxation; complex legal
record keeping; the use of sworn testimony; and stare decisis (respect for
legal precedent).
In its broadest sense, law is a system of principles and rules devised
by organized society or groups in society to set norms for human conduct,
resolve disputes, and prevent anarchy. As retired US Supreme Court Justice
Stephen Breyer explained, “Law . . . grows out of communities of people
who have some problems they want to solve.”2 One valid critique of legal systems, including that of the United States, is that they often serve to maintain
power structures and protect wealth at the expense of addressing problems in
the broader community. This is one of the reasons for the push to include in
lawmaking roles people with diverse backgrounds and experiences.
Because law is concerned with human behavior, it is not an exact
science. Indeed, “it depends” is a law instructor’s most frequent answer to
students’ questions. This response is frustrating for both the students and the
instructor, but it is honest. Law provides only general guidance; it is not an
exact blueprint for living. It evolves over time, adapts to new circumstances,
and can be highly fact dependent. As undesirable as hardening of the arteries,
legal sclerosis would result in a debilitating lack of progress and innovation.
Viewed in proper light, therefore, law is a landscape painting that
captures the beliefs of a society at a certain moment in time. However, it
is not static; it is a work in progress, a constantly changing piece of art—a
hologram, perhaps—that moves with society. Most often, it moves at a glacial
pace—slowly and quietly, the land shifting slightly beneath it.
At other times, law moves seismically, as was the case in 2010 with the
passage of a legislative temblor known as the Affordable Care Act (ACA),
sometimes referred to as “Obamacare.”3 Despite outcries from some segments of the political spectrum, dozens of attempts to repeal it, and countless
court battles, the US Supreme Court has upheld the constitutionality of the
central aspects of the law. Indeed, the ACA has survived three near-death
experiences at the Supreme Court, setting important constitutional precedents in the process. Most of the ACA’s key healthcare access reforms took
effect in 2014, and the aftershocks of these and myriad other reforms will be
felt for years. Until the dust settles completely, we will not know how much
the act has altered the legal topography (see chapter 2 for more information
about the ACA’s access provisions).
Another earthquake shook the law and the country on June 24, 2022,
when the US Supreme Court overruled Roe v. Wade, ending nearly 50 years
of a constitutionally protected right to abortion. The decision, Dobbs v. Jackson Women’s Health Organization,4 allows states (and perhaps the federal
CH01.indd 3
3
law
A system of
standards to
govern the
conduct of people
in an organization,
community,
society, or nation.
Affordable Care
Act (ACA)
The health reform
law enacted
by Congress in
2010; full name:
Patient Protection
and Affordable
Care Act, Pub.
L. No. 111-148.
The ACA’s access
provisions are
discussed more
fully in chapter
2. Other aspects
of the ACA are
incorporated into
other chapters.
02/01/23 1:52 PM
4
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
government) to ban, criminalize, reaffirm, or expand abortion access. The
aftershocks began that same day as “trigger laws” went into effect in several
states prohibiting most abortions.
A tsunami of legislation and litigation was expected to follow in short
order. As of the summer of 2022, many questions remained unresolved: what
exceptions are legally required or permitted; how providers might apply the
exceptions given potential legal and licensure risks; what steps states can
legally take to restrict medication abortions; whether a state can reach across
its borders to criminally charge an abortion provider; what the restrictive laws
mean for prenatal counseling, birth control access, and assisted reproduction
procedures; and whether an individual can bring a cross-border civil lawsuit
against those that facilitate abortion access. Healthcare providers, both institutional and individual, are likely to find themselves on unsteady ground as
they navigate new state laws regardless of where in the country they practice.
The Dobbs decision’s potential effects on access to reproductive healthcare
are explored most fully in chapter 15. Other issues raised by the decision are
discussed later in this chapter and in many others.
The Vast, Complex, and Dynamic Field of Healthcare Law
The US healthcare system is vast, complex, and dynamic, so it should come
as no surprise to learn that the relevant body of law shares these characteristics. The law permeates today’s healthcare field because the US medical
system is perhaps the most heavily regulated enterprise in the world. It is
subject not only to the legal principles that affect all businesses (everything
from antitrust to zoning) but also to myriad provisions that are peculiar to
healthcare. Historically the field was dominated by state law, but federal law
has become increasingly dominant, starting with the adoption of Medicare
and Medicaid in 1965 and accelerating with the many provisions set forth in
the ACA of 2010.
Our goal is not to turn you into lawyers. (Though if you decide to go
on to law school, we would not be disappointed.) Instead, whether you plan
to be a healthcare administrator, regulator, or advocate, we aim to help you
better appreciate the role of the law in shaping how medical care is delivered
and paid for in the United States. In your future careers, we hope you will be
able to identify legal issues when they arise, resolve them when possible, and
recognize when you need to consult with a lawyer. With a solid overview of
this fascinating area of law, you should be better prepared to manage healthcare entities effectively, thoughtfully, and nimbly. You should have a better
understanding of the legal tools available to effectuate change. And you
should be better equipped to comment thoughtfully on proposed healthcare
laws or regulations. With those goals in mind, as you study the interrelated
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5
C h ap ter 1: A Br ief H istor y of L aw and Medic ine
topics included in this textbook, consider
how the law helps or hinders efforts to
create a more equitable, accessible, affordable, and quality healthcare system.
Major Sources of US Law and
the Hierarchy of Authorities
Law in Action: Tips for
­Working with Attorneys
You are certain to interact with lawyers at different
points in your career. Following are a few tips to
keep in mind:
• An organization’s lawyer represents the
organization, not any individual who works
for it. What an individual says to the attorney
might need to be passed along to others in the
organization.
• Always be truthful. Do not hide facts from your
attorney if you want good advice. (Garbage in,
garbage out.)
• The “attorney–client privilege” relates
only to specific sorts of communications. A
communication is not entitled to the privilege
merely because someone stamps it so or
copies a lawyer on the communication.
• Seek advice early. Lawyers would rather
help clients avoid problems than deal with a
situation after mistakes are made.
• The lawyer gives legal advice. The client uses
that advice to make business decisions.
• “It depends” is a common answer. It is the
rare legal question that has a simple yes/no
answer. Often the answer depends on the
specific facts and other variables and will live
somewhere in a gray area. The individual’s or
organization’s risk tolerance will usually guide
the ultimate decision.
• Emails live forever. Before you send one, think
how it would look as a headline in the local
newspaper or as a trial exhibit.
There are four major sources of law in
the United States. In rough order of
hierarchy, they are constitutions, statutes,
regulations, and judicial decisions. This
hierarchal order is rough because judicial
decisions, at the bottom of the list, are
interpretations of the meaning of constitutions, which are at the pinnacle. ­Similarly,
statutes can change judge-made common law, and judicial decisions can void
improperly enacted regulations.
All four sources of law exist at
both the federal and state levels. Federal
law trumps conflicting state law. It is not
always obvious, though, whether federal
and state law are in direct conflict, or
whether the laws of the different sovereigns can coexist, both to be followed by
the regulated entity. You will learn about
this sort of interpretive challenge, for
example, when studying how the federal
healthcare privacy and security statute (the
Health Insurance Portability and Accountability Act of 1996) intersects with state
law in this arena (see chapter 10).
State laws often vary and even conflict with one another. This feature
of our federalist system—some might even say one of its great virtues—­
provides a “laboratory of the states” in which to test different approaches. If
there is no conflict with federal law, this variability from state to state does
not pose a problem for the legal system, but it can present challenges for
multistate healthcare operations.
For example, one state might have a broad scope of practice for nurse
practitioners, while its neighbor limits what nurse practitioners can do.
Similarly, some states require government-granted “certificates of need” for
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6
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
expanded healthcare operations, while other states abandoned those requirements long ago. It will be your job as a healthcare executive to comply with
the laws and regulations in your particular service area and to advocate for
change when needed.
This aspect of federalism will be severely tested by the patchwork of
conflicting state (and perhaps federal) laws going into effect in the wake of
the Dobbs decision. One state might vigorously protect the right to abortion
and those who facilitate it, while a neighboring state might criminalize abortion in most circumstances and aggressively prosecute those who facilitate it.
And all sorts of novel legal issues are raised by “bounty hunter” state statutes
that purport to allow their state residents to bring a civil lawsuit against a
person or entity elsewhere in the United States who aids or abets a resident
of their state in obtaining an abortion.
Experts predict that within a year of the Supreme Court’s Dobbs decision, about half the states will prohibit or severely restrict abortion. During
that time, the federal government may attempt to limit the impact of some of
those laws—for example, regarding medication access, information privacy,
or travel protections—and it is conceivable that one political party or the
other in Congress might be able to pass a statute setting a national standard
either legalizing or prohibiting abortion. One thing is certain, however: our
federalist system will be strained by new political and legal battles among the
states as well as between the states and the federal government.
Constitutions
The US Constitution is aptly called the “supreme law of the land” because
it sets standards against which all other laws are judged. In other words,
whether good, bad, or ugly, a law must be constitutional. With respect to
the federal government, this means both that Congress must have the constitutionally grounded power to enact the law (e.g., its taxing and spending
authority) and that the law must not violate any other constitutional protections (e.g., the protection for freedom of speech).
The US Constitution establishes the three branches of the US
government: the executive branch, legislative branch, and judicial branch (see
exhibit 1.2). It also grants specified powers to the federal government and
guarantees essential individual rights. The Constitution is a grant of power
from the states to the federal government (see Legal Brief). All powers not
granted to the federal government in the Constitution are reserved by the
individual states. This grant of power to the federal government is both
express and implied. For example, the Constitution expressly authorizes the
US Congress to levy and collect taxes and to regulate interstate commerce.
Congress may also enact laws that are “necessary and proper” to carry out
these express powers. Thus, the power to tax also includes the power to
spend, such as expenditures in support of the Medicare program, and the
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C h ap ter 1: A Br ief H istor y of L aw and Medic ine
1. Impeach and convict; confirm or block
permanent appointments
2. Appoint judges
3. Approve or veto legislation
4. Draft legislation; override vetoes
5. Interpret laws and regulations
6. Establish court system;
amend laws to cure defects
7. Change regulations to cure
defects
EXHIBIT 1.2
Checks and
Balances
1
1
2
3
7
Executive
Legislative
4
Judicial
5
5
6
power to regulate interstate commerce encompasses 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.
3. The judiciary has the power to interpret the laws.
Twenty-seven amendments follow the main body of the Constitution.
The first ten are known as the Bill of Rights; they were ratified in 1791, just
two years after the Constitution took effect (see Legal Brief). The rights
specifically secured by the Bill of Rights
include
• freedom of religion, speech, and
press;
• the rights of assembly and petition;
• the right to bear arms;
• protection against unreasonable
searches and seizures;
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Legal Brief
The United States is not a union; it is a federation
(from the Latin word foedus, meaning “covenant”)
of 50 self-governing states that have ceded some
of their sovereignty to the central (federal) government to promote the welfare of all.
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due process of law
The administration
of justice
according to
established rules
and principles
meant to ensure
that a person
is not unfairly
deprived of life,
liberty, or property.
• rights in criminal and civil cases (e.g., jury trial, self-incrimination); and
• the right to substantive and procedural due process of law.
The Ninth Amendment specifies that “[t]he enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others
retained by the people.” Among the unenumerated rights identified and upheld
by the US Supreme Court are the right to travel and the right of privacy.
Of the 17 other amendments, two canceled each other: the Eighteenth Amendment, which established Prohibition, and the Twenty-First,
which repealed the Eighteenth. Thus, as of this writing, only 15 substantive
changes have been made to the basic structure of US government since 1791.
Read literally, the Bill of Rights applies only to the federal government. However, the US Supreme Court has held that most of the rights set
forth in those ten amendments also apply to the states under the Fourteenth
Amendment. (This is an example of judicial interpretation, which is discussed
in greater detail in the following section on statutes.)
In addition to the US Constitution, each state has its own constitution.
A state’s constitution is the supreme law of that state, but it is subordinate to
the federal Constitution. State and federal constitutions are similar, although
state constitutions are more detailed and sometimes more protective of individual rights. Native American tribes also have constitutions, which are the
supreme law in those jurisdictions.
A few states’ constitutions include privacy protections, either explicitly
or as interpreted by their courts. Less than a week after the US Supreme
Court’s 2022 decision that the US Constitution’s unenumerated right of
privacy does not include a right to abortion, a Florida court cited privacy protections in the Florida constitution to temporarily block that state’s 15-week
abortion ban, which sprang into effect when the Dobbs decision was handed
down.5 This will be one of many decisions concerning state constitutional
protections in this arena. Efforts to amend state constitutions to explicitly
protect the right to choose or, conversely, efforts to explicitly protect the
unborn from the moment of conception,
can also be expected.
The Fourteenth Amendment was adopted after the
Civil War. It is an important (and much litigated)
source of substantive and procedural rights. Its
first section reads in part, “No State shall make or
enforce any law which shall abridge the privileges
or immunities of citizens of the United States;
nor shall any State deprive any person of life,
liberty, or property, without due process of law;
nor deny to any ­person . . . the equal protection
of the laws.”
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Statutes
At the federal level, Congress enacts statutes (written laws). After a bill has passed
both the House of Representatives and
the Senate, it becomes law if the president
signs it. If the president vetoes the bill,
Congress can override a veto with enough
votes and the provision will become law
despite the president’s veto. Federal laws
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are codified in the United States Code (abbreviated U.S.C.). A major law may
have provisions found in many different sections of the United States Code.
The ACA is a good example: its provisions are codified in several sections of
the United States Code, including those that deal with taxes, with Medicaid,
and with employment.
State legislatures enact statutes through similar processes and have
similar codification systems (often readily available on state government websites). Local government authorities (including cities and counties) are also
empowered to enact laws, which are sometimes known as ordinances. Enactments by federal, state, and local authorities all can apply simultaneously to a
healthcare organization. For example, a not-for-profit hospital that wants to
be exempt from taxes will strive to meet the exemption standards not only of
the federal government, but also of the state government and perhaps a local
taxing authority such as the city or county. The tax-exemption standards of
these different jurisdictions are likely to be similar but not identical.
To further complicate matters, although statutes (and their implementing regulations) should be drafted so that they are clear enough for
people to understand what is required and what is not, absolute clarity is
rarely possible. Statutes are somewhat general, and questions almost always
arise about their meaning or their application to a particular case, particularly
in a novel situation. For this reason, courts (in the person of judges) are
often called upon to engage in judicial interpretation—that is, to explain
the meaning of the statutory language.
Rules of construction help judges interpret statutes. In some states,
rules of construction are themselves the subject of a separate statute. Some
of the more common rules of construction include the following:
• Absent a contrary definition in the statute, words must be given their
plain, ordinary, and literal meaning, even if the legislative intent might
suggest a different interpretation. (This is the plain meaning rule.)
• Despite the plain meaning rule, a statute should be internally
consistent, so that the meaning of one provision is not divorced from
the functioning of the rest of the law.
• Interpretation of a provision’s meaning should be consistent with the
stated intent of the legislature and should give effect to all the statute’s
key provisions.
• If a provision is unclear, the statute’s purpose, the result to be attained,
its legislative history, and the consequences of one interpretation over
another are among the analytical factors that might be considered.
9
judicial
interpretation
The way the
judiciary explains
or clarifies the
meaning of a
legal provision
and applies it
to a specific
case. Judicial
interpretation
can involve
the meaning
of language in
a constitution,
statute, or
regulation; it
can also involve
the meaning of
contracts, prior
court decisions,
or other writings
pertinent to the
issue at hand.
These “rules” are not inflexible, and judges often disagree about how to
apply them, but the rules do help one to ascertain the meaning of statutory
provisions and their application to individual cases. Consider these rules
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
when you read the US Supreme Court’s discussion in King v. Burwell (see
chapter 2) of what is meant by the ACA’s phrase “established by the State.”
Judicial interpretation, whether it involves constitutions, statutes, regulations, or other language, is the pulse of the law, and numerous examples
can be found throughout this text. Readers should be alert for them and try
to discern the different philosophies of interpretation reflected in the majority, concurring, and dissenting opinions.
Administrative Regulations
administrative law
The branch of
law that concerns
the creation
and powers of
administrative
agencies, the rules
and regulations
those agencies
make, and the
relationships
among the
agencies and the
public at large.
The third major source of law is particularly important in the healthcare arena:
administrative regulations. At the federal level, Congress typically delegates
to one or more federal agencies the job of fleshing out the practical specifics
of a statute that it enacts. State legislatures do the same. If, as we often hear,
“the devil is in the details,” those details are found in agency-promulgated
regulations and less formal pronouncements such as FAQs, guidance documents, and enforcement memoranda. These subregulatory materials do not
quite have the force of law, but they provide key insights into how the agency
views the legal requirements and its own responsibilities in enforcing them.
Administrative agencies are not mentioned in the US Constitution,
but they are extremely important actors that have considerable power in
what is sometimes termed our evolving “administrative state.” Agencies have
powers that are akin to the three branches of government. That is to say, they
have quasi-legislative power when they write regulations; they have executive power when they conduct investigations and seek to enforce their rules;
and they perform quasi-judicial functions when they adjudicate disputes over
potential violations. On a day-to-day basis, healthcare personnel are typically
far more concerned with the details of administrative regulations than they are
with the legal principles found in constitutions, statutes, or judicial decisions.
Administrative law is the type of public law that deals with the rules
of government agencies, and it has greater scope and significance than some
people realize. This fact was noted more than two centuries ago by the Irish
and British statesman Edmund Burke (1729–1797), who, when writing
about the government of England, stated,
The laws reach but a very little way. Constitute government how you please, infinitely the greater part of it must depend upon the exercise of powers, which are
left at large to the prudence and uprightness of ministers of state. [A]ll the use and
potency of the laws depends upon them. Without them your commonwealth is no
better than a scheme upon paper, and not a living, active, effective organization.6
Administrative agencies exist at all levels of government: local, state,
and federal. Well-known federal agencies that affect healthcare include the
National Labor Relations Board (NLRB), Centers for Medicare & Medicaid
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Services (CMS), Internal Revenue Service (IRS), US Department of Health
and Human Services (HHS), Federal Trade Commission (FTC), and Food
and Drug Administration (FDA). State-level administrative agencies include
boards of professional licensure, Medicaid agencies, workers’ compensation
commissions, zoning boards, and numerous other agencies whose rules affect
healthcare organizations.
Delegation of rulemaking authority puts this responsibility in the
hands of experts, but the enabling legislation stipulates the standards to be
followed by an administrative agency when it writes the regulations. At the
federal level, the Administrative Procedure Act (5 U.S.C. §§ 551–559) specifies the processes that agencies must follow to enact regulations and the circumstances (e.g., public health emergencies) under which those rules can be
waived or their timelines shortened. In general, to commence a rulemaking,
a federal agency must publish in the Federal Register (in print and online)
a notice of proposed rulemaking indicating what it intends to do and seeking
public comment.
Anyone may submit comments,
and as a healthcare administrator, you
Legal Brief
might well be tapped to help draft comments that will be submitted on behalf
of your organization or a professional
Statutes are “no better than a scheme upon paper,”
association. Public comments are also a
to use a phrase from Edmund Burke (1729–1797),
way for healthcare advocates to elevate
a British statesman, economist, and philosopher.
the voices of patients and others who may
Their effectiveness depends on the expertise of
the personnel within the administrative agencies.
be affected by a proposed rulemaking.
Agency personnel are charged with putting meat
Absent an emergency, this process is rarely
on the statutory bones by drafting regulations,
quick, and when there are many competconsistent with the Administrative Procedure Act,
ing views or changes in executive branch
and publishing other interpretive and enforcement
leadership, it can drag out for quite some
guidelines. Courts often defer to administrative regtime. For example, it took 11 years for the
ulations and interpretations, thus giving agencies
significant power to interpret and enforce the laws.
first regulations to be issued to implement
The question of when judicial deference is
the federal Emergency Medical Treatappropriate has both legal and political implicament and Labor Act (EMTALA) of 1986.
tions, and at least two schools of thought have
When it publishes the final rule,
emerged. Chevron deference, a term coined after
the agency will include a preamble setting
a US Supreme Court case involving the Chevron
out its rationale for the regulatory decioil company, holds that if a statute is ambiguous,
the courts should defer to an agency’s interpretasions it made and how it accounted for
tion so long as that interpretation is reasonable
the comments it received. The final rule
(Chevron U.S.A., Inc. v. Natural Resources Defense
will be published in the Code of Federal
Council, Inc., 467 U.S. 837 [1984]).
Regulations (abbreviated C.F.R.). States
On the other hand, Skidmore deference,
have similar procedures for rulemaking by
so called for a 1944 Supreme Court case and
their agencies and similar regulatory com(continued)
pilations. To survive a legal challenge, a
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
revitalized in 2000, narrows the scope of Chevron deference. The Skidmore viewpoint holds
that (1) an agency’s policy statements, manuals,
enforcement guidelines, and other subregulatory
interpretations do not warrant deference and are
“entitled to respect” only to the extent that they
are persuasive; and (2) an agency’s interpretation
of its own regulation is warranted “only when the
regulation’s language is ambiguous” (Christensen
v. Harris County, 529 U.S. 576, 588 [2000], citing
Skidmore v. Swift & Co., 323 U.S. 134 [1944]).
Aside from the Chevron and Skidmore
approaches, the makeup of the US Supreme Court
in June 2022 suggested a reluctance to give any
deference to administrative agencies unless their
actions were clearly authorized by Congress. For
example, in West Virginia v. Environmental Protection Agency (597 U.S. ___ [2022]), a 6–3 majority
of justices refused to defer to the Environmental
Protection Agency’s expertise in regulating carbon
emissions from power plants, stating that, instead,
there must be “clear congressional authorization”
for the agency to regulate in the way intended.
This ruling and the philosophy behind it
reflect skepticism toward the power of administrative agencies and a conservative approach that
favors reducing the power of the administrative
state.
holding
The portion of a
judicial decision
that states how
the law is being
applied to the
facts of the case.
Many cases
contain dicta
(singular dictum,
from Latin “to
say”), which are
side remarks that
are not necessary
for the decision
and thus do not
have precedential
value.
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regulation must be appropriately adopted,
within the scope of the authorizing legislation, and constitutional.
Judicial Decisions
The final major source of law is judicial
decisions, often derided as “judge-made
law.” And while it may seem undemocratic that one or a few members of the
judiciary (or administrative law judges)
can “make law,” it is indisputable that
to decide a case, it is often necessary to
construe the meaning of constitutional,
statutory, or regulatory language. For
example, in 2020, the US Supreme Court
had to decide whether the prohibition of
“sex discrimination” in the Civil Rights
Act of 1964 includes discrimination based
on sexual orientation or transgender status. (Answer: it does. See chapter 4.).
At other times, judges must explain
the meaning of relevant precedents set in
earlier opinions. In doing so, they engage
in common-law decision-making. For
example, a court might be presented with
the question of whether a provision in a
gestational surrogacy agreement is “contrary to public policy” (see ­chapter 15).
The holding in the case might make new law, or it might confirm earlier
related precedent.
Common-law decision-making is particularly important in what is
known as private law, the type of law that predominantly concerns legal
issues between individuals or private entities, in contrast with public law,
which focuses on legal issues between an individual or entity and a government. Contracts and torts (including medical malpractice) are key areas of
private law for healthcare organizations, as discussed in chapters 5 and 6.
The Power of Precedent
The common law produced two ancient concepts that endure today: writ and
stare decisis. A writ is a court order directing the recipient to appear before
the court or to perform, or cease performing, a certain act. Although writs
are significant in individual cases, we need not discuss them further here.
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On the other hand, stare decisis
is a fundamental principle that is key
Legal Brief
to understanding how the common law
works. Stare decisis is essentially the conUse of precedent distinguishes ­common-law juriscept of precedent. It requires that courts
dictions from code-based civil law systems, which
look to past disputes involving similar
traditionally rely on comprehensive collections of
facts and similar legal principles when
rules. The civil law system is the basis for the law in
considering how to rule in a pending case.
Europe, Central and South America, Japan, Quebec,
Unless there is good reason to abandon
and (because of its French heritage) the state of
Louisiana.
precedent, courts should ground their
conclusions in the reasoning expressed
in their own prior decisions and those of
appellate courts above them. Key goals of this practice are to engender stabil- writ
A court order
ity in the legal system and respect for the judicial process (see Legal Brief).
commanding
Consider, for example, the opening sentence of the controlling someone or an
opinion in Planned Parenthood of Southeastern Pennsylvania v. Casey,7 in organization to
which Justices Sandra Day O’Connor, Anthony Kennedy, and David Souter perform or cease
summed up stare decisis in nine memorable words: “Liberty finds no refuge performing a
particular act.
in a jurisprudence of doubt.”
The Casey case, decided in 1992, hinged on whether to uphold or stare decisis
overturn Roe v. Wade, the 1973 decision that established a right to abortion Latin for “to stand
grounded in the Constitution’s protection of “liberty interests.” The plural- by things decided,”
stare decisis
ity opinion (aspects of which were joined by other justices) focused in part refers to the idea
on the extent to which stare decisis requires upholding a prior decision even that appellate
if the current justices might have decided the precedential case differently. As courts should
stick to their prior
the court explained,
[O]nly the most convincing justification under accepted standards of precedent
could suffice to demonstrate that a later decision overruling the first was anything
but a surrender to political pressure and an unjustified repudiation of the principle
on which the Court staked its authority in the first instance. So, to overrule under
fire in the absence of the most compelling reason to reexamine a watershed decision would subvert the Court’s legitimacy beyond any serious question.8
precedents absent
some compelling
reason to the
contrary. It also
incorporates the
directive that
lower courts are
bound to respect
the precedents
of higher courts
within their
jurisdiction when
ruling on cases
with similar facts.
By way of contrast, 30 years after Casey, a new set of justices applied a
different philosophy about precedent and reached a stunningly different conclusion than the Casey court. Writing for
the majority in Dobbs9 (discussed earlier in
this chapter), Justice Samuel Alito stated,
Justice O’Connor was the first woman appointed to
“No Justice of this Court has ever argued
the US Supreme Court and the only female justice
at the time Casey was decided.
that the Court should never overrule a
constitutional decision, but overruling a
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
precedent is a serious matter. It is not a step that should be taken lightly.”
Alito went on to list “five factors [that] weigh strongly in favor of overruling
Roe and Casey: the nature of their error, the quality of their reasoning, the
‘workability’ of the rules they imposed on the country, their disruptive effect
on other areas of the law, and the absence of concrete reliance.” After analyzing each of these factors at length and finding that they are not compelling,
he concluded,
Stare decisis, the doctrine on which Casey’s controlling opinion was based, does
not compel unending adherence to Roe’s abuse of judicial authority. Roe was
egregiously wrong from the start. Its reasoning was exceptionally weak, and the
decision has had damaging consequences. And far from bringing about a national
settlement of the abortion issue, Roe and Casey have enflamed debate and deepened division. It is time to heed the Constitution and return the issue of abortion
to the people’s elected representatives.
(See The Court Decides at the end of chapter 15 for a lengthy excerpt from
the Dobbs opinions.)
As mentioned earlier, appellate courts (not trial courts) establish
binding precedent, which applies internally and downward, but not horizontally. An Ohio trial court, for example, is bound by the decisions of Ohio’s
Supreme Court and the US Supreme Court but not by the decisions of other
Ohio trial courts or 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. For example, the California Supreme Court’s
decision in Tarasoff v. Regents of the University of California (discussed in
more detail in chapters 5 and 10) is binding precedent only in California,
but numerous other state courts have found its reasoning to be persuasive
and adopted it as their own. Similarly, a federal trial court is bound by the
decisions of the US Supreme Court and the appellate court of its circuit but
not by the decisions of other appellate or district courts.
The doctrine of stare decisis should not be confused with a related
concept: res judicata, which in Latin means “a thing or issue settled by judgment.” In practical terms, once a legal dispute has been resolved in court and
all appeals have been exhausted, res judicata prohibits the same parties from
later suing regarding the same matters.
Federal and State Court Systems
In a perfect world, we would not need courts and lawyers. This idea
might have inspired William Shakespeare’s famous line in Henry VI, “The
first thing we do, let’s kill all the lawyers.”10 At the time—the sixteenth
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15
century—resentment against lawyers ran high in England. Shakespeare was
perhaps engaging in a little lawyer bashing, and his intention may have been
to express his indictment of a corrupt system. On the other hand, the remark
may have been a compliment; the character who utters the famous words was
an insurgent who would not want skillful lawyers around to uphold law and
order. Or maybe the Bard was just trying to get a laugh out of the audience,
something he often did. Regardless of one’s interpretation of the play, we do
not live in Utopia, so we do need courts and lawyers.
There are more than 50 different court systems in the United States.
In addition to the state and federal courts, there are courts for the District
of Columbia, the Virgin Islands, Guam, the Northern Mariana Islands, and
Puerto Rico; there are also tribal courts with their independent spheres of
authority. The large number of court systems makes the study of US law
complicated, but the decentralized nature of federalism adds strength and
vitality. As various courts (and legislatures) adopt different approaches to
a novel issue, the states can become a testing ground on which a preferred
solution eventually might become apparent.
One relatively unique aspect of US federalism is the overlapping jurisdiction between the federal and the state courts. Our state courts are courts
of general jurisdiction. That means they can rule on any legal issue except
where a federal statute or the US Constitution grants exclusive jurisdiction
to the federal courts.
The federal courts are courts of limited jurisdiction, meaning that they
can hear cases only as authorized by the US Constitution or federal statutes.
Issues of purely state law do end up in the federal courts, though, particularly when the parties are from different states. As described later, this sort
of diversity jurisdiction is one avenue for getting to federal court. The other
avenue is federal question jurisdiction, in which the primary legal issue relates
to a federal statute or the US Constitution.
Federal Courts
The federal court system is divided into three tiers: district courts, circuit
courts, and the US Supreme Court (see exhibit 1.3). The judges on these
courts are known as “Article III judges,” after the section of the Constitution
related to the judiciary. They are nominated by the president, confirmed by
the Senate, and have lifetime tenure.
There are about 1,000 district court judges in 94 courts, each of
which covers a particular geographic area. A district spans a portion of a state
(or territory) or an entire state. Federal trials take place in district courts,
either before a judge (referred to as a bench trial) or a jury. Cases involve
both legal questions, which are for the judge to decide, and factual questions,
which are decided by the “fact-finder”—the jury in a jury trial or the judge
in a bench trial.
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EXHIBIT 1.3
Model of a
Typical ThreeTier Court
Structure
Supreme Court
Court of
Appeals
(Region 1)
Trial
Court
Trial
Court
Trial
Court
Court of
Appeals
(Region 2)
Trial
Court
Trial
Court
Trial
Court
Trial
Court
Court of
Appeals
(Region 3)
Trial
Court
Trial
Court
Trial
Court
Trial
Court
Trial
Court
Trial
Court
Trial
Court
Trial
Court
As decreed by the relevant federal laws, the federal courts (beginning
with the district courts) have exclusive jurisdiction over certain kinds of cases,
including alleged violations of federal antitrust or securities laws, bankruptcy,
and issues related to the Employee Retirement Income Security Act (ERISA).
Federal and state courts have concurrent jurisdiction in cases arising under
the US Constitution or any federal statute that does not confer exclusive
jurisdiction to the federal court system. A federal district court may hear suits
based on state law in which a citizen of one state sues a citizen of another
state if the amount in dispute is more than $75,000.11 These suits are called
diversity of citizenship cases.
For example, although medical malpractice claims are almost always
grounded in state law, if the injured patient and the allegedly negligent doctor reside in different states, the case may be brought in federal court. There
is diversity of citizenship because the parties are from different states. There
might be strategic reasons for filing a suit in federal court as opposed to state
court. The federal district court hearing the case will apply the relevant state
law on medical malpractice claims in deciding which party should prevail, and
any appeal will go to the federal circuit court for that geographic area.
Concurrent jurisdiction also means that state courts may decide issues
involving federal law (unless, as discussed earlier, the case involves an area
of exclusive federal jurisdiction). For example, if a missed diagnosis in the
emergency department caused injury to a patient, the patient might sue the
hospital for medical malpractice (“negligent failure to diagnose”) and for
violating EMTALA (“failure to conduct an appropriate screening examination”). That case could be heard in state court or in federal court under
federal question jurisdiction because EMTALA is a federal statute. In either
situation, the trial court would need to determine both the facts and whether
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those facts constitute liability under the different legal standards expressed in
the state’s medical malpractice law and in EMTALA. The hospital might be
liable under either state law or federal law, both, or neither. Note that claims
involving federal statutes and the US Constitution may also be tried in state
court, depending on the situation.
The losing party in federal district court has a right to appeal to a US
court of appeals, where the case is heard by a panel of three judges. In rare
situations involving cases of exceptional importance, all the judges on the
circuit court might consider a case after the initial panel has issued its ruling.
In this case, the judges are said to be sitting en banc. There are 13 appeals
courts, 12 of which are geographically organized and hear cases from the
district courts in their respective regions.
The Court of Appeals for the Ninth Circuit covers the biggest geographic area and hears the most cases each year. The District of Columbia
Circuit covers the smallest geographic area, but it is highly influential, partly
because of the number and importance of the cases it hears involving federal
regulations. The other federal appeals court is the US Court of Appeals for
the Federal Circuit, which has subject-matter responsibilities rather than
oversight of a given region. It hears appeals in specialized cases, such as
those involving patent laws or specific statutes assigned to it by Congress
(see exhibit 1.4).12
At the highest level of the federal court system, of course, sits the US
Supreme Court, with its nine justices. Most litigants who lose at the court
EXHIBIT 1.4
Map of US
Courts of
Appeals
WA
MT
OR
ME
ND
ID
WY
SD
8
NV
CA
NE
UT
9
2
MN
WI
IL
AZ
10
KS
NM
OK
MO
PA
OH
IN
6
WV
KY
MS
TX
NC
TN
AR
AK
AL
SC
GA
CT
3
RI
NJ
DE
MD
DC Circuit
Federal Circuit
VA
4
1
LA
5
9
7
1
MA
NY
MI
IA
CO
VT
NH
3
VI
11
PR
FL
HI
MP
GU
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
writ of certiorari
An order from a
higher court to
a lower court,
requesting that
the record of a
case be sent up for
review.
of appeals level do not have an absolute right to have their case heard by the
US Supreme Court. Instead, they must petition for a writ of certiorari—an
order to the lower court requiring that the case be sent to the high court
for review—and they must persuade at least four of the nine justices that the
issue merits the court’s attention. The Supreme Court “grants cert” (i.e.,
grants certiorari) in about 80 cases per year from the 7,000 to 8,000 petitions it receives each year. If the court “denies cert,” the lower court’s decision stands. The Supreme Court is most likely to accept an appeal when a
significant interpretation of federal statutory or constitutional law is at stake
or when there is a “circuit split” (meaning that at least two circuit courts have
come to different legal conclusions on the same issue).
As an example, consider the initial cases challenging the constitutionality of the ACA. Starting on the day that President Barack Obama signed
the ACA into law in March 2010, challengers filed lawsuits in federal district
courts across the country arguing that Congress did not have the constitutionally grounded authority to enact key provisions of the law, and therefore
the entire law must go. Several circuit courts reached different conclusions
about the constitutionality of the ACA, throwing into confusion the fate of
the most consequential piece of healthcare legislation since the enactment of
Medicare and Medicaid.
The Supreme Court could have denied cert, but because of the
importance of the issues and the split among the circuit courts, there was
little doubt that it would take the case. The result was National Federation
of Independent Businesses (NFIB) v. Sebelius,13 which spawned the longest
Supreme Court oral argument in modern times. Argument took place for
more than six hours over three days—typically, cases get just one hour for
oral argument. This case also generated intense public interest and the most
amicus (friend of the court) briefs ever. The Court’s decision narrowly upheld
the constitutionality of most of the ACA, excising only the requirement that
states expand their Medicaid programs.
The NFIB decision was a landmark not only for the substance of
healthcare law but also for issues of constitutional interpretation. It is now a
staple of constitutional law textbooks, typically excerpted in more than one
textbook section because the decision sets precedents relating to Congress’s
constitutional authority to regulate interstate commerce, to levy taxes, and
to attach conditions to spending bills (for a more thorough discussion of this
case, see chapter 2).
State Courts
As in the federal judiciary, state court systems are typically divided into
three levels: trial courts, appeals courts, and a high court (usually called
the state supreme court). In a state court system, the lowest tier—the trial
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19
courts—is often divided into courts of limited jurisdiction and courts of
general jurisdiction. Typically, courts of limited jurisdiction hear only specific types of cases, such as criminal trials involving lesser crimes (e.g., misdemeanors, traffic violations) or civil cases involving disputes of a certain
amount (e.g., in small claims court, lawyers are not allowed and complex
legal procedures are relaxed). State courts of general jurisdiction hear more
serious criminal cases involving felonies and civil cases involving larger sums
of money.
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 examining the evidence from the trial court and
to interpreting questions of law, not questions of fact. Appellate courts always
have more than one judge and do not have juries.
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
courts if the state does not have intermediate courts. (Texas and Oklahoma
are a little different: each has two separate high courts, one for civil cases and
the other for criminal cases.) The high court is also charged with administrative duties, such as adopting rules of procedure and disciplining attorneys.
Alternatives to the Court System
The primary alternatives to the court system are mediation and arbitration.
Both forms of alternative dispute resolution are typically faster and less expensive than using the court process and may provide more confidentiality. In
mediation, a neutral third party aims to help both sides come to an agreement. In arbitration, the neutral third party renders an opinion, which might
or might not be binding.
For certain types of cases or amounts in dispute, a court alternative
might be required, at least as a preliminary matter. Parties to a medical
malpractice lawsuit, for example, might be required to try mediation to see
whether a settlement can be reached before trial. One party or the other
might be more likely to settle having heard the assessment of a neutral,
knowledgeable third party (e.g., a retired judge who acts as a mediator).
However, the mediator cannot force a settlement.
It is increasingly common for contracts to require that disputes be
handled through arbitration, which is usually but not always binding. Arbitration involves submission of a dispute for decision (binding or not) by a
neutral third person or a panel of experts outside the judicial process; the
decision is often binding. When mandatory arbitration is a bargained-for
agreement between sophisticated parties, it can be a logical and time- and
money-saving approach. Statutory law in most states favors voluntary binding arbitration and frequently provides that an agreement to arbitrate is
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arbitration
An extrajudicial
process of dispute
resolution by one
or more persons
with subjectmatter expertise
chosen by mutual
consent of the
parties.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
enforceable by the courts.14 Particularly when one party is vulnerable or not
in a position to bargain (a patient, say, or a nursing home transfer), mandatory arbitration clauses have been voided by courts as contrary to public
policy, and they are an increasing focus of concern among legislators.
Litigation Process
Substantive law is the type of law that creates and defines rights and duties.
Most of this book is devoted to substantive law as it relates to healthcare
providers. Procedural law, as the term implies, specifies the processes for
enforcing and protecting rights granted by substantive law. The branch of
procedural law discussed in this section is law relating to trial of a case.
Complaint, Answer, Reply
To begin a civil lawsuit (an action), the plaintiff files a complaint against
another party (the defendant). The complaint states the nature of the plaintiff’s injury and the amount of damages or other remedy sought from the
defendant. (The complaint and other documents subsequently filed in court
are pleadings.) A copy of the complaint, along with a summons, is then served
on the defendant. The defendant must answer the complaint or take other
action within a limited time (e.g., 30 days) or else the plaintiff will be granted
judgment by default.
In response to the summons, the defendant files an answer to the complaint, admitting to, denying, or pleading ignorance of each allegation. The
plaintiff then typically files a reply. The defendant may also file a complaint
against the plaintiff (a countersuit or counterclaim) or against a third-party
defendant whom the original defendant believes is wholly or partially responsible for the plaintiff’s alleged injuries.
Discovery Phase and Motions
In rare cases, the court’s decision or a settlement agreement between the
parties quickly follows the complaint and answer stages. Usually, however,
several months (or even years) elapse between commencement of the
action and settlement or trial. During this time, each party engages in discovery, an attempt to determine the facts and strength of the other party’s
case. Note that discovery might require action by a nonparty. For example,
a physical therapy clinic might be required to produce healthcare records
of a patient who is suing the driver of the car that allegedly hit and injured
the patient.
During the discovery phase, parties may use any or all of the following
techniques to uncover relevant facts and nonprivileged information (though
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courts may impose limits on the number of each category of discovery that
may be requested) and thereby assess the strength of the other party’s case:
1. Deposition. Sworn testimony given under oath before a court reporter
and in the presence of attorneys for each side; transcripts of the
testimony may be used as evidence in court in some circumstances.
2. Written interrogatories. Written questions, the answers to which are
sworn to and may be used as evidence; interrogatories are somewhat
less effective than oral depositions because there is little opportunity to
ask follow-up questions.
3. Subpoena duces tecum. A request requiring documents, such as medical
records, as evidence for the case; special rules govern the handing over
of healthcare records because of the sensitivity of those documents.
4. Physical or mental examination of a party. Used when the physical or
mental condition of a party to the lawsuit is in dispute and good cause
for the examination is shown.
5. Examination of property. Rarely used in healthcare cases but could
come up when the condition of premises or devices is at issue.
6. Request for admission of facts. A request that the opposing party
admit certain facts; once a fact has been admitted, the parties save the
time and expense of proving it in open court and thus may simplify
the case.
Before trial, it is common for one or both parties to submit pretrial motions to limit the scope of issues to be tried or to dismiss the case
altogether. A common type of pretrial motion is a motion for summary
­judgment as to one or more of the claims in the case. This helps narrow the
issues to be decided and might speed up appeal of key legal questions. The
trial court judge will grant a motion for summary judgment if, on viewing
the facts in the light most favorable to the nonmoving party, there are no
genuine issues of material fact, and the moving party is entitled to judgment
as a matter of law.
Many appellate court decisions are based on appeals from grants of
summary judgment. The 2012 NFIB decision about the constitutionality of
the ACA, for example, was decided at the district court level on summary
judgment because, at its core, the case was one of constitutional interpretation that did not require much, if any, factual inquiry.
Settlement, Trial, Appeal
Most civil actions are dismissed or settled before trial. Part of the point of
discovery is that all the evidence should be available to the parties before trial.
Surprise witnesses and out-of-the-blue evidence make for good television but
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subpoena duces
tecum
A request by one
of the parties to
a suit, that asks
a witness or the
opposing party
to bring to court
or to a deposition
any relevant
documents under
the other’s control.
summary
judgment
An order by a
court finding in
favor of one party
against the other
without a trial. It
can be issued if
the judge finds
that there is no
“genuine issue of
material fact” left
to be determined
and the moving
party is “entitled
to judgment as
a matter of law”
(Rule 56, Fed.
R. Civ. Proc.).
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
inefficient dispute resolution. With all the
evidence at hand, and a sense of the finanCOVID Connection
cial and other risks of proceeding to trial,
In both law and medicine, the COVID-19 panparties commonly engage in settlement
demic spurred increased use of remote access
negotiations. If they reach an agreement,
technology, notably, telemedicine visits and Zoom
the case is dismissed by mutual consent or
hearings. With courthouse access limited, judges
with the court’s approval, if required (e.g.,
throughout the country heard motions, and even
when a child’s interests are involved).
entire trials, with participants (including jurors)
A trial begins with the selection of
logging in from their homes or offices. The jury is
still out on the overall success of this experiment.
a jury if either party has requested a jury
Nonetheless, some aspects of litigation practice
trial and it is an option for that type of
seem well suited to the efficiencies of remote
case. After jury selection, each attorney
access. Zoom hearings related to scheduling and
makes an opening statement that explains
discovery questions, for example, might well conmatters to be proven during the trial. The
tinue beyond the public health emergency. For a
plaintiff’s attorney then calls witnesses and
humorous look at technology challenges, search
online for the video of a hearing in which a lawyer
presents other evidence; the defense has
stuck in a Zoom filter reassures the judge that
an opportunity to cross-examine each wit“I am not a cat.”
ness. Then the defendant’s attorney calls
witnesses and presents its evidence, subject
to cross-examination by the other side.
Finally, there might be rebuttal witnesses and evidence. A party may ask the
court for a directed verdict. They judge will grant such a motion if the jury,
directed verdict
An order from
viewing the facts most favorably to the other party, could not reasonably
the judge for the
return a verdict in that other party’s favor. The motion can be made by the
jury to issue a
defendant after the plaintiff has presented all their evidence, or by either party
particular verdict
if no reasonable
after both parties have made their respective cases; however, such motions
person could reach are rarely granted.
a decision to the
Before the jury begins its deliberations, the judge gives the jurors
contrary based
instructions
concerning applicable law. The jury retires to deliberate until it
on the evidence
presented.
reaches a verdict (or declares that it is unable to do so, a rare circumstance
known as a “hung jury”). Many times, after the jury has reached its decision, the losing party asks the court for a “judgment notwithstanding the
verdict”—also known as judgment NOV, an abbreviation of the Latin term
judgment NOV
(non obstante
non obstante veredicto—and a new trial. The motion is granted if the judge
veredicto)
decides that the verdict is clearly not supported by the evidence. Note that
A judgment
attorneys will often request a directed verdict or judgment NOV simply to
“notwithstanding
the verdict”
preserve their right to appeal the case. Without bringing these motions, a
entered by the
party might be deemed to have forfeited the right to appeal.
court when a jury’s
The judge and the jury each play a key role in the trial. The judge
verdict is clearly
decides whether evidence is admissible and instructs the jury on the law
unsupported by
the evidence.
before deliberation begins. The judge also has the power to take the case
away from the jury by means of a directed verdict or a judgment NOV. The
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jury decides the facts and determines whether the plaintiff has proven the
allegations by the appropriate standard. In civil cases, that standard is usually a preponderance of the evidence, which means more likely than not.
This is quite different from the “beyond a reasonable doubt” standard used
in criminal cases. In rare cases, the outcome suggests that the jury finds the
application of the legal standard unjust and decides the case accordingly. This
phenomenon is known as jury nullification.
The next stage in litigation is often an appeal. For a variety of reasons
(e.g., satisfaction with the verdict, unwillingness to incur further expense),
not all cases go to an appellate court. In the event that a case does move to
a higher court, the party that brings the appeal (the losing party in the trial
court) is usually called the appellant, and the other party is the appellee. Thus,
when 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 exhibit 1.5).
An appellate court’s function is limited to a review of the law applied
in the case; it accepts the facts as determined by the trier of fact. In its review,
the appellate court may affirm the trial court’s decision, modify or reverse the
decision, or reverse it and remand (send back) the case for a new trial.
A Turning Point in the Quest for Healthcare Justice
Students of healthcare administration should know something about the
law’s role in maintaining and then in dismantling formal racial segregation in
hospitals. This history informs current efforts to address healthcare disparities. It also highlights many of the types of law discussed in this chapter, as
well as litigation processes. As you read the following section, consider what
shades of difference may exist from time to time between moral standards,
public policy, and legal requirements. Also note the judiciary’s role as an
interpreter of the Constitution’s meaning, the uses of litigation compared
with legislation, and the role of statutes in expressing societal norms.
As discussed earlier, the Fourteenth Amendment to the US Constitution was one of three amendments adopted in the wake of the Civil War. It
requires states to extend due process and equal protection of the law to all
their citizens, thus mirroring the Fifth Amendment’s requirements of the
federal government. (The other two Reconstruction Era amendments were
the Thirteenth, which outlawed slavery, and the Fifteenth, which granted
the right to vote to Black men.) The post–Civil War Reconstruction Era did
not last long, as efforts to integrate newly freed people gave way to efforts to
limit their rights through intimidation, violence, and law. “Jim Crow laws,”
enacted throughout the South, legalized racial segregation, including in the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
EXHIBIT 1.5
Legal Citation
System
The legal system uses a unique citation method. The citation in the case
Simkins v. Moses H. Cone Memorial Hospital (which is included at the end of
this chapter) provides a good example. Its heading efficiently conveys a sizable
amount of information, as follows:
Names of the parties:
Simkins v. Moses H. Cone Mem. Hosp.
“Appellant” or “Petitioner”
(the one who brought the case
to the court)
Citation:
Volume number
“Appellee” or “Respondent”
(the one who is answering
the petitioner’s arguments)
323 F.2d 959 (4th Cir. 1963)
Name of
“reporter”
Page
Court and date**
number
where case
is found
All US Supreme Court decisions are published, as are roughly a quarter of circuit
court decisions and an even smaller percentage of district court decisions. Of
course, many of these unpublished decisions are now available on the internet,
even though they may be marked “not for publication.” State and federal
court decisions are published in the National Reporter System (NRS) of West
Publishing, a subsidiary of Thomson Reuters. The NRS is organized by level and
location of the courts.
Even though advance copies of decision are often issued, only the printed,
bound volume of the NRS contains the official version of a court’s decision.
The volume number is generally known before pagination; thus, a blank space
will be given after the name of the report when citing to a case that has not yet
been published in final form. For example, see the citation to West Virginia v.
Environmental Protection Agency, 597 U.S. ___ (2022), discussed in a Legal Brief
earlier in this chapter.
provision of healthcare. Healthcare segregation in the North was less likely to
be based on law, and more commonly grounded in hospital and medical association policy. And, of course, the racialized decisions of individuals—healthcare providers, administrators, and board members—permeated the system.
In one of its more shameful decisions, the US Supreme Court in 1896
upheld Jim Crow laws as constitutional under the Fourteenth Amendment.
This decision, Plessy v. Ferguson,15 involved a challenge to a state law that
required racially segregated railroad cars. The court ruled that this “separate
but equal” state law was not a violation of the Constitution’s equal protection clause, and it did not require any assessment of the actual similarity of
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the racially separate but supposedly “equal” facilities. The court’s oftencriticized opinion reasoned that the Fourteenth Amendment “could not have
been intended to abolish distinctions based upon color, or to enforce . . . a
commingling of the two races.”
A prominent federal healthcare law explicitly supported and codified
the Jim Crow regime in hospitals. The 1946 Hill-Burton Act16 authorized
vast federal funding in support of state plans to expand hospital capacity
throughout the country. Hill-Burton nominally prohibited racial discrimination, but, in deference to Southern states (where most hospitals were either
fully or partially segregated by race), it contained a sweeping exception for
“cases where separate hospital facilities are provided for separate population
groups.”17 The implementing regulations tracked this language and thus
authorized funding for hospitals that excluded or segregated Black patients,
staff, and providers if that was part of the state’s plan.
Nearly a decade later, the US Supreme Court ruled unanimously in
Brown v. Board of Education (1954) that “separate but equal” public schools
are inherently unequal and violate the Fourteenth Amendment’s equal protection clause.18 The court then ordered public schools to desegregate “with
all deliberate speed,” a directive that, in practice, led to decades of delays and
opposition and attempts at legal “workarounds.” Although the Brown decision concerned only public schools, the rationale behind this new precedent
should clearly have applied to all government programs. However, it was
nearly another decade before separate but equal was addressed in the context
of Hill-Burton.
In 1963, the US Court of Appeals for the Fourth Circuit heard a case
that has been called “the Brown v. Board of Education for hospitals.”19 Dentist
George Simkins, the head of the local chapter of the National Association for
the Advancement of Colored People, and several Black doctors and patients
sued two private, not-for-profit hospitals in Greensboro, North Carolina,
arguing that their segregationist practices violated the US Constitution. Both
hospitals had received Hill-Burton funds pursuant to North Carolina’s plan
for hospital expansion (as had the town’s other hospital, the smallest of the
three, which served Black patients and had Black physicians on staff). The
federal district court dismissed the case on summary judgment, holding that
the US Constitution’s equal protection requirements did not apply to these
private businesses. The plaintiffs appealed (see The Court Decides at the end
of this chapter).
The appeal was unusual in at least two respects. First, the appellate
court decided on its own to hear the case en banc—that is, with all the
court’s judges, not just the usual panel of three. Second, in an action that
is rare and was perhaps unprecedented at the time, the US government
intervened (joined the lawsuit) on the side of the plaintiffs to challenge the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
constitutionality of a law that had been passed by Congress. The Department of Justice did so during the thick of the 1960s Civil Rights Movement,
a prominent aspect of which was the push for healthcare justice, including
hospital desegregation.
In a 3–2 decision, the Fourth Circuit held in late 1963 that the hospitals’ involvement with the Hill-Burton program provided the requisite
“state action” to bring them within the Constitution’s equal protection
requirements. As a result, they were required to desegregate. The court also
ruled unconstitutional the Hill-Burton Act’s “separate but equal” provision.
The hospitals (with the explicit support of the American Medical Association
and the American Hospital Association) petitioned the US Supreme Court
to take the case, seeking to reverse this decision. The Supreme Court, with
unusual speed, denied cert; this meant that the Simkins v. Moses H. Cone
Memorial Hospital 20 decision stood as binding precedent.
At the same time, across the street from the Supreme Court, Congress
was debating the Civil Rights Act, including a provision (Title VI) that would
bar racial discrimination by any recipient of federal funds. Proponents of this
provision highlighted the Simkins ruling, and the Civil Rights Act passed in
1964 with Title VI left intact. Future recipients of Hill-Burton funds could
not racially discriminate; and Simkins-style lawsuits could be brought to force
desegregation of private hospitals that had received this federal funding in
the past.
In 1965, advocates of healthcare justice gained a more powerful legal
tool when Congress established the vast Medicare and Medicaid programs
(see chapter 2). Medicare was set to go live on July 1, 1966, covering all
citizens over age 65, and any hospital that wanted to participate and receive
Medicare payments could not overtly discriminate based on race in its
admitting, privileging, or employment practices. The Lyndon B. Johnson
administration, pressed by civil rights advocates, decided that mere “intent”
to comply would be insufficient, and it tasked the newly created Office of
Equal Health Opportunity (OEHO, now the HHS Office for Civil Rights)
with visiting hospitals and documenting actual desegregation. When the
OEHO began its work, “[m]ore than four thousand hospitals were clearly
out of compliance, many resistant to becoming compliant.”21 Although the
OEHO faced obstructionist tactics from powerful hospital leaders and board
members, these bureaucrats and the community members they worked with
succeeded in ending overt racial segregation in hospitals throughout the
country, and Medicare successfully launched.
The Simkins decision is not widely known. On its face, the Civil Rights
Act is not healthcare legislation. And Medicare is not, per se, a civil rights
law. But taken together, they were crucial factors in the ongoing quest for
healthcare justice. They highlight the power of legal tools to advance efforts
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27
to achieve equitable access to high-quality, affordable healthcare. As Martin
Luther King Jr. said in an often-quoted March 1966 speech, “Of all the forms
of inequality, injustice in health care is the most shocking and inhumane.”
Discussion Questions for Part 1
1. Identify a current problem that has healthcare implications. In your
view, have constitutional, statutory, case law, or regulatory standards
helped or hindered its appropriate resolution? Which branch of
government is best suited to address it? Is it more a state or a federal
issue?
2. Consider the term “Obamacare” as it is used in your community. Does
it have positive or negative connotations? Is support for or opposition
to the ACA a campaign issue in your community?
3. Have you ever been involved in litigation, arbitration, or mediation,
either as a party, a witness, or a juror? What were your impressions of
the legal system? Do you think the parties were adequately heard and
that justice was done?
4. Go to Oyez.org and listen to a recent US Supreme Court oral
argument in a case that interests you. Are you able to understand the
legal issues? Is this what you expected from a Supreme Court hearing?
5. Have you ever reviewed a regulation or submitted comments about
a proposed regulation? On what sort of regulations do you think a
healthcare administrator might usefully offer an opinion?
6. Do you think it matters whether members of the judicial, executive,
and legislative branches include people with diverse backgrounds? Why
or why not?
7. What are the purposes of discovery? How might healthcare providers,
whether institutional or individual, be involved in responding to a
discovery request?
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The Court Decides
Simkins v. Moses H. Cone Memorial Hospital
323 F.2d 959 (4th Cir. 1963) (en banc)
Sobeloff, Chief Judge
The threshold question in this appeal is
whether the activities of the two defendants,
Moses H. Cone Memorial Hospital and Wesley
Long Community Hospital, of Greensboro,
North Carolina, which participated in the
Hill-Burton program, are sufficiently imbued
with “state action” to bring them within the
Fifth and Fourteenth Amendment prohibitions
against racial discrimination. Beyond this
initial inquiry lies the question of the constitutionality of a portion of the Hill-Burton Act.
. . . Because of the importance of these questions the court, on its own motion, has heard
the appeal en banc. [This means that the
appeal was considered by all the judges on
the Fourth Circuit, not the usual three-judge
panel.]
The plaintiffs are Negro physicians,
­dentists and patients suing on behalf of
themselves and other Negro citizens similarly
situated. . . . The basis of their complaint
is that the defendants have discriminated,
and continue to discriminate, against them
because of their race in violation of the Fifth
and Fourteenth Amendments to the United
States Constitution. The plaintiffs seek an
injunction restraining the defendants from
continuing to deny Negro physicians and dentists the use of staff facilities on the ground
of race; an injunction restraining the defendants from continuing to deny and abridge
admission of patients on the basis of race,
. . . and a judgment declaring unconstitutional [the portions of the Hill-Burton Act and
its implementing regulations] which authorize
the construction of hospital facilities . . . on a
‘separate-but-equal’ basis. . . .
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[Because the complaint challenges the
constitutionality of a federal statute and
affects the public interest, the United States
moved to intervene (requested to participate)
in the proceeding.] Its motion for intervention
was granted and throughout the proceedings
the [Federal] Government, unusually enough,
has joined the plaintiffs. . . .
....
Factual Background
....
The claims of racial discrimination were,
as the District Court found, “clearly established.” In fact the hospitals’ applications
for federal grants for construction projects
openly stated, as was permitted by [the HillBurton] statute, and regulation, . . . that ‘certain persons in the area will be denied admission to the proposed facilities as patients
because of race, creed or color.’ These applications were approved by the North Carolina
Medical Care Commission, a state agency,
and the Surgeon General of the United States
under his statutory authorization.
....
When this action was commenced, the
United States had appropriated $1,269,950.00
to the Cone Hospital and $1,948,800.00 to the
Long Hospital. . . . These appropriations for
the most part were after the Supreme Court’s
landmark decisions in Brown v. Board of Education [the 1954 and 1955 US Supreme Court
decision that overruled its prior precedent
and unanimously held that the Fourteenth
Amendment prohibits states from segregating
students by race] . . . .
....
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The point of present interest is not the
equality or lack of equality in “separate-butequal,” but the degree of participation by the
national and state governments. [Though,
in a footnote, the court cited a 1962 report
finding that in North Carolina the hospitals
“available to nonwhites were both inferior to
those available to whites and more limited.”]
THE LEGAL ISSUE
In our view the initial question is . . . whether
the state or the federal government, or both,
have become so involved in the conduct of
these otherwise private bodies that their
activities are also the activities of these governments and performed under their aegis
without the private body necessarily becoming either their instrumentality or their agent
in a strict sense. . . .
[The court recognizes that purely private
action would not violate the Constitution,
but concludes that there is state action here,
pointing to the “massive use of public funds
and extensive state-federal sharing in the
common plan” inherent in the Hill-Burton
program’s functioning. The test for what constitutes “state action” is different now; this is
discussed further in chapter 14.]
....
Moreover, the [Federal] Government’s
argument stresses the fact that the challenged discrimination has been affirmatively
sanctioned by both the state and the federal
government pursuant to federal law and
regulation. . . . These federal provisions
undertaking to authorize segregation by
state-­connected institutions are unconstitutional. . . . Unconstitutional as well under the
Due Process Clause of the Fifth Amendment
and the Equal Protection Clause of the Fourteenth are the relevant regulations implementing this passage in the statute.
[The court discusses the hospitals’ counterarguments and dismisses them.] Not only
29
does the Constitution stand in the way of the
[defendant hospitals’] claimed immunity but
there are powerful countervailing equities
in favor of the plaintiffs. Racial discrimination by hospitals visits severe consequences
upon Negro physicians and their patients.
[In a footnote, the court supports this statement by noting that “[r]acial discrimination
in medical facilities is at least partly responsible for the fact that in North Carolina the
rate of Negro infant mortality is twice the rate
for whites and maternal deaths are five times
greater.” Furthermore “[e]xclusion of Negro
physicians from practice in hospitals on
account of their race denies them opportunities for professional improvement and has
discouraged Negro physicians from practicing in the cities of the South.”]
Giving recognition to its responsibilities for public health, the state elected not
to build publicly owned hospitals, which
concededly could not have avoided a legal
requirement against discrimination. Instead
it adopted and the defendants participated
in a plan for meeting those responsibilities
by permitting its share of Hill-Burton funds
to go to existing private institutions. The
appropriation of such funds to the Cone and
Long Hospitals effectively limits Hill-Burton
funds available in the future to create nonsegregated facilities in the Greensboro area.
In these circumstances, the plaintiffs can
have no effective remedy unless the constitutional discrimination complained of is
forbidden.
The order of the District Court is reversed.
[Two judges joined the chief judge’s opinion,
forming a narrow majority; two judges dissented, “[b]elieving the majority both unprecedented and unwarranted.”]
Note: Internal citations have been omitted
from this and all other The Court Decides
excerpts.
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
Discussion Questions
1. Why has this case been called “the Brown v. Board of Education decision for hospitals”?
How is it similar to Brown? How is it different?
2. This was the first case in which the federal government intervened to argue that a federal
statute was unconstitutional. Noting particularly the date of this case, consider what
factors might have influenced the US Department of Justice to intervene in this case,
advocating for the plaintiffs’ position.
3. The dissent noted that in August 1963, just a couple of months before this decision was
handed down, “the Senate rejected a proposal that henceforth grants in aid to hospitals
under the Hill-Burton Act be restricted to hospitals which are desegregated, and which
practice no discrimination on account of race.” Does that surprise you?
4. The US Supreme Court “denied cert” in this case. What does that mean? What is the
practical consequence of that action?
~
~
PART 2: THE HISTORY OF MEDICINE
After reading part 2 of this chapter, you will
• have a greater appreciation for the evolution of medicine over the
millennia;
• understand that “modern medicine” is a recent phenomenon; and
• recognize that the structure of today’s US health system is the
result of compromises made over the course of decades.
If it helps to know some history when studying the US legal system, the
same can be said about healthcare. Without some background, we may be in
danger of concluding that our health system is timeless and ineluctable. It is
neither. It was not predestined, and surely no creator would have designed
it thusly on a tabula rasa. Therefore, let us review some history of how our
health system came to be the peculiar creature it is.22
Appendix 1.1 at the end of this chapter provides a detailed timeline of
the history of medicine from the pharaohs to the present. If that history were
displayed on a 24-hour clock with the pharaohs at 12:01 a.m. and the present
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C h ap ter 1: A Br ief H istor y of L aw and Medic ine
being 11:59 p.m., we would see that “modern medicine” is only about an
hour old. What came before the modern era?
The Pharaohs and Babylonians
For eons, medicine consisted primarily of mysticism and spiritual belief systems. Ancient cultures had some understanding of good dietary habits and
the pharmacological effects of certain plants, such as tobacco and peyote,
but they had little knowledge of natural disease processes. They usually
relied on shamans to invoke what they believed to be the healing powers
of the spirit world. It should be noted that shamanism and similar practices
persist in many cultures today including those of some Native American
tribes, the Hmong of Southeast Asia (see Shamanism: The Ancient Meets
the Modern), certain African tribes, and practitioners of traditional Chinese
medicine.
The ancient Egyptians were relatively advanced in terms of their medical knowledge.23 They were familiar with anatomy (perhaps because of their
embalming practices), they were aware of the connection between the pulse
and the heart, they could diagnose and treat a few diseases, and they were
adept at simple surgery and orthopedics. Magic and mysticism were prevalent nevertheless, and some of their medical practices were ineffective—even
harmful.24 In any event, what useful knowledge they amassed was not communicated widely, perhaps because of their use of hieroglyphic writing, which
was not deciphered in the Western world
until the early 1800s.
The ancient Babylonians introduced
Shamanism: The Ancient Meets the
the concepts of diagnosis and prognosis,
Modern
wrote prescriptions, used logic and obserA particularly striking example of the contrast
vation to advance medical knowledge, and
between scientific medicine and traditional beliefs
even published a diagnostic handbook
can
be found in Anne Fadiman’s The Spirit Catches
around 1050 BCE.25 Like their Egyptian
You and You Fall Down: A Hmong Child, Her Americounterparts, however, Babylonian physican Doctors, and the Collision of Two Cultures
cians did not spread their science widely,
(Farrar, Straus and Giroux 1997). The book tells the
story of a severely epileptic Hmong child in Califorand when patients were not cured by the
nia whose parents’ beliefs in shamanistic animism
basic medicine of the day, exorcism and
severely challenged her physicians, caseworkers,
similar techniques were the only remaining
and local officials. The book is sympathetic to
options.
Hippocrates, Galen, and 2,000 Years
of Medical Practice
Being ignorant of the concepts and practices developed in Asia, the Middle East,
CH01.indd 31
both sides of the cultural divide, but the child’s
tragic end—she was in a persistent vegetative
state for 26 years before dying at the age of 30 in
2012—highlights the problems caused by a lack of
cultural competency.
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EXHIBIT 1.6
Humoralism
and the Four
Humors
Humor
Organ
Personal
Characteristic
Disposition
Blood
Liver
Sanguine
Courage, amorousness
Yellow bile
Gallbladder
Choleric
Anger, bad temper
Black bile
Spleen
Melancholic
Depression, irritability,
sleeplessness
Phlegm
Brain and lungs
Phlegmatic
Peacefulness and calm
and elsewhere, Greek and Roman physicians such as Hippocrates (ca.
460–370 BCE) and Claudius Galenus (known as Galen, ca. 131–201 CE)
practiced humoralism, the belief that the body consisted of four basic substances (called humors) that determined one’s state of health. According to
this theory, an imbalance in the humors was said to be the cause of disease
and disability. The four humors and their corresponding attributes are summarized in exhibit 1.6.
This theory dominated Western medical practice for more than
two millennia, during which time practices such as bloodletting, purging,
administration of emetics, and application of poultices were common. These
treatments were largely ineffective and often did more harm than good. For
example, several twentieth-century scholars surmised that President George
Washington, who died in December 1799 at age 84, succumbed to acute
inflammatory edema of the larynx (which resulted in suffocation) secondary
to a septic sore throat. His condition was probably aggravated by the removal
of up to half his blood volume in the hours before his death.26
Medicine finally began to advance in the early nineteenth century,
but physicians—given their ignorance of etiology, pathology, and similar
disciplines—often had little to offer patients besides comfort, compassion,
and concern, as illustrated in the famous Victorian-era painting The Doctor,
shown in exhibit 1.7. In time, however, a few foundational developments
started the process that gradually led to what we can call “modern medicine.”
Anesthesia
One of these developments occurred in 1846 when physician John C.
Warren (1778–1856), and dentist William T. G. Morton (1819–1868)
performed the first significant public demonstration of the use of anesthesia
at Massachusetts General Hospital. Using diethyl ether, and with Morton
as his anesthetist, Warren removed a tumor from a patient’s jaw. After the
patient, Gilbert Abbott, awoke and reported that he had felt no pain, Warren proudly announced to the audience of physicians and medical students,
“Gentlemen, this is no humbug.”27 The era of painless surgery and dentistry
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33
EXHIBIT 1.7
The Doctor,
Sir Luke Fildes
(1891)
Source: Used with the permission of the Tate Gallery, London.
had officially begun in the Western world
(see Anesthesia: A Brief History).
Germ Theory and Vaccines
Use of anesthesia was followed in the
1860s by Louis Pasteur’s (1822–1895)
germ theory, the scientific principle that
infectious diseases are caused by microorganisms. Pasteur disproved the myth
of spontaneous generation (the idea that
living organisms can grow from nonliving matter); developed vaccines for rabies,
cholera, and anthrax; and created a process, now known as pasteurization, to
slow the growth of microbes in food. An
earlier pioneer, the Hungarian physician
Ignaz Philipp Semmelweis (1818–1865),
had shown that the incidence of puerperal
(childbed) fever could be reduced drastically with antiseptic techniques and handwashing in obstetrical clinics, but he was
roundly ridiculed until Pasteur provided
scientific proof of this proposition.28
CH01.indd 33
Anesthesia: A Brief History
Hanaoka Seishu (1760–1835), a Japanese surgeon,
is said to have been the first person to perform
surgery using general anesthesia when he treated
a patient’s breast cancer in 1804 (Masuru Izuo,
Medical History: Seishu Hanaoka and His Success
in Breast Cancer Surgery Under General Anesthesia Two Hundred Years Ago, 11 Breast Cancer 319
[2004]). Because of the country’s isolation, however, this development was unknown outside of
Japan for many years.
The American surgeon C. W. Long (1815–1878)
used ether as an anesthetic in 1842 but did not
publish his results until 1849 (C. Singer & E. A.
Underwood, A Short History of Medicine 343 [1962]).
Morton and Warren were unaware of Long’s success when they performed their operation in 1846.
The term anesthesia (or anaesthesia), from
the Greek meaning “absence of sensation,” was
coined by the American neurologist Oliver Wendell
Holmes, father of the famed US Supreme Court
Justice (Aidan O’Donnell, Anaesthesia: A Very Short
Introduction [2012]).
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Antisepsis
In the 1860s, Joseph Lister (1827–1912)
began to promote antiseptic surgery at the
University of Glasgow, Scotland. Building
The final third of the nineteenth century saw
on Pasteur’s discoveries, and consistent
rapid industrial development and increased ecowith Semmelweis’s beliefs, Lister treated
nomic growth in the United States and elseinstruments with a carbolic acid solution
where. This period is known as the “Second
and required surgeons to wear clean gloves
Industrial Revolution” and, in America, as the
and wash their hands before and after
“Gilded Age.” Advances in medicine and other
operations. As a result of these new pracfields of applied science were comparable to
those in heavy industries such as steel and
tices, he saw a profound drop in the numrailroads. (See, e.g., Ryan Engelman, The Secber of wound infections. The results were
ond Industrial Revolution, 1870–1914, http://
published in a widely respected British
ushistoryscene.com/article/second-industrialmedical journal in 1867,29 and Lister was
revolution [https://perma.cc/S6WU-UE5U] [last
later elected to the Royal College of Suraccessed Dec. 7, 2018]).
geons. Listerine mouthwash is named in
his honor, as is the bacterial genus Listeria.
Based on these and other developments of the day, we can say that
the era of modern medicine began around the end of the US Civil War
(see Late Nineteenth Century: The Gilded Age). Given the progress made
to that date, nursing and medical care were of better quality during that
conflict than one might think. In particular, antiseptic techniques and
anesthesia were not uncommon. Still, healthcare at the time was rudimentary by today’s standards, and wartime casualties had a much greater
chance of dying from infection and disease than from direct combat
injuries.30
Late Nineteenth Century:
The Gilded Age
The Public Health System
As medical science began to advance, so, too, did greater awareness of preventive measures that would improve the health of entire populations.
In the 1850s—before the adoption of modern plumbing and public
sanitation measures—the English physician John Snow (1813–1858) determined that a cholera epidemic in London had been caused by contaminated
drinking water. His findings were disputed at the time, as most physicians
held to the belief that the disease was caused by airborne “miasmas,” but
Snow was later proven to be correct, and the offending bacterium was identified as Vibrio cholerae. Although cholera is still present in low- and lowermiddle-income countries, water purification systems prevent its recurrence in
most of the world today, and Snow is now considered to be the “father of
modern epidemiology.”31
The growing acceptance of epidemiology, germ theory, the value of
vaccines, and other scientific advances in the mid- to late 1800s led to what
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35
we now recognize as the field of “public
health,” which has enabled the eradicaWhat Is Public Health?
tion of smallpox and vast decreases in
Public health is the science of protecting and
the incidence of polio, diphtheria, measles,
improving the health of people and their commuwhooping cough, and other diseases. Public
nities. This work is achieved by promoting healthy
health measures have also worked to address
lifestyles; researching disease and injury prevennoncommunicable health conditions such
tion; and detecting, preventing, and responding
as obesity, diabetes, and tobacco- and mento infectious diseases. Overall, public health is
tal health–related ailments. These efforts—
concerned with protecting the health of entire
populations. These populations can be as small as
especially the elimination of childhood disa local neighborhood, or as big as an entire couneases—were the main reason why average
try or region of the world (Public Health in Action,
life expectancy at birth increased from about
CDC
Found., https://www.cdcfoundation.org/what40 years in 1850 to over 75 by 2000.32
public-health [https://perma.cc/HB9R-48VW]).
In short, while the medical profession aims to cure, public health aims to
prevent. As the American Public Health
Association (APHA, founded 1872) states, “We champion prevention as
both an effective and cost-efficient path to improved health and wellness.”33
Each public health measure is met with resistance from entrenched
groups, of course. For example, fluoridation of drinking water continues to
be controversial in some areas even though it is an inexpensive and highly
effective means of preventing dental cavities. Likewise, the use of iodized salt
is highly effective in reducing iodine-deficiency disorders such as alopecia and
goiter, but these diseases persist in many parts of the world.
Recently and most dramatically, COVID-19 vaccinations, mask
mandates, and social-distancing requirements led to angry demonstrations,
disinformation on social and mass media, and political obstruction. The US
Surgeon General and other experts labeled this opposition a threat to the
nation’s health,34 but it continued throughout the pandemic. Such phenomena illustrate the challenges that public health professionals face from conservative political elements, vested interests, and a skeptical public that feels
empowered by social media to spread misinformation.
Public health activities are carried out through many hundreds of federal, state, and local agencies as well as nongovernmental organizations. As
stated by the National Academy of Sciences,
In the United States, government responsibility to protect the public’s health is
represented by public health agencies, state and local health departments, and
by the federal Department of Health and Human Services. The public health system in the United States includes a wide array of other public agencies, such as
environmental, occupational safety, mental health, developmental disability, and
social service agencies at national, state, and local levels. It also includes national,
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
state, and local private organizations and providers, such as health professional
associations, citizen advocacy groups, the media, community health centers, and
research foundations. Together, these participants in the system fulfill the mission
of public health. The public health agencies, as the governmental representative
of public health, focus this mission.35
A full review of the public health system is well beyond the scope of
this text or any single course in healthcare administration. Accredited master
of healthcare administration programs include courses that relate to public
health (e.g., epidemiology, statistics). In addition, there are nearly 200 postgraduate degree (master of public health) programs that focus entirely on
the subject. The topic is mentioned here simply to remind readers that promotion of health is not only the calling of physicians, nurses, midwives, and
other care providers but also a social responsibility, a duty of individuals and
organizations to act in the best interests of society as a whole.
The Nursing Profession
Coincident with scientific advances came improvements in the practice of
nursing. The primary meaning of to nurse is “to feed at the breast” or “to
suckle”36—thus, it is no coincidence that nursing was long considered solely
“women’s work.” For centuries, much of nursing care was provided by religious women: Catholic nuns and women of other faiths. This gender bias
was reinforced during wartime as men went off to do battle and women were
left to care for the wounded. Even today, the nursing field is more than 90
percent female.37
The first inklings that nursing is a profession with standards of its own
arose during the Crimean War in the early 1850s, when Florence Nightingale
(1820–1910) led a group of women to serve as nurses for English troops and
began to bring order to nursing services for the first time. In addition to dressing wounds and comforting casualties, she organized supplies, improved sanitation, attended to dietary needs, and addressed other aspects of patient care
of the time. In 1860, with generous public donations, Nightingale established
the first official nurses’ training program, and her legacy lives on at the Florence Nightingale School of Nursing and Midwifery, a subdivision of King’s
College London.38 Because of her fame and her influential books Notes on
Hospitals (1858) and Notes on Nursing (1859), Nightingale (known as “the
lady with the lamp”) is generally regarded as the founder of modern nursing.
The US Civil War brought similar pressures for nursing services in
this country, and the first US nursing schools opened during that conflict.
According to one source, by the end of the nineteenth century, “somewhere
between 400 to 800 schools of nursing were in operation in the country.”39
As the need for nurses and nursing schools grew, nursing began
to consider itself a profession, not a trade. It was inevitable that the field
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37
would seek to generate some professional
associations (see What Is a Profession?).
What Is a Profession?
Thus, the late 1890s saw the creation of
The American Heritage Dictionary defines a profesthe American Society of Superintendents
sion as “an occupation, such as law, medicine, or
of Hospital Training Schools (now the
engineering, that requires considerable training
National League for Nursing) and the
and specialized study.” It could be said, whimsiNurses Associated Alumnae of the United
cally, that a field is not truly a profession until
States (the forerunner of today’s American
it has one or more membership associations to
Nurses Association).
represent it.
These national organizations were
soon followed by state societies and associations, annual conventions, elections of officers, publication of professional
materials and educational standards, and similar activities typical of most
professional groups today. The nursing groups even developed the modern
title “registered nurse” and lobbied successfully for enactment of nurse licensure statutes similar to those being passed to license physicians and other
practitioners. The nurses’ lobbying successes were a “significant legislative
accomplishment at a time when women held little political power.”40
The demand for nurses increased dramatically, of course, during each
of the two world wars in the twentieth century, and after World War II,
a debate arose about the best method of nurse training. Hospital-based
nurse training programs (diploma programs) emphasized the practicalities
of bedside care, while college-level degree programs were focused on more
advanced types of nursing. A third avenue, community college–based associate’s degree programs, tried to split the difference. These distinctions continue today.
Emergence of Modern Hospitals and Medical Education
The ancestors of today’s hospitals were the almshouses of the Middle Ages.
Those pits of misery and horror were used primarily to sequester the poor,
the insane, and other unfortunate souls from “respectable society.” After all,
effective treatment as we know it today was impossible, and recovery was
more a matter of fate than of human intervention.
The picture began to change in the early nineteenth century, and after
the US Civil War, the transformation in this country was stunning. Professor Paul Starr characterized it thusly in his Pulitzer Prize–winning book The
Social Transformation of American Medicine:
Few institutions have undergone as radical a metamorphosis as have hospitals
in their modern history. In developing from places of dreaded impurity and exiled
human wreckage into awesome citadels of science and bureaucratic order, they
acquired a new moral identity, as well as new purposes and patients of higher status. The hospital is perhaps distinctive among social organizations in having first
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
been built primarily for the poor and only later entered in significant numbers and
an entirely different state of mind by the more respectable classes. As its functions
were transformed, it emerged, in a sense, from the underlife of society to become
a regular part of accepted experience, still an occasion for anxiety but not horror.41
One might dispute whether hospitals are, even today, citadels of
“bureaucratic order,” but the overall thrust of Starr’s argument is correct:
once a place to segregate the contagious and dying “dregs of society,” the
hospital as an institution rapidly gained prestige and honor when the medical profession as a whole emerged from its “dark ages” and moved from the
late nineteenth century into the twentieth. As Starr put it, “No longer [was
a hospital] a well of sorrow and charity but a workplace for the production
of health.”42
As hospitals evolved and the body of medical knowledge grew, the
need for improvements in medical education became self-evident. For
centuries, medical education had placed little or no emphasis on science
and research, and prior to the twentieth century, the quality of education
remained “highly variable and frequently inadequate.”43 It was presented
in one of three ways: through apprenticeships with local practitioners, in
proprietary schools owned by other physicians, or at the few universities that
provided a combination of didactic and clinical training.
The few university-affiliated schools that existed taught diverse types
of medicine, such as scientific, osteopathic, homeopathic, chiropractic,
eclectic, physiotherapy, botanical, and Thomsonianism (which used herbs
and application of different forms of heat). Because of the heterogeneity
of educational experiences and the lack of standards for physician licensure,
physicians in post–Civil War America varied tremendously in their medical
knowledge, therapeutic philosophies, and aptitudes for healing the sick.44
It should be noted, of course, that alternative treatment modalities
such as physical therapy, herbal remedies, and chiropractic have many followers today and can provide therapeutic benefit.
While all medical education at the time was disorganized, the situation
for Black medical students was even more confused. The first Black physician
in the United States, James McCune Smith (1813–1865), had to travel to
Scotland to obtain his medical degree. No Black woman graduated from a
medical school until Rebecca Lee Crumpler obtained her MD degree in 1864.
Nineteen Black medical schools opened after the Civil War. One
author, writing in the journal of the National Medical Association (an organization for Black physicians), described their situation as follows:
Before the turn of the 20 century, medical education for African Americans was
haphazard, inconsistent, and of uneven quality. Black medical schools were either
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39
church-related missionary institutions or proprietary operations. . . . That some
proprietary schools were pure commercial endeavors and little more than diploma
mills further complicated and compromised the medical education of African
Americans.45
As one might expect, given the racial attitudes that have persisted
throughout our history, it was virtually impossible for persons of color to
gain admission to most medical schools well into the twentieth century. In
fact, “for more than 100 years, the AMA [American Medical Association]
actively reinforced or passively accepted racial inequalities and the exclusion
of African-American physicians.”46 The association has since formally apologized for its policies that excluded Black physicians from AMA membership
and barred them from some state and local medical societies.47
Reform of the medical education system began with influential college presidents such as Charles Eliot (1834–1909) at Harvard University and
Daniel Coit Gilman (1831–1908) at Johns Hopkins University. The number
of commercial medical schools dropped, training requirements for physicians
increased from a few months after high school to three or more years, and
programs placed more emphasis on science and research. According to Starr,
The new [medical education] system greatly increased the homogeneity and cohesiveness of the profession. The profession grew more uniform in its social composition. The high costs of medical education and more stringent requirements limited
the entry of students from the lower and working classes. And deliberate policies
of discrimination against Jews, women, and [B]lacks promoted still greater social
homogeneity. The opening of medicine to immigrants and women, which the competitive system of medical education allowed in the 1890s, was now reversed.48
The Early Twentieth Century
Physician education reform continued in 1904 when the AMA (established
in 1847) created the Council on Medical Education and then supported
the Carnegie Foundation’s Bulletin Number Four (also called the Flexner
Report).49 This document, issued in 1910, proposed new standards for
medical schools and helped increase physicians’ professional stature. In the
wake of the Flexner Report, the number of medical schools was reduced and
the quality of teaching improved. Only two of the Black schools survived,
however: Howard University College of Medicine in Washington, DC, and
Meharry Medical College in Nashville, Tennessee. Only two other historically Black medical schools have since been founded: Charles R. Drew University of Medicine and Science in Los Angeles (established in 1966) and
Morehouse Medical College in Atlanta (established in 1975).50
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
In 1914, the AMA council set the
first standards for hospital internship proIn conjunction with the National Conference of
Catholic Bishops, the CHA has for many years pubgrams and identified the few hospitals that
lished Ethical and Religious Directives for Catholic
met them. Concurrent with these efforts,
Health Care Services. This publication ­contains
the Catholic Hospital Association (now
guidance for Catholic healthcare institutions on
the Catholic Health Association of the
numerous issues including abortion, euthanasia,
United States, or CHA) was established
assisted suicide, sterilization, care of the poor,
in 1915. The number of Catholic hospiand collaborative arrangements with non-Catholic
organizations. In some situations, the Directives
tals was growing, and the new association
present challenges for mergers, joint ventures,
said it wanted to respond to technological
and similar corporate arrangements. They may
advances while ensuring that its hospialso make compliance with state laws concerning
tals’ Catholic mission, identity, and values
availability of services difficult.
“would not be derailed by this new movement [for healthcare standardization].”51
In 1920, CHA began publishing an official
journal, Hospital Progress (now Health Progress), to further promote quality
in inpatient healthcare.
Around the same time, the newly established American College of
Surgeons (ACS) developed a set of minimum standards for hospitals and
began on-site inspections of facilities. It found that fewer than 15 percent of
hospitals met the standards. In 1951, the ACS joined the AMA, the American Hospital Association (established in 1899), and other groups to form the
Joint Commission on Accreditation of Hospitals. Now known as The Joint
Commission, it publishes Standards for Hospital Accreditation, a document
cited frequently to establish the standard of care in negligence cases (see the
discussion of the Darling case in chapter 7).
By the third decade of the twentieth century, hospitals were becoming high-quality organizations with state-of-the-art diagnostic and treatment
methodologies. Use of X-rays (discovered in 1895) was common, as was
administration of penicillin (discovered accidentally by Sir Alexander Fleming
in 1928). Laboratory and other equipment became more sophisticated, not
to mention more expensive. As hospitals became operationally more complex, they needed trained staff to handle personnel issues, billing, purchasing,
medical records maintenance, fundraising, and similar corporate functions.
Thus, a division of labor occurred: patient care was left to physicians, nurses,
and other clinicians, whereas business activities were carried out by salaried
administrative personnel.
Some hospital administrators were physicians, but many were nurses
(and, in Catholic hospitals, often nuns) by training. Their quaint titles
(“superintendent” or “nurse matron”) reflected the old paradigm of hospital qua asylum. These titles eventually changed as hospital administration
became a recognized profession. Like any good profession, it needed an
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association, so the American College of
Hospital Administrators (now the AmeriA Wry Definition
can College of Healthcare Executives) was
A colleague at Washington University School of
established in 1933. At that time, there
Medicine used to describe a hospital as “a collecwere more than 6,000 hospitals in the
tion of individual fiefdoms connected by a common
country—there had been fewer than 200
heating, ventilating, and air-conditioning system.”
To what extent does the professor’s point about
after the Civil War—and they needed proindividual
fiefdoms remain valid now that most
fessionals to run them.
hospitals
are
no longer single buildings with a
What developed was a “peculiar
common
HVAC
system?
bureaucracy” (Starr’s expression)52 with
two lines of operational authority—one
clinical and the other administrative. The
former often considered hospitals merely to be “doctors’ workshops,” created for their benefit; the latter tended to see hospitals as dedicated to serving
the broader needs of the community. Adding to the anomalous situation was
the fact that most hospitals were ultimately governed by a board of trustees
representing local religious, business, professional, philanthropic, or other
community interests. The trustees were charged with making major policy
and strategic decisions that management and (presumably) providers were
expected to implement.
This odd governance and operating structure led to hospitals being
described as resting on a “three-legged stool” of physicians, administrators,
and governing board members. Few self-respecting sociologists or management consultants would recommend such a confounding arrangement, but it
is what it is: a product of historical coincidence and practical considerations
(see A Wry Definition).
Other Health-Related Professions
As modern medicine advanced in the twentieth century, new types of professionals began providing services to complement the work of physicians and
nurses. These included anesthesiology assistants, athletic trainers, audiologists, dietitians, dental hygienists, emergency medical technicians, medical
assistants, nuclear medicine technicians, nurse practitioners, pharmacists,
physical and occupational therapists, physician assistants, radiology technicians, respiratory therapists, speech-language pathologists, and others. It has
been estimated that these allied health professionals (AHPs) now constitute
nearly 60 percent of the healthcare workforce.53
Like physicians and nurses, AHPs are now subject to licensing and
regulatory standards intended to protect the public and exclude unqualified
persons. Of course, this legal regime can also inappropriately protect economic
interests, as discussed in chapter 14 regarding legal prohibitions on anticompetitive behavior. These regulatory schemes vary from state to state, and
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payment for AHP services varies depending on the patient’s insurance coverage. Federal law does not license or regulate AHPs directly, but, of course, it
now determines provider eligibility under Medicare and Medicaid, and federal
policy positions can influence state licensing boards’ regulatory activities.
World War II to the Present
As shown in appendix 1.1, most miraculous advances in healthcare—the
“wonders of modern medicine”—have appeared within the past 100 years.
These include more effective treatments for cancer, coronary artery bypass surgery and cardiac pacemakers, vaccines for polio and influenza, organ transplantation, and gene therapy. When used in the modern hospital by well-trained
physicians, nurses, and allied health professionals, these wondrous and relatively new practices constitute the best healthcare the world has ever known.
These developments underscore the sagacity of Starr’s comment that
few institutions have changed as much in their recent history as have hospitals. Barely 200 years ago, they were horrid cesspools of suffering, infected
by ignorance and medieval—even ancient—belief systems. Even as recently
as 100 years ago, they were generally to be avoided. Today, just four or five
generations later, the prospect of a hospital stay may cause some anxiety but
is far less likely to inspire dread. In fact, hospital care is much more likely to
be a cause for hope, recovery, and celebration of life.
As significant as these changes have been, however, consider what
may happen in the next few decades. Universal insurance coverage (perhaps),
improved disease prevention, better wellness programs, genetic and stem cell
therapies, better information systems, high-tech tools, online doctor visits, a
team approach to care, concierge medicine for all, greater use of complementary and alternative medicine, and competition among providers on the basis
of value rather than cost—these developments and others not yet imagined
will make the medicine of today seem as cumbersome to future generations
as Civil War medicine appears to us.
Discussion Questions for Part 2
1. In your opinion, what was the most important development in the
history of medicine? Be prepared to defend your position.
2. Define when “modern medicine” began and explain why you chose
that moment in history.
3. Do you believe that people of all races and genders now have equal
access to medical school, residencies, and medical staff privileges? If
not, what barriers do you perceive, and what, if anything, can the law
do about that?
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4. Before reading this chapter, had you heard of the Ethical and Religious
Directives for Catholic Health Care Services? If so, what was the
context?
5. Describe what you think the healthcare system of the future should
look like. Would it require different educational pathways for
healthcare providers? Is it shaped by new medical discoveries or
technological advances?
Chapter Summary
Part 1
Part 1 of this chapter discussed the following topics:
•
•
•
•
The history and sources of law
The relationships among the three branches of government
The basic structure of the federal and state court systems
Some basics of legal procedure in civil cases (the procedures followed
in criminal cases are somewhat different and beyond the scope of this
text)
• The quest for racial justice in healthcare
Part 2
Part 2 of this chapter discussed the following topics:
• The history of medicine
• “Modern medicine” as a relatively new phenomenon
• Major advances in medicine developed after the Civil War (e.g.,
anesthesia, vaccines)
• The differences between hospitals as we know them today and those a
century ago
Vocabulary
administrative law
Affordable Care Act (ACA)
arbitration
common law
directed verdict
due process of law
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
holding
judgment NOV
judicial interpretation
law
stare decisis
subpoena duces tecum
summary judgment
writ
writ of certiorari
Notes
1. See, e.g., Michelle J. Benton, An Overview of Natural Law, The
Moral Liberal (Jan. 29, 2012), http://www.themoralliberal.
com/2012/01/29/an-overview-of-natural-law [https://perma.
cc/5SP9-PCX5].
2. Pete Williams, Justice Stephen Breyer to Retire from Supreme Court,
Paving Way for Biden Appointment, NBC News (Jan. 26, 2022),
https://www.nbcnews.com/politics/supreme-court/justice-stephenbreyer-retire-supreme-court-paving-way-biden-appointment-n1288042
[https://perma.cc/3TKX-2JPM].
3. Pub. L. No. 111-148, 124 Stat. 119, codified as amended at various
titles and sections of the United States Code.
4. Dobbs v. Jackson Women’s Health Organization, 597 U.S. ___ (2022).
5. Patricia Mazzei, Florida Judge Will Temporarily Block 15-Week
Abortion Ban, N.Y. Times (June 30, 2022), https://www.nytimes.
com/2022/06/30/us/florida-abortion-ban-blocked.html [https://
perma.cc/M3TV-6WSW].
6. Quoted in Woodrow Wilson, Congressional Government: A Study
in American Politics 1 (1885).
7. Planned Parenthood of S.E. Pennsylvania v. Casey, 505 U.S. 833
(1992).
8. Id. at 867.
9. Supra note 4.
10. William Shakespeare, Henry VI (act 4, scene 2).
11. 28 U.S.C. § 1332—Diversity of citizenship; amount in controversy;
costs.
12. See generally, United States Courts, About Federal Courts, http://
www.uscourts.gov/about-federal-courts [https://perma.cc/UE46LDXC] (last visited Dec. 10, 2018).
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13. National Federation of Independent Businesses v. Sebelius, 567 U.S.
519 (2012).
14. See, e.g., Ohio Rev. Code Ann. § 2711.03, http://codes.ohio.gov/
orc/2711.03 [https://perma.cc/4FLK-8ENL].
15. Plessy v. Ferguson, 163 U.S. 537, 544 (1886).
16. Hospital Survey and Construction Act, 42 U.S.C.. § 291—
Congressional declaration of purpose.
17. 42 U.S.C.A. §291(e)—Projects for construction or modernization.
18. Brown v. Bd. of Educ., 347 U.S. 483, 495 (1954) (declaring
segregated public schools unconstitutional), supplemented, 349 U.S.
294 (1955).
19. P. Preston Reynolds, Professional and Hospital Discrimination and the
US Court of Appeals Fourth Circuit 1956–1967, 94 Am. J. Pub. Health
710, 712 (2004), https://www.ncbi.nlm.nih.gov/pmc/articles/
PMC1448322/pdf/0940710.pdf [https://perma.cc/AN5K-R3V5].
20. Simkins v. Moses H. Cone Memorial Hospital, 323 F.2d 959 (4th Cir.
1963) (en banc).
21. David Barton Smith, The Power to Heal: Civil Rights, Medicare,
and the Struggle to Transform America’s Health Care System
112 (Vanderbilt Univ. Press 2016). See also the documentary film
The Power to Heal: Medicare and the Civil Rights Revolution
(Bullfrog Films 2019).
22. Part 2 is synthetic historiography culled from many sources. Primary
among them are Charles Singer & E. Ashworth Underwood, A
Short History of Medicine (Oxford Univ. Press 1962); Paul Starr,
The Social Transformation of American Medicine (Basic Books
1982); and American College of Healthcare Executives, Coming of
Age: The 75-Year History of the American College of Healthcare
Executives (Health Admin. Press 2008).
23. See generally, John F. Nunn, Ancient Egyptian Medicine (Red Rover
Books 2002).
24. See, e.g., Michael D. Parkins, Pharmacological Practices of Ancient
Egypt, in Proceedings of the 10th Annual History of Medicine Days
(W. A. Whitelaw ed., 2001).
25. See, e.g., Health and Fitness History, Ancient Babylonian Medicine,
HealthAndFitnessHistory.com, https://healthandfitnesshistory.com/
ancient-medicine/babylonian-medicine/ [https://perma.cc/5X8N88CE] (last visited July 17, 2019).
26. See Fielding O. Lewis, Washington’s Last Illness, 4 Annals Med. Hist.
245–48 (1932); Creighton Barker, A Case Report, 9 Yale J. Biology
& Med. 185–87 (1936); S. L. Shapiro, Clinic-of-the-Month: General
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
CH01.indd 46
Washington’s Last Illness, 54 Eye Ear Nose & Throat Monthly 164–
66 (1975).
Cristin O’Keefe Aptowicz, The Dawn of Modern Anesthesia, The
Atlantic (Sept. 4, 2014), http://www.theatlantic.com/health/
archive/2014/09/dr-mutters-marvels/378688/ [https://perma.cc/
FF2B-SVSJ].
See Semmelweis Society International, Dr. Semmelweis’s Biography, at
https://semmelweis.org/?s=biography [https://perma.cc/NYR5YHWU] (last visited Oct. 10, 2019); O. Hanninen, M. Farago, &
E. Monos, Ignaz Philipp Semmelweis, the Prophet of Bacteriology, 4
Infection Control 367 (1983).
Joseph Lister, On the Antiseptic Principle in the Practice of Surgery,
90 Brit. Med. J. (1867). For Lister’s life generally, see Encyclopedia
of World Biography, Joseph Lister Biography, https://www.
notablebiographies.com/Ki-Lo/Lister-Joseph.html [https://perma.
cc/X954-9NB9] (last visited Dec. 20, 2012).
Michael R. Gilchrist, Disease & Infection in the American Civil War,
60 Am. Biology Tchr. 258 (1998), www.jstor.org/pss/4450468
[https://perma.cc/H8CY-X4YP].
See, e.g., David Vachon, Doctor John Snow Blames Water Pollution
for Cholera Epidemic, UCLA Department of Epidemiology (2005),
http://www.ph.ucla.edu/epi/snow/fatherofepidemiology.html
[https://perma.cc/7EHX-S3A2].
See, e.g., Life Expectancy Graphs, Mapping Hist., https://
mappinghistory.uoregon.edu/english/US/US39-01.html [https://
perma.cc/X8VG-6KEM] (last visited Sept. 12, 2021).
Our Work, Am. Pub. Health Ass’n, https://www.apha.org/AboutAPHA/Our-Work [https://perma.cc/E47N-ZC8G] (last visited
Sept. 7, 2021).
Jacqueline Yao, Misinformation Harming US Health, Surgeon General
Says, Pub. Health. Newswire (July 19, 2021 5:01 PM), http://
publichealthnewswire.org/?p=surgeon-general-advisory [https://
perma.cc/VXK7-ET25] (last visited Sept. 7, 2021).
Institute of Medicine, The Future of Public Health (National
Academies Press 1998), https://doi.org/10.17226/1091.
See, e.g., Am. Heritage Dictionary of the English Language (5th ed.,
2011).
See, e.g., Richard A. Smiley, et al., The 2020 National Nursing
Workforce Survey, 12(1) J. Nursing Reg. Supplement S1, S12 Table 3,
https://doi.org/10.1016/S2155-8256(21)00027-2.
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38. See King’s College London, Florence Nightingale Faculty of Nursing
and Midwifery, https://www.kcl.ac.uk/nmpc [https://perma.
cc/94SK-SPF5] (last visited July 14, 2016).
39. Jean C. Whelan, American Nursing: An Introduction to the Past, Univ.
Penn. Sch. Nursing (2017), https://www.nursing.upenn.edu/nhhc/
american-nursing-an-introduction-to-the-past/ [https://perma.cc/
EMV3-6T65] (last visited July 17, 2019).
40. Id.
41. Paul Starr, The Social Transformation of American Medicine 145
(1982).
42. Id. at 123.
43. Andrew H. Beck, The Flexner Report and the Standardization of
American Medical Education, 291 J. Am. Med. Ass’n. 2139 (2004),
http://jama.jamanetwork.com/article.aspx?articleid=198677 [https://
perma.cc/3ZC3-TNQB].
44. Id.
45. Earl H. Harley, The Forgotten History of Defunct Black Medical Schools
in the 19th and 20th Centuries and the Impact of the Flexner Report,
98 J. Nat. Med. Ass’n. 1425 (2006), https://www.ncbi.nlm.nih.gov/
pmc/articles/PMC2569729/pdf/jnma00196-0027.pdf [https://
perma.cc/44FW-3V4M].
46. The History of African Americans and Organized Medicine, AMA
History, https://www.ama-assn.org/about/ama-history/historyafrican-americans-and-organized-medicine [https://perma.cc/UD5LQ3ZZ] (last visited Jan. 26, 2022).
47. Id.
48. Starr, supra note 41, at 123–24.
49. See Thomas P. Duffy, The Flexner Report—100 Years Later, 84 Yale
J. Biol. Med. 269 (2011), https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC3178858/ [https://perma.cc/59FZ-KGJ5].
50. Harley, supra note 45, at 1428.
51. Our History, Cath. Health Ass’n U.S., https://www.chausa.org/
about/about/our-history [https://perma.cc/5HEU-BDB5] (last
visited July 14, 2016).
52. Starr, supra note 41 at 177.
53. David H. Demo, et al., A Call for Action: Advocating for
Increased Funding for the Allied Health Professions, 44(1) J.
Allied Health 57 (2015), https://static1.squarespace.com/
static/57a64a023e00beb95af13929/t/58000c2e8419c2e26
86c7365/1476398127700/A-Call-for-Action-Advocating-forIncreased-Funding.pdf [https://perma.cc/S6C9-ZY3S].
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Appendix 1.1: A Select Timeline of the History of Medicine
Date
Key Events
Third millennium BCE
Imhotep describes the diagnosis and treatment of 200 diseases (ca. 2600
BCE).
He and others use trepanation surgery for unknown purposes.
Spirits and supernatural forces are thought to be the cause of disease.
Second millennium
BCE
Code of Hammurabi is inscribed (ca. 1790 BCE).
Fifth century BCE
Hippocrates, the “father of Western medicine,” uses observation of the
body as a basis for medical knowledge. He recommends changes in diet,
rudimentary drugs, and keeping the body “in balance” (humoralism)
rather than prayer and sacrifice to divinities.
Fourth century BCE
Aristotle codifies known science.
First known anatomy book appears (ca. 300 BCE), but religion still
dominates medicine.
Hippocratic Oath appears.
Second century BCE
Galen becomes physician to Roman emperor Marcus Aurelius and builds
on Hippocrates’s theories of the humors but supports observation and
reasoning in medical science.
Fifth to tenth century
Western Europe experiences decreasing population and trade; a flood of
migrants and invaders; and a paucity of literary, cultural, and scientific output.
Culture continues to flourish in the Byzantine (Eastern Roman) Empire.
Eighth century
Baghdad becomes “a veritable seedbed of medical learning, crossfertilized by Persian-Mesopotamian, Byzantine-Greek, and Indian
traditions” (NLM and NIH 2006). The recent introduction of paper enables
knowledge to be more easily recorded and published.
Tenth century
Rhazes—considered the greatest physician and practitioner of Islamic
medicine during the Middle Ages—revolutionizes Islamic medicine by
using careful clinical observation and notation, writes scientific treatise on
infectious disease, identifies smallpox, and publishes The Comprehensive
Book on Medicine (the Hawi).
Eleventh century
Persian polymath Avicenna (Ibn Sina) builds on Rhazes’s work and
publishes The Canon of Medicine, an encyclopedic book dealing with
pharmacology, the nature of contagious diseases, experimental and
evidence-based medicine, and many other topics. It is consulted for
centuries thereafter in some parts of the world.
Thirteenth century
Roger Bacon invents spectacles (1249).
Fourteenth century
Bubonic plague, believed by many to be a punishment from God, kills
millions in Europe.
Fifteenth century
Leonardo da Vinci and others study anatomy by dissecting corpses, much
to the displeasure of the Catholic Church.
Printing press is invented (1454), enabling knowledge to be recorded and
transmitted more freely.
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Date
Key Events
Sixteenth century
New drugs such as quinine and laudanum (an opiate) are discovered.
Royal College of Physicians is formed in London (1518).
Paracelsus (1493–1541) rejects ancient texts, emphasizes natural sciences,
and founds the fields of toxicology and psychology.
Zacharias Janssen invents the microscope (1590).
Seventeenth century
William Harvey publishes An Anatomical Study of the Motion of the Heart
and of the Blood in Animals (1628). The book forms the basis for future
research on blood vessels, arteries, and the heart.
Sir Christopher Wren experiments with canine blood transfusions (1656).
Anton van Leeuwenhoek improves the microscope, discovers blood cells,
and later observes bacteria (1670).
Eighteenth century
Based on the work of Edward Jenner and others, smallpox inoculations
gain acceptance in England and America. (They had long been practiced in
Africa, India, and China, but this was not well known in the West.)
James Lind discovers that citrus fruit prevents scurvy.
First successful appendectomy is performed.
Early nineteenth
century
Royal College of Surgeons is formed (1800).
Rene Laennec invents the stethoscope.
First successful human blood transfusion is performed.
Ether and nitrous oxide are used as general anesthetics.
Benjamin Rush (1746–1813)—signatory of the Declaration of
Independence, founder of Dickinson College, professor of medicine at
the University of Pennsylvania, and proponent of bloodletting and similar
therapies—is considered the “father of American psychiatry.”
Syringe is invented.
Mid- to late
nineteenth century
The Home for the Colored Aged (later the Colored Home and Hospital and
now part of NYC Health + Hospitals) opens in New York City in 1839 to
serve former enslaved persons.
American Medical Association is founded (1847).
Louis Pasteur identifies germs as cause of disease; antiseptic techniques
begin.
Florence Nightingale lays the foundations for professional nursing and
modernization of hospitals.
Joseph Lister develops antiseptic surgical techniques.
Vaccines developed for cholera, anthrax, rabies, tetanus, diphtheria,
typhoid fever, and bubonic plague.
New England Female Medical College (NEFMC)is founded, becoming
the first US medical school for women (1848). It merged with Boston
University School of Medicine in 1873.
Rebecca Lee Crumpler (1831–1895) becomes the first Black woman to earn
an MD degree, graduating from NEFMC in 1864.
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Date
Key Events
Sir William Osler (1849–1919), the “father of modern medicine” and
cofounder of Johns Hopkins Hospital, establishes the first medical
residency program to involve medical students in bedside clinical training
(“grand rounds”).
Howard University, traditionally an all-Black institution, is established
(1867).
American Public Health Association is formed (1872). Clara Barton
promotes public support for a national society to work with the
International Red Cross. The American Red Cross is founded (1881).
X-rays are discovered, rather accidentally, by Wilhelm Roentgen (1895).
National Medical Association, a pioneering organization of Black
physicians, is formed (1895).
Association of Hospital Superintendents, forerunner of the American
Hospital Association, is founded (1899).
Early twentieth
century
CH01.indd 50
Karl Landsteiner introduces blood classification system (types A, B, AB,
and O).
Charles R. Drew (1904–1950), prominent Black surgeon and researcher,
develops improved techniques for blood storage and helps develop largescale blood banks.
William Montague Cobb (1904–1990), Black physician and the first Black
PhD in anthropology, studies and teaches the idea of race as having a
negative impact on communities of color.
X-ray technology becomes available.
US Pure Food and Drug Act is enacted (1906).
Tuberculosis skin test is introduced (1907).
The Flexner Report on medical education is published (1910).
Solomon Carter Fuller (1872–1953), Black psychiatrist and neurologist and
professor at Boston University, makes major contributions to research on
Alzheimer’s disease.
American College of Surgeons, first of the American medical specialty
colleges, is founded (1913).
Catholic Hospital Association (now Catholic Health Association of the
United States) is founded (1915).
Paul Dudley White develops the electrocardiogram.
Polio epidemics break out in New York and Boston (1916) and continue
elsewhere for years.
Influenza pandemic kills 15 million worldwide (1918–1919).
Edward Mellanby discovers vitamin D connection with rickets (1921).
Sheppard-Towner Act establishes child and maternal health centers;
insulin is first used to treat diabetes (1922).
Vaccines are developed for whooping cough, tuberculosis, and yellow fever.
Medical Group Management Association is founded (1926).
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51
Key Events
American Health Information Management Association is founded (1928).
Penicillin is discovered (1928).
American College of Hospital Administrators (now American College of
Healthcare Executives) is founded (1933).
Vitamins A, B1, B2, and B3 are identified.
First blood bank opens in Chicago (1937).
National Cancer Institute is founded (1937).
Mid-twentieth century
Ultrasound is developed (1942).
Chemotherapy is developed for cancer treatment (1942).
Healthcare Financial Management Association is founded (1946). Association
of University Programs in Health Administration is founded (1948).
Sydenham Hospital, in the Harlem neighborhood of New York City,
becomes the nation’s first hospital to have a fully desegrated staff at all
levels (including trustees and physicians), and hires Jean Murray Smith as
the first Black hospital administrator at a nonsegregated facility.
Influenza vaccines and streptomycin are developed.
First cardiac pacemaker is invented (1950).
Joint Commission on Accreditation of Hospitals (now The Joint
Commission) is established (1951).
Polio vaccine is used widely (1950s).
James Watson and Francis Crick describe the structure of the DNA
molecule (1953).
First kidney transplant is performed (1954).
Vaccines for measles, mumps, rubella, chicken pox, pneumonia, and
meningitis are developed.
Health Information and Management Systems Society (founded as
Hospital Management Systems Society) is established (1961).
Nursing home administrators form an association (now American College
of Health Care Administrators) (1962).
Medicare and Medicaid are enacted (1965).
Federation of American Hospitals (for-profit hospitals) is established
(1966). American Organization of Nurse Executives is founded (1967).
First heart transplant and coronary bypass operations are performed (1967).
Health Maintenance Organization Act is passed (1973).
Black physician Patricia E. Bath (1942–2019), the first woman
ophthalmologist appointed to the faculty of University of California, Los
Angeles medical school; she goes on to invent a new device for laser
cataract surgery (1986).
American Association for Physician Leadership is founded (1975); it was
previously called American Academy of Medical Directors and American
College of Physician Executives.
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Date
Key Events
Late twentieth century World Health Organization declares smallpox eradicated (1980).
HIV, the virus that causes AIDS, is identified (1983).
Artificial kidney dialysis machine is invented (1985).
Consolidated Omnibus Budget Reconciliation Act is passed to allow for
the continuation of group health coverage after a job loss (1985).
Emergency Medical Treatment and Active Labor Act is passed to prohibit
patient dumping (1986).
Hepatitis A vaccine is developed (1992).
Dolly the sheep is the first cloned mammal (1996).
Health Insurance Portability and Accountability Act is passed to provide
insurance portability and new privacy standards (1996).
State Children’s Health Insurance Program and Medicare+Choice (later
Medicare Advantage) are established (1997).
Balanced Budget Act is enacted to cut Medicare spending and provide
beneficiaries with additional choices through private health plans (1997).
Early twenty-first
century
Healthcare costs continue to rise in the United States; total healthcare
spending makes up more than 17.3 percent of the gross domestic product
($2.7 trillion).
The Human Genome Project is completed (2003), and the entire sequence
of nearly 40,000 human genes is documented.
Medicare Part D (drug benefit) begins (2006).
Affordable Care Act (ACA) is signed into law (2010) and upheld by the US
Supreme Court (2012), but Medicaid expansion is optional.
Thirty-nine states and District of Columbia expand Medicaid per ACA (by
early 2022).
Sources
See generally, US National Library of Medicine, History of Medicine at https://www.nlm.nih.gov/hmd/
index.html [https://perma.cc/5KLZ-2QVU] (last visited July 9, 2019).
Drew Altman & William Frist, Medicare and Medicaid at 50 Years, 314 J. Amer. Med. Ass’n. 384 (2015).
American College of Healthcare Executives, Coming of Age: The 75-Year History of the American
College of Healthcare Executives (Health Administration Press 2008).
History of Medicine Timeline, DatesAndEvents.org, http://www.datesandevents.org/eventstimelines/10history-of-medicine-timeline.htm [https://perma.cc/9HQJ-HRQ4] (last visited July 9, 2019).
The 1619 Project, chs. 12, 15 (Nikole Hannah-Jones, ed., 2021).
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CHAPTER
ACCESS TO HEALTHCARE INSURANCE
AND TREATMENT
2
After reading this chapter you will
• appreciate the long history of the federal government’s efforts to
provide near-universal access to affordable, high-quality healthcare
within a fragmented system;
• understand the basics of Medicare financing, coverage, and
payment, as well as the program’s influence on the healthcare
system as a whole;
• understand the role of Medicaid in providing healthcare access
for the categorically eligible and the expansion population using
matching federal funds to support state-run programs;
• be able to describe four key Affordable Care Act reforms related
to access and three US Supreme Court decisions about those
reforms; and
• know some of the key legal issues related to healthcare access and
health facility operations.
The US Healthcare System: Fragmented and Unequal
We sometimes hear people claim that the United States has “the best healthcare system in the world.” There are at least two objections to this assertion,
however.
First, it is somewhat anomalous to call our fragmented approach
to healthcare a “system.” Consider that the federal government alone has
numerous major programs that provide direct care or help finance healthcare
services for citizens and some legal residents:
• Medicare, the insurance program for people aged 65 or older and
younger people with qualifying disabilities or kidney failure
• Medicaid, the federally subsidized, state-run insurance program that is
available in most of the country to any American citizen or “lawfully
53
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
federal poverty
level (FPL)
A benchmark
annual income
amount, set
by the federal
government,
that theoretically
represents the
minimum amount
that a family or
individual could
survive on. The
FPL is used
to determine
eligibility for
government
benefits including,
but not limited
to, subsidized
healthcare.
•
•
•
•
•
present” noncitizen whose income is less than 138 percent of the
federal poverty level (FPL)—or, in states that have not expanded
their Medicaid programs pursuant to the Affordable Care Act (ACA),
to certain categories of low-income people, including those over age
65, children, the disabled, and those who are pregnant
Health insurance marketplaces (also called exchanges), portals
established under the ACA for people to compare and purchase
individual health insurance plans with federal subsidies for most
purchasers
The Children’s Health Insurance Program (CHIP), which provides
low-cost health coverage to children in families that earn too much
money to qualify for Medicaid but not enough to buy insurance
The US Department of Defense’s TRICARE program, the healthcare
program for uniformed service members, retirees, and their families
The health program of the Veterans Administration, a healthcare
system providing care to more than 9 million veterans of the US
military
The Indian Health Service (IHS), which is responsible for providing
health services to American Indians and Alaska Natives
Because of overlapping eligibility, is impossible to cite a precise number
of people covered by these federal programs, but it is safe to say that the number exceeds one-third of all Americans (see appendix 2.1). And this does not
account for the services of the US Department of Health and Human Services
(HHS) that benefit the entire population through public health initiatives.
As explained briefly in part 2 of chapter 1, HHS’s mission is to protect
and improve the health of the general population. That mandate is so broad
that, in typical bureaucratic fashion, responsibilities have been meted out
to many different agencies, including the Centers for Disease Control and
Prevention (CDC), Food and Drug Administration (FDA), Indian Health
Service (IHS), and National Institutes of Health (NIH). Elsewhere, both
within HHS and in other federal departments, other federal offices also work
in the public health arena. They address such topics as climate change, health
equity, toxic substances, occupational safety, minority health, infectious disease, HIV/AIDS policy, and the health of children and families.
At the state and local levels, myriad other entities deliver direct care or
public health services in one way or another: state and local departments of
health, public safety, or environmental protection; state and local government
hospitals and clinics; private hospitals and clinics; long-term care facilities;
pharmacies; and hospices. One must also note the contributions of many
nongovernmental human service groups: education and youth development
programs; housing, recreation, and arts groups; and other organizations.1
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55
Atop this patchwork of government care and prevention services sits
a jumble of other payment mechanisms that we label “health insurance,” for
lack of a better term. These include private insurance plans (usually employer
based), self-pay, and true charity care.
In sum, to call this a “system” is a misnomer. As the late Princeton
University economist Uwe Reinhardt once wrote, “At international conferences on health policy, the US system of financing health care is routinely
viewed as the bogeyman—as an example of how not to structure a nation’s
health system.”2
A second objection to the claim that the United States has the “best
healthcare system in the world” is that the United States does not guarantee its citizens access to care, and as a result of this and other factors, our
overall health status does not compare well with other industrialized nations.
A 2013 Institute of Medicine report concluded that compared with people
in other wealthy, industrialized countries, Americans live shorter lives and
have poorer health.3 In 2021, a Commonwealth Fund report reviewed five
factors—access to care, care processes, administrative efficiency, equity, and
healthcare outcomes—and concluded that, overall, the United States ranks
last among the 11 countries studied. Following are some of the report’s most
salient findings:
• The United States ranks last among the 11 countries on access to care,
a measure of affordability and timeliness.
• The United States continues to outspend other nations on healthcare,
devoting nearly twice as much of its gross domestic product—nearly
17 percent—as the average country in the Organisation for Economic
Co-operation and Development (OECD).
• US out-of-pocket health spending per person is the second highest in
the OECD, which makes it difficult for
many Americans to obtain needed care.
OECD
• The United States ranks poorly on
administrative efficiency because of high
“The Organisation for Economic Co-operation and
documentation and other bureaucratic tasks
Development (OECD) is an international organisathat patients and clinicians face, restrictions
tion [of 37 countries] that works to build better polon insurance coverage, and the amount of
icies for better lives. Our goal is to shape policies
nonemergency care rendered in emergency
that foster prosperity, equality, opportunity and
well-being
for all. We draw on 60 years of expedepartments.
rience and insights to better prepare the world
• The United States ranks last on healthcare
of tomorrow” (OECD Secretary-General’s Report to
outcomes (maternal and infant mortality,
Ministers 2021 [OECD Publishing 2021], https://
overall preventable mortality, etc.) and
doi.org/10.1787/8cd95b77-en [https://perma.
equity (how income disparities affect access
cc/8DVS-7HWF]).
and efficiency).
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
• The United States compares favorably only on care process, which
includes measures of preventive care, safety, coordination of care, and
patient preferences; in that category, the United States ranks second.
It cannot be disputed that for those who are covered by some form of
payment system or who can afford to pay out of pocket, the highest-quality
healthcare on the planet is available in the United States. For a variety of
reasons, however, many people cannot access the care they need, so the claim
that the United States has the best healthcare system in the world is somewhat
dubious. It is clear that we could do better.
In the words of the Commonwealth Fund’s 2021 report,
As the COVID-19 pandemic has amply shown, no nation has the perfect health system. Health care is a work in progress; the science continues to advance, creating
new opportunities and challenges. But by learning from what’s worked and what
hasn’t elsewhere in the world, all countries have the opportunity to try out new
policies and practices that may move them closer to the ideal of a health system
that achieves optimal health for all its people at a price the nation can afford.4
Moral and Legal Issues
These thoughts raise a fundamental question: do we have a right to healthcare? There are both moral and legal aspects to the answer. The moral aspect
concerns distributive justice: how goods, benefits, and burdens should be
fairly allocated in a society. Reinhardt phrased the question this way after
President Bill Clinton’s health reform initiative failed in 1997:
As a matter of national policy, and to the extent that a nation’s health system can
make it possible, should the child of a poor American family have the same chance
of avoiding preventable illness or of being cured from a given illness as does the
child of a rich American family?5
To many observers, the answer is a clear, resounding “yes.” But moral
questions are so complex and fraught with emotion that politicians and policymakers are chary of confronting them explicitly. To quote Reinhardt again,
And so, permanently reluctant ever to debate openly the distributive social ethic
that should guide our health system, with many Americans thoroughly confused
on the issue, we shall muddle through health reform, as we always have in the
past, and as we always shall for decades to come. Our doctors, nurses, and
research scientists will work hard to bring about many wondrous cures on the clinical facet of our health system, while the financial facet will forever remain a fount
of rancor, confusion, litigation, and political posturing.6
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57
On the legal side of the issue, the answers are less emotional but still
somewhat complicated. Clearly, there is no constitutional right to healthcare.7
Given the level of medical knowledge in the eighteenth century (see chapter
1, part 2), it is no wonder that the Founders did not consider it one of our
“unalienable rights.” Although the Constitution provides that Congress has
the power to “lay and collect Taxes, Duties, Imposts and Excises, to pay
the Debts and provide for the common Defence and general Welfare of the
United States,”8 the “general welfare” does not necessarily include the provision of healthcare in the context of constitutional law.
Constitutional principles aside, a number of statutes and common law
principles provide for certain legal rights in healthcare, but these provisions
fall short of universal coverage, and their application depends on the circumstances. Consider the following examples:
• Medicare coverage is available to Americans over age 65 or with
qualifying disabilities.
• In most of the country, Medicaid coverage is available to any American
citizen or “lawfully present” noncitizen whose income is less than 138
percent of the FPL. In states that have not expanded their programs
pursuant to the ACA option, Medicaid is available to certain categories
of low-income people, including those over age 65, children, the
disabled, and those who are pregnant.
• All Americans are entitled to buy individual comprehensive insurance,
without preexisting condition consideration, on the Marketplaces, with
premium and out-of-pocket subsidies for most.
• In emergencies, individuals who go to or are taken to a hospital have
a statutory right to be seen and to have their emergency conditions
stabilized.
• People with health insurance have a contractual right to their covered
benefits.
• People with limited English proficiency have a statutory right to
effective communication with their care providers.
• The doctor–patient relationship implies a contractual right to treatment
without abandonment.
• There are common law and statutory rights to informed consent and
patient self-determination.
As this discussion makes clear, the United States does not guarantee
universal access to healthcare either constitutionally or by statute, and it does
not confront candidly the underlying social justice issues. The reforms contained in the ACA are the closest we have come to doing so, but given the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
contentious history of this issue and the contentiousness of today’s political
climate, we are unlikely to see universal coverage anytime soon.
More detail about the ACA can be found later in this chapter, but first
let us review the history of government involvement in healthcare over the past
century or so (appendix 2.2 summarizes much of this history in a table format).
A Century of Efforts to Achieve Broader Access to Care
police power
The right of a
government
to protect its
population from
threats to the
public health and
safety. The term
police power
predates the
organization of
organized police
forces, which did
not exist until
the postcolonial
period. Federal,
state, and local
public health laws
are examples of
the exercise of
police power.
CH02.indd 58
Until the dawn of the twentieth century, law had little effect on the evolution of healthcare in this country. While European countries were adopting
broad plans of social insurance—for sickness, old age, industrial accidents,
and the like—the US government did little to ensure the “general welfare”
of the citizenry. Instead, responsibility for social programs and health policy
resided almost entirely with the states. Examples of the federal government’s
deference to the states can be seen in Congress’s faltering attempts to deal
with two health-related issues many years ago.
The Vaccine Act of 1813 provided “genuine vaccine matter” for the
prevention of smallpox and furnished it, postage-free, to any US citizen who
applied for it. But the law was repealed in 1822 after contaminated vaccines
caused an outbreak of the disease and panic in North Carolina. Burned by
the Vaccine Act experience, Congress refrained from enacting any significant
health policy statute for nearly a century, when it passed the Sheppard-Towner
Act in 1921 as a response to the lack of adequate medical care for women
and children. This law, too, was short-lived; when it came up for renewal a
few years later, it faced constitutional challenges and opposition from the
American Medical Association (AMA), which saw it as a “socialist threat” to
physician autonomy. Sheppard-Towner was allowed to expire in 1929.9
Deference to states was seen in the judiciary when the question of a
vaccine mandate reached the US Supreme Court in the landmark 1905 case
of Jacobson v. Massachusetts.10 At issue in Jacobson was a state law that allowed
cities to require vaccination against smallpox. The plaintiff, Mr. Jacobson,
had been convicted of refusing to comply with a vaccination ordinance
enacted in Cambridge, Massachusetts. The Supreme Court held that the law
was a legitimate exercise of the state’s police power to protect public health,
and thus the city ordinance was valid.
Although the law was upheld, Jacobson did not set a national vaccine standard. State-by-state or city-by-city requirements were the norm, as
they were during the 1918 flu pandemic and the COVID-19 pandemic a
century later.
Physician licensure became a serious health policy issue after the Civil
War, and it, too, was handled on a state-by-state basis. Licensure laws had
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59
long been disfavored as elitist and monopolistic, but the need to protect the public
For a delightful, if somewhat disturbing, review of
ridiculous, even fraudulent, treatments offered by
from charlatans and poorly trained practisome
of history’s worst mountebanks, see Lydia
tioners was strong. West Virginia passed
K
ang & Nate Pedersen, Quackery: A Brief History of the
one of the earliest physician licensing laws
Worst Ways to Cure Everything (2017).
in the early 1880s, and it was immediately
challenged by Frank Dent, a practitioner of
“eclectic medicine,” a discipline that made
use of botanical and other folk remedies.
Dent argued that the law unconstitutionally deprived him of the
right to practice his trade, and his case—Dent v. West Virginia (1889)—was
the first significant healthcare issue decided by the US Supreme Court. In
a unanimous decision, Justice Stephen J. Field displayed little sympathy for
“Doctor” Dent’s argument and upheld the West Virginia statute “for the
protection of society”:
No one has a right to practice medicine without having the necessary qualifications of learning and skill; and the statute only requires that whoever assumes,
by offering to the community his services as a physician, that he possesses such
learning and skill, shall present evidence of it by a certificate or license from a body
designated by the state as competent to judge of his qualifications.11
By the turn of the twentieth century, as the quality of care had
improved and the public’s expectations had grown, health and healthcare
became a matter of greater national concern. For example, when the book
The Jungle by Upton Sinclair (1878–1968) appeared in 1906 and exposed
horrendous working conditions in the slaughterhouses of Chicago, Congress
stepped in to pass the Federal Meat Inspection Act of 1906 and the Pure
Food and Drug Act of the same year. These statutes led eventually to the
creation of the FDA. Despite Congress’s action in 1906, other arguably
health-related topics such as workers’ compensation were left to the states’
discretion, and the idea of insurance coverage for medical care was a fantasy.
Theodore Roosevelt to the Great Society
President Theodore Roosevelt (1858–1919) and other Progressives supported the concept of health insurance for all Americans during Roosevelt’s
1912 campaign for the presidency, but the idea died with his defeat by William Howard Taft (1857–1930). The onset of World War I, the Red Scare
following the 1917 Russian Revolution, and opposition from employers and
physicians prevented further consideration of the idea for decades.
By the time Franklin D. Roosevelt (FDR) (1882–1945) was elected
president in 1932, a few states had passed old-age pension laws, and 34 foreign
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
countries were operating some form of
social insurance program for their citizens.12
Born out of necessity in the Great Depression,
the Blue Cross concept was created in 1929 by a
FDR made Social Security a hallmark of
pioneering businessman, Justin Ford Kimball. He
his New Deal, proposing it to Congress
offered a way for 1,300 schoolteachers in Dallas,
in June 1934, but the idea of the federal
Texas, to finance 21 days of hospital care by makgovernment even studying the concept of
ing small monthly payments ($6 per person) to
national health insurance was considered
Baylor University Hospital.
too politically controversial and was left
Around the same time, the Blue Shield concept was emerging out of the lumber and mining
out of the bill. Reform of our fragmented
camps of the Pacific Northwest. Serious injuries
health system has remained a volatile issue
and chronic illness were common among workers
ever since.13
in these hazardous jobs. Employers that wanted
The Great Depression era saw the
to provide medical care for their workers made
birth
of
managed care in the form of “conarrangements with physicians who were paid a
tract doctor” programs such as the one that
monthly fee for their services.
These pioneer programs provided the basis
served workers on the Los Angeles Aquefor what would become the “modern” Blue Shield
duct project—a consortium now known as
plans. (See, e.g., Blue Cross and Blue Shield: A HisKaiser Permanente14—and the Blue Cross
torical Compilation [Consumer Rep. 2013], https://
and Blue Shield plans. As we will see, “The
advocacy.consumerreports.org/wp-content/
Blues” were destined to play a major role in
uploads/2013/03/yourhealthdollar.org_blueMedicare and Medicaid years later.
cross-history-compilation.pdf [https://perma.
cc/9TJG-6RCC].)
During World War II, when wage
and price controls were in effect, employers added health coverage as a benefit
in lieu of salary increases, and in 1954, the Internal Revenue Code was
amended to exclude those benefits from employees’ taxable income. For this
managed care
Insurance
basic reason, employment-based health insurance covers most Americans
programs that
under age 65 today. In the words of Professor Paul Starr, this has led us to “a
attempt to reduce
policy trap—a costly, extraordinarily complicated system which nonetheless
the cost of care
through economic
[protects] enough of the public to make the system resistant to change.”15
incentives,
This “trap” has bedeviled every attempt to reform the system for threereview of the
quarters of a century.
medical necessity,
In 1948, President Harry S. Truman (1884–1972) campaigned for
beneficiary cost
sharing, controls
reelection on a platform that included a plan for national health insurance,
on admissions
but he never submitted a specific proposal to Congress. Even some m
­ embers
and lengths of
of
Truman’s
own
party
were
not
in
favor
of
national
health
­
i
nsurance.
stay, etc. They
“Southern Democrats in key leadership positions blocked [Truman’s]
include health
maintenance
­initiatives, partly in fear that federal involvement in health care might lead to
organizations
federal action against segregation at a time when hospitals were still separat(HMOs),
ing patients by race.”16 (See the discussions of Medicare’s role in desegregatpreferred provider
organizations
ing hospitals and Simkins v. Moses H. Cone Memorial Hospital in chapter 1,
(PPOs), and pointpart 1.)
of-service (POS)
plans.
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61
At Truman’s urging, Congress did pass one piece of health-related
legislation: the Hill-Burton Act.17 Although Hill-Burton enabled racial segregation to continue for a time, it did require hospitals that received federal
money to provide a reasonable amount of free or reduced-cost services to
people who were unable to pay. The act was arguably the first federal law to
address the problem of the healthcare uninsured, and it would be the last
until the Great Society years.
As healthcare made significant advances in the 1930s, 1940s, and
1950s, the federal government became somewhat more supportive of
medicine in other ways. The medical programs of the military services were
strengthened. Agencies such as the NIH and the National Science Foundation were created or expanded. Furthermore, HHS became more involved
in medical research and providing care to certain populations, such as those
who were incarcerated, afflicted with leprosy, or addicted to narcotics.
Outside of government, private groups spurred public support for
scientific research on specific diseases. Polio, the most frightening disease of
the time, was targeted for a cure by the National Foundation for Infantile
Paralysis and its “March of Dimes” campaign. When the Salk vaccine, named
after its principal developer, Dr. Jonas Salk (1914–1995), was declared effective and made available in 1955, parents were so excited that “pandemonium
swept the country.”18
With a variety of private insurance options in place, the nation recovering from the effects of World War II, and medical research proving effective
against polio and other diseases, a generation passed before we reached the
next milestone in health policy: the landmark legislation of President Lyndon
B. Johnson (1908–1973).
The Great Society: Medicare and Medicaid
After assuming office upon the death of President John F. Kennedy in 1963,
President Johnson was elected to a full term in 1964. With an overwhelming majority in Congress, Democrats dove right in to consider Johnson’s
“Great Society” agenda, which included civil rights, consumer protection,
the environment, and healthcare, the last being one of Johnson’s first and
highest priorities.
As a wily political professional, Johnson was aware of the stiff opposition he would face as his proposals went forward. Some level of cooperation
from doctors, hospitals, and the insurance industry was therefore essential. The
AMA and the American Hospital Association (AHA) had vigorously objected
to proposed bills. Among national healthcare organizations, only the National
Medical Association (representing Black physicians) testified in support.
Rather than advocate a comprehensive system of national health insurance (an idea that was not politically viable), President Johnson came up with
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
an ingenious proposal that one observer described as a “three-layered cake.”
It had something that all sides could like:
1. The Democrats’ plan for hospital insurance for those over age 65 (now
called Medicare Part A).
2. A Republican-backed plan for government-subsidized insurance to cover
physicians’ services for those eligible for Part A (Medicare Part B).
3. Assistance to the states for healthcare for some categories of poor
people, including poor seniors (Medicaid).
In addition, the proposal allowed healthcare providers (e.g., hospitals,
physicians, long-term care facilities) to nominate private companies to act as
go-betweens in dealing with the Social Security Administration, the agency
tasked with administering the new programs. These Medicare Administrative
Contractors (MACs)—originally known as Part A Fiscal Intermediaries and
Part B Carriers—would receive the federal money and pay the providers’
claims. They would also render consulting, auditing, and similar services.
Although the AMA and AHA continued to object to the bill, the overall
arrangement seemed to assuage concerns enough to ensure passage of the
bill, and it would ultimately prove financially rewarding for the MACs,
which, of course, provide their services for a fee.
In the following sections, we describe Medicare and Medicaid in
more detail.
Medicare and Medicaid: Healthcare’s Fraternal Twins
at Middle Age
Medicare and Medicaid (Titles XVIII and XVIX of the Social Security Act,
respectively) were signed into law on July 30, 1965, and—with surprising
rapidity, it seems to us now—the federal government began to implement Medicare the following year. These extremely influential federal
healthcare programs are like fraternal twins.19 Although they were created
in the same context and born at the same time, they look and function
differently. They have improved the lives of many millions of people and
made ours a better society, while serving distinct (though overlapping)
populations.
Like many fraternal twins, in their middle age, they resemble each
other more and more. Medicaid is adopting some of the characteristics
of its historically more favored sibling. Although the two programs retain
their separate identities, both face questions about how they will evolve in
the future in the face of competing political visions, budgetary pressures,
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63
changing demographics, and healthcare advances. And both are flexing their
financial muscles to help enable health system reforms.20
Medicare
Of the twins, Medicare has always been the more stable and popular. It provides health insurance coverage for those over age 65 and those with qualifying disabilities. Over the years, Medicare has enjoyed relatively consistent
administration by the federal government while containing significant private
elements consistent with federal regulations.
Medicare Eligibility and Benefits: Parts A, B, C, and D
As it was first enacted, Medicare covered citizens and qualifying noncitizens
who were over age 65. In 1972, the program was expanded to cover those
with certain serious disabilities or end-stage renal disease (ESRD) regardless
of age.21 (Coverage for disabilities is subject to a two-year waiting period;
ESRD eligibility begins immediately upon diagnosis.)
Medicare benefits are set forth in four parts, lettered A through D.
Part A (hospital insurance) covers inpatient hospital and skilled nursing
facility stays as well as hospice services. It has potentially high out-of-pocket
costs for lengthy stays. Part B covers physician services (whether inpatient or
outpatient) and durable medical equipment. The beneficiary is responsible
for 20 percent of the allowed charges, which can be expensive. Parts A and B
were established by the 1965 legislation and are now known as “traditional
Medicare.”
Part C allows Medicare benefits to be delivered through private managed care plans. This option is known as Medicare Advantage (MA), and it
is a popular choice among beneficiaries, about 40 percent of whom are now
enrolled in MA plans. Premiums and out-of-pocket costs vary depending on
the MA plan. Part D was added in 2003 by the Medicare Modernization Act,
which was passed by a Republican Congress and signed into law by President
George W. Bush. It provides outpatient prescription drug coverage through
private plans with extensive federal subsidies and can be purchased separately
or as part of an MA plan.
Although the ACA reduced some costs to beneficiaries (particularly
for preventive care and pharmaceuticals), traditional Medicare still has potentially high out-of-pocket costs and coverage gaps. Thus, most beneficiaries
have some sort of additional coverage, through an MA plan, Medicaid (if
they are low-income), a retiree plan, or a private “Medigap plan.”
Medicare Financing: Taxes, General Revenues, Beneficiary Payments
Each of Medicare’s four parts is financed differently. Part A is funded by a
federal payroll tax, designated for the Hospital Insurance Trust Fund. Part B
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The Pig in a Python
The baby boom generation—people born between
1946 and 1964—created a huge bulge in the otherwise level US population immediately after World
War II. Demographers often describe this bulge
as moving through the population like “a pig in
a python,” and it raises serious concerns about
the financial stability of Social Security because
current members of the workforce pay taxes that
provide benefits to older generations.
When Social Security began in 1935, the life
expectancy at birth was about 60 years. Because
eligibility was pegged at age 65, the average person born that year would not live long enough to
collect benefits. There were, however, 7.8 million
Americans aged 65 or older at the time, so there
were many people who could receive Social Security at the outset. (See, e.g., Social Security History, Soc. Sec. Admin., http://www.ssa.gov/history/
lifeexpect.html [https://perma.cc/R9MN-RQNB]
[last visited May 9, 2022].)
When Medicare was enacted 30 years later,
life expectancy had increased to roughly 70 years,
and many more people were eligible for benefits.22
But because baby boomers were approaching their
twenties and would soon begin to pay into the
system, their parents’ benefits were adequately
funded. Now, however, baby boomers are retiring
in large numbers. This raises a question about
whether the relatively smaller number of workers
will be able to provide the older generations with
the benefits they have come to expect.
is funded by general federal revenues (75
percent) and by premiums paid by beneficiaries (25 percent). These premiums
are generally deducted from Social Security payments; in 2022, the premium was
$170.10 per month (although those with
high incomes are charged more).
Part C (Medicare Advantage) plans
are funded by federal payments on a per
member, per month (PMPM) basis and by
purchaser premiums (which in some cases
are low or $0). The PMPM federal payment
may vary depending on the enrollee’s health
status. The overall cost of Part C payments
is a perennial issue for the federal budget.
Part D premiums are funded mainly
out of general federal revenues, though purchasers also pay monthly premiums. A contentious issue is whether Part D should be
changed to allow the Centers for Medicare &
Medicaid Services (CMS), the federal agency
that administers the programs, to bargain
over drug prices. Federal legislation adopted
in the summer of 2022 will allow the agency
to begin doing so in subsequent years.
As the US population ages, and the
Medicare population increases commensurately, funding Medicare will increasingly
be a challenge. This is particularly true for
Part A, with its funding statutorily linked
to payroll taxes on working Americans (see
The Pig in a Python).
Medicare Payments: PPS, ACOs, and More
At its inception, Medicare paid hospitals and physicians their usual rates for
the services they provided. Obviously, under such a system, the more services
you provide, the lengthier the hospital stay, the more you get paid. This
arrangement was advantageous for both hospital and physician providers, and
Medicare spending rose at an annual rate more than twice that of inflation
during the 1970s and early 1980s.23
Concerned about these sharply rising costs, Congress in 1983 replaced
Medicare Part A’s cost-based reimbursement system with a prospective
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payment system (PPS) based on diagnosis-related groups (DRGs). Under the
DRG system—which was also widely adopted by commercial insurers—
hospitals are paid a fixed amount based on the patient’s primary diagnosis.
The DRG amount is meant to reflect the average cost to the hospital of
treating the typical patient with that diagnosis, knowing that some patients might
require more intensive hospital services and others fewer. There are a variety of
“modifiers” to the DRG payments, however, including modifiers for extreme
patient outliers and for hospitals that train residents or serve a disproportionate
share of uninsured patients. “Critical access hospitals” (which are typically small
and rural organizations) are still paid primarily on a cost-reimbursement basis.
In 1992, Medicare significantly changed the way it paid for physician
services under Part B. Rather than paying the “usual and customary” rates
(which were inherently inflationary), the government adopted a standardized
payment schedule—a resource-based relative value scale—that basically assigns
a relative weight to any service a physician might provide. The resulting relative value unit (RVU) is then multiplied by a set dollar amount (modified
each year) to arrive at the actual payment.
The RVU system has been widely adopted by other insurers despite
criticism that it rewards medical procedures more than the personal provider–
patient relationship. As one multispecialty clinic executive lamented years ago
to one of the authors, “We certainly hope our patients get better, but in fact
we get paid for doing stuff to them, and the more stuff we do the better we
get paid.” He gave this example: under the fee schedule, physicians get paid
very little to counsel patients with diabetes about how to control their blood
sugar levels, but a lot to amputate the foot of a diabetic whose levels were
poorly controlled. The ACA’s payment models are intended to address these
kinds of perverse financial incentives.
The ACA promotes a variety of arrangements aimed at “paying
for value rather than volume” and generally bending the cost curve while
improving quality. The readmission program, for example, financially penalizes hospitals that have high readmission rates for patients with specified
diagnoses. Another program promotes patient-centered medical homes, a
way of delivering primary care in a more coordinated way.
One of the best-known ACA cost-cutting provisions is the Shared
Savings Program, which encourages the creation of provider networks called
accountable care organizations (ACOs). In fact, in many healthcare executives’ minds, this is such a prominent part of the ACA that they often slip up
and call the law the “Accountable Care Act.” Under this optional program,
if an ACO improves the quality of care that it provides to its Medicare beneficiaries while simultaneously reducing Medicare’s costs as to those beneficiaries, it shares in the savings that result. In 2022, 483 ACOs participated
in this Medicare program.24
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65
accountable care
organization
(ACO)
A group of doctors,
hospitals, and
other healthcare
providers who
come together
voluntarily to
give coordinated,
high-quality, costeffective care to
the traditional
Medicare patients
they serve. If
an ACO meets
specified quality
metrics and
reduces overall
costs attributable
to those patients,
it is entitled to
a share of the
Medicare savings.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The form of an ACO is quite flexible, and CMS offers several models
to appeal to organizations of differing sophistication and risk tolerance. At
its core, the standard ACO has at least 5,000 traditional Medicare beneficiaries (not in Part C) to whom it provides primary care.25 It then needs a
plan, acceptable to CMS, to improve on its own regulatorily specified quality metrics. If, during the term of the agreement with CMS (typically three
years), the ACO improves its quality metrics and, at the same time, reduces
Medicare’s costs for the beneficiaries in its ACO, then the organization shares
in those savings.26 Note that the beneficiaries may seek care outside the ACO,
and the ACO need not include a hospital.
Although the promise of financial rewards is one inducement, most
early ACO advocates argued that the program’s real virtue was in supporting
system-wide transformation. The train was coming, they argued, and organizations ought to get on board or risk being run over.
Conditions of
Participation and
Conditions for
Coverage
A set of
regulations
(42 C.F.R. pts.
482–498) with
which healthcare
organizations must
comply to qualify
for Medicare
and Medicaid
payments. These
health and safety
standards are the
foundation for
improving quality
and protecting the
health and safety
of beneficiaries.
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Medicare Innovation: System-wide Influence
It is sometimes said that “when Medicare sneezes, the whole healthcare
system catches a cold.” This is so because since its inception, the program
has driven change throughout the country. Its Conditions of Participation
and Conditions for Coverage have shaped providers’ policies; its payment
systems—including its value-based models—have been widely emulated; and
its reimbursements form a significant part of most hospitals’ and individual
providers’ revenues.
Medicare’s influence will long endure. The number of Medicare beneficiaries will grow as our population ages, and the program’s share of the
federal budget is likely to increase regardless of whether advocates are successful in their attempts to lower the eligibility age, allow people to buy into
the program, or expand it to the entire population (an idea referred to as
“Medicare for all”). If those reforms are adopted, the fiscal implications will
be even more significant.
Medicaid
Medicaid has long been the scrappier and—because its original design drew
on “welfare medicine” programs—the less politically popular of the twins.
Medicaid’s design is a classic example of our federal system at work: it allows
the states considerable discretion to determine eligibility criteria and covered
services while providing federal matching funds for implementation. During
its nearly six decades, the program has grown (in both its services and the
size of its eligible population) and now covers more people than does Medicare. With the expansion encouraged by the ACA, Medicaid is becoming the
default coverage for low-wage families and a major piece of the coverage continuum. In the words of US Supreme Court Chief Justice John Roberts, it is
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becoming “an element of a comprehensive
national plan to provide universal health
insurance coverage.”27
67
Dual Eligibles
People who are covered by both Medicare and
Medicaid are known as “dual eligibles.” They tend
Medicaid Eligibility: Categorical and
to have significant healthcare needs and often live
Expansion Populations
in nursing homes or have in-home support. Note
For a variety of political reasons, not all
that whereas Medicaid covers general nursing
states participated in Medicaid during its
home care, Medicare does not.
early years, and the program was not available throughout the country until 1982,
when the final holdout, Arizona, joined.
Furthermore, from its inception, Medicaid has differed from state to state.
While the program has always had key mandatory elements in terms of populations to be covered and services to be offered, it has also allowed states a
great deal of flexibility regarding optional populations, services, and financing structures.
Originally, Medicaid covered only certain categories of low-income
people, and it still operates that way in many states. Income levels for these
“categorically eligible” beneficiaries vary depending on the basis for coverage. The covered categories are sometimes described in the academic literature as the deserving poor, and, as Medicaid was originally enacted, they
included low-income people over age 65, some disabled people, and some
families with children on welfare.
In the 1980s, Congress expanded Medicaid to require coverage of
more pregnant women and children. Other changes expanded coverage
for services for people with disabilities, especially in the areas of home- and
community-based care. In the late 1990s with the enactment of CHIP, more
children in low-wage households received health insurance, as did some lowincome parents of young children. CHIP functions somewhat differently
than Medicaid (and requires periodic congressional reauthorization), but
many states operate it basically as an extension of that larger program.
Until 2014, low-income adults under age 65 who were not pregnant,
not disabled, and not the parent of a young child generally remained ineligible
for Medicaid coverage no matter how low their incomes. That has changed in
most of the country because of a significant ACA reform. As originally written, the ACA required states to expand their Medicaid populations to cover
all otherwise uninsured citizens and some legal residents with incomes below
138 percent of the FPL. In its 2012 decision in National Federation of Independent Business (NFIB) v. Sebelius,28 however, the Supreme Court held that
this provision exceeded Congress’s constitutional powers because it unduly
coerced the states into action. As a result, the court effectively made coverage
of the “expansion population” an option for the states rather than a mandate.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(The Medicaid expansion and its intersection with other key ACA accessrelated reforms are described in more detail later in this chapter.)
Medicaid Financing: Federal and State Contributions
As noted earlier, Medicaid is a classic—some would say the classic—example
of cooperative federalism at work. Each state runs its own program, pursuant
to federal standards and with matching federal funds. The federal medical
assistance percentage (FMAP) for coverage of the categorically eligible varies
between 50 and 83 percent, depending on the average per capita income of
a state’s residents.29 So, the lowest possible FMAP is 50 percent, with the
state and federal government paying equal amounts. The highest possible
FMAP is 83 percent, with the federal government covering the bulk of the
costs and the state paying the remaining 17 percent of the costs. The FMAP
has its roots in early twentieth-century programs, the Hill-Burton Act being
a prominent example.
For the ACA expansion population, however, the FMAP is higher.
Originally set at 100 percent federal contribution, it was statutorily ratcheted
down over the first few years of the program to a fixed 90 percent match. So,
all states that have adopted the Medicaid expansion pay only 10 percent of
the costs for that population’s coverage, with the federal government picking
up the rest. This, of course, has been a significant inducement for states to
expand their Medicaid programs.
Medicaid Payments: The Trend Toward Managed Care
One original purpose of Medicaid was to transition low-income people from
charity care wards into the mainstream of American medicine. Thus, Medicaid payments originally tracked the fee-for-service model that was common
at the time, but over the past several decades, many Medicaid beneficiaries
have been transitioned to private managed care plans, particularly children
and adults without disabilities. These private managed care plans contract
with the states in which they operate.
State-set payment rates and plan contracting must be approved by
CMS. In general, Medicaid reimbursement rates (whether through a managed care or fee-for-service plan) are lower than commercial insurance rates
and lower than Medicare. In lean financial times, state legislators face pressure to cut rates and eliminate optional Medicaid services (e.g., adult dental)
to balance their state budgets.
Medicaid Innovation: Section 1115 Waivers
Innovation within Medicaid programs is promoted by statutorily authorized
waivers. Under either a narrow section 1915 “program waiver”30 or a broader
section 1115 “demonstration project”31 (these numbers refer to sections of
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69
the Social Security Act), CMS can excuse a state from complying with some
Medicaid requirements if the state’s proposal meets Medicaid’s objectives.
Several of the section 1115 waivers that were active in 2022, for example, focused on improving behavioral healthcare delivery and payment.32 These
waivers recognize the importance of mental health and addiction treatment, as
well as the challenges of accessing these services, particularly in coordination
with other types of healthcare. In prior years, a different type of Medicaid demonstration project had gained traction. With the Donald Trump ­administration’s
strong encouragement, many states applied for and received section 1115 waivers that allowed them to condition Medicaid coverage for many beneficiaries on
ongoing documentation of work or “community engagement activities.” These
conditions were challenged in court as violating Medicaid’s statutory requirements. Before those cases, and related regulatory changes, were fully resolved,
however, the Joe Biden administration revoked the waivers.33
Although not as effective an innovator as its more favored twin, Medicaid is a major player in the healthcare system. It covers more than a quarter
of the population, pays for about half of all US births and more than a third
of children’s healthcare, and is a principal payer for long-term care and mental health services.
The Affordable Care Act: Obamacare’s “Four M’s of
Access”
In 2010, more than four decades after the enactment of Medicare and Medicaid, Congress passed, and President Barack Obama signed into law, the
Patient Protection and Affordable Care Act. Often termed “Obamacare,”
this historic statute was intended to broaden access, improve quality, and
lower costs through a variety of intertwined mechanisms. (Aspects of the law
that relate to tax, organizational structures, fraud law, and more are discussed
throughout subsequent chapters.)
At the heart of the ACA, though, is near-universal access to comprehensive health insurance. The ACA advances this goal through its “four
M’s of access”—the mandate for individuals, the mandate for employers,
the marketplaces for private coverage, and Medicaid expansion. These access
provisions were intended to go into effect in 2014, but there were some
implementation delays for each of them.
Mandate for Individuals
The ACA’s individual mandate requires most citizens to maintain qualified
health insurance unless exempted (for financial or other reasons) or else pay
a tax penalty, referred to as a shared responsibility payment. The tax penalty
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
for an individual was originally the greater of $695 or 2.5 percent of income.
The individual mandate has been the most unpopular aspect of the law.34
The day the ACA was signed into law, the mandate was challenged on the
grounds that it is beyond Congress’s power to enact. (The blockbuster US
Supreme Court decision in that case, NFIB v. Sebelius, is discussed later in
this chapter.)
This coverage requirement was considered a key element of the
ACA’s interlinked insurance reforms. The ACA prohibits insurers from
considering a person’s health in deciding whether to offer them a plan,
its coverage terms, or its price.35 (Limited statutory exemptions to these
preexisting condition protections apply to certain religious ministries and
to short-term, limited-duration plans, which are tightly regulated and
prohibited in some states.)
In addition to protections for preexisting conditions, the plans must meet
Essential Health Benefits (EHBs)
standards of comprehensiveness, pay for
­
preventive services without cost sharing,
The ACA requires the following EHBs to be
limit out-of-pocket costs, and impose no
included in all plans sold on the ACA-established
annual or lifetime maximums. Plans sold on
marketplaces:
the ACA-created marketplaces (described
• Ambulatory patient services (outpatient care
in more detail later) must cover ten essenyou get without being admitted to a hospital)
• Emergency services
tial health benefits (EHBs) (see sidebar).
• Hospitalization (e.g., surgery, overnight stays)
These provisions caused insurers to
• Pregnancy, maternity, and newborn care
worry that people would wait until they
• Mental health and substance use disorder
were sick, injured, or pregnant to sign up
services, including behavioral health treatment
for coverage unless required to do so by
(e.g., counseling and psychotherapy)
law to maintain coverage—hence the indi• Prescription drugs
• Rehabilitative and habilitative services and
vidual mandate.
devices (e.g., services and devices to help
In December 2017, after failing
people with injuries, disabilities, or chronic
numerous times to repeal the ACA, Conconditions gain or recover mental and physical
gress reduced the tax penalty to $0, thus
skills)
rendering it essentially toothless.36 That
• Laboratory services
action set up another serious constitu• Preventive and wellness services and chronic
disease management
tional challenge to the law, but again the
• Pediatric services, including oral and vision
Supreme Court decided in the ACA’s favor
care (however, adult dental and vision coverage
in 2021 (see The Court Decides: Califorare not essential health benefits)
nia v. Texas at the end of this chapter).
Source: What Marketplace Health Insurance
Plans Cover, HealthCare.gov, http://www.
healthcare.gov/coverage/what-marketplaceplans-cover/ (last visited September 19, 2022).
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Mandate for Employers
The employer mandate requires most large
employers to either pay a tax penalty or
to provide adequate, affordable health
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C h a p te r 2 : A c c ess to H ealthc are Insuranc e and Treatm ent
insurance to their employees who work
30 hours or more a week.37 The ACA
The Law in Action
does not require employers to offer spousal coverage and, when that coverage is
The US Supreme Court’s 2022 decision in Dobbs
offered, does not require subsidization, or
v.
Jackson Women’s Health Organization and
otherwise set affordability standards. Large
resulting changes in state law are likely to affect
employers, though, are required to cover
insurance coverage for birth control and abortion.
children of employees and to do so up to
The Hyde Amendment has long prohibited federal
age 26, though, again, without subsidizafunding for abortion in most circumstances. (See
tion or affordability standards.38 Coverage
chapter 15 for more details on Dobbs.)
for dependents up to age 26 is among the
ACA’s most popular provisions.39
Employer coverage must include preventive care without cost sharing
(meaning the patient gets the service without having to pay a deductible,
copay, or coinsurance). This preventive services coverage requirement has
been further defined to include services such as cancer screenings, routine
vaccinations, and, controversially for some employers, coverage of FDAapproved contraceptives.
Three cases challenging the contraceptive coverage requirement on
religious grounds have reached the US Supreme Court. These cases, which
are discussed in more detail in chapter 15, exempted from this requirement
religiously affiliated institutions (e.g., Catholic universities and hospitals)
and closely held private companies whose owners have religiously grounded
objections to some or all forms of birth control (e.g., Hobby Lobby).
Marketplace for Private Insurance
The ACA creates marketplaces (also known as exchanges) where people who
lack health insurance (through, say, an employer or Medicaid) can buy private
plans for themselves or their families and receive premium subsidies and costsharing reductions (CSRs) if they are eligible based on their income. Under the
law, sliding-scale premium subsidies are available to those with incomes between
100 and 400 percent of the FPL. In the continental United States in 2022, that
translated to $13,590 to $54,360 for an individual and $26,500 to $106,000
for a family of four. A COVID-19 relief package temporarily extended the subsidies above 400 percent of the FPL and increased their amount.
In addition, sliding-scale CSRs are available for marketplace plans
to people with incomes between 100 and 250 percent of the FPL. These
CSRs are available only for silver-level plans, not for the bronze-, gold-, or
platinum-level plans. Thus, low-income marketplace purchasers who select
bronze-level plans because of the low premiums (many are available for $0
per month) might find themselves unable to afford the out-of-pocket costs,
which in 2022 could be as high as $8,700 a year for an individual. Had they
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
purchased silver-level plans (which would have some monthly premium costs
even after the premium subsidies), the out-of-pocket maximum would be
substantially less. This situation is known as the “bronze trap”; in addition
to disadvantaging some patients, it can be a concern for providers trying to
collect copays from bronze-level plan holders.
Note that in Medicaid expansion states, those making less than the
relevant percentage of the FPL would be covered by Medicaid, as intended
by the ACA (see the next section for a discussion). Thus, in nonexpansion
states, we see an anomalous situation in which an uninsured person making
101 percent of the FPL would be entitled to buy and use a marketplace
plan while paying very little out-of-pocket, but an uninsured person making 99 percent of the FPL or less would not be eligible for any premium
subsidy or any CSR. The least expensive plan might well exceed the purchaser’s entire annual income, particularly if the purchaser is older, as
the ACA allows older people to be charged up to three times more than
younger people.
Most marketplace purchasers receive premium subsidies. These
subsidies are technically advanceable, refundable tax credits that generally
go directly to the insurance company chosen by the purchaser. Hence, the
Internal Revenue Service (IRS) is the federal agency that administers them.
Some states set up their own marketplaces, as anticipated by the ACA.
Most, however, declined to do so and thus left the federal government
as the fallback to run these state-based marketplaces through the federal
HealthCare.gov portal. This website and the state-run portals also serve the
important function of directing eligible people to state Medicaid programs.
In addition to running the federal website, CMS also oversees the marketplace plans’ compliance with ACA requirements. The “M” in CMS is already
a placeholder for two words, but given the center’s workload, it really ought
to be three and formally renamed the Centers for Medicare, Medicaid &
Marketplace Services.
Medicaid Expansion
Medicaid expansion broadens that federal–state program from one that covers
categories of low-income citizens to one that covers all otherwise uninsured
citizens with incomes below 138 percent of the FPL. The expansion population thus comprises low-income adults who do not have access to employerprovided coverage and those who are not categorically eligible (because they
are not pregnant, disabled, or over age 65). One of the populations that
benefited from this expansion is higher education students, who also gained
comprehensive coverage (though sometimes at significant expense) under
the ACA’s other access provisions.40 As written, this expansion was to be a
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73
Law in Action
The Kaiser Family Foundation maintains an interactive map showing the status of
state decisions on Medicaid expansion pursuant to the ACA.
Status of State Action on the Medicaid Expansion Decision
WA
MT
OR
ME
ND
MN
ID
SD
NY
WY
MI
NV
UT
CA
PA
IA
NE
IL
CO
KS
AZ
OK
NM
MO
AK
WV
VA
NC
TN
AR
SC
AL
MA
RI
CT
OH
IN
KY
MS
TX
VT
NH
WI
GA
NJ
DE
MD
DC
LA
FL
HI
Adopted and implemented
Adopted but Not Implemented
Not Adopted
Status of State Medicaid Expansion Decisions: Interactive Map, Kaiser Fam. Found.
(Apr. 19, 2022), https://perma.cc/4UQ4-57VK.
mandatory part of the Medicaid program. Pursuant to the ACA framework,
the federal government picks up at least 90 percent of the cost for the expansion population, a match rate that is significantly higher than the federal
contribution for those who are categorically eligible.
Several states challenged the Medicaid expansion as unconstitutionally
coercive, and in its 2012 NFIB v. Sebelius decision,41 the Supreme Court agreed.
As a result, expansion became optional. Roughly half the states expanded their
programs in 2014, the earliest opportunity to do so. As of mid-2022, 12 states
had not expanded, including populous Texas and Florida (see Law in Action).
The ACA’s “four Ms of access” have worked to dramatically reduce
uninsurance rates for all racial/ethnic groups in the United States (see Law
in Action). Those still uninsured today include low-income adults in nonexpansion states; self-employed workers who make too much to qualify for
marketplace subsidies; younger adults who doubt the value of health insurance; and undocumented individuals. The ACA succeeded at increasing the
percentage of people who have comprehensive insurance and moving the
country closer to universal coverage despite significant challenges. The law’s
first decade saw dozens of unsuccessful congressional efforts to “repeal and
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Law in Action: Reduction in Uninsurance Rates by
Race
32.6%
30.5%
32.0%
30.2%
19.9%
25.6%
24.8%
22.0%
21.8%
14.9%
19.1%
19.0%
13.9%
10.7%
11.5%
18.9%
17.9%
18.5%
16.7%
16.3%
13.1%
12.5%
11.2%
9.3%
7.5%
10.8%
9.8%
6.8%
7.1%
2010
2011
2012
2013
2014
2015
2016
2017
2018
21.7%
20.0%
AIAN
Hispanic
NHOPI
12.7%
11.4%
7.8%
7.2%
Black
White
Asian
2019
Health Coverage by Race and Ethnicity, 2010–2019, Kaiser Fam. Found. (July 16,
2021), http://www.kff.org/racial-equity-and-health-policy/issue-brief/healthcoverage-by-race-and-ethnicity/ [https://perma.cc/9XB9-QF5U].
replace” the law. Many states actively impeded its implementation. And the
Trump administration aggressively pursued executive actions designed to
undermine it.42 Furthermore, as discussed in the next section, the ACA has
faced three US Supreme Court challenges, any one of which could have
effectively killed the law.
COVID Connection
In 2020 and 2021, the uninsured rate in the United
States remained stable despite the global COVID19 pandemic. In the face of significant job losses
and wage reductions, which disproportionally
affected people of color, most Americans under
age 65 continued to have employer-sponsored
coverage, private insurance, or Medicaid plans,
thanks in no small part to federal rules and funding. For employer-sponsored plans, the federal
government extended the time frame for former
employees to continue (or “COBRA”) their benefits
and provided financial assistance for them to do
so. The American Rescue Plan Act expanded the
ACA’s marketplace premium subsidies, contributing to record-high enrollment in those plans.
And regarding Medicaid, the federal government
required that states refrain from disenrolling
Medicaid beneficiaries during the public health
emergency.
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The Supreme Court’s Trilogy of ACA
Access Cases
Litigation immediately threatened the
ACA’s existence. Just minutes after President Obama signed the act into law on
March 23, 2010, Florida and 12 other
states filed suit to challenge it. They were
later joined by 13 additional states, several
individual plaintiffs, and the National Federation of Independent Business (NFIB)
in a case that made its way to the US
Supreme Court as NFIB v. Sebelius.43
NFIB focused on two main questions. The first was whether the individual
mandate—the requirement to buy health
insurance unless exempted or else make
a shared responsibility payment—exceeds
Congress’s constitutional authority. In a
rather remarkable bit of judicial diplomacy
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and legal craftsmanship, Chief Justice
Roberts cobbled together a 5–4 majority,
Law in Action
which held that the individual mandate is
not a valid exercise of Congress’s power
That a concept can be classified as one thing for a
to regulate commerce, but it is a valid
certain purpose and as something else for another
exercise of Congress’s taxing power. This
boggles the minds of some people and provided
issue turned on whether the individual
talking points for politicians and commentators
mandate and shared responsibility paywho opposed the ACA. However, Chief Justice
ment amount to a “tax.” As a foundaRoberts’s distinction is not logically inconsistent.
tional matter, this question is important
A concept can be judged by different standards
depending on context and function.
because under the Anti-Injunction Act
A simple example may help clarify. In botany,
(AIA), taxes can be challenged only after
a tomato is classified as a fruit—the fleshy, seedthey have been paid. If the payment were
bearing part of a flowering plant. To a cook, howconsidered a tax for purposes of the AIA,
ever, a tomato is a vegetable because it has less
the case would have to be dismissed as
sugar than most fruits and is served as part of a
untimely because no tax would be owed
salad or entree rather than at dessert. As British
journalist Miles Kington once wrote, “Knowledge
until April 15, 2015.
is knowing that a tomato is a fruit; wisdom is not
The chief justice and his colleagues
putting it in a fruit salad.” To hold that it is a fruit in
found it significant that Congress used the
one context (botany) and not in another (cooking)
word “penalty” to describe this payment
is eminently defensible.
but called other payments in the ACA
This distinction was precisely the finding
“taxes.” All nine justices agreed that the
that the US Supreme Court made more than a
century ago. In the late 1800s, US tariff laws
shared responsibility payment is not a tax
imposed a tax on imported vegetables but not
in the context of the AIA, and thus the case
on fruits, so classification of the tomato was
was not dismissed on that basis. Howa matter of some legal and financial imporever, the AIA’s language does not detertance. In Nix v. Hedden (149 U.S. 304 [1893]),
mine whether the penalty is a tax within
the Supreme Court decided that, regardless of
the meaning of Congress’s constitutional
what botanists say, the tomato is a vegetable
for purposes of customs regulations because
authority to “lay and collect taxes”44 (see
of
how the tomato is used and the popular
Law in Action). The constitutional quesperception that it is more vegetable-like than
tion turned on a more functional analysis,
fruit-like.
and the shared responsibility payment
Like a tomato, the shared responsibility
functioned as a tax. Thus, the majority
payment is one thing by one set of standards
held, the shared responsibility payment
but something else by another. It is a tax for
purposes of constitutional analysis, but it does
is not a command to enter the insurance
not qualify as a tax under the narrower definimarket (a command that would be beyond
tion of the AIA.
Congress’s power to issue), but it is a constitutionally permissible penalty for people
who are required to maintain insurance
and decline to do so.
The second major question in NFIB was whether the federal government can force states to expand their Medicaid programs, which it attempted
to do by threatening to cut their existing Medicaid funding (a threat that has
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
death spiral
A situation in a
health insurance
market in which
premiums grow,
healthy enrollees
drop coverage
(a phenomenon
known as adverse
selection), the
risk pool becomes
riskier, and
premiums grow
even faster for the
remaining insured
population,
resulting in the
market’s eventual
collapse if left
unchecked.
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always been part of the Medicaid legislation as applied to mandatory populations and services). On this point, the Supreme Court ruled that Medicaid
expansion as written in the ACA is unconstitutionally coercive. As a remedy,
the court made the expansion optional for states.
Relying on this decision, governments in as many as two dozen states,
most of them led by Republicans, initially refused to expand their Medicaid
programs on the grounds that the cost to the states would be a significant
burden and that it was wrong to expand health insurance via government
programs. Proponents countered that the federal share of the increased cost
would be at least 90 percent, and eventually a few recalcitrant states reversed
their positions after electing new governors or passing initiative ballot measures. As of mid-2022, 39 states (including the District of Columbia) had
expanded their Medicaid programs, while 12 had not.45 The practical effect
of NFIB v. Sebelius on access to health insurance was that the ACA’s four M’s
of access survived, although the Medicaid expansion was modified to make it
an option rather than a mandate.
The second case in the Supreme Court’s trilogy of ACA decisions was
King v. Burwell,46 decided in 2015. As described earlier, the ACA requires
the creation of health insurance marketplaces (called exchanges in the statute)
in each state; the federal government establishes an exchange for any state
that does not create one of its own. The law then provides for tax credits
(subsidies) for certain low-income taxpayers who are enrolled in an insurance
plan through “an Exchange established by the State.” An IRS regulation
interpreted that language to mean any exchange, whether created by the state
or the federal government.
The plaintiffs in King v. Burwell were four residents of Virginia in
their sixties who would be exempt from the individual mandate requirement
because the cost of an unsubsidized plan would make it statutorily unaffordable to them. (Recall that the ACA allows older marketplace purchasers to be charged up to three times more for the same plan than younger
purchasers; smokers may also be charged twice as much, and some of these
plaintiffs were smokers.) Given that Virginia had opted to use the federal
exchange, the plaintiffs argued that no marketplace “established by the
State” was available to them, so they could not receive the tax subsidies and
thus would not need to be insured. According to the IRS’s interpretation,
however, they would receive the subsidies and thus would be required to
purchase insurance.
In a 6–3 decision, Chief Justice Roberts noted that without subsidies, the statute would not work as Congress intended. Instead, low-income
people in states relying on the federal exchange would not be able to afford
coverage, and those states’ insurance markets would be pushed into a socalled death spiral. The court’s majority was not about to let the ACA fail
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because of a few examples of what Roberts called “inartful drafting.” Roberts
opined that in the context of the whole statute, the federal exchanges are
not meaningfully different from those created by the state. This reading of
“established by the State” is in line with Congress’s intent to cover as many
people as possible (see The Court Decides: King v. Burwell at the end of this
chapter).
The late Justice Antonin Scalia, joined by Justices Clarence Thomas
and Samuel Alito, dissented vociferously. Justice Scalia argued that the
plain language of the statute clearly limits the tax subsidies to state-created
exchanges. To hold otherwise is “quite absurd,” Scalia wrote, adding, in his
typically colorful language,
Words no longer have meaning if an Exchange that is not established by a State is
“established by the State.” . . . Under all the usual rules of interpretation, in short,
the Government should lose this case. But normal rules of interpretation seem
always to yield to the overriding principle of the present Court: The Affordable Care
Act must be saved. . . .
I wholeheartedly agree with the Court that sound interpretation requires
paying attention to the whole law, not homing in on isolated words or even isolated sections. Context always matters. Let us not forget, however, why context
matters: It is a tool for understanding the terms of the law, not an excuse for
rewriting them.
. . . Ordinary connotation does not always prevail, but the more unnatural
the proposed interpretation of a law, the more compelling the contextual evidence
must be to show that it is correct. Today’s interpretation is not merely unnatural;
it is unheard of. Who would ever have dreamt that “Exchange established by the
State” means “Exchange established by the State or the Federal Government”?47
The third case in the Supreme Court’s ACA trilogy was decided six
years after King v. Burwell. The election of 2016 brought Donald Trump to
the White House, and during his time in office, congressional Republicans
introduced scores of bills to replace the ACA entirely. When those “repeal
and replace” attempts failed, they next attempted to undermine the law
by adding a provision to the 2017 tax reform law (the Tax Cuts and Job
Reforms Act) that would reduce the shared responsibility payment to $0.
Many people (including the president) interpreted that provision to mean
that the individual mandate was dead. Texas and more than a dozen other
states, as well as two individuals, filed suit to confirm that understanding.
Among other things, the plaintiffs in California v. Texas48 claimed
that the individual mandate requirement provision was invalid without the
monetary penalty, and that the penalty was so intertwined with the rest of
the law that the entire ACA was unconstitutional. California, 15 other states,
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
standing
The principle that
to be able to bring
suit, a plaintiff
must show that
the defendant
has caused or is
likely to cause
the plaintiff
some direct or
substantial injury
if an alleged wrong
is not addressed;
sometimes
referred to as
standing to sue.
and the District of Columbia intervened to defend the law’s constitutionality,
something the Trump administration had refused to do.
The plaintiffs’ arguments prevailed in the trial court and at the Fifth
Circuit Court of Appeals, but in a 7–2 decision issued in June of 2021, the
Supreme Court reversed the lower courts’ decisions and held that the plaintiffs had no standing to challenge the law because they could not show that
they had been or were likely to be injured in any way. After all, the court
seemed to be saying, what harm could be done by a “mandate” with no penalty? (See The Court Decides: California v. Texas at the end of this chapter.)
By deciding the case on the standing question, the court did not address the
merits of the plaintiffs’ argument.
Thusly has the ACA as a whole survived three Supreme Court challenges, any one of which could have upended the law. It remains the most
recent national effort at health reform, and the most significant since the
enactment of Medicare and Medicaid.
Legal Issues Related to Particular Populations and
Facility Processes
Being insurable does not necessarily equate to having healthcare insurance.
And having healthcare insurance is not the same thing as having access to
high-quality healthcare. A variety of access barriers remain, some more or less
amenable to legal intervention. Although the United States does not have a
constitutional right to healthcare, there are access-related legal standards that
apply to particular populations and facility processes.
Antidiscrimination Laws: Evolving Federal and State Standards
As discussed in chapter 1, Medicare played a crucial role in the effort to
desegregate hospitals. Along with the Civil Rights Act of 1964, Medicare’s
Conditions of Participation make clear that hospitals cannot overtly discriminate based on race, religion, sex, or national origin in their patient admission
policies, staff employment criteria, or provider privileging standards. As to
people seeking treatment in emergency departments, the federal Emergency
Medical Treatment and Labor Act (EMTALA) allows screening and treatment differences based only on medically indicated criteria (see chapter 11).
In addition, numerous other federal, state, and local laws prohibit discrimination by healthcare entities. Many are described in some detail in chapter 4,
with particular attention to their roles in human resources matters.
One antidiscrimination issue of note regards language interpretation.
The Civil Rights Act of 1964 prohibits discrimination based on national origin, and this includes discrimination against those who have limited English
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proficiency (LEP). The HHS Office of Civil Rights has issued guidance that
requires recipients of federal financial assistance from HHS to take reasonable steps to provide meaningful access for LEP individuals.49 The agency
explains that the obligation to provide meaningful access is fact dependent
and starts with an assessment of four factors: (1) the number or proportion of LEP persons eligible to be served or likely to be encountered by the
recipient; (2) the frequency with which LEP individuals come into contact
with the recipient; (3) the nature and importance of the services provided to
the individuals; and (4) the resources available to the recipient and the costs
of interpretation/translation services. There is no one-size-fits-all solution
for Title VI compliance with respect to LEP persons, and what constitutes
“reasonable steps” for large providers may not be reasonable where small
providers are concerned.
Basically, then, all healthcare providers that participate in Medicare
and Medicaid must take steps to overcome language barriers and provide
language assistance to their LEP patients and families. This includes translation of important written documents such as consent forms and provision of
live, simultaneous interpretation of spoken communications. If requested, the
organization is required to provide competent interpretation at no charge to
the LEP individual, and the patient cannot be required to use family members
or friends as interpreters. Smaller entities, such as physician offices, physical
therapy clinics, and hospice providers have more flexibility in how they meet
the needs of LEP people, but they are not exempt from the Civil Rights Act
obligations (see also Law in Action in chapter 12 regarding interpreters).
The ACA includes a specific antidiscrimination provision (section
1557) that applies certain long-standing federal requirements to a wide
swath of healthcare programs and activities. Section 1557 specifies that an
individual shall not—on the basis of race, color, national origin, age, disability, or sex—“be excluded from participation in, be denied the benefits of, or
be subject to discrimination under, any health program or activity, any part
of which is receiving Federal financial assistance, including credits, subsidies,
or contracts of insurance.”50 The Obama, Trump, and Biden administrations
have each interpreted the scope of Section 1557 differently, and their varying regulatory approaches have faced court challenges. Areas of ongoing
contention include antidiscrimination standards for transgendered patients
and permissible exemptions for religiously affiliated healthcare entities. These
issues will continue to evolve over time.
A Constitutional Right to Treatment While Incarcerated
The Eighth Amendment to the US Constitution prohibits cruel and unusual
punishment. It has been interpreted as requiring governments to provide
convicted prisoners with adequate medical treatment.51 The due process
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clauses of the Fifth and Fourteenth Amendments require that persons who
have not been convicted but who have been detained or are under arrest be
given essential food, shelter, clothing, and medical care.52 Countless constitutional claims have been brought alleging that prison conditions during the
COVID-19 pandemic constituted cruel and unusual punishment, both in
state and federal courts, with mixed success.53
Some laws clearly state that the government must pay for care given
to those it imprisons54 or detains.55 The duty to pay might be limited to cases
in which the government’s institutional facilities are inadequate56 or in which
the patient or their family is unable to pay.57 However, most states’ laws simply uphold a right to receive treatment and are silent on the question of the
government’s financial obligations.58 Although the police generally have a
duty to seek medical care for injured persons, especially those whose injuries
are the result of police actions during apprehension, the government may not
be obligated to pay the care provider if the patient has not been arrested. This
precedent may be the reason some law enforcement agencies do not officially
arrest injured suspects until after emergency treatment has been completed.
For example, in City of Revere v. Massachusetts General Hospital,59
Patrick M. Kivlin attempted to flee the scene of a crime and was shot by a
police officer. The police summoned an ambulance, and the ambulance took
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 hospital. A month
later, he was again hospitalized, but the City of Revere refused to pay for
either hospitalization.
The Massachusetts Supreme Judicial Court held that state contract law
provided no basis for ordering the city to pay, but it found that the Eighth
Amendment’s prohibition against cruel and unusual punishment required it
to do so. After granting certiorari, the US Supreme Court overruled the state
court’s finding on the Eighth Amendment issue, stating that the amendment
did not apply because there had not yet been a formal finding of guilt at the
time Kivlin needed medical care.60 Although the Supreme Court noted that
due process requires persons in Kivlin’s situation be given care, local government had no duty to pay for that care in the absence of state legislation.
Mental Illness and Incapacity: Standards for Involuntary
Detention and Treatment
The legal rights of patients with mental illness and those lacking capacity
are determined by constitutional law and state statutes. Both sources of law
are evolving, so hospital management needs competent, current advice concerning emergency treatment, temporary detention, and formal admission
of these individuals. Hospitals must give emergency care to all persons, but
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in some cases, an appropriate transfer may be justified if the hospital is not
staffed or equipped for psychiatric patients. Nevertheless, all hospitals must
be prepared to interact with such patients in the best possible way to ensure
the safety of all involved.
Involuntary Detention or Commitment
Because institutionalization is a significant deprivation of personal liberty,
state statutes governing civil commitment by reason of mental illness must
ensure that the patient is granted both substantive and procedural due process of law.61 A person may not be committed involuntarily unless mental
illness presents a danger to the patient or to third parties.62 Danger to self
can be found if patients cannot provide the basic necessities of life or if
they exhibit indications that they may harm themselves. Unless persons are
adjudged dangerous to themselves or others, indefinite confinement without
treatment violates their right to due process, and the officials responsible for
such confinement can be personally liable under civil rights laws.
When patients present a danger to themselves, the state has a legitimate interest—under its parens patriae powers—to provide needed care.63 parens patriae
If someone with a mental illness presents a danger to others, a psychiatric The doctrine that
the government
evaluation and possible civil commitment are justified by the state’s inher- is the ultimate
ent power to regulate matters of health, safety, and welfare. In evaluating guardian of all
whether patients meet these criteria, psychiatrists and other professionals people who
must predict behavior, a challenging task from a medical standpoint (see have a legal
disability, such as
Legal Brief). Many states require evidence of a timely overt act or threat of minors and the
violence to show that the patient presents a danger.
mentally ill.
The balance between the legitimate rights of patients and the recognized interests of society depends on the answers to difficult questions of
social policy and medicolegal judgment.
Setting this balance involves three main
Legal Brief
risks: (1) some patients might be detained
unnecessarily; (2) some who are not dangerous might be released but not receive
The American Psychiatric Association (APA) . . .
needed outpatient care; and (3) patients
informs us that “[t]he unreliability of psychiatric
predictions of long-term future dangerousness is
who are thought to pose no risk might
by now an established fact within the profession.”
be released and proceed to harm othThe
APA’s best estimate is that two out of three
64
ers. Both law and medicine have defined
[such predictions] are wrong. The Court does not
dangerousness poorly, thus increasing the
dispute this proposition, and indeed it could not
potential for error in setting the balance.
do so; the evidence is overwhelming.
Moreover, in many commitment hearings
—Barefoot v. Estelle, 463 U.S. 880, 920 (1983)
the matter is left for the jury to decide
(Blackmun, J. dissenting)
on the basis of testimony from expert
witnesses. Misdiagnosis alone does not
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constitute negligence or malpractice; causation must also be proven. Proof
may be difficult to furnish because dangerousness is difficult to predict.
State statutes typically allow for involuntary detention of psychiatric
patients for a limited period, ranging from 48 to 72 hours. The Florida Mental Health Act (also called the Baker Act) is typical of the process.65 Under
the Florida law, involuntary psychiatric examination can be accomplished if
there is reason to believe that a person has a mental illness, does not agree
to a voluntary examination, and may present a danger to self or others if not
cared for. The process can be initiated by court order, by a law enforcement
officer, or by a physician or mental health professional.
The person is taken into custody and delivered to a “receiving facility”
(a facility designated by the state for such purposes) and must be examined
within 72 hours. If the patient is first seen in a hospital emergency department, as is often the case, the 72-hour period begins at that time. The patient
may not be held involuntarily for longer than 72 hours, at which time the
facility must (1) release the patient entirely or to law enforcement if charged
with a crime, (2) admit the patient for voluntary treatment, or (3) petition a
court for involuntary civil commitment.
Because civil commitment takes away a person’s freedom, the patient
in a civil commitment proceeding receives full due process rights: a court
hearing, representation by legal counsel, and full consideration of the evidence regarding the patient’s competence and mental illness. These kinds
of protections reflect a nationwide emphasis on the rights of mental health
patients that began in the last few decades of the twentieth century. A 1975
Florida case, O’Connor v. Donaldson,66 illustrates the plight of some who were
confined against their will before legal protections were enacted.
Kenneth Donaldson had been confined against his will in a state mental
hospital for 15 years. He was not thought to be dangerous to himself or others and was receiving no treatment. According to Justice Potter Stewart, his
confinement amounted to nothing more than “a simple regime of enforced
custodial care, not a program designed to alleviate or cure his supposed illness.” Based on these findings and without dissent, the Supreme Court held:
A finding of “mental illness” alone cannot justify a State’s locking a person up
against his will and keeping him indefinitely in simple custodial confinement.
Assuming that that term can be given a reasonably precise content and that the
“mentally ill” can be identified with reasonable accuracy, there is still no constitutional basis for confining such persons involuntarily if they are dangerous to no
one and can live safely in freedom. . . .
In short, a State cannot constitutionally confine . . . a nondangerous individual who is capable of surviving safely in freedom by himself or with the help
of willing and responsible family members or friends. Since the jury found, upon
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ample evidence, that O’Connor [the hospital superintendent], as an agent of the
State, knowingly did so confine Donaldson, it properly concluded that O’Connor
violated Donaldson’s constitutional right to freedom.67
This landmark decision and others like it gave impetus to the patients’ rights
movement and led to the due process protections in most states’ laws.
Standard of Care and Administration of Medication
Once committed, psychiatric patients retain substantive constitutional rights
to adequate food, shelter, clothing, medical care, safe physical conditions,
reasonable freedom from physical restraints, and rehabilitation or training
appropriate to their diagnoses. Hospital officials who fail to observe these
rights can be held personally liable.68 One federal court defined minimally
adequate medical care 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 that there are
four standards generally advanced by mental health professionals as essential for
minimally adequate treatment: a humane and therapeutic environment; 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 US Constitution].69
In several contexts, courts have developed the principle that mentally
ill persons should not be presumed incompetent to make treatment decisions.
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) absent compelling safety justifications. For example, competent
psychiatric patients who are not a danger to themselves or others may not be
given antipsychotic medications (which may have serious side effects) against
their will and may not be forced to become subjects 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.70
The right to give informed consent (see chapter 12) 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) a professional determination that medication or restraint is necessary;
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(2) evaluation of alternatives; and (3) regular review of the recommended
course of treatment. A formal hearing is not required, but a judicial determination of incompetence and the appointment of a guardian might be required.
Patient Registration: Hospital Processes for Nonemergency
Treatment
Although an individual usually has no basis for claiming a legal right to be
treated for a nonemergency condition at a particular hospital, many factors
affect whether the patient will be admitted. Rather than focus on whether a
patient has such a right, the hospital should be attentive to its mission and
purpose in the community. If it adheres to its mission, the narrow legal question of a patient’s right to admission usually becomes a nonissue.
Hospitals must be prepared to register any patient who meets the facility’s admission criteria and for whom a provider with admitting privileges has
written an order for treatment. Patients may be registered as either inpatient
or outpatient. Outpatient status comprises various subcategories, such as
observation, ambulatory surgery, emergency, clinic, rehabilitation, laboratory,
and nonpatient (i.e., the patient is not present, but the patient’s specimens are
in the laboratory for analysis). The registration process varies by category, and
detailed policies and procedures must be in place to handle every eventuality. For example, once an order has been written to admit an individual as an
inpatient, the hospital typically collects the following information:
• Demographics, such as patient name, address, telephone number,
marital status, personal representative (if other than a spouse), gender,
race, and Social Security number
• Religious affiliation if the patient cares to disclose it
• Emergency contacts
• Identity and demographics of the financially responsible party (e.g.,
patient, parent, guardian)
• Insurance coverage
• Patient’s language preferences and English proficiency
• Special needs (e.g., assistance for deaf or blind persons)
• Generalized acknowledgment of privacy practices and any special
requests regarding release of patient information
• Generalized consent for routine care and diagnostic procedures
(which must be signed and placed in the medical record and does
not substitute for a detailed informed consent for significant medical
procedures)
Registration personnel must review the collected information for any
“red flags” of medical identity theft, the phenomenon of registering with
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another individual’s insurance information, name, Social Security number,
or other identifier (see chapter 10). The Federal Trade Commission (which
enforces the so-called red flag rules) has identified warning signs such as suspicious documents, inconsistent identifying information, discrepancies between
mailing addresses, a reluctance to provide needed information, an inability to
provide one’s phone number or address, and other questionable activities.71
During registration, the hospital gives the patient and family a wide
range of information out of both general courtesy and legal need. This information includes the following:
• Notice of privacy practices
• Written notice of rights under the Patient Self-Determination Act
(e.g., decision-making rights, advance directives, healthcare power of
attorney)
• General hospital information (maps, telephone numbers, parking
restrictions, visiting hours, cafeteria location, gift shop hours)
• Instructions for storing personal belongings and valuables
The preceding lists are not exhaustive, and the requirements vary from
state to state; thus, each hospital’s legal counsel and other experts should
advise on the full range of issues to be addressed at registration. The main
point is that these matters must be covered by detailed hospital policies and
procedures, and registration staff must be trained appropriately.
It should also be noted that a patient’s occupation of a hospital bed
overnight does not always confer inpatient status for Medicare’s purposes. One
becomes a Medicare inpatient only when formally admitted as such. Inpatient
status must meet certain regulatory guidelines to be eligible for Medicare inpatient coverage and the attendant reimbursement. Some outpatients—such as
those occupying a bed for observation purposes or ambulatory surgery—may
appear indistinguishable from those who are technically inpatients.
Utilization Review: Practical Implications for Admission and
Discharge
Thus far, this chapter has discussed the health reform laws and the traditional
principles concerning hospital admission and discharge. Both topics pose
questions about the use—actually, the potential for overuse—of healthcare
services: questions relating to cost, quality, and value; questions relating to
what is medically necessary; questions about who should pay and how much.
This section—indeed, an entire chapter—cannot do justice to the myriad
issues involved; issues of public policy and ethics are beyond the scope of this
book. The ensuing paragraphs briefly discuss a few of the legal implications
of utilization review (UR) not covered elsewhere in the book.
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third-party payer
A managed care
organization,
government
program,
employee benefit
plan, private
insurance plan, or
similar entity that
is responsible for
paying for health
services.
Most hospitals have a type of internal UR process known as case (or
care) management. Case management departments provide ongoing concurrent reviews of patient care to determine whether treatments are medically
necessary and, if not, to assist in placing patients in more appropriate (usually
less costly) care settings. The departments are closely aligned with or part of
the quality improvement function, and they typically track average length
of stay and similar indicators. Internal case management serves an advisory
purpose and does not have the authority to order a patient’s discharge or
transfer; for this reason, it does not present a significant legal risk.
As discussed in chapter 7, legal risks can arise when the financial pressures of third-party payers conflict with the perceived best interests of the
patient. The UR decisions of third-party payers are made in several ways:
• Prospectively (whether to authorize payment for treatment before the
treatment has begun)
• Concurrently (whether to permit treatment to continue beyond a
certain point)
• Retrospectively (whether to deny payment for treatment that has been
completed)
Legal Brief
In insurance parlance, loss ratio (LR) essentially
means the cost of claims per premium dollar:
LR =
Losses + loss-related expense
Earned premiums
In health insurance, the medical loss ratio (MLR)
represents the percentage of premium dollars paid
for medical care and related quality improvement
efforts. If an insurer pays out less, it has a lower
MLR, which in turn means higher retained earnings
(profits) for the insurer. The average MLR for private
insurance plans is typically 80 to 85 percent, and
the ACA sets that range as a minimum depending
on market size. If an insurer’s MLR falls below the
applicable level, it must provide a premium rebate to
its insureds. A government program’s MLR is much
higher (usually 95 percent or higher) because government programs are not motivated to earn a profit.
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UR decisions are almost always
based on physicians’ recommendations
and sound professional judgment related
to the patient’s medical needs. However,
to keep their costs (medical loss ratio) as
low as possible, third-party payers (managed care plans) sometimes approve payment for only a certain number of days
in the hospital (see Legal Brief). In such
cases, hospitals have an incentive to see
patients discharged as soon as possible,
perhaps even before optimum outcomes
have been achieved.
A physician who believes that a
patient is not ready for discharge should
carefully document the reasons for not
signing a discharge order. A physician
who bows to pressure and orders a discharge that is contrary to professional
standards and sound judgment might
invoke significant liability consequences
(see the discussion of the Wickline case in
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chapter 7). The physician and hospital usually can appeal the coverage decision, but a physician who believes treatment is necessary and desired by the
patient must strive to ensure that the treatment is provided.
Conversely, if the physician sees no need for continued hospitalization
and recommends discharge or transfer to an available and less expensive facility, patients often bear the cost of care if they choose to stay in the hospital.
Attending physicians and case management staff must carefully explain coverage limitations and transfer options to patients and their family members, and
together they must decide on the future course and site of care.
Hospitals and physicians should be patients’ advocates if insurance
coverage is threatened. The Joint Commission alludes to this responsibility
in its hospital accreditation standards. In the leadership chapter of the standards, a section on ethical issues in operations states the following:
The hospital is professionally and ethically responsible for providing care, treatment, and services within its capability and law and regulation. At times, such
care, treatment, and services are denied because of payment limitations. In these
situations, the decision to continue providing care, treatment, and services or to
discharge the patient is based solely on the patient’s identified needs.72
Patients whose medical conditions justify a discharge or transfer have
no common law or constitutional right to remain in the hospital. A patient
who remains is a trespasser, and the hospital may ask a court to issue an
injunction to remove the person from the premises.73 The courts have reasoned that 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 can be provided elsewhere.
On the other hand, the hospital and physician may not abandon
or discharge a patient who needs further care without making appropriate
arrangements 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 appropriate facility is available, especially if the patient is unable to pay
the ongoing hospital charges.
Monmouth Medical Center v. State illustrates the conflict between economic and human values in these circumstances.74 At issue were New Jersey’s
administrative regulations prohibiting Medicaid reimbursement for indigent
patients who no longer need hospitalization and are 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; the hospital was unwilling to do so, and it filed suit.
The New Jersey Supreme Court pointed out that the purpose of the
Medicaid program is to provide financial assistance for “medically necessary”
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services, and the regulations require states to furnish services “sufficient in
amount, duration, and scope to reasonably achieve [their] purpose.” The
court held that the state regulations conflicted with the federal rules; as 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—not
the hospital—to absorb the costs even if the patient no longer needed the
services of an acute care facility.
Putting the issue in sharper focus, a later case—Monmouth Medical
Center v. Harris75—upheld the government’s right to deny Medicare reimbursement to a hospital for a patient who no longer required hospital or skilled
nursing care. The patient needed custodial care, but beds in a nursing home
that provided such care were not available. The court said the unavailability of
beds was irrelevant because Medicare does not reimburse for custodial care.
Federal law requires organizations that contract with Medicare to
conduct utilization and quality control reviews to evaluate the services they
provide to Medicare beneficiaries.76 Through retrospective reviews of data,
peer review organizations (PROs; also known as quality improvement organizations) are responsible for determining 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.
Each PRO is expected to conduct reviews of admission patterns and identify
groups of patients whose diagnoses or contemplated treatments indicate that
they could be safely cared for somewhere other than in an acute care hospital.
Each PRO 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 medical practitioners.
To measure the quality of care furnished to Medicare patients, the
review organization has the following responsibilities:
• To ensure that patients with certain diagnoses receive adequate medical
services, especially when appropriate facilities are available but are
underused
• To review hospital readmissions caused by previous substandard care
• To identify instances of unnecessary surgery
• To reduce the number of preventable deaths
To achieve these objectives, PROs develop treatment protocols for particular diagnoses and set specific statistical goals. In addition to performing
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these functions on behalf of the federal government, PROs have the power to
deny reimbursement to a Medicare provider for unnecessary or inappropriate
care.77 In certain circumstances, the review organization may also recommend penalties—ranging from monetary fines to exclusion from the Medicare program—for providers that render unnecessary or inappropriate care.
The ACA contains many provisions related to quality improvement,
such as technical assistance and research, support for patient-centered medical homes, better treatment of chronic disease, and regionalized emergency
care systems and trauma centers. Further examples include provisions for
demonstration programs on quality and patient safety training, improvements to women’s health, a patient navigator program, and studies and
reports on new tort claims or causes of action generated by quality initiatives.
It remains to be seen how the reforms will affect quality programs generally and PROs specifically. In any event, these provisions will affect access to
healthcare in the United States. (Peer review and quality issues are discussed
more fully in chapter 8.)
Final Thoughts: ACA Stability, Medicaid Universality,
Medicare Commonality
No existential legal or congressional threats to the ACA existed as of mid2022. The law, with its key access provisions, seems to be resting on generally
stable ground. The protections for preexisting conditions continue to have
widespread public support, and the zeroing out of the individual mandate’s
tax penalty seems to have had little practical effect. Enrollment in ACA marketplace plans is at an all-time high, certainly boosted by pandemic-related
job losses and premium subsidies. States continue to gradually adopt the
Medicaid expansion, sometimes through ballot initiative rather than legislative action. While the end of the public health emergency (with its coverage
maintenance requirement) will likely see a reduction in Medicaid enrollment,
the trend is clear.
Historically a stigmatized program for categories of low-income
people, Medicaid is becoming, as Justice Roberts predicted, “an element of
a comprehensive national plan to provide universal health insurance coverage.”78 In this trend toward universality, with its financial and programmatic
challenges, it will be important to pay close attention to Medicaid’s crucial
role in supporting the most medically fragile Americans.
And Medicare, Medicaid’s fraternal twin, continues to drive systemwide change, especially with regard to value-based payment models. With
Medicare’s popularity, we can expect continued advocacy to make it a more
common option, whether by dropping the eligibility age, allowing younger
people to buy into the program, or making it the default for all. But each of
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the many options to expand Medicare presents daunting issues, both political and financial. These issues and the debates that no doubt will ensue are
emblematic of our country’s long and ongoing struggle to expand access to
healthcare, improve its quality, and reduce its cost.
Chapter Summary
This chapter discussed the following topics:
• The history of federal efforts to achieve near-universal health insurance
coverage
• Medicare financing, coverage, and payment
• Medicaid categorical and expansion coverage
• The ACA’s “four M’s of access”
• Legal challenges to the ACA
• Antidiscrimination laws related to healthcare access
• Legal standards related to healthcare for prisoners and the mentally ill
• Processes for nonemergency admission and discharge
Vocabulary
accountable care organization (ACO)
Conditions of Participation and Conditions for Coverage
death spiral
federal poverty level (FPL)
managed care
parens patriae
police power
standing
third-party payers
Discussion Questions
1. Does everyone in the United States have equal access to high-quality
healthcare? Why or why not?
2. Describe four key ACA reforms related to access and identify three US
Supreme Court cases that center on those reforms.
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3. Have you ever obtained marketplace private insurance or a Medicaid
plan for yourself or another person? What did you think of the process
and the resulting coverage?
4. The ACA allows a marketplace plan to charge older people three times
as much as younger people, and smokers twice as much as nonsmokers.
Thus, if a nonsmoking 21-year-old who earned too much to get a
premium subsidy could buy a particular plan for $300 a month, that
same unsubsidized plan would cost a 64-year-old $900 a month and, if
that 64-year-old were a smoker, $1,350 a month. Is that fair? Is it wise?
Why or why not?
5. What is the status of Medicaid expansion throughout the country?
What do you think of the arguments advanced in favor of and against
state decisions about whether to adopt the expansion? Is Medicaid
expansion a current issue in your community?
6. How do you think health reform efforts are likely to proceed in
the next decade given competing political visions, federal and
state budgetary pressures, healthcare advances, and changing
demographics?
7. What are the general legal standards and processes for involuntary
admission of persons who are mentally ill? Are there challenges in your
area regarding access to mental health treatment, whether inpatient or
outpatient?
8. There has been a lot of attention to the need to “bend the cost curve.”
How does this attention manifest—with respect to both general
system-level value-based payment reforms and specific utilization
review decisions about individual patients? What do you think are the
best ways to support appropriate patient-centered medical decisionmaking while reducing unnecessary healthcare spending?
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The Court Decides
King v. Burwell
576 U.S. 473 (2015)
Roberts, Chief Justice
The Patient Protection and Affordable Care
Act adopts a series of interlocking reforms
designed to expand coverage in the individual health insurance market. First, the Act
bars insurers from taking a person’s health
into account when deciding whether to sell
health insurance or how much to charge.
Second, the Act generally requires each person to maintain insurance coverage or make
a payment to the Internal Revenue Service.
And third, the Act gives tax credits to certain
people to make insurance more affordable.
In addition to those reforms, the Act
requires the creation of an “Exchange” in
each State—basically, a marketplace that
allows people to compare and purchase
insurance plans. The Act gives each State the
opportunity to establish its own Exchange,
but provides that the Federal Government will
establish the Exchange if the State does not.
This case is about whether the Act’s
interlocking reforms apply equally in each
State no matter who establishes the State’s
Exchange. Specifically, the question presented is whether the Act’s tax credits
are available in States that have a Federal
Exchange.
I.A
[Here the chief justice summarizes what he
calls a “long history of failed health insurance reform,” including two related concepts
that several states adopted in the 1990s: a
“guaranteed issue” requirement and a “community rating” requirement. Together, these
reforms meant that anyone who wanted
health insurance in those states could buy
it, and insurers could not deny coverage
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or charge a higher premium because of
preexisting conditions. Then the opinion
­continues.]. . . .
The guaranteed issue and community rating requirements achieved [the goal of making insurance available to all], but they had
an unintended consequence: They encouraged people to wait until they got sick to buy
insurance. Why buy insurance coverage when
you are healthy, if you can buy the same coverage for the same price when you become
ill? This consequence—known as “adverse
selection”—led to a second: Insurers were
forced to increase premiums to account for
the fact that, more and more, it was the sick
rather than the healthy who were buying
insurance. And that consequence fed back
into the first: As the cost of insurance rose,
even more people waited until they became
ill to buy it.
This led to an economic “death spiral.”
As premiums rose higher and higher, and
the number of people buying insurance sank
lower and lower, insurers began to leave
the market entirely. As a result, the number of people without insurance increased
dramatically.
In 1996, Massachusetts adopted the guaranteed issue and community rating requirements and experienced similar results. But
in 2006, Massachusetts added two more
reforms: The Commonwealth required individuals to buy insurance or pay a penalty, and
it gave tax credits to certain individuals to
ensure that they could afford the insurance
they were required to buy. The combination
of these three reforms—insurance market
regulations, a coverage mandate, and tax
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credits—reduced the uninsured rate in Massachusetts to 2.6 percent, by far the lowest
in the Nation. [Massachusetts’s reforms—
sometimes referred to as “Romneycare,” a
reference to then governor Mitt Romney—
were a model for drafters of the ACA.]
B
[The opinion next describes the ACA’s reform
provisions: (1) adoption of the guaranteed
issue and community rating requirements;
(2) a requirement for individuals to have
insurance or make a tax payment to the
IRS—the “individual mandate” upheld in
NFIB v. Sebelius, and (3) the giving of tax
credits to low-income persons to help make
insurance more affordable.]. . . .
These three reforms are closely intertwined. . . . Congress found that the guaranteed issue and community rating requirements would not work without the coverage
requirement. And the coverage requirement
would not work without the tax credits. The
reason is that, without the tax credits, the
cost of buying insurance would exceed eight
percent of income for a large number of
individuals, which would exempt them from
the coverage requirement. [The ACA exempts
from the individual mandate individuals who
would have to spend more than 8 percent of
their income on health insurance.]
C
In addition to those three reforms, the Act
requires the creation of an “Exchange” in
each State where people can shop for insurance, usually online. An Exchange may be
created in one of two ways. First, the Act
provides that “[e]ach State shall . . . establish an American Health Benefit Exchange
. . . for the State.” Second, if a State nonetheless chooses not to establish its own
Exchange, the Act provides that the Secretary of Health and Human Services “shall . . .
establish and operate such Exchange within
the State.”
The issue in this case is whether the
Act’s tax credits are available in States that
have a Federal Exchange rather than a State
Exchange. The Act initially provides that tax
credits “shall be allowed” for any “applicable
taxpayer.” 26 U.S.C. § 36B. The Act then
provides that the amount of the tax credit
depends in part on whether the taxpayer has
enrolled in an insurance plan through “an
Exchange established by the State” [under §
18031 of the ACA].
[To implement these provisions, the
IRS promulgated a rule that made tax
credits available to applicable taxpayers
who enrolled in an insurance plan through
an exchange regardless of whether the
exchange was established by the state or
by HHS. The petitioners in this case were
four residents of Virginia who do not want
to buy health insurance. They argue that
Virginia’s exchange does not qualify as “an
Exchange established by the State” because
it was established by HHS, that they therefore should not receive tax credits, and that
they are exempt from the individual mandate
because without the credits the cost would
be more than 8 percent of their income.]. . . .
II
***
Petitioners argue that a Federal Exchange
is not “an Exchange established by the State
under [42 U.S.C. §18031],” and that the IRS
[regulation making tax credits available to
federal exchange enrollees] therefore contradicts Section 36B. The Government responds
that the IRS Rule [referred to earlier] is lawful
because the phrase “an Exchange established by the State under [42 U.S.C. §18031]”
should be read to include Federal Exchanges.
. . . It is . . . our task to determine the correct reading of Section 36B . . . [and in doing
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
so] we must read the words “in their context
and with a view to their place in the overall
statutory scheme.” Our duty, after all, is “to
construe statutes, not isolated provisions”
[quoting an earlier Supreme Court case].
A
We begin with the text of Section 36B. . . .
Section 36B allows an individual to receive
tax credits only if the individual enrolls in
an insurance plan through “an Exchange
established by the State under [42 U.S.C.
§18031].”
[A]ll parties agree that a Federal Exchange
qualifies as “an Exchange” for purposes of
Section 36B. Section 18031 provides that
“[e]ach State shall . . . establish an American Health Benefit Exchange . . . for the
State.” . . . [But] if the State chooses not to
do so, Section 18041 provides that the Secretary “shall . . . establish and operate such
Exchange within the State.”
By using the phrase “such Exchange,”
Section 18041 instructs the Secretary to
establish and operate the same Exchange
that the State was directed to establish
under Section 18031. . . . In other words,
State Exchanges and Federal Exchanges
are equivalent—they must meet the same
requirements, perform the same functions, and serve the same purposes.
Although State and Federal Exchanges
are established by different sovereigns,
Sections 18031 and 18041 do not suggest
that they differ in any meaningful way. A
Federal Exchange therefore counts as “an
Exchange” under Section 36B.
***
The Act defines the term “Exchange” to
mean “an American Health Benefit Exchange
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established under section 18031.” If we
import that definition into Section 18041, the
Act tells the Secretary to “establish and operate such ‘American Health Benefit Exchange
established under section 18031.’” That
­suggests that Section 18041 authorizes the
Secretary to establish an Exchange under
Section 18031, not (or not only) under Section
18041. Otherwise, the Federal Exchange, by
definition, would not be an “Exchange” at all.
This interpretation of “under [42 U. S. C.
§18031]” fits best with the statutory context.
All of the requirements that an Exchange
must meet are in Section 18031, so it is sensible to regard all Exchanges as established
under that provision. In addition, . . . the Act
repeatedly uses the phrase “established
under [42 U.S.C. §18031]” in situations
where it would make no sense to distinguish
between State and Federal Exchanges. A Federal Exchange may therefore be considered
one established “under [42 U. S. C. §18031].”
. . . The Affordable Care Act contains more
than a few examples of inartful drafting. . . .
[W]e “must do our best, bearing in mind the
fundamental canon of statutory construction
that the words of a statute must be read in
their context and with a view to their place in
the overall statutory scheme” [citing a 2014
case]. After reading Section 36B along with
other related provisions in the Act, we cannot conclude that the phrase “an Exchange
established by the State under [Section
18031]” is unambiguous.
B
Given that the text is ambiguous, we must
turn to the broader structure of the Act to
determine the meaning of Section 36B. “A
provision that may seem ambiguous in isolation is often clarified by the remainder of the
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statutory scheme . . . because only one of
the permissible meanings produces a substantive effect that is compatible with the
rest of the law.” Here, the statutory scheme
compels us to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a
Federal Exchange, and likely create the very
“death spirals” that Congress designed the
Act to avoid. . . .
The guaranteed issue and community rating requirements ensure that anyone can buy
insurance; the coverage requirement creates
an incentive for people to do so before they
get sick; and the tax credits—it is hoped—
make insurance more affordable. Together,
those reforms “minimize . . . adverse selection and broaden the health insurance risk
pool to include healthy individuals, which
will lower health insurance premiums.” 42
U.S.C. § 18091(2)0).
Under petitioners’ [interpretation], however, the Act would operate quite differently in a State with a Federal Exchange.
As they see it, one of the Act’s three major
reforms—the tax credits—would not apply.
And a second major reform—the coverage
requirement—would not apply in a meaningful way.
. . . The combination of no tax credits and
an ineffective coverage requirement could
well push a State’s individual insurance market into a death spiral. . . .
It is implausible that Congress meant the
Act to operate in this manner. . . . Congress
made the guaranteed issue and community
rating requirements applicable in every State
in the Nation. But those requirements only
work when combined with the coverage
requirement and the tax credits. So it stands
to reason that Congress meant for those provisions to apply in every State as well. . . .
***
Congress passed the Affordable Care Act
to improve health insurance markets, not
to destroy them. If at all possible, we must
interpret the Act in a way that is consistent
with the former, and avoids the latter. Section
36B can fairly be read consistent with what
we see as Congress’s plan, and that is the
reading we adopt.
The judgment of the United States Court of
Appeals for the Fourth Circuit is Affirmed.
Discussion Questions
1. As discussed in chapter 1, when interpreting a statute, judges typically analyze not only
the text of the law itself but also its history and purpose, other judicial decisions, and
the consequences of one outcome versus another. Compare the majority opinion in King
v. Burwell with Justice Scalia’s dissent as summarized in the text. In your opinion, which
rationale addresses those factors more satisfactorily?
2. Can you explain the logic behind the majority opinion? Do you find it persuasive?
3. What are the “death spirals” to which the chief justice refers?
~
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The Court Decides
California v. Texas
593 U.S. ___ (2021)
Justice Breyer delivered the opinion of the
Court.
As originally enacted in 2010, the Patient
Protection and Affordable Care Act required
most Americans to obtain minimum essential health insurance coverage. The Act also
imposed a monetary penalty, scaled according to income, upon individuals who failed to
do so. In 2017, Congress effectively nullified
the penalty by setting its amount at $0.
Texas and 17 other States brought this
lawsuit against the United States and federal
officials. They were later joined by two individuals. . . . The plaintiffs claim that without
the penalty the Act’s minimum essential coverage requirement is unconstitutional. Specifically, they say neither the Commerce Clause
nor the Tax Clause (nor any other enumerated
power) grants Congress the power to enact it.
They also argue that the minimum essential
coverage requirement is not severable from
the rest of the Act. Hence, they believe the
Act as a whole is invalid. We do not reach
these questions of the Act’s validity, however,
for Texas and the other plaintiffs in this suit
lack the standing necessary to raise them.
....
The Constitution gives federal courts the
power to adjudicate only genuine “Cases”
and “Controversies.” That power includes the
requirement that litigants have standing. A
plaintiff has standing only if he can “allege
personal injury fairly traceable to the defendant’s allegedly unlawful conduct and likely
to be redressed by the requested relief.”
Neither the individual nor the state plaintiffs
have shown that the injury they will suffer
or have suffered is “fairly traceable” to the
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“allegedly unlawful conduct” of which they
complain.
We begin with the two individual plaintiffs. They claim a particularized individual
harm in the form of payments they have
made and will make each month to carry the
minimum essential coverage that [the ACA]
requires. The individual plaintiffs point to the
statutory language, which, they say, commands them to buy health insurance. But
even if we assume that this pocketbook injury
satisfies the injury element of . . . standing,
the plaintiffs nevertheless fail to satisfy the
traceability requirement. Their problem lies
in the fact that the statutory provision, while
it tells them to obtain that coverage, has
no means of enforcement. With the penalty
zeroed out, the IRS can no longer seek a penalty from those who fail to comply. Because
of this, there is no possible Government
action that is causally connected to the plaintiffs’ [alleged] injury—the costs of purchasing
health insurance.
....
Next, we turn to the state plaintiffs. We
conclude that Texas and the other state
plaintiffs have similarly failed to show that
they have alleged an “injury fairly traceable to the defendant’s allegedly unlawful
conduct” [emphasis in the original]. They
claim two kinds of pocketbook injuries. First,
they allege an indirect injury in the form of
the increased use of (and therefore cost to)
state-operated medical insurance programs.
Second, they claim a direct injury resulting
from a variety of increased administrative and
related expenses required, they say, by the
minimum essential coverage provision, along
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with other provisions of the Act that, they
add, are inextricably “‘interwoven’” with it.
First, the state plaintiffs claim that the
minimum essential coverage provision has
led state residents subject to it to enroll in
state-operated or state-sponsored insurance programs such as Medicaid and health
insurance programs for state employees. The
state plaintiffs say they must pay a share of
the costs of serving those new enrollees. As
with the individual plaintiffs, the States also
have failed to show how this injury is directly
traceable to any actual or possible unlawful Government conduct. . . . That alone is
enough to show that they, like the individual
plaintiffs, lack . . . standing.
But. . . . we need only examine the initial
factual premise of their claim to uncover
another fatal weakness: The state plaintiffs
have failed to show that the challenged minimum essential coverage provision, without
any prospect of penalty, will harm them by
leading more individuals to enroll in these
programs.
unconstitutional the Act’s minimum essential
coverage provision. Therefore, we reverse the
Fifth Circuit’s judgment in respect to standing, vacate the judgment, and remand the
case with instructions to dismiss.
....
Unsurprisingly, the States have not demonstrated that an unenforceable mandate
will cause their residents to enroll in valuable
benefits programs that they would otherwise
forgo. It would require far stronger evidence
than the States have offered here to support
their counterintuitive theory of standing,
which rests on a “highly attenuated chain of
possibilities.”
Justice Thomas, concurring.
There is much to commend JUSTICE ALITO’s
account of “our epic Affordable Care Act trilogy.” [Referring to Alito’s dissenting opinion,
shown next.] This Court has gone to great
lengths to rescue the Act from its own text.
So have the Act’s defenders, who argued in
first instance that the individual coverage
mandate is the Act’s linchpin, yet now, in an
about-face, contend that it is just a throwaway sentence.
But, whatever the Act’s dubious history
in this Court, we must assess the current
suit on its own terms. And, here, there is a
fundamental problem with the arguments
advanced by the plaintiffs in attacking the
Act—they have not identified any unlawful
action that has injured them. Today’s result is
thus not the consequence of the Court once
again rescuing the Act, but rather of us adjudicating the particular claims the plaintiffs
chose to bring.
[Justice Thomas proceeds to explain why
he concurs in the result. “The plaintiffs failed
to demonstrate that the harm they suffered is
traceable to unlawful conduct.” And he adds,
“Although this Court has erred twice before
in cases involving the Affordable Care Act, it
does not err today.”]
....
For these reasons, we conclude that
the plaintiffs in this suit failed to show a
concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing
the specific statutory provision they attack
as unconstitutional. They have failed to
show that they have standing to attack as
Justice Alito, with whom Justice Gorsuch joins,
dissenting.
[Justice Alito sets the stage for his rather
petulant dissent with the following introductory paragraphs.] Today’s decision is the
third installment in our epic Affordable Care
Act trilogy, and it follows the same pattern
as installments one and two. In all three
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
episodes, with the Affordable Care Act facing
a serious threat, the Court has pulled off an
improbable rescue.
[Here he reviews the histories of NFIB v.
Sebelius and King v. Burwell.] . . . Now, in the
trilogy’s third episode, the Court is presented
with the daunting problem of a “tax” that
does not tax. Can the taxing power, which
saved the day in the first episode, sustain
such a curious creature? In 2017, Congress
reduced the “tax” imposed on Americans
who failed to abide by the individual mandate to $0. With that move, the slender reed
that supported the decision in NFIB was
seemingly cut down, but once again the
Court has found a way to protect the ACA.
Instead of defending the constitutionality
of the individual mandate, the Court simply
ducks the issue and holds that none of the
Act’s challengers, including the 18 States that
think the Act saddles them with huge financial costs, is entitled to sue.
Can this be correct? The ACA imposes
many burdensome obligations on States
in their capacity as employers, and the 18
States in question collectively have more
than a million employees. Even $1 in harm is
enough to support standing. Yet no State has
standing?
In this suit, as I will explain, Texas and
the other state plaintiffs have standing, and
now that the “tax” imposed by the individual
mandate is set at $0, the mandate cannot
be sustained under the taxing power. As a
result, it is clearly unconstitutional, and to
the extent that the provisions of the ACA that
burden the States are inextricably linked
to the individual mandate, they too are
unenforceable.
[The promised explanation occupies 28
pages of dense legal reasoning that has not
been well received by legal scholars. The dissent concludes with the following.] . . . .
No one can fail to be impressed by the
lengths to which this Court has been willing
to go to defend the ACA against all threats. A
penalty is a tax. The United States is a State.
And 18 States who bear costly burdens under
the ACA cannot even get a foot in the door to
raise a constitutional challenge. So a tax that
does not tax is allowed to stand and support
one of the biggest Government programs in
our Nation’s history. Fans of judicial inventiveness will applaud once again. But I must
respectfully dissent.
Discussion Questions
1. What do you know of the judicial philosophies of the seven Justices who voted to reverse
the court of appeals?
2. Compare the majority opinion and Justice Thomas’s concurring opinion with the opinion of
the two dissenters. Which of the viewpoints do you find more persuasive?
3. What would the effect have been on the healthcare sector of our economy if the plaintiffs’
arguments had prevailed in the Supreme Court?
~
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Notes
1. See generally, Institute of Medicine, Appendix A: Summary of the
Public Health System in the United States, in The Future of Public
Health 168–202 (1988), https://www.ncbi.nlm.nih.gov/books/
NBK218212/ (last visited May 9, 2022).
2. Uwe E. Reinhardt, Priced Out: The Economic and Ethical Costs
of American Health Care xxviii (2019) (emphasis in original).
3. Nat’l Rsch. Council & Inst. of Med., U.S. Health in International
Perspective: Shorter Lives, Poorer Health (Steven H. Woolf &
Laudan Aron eds., 2013).
4. Schneider et al., Mirror, Mirror 2021: Reflecting Poorly: Health Care in
the U.S. Compared to Other High-Income Countries (Commonwealth
Fund 2021), https://doi.org/10.26099/01dv-h208 [https://perma.
cc/E9H2-ZABH].
5. Quoted in Reinhardt, Priced Out, supra note 2, at xxiv.
6. Id. at xxvi–xxvii.
7. The narrow exception to this rule is the constitutional right to
adequate medical care for people who are imprisoned or detained.
Deliberate indifference to a prisoner’s medical needs is considered cruel
and unusual punishment. U.S. Const. amends. VII, XIV.
8. U.S. Const. art. I, § 8, cl. 1.
9. See, e.g., Protecting Mothers and Infants, U.S. Capitol Visitor
Center, https://www.visitthecapitol.gov/exhibitions/april-2010september-2011/protecting-mothers-and-infants [https://perma.
cc/5WK7-TPEF]; Edward R. Schlesinger, The Sheppard-Towner Era: A
Prototype Case Study in Federal–State Relationships, 57 Am. J. Pub. H.
1034 (June, 1967), https://doi.org/10.2105/AJPH.57.6.1034.
10. Jacobson v. Massachusetts, 197 U.S. 11 (1905).
11. Dent v. West Virginia, 129 U.S. 114, 123 (1889).
12. See, e.g., Historical Background and Development of Social Security,
Soc. Sec. Admin., https://www.ssa.gov/history/briefhistory3.html
[https://perma.cc/A7AB-GGJF].
13. See generally, National Health Insurance—A Brief History of
Reform Efforts in the U.S., Kaiser Fam. Found. (Feb. 28, 2009),
https://www.kff.org/health-reform/issue-brief/national-healthinsurance-a-brief-history-of/ [https://perma.cc/ST4Y-75YH]
[hereinafter Kaiser Fam. Found. Rep.].
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100
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
14. See, e.g., Our History, Kaiser Permanente, https://share.
kaiserpermanente.org/about-us/history/ [https://perma.cc/
MJ7J-HTBD].
15. Paul Starr, Remedy and Reaction: The Peculiar American Struggle
Over Health Care Reform 41 (rev. ed. 2013).
16. See Kaiser Fam. Found. Rep., supra note 13, at 3.
17. Hospital Survey and Construction Act, 42 U.S.C. § 291.
18. Paul Starr, The Social Transformation of American Medicine 347
(1st ed., 1982) [hereinafter STAM]. Today, except for a few cases in
a handful of low-income countries, polio has been virtually eradicated
from the earth.
19. Abbe R. Gluck, Symposium Issue Introduction: The Law of Medicare and
Medicaid at Fifty, 15 Yale J. Health Pol’y, L., & Ethics 1 (2015)
https://openyls.law.yale.edu/bitstream/handle/20.500.13051/5912/
AbbeGluck.pdf?sequence=2&isAllowed=y [https://perma.cc/
A5DN-JU4H].
20. Sallie Thieme Sanford, Health Care’s Fraternal Twins at 50: The Birth
and Development of Medicare and Medicaid, Jurist (Nov. 1, 2015),
https://www.jurist.org/commentary/2015/11/sallie-thieme-sanfordhealthcare/ [https://perma.cc/9DHQ-FGUT].
21. Historical Background and Development of Social Security, Soc. Sec.
Admin., https://www.ssa.gov/history/briefhistory3.html [https://
perma.cc/LP9F-VADK] (last visited May 9, 2022).
22. See, e.g., Health, United States, 2019 Table 004 (Nat’l Center for
Health Stat., 2021), https://www.cdc.gov/nchs/hus/contents2019.
htm [https://perma.cc/BR5H-CD32].
23. For a history of total healthcare spending in the United States dating
back to 1960, see National Health Expenditure Data: Historical, Ctrs.
Medicare & Medicaid Serv. (Dec. 11, 2018), https://www.cms.gov/
Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/NationalHealthAccountsHistorical
[https://perma.cc/L5DB-KKSY].
24. See generally Accountable Care Organizations (ACOs): General
Information, Ctrs. Medicare & Medicaid Serv. (Dec. 15, 2021),
https://innovation.cms.gov/innovation-models/aco [https://perma.
cc/53TW-QPJM]. See also Medicare Shared Savings Program Continues
to Grow and Deliver High-Quality, Person-Centered Care Through
Accountable Care Organizations, Ctrs. Medicare & Medicaid Serv.
(Jan. 26, 2022), https://www.cms.gov/newsroom/press-releases/
medicare-shared-savings-program-continues-grow-and-deliverhigh-quality-person-centered-care-through [https://perma.cc/
KH3P-VNNR].
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101
25. See Accountable Care Organizations (ACOs): General Information,
Ctrs. Medicare & Medicaid Serv. (Feb. 10, 2022), https://
innovation.cms.gov/initiatives/aco/ [https://perma.cc/QP9S-PJJ5].
26. Affordable Care Act, Pub. L. No. 111-148, codified at § 3022, 42
U.S.C. § 1395 et seq. (2012).
27. National Federation of Independent Business (NFIB) v. Sebelius, 567
U.S. 519, 583 (2012).
28. 567 U.S. 1 (2012).
29. See 86 Fed. Reg. 67479 (Nov. 26, 2021).
30. 42 U.S.C. § 1396n.
31. 42 U.S.C. § 1315.
32. CMS maintains a list of waivers (including those which are pending
and open for comment). State Waivers List, Ctrs. Medicare &
Medicaid Servs., https://www.medicaid.gov/medicaid/section-1115demo/demonstration-and-waiver-list/index.html [https://perma.
cc/8W9Q-K9ZY] (last visited Apr. 25, 2022).
33. Madeline Guth, Elizabeth Hinton, MaryBeth Musumeci & Robin
Rudowitz, The Landscape of Medicaid Demonstration Waivers Ahead of
the 2020 Election, Kaiser Fam. Found. (Oct. 30, 2020), https://www.
kff.org/medicaid/issue-brief/the-landscape-of-medicaid-demonstrationwaivers-ahead-of-the-2020-election/#:~:text=Section%201115%20
waivers%20offer%20states,waivers%20to%20respond%20to%20
emergencies [https://perma.cc/CH3J-H6VW].
34. The Kaiser Family Foundation has conducted regular polling about
the ACA overall and its component parts since shortly after it was
signed into law. Kaiser Health Tracking Poll: The Public’s Views on
the ACA, Kaiser Fam. Found. (Mar. 22, 2022) https://www.kff.
org/interactive/kaiser-health-tracking-poll-the-publics-views-on-theaca/#?response=Favorable--Unfavorable [https://perma.cc/3MZDFAC6] [hereinafter Kaiser Health Tracking Poll].
35. Sallie Thieme Sanford, The Struggle to Bury Pre-Existing Condition
Consideration, 7 St. Louis J. Health L. & Pol’y 405, 410–412 (2014).
36. Affordable Care Act, Pub. L. No. 111-148, § 1501, 26 U.S.C. §
5000A (2012), amended by Act to Provide for Reconciliation Pursuant
to Titles II and V of the Concurrent Resolution on the Budget for
Fiscal Year 2018, Pub. L. No. 115-97 § 11081, 131 Stat. 2054, 2092
(2017) (originally introduced as the Tax Cuts and Jobs Act of 2017).
37. 26 U.S.C. § 4980H (2012).
38. 42 U.S.C. § 300gg-14, Extension of dependent coverage; 45 CFR. §
147.120 (pertaining to eligibility of children until at least age 26).
39. Kaiser Health Tracking Poll, supra note 34.
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40. Sallie Thieme Sanford, Health Reform and Higher Ed: Campuses as
Harbingers of Medicaid Universality and Medicare Commonality, 47 J.
L. Med. & Ethics 79–90 (Winter 2019).
41. Supra note 30.
42. Sallie Thieme Sanford, Nobody Knew How Complicated: Constraining
the President’s Power to (Re)Shape Health Reform, 45 Am. J. L. &
Med. 106–129 (2019).
43. NFIB v. Sebelius, 567 U.S. 1 (2012).
44. US Const. art. I, § 8.
45. The 12 states that have refused to expand their Medicaid programs
are Ala., Fla., Ga., Kan., Miss., N.C., S.C., S.D., Tenn., Tex., Wis.,
and Wyo. See Status of State Medicaid Expansion Decisions, Kaiser
Fam. Found., https://www.kff.org/medicaid/issue-brief/status-ofstate-medicaid-expansion-decisions-interactive-map/ [https://perma.
cc/4UQ4-57VK] (last visited May 9, 2022).
46. King v. Burwell, 576 U.S. 473 (2015).
47. Id. at 500–501 (Scalia, J. dissenting) (emphasis in original).
48. California v. Texas, 141 S.Ct. 2104, 2112 (2021).
49. See Guidance to Federal Financial Assistance Recipients Regarding
Title VI and the Prohibition Against National Origin Discrimination
Affecting Limited English Proficient Persons—Summary, HHS Office
for Civil Rights, HHS.gov (Jul. 26, 2013), https://www.hhs.gov/
civil-rights/for-providers/laws-regulations-guidance/guidance-federalfinancial-assistance-title-vi/index.html [https://perma.cc/5MYPMPTS] (last visited May 9, 2022).
50. 42 U.S.C. § 18116(a).
51. 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 in their individual capacity).
52. Youngberg v. Romero, 457 U.S. 307 (1982) (an involuntarily
committed mental patient was entitled to medical care).
53. See, e.g., Hampton v. California, No. 21-CV-03058-LB, 2022 WL
838122 (N.D. Cal. Mar. 20, 2022) (federal court denying motion
to dismiss cruel and unusual punishment claim where plaintiff’s
husband died of COVID-19 in San Quentin) and In re Von Staich,
56 Cal. App. 5th 53, 270 Cal. Rptr. 3d 128, review granted and cause
transferred sub nom. Staich on H.C., 477 P.3d 537 (Cal. 2020) (state
appellate court finding cruel and unusual punishment for 64-year-old
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54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
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103
who contracted COVID-19 in San Quentin; subsequently remanded
for evidentiary hearing by the state supreme court).
See, e.g., 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 the medical expenses of
a convicted murderer injured in an automobile accident while in the
county’s custody).
Idaho Code § 20-209 (1979); but see Sisters of Third Order of St.
Francis v. County of Tazewell, 461 N.E.2d 1064 (Ill. App. Ct. 1984)
(the county was not liable for care furnished to an arrestee in the
custody of municipal police).
Alaska Stat. § 33.30.050 (1982).
Md. Ann. Code art. 27, § 698 (Supp. 1985). Florida has a statute that
establishes a hierarchy of responsibility for medical expenses provided
to “any person ill, wounded, or otherwise 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 when those sources are not available may the provider
seek reimbursement from governmental authority. On the basis of
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. Fla. Stat. §
901.35.
See William Contente, Note and Comment, City of Revere v.
Massachusetts General Hospital: Government Responsibility for an
Arrestee’s Medical Care, 9 Am. J. L. & Med., 359, 369–70 (1983).
Massachusetts Gen. Hosp. v. City of Revere, 484 N.E.2d 185 (Mass.
1982) rev’d on other grounds, City of Revere v. Massachusetts Gen.
Hosp., 463 U.S. 239 (1983).
City of Revere v. Massachusetts Gen. Hosp., 463 U.S. 239 (1983).
Lewis v. Donahue, 437 F. Supp. 112 (W.D. Okla. 1977) (a patient
released from state hospital and transferred to outpatient status may
not be recommitted without due process protections). See also In re
Anderson, 140 Cal. Rptr. 546 (Cal. Dist. Ct. App. 1977).
People in Interest of Paiz, 603 P.2d 976 (Colo. App. 1979).
Addington v. Texas, 441 U.S. 418 (1979).
See Tobias v. Manhattan Eye & Ear Hosp., 283 N.Y.S.2d 398 (N.Y.
App. Div. 1967), aff’d, 244 N.E.2d 59 (N.Y. 1968).
Fla. Stat. §§ 394.451–394.4789.
O’Connor v. Donaldson, 422 U.S. 563 (1975).
Id., at 575–576.
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68. See, e.g., Wyatt v. Stickney, 344 F. Supp. 387 (M.D. Ala. 1972),
Wyatt v. Stickney, 344 F. Supp. 373 (M.D. Ala. 1972), aff’d in part,
remanded in part, 503 F.2d 1305 (5th Cir. 1974) (people involuntarily
committed have a constitutional right to treatment that will afford
them a realistic opportunity to return to society), and Youngberg
v. Romero, 457 U.S. 307 (an intellectually disabled person was not
provided treatment appropriate for his diagnosis).
69. Rone v. Fireman, 473 F. Supp. 92, 104, 119–120 (N.D. Ohio 1979);
see also Ohlinger v. Watson, 652 F.2d 775 (9th Cir. 1980).
70. 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 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).
71. 16 C.F.R. § 681.
72. Comprehensive Accreditation Manual for Hospitals (CAMH), The
Joint Comm’n, Rationale for LD.02.05, at L-29 (Joint Comm’n Res.
2021) (emphasis added).
73. Jersey City Medical Center v. Halstead, 404 A.2d 44 (N.J. Super. Ct.
Ch. Div. 1979); Lucy Webb Hayes Nat’l School v. Geoghegan, 281 F.
Supp. 116 (D.D.C. 1967).
74. Monmouth Medical Center v. State, 403 A.2d 487 (N. J. 1979), cert.
denied, 444 U.S. 942 (1979).
75. Monmouth Medical Center v. Harris, 646 F.2d 74 (3d Cir. 1981).
76. 42 U.S.C. §§ 1320c–1320c-13. (1983 and Supp. 1987).
77. 42 U.S.C. § 1320c-3.
78. NFIB, 567 U.S. at 583.
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Appendix 2.1: Medicare/Medicaid/CHIP Comparison
Note: The federal government also insures additional populations through the Indian Health Service
(2.5 million), Veterans Health Administration (9+ million), Military Health System (TRICARE) (9.6
million), and Federal Employees Health Benefits (FEHB) Program (8+ million). Some people may be
covered under more than one program. Those covered by both Medicare and Medicaid are known as
“dual eligibles.”
Medicare
Medicaid
CHIP
Coverage in
2020
61.2 million
70.5 million
6.7 million
Program Type
Federal program with no
sunset date
Federal–state partnership.
States administer their
programs pursuant to
federal rules and with
federal financial support.
All states participate.
They must cover certain
categories of people and
services, but optional
categories may also be
covered. For this reason,
Medicaid programs vary
from state to state. The
federal government
may also grant a state’s
request to waive certain
program requirements
(section 1115 waiver).
Federal–state partnership
providing health
insurance for certain
groups, mostly children.
Periodic reauthorization of
federal funding required
(last extended in 2018 for
six years).
In some states, CHIP is
an extension of Medicaid,
but in others, it is run as a
separate program.
Funding
Sources
Payroll taxes and general
federal revenues.
Potentially high out-ofpocket (OOP) costs to
beneficiaries, particularly
those with only traditional
Medicare (Parts A
and B). Parts C and D
are obtained through
private insurers with
federal financial support.
Because of cost, most
beneficiaries have some
other source of coverage
in addition to traditional
Medicare.
Federal medical
assistance percentage
(FMAP) allocated to states
based on the state’s per
capita income. Federal
government pays onehalf to two-thirds of the
costs for the categorically
eligible and 90% of the
costs for those newly
eligible due to ACA
Medicaid expansion.
States pay the difference,
with limited allowed
OOP contribution from
beneficiaries.
Enhanced FMAP of 15%
above a state’s Medicaid
FMAP. States pay the
difference with some
premiums and other
OOP costs allowed to be
charged to beneficiaries.
(continued)
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Medicare
Medicaid
CHIP
Eligibility
Citizens and permanent
residents who:
• are over 65 and paid
(or whose spouse paid)
Social Security taxes
for ten years (plus
buy-in option for those
without work history);
or
• have a qualifying
disability (after
24-month waiting
period); or
• have ESRD or ALS (no
waiting period)
Note: low-income
Medicare beneficiaries
might also be eligible
for Medicaid; these are
known as “dual eligibles.”
Low-income citizens and
legal residents who are
either:
Categorically eligible*
• Over 65
• Children
• Living with qualifying
disabilities
• Pregnant
• Extremely poor parents
of minors
* These eligibility
levels vary by state
(see graphic).
In the expansion
population:
• Income below 138% of
FPL
• Living in a state that
expanded its Medicaid
program pursuant to
the ACA
As of mid-2022, 38
states (including DC) had
adopted the expansion;
12 had not.
Primarily low-income
children whose families
make too much to qualify
for Medicaid.
Some states also cover
pregnancy under this
program.
Income eligibility levels
vary by state, up to a
possible maximum of
400% of FPL.
Covered
Services
Part A: Hospital, skilled
nursing facility, hospice,
home health care
Medicaid rules include
both mandatory and
optional covered services.
Services also differ
based on a beneficiary’s
eligibility category and
the special needs of
certain populations.
Notably, Medicaid covers
general nursing home
stays, while Medicare does
not. Many dual eligibles
are in nursing homes.
Mandatory covered services
for those under age 21
include dental and vision.
Although prescription
medications are in the
optional category, all
states include prescription
medication coverage.
Federal rules for state
programs include both
mandatory and optional
covered services.
Part B: Physician,
outpatient, durable
medical equipment
Part C: Alternative
coverage of Parts A +
B or Parts A + B + D
through private Medicare
Advantage plans
Part D: Prescription
medications (through
private insurers with
significant federal
subsidies)
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Medicare
Costs to
enrollees
Medicaid
107
CHIP
Part A: No premium
for most enrollees, but
there is a deductible and
copay that can make
long hospital stays very
expensive
States have the option
to charge premiums and
establish other OOP
requirements for some
Medicaid beneficiaries,
notably those with
incomes above 150% of
FPL.
Part B: Monthly premium,
Certain groups (including
a deductible, and 20%
children)
and conditions
copay on all charges
(e.g., pregnancy) are
exempt from most OOP
Part C: Premium
costs, and there is a
and other OOP costs
cap on OOP costs for all
determined by private
beneficiaries.
insurer
States can charge a
premium and require
cost sharing, including
enrollment fees,
premiums, deductibles,
coinsurance, and
copayments.
There are federal limits
on the amount of cost
sharing and a prohibition
on cost sharing for certain
populations and certain
services.
Part D: after deductible,
plan pays 75% and
patient pays 25%.
OOP costs can be high,
particularly for those in
traditional Medicare, so
many beneficiaries enroll
in Medicare Advantage
plans that provide
drug coverage. About
one in five also have
Medicaid coverage, and
many others enroll in
“Medigap” plans (private
plans designed to cover
the gaps in traditional
Medicare).
Expansion States
266%
216%
203%
Non-Expansion States
199%
138%
138%
41%
0%
Children
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Pregnant Women
Parents
Other Adults
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Appendix 2.2: History of Health Reform Efforts
The tortuous history of healthcare reform in the United States spans more than a century and a half
and at least a dozen presidential administrations.
Year
Event
1854
A bill that would have established asylums for the “indigent insane” as well as
for the blind and deaf passes both houses of Congress but is vetoed by President
Franklin Pierce. Pierce argues that the federal government should not commit itself
to social welfare, which he argued was the responsibility of the states.
1865
After the Civil War, the federal government establishes the first system of national
medical care in the South. Through an agency known as the Freedmen’s Bureau,
the government constructs 40 hospitals, employs more than 120 physicians, and
treats more than a million sick and dying former slaves. The hospitals last only
from 1865 to 1870 because continuation of the bureau is opposed by President
Andrew Johnson, a southerner.
1912
Former President Theodore Roosevelt champions national health insurance in his
unsuccessful third-party bid for election as the “Bull Moose” candidate.
1935
President Franklin D. Roosevelt (FDR) favors creating national health insurance
amid the Great Depression but decides to push for Social Security first.
1942
FDR establishes wage and price controls during World War II. Businesses cannot
attract workers with higher pay, so they compete by adding benefits, including
health insurance. Employer-paid health insurance grows into a workplace perk and
becomes the usual source of coverage for most Americans.
1945
President Harry S. Truman calls on Congress to create a national insurance
program. The American Medical Association denounces the idea as “socialized
medicine,” and it goes nowhere.
1960
Candidate John F. Kennedy makes healthcare a major campaign issue. Later, as
president, he cannot get a plan for the elderly through Congress.
1965
President Lyndon B. Johnson’s legendary arm-twisting and a Congress dominated
by his fellow Democrats leads to creation of two landmark government health
programs: Medicare for the elderly and Medicaid for the poor.
1974
President Richard Nixon proposes an employer mandate to offer private health
insurance and reforms to Medicaid. The Watergate scandal intervenes, causing
Nixon’s resignation.
1976
President Jimmy Carter promotes a mandatory national health plan, but an
economic recession helps push it aside.
1986
President Ronald Reagan signs the Consolidated Omnibus Budget Reconciliation
Act (COBRA), a requirement that employers let former workers stay on the
company health plan for 18 months after leaving a job, with the workers bearing
the cost.
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C h a p te r 2 : A c c ess to H ealthc are Insuranc e and Treatm ent
Year
Event
1988
Congress expands Medicare by adding a prescription drug benefit and
“catastrophic care” coverage. Barraged by protests from older Americans upset
about paying a tax to finance the additional coverage, Congress repeals the
catastrophic care law the next year.
1993
President Bill Clinton puts First Lady Hillary Rodham Clinton in charge of
developing what becomes a 1,300-page plan for universal coverage. “Hillarycare”
would require businesses to cover their workers and require everyone to have
health insurance. The plan meets Republican opposition, divides Democrats, and
comes under a firestorm of lobbying from businesses and the healthcare field. It
dies in the Senate.
1997
Clinton signs bipartisan legislation—the Children’s Health Insurance Program
(CHIP)—creating a state-federal program to provide coverage for millions of
children in families of modest means whose incomes are too high to qualify for
Medicaid.
2003
In a major expansion of the program for older people, President George W. Bush
persuades Congress to add prescription drug coverage to Medicare.
2009
President Barack Obama and the Democratic-controlled Congress spend an
intense year ironing out legislation to require most companies to cover their
workers, mandate that everyone have coverage or pay a penalty to the IRS, require
insurance companies to accept all comers regardless of preexisting conditions,
assist people who cannot afford insurance, create state and federal health benefit
exchanges, and encourage states to expand Medicaid coverage. This effort
becomes the ACA, which passes in 2010 with no Republicans voting in favor.
2012
In National Federation of Independent Business v. Sebelius, the US Supreme Court
upholds the “individual mandate” portion of the ACA (the penalty for individuals
who do not have insurance) but strikes down the provision requiring states to
expand Medicaid.
2015
In King v. Burwell, the court holds that the ACA’s tax credits are available to
applicable taxpayers in states that have a federal exchange rather than a state
exchange.
2017
President Donald J. Trump takes office and vows to “repeal and replace” the ACA.
Despite scores of attempts to do so legislatively, Congress fails to repeal the law. It
does, however, reduce to $0 the penalty for failure to obtain insurance. Texas and
numerous other plaintiffs argue that this invalidates the entire ACA.
2021
In California v. Texas, the US Supreme Court rules that the plaintiffs had no
standing to challenge the ACA on the basis of the $0 penalty, thus leaving the ACA
intact even though the individual mandate is unenforceable.
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CHAPTER
THE ORGANIZATION AND MANAGEMENT OF
A CORPORATE HEALTHCARE INSTITUTION
3
After reading this chapter, you will
• understand that a corporation is a “person” for many legal
purposes, but not an “individual” or a “citizen”; therefore, laws
that apply to persons also apply to corporations, but laws that
specify individuals or citizens do not;
• appreciate that incorporation has many advantages, the most
significant of which is limiting the liability of the individuals who
own the corporation;
• know that the powers of a corporation are limited to those specified
in state law and the corporate charter;
• understand the governing board’s fiduciary duties of care, loyalty,
and obedience to the mission of their organization;
• be able to explain why 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;
• realize that many factors have led to the development of
multi-institutional healthcare systems rather than stand-alone
entities; and
• see that the Affordable Care Act provided the impetus for another
round of corporate reorganization, especially in the area of
hospital–physician relations.
M
ost institutional healthcare providers are corporations; thus, this
chapter focuses on the fundamental nature of the corporate form of
organization. However, healthcare is also provided by sole proprietorships, partnerships, and other types of business entities.
In a sole proprietorship, an individual (e.g., a family physician in solo
practice) assumes all organizational roles: employer, employee, and owner.
The proprietor usually retains any profits or suffers any losses and bears the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
fiduciary
Relating to the
duty of acting in
good faith for the
benefit of another
person or entity.
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full risks of the enterprise. A partnership exists if someone joins the proprietor
and shares in the rewards and risks. Partnerships are governed by state law
and by an agreement between the parties.1 The parties have great latitude to
develop an agreement that suits their needs.
The simplest kind of partnership is a general partnership. In this
arrangement, the partners usually receive equal shares of profits or losses,
are entitled to equal voting rights, and are liable for the debts and torts
of the venture. On the death or departure of a partner, the partnership is
automatically dissolved, but the business operation does not necessarily end.
General partners ordinarily control the business by consensus; however,
as the volume of business and number of partners increase, this arrangement may become cumbersome and the liability risks too great. Providers
who are in a legal partnership with other providers are liable for the torts
of their partners (if they acted in the scope of the partnership) because
every partner is legally an agent of the other partners. This is one reason
for the growth in professional limited liability companies as an alternative
organizational model.
These alternative organizational models go by different names,
including limited partnership, limited liability company, professional limited liability company (PLLC), and professional corporation. They may be
used by licensed individuals such as physicians, psychologists, midwives,
and others to protect their personal assets from lawsuits brought against
their practices. PLLCs and similar state-authorized entities hold a lot
of appeal for healthcare professionals desiring to work as a group. The
requirements for creating these entities vary from state to state, and the
implications for taxation and tort liability may differ from one type to
another. The details are too many to describe here; it is sufficient to say
that competent legal and accounting advice should be sought before creating any business entity.
A joint venture is a special form of relationship created by contract
for a specific purpose and for a limited duration. A joint venture is thus one
way of integrating two or more business organizations. In joint ventures,
the parties have fiduciary responsibilities to each other, and, depending on
the contractual terms, each usually has a right to participate in management.
Profits and losses are shared according to the agreement, and each participant may be liable to third parties. Although somewhat similar, a joint venture differs from a general partnership in that its participants are not agents
of each other.
Because of their flexibility, joint ventures have become popular in the
healthcare sector and have been used, for example, to effect hospital–­physician
integration (discussed later in this chapter). The rest of this ­chapter focuses
primarily on corporations, the predominant form of healthcare organization.
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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 on it, either expressly or as incidental to its very existence.”2
The modern corporation came to prominence in the late nineteenth
century with the passage of state statutes regarding business incorporation.
These laws allow any group of persons (or, in some states, a single individual)
to incorporate an enterprise for any lawful purpose, as long as it meets statutory requirements.
General business corporation acts provide for the formation and
operation of a wide range of commercial activities, such as manufacturing,
wholesaling, and retailing. Most states have a separate corporate statute for
­not-for-profit organizations. The type of statute under which the organization is formed will shape its permissible endeavors, for a corporation has only
the powers granted to it by its charter, as specified in its articles of incorporation and authorized by the relevant state corporations law.
corporation
An organization
formed with
governmental
approval to act
as an artificial
person to carry
on business (or
other activities),
able to sue or be
sued, and (unless
it is a not-for-profit
corporation) able
to issue shares
of stock to raise
capital.
The Corporation Is a “Person”
Because corporations are legal entities distinct from the individuals who create
or manage them, they fall within the definition of “person” for most constitutional and statutory purposes. For example, the Fifth and Fourteenth Amendments to the US Constitution provide that no person shall be deprived of “life,
liberty, or property without the due process of law.” Similarly, the Fourteenth
Amendment provides that no state “shall deny to any person . . . the equal
protection of the laws.” Corporations are protected by these fundamental
doctrines (see Legal Brief). Personhood also enables a corporation to acquire,
own, and dispose of property (including
stock in other corporations) and to sue
and be sued. In short, a corporation is an
Legal Brief
independent entity with rights and responsibilities of its own.
On the other hand, a corporation
Corporations’ constitutional rights were confirmed
in the 2010 Citizens United case, in which the US
is not a citizen. It cannot vote in an elecSupreme Court held that corporate funding of
tion, and it is not protected by the Fourpolitical broadcasts during election campaigns is a
teenth Amendment’s provision that “no
form of free speech protected by the First Amendstate shall make or enforce any law which
ment. “Political speech does not lose First Amendshall abridge the privileges or immuniment protection ‘simply because its source is a
ties of citizens of the United States.”
corporation’” (Citizens United v. Federal Election
Commission, 558 U.S. 310 [2010]).
Neither is a corporation protected by the
Fifth Amendment’s prohibition against
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Legal Brief
The prohibition on the corporate practice of medicine (CPM) was announced decades ago as a
means of discouraging commercialization and
exploitation of the medical profession and emphasizing that the physician’s individual loyalties
belong solely to the patient. In some states, it
was the creature of common law; in others, the
doctrine was enshrined in statutes.
The CPM doctrine has been eroded over
time. Most scholars believe that absent a specific
statute, courts would be unlikely to apply it to
a hospital, at least a not-for-profit one, whose
physician contracts disclaim control over medical
decision-making. In the few states where CPM
statutory prohibitions remain, creative contractual arrangements are often available to bypass
their effect. For example, California—which continues the CPM prohibition more stringently than
most states do—allows exceptions for professional medical corporations and foundations,
teaching hospitals, some community clinics, substance abuse programs, and some not-for-profit
organizations. For example, in California Medical
Association v. Regents of University of California (79 Cal. App. 4th 542 [2000]), an appellate
court wrote, “Concerns about for-profit corporations have nothing to do with non-profit teaching
hospitals.”
Before an entity decides to hire physicians, it
needs to clarify the status of the CPM doctrine in
the states at issue.
•
•
•
•
•
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self-incrimination because that right
applies only to real people (individuals).
Similarly, a corporation is not a person
for the purpose of professional licensure
statutes because it cannot meet the educational requirements or standards of
personal character required for that type
of licensure. Of course, the entity itself
might be licensed to operate a clinic,
pharmacy, hospital, or other type of regulated healthcare business. Whether the
entity can hire physicians is a function,
among other concerns, of the strength of
the corporate practice of medicine doctrine in its state (see Legal Brief ).
Forming a Corporation
A corporation is formed by filing articles
of incorporation with the secretary of
state or other designated official of the
state in which incorporation is sought.
On approval, a corporate charter is
issued. Although requirements regarding
the specific content of the articles differ
from state to state, the articles typically
must include the following:
• Name of the corporation
• Address of the corporation’s office
• Name of the registered agent
authorized to accept delivery of
writs, summonses, or other legal
papers
Names and addresses of the incorporators
Duration of corporate existence (which is usually unlimited)
Purpose of the corporation
Names of the initial members of the governing board (also known as
board of directors and board of trustees)
Number and classification of shares of stock (in a for-profit
corporation) or the designation of members, if any (in a not-for-profit
organization)
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The incorporators are those who prepare, sign, and file the articles
of incorporation. Some states require a minimum number of incorporators,
while others permit an individual to act as the incorporator.
Advantages of the Corporate Form of Organization
There are five principal advantages to incorporation:
1. Limited liability. Normally, the owners of a corporation are not
personally liable for the corporation’s contracts or torts. A shareholder
of a for-profit corporation is not personally liable, with a few
exceptions, for corporate debts beyond the extent of the shareholder’s
investment in the corporation’s stock. Similarly, employees generally
are not personally liable for corporate obligations if they act in the
scope of delegated authority; rather, the corporation would be liable
for employees’ actions within the scope of their employment.
2. Perpetual existence. Unlike a sole proprietorship 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. Free transfer of ownership interests (at least if the corporation is forprofit). 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 increases
the liquidity and value of corporate investments. State statutes usually
provide that membership interests in not-for-profit corporations may
not be transferred.
4. Taxation separate from individual income taxes. The corporate tax rate
is generally lower than the personal income tax rate, and the persons
who own the corporation are taxed only on the distributions of income
(dividends) they receive, not on their proportionate shares of the entire
corporate profit.
5. Ability to raise capital. Access to equity capital, as distinct from
borrowing and creating debt, is a major consideration when
undertaking new or expanded ventures.
115
physician
For purposes of
federal healthcare
programs, a
physician is a
doctor of medicine
(MD), doctor
of osteopathy
(DO), doctor of
dental surgery
(DDS), doctor of
dental medicine
(DMD), doctor of
podiatric medicine
(DPM), doctor of
optometry (OD),
or chiropractor
(DC) (see 42 U.S.C.
§ 1395x[r]).
corporate charter
The fundamental
document
(usually articles of
incorporation) of a
corporation’s legal
authority.
Powers of a Corporation
A corporation may act only within its corporate authority, and its powers are
limited to those consistent with its charter (articles of incorporation) and the
statute under which it was formed.
There are two kinds of powers: express and implied. Express powers are
those specifically designated by charter or statute. The relevant statute under
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ultra vires
A departure from
express or implied
corporate power,
from the Latin
phrase meaning
“beyond the
powers.”
which the corporation is formed enumerates 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 are those
reasonably necessary to carry out the express powers and achieve the corporation’s purposes and objectives.
Any departure from express or implied corporate power is said to be
ultra vires. For example, the case of Charlotte Hungerford Hospital v. Mulvey, although it does not involve 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.) Therefore, in planning for the
future and in making commitments, the governing body of the corporation
must keep a close eye on the corporation’s legal authority, and legal advice
regarding this issue is of utmost importance. For example, if a not-for-profit
corporation donates or transfers assets to another institution for a purpose
not included in its own charter, the donation or transfer is ultra vires. As
such, it could be challenged in a suit for an injunction and would likely be
held void.
Some hospital transactions that may raise questions about corporate
power include the following:
•
•
•
•
•
•
Lending credit or guaranteeing the debts of another corporation
Issuing loans to its corporate trustees, officers, or members
Forming a partnership with another corporation or an individual
Consolidating or merging with another corporation
Leasing publicly owned facilities to a private corporation
Engaging in independent private business enterprises (if a public
hospital) without statutory authority to do so
These transactions are not necessarily ultra vires, but the authority to
engage in them must be verified with legal counsel. (Corporate consolidations and mergers are discussed later in this chapter.)
Not-for-Profit Corporation
not-for-profit (or
nonprofit)
A type of
organization in
which legal and
ethical restrictions
prohibit the
distribution of
profits to owners
or shareholders.
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A general for-profit business corporation is owned by shareholders, who
are entitled to and expect to receive dividends from the earnings of the
corporation and to share in assets should the corporation be dissolved. By
contrast, no part of the net earnings of a not-for-profit corporation may
be distributed for the private gain of its members, directors or trustees, officers, or other private individuals. However, a not-for-profit corporation can
earn income in excess of its expenses (see Legal Brief) without sacrificing
its not-for-profit status, as long as it uses that net income for institutional
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purposes. As the saying goes, “no margin,
no mission.” Moreover, it can, without
Legal Brief
question, pay its employees. If the compensation paid is reasonable, salaries are
The terms not-for-profit and nonprofit are synnot “private gain” that would jeopardize
onymous. The former expression is preferred, how3
the corporation’s not-for-profit status.
ever, because it emphasizes that the purpose of
(This topic is addressed in more depth
the corporation is not to make a profit even though
in chapter 13 with respect to tax-exempt
it may (and usually does) do so. Clearly, no corpoorganizations.)
ration can long survive with a negative bottom line.
Although charitable status is contingent on not-for-profit status, a notfor-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 charitable or benevolent purposes. Such
corporations do not qualify for the tax-exempt status that charitable corporations enjoy (see chapter 13). Not-for-profit status is a prerequisite for tax
exemption not only under federal law but also under the state statutes providing for taxes on sales, income, and real or personal property.4
Not-for-profit corporations do not have shareholders, but they may or
may not have “corporate members” (depending on the provisions of the law
under which they are incorporated). These members 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
• elect directors to the governing body;
• approve merger or dissolution of the corporation;
• amend the articles of incorporation and bylaws, including the corporate
purpose;
• set the corporate philosophy and mission; and
• adopt annual budgets, unless the board of directors is given this power.
In most states, members must meet at least annually to conduct business. 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. In any event, the reserved powers are set forth in the not-for-profit
corporation law and the articles of incorporation. On 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.
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Management of a Corporation
Corporate bylaws contain rules for the internal management and governance
of corporations. Unless state statutes or a corporation’s articles of incorporation provide otherwise, the power to adopt and amend a corporation’s bylaws
lies with its members or shareholders. In short, the governing body of a
corporation cannot adopt or amend corporate bylaws unless state statutes or
the corporation’s charter have specifically granted it this power. 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 earlier, certain extraordinary matters normally require the
vote of members or shareholders. As discussed in the following section, other
major powers reside with the governing board. Otherwise, the day-to-day
management of the corporation is the responsibility of its CEO and other
management staff.
Responsibilities of the Governing Board
The governing body of a healthcare institution has four major functions:
1.
2.
3.
4.
Develop policy and strategic plans
Appoint senior administration and medical staff members
Delineate clinical privileges
Oversee the professional performance of lay administrators and the
medical staff
To fulfill these functions properly, the board must ensure the proper
organization of its own committee structure. For example, the board must
ensure that the executive committee is properly executing corporate policy in
the interval between board meetings, and this committee must not assume the
decision-making power legally reserved for the whole board or for corporate
members or shareholders. Moreover, the executive committee is usually not
permitted to delegate its responsibilities to any single member of the committee. In addition to the executive committee, other standing committees often
include committees on finance, medical staff relations, corporate compliance,
buildings and grounds, personnel, public relations, and education.
Committees that focus on diversity, equity, and inclusion (DEI) are
gaining in popularity, as are other committees composed of members of the
local community to advise on DEI and similar issues. In addition to providing important input to the board about community needs, these committees
can be a source of future board members.
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Having set policy for the institution, the board must ensure that the
medical staff and management execute it effectively. The board should not
become involved in the details of day-to-day operations—these responsibilities should be delegated to hospital administration and the medical staff—but
it must have mechanisms in place to review performance and hold accountable the corporation’s agents (employees or others authorized to act on the
organization’s behalf). Supervising agents is essential because the actions of
agents can expose the corporation to liability. When authority for implementing policy is delegated, it can be revoked if performance is unsatisfactory.
The board must monitor delegated powers; it cannot abdicate its oversight
responsibilities.
Board Composition and Meetings
The board’s size is determined by the articles of incorporation or bylaws.5
Some states require a minimum number of directors—usually three—while
others allow as few as one board director. In a not-for-profit corporation of
the membership type, the corporate members elect the governing board.
In a not-for-profit corporation without corporate members, the board may
select new directors; boards that do so are referred to as self-perpetuating. In
some situations, such as in a state or county hospital, a public official or body
may appoint the directors; directors of public hospital districts are typically
elected. Terms of office and qualifications of these directors are determined
by charter or bylaw provisions drafted in accordance with statutory requirements. For example, local statutes may require that directors be of majority
age and that a certain number be residents of the state of incorporation.6
In at least one type of healthcare corporation the composition of the
board is also subject to federal regulations. Federally Qualified Health Centers (FQHCs) are community-based outpatient clinics that receive federal
grants to provide care to people in underserved areas or who are economically or medically vulnerable. Some FQHCs function as general community
health centers, open to all but typically caring for many uninsured and underinsured people with fees based on ability to pay. Others are designed to focus
on particular populations, such as migrant workers, the unhoused, or Native
Americans. An FQHC’s board must be structured in a certain way to qualify
for receipt of federal grant money. Among the requirements is that most of
the board members be patients of the FQHC (see exhibit 3.1).
Most healthcare organizations’ governing boards include representatives from the local community, including business leaders, government
officials, clinicians, and other influential persons with track records of success
in their respective fields and a willingness to work as a team to enhance the
mission of the organization. Directors usually cannot be paid or compensated for their services unless local law and the corporate charter permit it.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
EXHIBIT 3.1
Requirements
for Governing
Boards of
Federally
Qualified Health
Centers
42 C.F.R. § 51c.304 Governing board.
A governing board for the [FQHC] shall be established by an applicant as
follows:
(a) Size. The board shall consist of at least 9 but not more than 25
members, except that this requirement may be waived by the Secretary
for good cause shown.
(b) Composition.
(1) A majority of the board members shall be individuals who are or
will be served by the center and who, as a group, represent the
individuals being or to be served in terms of demographic factors,
such as race, ethnicity, sex.
(2) No more than one-half of the remaining members of the board
may be individuals who derive more than 10 percent of their
annual income from the health care industry.
(3) The remaining members of the board shall be representative of
the community in which the center’s catchment area is located
and shall be selected for their expertise in community affairs,
local government, finance and banking, legal affairs, trade unions,
and other commercial and industrial concerns, or social service
agencies within the community.
(4) No member of the board shall be an employee of the center, or
spouse or child, parent, brother or sister by blood or marriage
of such an employee. The project director may be a non-voting,
ex-officio member of the board.
This rule is particularly relevant to not-for-profit corporations because of the
fundamental doctrine that members and directors of not-for-profits must not
derive personal financial gain from the corporation. (This prohibition does
not exclude the salary paid to a director who is also a corporate employee, if
that is permitted.)
State law, along with the corporate charter, governs for-cause removal
of directors as well as procedures for special elections to fill board vacancies.
Legal counsel should be sought in such situations.
In managing the affairs of the corporation, the board must act in
properly constituted, formal meetings. Independent action by one, or even
by a majority of directors, does not bind the corporation. Except for regular
meetings provided for in the articles of incorporation or corporate bylaws,
proper notice (usually in writing) of a meeting must be given to each director.
Unless such notice is given, the meeting is invalid. There is one exception:
if all directors attend a meeting that was called without proper notice, they
have, in effect, waived the notice requirement. Even so, decisions made at a
casual, unannounced gathering of the board may lack legal effect. If the statutes and bylaws permit, meetings can be held by teleconference; otherwise,
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directors must attend in person.7 Likewise, if the statutes and bylaws permit,
some types of board action can be taken without a meeting if all board members consent to the proposed action in writing.
A written record (minutes) should be made of the actions taken at
each board meeting. Directors who object to a 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
location 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 is
a reasonably convenient destination.
The charter or bylaws fix the number of directors necessary for a
quorum. In the absence of a provision, the rule is that a quorum is a simple
majority of the board and that a majority vote is sufficient to bind the corporation. Directors may not vote by proxy in the absence of a specific statutory
or bylaw provision because each director has a fiduciary duty to attend meetings personally and exercise independent judgment.
The foregoing general principles of corporate law are reflected in
the hospital accreditation standards published by The Joint Commission.
Many public hospitals (e.g., those owned by counties, cities, tax districts)
are also governed by the provisions of state open-meetings statutes as to
the frequency, location, and public notice of meetings and the public’s
right to attend.
State Open Meeting and Public
Records Laws
Every state has statutes that determine
when government agencies must allow
the public to attend meetings and to
make minutes and other records available
for public inspection.8 These statutes
are often referred to as sunshine laws, a
term implying that the public is entitled
to have light shed on the conduct of
governmental affairs. They are also, more
prosaically, called open meeting laws or
public records laws.
Therefore, government hospitals and
hospital authorities are covered not only
by federal statutes and regulations but also
by laws at the state, county, and municipal
levels, some of which do not apply to other
healthcare organizations.
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COVID Connection
The American Hospital Association (AHA) noted
that many hospital CEOs saw reduced “energy
levels” from their corporate directors during the
pandemic. Board members had been “under significant pressure in their own business and professional leadership roles, with the personal and
family impact of the pandemic layered on too.”
There was also less engagement due to use of
virtual meetings, cancellation of board retreats
and social gatherings, and a desire not to distract
management from pandemic priorities. (See Kimberly A. Russel, Health Care Governance in Changing Times, AHA Trustee Services, https://trustees.
aha.org/health-care-governance-changing-times
[https://perma.cc/2H66-L5GV] [last visited May
16, 2022].)
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For example, a county hospital authority in Georgia was subject to that
state’s similar legislation, and the Supreme Court of Georgia held that a newspaper had the right to access the names, job titles, and salaries of all hospital
employees who earned more than $28,000.9 In Florida, an appellate court
held in Gadd v. News-Press Publishing Company, Inc. that a newspaper was
entitled to view a public hospital’s medical staff files and its utilization review
documents.10 Although another Florida statute exempts peer review records
and proceedings from use in an action against a provider of health services,11
the state’s Public Records Act does not do so specifically. The Gadd court
held that the apparent inconsistency between the two statutory schemes was
a matter for the legislature to resolve, but as of mid-2022, the issue remains
unresolved.
These cases are examples of the typical judicial approach, which is to
interpret the sunshine laws liberally in accordance with legislative intent.
Most of the sunshine statutes contain exceptions to the right of public
access. Some of the exceptions are cast in general language, but some are
more specific—as is the exception in Florida related to autopsy photos (see
the discussion in chapter 10 about autopsy photos of NASCAR driver Dale
Earnhardt). A court may create an exception when it is presented with a
persuasive reason for limiting the applicability of the legislation. Typically,
the statutes exclude meetings and records related to pending litigation, negotiations with labor unions, acquisition of capital (e.g., the purchase of real
estate), and personnel matters.
Questions about public records laws involve balancing competing
interests. The outcome of each case depends on the language of the relevant
statute, judicial understanding of legislative intent, the purposes or motives
of those seeking access, and the countervailing interests of the defendant or
third parties.
The Governing Board’s Duties
Directors of any corporation have fiduciary duties to the corporation, to its
members (if any), and to its intended beneficiaries. These can be summarized
as the duties of care, loyalty, and obedience to the mission. In the case of a hospital corporation, these duties obligate the board to
•
•
•
•
•
•
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protect hospital property,
avoid self-dealing and conflicts of interest,
establish and oversee the hospital’s strategic goals,
select the CEO and a qualified medical staff,
monitor the quality of care, and
approve the operating budget.
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Duty of Care
Board members are expected to act with due care in all they do for the corporation. This standard may be codified by statute, as it is in Michigan, where
the law states,
A director or officer shall discharge his or her duties as a director or officer including his or her duties as a member of a committee in the following manner:
(a) In good faith.
(b) With the care an ordinarily prudent person in a like position would
exercise under similar circumstances.
(c) In a manner he or she reasonably believes is in the best interests of the
corporation.12
Whether or not the duty is enshrined in statute, due care requires honesty and
good faith, and it requires board members’ active involvement. They must take
an active role in directing the company. Merely preserving corporate property
as caretakers is not enough; they must use that property to achieve corporate
objectives. They must attend meetings and participate actively in decisionmaking by learning about the issues, asking appropriate questions, and demonstrating complete rectitude in their decisions.
The duty also includes exercising reasonable care in selecting and appointing the CEO and other corporate agents, such as outside legal counsel.13 They
must use care in supervising the agents they appoint and in holding them
accountable, and they have a duty to remove an incompetent CEO or other
agent. It is also important to clearly communicate to agents the limits of their authority;
Members of the governing boards of charitable
this may protect the corporation from liabilcorporations are sometimes called trustees. This
ity if the agent exceeds those limits.
terminology is a historical artifact. They are not
“trustees” in the technical sense. A true trustee
Directors also have a duty to use
holds legal title to property and manages that
care in appointing individuals to the mediproperty for the benefit of others. In a corporation,
cal staff and to restrict clinical privileges
however, the title to property is vested in the coror terminate an appointment when they
poration itself. Furthermore, under trust law, the
know or should have known of incomduty of a trustee is generally higher than the duty
petence on the part of a medical staff
of a corporate director. For example, the trustee of
a trust may be liable for poor business judgments
member (see chapters 7 and 8). Thus, the
in the management of the property held for the
corporation may be held liable for failure
beneficiaries’ benefit. A corporate director is gento monitor the quality of patient care.
erally held liable only for actual negligence, willful
In reaching a decision on these or
disregard of duty, or wrongful acts. Throughout the
other matters, directors may rely on written,
following discussion, we use the term director to
documented reports and recommendations
encompass board members of charitable corporations generally.
from responsible professional sources such
as medical staff committees, accountants,
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
and legal counsel. They need not personally verify all items in these reports if
no activity arouses suspicion or question,14 but they face potential liability if
they fail to obtain professional advice when a problem becomes apparent—for
example, if they fail to obtain competent legal counsel when the hospital has a
recognizable legal issue.
In general, directors are not personally liable for honest errors in
business judgment. This standard is consistent with that applicable to the
directors of for-profit corporations and means that board members must
exercise the judgment that reasonably prudent directors or trustees would be
expected to exercise under similar circumstances. An example of dishonest
business judgment that could render a director personally liable is permitting institutional funds to remain in a bank that they knew or ought to have
known was in financial straits.15
A famous case involving Sibley Memorial Hospital in Washington,
DC, illustrates the kinds of responsibilities that board directors carry and
the difficulties that can arise when directors do not adhere to them (see The
Court Decides: Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries at the end of this chapter). As you read this case,
remember that its facts occurred in 1966, and the sanctions that the court
meted out are mild compared with what would be ordered if board members
today abdicated their duties in the way that Sibley Memorial’s directors did.
Duty of Loyalty
This duty requires board members to put the interests of the corporation
before self-interest. Thus, no director is
permitted to gain personally, accept bribes,
or compete with the corporation.16
Conflicts of Interest
The duty of loyalty raises the question
In their daily lives, corporate board members
of whether a director can personally contract
wear many hats. But in any interaction involving
with the corporation. Can directors, for
the interests of that corporation, they all wear
instance, sell supplies or services to the hosonly one, and it bears the corporation’s logo. A
pital? The answer is yes, if certain high stanhospital board member might, for example, own a
dards are met. A director may usually conlocal construction company, invest in real estate,
and volunteer for the mayor’s reelection camtract with the corporation if the contract is
paign. This level of community involvement and
fair, if full disclosure of all personal interest is
knowledge might be part of the reason they were
made, and if utmost good faith is exercised.
selected. But membership on the board must not
A director should not vote on or participate
be used to benefit the individual’s construction
in the board’s decision to approve or veto
company, personal investments, or political cansuch a transaction. Competitive bids should
didate. If any of those interests are implicated in a
proposed board action, the director must disclose
be solicited to establish the fairness of the
the conflict of interest and withdraw from particicontract. The burden of proving the fairness
pation on the issue.
of a contract and disclosing self-interest is
always on the individual director, and courts
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will closely scrutinize the transaction if the matter is challenged. A contract with
a director that does not meet these standards is not void, but it is voidable.17
There may be specific state statutes pertaining to directors’ contracts
with the corporation they serve.18 In a government hospital, state law may
prohibit all transactions between a director and the corporation, even if full
disclosure is made and the contract is fair. Whenever directors wish to contract with the corporation they serve, they and the board should seek careful
legal advice based on local law.
Every hospital should have and follow conflict-of-interest policies.
Each director must be required to file a written declaration of possible conflicts of interest and disclose gifts, gratuities, and lavish entertainment offered
by companies that do business with the hospital.
Duty of Obedience
As noted earlier, every corporation has a mission—a corporate purpose—
spelled out in its articles of incorporation. It is the responsibility of the board
to ensure that the organization remains loyal to that mission. Actions that are
inconsistent with the mission and purpose of the corporation are considered
ultra vires and are void or voidable.
Adherence to the mission is especially significant in the case of charitable, not-for-profit corporations, because their assets are considered to be
held “in trust” for the benefit of the public, and that trust can be enforced by
the state’s attorney general. Such was the case some 45 years ago when the
board of directors of Queen of Angels Hospital in Los Angeles attempted to
lease the facility to a for-profit management company and use the proceeds
of the lease to operate free medical clinics for the poor.
Learning of this transaction, the California attorney general brought suit
contending that the corporation’s assets were held “primarily for the purpose
of operating a hospital, and the use of those assets exclusively for outpatient
clinics would constitute an abandonment of [the] charitable purpose.” A threejudge panel of the California Court of Appeals agreed. Relying heavily on the
language of the entity’s articles of incorporation, the court held that although
operating clinics for the poor is undoubtedly an admirable undertaking, “whatever else Queen of Angels Hospital Corporation may do under its articles of
incorporation, it was intended to and did operate a hospital and cannot, consistent with the trust imposed upon it, abandon the operation of the hospital
business in favor of clinics.”19 Following a revision of the articles of incorporation, the building (which has been featured in a number of movies) was sold.
A similar case arose in New York City some 20 years later, when the
board of the Manhattan Eye, Ear and Throat Hospital decided to “monetize the
assets”—that is, sell the hospital—and use the proceeds to establish diagnostic
and treatment centers in underserved areas. The New York attorney general
challenged that decision, and the court agreed, blocking the deal and stating:
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
[T]he Board of Directors is charged with the duty to ensure that the mission of the
charitable corporation is carried out. This duty has been referred to as the “duty of
obedience.” It requires the director of a not-for-profit corporation to “be faithful to
the purposes and goals of the corporation,” since “[u]nlike business corporations,
whose ultimate objective is to make money, nonprofit corporations are defined
by their specific objectives: perpetuation of particular activities are central to the
raison d’etre of the organization.” . . . [T]he duty of obedience, perforce, must
inform the question of whether a proposed transaction to sell all or substantially
all of a charity’s assets promotes the purposes of the charitable corporation when
analyzed under [New York Not-For-Profit Law].20
In summary, these and other cases establish that in addition to being
careful in their decision-making (the duty of care) and loyal to the organization (the duty of loyalty), board members have a duty of obedience: the duty to
remain faithful to the purposes for which the organization was established.
This is done by scrupulous attention to the articles of incorporation or other
organizing documents.
Protection Against Liability
In general, hospital directors are not at serious personal risk as long as they
comply with these three duties. In practice, that means they should regularly
attend board meetings, review necessary materials, vote personally, disclose
conflicts of interest, recuse themselves when appropriate, and exercise utmost
good faith and honesty in overseeing 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 votes of individual directors on transactions that
involve personal interests. Any director who dissents from majority actions of
the board should make sure that their dissent is part of the written record.
In addition to making a good faith effort to fulfill their fiduciary
duties, individual directors and corporate officers have two means of protecting themselves. These are (1) purchasing liability insurance and (2) making
sure that the corporation has appropriate indemnification provisions to protect them in the event they suffer personal loss as a result of exercising their
(good faith) board responsibilities.
Many not-for-profit corporations favor indemnification plans or a
combination of insurance and indemnity. Insurance for directors and officers,
called D&O coverage, may exclude coverage for gross negligence, intentional
acts, and criminal activity. Indemnification is corporate reimbursement of a
trustee’s personal expenses in the event the trustee faces a civil suit or criminal
prosecution for alleged violation of fiduciary responsibilities. The trustee may
be reimbursed for attorneys’ fees and possibly for amounts paid as a result of
a judgment against the individual. The hospital may, in turn, purchase insurance covering the costs of indemnification. Careful legal advice is necessary
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to ensure that directors understand the
circumstances under which insurance and
indemnification can and cannot be provided. Drafting the corporate charter or
bylaw provisions covering these issues
with utmost care is imperative.
Responsibilities of
Management
127
Legal Brief
The word management comes from the Latin
phrase manu agere, meaning “to lead by the
hand,” as in training horses, for example. We
prefer to think of enlightened leaders as people
who set goals and empower others to reach those
goals, not as taskmasters who pull employees
along by the bridle. Regardless of the metaphor,
the fact remains that the job of management (or
leadership, if you prefer) is to enable people to get
things done.
Administration is also derived from Latin, a
compound of ad (to) and ministratio (serve). The
term is also the source of the verb to minister.
The line separating the board’s authority from that of management is hard to
define precisely. In general terms, it is the
board’s responsibility to set the overall
direction of the organization and monitor
its accomplishment while leaving the dayto-day details to management personnel.
In other words, as we have heard it said, the board should “keep its nose in
but its hands off.”
Management, then, consists of the CEO and other members of the
workforce who carry out the specific tasks that achieve the overall purposes of
the organization as set by the board (see Legal Brief). It is concerned with leadership: setting goals (strategies), creating an action plan to achieve those goals
(tactics), measuring outcomes, and reassessing the strategy and tactics on the
basis of those outcomes—all while keeping the board informed of salient issues.
In a healthcare organization, management functions begin with senior
administrative positions, including those of CEO, vice presidents, and department directors (or similar titles). Their responsibilities include the following:
• Supporting the governing board in its strategic planning and policymaking activities
• Carrying out (implementing, administering, executing) the board’s
policies and strategic goals
• Communicating board policies and the strategic plan to employees and
the medical staff
• Overseeing day-to-day operations, including personnel functions and
personnel records
• Measuring the quality of patient care
• Managing operating funds
• Selecting qualified junior executives
• Conducting necessary business transactions
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
employment law
The collection of
laws and rules
that regulate
the employer–
employee
relationship.
Management must report regularly to the governing board on the
general status of these activities while maintaining a distinction between the
board’s governance role and management’s day-to-day operations.
Because corporations can act only through people, members of
management find that they spend large portions of their time dealing with
personnel issues: recruitment, performance reviews, dispute resolution,
discipline, terminations, and myriad related subjects. All of these situations
implicate employment law, which covers such things as wages and overtime,
nondiscrimination, sexual harassment, disabilities, relationships with unions,
workplace safety, and many others.21 Chapter 4 covers employment law in
some detail.
Piercing the Corporate Veil
A corporation is a legal entity that has rights and responsibilities separate from
those of 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 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 disregard the corporate fiction and place
liability on the owners of the corporation.22 This action is known as piercing the
corporate veil. Most litigated cases in which the corporate veil has been pierced
have involved closely held corporations or parent–subsidiary relationships.
For a court to pierce the corporate veil, the party challenging the corporation normally must prove three elements:
1. The corporation’s owners dominated it completely.
2. The owners used their control of the corporation 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.23
Although precedent for piercing the corporate veil is more than a century
old, courts are reluctant to look beyond the corporate form.24 Accordingly, as
a general rule, all three of these elements must be proven to the satisfaction
of the “trier of fact” (the judge or the jury).
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. Mere directorship of the corporation by a sole
shareholder entitled to corporate profits is not enough to justify piercing the
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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 factors as the following:
1. Mingling of corporate assets with the owner’s personal funds
2. Neglect of business formalities, such as failure to file separate tax
returns, hold regular board meetings, and keep adequate corporate
minutes
3. Having a mere “paper corporation” with nonfunctioning officers and
directors listed in the articles of incorporation
4. Insufficient investment of capital in the corporation25
The decision whether to disregard the corporate fiction, however,
does not rest on a single factor. Courts most often look for several factors
suggesting that the corporation and owner should be treated as one and the
same.26 United States v. Healthwin-Midtown Convalescent Hospital is a good
example.27 Defendant Israel Zide owned half the stock of Healthwin, a convalescent center that provided skilled nursing care in return for payments from
Medicare. Zide also had a 50 percent interest in a partnership that held title
to 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 Zide for the amount of the alleged
overpayment. 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 Zide’s defense, the court noted these factors:
• He 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 governing board did not meet regularly.
• Zide failed to maintain an arm’s-length relationship with the
corporation by permitting Healthwin’s funds to be “inextricably
intertwined” with his personal accounts and other business
transactions.
• The corporation was seriously undercapitalized, having liabilities
consistently in excess of $150,000 and an initial capitalization of only
$10,000.
• He diverted corporate funds to the detriment of creditors.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
In the court’s opinion, these facts demonstrated that 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, Zide was found personally
liable for the amount due the federal government because the corporation
was a mere alter ego of its principal shareholder.
In addition to the factors showing a unity of interest and ownership
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:
Woodyard, Insurance Commissioner v. Arkansas Diversified Insurance Co. at
the end of this chapter for another case that illustrates judicial application of
the doctrine of piercing the corporate veil).
Multi-institutional Systems and Corporate
Reorganization: The Independent Hospital and
Independent Physician as Anachronisms
For many years the hospital was a single legal entity, and its purpose was
merely to provide doctors with a building, equipment, and supplies so they
could treat their patients. Today, however, these former “doctors’ workshops” operate as multifaceted organizations with teams of people who work
toward a new vision: promoting health rather than merely treating illness.
Achieving this organizational vision (see Legal Brief) required restructuring stand-alone hospitals into multi-institutional systems that would permit
them, for example, to add new service lines, partner with physicians or other
organizations, increase market share, and improve the bottom line. Physicians,
particularly recent graduates, are increasingly likely to join large organizations.
They might be employees of a healthcare
system or join a multispecialty PLLC;
fewer and fewer are hanging out their own
Legal Brief
shingle or partnering in small offices.
A multiorganizational system can
The vision statement of the AHA reads, “The AHA
diversify operations and engage in a wide
vision is of a society of healthy communities,
range of activities that a single institution
where all individuals reach their highest potential
cannot. Subsidiary entities can provide
for health” (American Hospital Association, AHA Guide
special services or perform functions not
to the Health Care Field at B2 [Health Forum Publishrelated to healthcare without being haming 2009]). This type of broad aspirational vision is
typical of that espoused by many large healthcare
pered by hospital-focused regulations,
organizations today.
restrictive corporation laws, and thirdparty reimbursement regulations.
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Multi-institutional system and corporate reorganization are generic
terms, and no single definition, model, or form exists that describes either
concept. The AHA defines multihospital systems as “two or more acute care
hospitals that are owned, leased, sponsored, or contract-managed by a central
organization,” and it distinguishes them from networks, which are “group[s]
of hospitals, physicians, other providers, insurers and/or community agencies
that work together to coordinate and deliver a broad spectrum of services
to their community.”28 This distinction reminds us that healthcare systems
now include skilled nursing facilities, extended care facilities, ambulatory care
centers, outpatient surgical centers, hospital-owned physician practices, home
health agencies, pharmacies, managed care plans, and various other healthrelated organizations (see exhibit 3.2 for an example of a multi-institutional
healthcare system).
Systems may comprise both not-for-profit and for-profit (proprietary)
entities. For example, a not-for-profit system corporation may own not-forprofit and for-profit subsidiaries. A system may also be owned and managed
by a state or local government. Whether consisting of multiple corporate
entities or a single corporation with multiple divisions, all multi-institutional
systems have a corporate office responsible for activities that are best performed centrally, thus providing efficiency and economies of scale. Some
functions commonly managed at the corporate level include the following:
•
•
•
•
•
•
•
•
•
Finance and billing
Legal and risk management
Quality assurance
Compliance
Legislative advocacy
Human resources and benefits administration
Health information management
Strategic planning
In-service education
In addition to these functions, the US Supreme Court’s 2022 decision overturning Roe v. Wade will require multi-institutional systems to
develop abortion-related policies in compliance with the law of each state
in which they operate. These policies will need to address such topics as
which abortion-related services are permitted, if any; the use of telemedicine
technology for abortion consults; the permissibility of interorganizational
referrals (especially referrals across state lines); and possible access to abortion medications. Other issues include when, if at all, the system will assist in
defense of providers charged with abortion law violations; whether coverage
for abortion services (including travel and lodging expenses when necessary)
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Practice C
Practice D
Practice A
Practice B
ACO
(physician
practices)
Home Health
Agency
Land Development,
Inc.
Hospice A
Hospice B
Nursing home A
Nursing home B
Long-Term
Care, Inc.
Note: ACO = accountable care organization; PAC = political action committee.
Retail
pharmacy
Medical home
Health education
Children’s Hospital
XYZ PAC
= Not-for-profit
company
For-profit
=
company
Noncontrol
=
relationship
No shape = Unincorporated
Hospice Care, Inc.
Child protection team
Mobile care team
Ambulatory surgery center
Cancer Institute
Other nonhospital
services
Health screenings
Hospital B
Fundraising
XYZ Health
Foundation, Inc.
Freestanding ED
Hospital A
XYZ Regional Health
System, Inc.
Physician referral service
Wellness programs
Community Services, Inc.
EXHIBIT 3.2
XYZ Regional Health System Organization Chart
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is to be included in employee benefit plans; and myriad other questions too
numerous to mention and as yet unimagined.
Developing these system-wide policies will require a multidisciplinary
approach at all levels of the organization to understand the risks and conduct
necessary employee education in every facility and every state in which the
system provides health services.
Alternative Corporate Strategies
Sale of Assets
For a variety of reasons, corporations sometimes sell all or a substantial
portion of their assets to another corporation. This transaction is relatively
straightforward, except that local law must be followed carefully when the
seller is a charitable corporation. Normally, the stockholders or members
and the governing boards of both the buyer and the seller must approve
the terms of the sale. If the seller is a charitable corporation, state laws may
require that a designated state officer approve the final arrangement because
the state has the ultimate responsibility to enforce the terms of charitable
trusts. This might also require establishment of a well-funded foundation to
benefit the community once served by the charitable corporation. After the
sale is completed, the selling corporation may dissolve or continue to operate
on a restricted scale.
Merger and Consolidation
Corporations also sometimes wish to join forces with others. They can integrate in several different ways, including merger, consolidation, and joint
venture.
In a merger or acquisition, two or more corporations are joined,
whereby one or more of the organizations transfers assets to another (the
survivor) and then is dissolved. A consolidation, in contrast, is a transaction
in which two or more organizations combine to form a new corporation,
thereby dissolving the predecessor companies. The terms are often used
interchangeably in casual conversation, but keeping this distinction in mind is
advisable: in a merger or acquisition, one company survives after taking over
one or more other corporations; in a consolidation, two companies blend
into a completely new entity.
Before completing any type of corporate integration, each party must
carefully scrutinize state corporation law; certificate-of-need requirements
that exist in many states; tax implications, if one entity is tax-exempt; and
other regulatory requirements. Normally, the governing boards and the
shareholders or corporate members of the respective corporations must
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merger (or
acquisition)
The joining of
two or more
corporations,
whereby one
or more of the
organizations
transfers assets
to another (the
survivor) and then
is dissolved.
consolidation
A transaction in
which two or more
organizations
combine to form a
new corporation,
thereby dissolving
the predecessor
companies;
sometimes used
as a general term
inclusive of merger
and acquisition.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
approve the plan. The terms of any bond documents may require approval
of the bondholders. When the interested parties approve the plan, articles of
merger or consolidation are prepared and filed with the state officer responsible for enforcing the relevant corporate law, who then issues a certificate
authorizing the transaction. Once the certificate is issued, the new corporation owns all the property of the former entities, has all their rights and
privileges, and is liable for all their debts.29
If the merger or consolidation significantly affects competition in the
relevant market, it may invite charges of antitrust law violation. Depending
on the size of the deal, federal or state antitrust authorities might need to
be notified in advance. (The antitrust aspects of asset acquisitions, consolidations, joint ventures, and mergers are thoroughly discussed in chapter 14.)
The twenty-first century has seen significant consolidation in all areas
of the healthcare system. The jury is still out on whether this has benefited
patients in general, or only certain sectors. Advocates of consolidation point
to possible efficiencies and stronger risk management and quality assurance
programs when managerial functions are combined. They also argue that
larger entities can offer a wider range of services, and that small, stand-alone
entities are at particular risk of failure.
On the other hand, critics point to evidence that prices go up when
healthcare organizations gain bargaining power because of their size, and
not necessarily because of any increase in quality. Consolidation also might
mean fewer options (e.g., in the pharmacy arena), as local needs are subsumed into more national trends. And the vast reach of religiously affiliated
healthcare networks raises particular concern about access to types of medical treatment disfavored or prohibited by church teaching. These treatments
might include, for example, sterilization, abortion, aid in dying, and genderaffirming healthcare.
Joint Venture
In contrast with a merger or consolidation, a joint venture is a mutual
endeavor by two or more organizations for a specific purpose or for a limited duration. This term is loosely applied to a variety of relationships (e.g.,
between a hospital and a physician practice) for purposes such as:
joint venture
A mutual endeavor
by two or more
organizations for
a specific purpose
or for a limited
duration.
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•
•
•
•
diversifying both parties’ activities,
providing new or additional services to the community,
seeking capital from interested investors, or
maximizing revenues.
Although the joint venture participants are not agents of each
other, other rules of a general partnership normally apply. That is to say, the
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property is jointly owned and the parties owe fiduciary duties to each other.
Each has a right to participate in management. They share profits and losses
according to their agreement. Each can be held liable to third parties for the
negligence and financial obligations of the venture. As discussed in the following sections, outright employment of physicians is on the rise, but historically, joint ventures have been the most common form of hospital–physician
collaboration. In cases in which one party to a joint venture is tax-exempt and
the other is not, particular rules must be followed to ensure that charitable
resources are not diverted to the benefit of the for-profit entity. As explained
in more detail in chapter 13, there are both organizational and operational
aspects to these rules to ensure that the exempt entity maintains control.
Collaborative Strategies with Physicians
Medicare as a Driver
At its inception, Medicare basically paid hospitals and physicians their usual
rates for the services they provided. Obviously, under such a system, the
more services you provide, the more you get paid. This arrangement was an
advantage for both hospital and physician
providers, and Medicare spending rose
at an annual rate more than twice that
Legal Brief
of inflation during the 1970s and early
1980s.30
As described in chapter 2, conMedicare beneficiaries are citizens and legal residents who are over age 65 or have qualifying discerned about these sharply rising costs,
abilities. Because Medicare has potentially high
Congress in 1983 replaced Medicare
out-of-pocket costs, most beneficiaries have supPart A’s cost-based reimbursement sysplemental coverage in the form of Medicaid (if they
tem with a prospective payment system
are low income), a Medicare Advantage Plan (Part
(PPS) based on diagnosis-related groups
C), a separate Medigap policy, or retiree coverage.
(the DRG system). Analogously, in 1992,
Medicare is an extremely popular program with
four substantive parts:
Medicare significantly changed the way it
paid for physician services under Part B,
• Medicare Part A covers hospitalization, hospice
adopting the resource-based relative value
care, skilled nursing, and home health care.
• Medicare Part B covers physician visits,
scale, also known as RVU-based payment.
outpatient care, medical supplies, and other
(See Legal Brief for a review of the four
necessary services.
“parts” of Medicare, which are discussed
• Medicare Part C (also known as Medicare
in more detail in chapter 2.)
Advantage) covers the services in Parts A, B,
Both the DRG and RVU sysand (usually) D through private insurers.
tems have been criticized for introduc• Medicare Part D covers outpatient prescription
drugs.
ing their own perverse financial incentives and for failing to adequately “bend
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Legal Brief
A 1997 federal statute’s “sustainable growth rate”
trigger for Part B reimbursement led to what came
to be known as the “Doc Fix.” This ­happened when,
not long after the statute’s enactment, Medicare
Part B costs reached the statutorily unsustainable
rate and mandatory cuts were scheduled to go
into effect. The American Medical Association and
other physician groups lobbied and fundraised
around the issue, coining the term in the process.
Congress repeatedly postponed the cuts, never
allowing them to go into effect, and the issue
recurred with some regularity, sometimes more
than once a year.
“Fix” is a contranym—a word that is its own
opposite. In this context, it is not clear whether the
word referred to the problem (the “fix” that doctors
were in) or the solution (the “fix” that the lobbyists
proposed). It seemed to mean both. In 2015, Congress finally enacted a permanent fix by repealing
the 1997 sustainable growth rate provision, so
doctors are no longer in this particular “fix.”
the cost curve.” Nonetheless, both of
these prospective payment systems have
their appeal, and both have been widely
adopted by other insurers. Over the years,
Congress and the Center for Medicare &
Medicaid Services (CMS) have attempted
a variety of payment mechanisms to rein
in costs (at least costs to the federal government) without sacrificing access or
quality. One you might have heard of was
known as the “Doc Fix,” under which
Part B reimbursements would automatically be cut if the rate of growth in
those costs reached specified levels and
Congress did not take other ameliorative
action. Congress kicked this can down
the road many times, and at one point a
30 percent across-the-board cut in Part
B reimbursements was set, theoretically,
to go into effect. The “Doc Fix” was
repealed in 2015 in the hope that new
shared savings models targeting physicians might hold Medicare costs to a sustainable level (see Legal Brief).
The First Wave of Hospital–Physician Integration
Recognizing the difficult situation they faced, and considering the increasingly competitive and cost-conscious environment of the late 1980s, many
healthcare institutions attempted to develop business arrangements with
groups of physicians to share risk and reap economic rewards. Most commonly, hospitals integrated with members of their own medical staffs,
but sometimes hospitals acquired the practices of previously unrelated
physicians—either by contracted services or through direct employment.
­
Typically, the goals of these collaborative efforts were to:
•
•
•
•
•
•
•
CH03.indd 136
reduce costs,
provide a full range of services along the continuum of care,
provide practice management and administrative support,
negotiate contracts with payer organizations,
generate economies of scale,
provide access to capital,
improve quality,
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137
• conduct utilization reviews, and
• provide staffing for particular hospital departments (e.g., radiology,
anesthesiology, emergency).
The arrangements took different names, such as management services
organization, physician–hospital organization, integrated delivery system, and
health maintenance organization. They were sometimes organized as joint
ventures but were more commonly set up as corporations.
Regardless of their organizational form, many well-intentioned
­hospital–physician collaborations met with limited success, if not outright
failure. Hospital executives discovered that managing a physician practice is
different from running a hospital, that salaried physicians sometimes do not
work as many hours as their contracts require, and that they may actually
increase the hospital’s costs. Physicians, on the other hand, discovered that
hospitals are large bureaucracies that can stifle their independence and limit
their autonomy. For various reasons, each side was often skeptical of the
other; thus, many of the arrangements fell apart.
To be successful, collaboration between physicians and hospitals
requires more than a written contract and a lofty mission statement. It
requires true congruence of interests. Both groups must have common values, shared governance and management, and common data systems. Full
openness and complete trust must exist. Physicians and hospitals learned this
lesson the hard way in the 1990s, and interest in hospital–physician collaboration waned for a time.
The Second Wave of Hospital–Physician Integration
As the twenty-first century approached, a second wave of interest in ­hospital–
physician cooperation began. One reason for this was the Bill Clinton administration’s health reform initiative, which, despite its failure as public policy,
spawned a boom in hospital mergers and physician practice acquisitions. In
addition, declining incomes and the increased cost and stress of running
a private practice prompted many older physicians to retire or switch to
concierge medicine. During the Great Recession of 2008–2010, younger
physicians became more open to hospital employment than those of the baby
boom generation had been.31 As older physicians retired and the prospect of
medical staff shortages appeared, hospitals made physician recruitment and
retention a higher priority.
Then came what has been perhaps the most significant factor in hospital–physician integration: passage of the Affordable Care Act (ACA) in
2010. The law promotes a variety of arrangements aimed at “paying for value
rather than volume” and generally bending the cost curve while improving
quality. The readmission program, for example, financially penalizes hospitals
CH03.indd 137
concierge
medicine
A relationship
between a patient
and a primary care
physician in which
the patient pays
an annual fee in
return for direct,
personalized
care; also known
as boutique
medicine.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
that have too high a readmission rate for patients with specified diagnoses.
Another program promotes “patient-centered medical homes,” a way of
delivering primary care. And the ACA’s Shared Savings Program, which
encourages creation of accountable care organizations (ACOs), was also
an impetus for integration of physician practices within hospitals’ auspices.
(Chapter 2 contains a further discussion of ACOs.)
As ACOs took hold and the ACA became fully operative, hospitals
and health systems continued to consolidate and seek new modes of care
delivery. Prior to the COVID-19 pandemic, 67 percent of the nearly 6,100
US hospitals were affiliated with systems, and they represented 75 percent
of all US hospital beds.32 Consolidation is likely to continue and to include
not just acute care hospitals and medical clinics but also long-term care
facilities, rehabilitation and behavioral health facilities, ambulatory surgery
centers, and so on. Furthermore, the pandemic accelerated the trend toward
increased use of telemedicine and other outpatient options—and this trend
is also likely to continue.33
Healthcare executives must work closely with their attorneys and other
consultants to analyze carefully both the business arguments and the legal
reasons for undertaking a merger, acquisition, or other collaborative venture
before embarking on it. Depending on the arrangement implemented, there
may well be fraud and abuse, tax, and antitrust implications. (See chapters 9,
13, and 14, respectively.)
Chapter Summary
This chapter discussed the following topics:
•
•
•
•
•
•
•
CH03.indd 138
Principles of corporation law
The corporation as a “person”
State law regarding corporate powers
Duties of the governing board and management of a corporation
The distinctions between “for-profit” and “not-for-profit” corporations
Trends toward mergers, acquisitions, and hospital–physician integration
Medicare as a driver of collaborative strategies
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139
Vocabulary
concierge medicine
consolidation
corporate charter
corporation
employment law
fiduciary
joint venture
merger (or acquisition)
not-for-profit (or nonprofit)
physician
ultra vires
Discussion Questions
1. Describe the advantages of incorporation as opposed to organization as
a partnership. Where would you look to find the powers of a particular
corporation?
2. How are most physician groups in your area organized? Are they
in small groups or large, partnerships or PLLCs, independent or
networked?
3. What about the hospitals in your state? How many are for-profit and
not-for-profit? Do government hospitals or public hospital districts or
religious hospitals have a big presence?
4. What might be a hypothetical example of a breach of the duty of care
by a board member? Of a breach of the duty of loyalty? Of a breach
of the duty of obedience? Feel free to be outrageous in your examples,
but do link them to the particular duties described in this chapter.
5. Explain the concept of “accountable care” in such a way that someone
who is not in the healthcare industry would understand. Is it different
from managed care? If so, how?
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The Court Decides
Charlotte Hungerford Hospital v. Mulvey
26 Conn. Supp. 394, 225 A.2d 495 (1966)
MacDonald, J.
[In court opinions, a jurist’s position is often
given by the addition of “J” or “CJ” behind
the name. The initials stand for Judge or Justice, or Chief Judge or Chief Justice, depending on the title of the position in the particular jurisdiction. This decision was written by
Justice MacDonald.]
The plaintiff in this action for a declaratory
judgment is a nonstock corporation which for
many years has owned and operated a voluntary general hospital in a complex of buildings located on a 120-acre tract of wooded
land about one mile from the center of the
city of Torrington. The land was acquired
under a deed of trust providing that the premises thus conveyed “are to be held and used
by said grantee for the purpose of maintaining and carrying on a general hospital and, if
a majority of corporators so elect, a training
school for nurses in connection therewith
may be established, and for no other purpose
whatsoever.” The deed of trust in question,
executed in 1917, specifically provided that
“if the land herein granted shall cease to be
used for the [stated] purposes, title . . . shall
thereupon pass to and vest in said town of
Torrington . . . to be used forever as a public
park.” [A state statute later chartered the hospital subject to the “terms, conditions, restrictions and provisions” of the deed of trust.]
Plaintiff [now wants to erect] a medical office building on the hospital grounds
[because it] would be of great convenience
and advantage both to the individual doctors
and to the hospital. . . .
. . . [However,] various questions have
arisen with respect to the right, power and
authority of plaintiff, under the terms of said
CH03.indd 140
deed of trust and special act, to proceed with
such a project. . . . The specific questions
which the court is requested to answer . . .
are (a) whether plaintiff is authorized . . . to
construct and operate, as an integral part of
its general hospital complex, a medical office
building for members of its medical staff;
(b) whether such a medical office building
may, under the terms of the aforesaid deed
of trust, be located on a portion of the land
held by plaintiff thereunder; (c) whether . . .
the plaintiff is authorized and empowered to
lease . . . a portion of the land included in the
aforesaid deed of trust [to a subsidiary corporation that will operate the medical office
building]; [and] (d) whether, in addition to
offices and office suites for members of plaintiff ’s medical staff, said building may contain
facilities related to or supporting such offices
and suites, such as medical laboratories,
pharmacies and dispensaries.
The court, after hearing the evidence and
the arguments of counsel with full participation by counsel representing the only interested parties, namely, the attorney general
of the state of Connecticut, as representative
of the public interest in the protection of
trusts for charitable uses and purposes . . .
and the city of Torrington, contingent beneficiary, has no hesitation in answering all four
of the questions posed in the affirmative. It
is clear . . . that the proposed project would
materially aid the plaintiff in more efficiently
carrying out the stated purposes of the trust
deed under which it was founded. . . . It is
equally clear from the extremely impressive
testimony of [the president of the AHA and
another witness] that the modern trend is
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almost universally toward the practice of having nonprofit hospitals provide physicians’
private offices for rental to staff members,
either in the hospital buildings themselves or
on the hospital grounds. . . .
The language of the deed of trust is to be
construed in light of the settlor’s purpose.
And reasonable deviations and expanded
interpretations must be made from time to
141
time in order to keep pace with changes in
recognized concepts of the proper sphere of
general hospital operations. . . . Such deviations are recognized by our Connecticut courts
even though the elements for applying cy pres
principles are not present. A decree may enter
advising plaintiff of its rights, powers and
authority herein by answering the four questions propounded in the affirmative.
Discussion Questions
1.
2.
3.
4.
Why is the state attorney general an “interested party” to these proceedings?
What is a settlor?
What are cy pres principles?
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)
Gesell, J.
[This is a class-action suit in which patients
of Sibley Memorial Hospital, known officially
by the name shown above, 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.]
The two principal contentions in the
complaint are that the defendant trustees
conspired to enrich themselves and certain
financial institutions with which they were
affiliated by favoring those institutions in financial dealings with the Hospital, and that they
breached their fiduciary duties of care and loyalty in the management of Sibley’s funds. . . .
[The court explains that the hospital was
begun by the Methodist Church-affiliated
Lucy Webb Hayes School in 1895 and eventually became the school’s main activity.]
In 1960 . . . the Sibley Board of Trustees
revised the corporate by-laws. . . . Under the
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
new by-laws, the Board was to consist of
from 25 to 35 trustees, who were to meet at
least twice each year. Between such meetings, an Executive Committee was to represent the Board [and in effect had full power
to run the hospital]. . . .
In fact, management of the Hospital from
the early 1950s until 1968 was handled almost
exclusively by two trustee officers: Dr. Orem,
the Hospital Administrator, and Mr. Ernst, the
Treasurer. Unlike most of their fellow trustees,
to whom membership on the Sibley Board
was a charitable service incidental to their
principal vocations, Orem and Ernst were
continuously involved on almost a daily basis
in the affairs of Sibley. They dominated the
Board and its Executive Committee, which
routinely accepted their recommendations
and ratified their actions. Even more significantly, neither the Finance Committee nor the
Investment Committee ever met or conducted
business from the date of their creation until
1971, three years after the death of Dr. Orem.
As a result, budgetary and investment decisions during this period, like most other management decisions affecting the Hospital’s
finances, were handled by Orem and Ernst,
receiving only cursory supervision from the
Executive Committee and the full Board.
[It was only after the deaths of Dr. Orem
and Mr. Ernst (in 1968 and 1972, respectively) that other trustees began to assert
themselves and exercise supervision over the
financial affairs of the hospital. At that point,
it became known that over the years “unnecessarily large amounts of (Sibley’s) money”
had been deposited in accounts bearing little
or no interest at banks in which trustees
had a financial interest. At the same time,
the hospital bought certificates of deposit
that paid lower-than-market rates and took
out loans with interest rates higher than the
interest rates being paid on funds deposited.
Because there was no evidence that the
trustees, other than Dr. Orem and Mr. Ernst,
had ever actually agreed to engage in or profit
CH03.indd 142
from these activities, the court found insufficient evidence to prove a conspiracy among
them. The court then proceeds to discuss the
allegations of breach of fiduciary duty.]
III. Breach of Duty.
Plaintiffs’ second contention is that, even
if the facts do not establish a conspiracy,
they do reveal serious breaches of duty on
the part of the defendant trustees and the
knowing acceptance of benefits from those
breaches by the defendant banks and savings and loan associations.
A. The Trustees.
Basically, the trustees are charged with
­mismanagement, nonmanagement and selfdealing. The applicable law is unsettled. . . .
[H]owever, the modern trend is to apply corporate rather than trust principles in determining the liability of the directors of charitable corporations, because their functions
are virtually indistinguishable from those of
their “pure” corporate counterparts.
1. Mismanagement.
. . . Since the board members of most large
charitable corporations fall within the corporate rather than the trust model, being
charged with the operation of ongoing businesses, it has been said that they should
only be held to the less stringent corporate
standard of care. More specifically, directors
of charitable corporations are required to
exercise ordinary and reasonable care in the
performance of their duties, exhibiting honesty and good faith.
2. Nonmanagement.
. . . A corporate director . . . may delegate his
investment responsibility to fellow directors,
corporate officers, or even outsiders, but he
must continue to exercise general supervision over the activities of his delegates. Once
again, the rule for charitable corporations is
. . . the traditional corporate rule: directors
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should at least be permitted to delegate
investment decisions to a committee of board
members, so long as all directors assume the
responsibility for supervising such committees by periodically scrutinizing their work.
Total abdication of the supervisory role,
however, is improper even under traditional
corporate principles. A director who fails to
acquire the information necessary to supervise investment policy or consistently fails
even to attend the meetings at which such
policies are considered has violated his fiduciary duty to the corporation. While a director is, of course, permitted to rely upon the
expertise of those to whom he has delegated
investment responsibility, such reliance is a
tool for interpreting the delegate’s reports,
not an excuse for dispensing with or ignoring
such reports. . . .
3. Self-dealing.
Under District of Columbia Law, neither trustees nor corporate directors are absolutely
barred from placing funds under their control
into a bank having an interlocking directorship
with their own institution. In both cases, however, such transactions will be subjected to the
closest scrutiny to determine whether or not
the duty of loyalty has been violated. . . .
Trustees may be found guilty of a breach of
trust even for mere negligence in the maintenance of accounts in banks with which they are
associated while corporate directors are generally only required to show “entire fairness”
to the corporation and “full disclosure” of the
potential conflict of interest to the Board.
Most courts apply the less stringent
corporate rule to charitable corporations in
this area as well. It is, however, occasionally added that a director should not only
disclose his interlocking responsibilities
but also refrain from voting on or otherwise
influencing a corporate decision to transact
business with a company in which he has a
significant interest or control.
143
[The court goes on to point out that the
hospital board had recently adopted the
AHA’s policy guidelines that essentially
imposed the standards described earlier:
(1) a duality or conflict of interest should be
disclosed to other members of the board,
(2) board members should not vote on such
matters, and (3) the disclosure and abstention from voting should be recorded in the
minutes.]
. . . [T]he Court holds that a director . .
. of a charitable hospital . . . is in default
of his fiduciary duty to manage the fiscal
and investment affairs of the hospital if it
has been shown by a preponderance of the
­evidence that
(1) . . . he has failed to use due diligence
in supervising the actions of those officers,
employees or outside experts to whom the
responsibility for making day-to-day financial
or investment decisions has been delegated; or
(2) he knowingly permitted the hospital to
enter into a business transaction with himself
or with any [business entity] in which he then
had a substantial interest or held a position
as trustee, director, general manager or principal officer [without disclosing that fact]; or
(3) except [with disclosure], he actively
participated in or voted in favor of a decision
. . . to transact business with himself or with
any [business entity] in which he then had
a substantial interest or held a position as
trustee, director, general manager or principal officer; or
(4) he otherwise failed to perform his
duties honestly, in good faith, and with a reasonable amount of diligence and care. Applying these standards to the facts in the record,
the Court finds that each of the defendant
trustees has breached his fiduciary duty
to supervise the management of Sibley’s
­investments. . . .
[In conclusion, the court noted that the
plaintiffs pushed for strict sanctions against
the various defendants: the removal of
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
certain board members, the cessation of
all business transactions with their related
firms, an accounting of all hospital funds,
and awards of money damages against
the individual defendants. However, the
court declined to adopt these rather severe
measures.
The court points out the factors that it
considered significant: (1) the defendant
trustees are a small minority of the board,
whereas all board members were in some
way guilty of nonmanagement; (2) the defective practices have been corrected, and
those who were most responsible for them
have either died or been dismissed; (3) the
defendants did not profit personally from the
transactions; (4) the defendants will soon
leave the board because of age, illness, or
the completion of a normal term; and (5) this
case is essentially the first in the District of
Columbia to discuss these issues comprehensively, and thus no clear legal standards
previously existed.
For these reasons, the court declines to
remove the defendants from the board, to
assess money damages, or to take other
more severe actions. Instead, it requires new
policies and procedures to make certain that
all present and future trustees are aware of
the requirements of the law and that they
fully disclose all hospital transactions with
any financial institutions in which they have
an interest or position.]
Discussion Questions
1. If this case were decided today, would the outcome be different? If so, how?
2. As the CEO or board member of a not-for-profit hospital 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?
~
~
The Court Decides
Woodyard, Insurance Commissioner v. Arkansas Diversified Insurance Co.
268 Ark. 94, 594 S.W.2d 13 (1980)
Hickman, J.
The appellant is Arkansas Insurance Commissioner W. H. L. Woodyard, III. The appellee is
Arkansas Diversified Insurance Company (ADIC).
ADIC sought a certificate of authority from
Woodyard to sell group life insurance to Blue
CH03.indd 144
Cross and Blue Shield . . . subscriber groups.
Woodyard denied the application. On appeal,
his decision was reversed by the Pulaski
County Circuit Court as being arbitrary and
not supported by substantial evidence. We
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find on appeal [that] the circuit court was
wrong and [we] reverse the judgment. We
affirm the commissioner.
The only evidence before the commissioner was presented by ADIC. The appellee
candidly admitted it was a wholly owned
subsidiary of a corporation named Arkansas
Diversified Services, Inc. (ADS) which is a
wholly owned subsidiary of Blue Cross and
Blue Shield, Inc.
. . . ADIC candidly admitted it was created solely to serve Blue Cross customers. It
would provide services that could not otherwise be provided by law. . . . ADS wanted its
own life [insurance] company to better compete in the market place.
Blue Cross owns all the stock of ADS,
which in turn owns all the stock of ADIC. The
president of Blue Cross is the president of
both ADS and ADIC. Other Blue Cross officials
hold positions in ADS and ADIC. The companies use the same location and similar stationery. ADIC will use Blue Cross employees to
sell insurance. Underwriting for ADIC will be
done by a division of ADS.
There was no real controversy over the
commissioner’s findings of fact. He concluded that:
(2) That [Arkansas law] would apparently
authorize a hospital and medical service corporation [of which Blue Cross is one] to invest
in a wholly owned subsidiary insurance corporation with the Commissioner’s consent.
(3) That Blue Cross is limited by [law] to
transact business as a non-profit hospital
and medical service corporation.
(4) That ADIC is not a separate corporate entity from Blue Cross since Blue Cross
through ADS owns all the capital stock of
ADIC. ADIC has common Officers and Directors with Blue Cross, Blue Cross pays the
salary for the Officers and employees of
ADIC, ADIC will sell its products only to Blue
Cross subscriber groups and the record indicates that ADIC is to be treated as a division
145
of Blue Cross. The evidence indicates that
ADIC’s management will not act independently but will conduct the affairs of ADIC in
a manner calculated primarily to further the
interest of Blue Cross.
. . . The commissioner found that since
Blue Cross could not sell life insurance itself,
it should not be able to do so through corporate subsidiaries. We find that decision neither arbitrary nor unsupported by substantial
evidence.
We agree with the commissioner’s finding that [Arkansas law] limits the power of
medical corporations to providing medical
service. If it did not, they could not only sell
life insurance, but automobiles or anything
else. Clearly, an insurance company organized under a charter or statute empowering
it to sell one kind of insurance lacks authority
to sell another.
The appellees argue that even if the commissioner was right in ruling Blue Cross
could not market its own life insurance policies, Blue Cross could . . . invest in a wholly
owned subsidiary which would [have that
power]. The statutes, however, provide that
such an investment can be made only with
the commissioner’s consent. . . .
Blue Cross is a tax exempt, non-profit
corporation enjoying a financial advantage
over conventional insurers. Allowing it to
sell, through subsidiaries, its own life insurance policies, could be unfair to competitors.
While the commissioner did allow Blue Cross
to invest in ADS, we can see why he disapproved of ADIC. ADS, unlike ADIC, could sell
only policies written by insurance companies
which lacked the competitive advantages of
Blue Cross.
The appellee argues the commissioner
arbitrarily pierced the corporate veil of these
subsidiaries. . . . [C]ourts will ignore the corporate form of a subsidiary where fairness
demands it. Usually, this will be where it is
necessary to prevent wrongdoing and where
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
the subsidiary is a mere tool of the parent.
We believe both criteria were met here. . . .
Blue Cross, through its president and
other officials, candidly admitted why they
wanted ADIC to sell insurance. Blue Cross
can, through its total control of both subsidiaries by stock, officers and directors, direct
all efforts and endeavors of ADIC, and collect
all profits.
We cannot say the commissioner was
wrong in piercing the corporate veil or in
denying the application. The facts are clearly
there to support his findings. This order is
not contrary to law.
Reversed.
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? (Other states
assign different names to those corporations.)
3. What factual differences in this general situation might have led to a different outcome in
the case, applying the same legal standard?
~
~
Notes
1. Since 1914, the National Conference of Commissioners on Uniform
State Laws has promoted a Uniform Partnership Act (UPA) for
adoption by the states and territories. Louisiana is the only state that
has not adopted some version of the UPA. See 6 U.L.A. 1 (Supp.
1986) (table of jurisdictions).
2. Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat) 518,
636 (1819).
3. For example, the Michigan statute specifically states that a not-forprofit 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).
4. See I.R.C. § 501 and the discussion of tax issues generally in chapter
13.
5. See, e.g., Ohio Rev. Code Ann. § 1702.27 (A)(1). The Ohio nonprofit
corporation statute states, “The number of directors 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 also Mich. Comp. Laws Ann.
§ 450.2505(1), which states that “the board shall consist of 3 or more
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6.
7.
8.
9.
10.
11.
12.
13.
14.
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147
directors. The bylaws shall fix the number of directors or establish the
manner for fixing the number, unless the articles of incorporation fix
the number.”
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 serving 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.
See, e.g., Mich. Comp. Laws Ann. § 450.2521(3).
Reporters Committee for Freedom of the Press, Open Government
Guide, http://www.rcfp.org/ogg [https://perma.cc/4RRG-VBBA]
(last visited August 19, 2016).
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).
412 So. 2d 894 (Fla. App. 1982).
Fla. Stat. § 766.101(5) (2014).
Mich. Comp. Laws Ann. § 450.2541.
See Reserve Life Ins. Co. v. Salter, 152 F. Supp. 868 (S.D. Miss.
1957).
State statutes may specify the items on which directors or trustees may
rely in discharging their duties. For example, the Michigan statute
(supra note 7) does so by saying that a director or officer is entitled
to rely on information, opinions, reports, or statements, including
financial statements and other financial data, if prepared or presented
by any of the following:
(a) One or more directors, officers, or employees of the corporation,
or of a domestic or foreign corporation or a business organization
under joint control or common control, whom the director or
officer reasonably believes to be reliable and competent in the
matters presented.
(b) Legal counsel, public accountants, engineers, or other persons as
to matters the director or officer reasonably believes are within the
person’s professional or expert competence.
(c) A committee of the board of which he or she is not a member
if the director or officer reasonably believes that the committee
merits confidence.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
15. See Epworth Orphanage v. Long, 207 S.C 384, 36 S.E.2d 37 (1945).
16. 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
corporation for injury sustained. The defendant physician was an
officer and director of the professional service corporation bringing the
charge. He had established another professional service corporation
to perform identical medical planning services for a hospital client,
thereby attempting to seize an opportunity due the plaintiff
corporation.
17. In Gilbert v. McLeod Infirmary (219 S.C. 174, 64 S.E.2d 524 [1951]),
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 trustee 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.
18. See, e.g., Wyo. Stat. Ann. § 17-6-104 (1977), and Md. HealthGeneral Code Ann. § 19-220 (1982).
19. Queen of Angels Hospital v. Younger, 66 Cal. App. 3d 359, 136 Cal.
Rptr. 36 (1977).
20. In the Matter of Manhattan Eye, Ear Throat Hospital, 186 Misc. 2d
126 (N.Y. Sup. Ct. 1999).
21. See generally, 30 C.J.S., Employer-Employee Relationships. Two relevant
texts from Health Administration Press are Carla Jackie Sampson
& Bruce Fried, Human Resources in Healthcare: Managing for
Success (5th ed. 2021), and Rita Numerof & Michael Abrams,
Employee Retention: Solving the Healthcare Crisis (2003).
22. W. Fletcher, Cyclopedia of the Law of Private Corporations § 41
(perm. ed. 1983).
23. See, e.g., 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).
24. J. J. McCaskill Co. v. United States, 216 U.S. 504, 515 (1910).
25. “In a sense, faithfulness to these [corporate] formalities is the price
paid for the corporate fiction, a relatively small price to pay for limited
liability.” Labadie Coal Co. v. Black, 672 F.2d 92, 97 (D.C. Cir. 1982).
26. See Jabczenski v. Southern Pac. Memorial Hosp., 119 Ariz. 15, 579
P.2d 53 (1978) (mere existence of interlocking directorates between
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27.
28.
29.
30.
31.
32.
33.
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149
a not-for-profit and a for-profit corporation was insufficient to justify
disregarding the corporate identities).
United States v. Healthwin-Midtown Convalescent Hospital, 511 F.
Supp. 416 (1981), aff’d, 685 F.2d 448 (1982).
American Hospital Association, AHA Guide to the Health Care
Field at B2 (Health Forum Publishing 2009).
See generally, Harry G. Henn & John R. Alexander, Laws of
Corporations and other Business Enterprises § 346 (West 1983).
For a history of total healthcare spending in the United States dating
back to 1960, see National Health Expenditure Data: Historical, Ctrs.
Medicare & Medicaid Serv. (modified Dec. 1, 2021), https://www.
cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trendsand-Reports/NationalHealthExpendData [https://perma.cc/
YQ3H-JU6N].
See, e.g., Debra Beaulieu-Volk, MGMA Physician Placement Report:
65 Percent of Established Physicians Placed in Hospital-Owned Practices
(June 4, 2010 03:07 AM), https://www.fiercehealthcare.com/
practices/mgma-physician-placement-report-65-percent-establishedphysicians-placed-hospital-owned [https://perma.cc/XML9-UMXW].
Fast Facts: U.S. Health Systems 2021 Infographic, Am. Hosp. Assn.,
https://www.aha.org/infographics/2021-01-15-fast-facts-us-healthsystems-infographic [https://perma.cc/4CY6-BJ6W] (last visited May
16, 2022).
See, e.g., Traci Prevost et al., The Potential for Rapid Consolidation
of Health Systems, Deloit Insights (Dec. 10, 2020), https://www2.
deloitte.com/us/en/insights/industry/health-care/hospital-mergersacquisition-trends.html [https://perma.cc/DA6Y-QF97] (last visited
May 16, 2022).
02/01/23 1:56 PM
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CHAPTER
HUMAN RESOURCES LAW
4
After reading this chapter, you will
• understand how employment and labor law affect healthcare
organizations;
• identify the major antidiscrimination in employment statutes and
case law principles;
• appreciate some of the legal issues involved in vaccine mandates
for healthcare workers;
• recognize the most significant areas of contention; and
• know when to consult employment law experts.
Introduction
As noted in chapter 3, most healthcare organizations are corporations, and
corporations are “artificial persons.” As such, corporations per se can do
nothing; they function only through real human beings. Given the laborintensive nature of healthcare, the variety of human personalities, and the
infinite number of ways in which people work and interact, it is no wonder
that managers spend large portions of their workdays dealing with human
resources (HR) issues such as recruitment, goal setting, training and development, performance appraisal, discipline, dispute resolution, or termination.
These issues and the laws that concern them are so pervasive that HR
degree programs are available from many universities, and employment law is
typically a full course in those curricula. In healthcare programs—master of
health administration (MHA) or master of public health (MPH) programs,
for example—the subject is taught either as a stand-alone course or under the
general healthcare law rubric. In any event, employment law must be covered
in some significant way for these university programs to gain certification
from their accrediting bodies.1
This chapter cannot provide the depth of knowledge available in a
semester-long course or, obviously, an HR degree program. It will, however,
highlight the major topics and give the reader an appreciation for when to
seek the advice of HR professionals and attorneys who specialize in the subject matter.
151
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Who Is an Employee?
workforce
The labor
pool working
or available
to work in a
nation, industry,
company, etc.
The primary purpose of the HR function is to manage the flow of personnel
into, within, and out of the workforce. The first issue, then, is to identify
who qualifies as an employee. Not all the individuals who work for the organization are employees—for example, some are volunteers, and others are
independent contractors. Management must ensure that all members of the
workforce are classified correctly.
Why Is This Important?
employee
An individual
who, in return for
remuneration,
performs services
for another
individual or for
a company under
circumstances in
which that other
party can control
what work will be
done and how it
will be done.
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Some companies believe that classifying workers as independent contractors
will save them money and promote workforce flexibility. The point of view
is shortsighted, and frequently it exposes a company to significant financial
risk. Correct worker classification is important because, among other things,
it determines whether the individual is entitled to benefits such as insurance,
pension, paid leave, and (in the case of hourly workers) overtime pay. It also
determines whether the employer must withhold income taxes, pay unemployment taxes, and pay Federal Insurance Contributions Act (FICA) (Social
Security and Medicare) taxes. Businesses normally do not have to withhold
or pay taxes on payments made to independent contractors; those individuals
do not receive employment benefits, and they are subject to self-employment
tax on their earnings.
Misclassifying as an independent contractor someone who is properly
an employee could make the company liable for back taxes and for penalties
under federal and state wage and hours laws. The state and federal agents
who investigate these kinds of cases often uncover many violations over a
period of years, and the financial impact can be heavy.
Finally, proper classification may have implications for tort liability
because an employee is an agent of the employer, and—as will be seen in later
chapters—an agent’s negligence, if committed within the scope of employment, will typically be justification for holding the employer liable. Although
the employer’s classification decision would not determine the outcome of a
tort case, it could be used as evidence if agency were an issue.
For all these reasons, worker classification is critically important.
Understanding that fact, the HR department must then properly apply the
criteria for making the determination.
Distinction Between Employees and Contractors
As described by the Internal Revenue Service (IRS), an employee is “anyone
who performs services for you . . . if you can control what will be done and
how it will be done. This is so even when you give the employee freedom of
action. What matters is that you have the right to control the details of how
the services are performed.”2
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Independent contractors, on the other hand, are workers such as
accountants, attorneys, physicians with admitting privileges, and building
contractors, who are in their own trade or profession but offer their services
to others. The general rule is that an individual is an independent contractor
if the one who pays for the work has the right to control or direct only the
end result of the work and not the details of how it will be done.
While it is relatively simple to state, this common-law “control of
details” standard for determining who is an employee can be difficult to
apply. As the US Supreme Court has stated, “Few problems in the law have
given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer–employee relationship and what is clearly one of independent [contractor].”3
The IRS lists 20 factors as an aid to determining whether an individual
is an employee or an independent contractor.4 These include such items as
who gives instructions and training to the worker, whether the functions are
part of the company’s regular activities, whether the worker must perform
the work personally, who sets the hours and work schedule, and who provides
the tools and materials used.
Businesses must weigh all these factors when determining whether a
worker is an employee or an independent contractor. The key is to look at
the entire relationship, consider the degree or extent of the right to direct
and control, and document each of the factors used in coming up with the
determination.
To complicate matters, some workers have more than one employer at
a time. In healthcare, this situation can arise when temporary employees—
such as traveling nurses—are supplied by outside agencies. In a Missouri
case, for example, a federal appeals court held that nurses from a staffing
agency who were assigned to work at a prison could bring sexual harassment
charges against both the temp agency and the state department of corrections. In its opinion, the court underscored the difficulty inherent in these
decisions:
153
independent
contractor
A person who
agrees with
another to perform
work according
to their own
processes and
methods and
is not subject
to the other’s
control except
for the delivery
of outcomes
specified in the
contract.
Determining whether a party is an employee or an independent contractor . . .
requires a fact-intensive consideration of “‘all aspects of the working relationship’ between the parties” [quoting a separate case]. Moreover, while the right
to control the manner and means by which tasks are accomplished is a primary
consideration, no single factor is decisive.
. . . [N]othing in the law precludes the possibility that a person may have
two or more employers for the same work. In the present case, the undisputed fact
that plaintiffs were employed by [the agency] for the work they were doing at [the
prison] was a factor to be considered by the district court in assessing plaintiffs’
employment status vis-a-vis DOC [the department of corrections], but it was not
the decisive factor.5
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Types of Employment and Workforce Arrangements
Private healthcare organizations’ employees may have written employment
contracts, or they may be employed at will. Government employees are a
distinct category protected by the due process of law principles. Whether the
employer is a public or private entity, the workforce member may or may not
be represented by a union.
The following sections outline the terms of the different types of
employment and their legal relationships.
Contracts of Employment
employment at
will
An arrangement
in which an
employer can fire
an employee at
any time for any
reason (or no
reason), except
an illegal reason,
without incurring
legal liability.
Conversely, an
employee in this
situation is free
to leave the job at
any time for any
reason (or no
reason) without
incurring legal
liability.
Professionals and top-level management employees sometimes have written
contracts with their employers. These agreements typically describe the rights
and responsibilities of both parties, the individual’s salary and benefits, the
duration of employment, the grounds for possible termination, and so on.
They may also include confidentiality and nondisclosure provisions, noncompete clauses (discussed more thoroughly in chapter 5), agreement on
severance (called golden parachute) payments in the event of unanticipated
termination, and other requirements. Employment contracts are the exception rather than the rule in healthcare and most nonunion businesses.
Employment at Will
Most people are hired into their jobs without signing employment contracts.
This arrangement is called employment at will—a common-law rule that
the relationship is for an indefinite period and can be terminated by either
the employer or the employee at any time for any reason (see Legal Brief).
Because of the harshness of this concept, it is relatively common for
terminated employees to claim that their employer waived employmentat-will status through failure to follow
the terms of the employee handbook or
Legal Brief
company policies or by deviating from
past practice. In other words, the former
employee claims that there is an implicit
Employment at will is the “black letter” rule of law
understanding that the employer would
in every state save one: Montana has abrogated
the employment-at-will doctrine by statute. Monact in good faith and that failure to do so
tana law states that employees may be terminated
creates an exception to the employmentonly for “good cause,” which is defined as “reaat-will concept.
sonable job-related grounds for dismissal based
For example, after Charles Touson a failure to satisfactorily perform job duties,
saint
was
let go from his job at Blue
disruption of the employer’s operation, or other
Cross and Blue Shield of Michigan in the
legitimate business reason” (Mont. Code Ann. §
39-2-903(5); see also Mont. Code Ann. § 39-2-904).
mid-1970s, he filed suit claiming wrongful termination and breach of an implied
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155
contract. He testified that he had inquired
about job security when he was hired and
Law in Action
was told that he would be with the company “as long as I did my job.” To reinforce
It can be difficult to decide whether to defend
this oral assurance, Toussaint was given the
against
a case claiming waiver of employmentBlue Cross personnel policy manual, which
at-will or to settle out of court. Litigation is
stated that it was company policy to release
­expensive, time-consuming, and disruptive of
employees “for just cause only.”
operations; the outcome is always uncertain; and
The Michigan Supreme Court held
a bad result may set an unfortunate precedent.
that given facts such as these, “a fair conSettlements can often be reached more quickly
and at less than the cost of defense, and the
struction is that the employer has given up
terms
can be kept confidential. On the other hand,
6
his right to discharge at will.” It added
a favorable result at trial can send a strong mesthat if Blue Cross had desired, it could
sage to other employees that employment-at-will
have required prospective employees to
is alive and well in the company. These decisions
acknowledge that they served at the will
should be made with the advice of experienced
or the pleasure of the company and thus
employment lawyers.
could have avoided the misunderstandings
that generated the lawsuit. Because it did
not have such an acknowledgment, the employee handbook created a binding contract. (More about contracts in general is revealed in chapter 5.)
Because of cases such as this, in which a terminated employee claims
the company waived the employment-at-will status, many companies now
do as the Michigan court hinted and require employees to acknowledge in
writing that personnel policies do not constitute a contract, that the policies
can be amended at any time, and that the employees can be terminated at
will (see Law in Action).
Government Employees
A third category of employment seen in the healthcare field relates to government employees, whose jobs are protected by two important constitutional principles: due process and equal protection. Under the Fifth and
Fourteenth Amendments to the US Constitution, government cannot take
actions that deprive a person of “life, liberty or property without due process
of law” or deny them “the equal protection of the laws.” Activities undertaken on behalf of government are called state action, and the persons or
organizations undertaking them are called state actors.
State actors include government agencies, government-owned corporations, and individuals employed by the state. Others who have only an indirect
relationship with the state but whose actions have some degree of state authority may also be state actors. Clearly, a state-, county-, or city-owned hospital is a
state actor, as are its employees and agents. A private corporation that operates
a state-owned facility under contract may also be engaged in state action.
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equal protection
The requirement
that persons who
are in similar
situations be
treated equally,
without irrelevant
distinctions, by
government.
state action
Conduct
undertaken
on behalf of a
government body.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
In sum, constitutional protections
apply to employees of governmental orgaLegal Brief
nizations such as hospitals or clinics run
by the Department of Veterans Affairs,
In Baldetta v. Harborview Medical Center, the
Indian Health Service, or armed forces,
concept of state action was implicated when the
or by a state, city, county, or tax district
plaintiff sued a county hospital where he had
(see Legal Brief). Employees of those
been employed as a nursing aide.7 He alleged that
organizations have a property interest in
his forearm tattoo of the words “HIV-Positive”
their jobs, and thus they cannot be termiwas protected speech under the First Amendment
and that the hospital acted unlawfully when it
nated without being given due process:
terminated him for refusing to cover it. The court
fair notice and an opportunity to defend
found in the hospital’s favor because the hospithemselves.
tal’s interests in facilitating its patients’ recovery
The constitutional principles of
outweighed Baldetta’s interest in displaying the
due process and equal protection do not
tattoo, but the constitutional argument had to be
apply to private employment because
addressed because Harborview is a governmentowned facility.
no state action is implicated. Nevertheless, providing basic fairness is good HR
practice and has become the hallmark of
all enlightened HR systems. A California case characterized this standard as
requiring “good cause” for termination, for example:
We give operative meaning to the term “good cause” in the context of implied
employment contracts by defining it . . . as fair and honest reasons, regulated by
good faith on the part of the employer, that are not trivial, arbitrary or capricious,
unrelated to business needs or goals, or pretextual. A reasoned conclusion, in
short, supported by substantial evidence gathered through an adequate investigation that includes notice of the claimed misconduct and a chance for the employee
to respond. . . .
[T]he common law requirement of a fair procedure does not compel formal
proceedings with all the embellishments of a court trial, nor adherence to a single
mode of process. It may be satisfied by any one of a variety of procedures which
afford a fair opportunity for an applicant to present his position.8
Thus, good faith and fair dealing—like most common-law doctrines—are
malleable concepts that can vary with the circumstances of each individual
case. Furthermore, interpretation of the principle may vary from state to
state. It is important to seek experienced counsel when there are questions
about the proper classification of workers.
Other Worker Categories
Two other categories of workers—statutory employees and statutory nonemployees—are possible under IRS regulations.
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Statutory employees are individuals who would be considered independent contractors under common-law rules but are employees for purposes of
withholding FICA taxes. Examples include certain drivers who deliver food
and pick up and deliver laundry, full-time life insurance sales agents, persons
who work at home on materials or goods supplied by the employer, and fulltime traveling salespersons. However, other conditions apply as well.
Statutory nonemployees include direct sellers, licensed real estate agents,
and certain companion sitters (i.e., persons who furnish personal attendance,
companionship, or household care services to children or to individuals who
are elderly or disabled). These “nonemployees” are treated as self-employed
for federal tax purposes. Statutory employees and statutory nonemployees
are rarely seen working for a healthcare organization, but they are mentioned
here for the sake of thoroughness.9
Other Members of the Workforce
Everyone working or available to work in an organization is considered a
member of the workforce, including numerous individuals who are not technically employees. For example, volunteers are members of the workforce
but, as the terms implies, they are not employees and do not receive wages
and benefits. They are, nevertheless, subject to many HR policies and other
rules of the organization.
Independent contractors (discussed a few pages earlier) are likewise
not on the hospital payroll but are members of the workforce to the extent
that they are performing their contracted responsibilities. These include, for
example, locum tenens (temporary) physicians and nurses or temporary IT
personnel. These individuals, although not hospital employees, are nevertheless expected to comply with generally applicable policies such as those
­relating to smoking, safety, or respect for patient privacy. Independent contractors typically sign a written agreement specifying that because they are not
employees, the hiring company is not responsible for providing them with
benefits such as tax withholding, workers compensation, or health insurance.
The Joint Employer Concept
Complicating matters even further, it is sometimes possible for an individual
to have more than one employment relationship at the same time for the
same job. This can be the case when a hospital contracts with an agency to
provide the kinds of temporary services needed to make up for staff shortages. In the view of the US Equal Employment Opportunity Commission
(EEOC), the National Labor Relations Board (NLRB), and some state
courts, these individuals may be employees of both the hospital and the staffing agency, thus both organizations would be liable for the individuals’ torts,
and both may be responsible for ensuring compliance with wage and hour
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
laws, the Family and Medical Leave Act (FMLA), hiring and termination
procedures, labor laws, and other requirements.10
A finding of joint employer status will be made if the putative joint
employers exercise “direct and immediate” control over the essential terms
of employment. This conclusion turns, obviously, on the facts of each specific
case. Healthcare leaders, especially HR executives, must therefore take heed
when using staffing agencies. They should ensure that both the hospital and
the agency are compliant with all applicable laws and regulations and that
“travelers” are accorded the same protections as full-time employees.
Nondiscrimination Statutes
The law is never static; it evolves as society changes. Thus, “due process” and
“implied contract” now stand as exceptions to the rather harsh employmentat-will doctrine. Additional limitations on an employer’s freedom to terminate workers arbitrarily are also in place. Those limitations take the form of
antidiscrimination statutes, as the following pages demonstrate.
Civil Rights Acts of 1866 and 1964
Law in Action
In addition to Title VII’s ban on discrimination
by employers, Title VI of the 1964 Civil Rights
Act prohibits discrimination on the grounds of
race, color, or national origin “by any program
or activity receiving federal financial assistance”
(42 U.S.C. § 2000d). When the Medicare and
Medicaid programs were enacted the following
year, Title VI made it illegal for hospitals to receive
federal funding while continuing to discriminate
on the basis of race in their staffing, privileging, or
patient populations.
For a fascinating description of how the struggle to eliminate segregated hospitals became a
major victory in the movement to end segregation
nationwide, see David B. Smith, The Power to Heal:
Civil Rights, Medicare, and the Struggle to Transform
America’s Health Care System (2016) and the documentary based on it, The Power to Heal: Medicare and
the Civil Rights Revolution (Bullfrog Films 2019). See
also The Court Decides: Simkins v. Moses H. Cone
Memorial Hospital in chapter 1.
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The Civil Rights Act of 1866 was the first
federal legislation in this field. Intended to
implement the Thirteenth Amendment’s
prohibition of slavery, the law is used
today mainly to address racial discrimination in housing.
The most sweeping of all antidiscrimination statutes is the Civil Rights
Act of 1964.11 Title VII of this federal
law makes it unlawful for an employer to
discriminate against an employee or applicant “because of such individual’s race,
color, religion, sex, or national origin.”
It provides equal access to training and
prohibits sexual harassment, discrimination based on pregnancy, and retaliation
against employees who oppose discrimination. These and other federal civil rights
laws discussed in the following sections
are enforced by the EEOC.12 Employees
may also bring lawsuits alleging violation
of these laws (and state antidiscrimination
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159
laws). Note that, as a general matter, these laws apply most clearly to acts
of individualized discrimination; they are less suited to address instances of
systemic discrimination.
Age Discrimination
The Age Discrimination in Employment Act of 1967 (ADEA) forbids
discrimination (treating someone less favorably) because of age if the individual is age 40 or older.13 The law applies to any employer with 20 or more
employees, and although it does not protect workers under the age of 40,
some states have laws that protect younger workers. The ADEA prohibits
discrimination because of age in any aspect of employment, including hiring,
firing, pay, job assignments, promotions, layoffs, training, benefits, and any
other term or condition of employment. An employment policy or practice
that applies to everyone, regardless of age, can still be illegal if it has a disparate and negative impact on persons age 40 or older and is not based on
“reasonable factors other than age” (abbreviated RFOA).14
According to EEOC regulations,
A reasonable factor other than age is a non-age factor that is objectively reasonable when viewed from the position of a prudent employer mindful of its responsibilities under the ADEA under similar circumstances. Whether a differentiation
is based on reasonable factors other than age must be decided on the basis of all
the particular facts and circumstances surrounding each individual situation. To
establish the RFOA defense, an employer must show that the employment practice
was both reasonably designed to further or achieve a legitimate business purpose
and [was] administered in a way that reasonably achieves that purpose.15
Disability Discrimination
The Americans with Disabilities Act (ADA) of 1990 prohibits private
employers, state and local governments, employment agencies, and labor
unions from discriminating against qualified individuals with disabilities in
hiring, firing, advancement, compensation, training, and other aspects of
their employment.16 The law covers employers with 15 or more employees,
including state and local governments. (A separate statute—the Rehabilitation Act of 1973—provides the same protections for federal employees, programs receiving federal money, and federal contractors.)
Healthcare is one of the largest segments of the American economy,
and it has a high incidence of occupational injury and illness resulting from
its significant workplace hazards. Healthcare jobs often involve potential
exposure to airborne and blood-borne infectious diseases, sharps injuries,
and other dangers. Many healthcare jobs can also be physically demanding
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and mentally stressful, and healthcare workers with illness or injury—whether
occupational or nonoccupational—face unique challenges because of the
societal misperception that they should be free from physical or mental
impairment.17
For example, Gillen v. Fallon Ambulance Service, Inc., stands for the
proposition that “the ADA prohibits employment decisions based on stereotypes about a disability, but it does not prohibit decisionmaking based on the
actual attributes of a disability.”18 In that case, Kelly Gillen, an applicant for
a position as an emergency medical technician (EMT), was born without a
left hand, and she appealed a summary judgment upholding an ambulance
company’s refusal to hire her. Gillen had completed a preparatory course and
passed the Massachusetts EMT certification examination—an examination
composed of both written and practical portions. Nevertheless, the company
decided not to employ her because the physician who conducted her preemployment physical concluded that she could not perform certain essential
functions of the job: lifting gurneys, grasping and stabilizing patients, and so
on. The trial court judge granted the company’s motion for summary judgment, thus dismissing the case without a full hearing.
After lengthy analysis of the law, the court of appeals remanded the
case for further proceedings to determine whether the ambulance company
“acted on an illegal stereotype as opposed to an adequate assessment of the
appellant’s capabilities.” Whether Gillen’s impairment was in fact disabling,
whether she was qualified for the position at the time that she applied, and
whether the ambulance service discriminated against her on the basis of an
illegal stereotype—according to the court, all these questions were “genuine
issues of material fact” that justified a trial on the merits and an opportunity
for Gillen to prove her abilities.
For purposes of the ADA, a person with a disability is someone who
(a) has a physical or mental impairment that substantially limits one or more
major life activities; (b) has a record of such an impairment; or (c) is regarded
as having such an impairment. One case discussed the third aspect of this
definition in particular, saying,
Congress was concerned about eliminating society’s myths, fears, stereotypes,
and prejudices with respect to the disabled, [and] the EEOC’s Regulations and
Interpretive Guidance make clear that even an innocent misperception based on
nothing more than a simple mistake of fact as to the severity, or even the very
existence, of an individual’s impairment can be sufficient to satisfy the statutory
definition of a perceived disability.19
Employers are required to make a “reasonable accommodation” for a
qualified applicant or employee with a disability unless an undue hardship on
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the employer’s business would result.20 Reasonable accommodations include
such things as making facilities accessible to the individual, modifying their
work schedule, acquiring modified equipment or devices, and providing
qualified interpreters. For example, the ability to do heavy lifting is sometimes an issue for nurses. If lifting is an essential element of the job and the
inability to perform that task results from a disability, reasonable accommodation—such as assigning “light duty”—would be required.
In a case in Ohio, a nurse who was being treated for osteoarthritis
in both knees and had also suffered a fractured femur was returning to
work after a six-month leave of absence. Upon her return, she was unable
to perform normal bedside nursing, but the hospital attempted to make an
accommodation for her disability by considering her for positions that were
not physically strenuous. She declined one such accommodation because
the salary was too low, and she was not chosen for the other positions for a
variety of legitimate reasons.
The nurse eventually accepted a temporary assignment in the admissions department, but she filed suit alleging violations of the ADA in not
hiring her for the other positions. The trial court found in favor of the hospital, and the nurse appealed. The US Court of Appeals for the Sixth Circuit
affirmed the judgment of the district court, and its decision summarized well
the applicable law of accommodation:
[T]o satisfy its duty under the ADA, an employer is only required to transfer an
employee to a position comparable to the employee’s prior position. . . . The ADA
does not require an employer to offer an employee a promotion as a reasonable
accommodation, and “an employee cannot make his employer provide a specific
accommodation if another reasonable accommodation is instead provided.” In
fact, where a comparable position is not vacant, an employer’s obligation to reassign an employee may include an assignment to a position with a lower grade of
pay if the employee meets the job’s qualifications.
Finally, the regulations indicate that, although an employee is not required
to accept an offered accommodation, if an individual rejects a reasonable accommodation, the individual will no longer be considered a qualified individual with
a disability.21
Application and Interview Questions
The ADA also provides that employers may not ask job applicants about the
existence or nature of a disability, but applicants may be asked about their
ability to perform specific job functions. A job offer may be conditioned on
the results of a medical examination if the examination is required for all
entering employees in similar jobs, is job related, and is consistent with the
employer’s business needs.
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Legality of Marijuana
Use of medical marijuana (cannabis) in one form
or another is now legal in nearly every state and
the District of Columbia (DC), and marijuana’s
recreational (nonmedical) use is legal in DC and at
least 13 states. In addition, some local ordinances
have decriminalized minor cannabis offenses notwithstanding contrary state law.
Despite its growing social and legal acceptability, marijuana—along with LSD, heroin, opium,
oxycodone, and other far more dangerous substances—remains a Schedule I drug under the
federal Controlled Substances Act (21 U.S.C. §§
801 et seq.). To be sure, employers can create rules
prohibiting marijuana use while an employee is
working. But restricting an employee’s marijuana
use outside of work presents serious issues for HR
policy and clinical practice, and the implications
must be given careful consideration.
Tests for illegal drugs are not subject to the ADA’s restrictions on medical
examinations. Employees and applicants
engaging in the illegal use of drugs are not
covered by the ADA when an employer
acts on the basis of such use. Employers
may hold illegal drug users and alcoholics
to the same performance standards as other
employees (see Legality of Marijuana).
Equal Pay and Compensation
An employee’s right to be free from discrimination in compensation is protected
by several federal laws, including the Equal
Pay Act of 1963,22 part of the Fair Labor
Standards Act (FLSA),23 and the Lilly
Ledbetter Fair Pay Act of 2009.24 Taken
together with the Civil Rights Act of 1964,
these laws prohibit sex-based wage discrimination between men and women in
the same establishment who perform jobs
that require substantially equal skill, effort, and responsibility under similar
working conditions.
Pay differentials are permitted, however, when they are based on
seniority, merit, quantity or quality of production, or factors other than sex.
The differentials are “affirmative defenses,” and it is the employer’s burden
to prove that they apply. When a prohibited pay differential is found, no
employee’s pay may be reduced; instead, the pay of the lower-paid employee
(or employees) must be increased.
National Origin
National origin discrimination is addressed in the Immigration Reform and
Control Act of 1986.25 Under the law, it is an unfair employment practice
to discriminate against a US citizen or documented resident with respect to
hiring or recruitment because of the person’s national origin or citizenship
status. This includes treating someone unfavorably because they are from
a particular country or part of the world, because of ethnicity or accent,
or because they appear to be of a certain ethnic background, even if they
are not.
National origin discrimination can also involve treating people unfavorably because they are married to or associated with a person of a certain
national origin. Discrimination can occur even when the victim and the person who inflicted the discrimination are of the same national origin.
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Race or Color
The 1964 Civil Rights Act also prohibits
Legal Brief
racial discrimination—treating someone
unfavorably because they are of a certain
Although the Civil Rights Act prohibits racial
race or because of personal characteristics
discrimination in hiring, the US Supreme Court
associated with race such as hair texture,
has held that it does not always prohibit private
skin color, or certain facial features. Color
employers from instituting racial affirmative action
discrimination involves treating someone
programs. The court has specified, however, that
unfavorably because of skin color or comsuch plans must be temporary and intended “to
eliminate conspicuous racial imbalance in tradiplexion. Race and color discrimination
tionally segregated job categories” (United Steelalso can involve treating someone unfaworkers of America, AFL-CIO-CLC v. Weber, 443
vorably because the person is married to
U.S. 193, 209 [1979]). If a healthcare organization
or associated with a person of a certain
wishes to diversify its workforce through a volunrace or color.
tary affirmative action program, it is important to
The law forbids such discriminaconsult with a skilled lawyer to avoid unintentionally running afoul of antidiscrimination laws and
tion when it comes to any aspect of
being subject to allegations of “reverse discriminaemployment, including hiring, firing,
tion” by members of a majority group.
pay, job assignments, promotions, layoffs,
training, fringe benefits, and any other
term or condition of employment. It also
prohibits harassment of someone because of race or color.
Harassment can include, for example, racial slurs, offensive or derogatory remarks about a person’s race or color, or the display of racially offensive
symbols. Although the law does not prohibit simple teasing, offhand comments, or isolated incidents that are not serious, harassment is illegal when it
is so frequent or severe that it creates a hostile or offensive work environment
or when it results in an adverse employment decision (e.g., the victim being
fired or demoted). Even when conduct does not rise to the level of illegality, it may be viewed differently in a civil case and could result in severe tort
liability for the employer.
Religion
Title VII of the Civil Rights Act also protects people from discrimination
based on religion. The term religion “includes all aspects of religious observance and practice, as well as belief, unless an employer demonstrates that it is
unable to reasonably accommodate [a person’s] religious observance or practice without undue hardship on the conduct of the employer’s business.”26
The law protects not only people who belong to traditional organized religions, such as Buddhism, Christianity, Hinduism, Islam, and
Judaism, but also others who have sincerely held religious, ethical, or moral
beliefs. Religious discrimination can also involve treating someone differently because that person is married to or associated with an individual of a
particular religion.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The United States has a long history of protecting individuals’ and entities’
Law in Action
religious beliefs and moral scruples, and
numerous federal “freedom of conscience”
In 2019, the US Department of Health and Human
laws apply to the healthcare field. These
Services issued revised regulations meant to
include, for example, conscience protec“ensure vigorous enforcement of Federal contions related to persons who refuse to
science and antidiscrimination laws applicable to
participate in abortion, sterilization, or
the Department, its programs, and recipients of
certain end-of-life services. Although it is
HHS funds.” These provisions (45 C.F.R. pt. 88)
commendable to respect others’ religious
reinforce an individual or corporate healthcare
provider’s right to refuse to participate in services
and moral convictions, doing so can pre­
that are contrary to their own religious and ethisent stunningly complex issues when those
cal views. Some groups praised the regulations,
beliefs conflict with a patient’s need for
but numerous commentators warned that they
services. Some of these issues are discussed
amount to a broad license to discriminate under
in later chapters, but they are worth menthe guise of religious freedom against women;
tioning here because of the dilemmas they
lesbian, gay, bisexual, transgender, and queer
(LGBTQ) patients; and other vulnerable populapresent to management personnel (see
tions. Legal challenges to these and similar conLaw in Action).
science protections, and calls to statutorily revise
The subject teems with HR-related
them, are sure to continue, raising difficult issues
issues. Can employees whose beliefs confor healthcare providers.
flict with those of the institution where
they practice be terminated or disciplined
for refusal to cooperate in services they
deem ethically objectionable? Conversely, can the organization prevent
them from providing services that it opposes but that the patient needs and
requests? Furthermore, when labor unions are involved, are these issues subject to collective bargaining as a “term or condition of employment”? These
“conscience protections” will be a source of ongoing friction for some time
to come, especially given the multiplicity of laws and waves of litigation that
are expected in the wake of the US Supreme Court’s abrogation of abortion
rights in its 2022 decision in Dobbs v. Jackson Women’s Health Organization
(see chapter 15).
Sex and Sexual Harassment
It is unlawful to discriminate against or harass someone because of their
sex. Harassment can include unwelcome sexual advances, requests for sexual
favors, and other verbal or physical harassment of a sexual nature. Prohibited
harassment can also include offensive remarks about a person’s sex or about
the opposite sex in general, or the creation of a hostile work environment
even without economic loss to the employee.27
Both the victim and the harasser can be a person of any gender, and
the victim and harasser can be the same sex. The harasser can be the victim’s
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supervisor, a supervisor in another area, a coworker, or someone who is not
an employee of the employer, such as a client or customer. The harasser is
often someone in a position of power or authority over the individual, and
thus these cases are particularly problematic from an HR perspective due to
the potential for retaliation and quid pro quo issues.
As with racial harassment, the law does not prohibit simple teasing
or other isolated incidents that are not serious, but harassment is illegal
when it is so frequent or severe that it creates a hostile or offensive work
environment. Such an environment occurs, for example, when there are
frequent or pervasive unwanted sexual comments, advances, requests,
or other similar conduct. It can also occur when there is other verbal
or physical conduct that is sexual in nature. This conduct might include
displays of inappropriate or offensive materials; sexual jokes; interference
with someone’s ability to move freely; and persistent, unwanted interactions, such as inappropriate touching (groping) or continually asking
for dates.
Sexual harassment also occurs when a quid pro quo is involved—that
is, when some type of employment benefit is made contingent on sexual
favors or some negative consequences result from refusal of sexual advances.
Even a single incident of quid pro quo sexual harassment is illegal and can
be grounds for a lawsuit. The well-known public allegations of sexual harassment against corporate executives, actors, politicians, judicial nominees, and
others in recent years make sexual harassment an especially serious concern
for all management personnel.
Along with other forms of harassment, discrimination against employees based on their gender identity, transgender status, or sexual orientation
has gained greater visibility in recent years. In 2020, the US Supreme Court
held that the prohibition on employment discrimination based on sex (Title
VII of the Civil Rights Act) includes discrimination based on sexual orientation or transgender status. In the unambiguous words of Justice Neil
­Gorsuch, “An employer who fires an individual merely for being gay or
transgender [violates] the law.”28
Pregnancy
Discrimination on the basis of pregnancy is prohibited by a 1978 amendment to Title VII that expanded the definition of “sex” to include “pregnancy, childbirth, and related medical conditions.”29 Thus, for the purposes
of employment, pregnant employees must be treated in the same manner
as nonpregnant employees with similar limitations on their ability to work.
Unless there is undue hardship to the employer’s business, reasonable accommodations—such as light duty, alternative assignments, disability leave, or
family leave after the child is born—must be made for pregnancy if the
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same would be offered to employees who are not pregnant. What amounts
to a reasonable accommodation or an undue hardship to the business is, of
course, open to interpretation.
Genetic Information
The Genetic Information Nondiscrimination Act of 2008 prohibits health
plans and health insurers from denying coverage to healthy individuals
or charging them higher premiums based solely on a genetic predisposition to developing a disease in the future. It also bars employers from
using individuals’ genetic information when making employment-related
decisions.30
Retaliation and Whistleblower Protections
According to the EEOC, retaliation is the most frequently alleged basis of
discrimination in the federal sector and the most common discrimination
finding in federal cases.31 A variety of equal employment opportunity laws
prohibit punishing job applicants or employees for asserting their rights to
be free from employment discrimination.
Asserting these rights is called protected activity, and it can take many
forms. For example, it is unlawful to retaliate against applicants or employees
for any of the following:
• Filing an EEO case or acting as a witness
• Communicating with a supervisor or manager about employment
discrimination
• Answering questions during an investigation of alleged harassment
• Refusing to follow orders that would result in discrimination
• Resisting sexual advances or intervening to protect others
• Requesting accommodation of a disability or for a religious practice
• Asking managers or coworkers about salary information to uncover
potentially discriminatory wages
Participating in a complaint process is protected from retaliation under all circumstances. Other acts to oppose discrimination are protected so long as the
employee was acting on a reasonable belief that something in the workplace
could have violated equal employment laws.
Outside the EEOC arena, numerous federal and state statutes protect
“whistleblowers”—individuals who disclose information that they reasonably
believe shows evidence of a violation of law, abuse of authority, a specific danger to public health and safety, and so on. For example, federal law contains
employment protections for people who file claims under the False Claims
Act (see chapter 9).
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Leaves of Absence
Numerous statutes require employers to provide employees with a leave of
absence and guaranteed reinstatement to the same or a similar position at the
end of the leave, and failure to provide leave as required can be considered a
form of discrimination. Among these statutes are the FMLA, the Pregnancy
Discrimination Act (PDA) (discussed earlier), and the Uniformed Services
Employment and Reemployment Rights Act (USERRA).
Family and Medical Leave Act
The FMLA requires most employers with 50 or more employees to allow
up to 12 weeks of leave (26 weeks for military caregivers) in case of the
following:
• The employee’s own serious illness or that of their spouse, child,
parent, or sibling
• Baby bonding (includes bonding with a newborn, newly adopted child,
or newly placed foster child)
• Military exigency (employee’s family member needs assistance while on
active duty or as a result of being called to active duty)
• Caregiving for a family service member wounded in the line of duty
The FMLA does not require employers to pay employees while on leave, but
employees may use accrued paid time off, and, under certain circumstances,
employers may require employees to use paid time off. Employers must continue to provide group health insurance while an employee is on FMLA leave.
In addition, although FMLA leave for an employee’s own illness is
limited to 12 weeks, an employer may be legally required to provide additional leave as a reasonable accommodation under the ADA.32
Uniformed Services Employment and Reemployment Rights Act
USERRA protects employees who take leave for military service. USERRA
applies to all employers and employees, regardless of number of employees
or length of service. It prohibits discrimination against employees based on
military service and retaliation for exercising USERRA rights and requires
employers to permit employees to take leave for military service for up to a
total of five years.
As with FMLA, USERRA leave is unpaid, although the employee
may use accrued vacation and, if permitted by the employer, paid sick leave.
Employers are required to continue group health benefits for employees
on USERRA leave. An employee returning from USERRA leave must be
reemployed promptly, which under normal circumstances means within two
weeks of notification by the employee. (There are limited exceptions to this
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Legal Brief
Whether an employee’s position is exempt or
nonexempt under wage and hour laws determines whether they must be paid overtime. The
definition revolves around the individual’s level of
responsibility: executive, professional, and management personnel are generally exempt, whereas
hourly workers are not. The latter must be paid at
least the minimum wage and extra for every hour
of overtime; the former receive their salary no matter how long they toil at their jobs.
requirement.) USERRA also prohibits
employers from terminating a returning employee without cause for a period
following reemployment depending on
the length of the leave. For employers
who pay severance based on the number
of years an employee has been with the
company, USERRA requires that the time
an employee is on military leave must be
included in this calculation.33
Other Nondiscrimination Laws
Because they are so numerous, space does
not permit even a summary treatment of
all the other federal, state, and local laws
that apply to discrimination in the workplace, but they include the FMLA,
the Occupational Safety and Health Act (OSHA), the Civil Service Reform
Act of 1978 (CSRA), sections of the Rehabilitation Act, the Social Security
Act (SSA), and the Fair Labor Standards Act (FLSA). These laws are enforced
by agencies other than the EEOC, and many of them have state or local law
equivalents that must also be considered and that might go beyond what
federal law requires.
For example, the FLSA—which regulates minimum wages, overtime
pay, and child labor—operates in conjunction with state laws and is a major
focus of HR administration. Wage and hour laws govern the hourly wage
rates that an employer pays its “nonexempt” employees (essentially, those
who are not in salaried positions) and the hours for which they must be compensated (see Legal Brief). The best known are minimum wage and overtime
laws, but there are also laws relating to child labor; meals and breaks; vacation, sick, holiday, and military leave; time off for jury duty; and laws relating
to severance.
Labor Law
In one sense, all laws that affect the employer–employee relationship are
“labor laws,” but the term is generally used to mean laws relating to workers’
rights to form unions and engage in collective bargaining. Labor law is governed almost entirely by federal statutes, mainly the National Labor Relations
Act (NLRA), which was enacted in 1935 as part of the New Deal legislation
under President Franklin D. Roosevelt. Other laws have supplemented the
NLRA, as will be summarized, but first a brief history.
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Labor Relations During the Industrial Revolution
As the manufacturing and transportation industries grew in the United States
during the late nineteenth and early twentieth centuries, turmoil began to
brew in the relations between labor and management. Workers pressed for
better and safer working conditions, and management usually pushed back;
strikes, violent clashes, prosecutions, and litigation often ensued.
For example, in 1894 a massive strike against railroads—the Pullman
strike—involved up to 80,000 workers and led to the violent deaths of as
many as 30 strikers. The work stoppage was broken only when the federal
government became involved and the army and courts intervened.
Even peaceable efforts by workers to improve wages and working
conditions were often deemed to be illegal under the law of that time. Thus,
labor unions were essentially powerless to confront management on issues
relating to the terms and conditions of employment. Many companies even
required new hires to sign, as a condition of employment, an agreement not
to join a union or take part in union activities. These “yellow-dog contracts”
were outlawed by the Norris-LaGuardia Act of 1932, one of the first major
labor laws passed by the US Congress.34
Major Labor Relations Laws
The National Labor Relations Act of 1935, also known as the Wagner Act
after its sponsor, New York senator Robert Wagner, was meant to protect the
rights of employees and correct the inequality of bargaining power that previously existed between management and labor. The law guarantees the right
of most private sector employees to organize into unions, engage in collective
bargaining, and go on strike if necessary (but see Exceptions to the National
Labor Relations Act). The law also created the NLRB, which supervises
union elections and sets rules for conduct by both unions and management.
The NLRA was amended in 1947 by the Labor Management Relations
Act (LMRA), popularly known as the Taft-Hartley Act after its sponsors, Senator Robert A. Taft and Representative Fred A. Hartley Jr. Together, the NLRA
and the LMRA set forth a set of unfair labor
practices for both employers and unions.35
For example, it is an unfair labor
Exceptions to the National Labor
practice for an employer to do any of the
Relations Act
following:
• Interfere with employees’ rights to
unionize, bargain collectively, and
engage in other concerted activity
• Dominate or interfere with the
administration of a labor organization
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The NLRA does not apply to agricultural employees; domestic employees; supervisors; federal,
state, and local government employees; independent contractors; and employees in the railroad
and airline industries. These workers are covered
by separate statutes.
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secondary boycott
An attempt by a
union to pressure
a neutral company
to refuse to do
business with the
employer with
which the union
has a dispute.
union shop
A place of work in
which employees
are required to
belong to a union
and new hires can
be required to join
the union within a
certain period.
featherbedding
Deliberately
inefficient work
practices that
require the
employment of
excessive numbers
of workers.
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• Encourage or discourage union membership by discrimination in
hiring, tenure of employment, or terms and conditions of employment
• Discriminate against an employee for union activity
• Refuse to bargain collectively with union representatives
In addition, it is an unfair labor practice for a union to do any of the following:
• Coerce employees when they exercise their right to bargain collectively,
choose a representative, or vote against unionization
• Cause an employer to discriminate against any employee
• Refuse to participate in collective bargaining
• Engage in certain secondary boycotts
• Require union members in a union shop to pay excessive initiation
fees or dues
• Engage in featherbedding
The labor laws apply to virtually all private employers, including hospitals, whether they are unionized or not. For example, a 2005 case involving a hospital exemplified the prohibition against secondary boycotts. The
Sheet Metals Workers International Association local union had a dispute
with a construction company that was working on a project at Brandon
Regional Medical Center in Florida. To protest the construction firm’s use of
nonunion labor, the union staged a mock funeral procession in front of the
hospital. The protest involved one union member dressed as the grim reaper
and others carrying a coffin back and forth on a sidewalk near the hospital’s
main entrance while loudspeakers broadcast somber funeral music. This was
disturbing to patients, visitors, and staff, and the hospital sought relief by filing an unfair labor practice complaint.
The trial court granted an injunction against the strike, and the union
appealed. The US Court of Appeals for the Eleventh Circuit affirmed the
injunction and, in so doing, explained that a violation of the secondary boycott prohibition “consists of two elements: (1) a union engages in conduct
that threatens, coerces, or restrains an employer or other person engaged in
commerce; and (2) an object of the union’s conduct is to force or require an
employer or person not to handle the products of, or to do business with,
another person.”36 The union conceded that it was trying to pressure the
hospital to stop doing business with the construction company, but it argued
that its members’ First Amendment right to free speech should prevail.
The court disagreed, saying that the union’s activities were more
than just expressions of opinion such as can be done by “peaceful handbilling.” Instead, the funeral procession amounted to coercion through secondary picketing, which is not protected by the First Amendment and can
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be enjoined.37 (See appendix 4.1 for a further list of fair and unfair labor
practices.)
Union Organizing
Unionization of a workplace begins with an organizing campaign by employees who want a union to represent them. They ask other employees holding
similar jobs to sign “authorization cards”—forms that designate the union to
be their representative to bargain with their employer. These activities can be
disruptive to normal operations, and employers typically attempt to discourage unionization. Doing so is fraught with danger, however, because numerous types of unfair labor practices can arise as a result (see appendix 4.1).
For example, the right to free speech generally extends to employees in the
workplace—thus, the NLRA protects employees’ right to wear union insignia
and campaign buttons, unless doing so creates a safety hazard or there is a
real threat of violence between union supporters and others.
The law provides an exception, however, for employees who work
with the public and are required to wear a uniform. For example, a hospital
that requires employees to wear a uniform and bans pins, buttons, and other
insignia except for professional association pins and hospital service awards
could lawfully forbid a carpenter from wearing a button promoting union
membership. The US Court of Appeals for the Fifth Circuit held that “the
interest of the Hospital in promoting the efficiency of the public service it
performs by means of its uniform non-adornment policy outweighs the interest of [employees] in wearing a ‘Union Yes’ button on their uniforms while
on duty at the Hospital.” There was no evidence that the hospital’s policy
was adopted out of “anti-union animus” or that it was enforced unfairly.38
If at least 30 percent of employees in a bargaining unit sign on, the
union can request the employer to recognize it voluntarily. Voluntary recognition is rarely granted, however, and in that case, the union may petition
the NLRB to supervise an election. If the union prevails, the employer must
thereafter recognize the union as the employees’ representative and negotiate
a collective bargaining agreement (CBA).
A bargaining unit is a group of nonmanagement employees who have
similar jobs and a clear set of common interests and who are represented by
a single labor union in their dealings with management. In acute care hospitals, there are, by regulation, eight recognized groups of employees that can
constitute bargaining units:39
1.
2.
3.
4.
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Registered nurses
Physicians
Professionals (except for registered nurses and physicians)
Technical employees
collective
bargaining
agreement (CBA)
An agreement
(also known
as a collective
labor agreement)
negotiated
between
management and
a union acting on
behalf of a group
of employees. The
CBA regulates
the terms and
conditions of
employment and
the respective
duties of the
employer and
employees.
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5.
6.
7.
8.
supervisor
Any individual
having authority,
in the interest
of the employer,
to hire, transfer,
suspend, lay off,
recall, promote,
discharge,
assign, reward, or
discipline other
employees, or
responsibly to
direct them, or
to adjust their
grievances, or
effectively to
recommend
such action, if in
connection with
the foregoing the
exercise of such
authority is not of
a merely routine or
clerical nature, but
requires the use
of independent
judgment (29
U.S.C. § 152(11)).
Skilled maintenance employees
Business office clerical employees
Guards
Other nonprofessional employees not covered by categories 4
through 7
The NLRB will determine which employees belong to a bargaining
unit and are eligible to vote in the representation election. As defined by the
NLRA, supervisors are not considered “employees” because they are part
of management and their interests differ from those of rank-and-file workers. Supervisors are therefore excluded from a bargaining unit and are not
entitled to union representation. The question of who is a supervisor often
arises in healthcare organizations when a union attempts to organize nurses.
For example, in a 2006 ruling, the NLRB addressed the question of
whether charge nurses—those who oversee patient care units in addition to
performing regular nursing duties—were part of management or the rankand-file labor force.40 Twelve nurses at an acute care hospital served permanently as charge nurses on every shift they worked, while others took turns
rotating into the charge nurse position and performed nonsupervisory duties
most of the time. The union wanted to include all nurses in the bargaining
unit of registered nurses. The hospital sought to exclude the permanent
and rotating charge nurses, arguing that they use independent judgment in
assigning and directing other employees and thus fit the meaning of “supervisor” under the NLRA.
In a lengthy opinion, the labor board found that the permanent charge
nurses were supervisors because they regularly assigned other personnel to
particular patients and used their own judgment in doing so. The rotating
charge nurses, however, did not exercise supervisory authority for a substantial
part of their work time, and thus they were included in the bargaining unit.
Collective Bargaining
Once a union has been recognized as representing a certain bargaining unit,
the union and management begin the process of negotiating a CBA on
important work-related issues. Refusal to do so is an unfair labor practice.
Certain topics that materially or significantly affect the terms or conditions of employment are mandatory subjects of bargaining. These include
the following:
• Drug testing
• Dues checkoff (the employer’s practice of deducting union dues from
paychecks and forwarding them to the union)
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•
•
•
•
•
•
•
173
Work rules
Bans on moonlighting
Transfers to positions outside of the bargaining unit
Contracting out work done by employees in the bargaining unit
Bonuses
Medical insurance
Clauses that forbid strikes and lockouts
Other issues that affect the work environment are permissible subjects
of bargaining. Some of the issues that are often addressed in CBAs include
the following:
•
•
•
•
•
•
•
•
•
•
•
•
Description of the bargaining unit
Management rights
Workday and workweek
Overtime
Classification of jobs for wage purposes
Compensation, bonuses, health, and other benefits
Paid time off (e.g., who is eligible, scheduling time off, who must be
notified, which paid holidays are provided)
Sick leave (e.g., number of days available, waiting period, doctors’
notes, discipline for misusing sick leave)
Severance pay
The discipline process (i.e., the steps—such as reprimands, conferences,
and written warnings—that will be provided before an employee is
discharged)
Grievance procedures
Workplace safety
Strikes
Under the NLRA, employees have a right to engage in “concerted activities” for their mutual aid and protection.41 Thus, they may join together to
organize, protest, and otherwise assert their interests in a lawful manner.
Such activities include going on strike if a new contract cannot be negotiated, if the employer has committed unfair labor practices, or if working
conditions are unreasonably dangerous. A striking union’s gamble is that
the employer will need to maintain continuous operations and therefore will
grant significant concessions before the employees lose too much income by
stopping work.
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A strike is one thing in a major sector such as transportation or
automobile manufacturing; it is quite another in a service sector such as
healthcare, where the lives and well-being of patients can be affected. Thus,
a separate section of the NLRA prohibits a labor organization from engaging in a strike, picketing, or other concerted refusal to work at any healthcare institution without first giving at least ten days’ notice in writing to
the institution and the Federal Mediation and Conciliation Service.42 This
“cooling off” period gives the employer extra time to address the underlying complaint or arrange for a continuation of services in the event a strike
cannot be avoided.
A Word of Caution
Labor disputes can be emotional, even violent, and they interfere with the
nation’s economic well-being. Because it is in the national interest to maintain full production, labor laws attempt to define and protect the rights of
both employees and employers, to encourage collective bargaining, and to
eliminate certain practices that are harmful to the general welfare.
The laws are extremely complex, and their application is fraught with
legal peril, so it is imperative that healthcare executives—especially those in
HR departments—rely on legal counsel and other advisors who specialize in
labor law. These legal standards are not topics for amateurs and poseurs (see
appendix 4.2).
Statutes Enforced by the US Department of Labor
There are many other federal statutes that affect the workplace, and each state
has additional employment-related laws and regulations. It is not possible in
this chapter to list them all and discuss them in detail, but exhibit 4.1 summarizes some of the major statutes that fall under the jurisdiction of the US
Department of Labor and that affect the healthcare sector. They are organized by the type of labor standard involved.
The laws and regulations featured in exhibit 4.1 have provisions
relating to the rights of employees, and they detail employers’ responsibilities concerning record keeping, reporting, and notices and posters. The
Department of Labor can impose civil money penalties and institute criminal
prosecution for violations, and aggrieved persons can seek remedies through
private litigation. HR directors and other members of management need to
be aware of these requirements and seek competent legal counsel when dealing with related issues.
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175
EXHIBIT 4.1
Key Federal
Labor Statutes
Wages and Hours Worked
Title
Citation
Function
Fair Labor
Standards Act
(FLSA)
29 U.S.C. §§
201 et seq.; 29
C.F.R. pts. 510
to 794
Establishes standards for minimum
wages, overtime pay, record
keeping, and child labor
Title III, Consumer
Credit Protection
Act (CCPA)
15 U.S.C. §
1671; 29 C.F.R.
pt. 870
Protects employees from discharge
by their employers because their
wages have been garnished for any
one debt; limits the amount of an
individual’s earnings that may be
garnished for certain types of debts
Safety and Health Standards
Title
Citation
Function
Occupational Safety
and Health Act of
1970 (OSH Act)
29 U.S.C. §§
651 et seq. and
29 C.F.R. pts.
1900 to 2400
Sets standards to ensure that
employers are providing safe and
healthful workplaces; creates the
Occupational Safety and Health
Administration (OSHA)
Health Benefits, Retirement Standards, Workers’ Compensation
Title
Citation
Function
Employee
Retirement Income
Security Act
(ERISA)
29 U.S.C. §§
1001 et seq.
and 29 C.F.R.
pt.2509 et seq.
Sets minimum standards for most
private sector employee benefit
plans (e.g., medical/dental/vision,
retirement, life and long-term care
insurance, relocation); generally
does not cover plans maintained by
churches or government entities
Family and Medical
Leave Act of 1993
(FMLA)
29 U.S.C. §§
2601 et seq.
and 29 C.F.R.
pt. 825
Provides a means for employees
to balance their work and family
responsibilities by taking unpaid,
job-protected leave for certain
reasons such as the birth of a child,
care of a seriously ill close family
member, or an emergency arising
out of a family member’s active duty
in the military
(continued)
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EXHIBIT 4.1
Key Federal
Labor Statutes
(continued)
Health Benefits, Retirement Standards, Workers' Compensation
Title
Citation
Function
Immigration and
Nationality Act of
1952 (INA)
8 U.S.C. §§
11511382; 20
C.F.R. pt. 656
Addresses employment eligibility,
employment verification, and
nondiscrimination: employers may
hire only persons who can legally
work in the United States, and
they must verify the identity and
employment eligibility of anyone to
be hired, which includes completing
the Employment Eligibility
Verification Form (I-9)
20 C.F.R. pt.
655
Contains provisions to permit certain
foreign workers (e.g., engineers,
teachers, computer programmers,
medical doctors, physical therapists)
to be employed under special visa
classifications
Note: Many states also have statutes regulating these areas of law; in general, states may enact
laws that are more protective of employees.
State Employment Law
In addition to the federal statutes described earlier, there are literally hundreds of state laws affecting the employment relationship. There are state
minimum wage laws, for example. There are state laws relating to child labor.
There are state laws on paid rest periods, meal periods, payday requirements,
vacations, alcohol and drugs, background checks, privacy, military and personal leave, unemployment compensation, and myriad other details.
Some states have employment laws specific to the healthcare setting.
The California Health and Safety Code, for example, prohibits a healthcare
facility from discriminating or retaliating in any way against an “employee,
member of the medical staff, or any other healthcare worker” who complains
to an accrediting agency, to the medical staff, or to a government entity or
who participates in an investigation related to the quality of care at the facility.43 These are just a few examples of how state law can affect human resource
management. Because each state’s set of employment laws is unique, generalizing is impossible, but many resources are available. The US Department
of Labor maintains a website on state labor laws.44 The National Conference
of State Legislatures (ncsl.org) is a resource for state laws on employmentrelated topics. An online search can locate professional associations, national
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law firms, and other sources for comparative information. Each state’s labor
department will have relevant information as well. But what is most crucial is
to engage the advice of legal counsel and HR professionals who are familiar
with the legal standards of the state in which the healthcare organization is
operating.
Special Legal Challenges for HR Departments
Every field has its own set of HR challenges, and the healthcare sector operates under unique pressures. Following are a few of the challenges facing HR
departments in the health sector today.
• Vaccine mandates for healthcare employees. During the COVID-19
pandemic, vaccination or regular testing of employees at healthcare
facilities that receive Medicare or Medicaid funding was required.
This included hospitals, dialysis clinics, outpatient surgical facilities,
and home health care agencies. (Nursing homes were already
covered by a previous order.) The authority for this mandate
stemmed from the power of the Centers for Medicare & Medicaid
Services (CMS) to impose Conditions of Participation on Medicare
and Medicaid providers. The US Supreme Court upheld the
regulation on January 13, 2022.45
• Other federal mandates. A second vaccine-or-test requirement applied to
all federal employees, and a third required federal contractors with 100
or more full-time employees to ensure that their workers are vaccinated
or tested. The former order was issued pursuant to the government’s
role as an employer. Authority for the latter, an emergency temporary
standard, was based on OSHA’s rulemaking powers. On January 13,
2022, the Supreme Court ruled that OSHA went beyond its statutory
authority in enacting such a broad requirement.46
• State mandates and prohibitions of mandates. As is typical in our federal
system of government, state and local governments varied widely in
their vaccination requirements, with some being more stringent and
some prohibiting employers from requiring vaccination or testing
of their workforce. On their own, many healthcare organizations
mandated COVID-19 vaccination as a condition of employment,
and many employees were terminated for failure to comply. But
those mandates drew fire from, among others, the governors of
Arkansas, Arizona, Georgia, Florida, Indiana, Montana, South
Carolina, Tennessee, and Texas. Especially in those states, a healthcare
organization’s policy to require vaccinations may lead to legal
challenges irrespective of the federal standards.
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• Vaccine mandate lawsuits. Vaccine mandate lawsuits filed during
the pandemic raised myriad legal issues. The lawsuits challenging
government-imposed vaccination requirements raised various statutory
and constitutional issues, including the need for religious exemptions.
In addition, the suits filed against private employers cited labor
relations law (where unions were involved) as well as local, state, and/
or federal statutes, including the Civil Rights Act and the ADA. Given
the managerial challenges of implementing vaccination and/or testing
requirements and the potential for liability if the workforce is not
COVID-free, sound legal advice is essential.
• Privacy violations. Protection of patient information is required by
the Health Insurance Portability and Accountability Act (HIPAA),
and employees can be terminated for breaches of confidentiality (see
chapter 10). Privacy violations can also extend to an employer’s use of
subcontractors or vendors who do not use HIPAA-compliant methods
for protecting personal information.
• Use of social media. Employees’ use of social media (e.g., Facebook,
Twitter, Instagram, TikTok) can create a variety of legal issues, and
the extent to which employers may access those accounts to monitor
employees’ nonworkplace behavior is an open question.
• Staff shortages. As baby boomers age and the need for healthcare
grows, the sector is running out of nurses.47
• High turnover. With so many vacancies, it is easy for employees to leave
for other positions if they are unhappy in their current post.
• Employee burnout. Staffing shortages have negative cascading effects on
the remaining staff, and stress and burnout can occur.
• Need for additional training. Technological advancements (especially
in the form of high-tech digital systems and healthcare devices) require
staff members to learn new skills, which places greater demands
on HR professionals to ensure that proper training is given and
documented.
• Complexity of the regulatory system. Healthcare may be the world’s most
highly regulated sector because it is subject not only to laws that apply
to every business, but also to the peculiar and detailed requirements
of the Medicare and Medicaid systems, state and federal insurance
regulations, multiple fraud laws, and other similarly unique legal
provisions. This presents significant challenges for compliance, audit,
and HR departments to maintain discipline and to take corrective
action when necessary.
• Unionization. Nurses and other groups of healthcare employees tend
to have strong unions, which presents challenges for managers, payroll
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personnel, and HR professionals (see Union Organizing earlier in this
chapter).
• Workplace safety. The intersection of nondiscrimination principles with
safety issues presents challenges. For example, a pregnant employee
may require accommodation to protect the unborn child from
dangerous substances, and employees may claim a religious objection
to vaccinations.
• Background checks. As a result of the special relationship between the
healthcare organization and its patients, extra caution is required in
doing background checks for sex offenders, other types of abusers,
those with a history of violence, and so on. State laws may vary on the
types of checks that can be run on applicants or current employees.
Law in Action
Vaccine mandates raise a question that is deeply rooted in our history: the line between the powers of
states and those of the federal government. States have the general “police power” to regulate for the
health and safety of their residents. The federal government’s powers, on the other hand, are limited by
the US Constitution. The Joe Biden administration’s COVID-19 vaccine mandate for healthcare workers
was issued by CMS, an executive agency that has been delegated certain powers that the Constitution
assigns to Congress. Because the healthcare entities covered by the rule receive Medicare and Medicaid
funding, CMS issued the rule as an exercise of Congress’s authority to tax and spend.
Would the federal government’s power to regulate interstate commerce support a general requirement for citizens to be vaccinated, be tested regularly for COVID-19, or wear masks? We might never know
for sure, but that seems like a stretch.
Mandates also raise the question of how to weigh individual liberties against the needs of public
health. The venerable US Supreme Court case Jacobson v. Massachusetts (197 U.S. 11 [1905]) upheld the
power of state government entities to require vaccinations for the common good. The majority opinion in
Jacobson stated that a “community has the right to protect itself against an epidemic of disease which
threatens the safety of its members.” Of course, this case was decided more than a century ago; whether
today’s courts will follow that precedent in pandemic-related cases remains to be seen.
It must also be noted that the EEOC’s definition of “religion” is broad and protects beliefs, practices,
and observances with which the employer may be unfamiliar. These are some of the most divisive cases
from an HR standpoint. Employers must have a legally justifiable policy for determining when to grant
a religious or medical exemption and what accommodations are reasonable. The advice of experienced
legal counsel is required.
EEOC guidance concerning COVID-19 is collected at Coronavirus and COVID-19, U.S. EEOC, https://
www.eeoc.gov/coronavirus [https://perma.cc/QKX4-Y35G]. See also Fact Sheet: COVID-19 Vaccination
Mandates: Recent Court Cases, Network Pub. Health L., https://www.networkforphl.org/resources/covid19-vaccination-mandates-recent-cases/ [https://perma.cc/N7T7-BLV6] (both sites last visited May 19,
2022).
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Employee Relations Generally
The employment relationship begins with the interview, and numerous legal
standards apply when interviewing and selecting candidates. A responsible
HR department will keep managers apprised of the applicable laws and regulations and train those who make hiring decisions in how to avoid legal pitfalls.
Some of the greatest hiring failures occur when interviewers make
inquiries that are illegal or irrelevant to the job in question. Interviewing is
an art, and it should be guided by qualified HR professionals who help the
interviewer focus on the candidate’s ability to perform essential job functions.
A job interview should be a preplanned, structured process that is the same
for all candidates but is specific to the job in question. Exhibit 4.2 lists some
EXHIBIT 4.2
Generic
Interview Tips
You May Not . . .
• Ask the candidate’s age. You may only inquire whether they can prove
they are the applicable minimum age for employment.
• Ask whether they are disabled or, if a disability is obvious, how long
they have been disabled. You may, however, ask questions about their
ability to perform specific job-related functions. For example, if the job
requires travel, you may ask an individual using a wheelchair how they
would get around to job sites.
• Ask about past substance abuse. However, you may ask whether the
candidate currently uses illegal drugs, and you may require they take a
drug test.
• Ask whether the person has ever been arrested. You may, however, ask
about past convictions.
• Ask whether (or imply that) the person is an illegal alien. You may,
however, ask whether they can provide proof of the legal right to work
in the United States if they were to be hired (see Immigration and
Nationality Act in exhibit 4.1).
• Ask about social clubs, union membership, fraternal organizations, and
so on. However, you may ask about membership in relevant professional
associations.
• Ask about marital and family status, whether they have or plan to have
children, or similar issues. You may, however, ask whether any job
requirements that extend beyond “normal working hours” (travel or
overtime, for example) would pose a problem.
• Ask any questions regarding race, religion, national origin, personal
appearance, gender, sexual orientation, financial status, or home
ownership. You may, however, ask whether working on Saturdays or
Sundays would pose a problem.
Note: If a candidate volunteers information that touches on any prohibited topic of discussion, do not pursue the comment or make note of it.
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helpful tips for interviewing in an unbiased, legally appropriate manner, and,
as always, the advice of qualified HR and legal professionals is essential.
Once a candidate has been chosen, HR will ensure that they complete
all necessary onboarding steps and that statistical reporting and affirmative
action monitoring requirements are met. These include collection of personal
or demographic information, completion of tax forms (e.g., W-4), verification of eligibility for employment (I-9), identification of veteran status,
arranging for preemployment medical or drug testing, and similar details.
For the organization’s total workforce, HR professionals ensure ongoing compliance with federal and state employment laws (e.g., wages, family
leave, disability); assist in performance evaluations; advise on disciplinary
issues, including possible termination; help provide professional training and
staff development; and update employee relations policies on a regular basis.
There are legal land mines at every turn, and an enlightened employee relations team consisting of specially trained HR professionals is the first line of
defense against expensive and disruptive litigation.
Chapter Summary
This chapter discussed the following topics:
•
•
•
•
•
Employment law
Who is an employee or other member of the workforce
Nondiscrimination statutes
Labor relations law and union activities
Special human resources issues in healthcare, including vaccine
mandates
• General employee relations issues, including do’s/don’ts for
interviewing
Vocabulary
collective bargaining agreement (CBA)
due process
employee
employment at will
equal protection
featherbedding
independent contractor
secondary boycott
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state action
union shop
supervisor
workforce
Discussion Questions
1. Why would an employer prefer to classify a worker as an independent
contractor rather than as an employee?
2. From the individual worker’s standpoint, what are the pros and cons of
being an employee versus an independent contractor?
3. Under the wage and hours laws, what is the difference between being
an exempt employee and a nonexempt employee?
4. What is the legal status of vaccine mandates for healthcare workers
in your state? If healthcare workers are required to be vaccinated
(as a matter of organizational policy or state law) against the flu,
COVID-19, or other diseases, what types of accommodations, if any,
are available for those with medical or religious bases for refusing
vaccination?
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The Court Decides
Prescott v. Rady Children’s Hospital-San Diego
265 F.Supp.3d 1090 (S.D. Cal. 2017)
[Katharine Prescott filed suit against Rady
Children’s Hospital-San Diego (RCHSD) on
behalf of herself and her deceased minor son,
Kyler. She alleged that RCHSD advertised
that it was expert in treating transgender and
gender-nonconforming children and adolescents and that it was “competent, careful,
and experienced in the care and treatment
of patients, particularly transgender patients
and those with gender dysphoria.”
The opinion defined gender dysphoria
“as a marked difference between a person’s
gender identity and their assumed gender at
birth, which persists for at least six months
and manifests itself in at least two other
symptoms (e.g., ‘a desire to prevent the
development of the anticipated secondary
sex characteristics,’ ‘a strong desire to be of
the other gender,’ and ‘a strong desire to be
treated as the other gender’).”
In her lawsuit, Prescott alleged violations
of several statutes, including Title IX of the
Education Amendments of 1973, a section of
the Affordable Care Act that bars discrimination on any ground that is prohibited by the
Civil Rights Act, and certain other federal
statutes. She also alleged violations of California’s unfair competition and false advertising laws.]
I. BACKGROUND
Kyler was assumed to be female at birth.
However, at the age of ten Kyler began exhibiting signs that he was a boy. At the age of
twelve, due to increasing gender dysphoria, Kyler began engaging in self-harming
behaviors. When Kyler was thirteen, he told
Ms. Prescott that he was a boy. As Kyler
entered puberty, his gender dysphoria significantly worsened and he continued to engage
in severe self-harming behaviors. [Over the
next few years, he saw a therapist and an
endocrinologist and received some treatment,
but “he still experienced depression and
gender dysphoria” and continued to have suicidal thoughts. Eventually, he was admitted
to RCHSD’s Child and Adolescent Psychiatry
Services (CAPS) unit on a psychiatric hold
because he was a danger to himself.]
The RCHSD and CAPS staff was informed
by Ms. Prescott of Kyler’s male identity and
“his need to be referred to exclusively with
male gender pronouns.” Kyler’s medical
records reflected his legal name and gender
change. His male gender identity was also
denoted on his RCHSD medical wrist bracelet.
Upon intake, the RCHSD staff assured Ms.
Prescott “that Kyler’s sex and gender identity
would be respected and affirmed” and that
“all staff would refer to Kyler with male gender pronouns and would otherwise treat him
as a boy.”
Despite knowing that Kyler was a “transgender boy in acute psychological distress,”
“nursing and other RCHSD staff repeatedly
addressed and referred to Kyler as a girl,
using feminine pronouns.” Kyler complained
to his mother during his stay that the staff
referred to him with feminine pronouns,
which caused him extreme distress. Kyler
also reported that while the other children who were patients initially referred to
him with male pronouns, after the RCHSD
staff’s repeated use of female pronouns,
(continued)
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(continued from previous page)
the children also began calling him “she.”
After Kyler was discharged, he also told
Ms. Prescott that one RCHSD employee told
him, “Honey, I would call you ‘he,’ but you’re
such a pretty girl.” Every time Ms. Prescott
observed staff calling Kyler “she,” she reiterated that “it was essential to exclusively refer
to Kyler with male gender pronouns, and that
misgendering caused him serious harm.”
. . . Despite concerns over Kyler’s continuing depression and suicidal thoughts, Kyler’s
medical providers concluded that he should
be discharged early from the hold at RCHSD
because of the staff’s conduct. On April 7,
2015, Kyler was discharged from RCHSD’s
facility. After being discharged, Kyler continued to feel anxious and depressed as a result
of RCHSD staff’s treatment during his stay.
On May 18, 2015, Kyler died by suicide.
III. DISCUSSION
. . . At the outset it is worth noting that in
evaluating Title IX [Education Act] claims, federal courts regularly look to [Civil Rights Act]
Title VII cases for guidance. [For example, in
one case] the Ninth Circuit . . . reasoned that
“‘sex’ under Title VII encompasses both sex—
that is, the biological difference between men
and women—and gender.” It explained that
while earlier cases distinguished between
“sex” and “gender,” the Supreme Court [has]
abandoned this distinction and held that
Title VII bars discrimination based on both
an individual’s sex and failure to conform to
socially-constructed gender expectations.
[Specifically,] the Ninth Circuit reaffirmed that
“it is unlawful to discriminate against a transgender (or any other) person because he or
she does not behave in accordance with an
employer’s expectations for men or women.”
Other Circuits have similarly interpreted
the sex discrimination provisions under Title
IX and Title VII to protect transgender individuals from discrimination. . . . Because Title
VII, and by extension Title IX, recognize that
discrimination on the basis of transgender
identity is discrimination on the basis of sex,
the Court interprets the ACA to afford the
same protections.
[The court denied the hospital’s motion to
dismiss Prescott’s claim for damages under
the Affordable Care Act’s antidiscrimination
provisions. It also denied motions to dismiss
her allegations of unfair competition and
unfair advertising in violation of California
law. The question of damages was reserved
for further proceedings.]
Discussion Questions
1. Can you explain why this is a civil rights issue? Why do you suppose Prescott did not
assert a wrongful death claim?
2. What were the responsibilities of the CAPS unit personnel in implementing the psychiatric
“hold,” and why were they not carried out?
3. What is the difference between “sex” and “gender”?
4. Can you explain the terms transgender, gender-nonconforming, and cisgender? How do
they differ, if at all, from sexual orientation?
5. How can HR policies and practices be used to deal with these kinds of situations?
~
CH04.indd 184
~
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185
The Court Decides
Humphrey v. Memorial Hospitals Association
239 F.3d 1128 (9th Cir. 2001)
Reinhardt, Circuit Judge
Carolyn Humphrey brought suit against her
former employer, Memorial Hospitals Association (MHA), under the Americans with
Disabilities Act (ADA) and its California counterpart, the Fair Employment and Housing Act
(FEHA) for failure to reasonably accommodate
her disability and wrongful termination. We
reverse the district court’s grant of summary
judgment in favor of MHA.
I. BACKGROUND
[Humphrey worked for MHA as a medical
transcriptionist from 1986 until her termination in 1995. Her performance was consistently rated as excellent, exceeding the
hospital’s standards for speed, accuracy, and
productivity. However, in 1989, she began to
experience problems getting to work on time,
or at all, because of certain obsessive rituals
related to grooming and dressing that sometimes took three hours or more. Some days
when she realized she was going to be late,
she would panic and become embarrassed,
making it even harder to leave her house.
As a result of her difficulties with tardiness
and absenteeism, MHA disciplined Humphrey
with progressive warnings and counseling,
sent her to their employee assistance program, and paid for psychological evaluations.
The opinion of the psychiatric professionals was that obsessive-compulsive disorder
(OCD) was the likely cause of her attendance
problems.
Humphrey was offered an accommodation in the form of a flexible start time
arrangement in which she could begin work
any time within a 24-hour period on days
on which she was scheduled to work. She
accepted this offer but continued to miss
work, at which point she requested to be
allowed to work at home—an arrangement
that MHA had previously granted to certain
medical transcriptionists. This request was
“summarily denied” because of the hospital’s policy that employees who are involved
in disciplinary actions are not eligible to work
from home. After a few more absences, Humphrey was terminated as a result of her “history of tardiness and absenteeism.”
The trial court granted MHA’s motion for
summary judgment on the theory that the
hospital had satisfied its duty to make reasonable accommodation for her disability.]
II. DISCUSSION
Humphrey contends that MHA violated the
ADA and the FEHA by failing to reasonably
accommodate her disability and by terminating her because of that disability. The ADA
provides that “no covered entity shall discriminate against a qualified individual with a
disability because of the disability. . . .” Title
I of the ADA insures [sic] full opportunities
for people with disabilities in the workplace
by requiring reasonable accommodation of
employees’ disabilities by their employers.
Under the ADA, the term “discriminate” is
defined as including “not making reasonable
accommodations to the known physical or
mental limitations of an otherwise qualified
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
individual with a disability who is an applicant or employee, unless such covered entity
can demonstrate that the accommodation
would impose an undue hardship on the
operation of the business of such covered
entity.” To prevail on a claim of unlawful
discharge under the ADA, the plaintiff must
establish that he is a qualified individual
with a disability and that the employer terminated him because of his disability. The
ADA defines a “qualified individual with a
disability” as “an individual with a disability
who, with or without reasonable accommodation, can perform the essential functions of
the employment position that such individual
holds or desires.” A “disability” is “a physical
or mental impairment that substantially limits one or more of the major life activities of
such individual.”
The facts are undisputed with regard
to Humphrey’s ability to care for herself.
The testimony of Humphrey and . . . her
mental health provider, reflects that it took
Humphrey significantly more time than the
average person to accomplish the basic
tasks of washing and dressing. According
to Humphrey, the process of washing and
brushing her hair alone could take several
hours, and she at times would prepare for
work from eight o’clock in the morning until
five or six o’clock in the evening. [O]n one
OCD screening test, she was rated as taking three times as long as most people to
shower, wash her hands, dress, and handle
or cook food. MHA argues that even if Humphrey’s ritualistic behaviors caused her to
take more time to complete basic activities
than the average person, she is not disabled under the ADA because her OCD did
not prevent her from accomplishing those
activities. As the Supreme Court has noted,
however, “the [ADA] addresses substantial
limitations on major life activities, not utter
inabilities.” . . . An impairment “substantially
limits” one’s ability to carry out a major life
activity if, because of the impairment, the
CH04.indd 186
individual is “significantly restricted as to the
condition, manner, or duration under which
an individual can perform a major life activity as compared to the condition, manner,
or duration under which the average person
in the general population can perform that
same major life activity.” [Quoting the ADA
regulations.] An individual who has a physical or mental impairment that causes him to
take inordinately more time than others to
complete a major life activity is substantially
limited as to that activity under the ADA.
There is no dispute on the record before us
that Humphrey falls within that category.
Accordingly, in determining whether Humphrey is disabled for purposes of the ADA,
the question is not whether she is substantially limited in her ability to care for herself,
but whether she had OCD, and, if so, whether
her OCD was the cause of her limitation.
. . . Humphrey is a “qualified individual”
under the ADA so long as she is able to perform the essential functions of her job “with
or without reasonable accommodation.”
Either of two potential reasonable accommodations might have made it possible for
Humphrey to perform the essential functions
of her job: granting her a leave of absence
or allowing her to become a “home-based
transcriptionist.”
. . . [T]he ADA does not require an
employee to show that a leave of absence
is certain or even likely to be successful to
prove that it is a reasonable accommodation.
[In an earlier case] we noted that “as long
as a reasonable accommodation available to
the employer could have plausibly enabled
a handicapped employee to adequately perform his job, an employer is liable for failing
to attempt that accommodation.”
. . . [Furthermore,] MHA denied Humphrey’s application for a work-at-home position because of her disciplinary record, which
consisted of Level I and Level III warnings
for tardiness and absenteeism prior to her
diagnosis of OCD. It would be inconsistent
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C hap ter 4 : H um an Resourc es L aw
with the purposes of the ADA to permit an
employer to deny an otherwise reasonable
accommodation because of past disciplinary
action taken due to the disability sought to
be accommodated. Thus, Humphrey’s disciplinary record does not constitute an appropriate basis for denying her a work-at-home
accommodation.
. . . A reasonable jury could conclude that
if Humphrey was relieved of the stress of having to leave the house, she could perform her
transcriptionist duties and thus was “qualified” under the ADA.
Accordingly, we hold that MHA is not
entitled to summary judgment on the issue of
whether Humphrey is a “qualified individual
with a disability” for purposes of the ADA.
187
[In the remainder of the opinion, the court
held that MHA “had an affirmative duty under
the ADA to explore further methods of accommodation before terminating Humphrey.”
Moreover, “once an employer becomes
aware of the need for accommodation, that
employer has a mandatory obligation under
the ADA to engage in an interactive process
with the employee to identify and implement
appropriate reasonable accommodations.”
According to the court, this is a continuing
duty that is not exhausted by one effort.
Thus, “MHA was under a continuing duty to
offer a reasonable accommodation,” and it
violated the ADA’s reasonable accommodation requirement by failing to do so.]
Discussion Questions
1. Was the “work from home” option a realistic solution to Humphrey’s attendance problem?
2. How much tardiness and absenteeism should an employer permit before taking
disciplinary action if a disability is not known to be the cause?
3. What would you have done had you been in Humphrey’s supervisor’s position?
~
~
The Court Decides
National Labor Relations Board v. Lakepointe Senior Care & Rehab Center, LLC
680 Fed. Appx. 400 (6th Cir. 2017)
Kethledge, Circuit Judge
Lakepointe Senior Care & Rehab, LLC, operates a long-term care facility in Michigan.
It employs licensed practical nurses and
registered nurses, which together are called
“charge nurses.” The National Labor Relations Board permitted the charge nurses to
bargain with Lakepointe through a union,
SEIU Healthcare Michigan (the Union),
because the Board determined that they were
“employees” rather than “supervisors” under
the National Labor Relations Act. . . .
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
The National Labor Relations Act gives
employees, but not supervisors, the right to
bargain collectively with their employers. The
Board’s regional directors determine who
counts as an “employee” under the Act. . . .
After the Board identifies a group of employees who are entitled to union representation,
it allows them to vote on whether the union
will represent their interests. If a majority
of the employees vote to join the union, but
their employer refuses to bargain with it, the
Board may find that the employer has committed an “unfair labor practice” in violation
of the Act and order the employer to bargain.
In 2005, the Union asked the Board to
recognize Lakepointe’s charge nurses as
employees under the Act, so that the Union
could represent them. In the representation
proceeding that followed, the Board found
that Lakepointe’s charge nurses were supervisors rather than employees. It therefore
denied the Union’s request. About ten years
later, the Union filed another petition with
the Board, again seeking to bargain on behalf
of Lakepointe’s charge nurses. Lakepointe
moved to dismiss, arguing that the Board’s
earlier determination that the nurses were
supervisors barred the Union’s second petition to represent them. The Board’s regional
director denied Lakepointe’s motion and
held a representation hearing, during which
Lakepointe offered evidence that its charge
nurses supervised its certified nursing assistants. The regional director determined that
Lakepointe’s charge nurses were employees
and thus were entitled to union representation. A majority of the nurses thereafter voted
to join the Union, but Lakepointe refused to
bargain with the Union on their behalf. The
Union filed a complaint with the Board, which
determined that Lake-pointe’s refusal was
an unfair labor practice. Hence the Board
ordered Lakepointe to bargain. The Board
now petitions for enforcement of that order.
. . . Lakepointe argues that the charge
nurses were supervisors and thus not
CH04.indd 188
entitled to unionize under the Act. . . . In representation proceedings, the employer bears
the burden of showing, by a preponderance
of the evidence, that the putative employees
are actually supervisors. To be a supervisor,
one must perform or “recommend” action
on at least one of twelve functions, which
include imposing “discipline” on other
employees. A person who recommends discipline . . . will be a supervisor only if her recommendations are “effective,” which means
that managers give weight to them. Supervisors must also use “independent judgment”
when deciding whether to exercise their
authority.
Here, the Board argues that Lakepointe’s
charge nurses were employees because, the
Board says, the nurses did not effectively
recommended [sic] discipline, among other
things. Lakepointe presented evidence, however, that its nurses used disciplinary forms
to “write up” certified nursing assistants
(the “aides”) for misconduct—and that those
forms invariably led to discipline. The question here largely turns on whether the charge
nurses imposed or recommended discipline
when they wrote up the aides for misconduct
with these forms.
The Board contends that Lakepointe’s
charge nurses used the disciplinary forms
merely to report the aides’ work performance, not to recommend discipline. Where
a person acts “as a conduit for information
and exercises no judgment in passing the
knowledge along to management,” he does
not independently recommend discipline. But
the evidence shows that Lakepointe’s charge
nurses were more than mere conduits. The
nurses testified that, when they learned that
an aide had violated work rules, they had a
choice: they could counsel the aide, do nothing, or write up the aide with the disciplinary
form. If the charge nurse chose to fill out the
form, she would write down what the aide
did wrong, explain what the aide should
have done, and sign above a line marked
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C hap ter 4 : H um an Resourc es L aw
“supervisor.” Absent the write-up, the aide
would not be disciplined; and the charge
nurses did not “consult with a superior” or
get approval before filling out the disciplinary form. That the nurses had this choice,
therefore, shows that they used independent
judgment when deciding whether to write
up aides.
. . . In summary, Lakepointe’s charge
nurses chose whether to write up aides
for misconduct. And when the nurses did
write them up, the nurses described the
rule violation . . . and submitted the form
so that the managers would discipline the
aide. The nurses therefore independently
recommended discipline . . . [and] the record
makes plain that Lakepointe’s supervisors
gave substantial if not decisive weight to the
charge nurses’ recommendations.
[T]he record shows that the disciplinary
forms always led to discipline and that the
managers regularly relied on the charge
nurses’ recommendations without questioning their version of events. The regional director overlooked this evidence when she found
that the charge nurses lacked the authority
to effectively recommend discipline. . . . [The
regional director’s] decision therefore was
not based on substantial evidence.
The Board’s application for enforcement
of its February 11, 2016 order finding that
Lakepointe had committed an unfair labor
practice is therefore denied.
Discussion Questions
1. What does “LLC” stand for in the rehab center’s name?
2. Why does an employer care whether “supervisors” are included in a bargaining unit with
other employees?
~
~
Notes
1. For example, healthcare administration curricula are accredited by
the Association of University Programs in Health Administration,
http://www.aupha.org [https://perma.cc/8AG8-95UQ], and the
Commission on Accreditation of Healthcare Management Education,
http://www.cahme.org [https://perma.cc/SH3U-XX6J]. The Society
for Human Resource Management provides recommended minimum
standards for HR degree programs, http://www.shrm.org [https://
perma.cc/Q455-TWDR].
2. See I.R.S. Pub. 15-A: Employer’s Supplemental Tax Guide, I. R. S. 5,
(last visited Nov. 13, 2018), https://www.irs.gov/pub/irs-pdf/p15a.
pdf [https://perma.cc/J43Y-XRQM] (emphasis added).
3. NLRB v. Hearst Publications, 322 U.S. 111, 121 (1944).
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190
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
4. Rev. Rul. 87-41. See also Joint Committee on Taxation, Present Law
and Background Relating to Worker Classification for Federal Tax
Purposes (JCX-26-07) (May 7, 2007), https://www.irs.gov/pub/irsutl/x-26-07.pdf [https://perma.cc/ESF9-SZ2X].
5. Hunt v. State of Missouri, Dept. of Corrections, 297 F.3d 735, 741–
42 (8th Cir. 2002).
6. Toussaint v. Blue Cross & Blue Shield of Michigan, 292 N.W.2d 880,
408 Mich. 579 (1980).
7. Baldetta v. Harborview Medical Center, 116 F.3d 482 (1997).
8. Cotran v. Rollins Hudig Hall Int’l., Inc., 69 Cal. Rptr. 2d 900, 948
P.2d 412, 422 (1998) (internal quotations and citations omitted).
9. I.R.S. Pub. 15-A, supra note 2, at 6.
10. See Hy-Brand Industrial Contractors, Ltd., et al., 365 NLRB 156
(Dec. 14, 2017); Browning-Ferris Industries of Cal., Inc. v. Nat’l
Labor Relations Bd., 362 NLRB No. 186 (Aug. 27, 2015), review
granted, 911 F.3d 1195 (Dec. 28, 2018).
11. 42 U.S.C. §§ 2000e to 2000e-17.
12. See, e.g., EEOC, Laws & Guidance (last visited May 19, 2022),
https://www.eeoc.gov/laws/index.cfm [https://perma.cc/
VK4L-MF5M].
13. 29 U.S.C. §§ 621–634. The regulations are found at 29 C.F.R. pt.
1625.
14. Smith v. City of Jackson, 544 U.S. 228, 233 (2005).
15. 29 C.F.R. § 1625.7.
16. 42 U.S.C. §§ 12101–12213.
17. See Questions and Answers about Healthcare Workers and the Americans
with Disabilities Act, EEOC (updated May 9, 2019), https://www.
eeoc.gov/facts/health_care_workers.html#_ednref2 [https://perma.
cc/Q9HS-MMYN].
18. 283 F.3d 11, 28 (1st Cir. 2002).
19. Deane v. Pocono Medical Center, 142 F.3d 138, 144 (1998).
20. 29 C.F.R. § 1630.9.
21. Hedrick v. Western Reserve Care System, 355 F.3d 444, 457 (6th Cir.
2004).
22. 29 U.S.C. § 206(d).
23. 29 U.S.C. § 203.
24. 42 U.S.C. § 2000e-(5)(e)(3).
25. 8 U.S.C. § 1324b.
26. 42 U.S.C. § 2000e(j). Regulations can be found at 29 C.F.R. pt.
1605.
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191
27. Meritor Sav. Bank, FSB v. Vinson, 477 U.S. 57 (1986).
28. Bostock v. Clayton County, Ga., 140 S. Ct. 1731, 1754 (2020).
29. 42 U.S.C. § 2000e(k). The Pregnancy Discrimination Act is enforced
by the EEOC.
30. Pub. L. No. 110-233, May 21, 2008. The law is codified in various
sections of U.S.C. Titles 29 and 42, primarily 42 U.S.C. § 2000ff-1.
The regulations are at 29 C.F.R. pt. 1635.
31. See Facts About Retaliation, EEOC, https://www.eeoc.gov/laws/
types/retaliation.cfm [https://perma.cc/NS2G-X9B5] (last visited
May 19, 2022).
32. The FMLA is codified at 29 U.S.C. § 2601 et seq. with related
regulations beginning at 29 C.F.R. § 825.100. The FMLA is enforced
by the US Department of Labor.
33. USERRA is codified at 38 U.S.C. § 4308 et seq. and is enforced by
the Department of Labor.
34. 29 U.S.C. §§ 101–115.
35. The federal laws governing labor–management relations are found in
Title 29, U.S.C. Ch. §§ 141–187.
36. Kentov ex rel. NLRB v. Sheet Metal Workers’ Int’l Ass’n Local 15,
AFL-CIO, 418 F.3d 1259, 1263 (11th Cir. 2005).
37. Kentov v. Sheet Metal Workers’ Int’l. Local 15, 418 F.3d 1259 (11th
Cir. 2005).
38. Communications Workers of Am. v. Ector County Hosp. Dist., 467
F.3d 427, 433 (5th Cir. 2006).
39. 29 C.F.R. § 103.30.
40. Oakwood Healthcare, Inc., 348 N.L.R.B. 37 (2006). See also Golden
Crest Healthcare Center, 348 N.L.R.B. 39 (2006).
41. 29 U.S.C. § 157.
42. 29 U.S.C. § 158(g).
43. Cal. H&S Code § 1278.5.
44. State Labor Laws, U.S. Dep’t of Labor, https://www.dol.gov/
agencies/whd/state [https://perma.cc/N4C5-9684].
45. Biden v. Missouri, 142 S.Ct. 647 (2022).
46. N.F.I.B. v. Dept. of Labor, 142 S.Ct. 661 (2022) (per curium).
47. See, e.g., Fact Sheet: Nursing Shortage, Am. Ass’n Coll. Nursing
(updated Sept. 2020), https://www.aacnnursing.org/NewsInformation/Fact-Sheets/Nursing-Shortage [https://perma.cc/
MXN2-LACQ].
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Appendix 4.1: Fair and Unfair Labor Practices
Under Sections 7 and 8(a)(1) of the NLRA, an employer may not interfere with employees’ right to
decide whether to unionize and join together to advance their interests. Following are examples of
actions by employers that would constitute unfair labor practices, followed by practices that would
not be considered such.
Note that in all matters concerning labor–management relations, it is imperative to seek
competent legal advice.
Prohibited Practices
• Threatening, interrogating, or spying on pro-union employees.
• Promising benefits if employees agree not to unionize.
• Threatening adverse consequences (e.g., closure of the workplace, loss of benefits, more
onerous working conditions) if employees engage in union activity or select a union to represent
them.
• During a union organizing campaign, withholding planned changes in wages or benefits that
would have been made had the union not been on the scene.
• Coercively questioning employees about their own or coworkers’ union activities or sympathies.
• Prohibiting employees from talking about the union during working time, if you permit them to
talk about other non-work-related subjects.
• Banning union-related activities in areas such as lunchrooms or cafeterias if you allow other
uses there that are not work related (e.g., book sales, charity drives).
• Prohibiting use of work email for union purposes if use for other personal purposes is allowed.
• Polling employees to determine the extent of their support for a union, unless you comply with
certain safeguards.
• Spying or even creating the impression that you are spying on employees’ union activities by
doing something out of the ordinary to observe the activity. (Observing openly engaged-in union
activity in workplace areas frequented by supervisors is not “spying.”)
• Photographing or videotaping employees engaged in peaceful union or other protected
activities.
• Soliciting individual employees to appear in a campaign video.
• Enforcing work rules that tend to inhibit employees from exercising their rights.
• Denying off-duty employees access to outside nonworking areas of your property, unless
legitimate business reasons justify it.
• Prohibiting employees from wearing union buttons, T-shirts, and other union insignia unless
special circumstances warrant.
• Conveying the message that selecting a union would be futile.
• Interviewing employees to prepare your defense in an unfair labor practice case, unless you
provide certain assurances (see Permitted Practices).
• Initiating, soliciting employees to sign, or lending more than minimal support to a uniondisaffection petition or a petition to decertify a union.
• Discharging, suspending, laying off, demoting, or taking any other adverse action against
employees because of their protected, concerted activities.
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193
Permitted Practices
• Pointing out that supervisors and the company are opposed to unionization (if no threat is
implied).
• Telling employees that they do not have to sign union cards and that the law says they have the
absolute right to refrain from joining a union.
• Informing them that they do not have to speak to union organizers or to admit organizers into
their homes.
• Reminding workers of the benefits that they enjoy. You may also compare those benefits with
benefits in unionized companies.
• Pointing out that with a union, they may have to bring their problems to a shop steward (a union
representative) instead of dealing with their supervisor.
• Listing the disadvantages of belonging to a union (e.g., dues, initiation fees, potential fines and
assessments).
• Stating that, if employees engage in an economic strike, they may be permanently replaced and
will be reinstated only if an opening occurs.
• Telling them that they may be required to picket other employers, even when they are not on
strike.
• Reminding workers that a union can always promise advantages but can, in fact, guarantee
nothing.
• Publicizing the arrest records of union officials.
• Laying out why you recommend a vote against the union and suggest that employees encourage
others to do the same.
• Informing them that merely signing a union authorization card or application for membership
does not mean they must vote for the union in an election.
• Refuting any untrue or misleading statements made by an organizer, a handbill, or any union
propaganda.
Possibly Permissible Practices (If Done Properly)
• Implementing planned wage and benefit changes during an organizing campaign if the
employees are clearly informed that the changes will occur regardless of whether they select the
union and that your sole purpose in postponing the change is to avoid any appearance of trying
to influence the outcome of the election.
• Interviewing an employee in preparing to defend a lawsuit. You must communicate to the
employee the purpose of the questioning, ensure that reprisals will not occur, and obtain
voluntary participation. Questioning must occur in a context free from employer hostility to
union organization and must not itself be coercive. Questioning must not go beyond what is
needed to achieve its legitimate purpose—that is, you may not pry into other union matters,
elicit information concerning the employee’s subjective state of mind, or otherwise interfere with
employee rights under the NLRA.
Source
National Labor Relations Board, https://www.nlrb.gov/rights-we-protect/whatslaw/employers/interfering-employee-rights-section-7-8a1 [https://perma.
cc/6X77-6U8Y].
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Appendix 4.2: Helpful Human Resources–Related Sites
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
American Society for Healthcare Human Resources Administration (ASHHRA): http://www.
ashhra.org/ [https://perma.cc/UVF3-R9UH]
Americans with Disabilities Act (ADA): http://www.ada.gov [https://perma.cc/V5ZB-MS3F]
US Department of Labor (DOL): http://www.dol.gov [https://perma.cc/9XGE-EJK3]
Employment Law Guide, US Department of Labor: http://www.dol.gov/compliance/guide/
index.htm [https://perma.cc/NS3X-D497]
Employment Law Information Network: http://www.elinfonet.com/ [https://perma.cc/
GP5K-KCXB]
Equal Employment Opportunity Commission (EEOC): http://www.eeoc.gov [https://perma.
cc/6U9X-DLN9]
Federal courts: http://www.uscourts.gov/courtlinks/ [https://perma.cc/DZ5D-SUMZ]
FindLaw: http://employment.findlaw.com/ [https://perma.cc/AXT3-EH4P]
Guide to Disability Rights Laws, US Department of Justice: http://www.ada.gov/cguide.
htm#anchor62335 [https://perma.cc/VM69-4GCP]
Internal Revenue Service (IRS): http://www.irs.gov [https://perma.cc/5BDJ-VQQT]
Legal Information Institute (LII): http://www.law.cornell.edu/states/ [https://perma.
cc/59SZ-X4UL]
National Labor Relations Board (NLRB): https://www.nlrb.gov [https://perma.cc/LZV7-CWTR]
Occupational Safety and Health Administration (OSHA): http://www.osha.gov/ [https://
perma.cc/E965-5G7W]
Social Security Administration (SSA): http://www.ssa.gov/employer/ssnv.htm [https://
perma.cc/7ENB-CN2K]
US Citizenship and Immigration Services (USCIS): http://uscis.gov/graphics/index.htm
[https://perma.cc/PQ4Y-DJ6F]
Workforce (multimedia publication for HR professionals): http://www.workforce.com
[https://perma.cc/ARA6-H5FK]
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CHAPTER
CONTRACTS AND INTENTIONAL TORTS
5
After reading this chapter, you will
• know the essential elements of a valid, enforceable contract;
• understand why contract law is relevant to provider–patient
relationships;
• recognize possible legal concerns with noncompete clauses in
physician contracts;
• appreciate how the contract principle of breach of warranty can
apply to the healthcare setting; and
• grasp the basics of intentional torts and how they might apply to
healthcare professionals.
Think Like a Lawyer
In the 1973 movie The Paper Chase, the Shakespearean actor John Houseman
won an Academy Award for portraying Charles W. Kingsfield, a stern, intimidating contract law professor. A highlight of the film is Kingsfield’s description of the Socratic method—a type of philosophical inquiry commonly used
in law schools. To a room filled with first-year students, he explains that this
technique comprises a series of questions followed by the students’ answers,
and that it is intended to stimulate critical thinking rather than simply convey
information. The Socratic method is, essentially, teaching by asking.
Kingsfield struts slowly across the dais; glares at the timorous tyros
before him; and announces that in his classroom there are no absolute
answers, only an endless string of questions. The students are his patients on
an operating table, and he is a neurosurgeon whose questions are instruments
that probe their brains.
He stops. He stares. After a dramatic pause, and with a stentorian
voice worthy of King Lear, he concludes, “You teach yourselves the law, but
I train your mind. You come in here with a skull full of mush, and you leave
thinking like a lawyer!” Yes, contracts class can teach you how to think like
a lawyer—or at least it can teach you enough to know when to call a lawyer
for solid advice.
195
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
EXHIBIT 5.1
The Taxonomy
of Law
Law
Criminal
Misdemeanor
Civil
Felony
Express
Contracts
Implied
Intentional
Torts
Negligent
Strict
Liability
The Taxonomy of Law
In chapter 1, you learned that law can be thought of as either public or private, but law can be categorized in other ways as well. For example, there
is criminal law and civil law, and civil law has subdivisions of its own (see
exhibit 5.1). This chapter discusses the subdivision of civil law that deals with
contracts: agreements between two or more parties.
liability
Legal
responsibility
for one’s acts or
omissions.
cause of action
The basis of a
lawsuit; sufficient
legal grounds and
alleged facts that,
if proven, would
constitute all the
requirements for
the plaintiff to
prevail.
damages
Money required
to be paid as
compensation for
an injury or wrong.
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Contracts and Intentional Torts as Bases of Liability
When people think of liability in healthcare, they usually think of medical
malpractice, which is a form of negligence. Negligence is the most common
type of malpractice, but liability can also be based on a breach of contract
or the commission of intentional torts. In fact, many malpractice suits allege
more than one cause of action.
The reasons for multiple allegations vary, but they often include the
fact that damage awards differ depending on the type of claim. The choice
of which cause(s) of action to allege is a strategic decision made by plaintiffs’
lawyers based on such variables as the facts of the case and the types of damage awards possible if the plaintiff wins.
For example, verdicts in contract law cases are typically limited to the
harm caused to the contracting party’s economic interests, and the remedy
might involve only cancellation of the contract or a requirement that it be
performed as agreed. Sometimes, however, a contract will specify in advance
the damages to be paid if there is a breach; this is known as a liquidated
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damages provision. Including a liquidated damages provision can be a time
and money saver in the event of a breach; as with all contract terms, however,
it can be tricky to negotiate.
By way of contrast, the general theory in tort law is that the successful plaintiff should be “made whole” by compensating for all consequences
of the injury. Unless limited by state law (e.g., by a “tort reform” measure
that limits damages), the verdict could include payment for such items as
lost wages, pain and suffering, the cost of additional medical or supportive
care, and the cost of property retrofitting. In the case of intentional torts
(discussed later in this chapter), punitive damages are sometimes awarded
if state law allows. In chapter 8, you will read about a case (Poliner v. Texas
Health System) in which a jury awarded a physician $110 million in punitive
damages in addition to $90 million compensation for defamation (damage
to his reputation).1 (The court did substantially reduce this outrageously
high award, and it was entirely thrown out on appeal because the hospital
had substantially complied with federal law in its privileging action against
the physician.)
The existence of a legal duty is essential to any 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 (including negligent or intentional torts), or contract (e.g., with a health insurer
or between a provider group and a healthcare system). In healthcare, special legal duties arise from the contractual aspects of the provider–patient
relationship.2
Except for a brief foray into the inclusion of noncompete clauses in physician contracts, 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
discussed here apply to those areas, too, a full discussion of the breadth of
contracts law is beyond the scope of this text; indeed, the subject of contracts
occupies an entire semester-long course in the typical law school curriculum.
As with the human resources chapter, we will only hit the highlights here.
197
punitive damages
Damages awarded
as punishment
for especially
egregious
conduct; punitive
damages are
allowed for some,
but not all, causes
of action and are
intended to serve
as a deterrent to
bad behavior.
Elements of a Contract
In simple terms, four conditions must exist for a contract to be valid:
1. Both parties must be legally competent to enter into the contract.
Contracts entered into by mentally incompetent persons are not valid,
and neither are most contracts entered into by minors. (See chapter
12 for a discussion of the situations in which minors are allowed to
consent to their own medical care.)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
consideration
Payment,
essentially;
something of value
(not necessarily
money) that
is given (or
promised) in
return for what
is received (or
promised).
exculpatory
Absolving or
clearing of blame;
from the Latin
words ex (from)
and culpa (guilt).
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 the price paid for the
agreed-upon terms, 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. This contractual element is one reason for the
nominal $1 payment provisions in some contracts.
4. The purpose of the contract must not be illegal or contrary to public policy.
The classic example of this condition is a contract for an assassination; a
court will not enforce such a contract, or award damages for its breach,
and a person who attempts either remedy would find themselves in
a lot of trouble. A less obvious, and more controversial, example in
the healthcare context is the New Jersey Supreme Court’s decision
in the case of In re Baby M to void a surrogacy contract as contrary
to public policy, reasoning that it is akin to baby selling. (See chapter
15 for a discussion of this 1988 case and subsequently enacted state
laws allowing compensated surrogacy.) Likewise, many exculpatory
contracts—those in which one party agrees in advance to excuse
the other from liability for negligence—are invalid because they are
contrary to public policy.
Contracts may be express (written, 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 is this offer:
“If you serve me what I order, I will pay the bill.” By taking the order and
serving the food, the restaurant has accepted the patron’s offer and a contract
exists. The offer and acceptance are rarely expressed as such in words, but the
contract is valid nonetheless. Similarly, the provider–patient relationship generally includes an offer (“If you treat me, my insurance or I will pay you.”)
and an acceptance (“We’ve scheduled your appointment for next Tuesday.”).
Statutory law requires some contracts to be in writing; for example, federal
fraud and abuse laws, discussed in chapter 9, require that certain types of
agreements between physicians and healthcare systems be memorialized in
writing (among other requirements).
Noncompetes in Physician Contracts
Although this chapter does not address the myriad contractual issues that are
common to any business setting, one aspect of physician contracting is worth
a brief discussion here. That is the inclusion of noncompetition covenants,
called noncompetes, in physician employment or independent contractor
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199
agreements. In this context, a noncompete would prohibit a physician from
practicing medicine within a given geographic area for a set amount of time
after leaving the contracted practice setting. The practice restriction might,
for example, last for two years, and include the immediate town but not the
next one over. The validity of these contractual provisions highlights the
interplay of private negotiations, judicial interpretation, third-party interests,
and legislative action.
Broadly speaking, healthcare systems might want to include noncompetes in their contracts with physicians and physicians do not want them
included. The systems are concerned with protecting their investment in the
physician practice and their patient referrals; the physicians are concerned
with their ability to practice at other nearby settings in the future. Both might
be concerned with patient access to quality care or call coverage. This is a type
of contract provision in which a liquidated damages clause can be beneficial.
Noncompetes have been governed by state law, which is highly variable on the topic. Courts and lawmakers see noncompetes as a restraint on
trade, and some states have statutes barring nearly all noncompetes (California is a prominent example). However, reasonable noncompetes are still
enforceable in most jurisdictions as to most professions.
Noncompetes restraining physicians and other healthcare professionals are scrutinized slightly differently than other noncompetes. Courts and
lawmakers see physician noncompetes as a risk to the public interest because
they may limit patient access to medicine and disrupt continuity of care. As a
result of this concern, some states restrict physician noncompetes by statute.
In Texas, for example, physician noncompetes must meet specific, heightened
requirements to be enforceable.3 Those requirements include providing the
physician with access to certain patient lists and medical records and allowing
physicians to buy out their noncompetes for a reasonable price.
Absent statutory or regulatory specifics, what a court considers reasonable will be somewhat dependent on the facts. The courts will often
consider the potential harm to patients when determining whether a noncompete should be allowed, revised, or voided as contrary to public policy.
A 2005 case about the validity of a noncompete, for example, involved
a perinatologist who treated patients with high-risk pregnancies. Dr. Bayliss
wanted out of his noncompete, which stated that he would not practice
perinatology in a five-county area for two years after leaving the practice.
The court held that the scope of the noncompete was unreasonable because
one of the restricted counties was “underserved in the area of maternal fetal
medicine” (Dr. Bayliss, if he practiced in that county, would have been its
sole perinatologist).4
In addition to state law restrictions, the federal government is poised
to create some type of national restriction on noncompetes, particularly as
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
they apply to low-wage workers. President Joe Biden signed an executive
order in July 2021 directing agency action on this topic. The order states, “To
address agreements that may unduly limit workers’ ability to change jobs, the
Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses
and other clauses or agreements that may unfairly limit worker mobility.”5
The Provider–Patient Relationship
Good Samaritan
laws
Statutes that aim
to encourage
healthcare
providers—and
often anyone—to
voluntarily provide
help at the scene
of an emergency
by providing
immunity for
negligence in the
provision of that
help.
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In general, the American legal system does not require people to help
strangers unless they are bound by a contractual, statutory, or employment
obligation. Thus, like other passersby, healthcare professionals generally
have no legal obligation to stop and voluntarily render aid at the scene of
an accident. If they do stop to help, and do not take payment for doing so,
Good Samaritan laws provide protection for negligent (but not grossly
negligent) assistance. With rare and difficult-to-enforce exceptions, these
laws do not require anyone to act. (See chapter 11 for more detail about
Good Samaritan laws, including more recently enacted ones that aim to
reduce the number of fatal drug overdoses by providing legal protections
to bystanders who seek medical help for a person who is overdosing.)
Whether there are moral duties to help are a different question (see Legal
Decision Point).
It is against the law’s general “no-duty” backdrop that the healthcare
provider–patient relationship came to be conceptualized, somewhat oddly,
as a contractual relationship. Where there is a provider–patient relationship,
the provider has a duty to follow the standard of care in treating the patient.
Where there is no provider–patient relationship, there is no such duty. The
contractual nature of this relationship is exemplified when a provider agrees
to provide treatment in exchange for payment. Such a contractual agreement
can be implied when a provider undertakes to provide treatment (absent a
Good Samaritan situation as described earlier).
This contractual framing, while helpful and pervasive, is incomplete.
Today a treatment obligation might be externally imposed, by, for example,
an agreement with an insurer to care for those with that coverage. And a
­provider–patient and hospital–patient relationship can be required by statute,
as, for example, when an individual seeks care at an emergency department.
(See chapter 11 for a discussion of the screening and treatment obligations
that the federal Emergency Treatment and Labor Act requires of hospitals
and physicians, including on-call physicians.) Furthermore, healthcare providers are bound by federal and state antidiscrimination laws. While they may
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201
not unlawfully discriminate against patients, individual providers are free to
limit the scope of their practices in terms of numbers of patients, types of
insurance, and medical specialty.
Creation of the Relationship
The contract necessary to form a provider–patient relationship can be express
(e.g., when you fill out financial responsibility forms at the provider’s office),
implied (e.g., when you make a follow-up appointment and are seen by
the provider), or even inferred from the circumstances. Consider this situation: a patient is unconscious or otherwise unable to consent to treatment,
but an emergency exists and the treatment team proceeds with appropriate
interventions. The law will presume (infer) that a contract exists. Although
this presumption is a legal fiction, among other things, it prevents unjust
enrichment by requiring payment for services that presumably would have
been agreed to. Whether express, implied, or inferred, the provider–patient
contract is bilateral—that is, it imposes duties on both parties. This is true
although most of the payment is likely to come from an insurer or, in the case
of a low-income uninsured person, be lower than the usual rate.
Although clear enough in the
abstract, these “black-letter” principles are
often difficult to apply in practice. For
Legal Decision Point
example, providers commonly and informally consult one another regarding their
An affidavit is a written document in which the
patients’ diagnosis and treatment, and
affiant—the one who signs the document—swears
the consulted provider may not see the
under penalty of perjury that the facts asserted in
patient or know the patient’s name. Do
the statement are true. Affidavits generally cannot
these informal hallway consults create a
substitute for in-court testimony because they are
not subject to cross-examination. However, affiprovider–patient relationship? Generally,
davits are sometimes used to support arguments
the answer is no.
on collateral matters, especially if the opposing
For example, in Oliver v. Brock,6
attorney does not object. In Oliver v. Brock, affiDr. Whitfield was treating Anita Oliver in
davits were used to support Dr. Brock’s position
rural Demopolis, Alabama, for injuries susthat he did not have a doctor–patient relationship
tained in an automobile accident. During
with Oliver, and by the plaintiffs to support their
own position.
a telephone conversation with a colleague
Who do you suppose wrote the affidavits in
named Dr. Brock about another patient,
this
case?
Are any of their assertions not, strictly
Dr. Whitfield casually mentioned Oliver’s
speaking, facts? If you were opposing counsel,
treatment and asked for Dr. Brock’s opinwould you object to the use of such affidavits? If you
ion. According to Dr. Whitfield’s affidavit
were the judge, what weight would you give them?
(see Legal Decision Point), Dr. Brock
If you could cross-examine Dr. Whitfield (the treating physician who consulted with Dr. Brock), what
told him that the treatment seemed to
questions would you ask him about his assertions?
be correct under the circumstances. The
conversation was apparently informal and
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
gratuitous, and one can almost imagine Dr. Whitfield saying, “Oh, by the
way, what do you think about this other situation I have?”
Dr. Brock practiced in Tuscaloosa, which is about 60 miles from
Demopolis. In his affidavit, he introduced himself as “one of the Defendants
in the above styled cause,” and asserted that he never saw the patient, talked
to her or her family, or even learned her name. He admitted that he occasionally talked to Dr. Whitfield by phone (apparently to discuss patients), but he
continually emphasized that he did not know Oliver and that she had never
been his patient. His affidavit concluded, “I have never been employed or
requested to care for or treat Anita Oliver and I have not been employed or
requested to advise anyone with regard to her medical problems.”
As result of Dr. Whitfield’s course of treatment, which presumably
had been at least casually supported by Dr. Brock, Oliver ended up suffering
further injury. In her own affidavit as plaintiff, the patient’s mother, Cathy
Oliver, stated, “I became concerned regarding the care and treatment rendered or done by Dr. Whitfield and . . . Dr. Whitfield told me that he would
call Dr. Brock in Tuscaloosa to get some advise [sic] on how to treat my
daughter’s injuries.” She said that Dr. Whitfield later told her that Dr. Brock
told him that the treatment was correct and should be continued. Her affidavit concludes, “I sincerely believe that Dr. Brock took part in the treatment
of my daughter and that he is at fault for the serious injuries suffered by my
daughter as a result of this treatment.”
After reviewing the evidence, such as it was, the Supreme Court of
Alabama in 1976 unanimously decided that there was no provider–patient
relationship between Dr. Brock and Anita Oliver, so the physician could not
be held liable for the injuries the patient sustained because of the treatment.
One of the justices summarized this position clearly in a concurring opinion:
The mere discussion between professional people of hypothetical situations cannot be viewed as a basis for liability. To hold otherwise would tend to adversely
affect the quality of the services they offer to members of the public. Physicians,
lawyers, dentists, engineers, and other professionals, by comparing problemsolving approaches with other members of their disciplines, have the opportunity
to learn from one another. Possessing this freedom, they are better positioned to
bring theory into practice for the benefit of those whom they serve. Our decision in
this case preserves these essential learning situations for all professional people.7
The general rule is stated in the 2022 edition of the legal encyclopedia
American Jurisprudence as follows:
In the absence of statute providing otherwise, a physician or surgeon is under no
legal obligation to render professional services to everyone who applies to him or
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203
her, not even in the case of an emergency. . . . If a physician or surgeon accepts
employment, however, he or she is bound by law to exercise a high standard of
skill and care, to continue the treatment until the relation of physician and patient
is legally terminated, and not to abandon the case.8
On the other hand, a provider need not come into direct contact
with a patient for a provider–patient relationship to exist. Pathologists, for
example, have a relationship with patients even though they probably never
see the people whose specimens they examine, the patients do not know who
the pathologists are, and they are perhaps not even conscious of the fact that
pathologists are involved in their treatment.9
Another issue involves the duty of a provider who provides services
to someone who is not a party to the contract, and where the patient has
agreed to that arrangement. For example, a nurse practitioner conducts a
focused preemployment examination, or examines a plaintiff for a personal
injuries case. In these situations, the general rule is that because the typical
treatment relationship does not exist, the nurse practitioner owes no duty
to the individual being examined—only to the party who contracted for the
examination.
This general rule seems to be changing, however; some courts have
found at least a limited duty toward the individual, even in the absence of
a contractual relationship. In James v. United States, the plaintiff applied for
a position at a shipyard and, as a condition of employment, was required
to take a physical examination. 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. The court in 1980 awarded damages anyway
because “[h]aving made a chest X-ray an essential part of the preemployment
examination to determine an applicant’s physical fitness, . . . defendant failed
to use due care when . . . the report on the X-ray was not brought to the
attention of the examining physician.”10
Scope of the Duty Arising from the Relationship
The provider–patient relationship involves a bilateral undertaking: the provider agrees to treat the patient in accordance with their scope of practice and
following the appropriate standards of care, and the patient agrees to pay—or
have insurance pay—for the services rendered. This understanding continues
until the natural termination of the relationship. (The standards of practice
and termination of the relationship are discussed later in this chapter.)
On the other hand, the patient does not contractually promise to follow
the provider’s orders, so failure to do so may excuse the provider from liability
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
for untoward results. Similarly, the provider does not contractually promise to
cure the patient, only to use their best efforts to do so. In some circumstances,
however, a provider’s express or implied promise may be viewed as a guarantee, in which case if a cure is not effected, the provider could be held liable
for breach of warranty. (This topic is discussed further later in this chapter.)
Now that managed care organizations, such as health maintenance
organizations (HMOs) and preferred provider organization (PPOs), and
governmental payers dominate the health insurance market, the relationship
is no longer simply between a patient and a provider; it includes the payer’s
contractual obligations and limitations as well. Nevertheless, the relationship
is viewed as founded in contract principles.
Providers may limit the scope of their practice to a designated geographic area, a certain medical specialty, or even to specific services (see
Legal Brief). In McNamara v. Emmons, a woman sustained a bad cut and was
treated by an associate of her physician.11 The next morning the patient left
for a vacation in a town miles away. While there, she felt she needed further
treatment and asked the 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 defendant physician was justified in limiting his practice to his own area.
These issues are discussed elsewhere in the text (see, e.g., Law in Action
Legal Brief
relating to religion in chapter 4), but they
are noted here because there are contracA dilemma arises when a patient requests legititual implications, especially for employed
mate medical services that run counter to the
providers.
provider’s or the organization’s religious or moral
convictions. For example, a patient might request
a vasectomy, morning-after pills, a first-trimester
abortion, or aid in dying consistent with state statutes. All these legal services might run afoul of,
for example, the ethical directives guiding Catholic
healthcare organizations. Likewise, a nurse who
does not want to participate in sterilizations or
abortions will likely be allowed to opt out based
on federal or state conscience protections. A physician who wants to lawfully prescribe life-ending
medications to a terminally ill patient might be
precluded from doing so based on the healthcare
system’s policies. If a pharmacist refuses to fill a
prescription for morning-after pills, the pharmacy
might be required to find another nearby pharmacist to do so (Stormans, Inc. v. Wiesman, 794 F.3d
1064 [9th Cir. 2015], cert. denied, 579 U.S. 942
[2016]).
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Duties to Persons Other than the
Patient
Although a provider’s duty to a particular
patient arises only when a contract has been
formed, the scope of that duty can extend
beyond the patient to others who are not
contractual parties. In many states, a contractual provider–patient relationship not
only allows the provider to warn certain
persons that a patient has an infectious disease without violating the patient’s privacy
rights, it obliges the provider to do so. For
example, state law may require the healthcare provider to notify the local or state
health department if a patient is diagnosed
with HIV or AIDS. Health department
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205
staff will then undertake partner notification to locate those who might have been
COVID Connection
exposed and provide them testing, counselContact tracing is a powerful public health tool
ing, and referrals for other services.
to reduce the spread of infectious disease and
In the famous case Tarasoff v.
ensure
that those infected receive appropriate
Regents of the University of California
treatment and support. At the start of the pan(also discussed in chapter 10), the Calidemic, many local and state health departments
fornia Supreme Court ruled that when
ramped up their contract-tracing staffs. The rapid
a therapist determines, or should have
spread of COVID-19, however, and the lack of testing resources quickly overwhelmed the capacity
determined, that a patient presents a serifor widespread contact tracing.
ous danger of violence to a reasonably
identifiable person, the therapist has a
duty to use reasonable care to protect the
threatened person.12 This “duty to warn” overrides the obligation to protect
patient confidentiality. In Tarasoff, the patient had told his psychotherapist
that he intended to kill his roommate’s sister (readily identifiable as Tatiana
Tarasoff), and he later made good on his threat. On these facts, the court
determined that the victim’s parents had a valid cause of action for failure
to warn, and the case could go to trial as to whether the psychotherapist’s
actions (in notifying campus police and others) satisfied that duty.
Whether the injury to the third party is foreseeable is an important
consideration in such cases. In Brady v. Hopper, a suit by persons injured in
the assassination attempt on President Ronald Reagan in 1981, the court held
that John Hinckley Jr.’s psychiatrist owed no duty to the plaintiffs because
there was no evidence that Hinckley had made specific threats suggesting his
intentions.13 Similarly, in Freese v. Lemmon, a pedestrian was injured by an
automobile when its driver suffered a seizure.14 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 trial court dismissed the case against
the physician, but the Supreme Court of Iowa reversed that outcome on the
theory that an unreasonable risk of harm to a third party or a class of persons
(i.e., other drivers) was foreseeable. The case was remanded for a trial on the
merits of the evidence.
Termination of the Relationship and Abandonment
Like all contracts, the one between the provider and the patient is terminated
at certain points:
•
•
•
•
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When
When
When
When
the
the
the
the
patient is cured or dies
provider and the patient mutually consent to termination
patient dismisses the provider
provider terminates the relationship
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A provider might unilaterally terminate the relationship because it is
ceasing that line of service (e.g., closing a clinic), because it will no longer
be accepting a certain type of insurance, or because a patient has proved
too challenging. For a provider to terminate the relationship before the
patient is cured might be considered abandonment. Whether abandonment
is a breach of contract, an intentional tort, or negligence has been a matter
of some dispute, and there might be valid claims for all three, especially
when the physician thought the patient had been cured and thus effectuated a premature discharge from the hospital.15 To avoid a successful allegation of abandonment, the provider needs to give reasonable notice and
opportunity to find substitute care. As highlighted in the cases discussed
in this section, just what is “reasonable” notice and opportunity will vary
depending on the nature of the patient’s condition and perhaps the local
healthcare resources.
Abandonment may be express or implied. Express abandonment
occurs when a provider notifies a patient that the treatment relationship will
be ending (for any number of reasons) but fails to give the patient reasonable notice and time to secure the services of another provider. In Norton
v. Hamilton, the plaintiff reported that she had begun labor several weeks
before her baby was due.16 According to the plaintiff’s allegations, the physician examined her and concluded that she was not in labor. When the pains
continued, 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.
(The decision only concerned the legal principle that would apply; it was not
a final judgment based on evidentiary findings.)
Sometimes abandonment is inferred from the circumstances, as in the
1963 Kentucky case Johnson v. Vaughn.17 The facts involved a 46-year-old
man who had suffered a gunshot wound to the neck in the early hours of a
Saturday morning. When the patient arrived at the hospital, a nurse phoned
Dr. Vaughn, who arrived a short time later. He admitted the patient, treated
him somewhat (although the opinion is not clear on the extent of that treatment), and then went home, leaving word that he was to be called if the
patient’s condition grew worse. The record contains evidence that the doctor
was under the influence of alcohol at the time:
[Four] witnesses . . . described Dr. Vaughn’s condition and actions as that he was
“red-eyed,” “stumbled,” “wobbled,” “staggered,” “talked rough” and was “thick
tongued.” The [patient’s] son smelled the odor of alcohol on the doctor’s breath
and expressed the view “he had been drinking.”
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207
Because the patient seemed dangerously injured, his son had a nurse
call another doctor, Dr. Kissinger, who arrived at 4:00 a.m. and “gave such
attention as appeared to be most urgent” but felt he could not proceed
further without a release from Dr. Vaughn. He called Dr. Vaughn, advising
him that the patient was dying and needed immediate attention. On hearing this news, Dr. Vaughn became “irate and vulgar,” called Dr. Kissinger “a
louse” for trying to steal his patient, and hung up. A call from the patient’s
son produced more verbal abuse. Finally, Dr. Vaughn said he would release
the patient if he was paid $50 by 9:00 the next morning. Meanwhile, 30 or
40 minutes had passed before Dr. Kissinger could operate, and the patient
later died.
The court held that these facts were sufficient to state a claim of abandonment against Dr. Vaughn. The opinion states, in part,
It is a rule of general acceptance that a physician is under the duty to give his
patient all necessary and continued attention as long as the case requires it, and
that he should not leave his patient at a critical stage without giving reasonable
notice or making suitable arrangements for the attendance of another physician,
unless the relationship is terminated by dismissal or assent. Failure to observe
that professional obligation is a culpable dereliction.18
As this quote from the Johnson case implies, providers can raise a
variety of defenses to claims of abandonment. If the patient dismisses the
provider or agrees to the latter’s departure, or if the provider gives notice
of withdrawal early enough for the patient to find another provider of equal
ability, the claim will fail. Providers have the right to limit their practice to a
certain specialty or geographic area. A provider who is too ill to treat a patient
or to find a substitute also has a valid defense to an abandonment claim. If a
provider obtains a substitute provider, this constitutes a valid defense so long
as the substitute is qualified and the patient has enough time to find another
if the substitute is unacceptable.
Two California cases exemplify purposeful termination of the p
­ rovider–
patient relationship when a patient is uncooperative. In Payton v. Weaver, the
patient was Brenda Payton, an indigent 35-year-old woman with end-stage
renal disease and a history of significant mental health challenges, obesity,
and drug and alcohol abuse.19 After treating her for more than three years—
during which time Payton was often uncooperative—her physician, Dr.
Weaver, informed her that he could no longer see her because her intensely
antisocial behavior and refusal to follow instructions made it extremely difficult to provide her with the medical care that she so desperately needed. He
did, however, continue to treat her on an emergency basis while she tried to
find an alternative provider.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
When no alternative was found, Dr. Weaver agreed that he would continue to see her if she met certain conditions of cooperation: that she refrain
from use of alcohol and drugs, maintain prescribed dietary habits, and “in all
respects cooperate with those providing her care.” After nearly a year, during which time Payton did not live up to her part of the bargain, Dr. Weaver
again notified her that he was withdrawing, and Payton filed suit to compel
him to treat her. After an extensive hearing, the trial court found that Payton
had violated the previous conditions and adversely affected other dialysis
patients. The court of appeals began its opinion by noting, “Occasionally a
case will challenge the ability of the law, and society, to cope effectively and
sensitively with fundamental problems of human existence. This is such a
case.” The court went on to note the basis for the termination:
The trial court . . . found that Brenda had violated each and every condition which
she had accepted as part of the stipulated order providing for continued treatment,
and that finding is basically undisputed. There was evidence that Brenda continued . . . to buy barbiturates from pushers on the street at least twice a week; that
she failed to restrict her diet, gaining as much as 15 kilograms between dialysis
treatments; that she continued to be late and/or miss appointments; that due
primarily to missed appointments she had 30 emergencies requiring hospitalization in the 11 months preceding trial; that she would appear for treatment in
an intoxicated condition; that she discontin-
Legal Decision Point
ued her program of counseling after a brief
period; and . . . she displayed in general
“gross non-cooperation with her treating phy-
End-stage renal disease (ESRD) is chronic kidney
failure that has progressed to the point of requiring kidney dialysis or transplant. (Payton’s body
had rejected a kidney transplant at one point in
her medical odyssey.) An ESRD patient needs to
undergo dialysis every three or four days but can
live a somewhat normal existence between treatments, subject to contributing conditions such as
high blood pressure or diabetes.
The Payton court stated that “there was no
emergency” in Payton’s case. Do you agree? Was
she a patient with a chronic disease, or was she
a patient who was bound to have serial emergencies? Instead of attending regular dialysis
appointments, she had gone to the emergency
department every week or so in extremis and in
need of dialysis. If you were a hospital executive,
how would you advise the emergency department
to manage a patient such as Payton?
CH05.indd 208
sician [and hospital providers].” The trial court
found that her behavior in these respects was
“knowing and intentional.”
The court also found that there was
no emergency requiring treatment under
a California statute,20 that Dr. Weaver’s
notice to Payton was sufficient to end the
relationship, and that the doctor was not
responsible for the fact that no other dialysis unit would accept her (see Legal Decision Point). Reflecting on the difficulties
in addressing systemic healthcare inequities in the context of individualistic legal
obligations, the court opined that there
might exist a collective responsibility on
the part of providers of scarce healthcare
resources to share over time in the care
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of difficult patients. As to the immediate issue, the appellate court sustained
the trial court decision that Dr. Weaver was not obliged to continue treating
Payton, and she died pending appeal to the state Supreme Court.21
In another case, the court decided that a medical group and hospital
must provide nonemergency care to a husband and wife. In Leach v. Drummond Medical Group, Inc., the plaintiffs, who were regular patients of the
group practice, had written to a state agency commenting adversely on the
performance of the group’s physicians.22 The practice told the couple that
because they had complained to the medical board, “a proper physician–
patient relationship” could not be maintained and they would receive only
30 days of care, after which they would be treated only for emergencies. The
couple sued to compel continued treatment of their many health problems.
(The practice was the only medical group available within 100 miles.) The
trial court denied relief, but the appellate court reversed the decision and
allowed the suit to continue. The court decided that although one physician
may not be required to treat a patient they do not like, the group as a whole
could be ordered to do so.23 Because the patients had not publicly criticized
the doctor but only discreetly contacted the appropriate state agency, the
court held that denying services to them was not justified.
Some cases have extended the provider’s duty to the patient even after
the provider–patient relationship has ended. In Tresemer v. Barke, the physician had implanted an intrauterine device (IUD) in the plaintiff in 1972.24
The physician had seen the patient only
on that one occasion. The plaintiff later
Law in Action
suffered injury from the device (a Dalkon
Shield, which was later found to have
caused severe injury to a large percentage
The foregoing discussions of Johnson v. Vaughn
of patients) and filed suit against the phyand Payton v. Weaver purposely omit the fact that
each of the patients was a person of color. Celie
sician. She alleged that he had known the
Johnson was described by the Kentucky judge as
risks of using the IUD but failed to warn
a “46-year-old colored man,” and the California
her. The court held that the defendant had
court described Brenda Payton as a “35-year-old
a duty to warn the plaintiff, noting that a
black woman.” Considering that the cases are
physician is in the best position to alert
roughly 60 and 40 years old, respectively, one
a patient and that death or great bodily
might wonder to what extent overt racial animus or implicit bias affected the course of either
harm might be prevented as a result.25
Linkage with Healthcare Inequities
Decisions to terminate a patient relationship risk exacerbating healthcare inequities
precisely because they can be connected
to provider perceptions of uncooperativeness, with all the possible biases that could
involve, as well as access-related systemic
CH05.indd 209
patient’s treatment and their options for legal
redress. Payton’s complaint did allege racial bias,
and although she was unsuccessful in proving
that claim as to her immediate dialysis treatment,
the opinion’s language suggests that the court
believed that racism and poverty throughout Payton’s life had contributed significantly to her poor
health and limited options.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
issues. Even today, patients of color too often receive inferior treatment
because of systemic healthcare inequities, including unconscious bias. Recent
studies show that even after controlling for socioeconomic and insurance
status, Americans of color, on average, “live sicker and die quicker” than do
white Americans. By one estimate, “more than 84,000 black and brown lives
are needlessly lost each year” because of health disparities.26
After decades of study, many policy makers and healthcare providers
are now focusing on how healthcare systems (as well as public health entities) can address implicit biases, barriers to access, and other determinants of
health. Improving population health outcomes, and promoting health justice, will not be easy, but it is something that healthcare executives, providers,
policy makers, and society as a whole must seriously grapple with.
Liability for Breach of Contract
In the typical provider–patient contract, the provider agrees (or implies
agreement) to perform a service. Failure to perform the service with reasonable skill and care may give the patient a basis for filing a claim, not only for
negligence but also for breach of contract. The previous paragraphs illustrate
breach-of-contract cases based on abandonment; Alexandridis v. Jewett offers
an example of a different kind of contractual breach.27
In Alexandridis, two obstetricians agreed that one of them would
personally deliver the patient’s second baby. When the time came, however,
the patient’s labor progressed rapidly and the obstetrician whose night it was
to take call could not arrive at the hospital in time. The baby was delivered
by a first-year resident, who performed an episiotomy during the process and
damaged the patient’s anal sphincter as a result. Because the partners had
contractually agreed to deliver the patient’s baby and were more skilled than
the resident who delivered the baby, the court found that the partners would
be liable for breach of contract if their greater skill would have protected the
patient from injury.
A provider who uses a procedure that is different from the agreed-upon
procedure may 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, a 37-year-old woman who had suffered two stillbirths,
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 grounds that the physician breached his promise
that a cesarean operation would be used to deliver the baby.
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211
Liability for Breach of Warranty
Providers are susceptible to liability not only if they promise (but fail) to perform a certain service but also—especially—if they promise that their treatment will yield a specific result but it does not.
In recent years, a few health systems have begun offering warranties
for certain procedures, such as hip and knee replacements. These warranties
are meant to appeal to insurers by protecting them (and the patients) from
incurring additional costs for treatment of avoidable complications. These
types of warranties should be drafted carefully to clarify which exigencies are
covered and which are not. The following cases involve warranties made by
individual providers. Note that most state laws now require the promised
result to be specified in writing for a patient to bring an action for breach
of warranty. The point of this requirement is to get around the challenge of
figuring out, particularly in retrospect, what was stated as an expected result
versus a guaranteed result.
A provider who guarantees a result gives the patient a contractual basis
for a lawsuit if the treatment is not successful, even if it was performed skillfully. In Sullivan v. O’Conner, a professional entertainer thought her nose was
too long.29 She contracted with a physician to have cosmetic surgery. The
physician promised that the surgery would “enhance her beauty and improve
her appearance.” The surgery was unsuccessful, however, and after two more
operations, the patient’s nose looked worse than before.
Providers do not guarantee results simply by agreeing to perform a
surgery or start a course of treatment, and drawing the line between an opinion and a guarantee is often difficult. The jury decided in this case, however,
that there was a guarantee, and the appellate court affirmed the jury’s verdict
for the plaintiff (see Legal Brief).
Guilmet v. Campbell is a well-known
case in health law circles. The plaintiff had
a bleeding ulcer and talked with a surgeon
Legal Brief
about a possible operation. He testified
that the surgeon said,
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
operation. You’ll be out of work three to four
weeks at the most. There is no danger at all
Sullivan v. O’Conner is a good example of the roles
that juries and appellate courts play in our legal
system. The jury decides what the facts are, and
the appellate court must accept those facts as true
unless they are indisputably wrong.
In some respects, this rule is analogous to the
instant-replay rule in professional sports. Unless
the review shows that the official’s decision was
clearly wrong, the call “on the field” stands.
in this operation. After the operation you can
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
throw away your pill box. In twenty years if
Law in Action
you figure out what you spent for Maalox pills
and doctor calls, you could buy an awful lot.
Weigh [that cost] against an operation.30
The Supreme Court’s 2022 abortion decision in
Dobbs v. Jackson Women’s Health Organization
(see chapter 15) creates potential liability issues
(both civil and criminal) for institutional and organizational healthcare providers (as well as others
who might be considered to have aided or abetted an illegal abortion). State law will dictate the
scope of abortion-related services allowed within
a state, and will likely raise issues about interstate provision of reproductive healthcare services. Thus, all contracts that involve the provision
of patient care should be reviewed to ensure that
those involved in pregnancy-related treatment and
counseling are cognizant of the relevant state laws
and aware of any gray legal areas encompassed by
the scope of services.
tort
A civil offense
not founded on
contract; a failure
to conduct oneself
in a manner
considered proper
under the given
circumstances.
intentional tort
A category of torts
that describes
a civil wrong
resulting from
an intentional
act on the part
of the tortfeasor,
regardless of
whether the
tortfeasor
intended to cause
harm.
tortfeasor
A wrongdoer;
a person who
commits a tort.
CH05.indd 212
With this assurance, the plaintiff
underwent the operation, during which his
esophagus ruptured. As a result, his weight
dropped from 170 to 88 pounds, and he
developed hepatitis and numerous other
complications. He sued the physician on
both a negligence (medical malpractice)
theory and a warranty (guarantee) theory.
The jury decided that the physician was
not negligent but had breached the promise to cure. The Michigan Supreme Court
affirmed the decision. In response to Guilmet, and presumably after some heavy lobbying by the medical profession, the state
legislature later passed a statute requiring
that any alleged promise or guarantee of a cure will be void unless it is given
in writing and signed by the physician alleged to have made it.31
Intentional Torts
Another basis for professional liability is intentional tort. A tort (Latin for
“wrong”) is a civil wrong, not based on contract, that results in injury to
another person or another person’s property or reputation.32 Torts are usually divided into three categories, each of which involves a different type of
proof (see exhibit 5.1):
• Intentional tort, as the name implies, is a wrongful, volitional action
on the part of the tortfeasor that causes injury.
• Negligence is unintentional failure to do what a reasonably careful
person would do under the circumstances.
• Strict liability is incurred when a person commits a wrongful act that
poses high risk of harm to others but did not do so intentionally or out
of negligence.
As noted earlier, most malpractice cases are based on negligence. Strict
liability is uncommon in healthcare, but it surfaces in relation to defective
drugs and medical devices.
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213
In healthcare, lawsuits based on intentional tort are less common than
negligence cases, but they do arise, sometimes in combination with negligence allegations. There may also be multiple consequences for a healthcare
provider who commits an intentional tort. Medical malpractice insurance
coverage might not apply to damages stemming from an intentional tort.
Additionally, because intent is usually an essential element in proving both
an intentional tort and a crime, many intentional torts, such as assault and
battery, entail both criminal and civil liability. This point is significant because
commission of a criminal act could result in suspension or revocation of one’s
license to practice.
negligence
Failure to comply
with established
standards for
the protection of
others; departure
from the conduct
expected of
a reasonably
prudent person
acting under the
same or similar
circumstances.
Assault and Battery
strict liability
Automatic
responsibility
(without having to
prove negligence)
for damages
as a result of
possession or
use of inherently
dangerous
equipment (e.g.,
explosives), wild
or poisonous
animals, or assault
weapons. Product
liability is a type
of strict liability,
and it could apply
to defective drugs
or medical devices
that cause harm
even when they are
used as intended.
“Assault and battery” actually refers to two intentional torts. An assault is
conduct that places a person in apprehension of being touched in a way that
is insulting, provoking, or physically harmful. Battery is the actual touching
(see Legal Brief). Both assault and battery are acts done without legal authority or permission. A move to kiss someone without consent is an assault, and
the act of kissing without consent is both assault and battery. If the person
were asleep when kissed, the perpetrator would not be committing assault
because the other person was not apprehensive. They would, however, be
committing battery. (Obviously, kissing someone with consent is neither
assault nor battery nor a cause of apprehension.)
The question of consent to medical or surgical treatment is complex;
chapter 12 features a detailed discussion of the topic. For present purposes,
assault and battery cases can be grouped into three categories:
1. Those in which no consent for the touching was obtained.
2. Those in which the provider exceeded the scope of the consent given.
3. Those in which the consent was “uninformed.”
First are the intentional acts committed by a healthcare provider with no
patient consent whatsoever. In Burton v.
Leftwich, 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)
smacked the tot’s thigh several times with
his open hand, leaving bruises that were
visible for three weeks.33 An appellate
court upheld a jury verdict for the plaintiffs on the grounds that the physician had
committed battery.
CH05.indd 213
Legal Brief
We accept the incidental touching that accompanies everyday life, but there are certain boundaries.
For example, jostling others on a crowded subway
train is not battery, but groping them is.
Battery is sometimes characterized by the
aphorism “Your right to swing your arm ends
where my nose begins.” (And note: the swing that
misses would be an assault if you saw it coming.)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
informed consent
An agreement to
permit a medical
procedure after
disclosure of all
relevant facts
needed to make
an intelligent
decision.
CH05.indd 214
Compare that case with Mattocks v. Bell, in which 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.34 After a failed attempt
to free his finger by forcing a tongue depressor into the child’s mouth, the
student slapped her on the cheek. The parents lost the battery suit. The force
the student used was judged to be reasonable under the circumstances.
In the often-cited case Schloendorff v. Society of New York Hospital (discussed in more detail in chapter 12), a doctor was found liable for battery after
he operated on a patient who had consented only to an examination under
anesthesia but not to an operation.35 In another case, a patient signed a consent
form to have his kidney stones removed by a certain urologist. After the surgery,
the patient discovered that the operation had been performed not by the urologist he requested but by two other members of the urologist’s medical group.
He sued all three physicians for malpractice and failure to obtain informed
consent. After the jury found for the defendants, the Supreme Court of New
Jersey reversed the decision. It held 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.36 The court
stated, “Even more private than the decision who may touch one’s body is the
decision 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 also who shall perform it.”37
The second and third categories of assault and battery cases will be discussed in more detail in chapter 12. For now, it is sufficient to note that a case
fitting either the second or third category can support a negligence theory
in addition to the intentional tort of assault and battery. Negligence is the
more common allegation, but liability on assault and battery is also possible.
Mohr v. Williams is illustrative of this point.38 The plaintiff consented
to an operation on her right ear. After she was anesthetized, the surgeon
discovered that her left ear needed surgery more than the right one, so he
operated on the left ear instead. On the grounds, among others, that the surgeon’s conduct amounted to 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 and probably should have discussed that
possibility before beginning the surgery, a surgeon may be justified in operating beyond the scope of the original consent when an emergency makes
obtaining the patient’s further consent impossible or dangerous. In Barnett
v. Bachrach, a surgeon operating on a patient for an ectopic pregnancy (a
pregnancy outside the uterus) discovered that the pregnancy was normal but
that the patient had acute appendicitis.39 He removed the appendix and later
sued the patient for not paying the medical bill. The patient defended the collection suit by alleging that the appendix was removed without her consent.
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215
In holding for the surgeon, the court noted that if he had not taken out the
appendix, both the patient and the fetus might have been endangered.
These cases of extending the scope of surgery can be extremely complicated, and the outcome can depend on small factual differences. Generalizing about the proper course of action to take is difficult. For this reason,
most hospital risk management departments have detailed surgical consent
forms that anticipate all possible intraoperative complications and document
the patient’s permission for the medical team to make prudential judgments
should those complications arise during the surgery.
Defamation
Defamation is wrongful injury to another person’s reputation. Written defamation is libel, and oral defamation is slander.40 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. In Shoemaker v. Friedberg,41 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 confidentiality, but the court held that no recovery should
be allowed because the patient had herself made the diagnosis public. (This
result is an example of what could be called the “it’s your own darn fault” rule.)
There are several available defenses in defamation suits:
defamation
The act of making
untrue statements
about another
that damage
that person’s
reputation.
• The truth of a statement is an absolute defense. Even a true statement,
however, can lead to liability for invasion of privacy or breach of
confidentiality. (See further discussion of this point later in this
chapter and in the discussion of the Health Insurance Portability and
Accountability Act in chapter 10.)
• Statements made in good faith for a required or encouraged safety purpose
are usually entitled to a qualified privilege. An example is a false but
good faith report of a sexually transmitted disease diagnosis to a state
health department, as required by law. Similarly, good faith statements
made in the course of credentialling responses might be protected by
statute, and by a release signed by the physician seeking privileges.
• Some statements, such as those made during a judicial proceeding or by
one provider to another in discussing a patient’s treatment, are privileged
and provide a defense. In Thornburg v. Long, for example, a specialist
advised a patient’s family physician on the basis of an erroneous lab
report that the 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 other physician and had done so with reasonable skill, even though
it turned out that the information was incorrect.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
False Imprisonment
False imprisonment arises from unlawful restriction of a person’s freedom. In
the healthcare context, this could arise when a mentally ill person is detained
without following appropriate processes. In Stowers v. Wolodzko, for example,
a psychiatrist was held liable for his treatment of a patient who had been
forcibly committed against her will.43 Although this type of commitment
was allowed under state law at the time, for many days the psychiatrist held
the woman incommunicado and prevented her from calling an attorney or a
relative. These actions amounted to false imprisonment because the patient’s
freedom was unlawfully restrained. (The unusual facts of this case are laid out
in The Court Decides at the end of this chapter.)
Invasion of Privacy and Breach of Confidentiality
Although truth is a defense in defamation cases, there are two other bases for
possible liability: (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 without her permission.
This action 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 his
patient’s home. Clearly, a patient’s expectation of privacy should be respected.
In many situations, state or federal law requires disclosure of confidential information. For example, confidential information from a patient’s
medical record may be disclosed for purposes of quality assurance and peer
review activities and for reporting to state authorities in cases of suspected
child abuse. Other reporting requirements include those relating to communicable disease, injury, or death resulting from the use of a medical device;
environmental illness and injury; injuries resulting from suspected criminal
activities (e.g., knife or gunshot wounds); and conditions affecting one’s ability to drive safely or operate heavy machinery.
Disclosures made in conformity with the law are not wrongful, and
no liability will attach. Similarly, no liability for disclosing patient information exists when the patient (or the patient’s authorized representative) has
given permission. Healthcare facilities must be aware of the federal and
state requirements regarding confidentiality of healthcare information and
must have appropriately protective policies and procedures in place. (These
requirements are discussed in more detail in chapter 10.)
Misrepresentation
Misrepresentation is another intentional tort for which providers can be held
liable. Misrepresentation is either intentional (fraudulent or deceitful) or
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C hap ter 5: C ontrac ts and Intentional Tor ts
negligent. Either way, the person claiming injury must show that a fact was
falsely represented and that decisions based on the misrepresentation caused
harm. Misrepresentation cases involving providers are of two types: (1) misrepresentation to persuade a patient to submit to treatment, and (2) misrepresentation of a prior treatment or its results.
Providers 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,45 Dr. McMurray performed surgery on Lavoid Johnson
and left a surgical sponge inside his body. Johnson specifically asked that Dr.
McMurray not participate in the follow-up surgery needed to remove the
sponge, and he sought out Dr. Griffith to operate. Unknown to Johnson, 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 limitation expires. In Hundley v. Martinez, the patient suffered
vision problems for a number of months after cataract surgery. On numerous
occasions, he returned to his ophthalmologist for follow-up visits and was
repeatedly assured that his “eye was all right, getting along fine.”46 Eventually, the patient (an attorney) became virtually blind in the affected eye. More
than two years later, he consulted another ophthalmologist about cataract
formation in the other eye. Only then did he learn that the first eye had been
permanently damaged by the earlier surgery. The court held that the twoyear limitation period should be disregarded (tolled) if the jury found that
the physician had obstructed the plaintiff’s case by fraud or in other ways.
Accordingly, a new trial was ordered.
217
statute of
limitation
A law setting the
maximum period
one can wait
before filing a
lawsuit, depending
on the type of case
or claim.
Outrage
The tort of outrage—sometimes called “intentional infliction of emotional
distress”—arises from extreme and offensive conduct by the defendant. Rockhill v. Pollard is a graphic example of a case involving outrage.47 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 Christmas; the
accident knocked the baby unconscious. A passing motorist picked them up
and arranged for a physician to meet them at the doctor’s 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 defendant
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
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
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.”48
After repeated requests to do so, the doctor finally gave the baby 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 opinion states that the doctor told the mother-in-law, “Get in there and clean
yourself up. You are a mess.” The opinion continues, quoting from the
transcript:
“The doctor was out of the room, and I told her [Christine Rockhill, the 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.
prima facie
Containing
enough evidence
to win unless
the defendant
presents
contradictory
evidence.
After a 20-minute wait in the cold, the group was taken to a hospital.
By the time they arrived, the baby was apparently semiconscious and suffering from shock. The women were given emergency treatment and released.
The baby 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 (enough evidence to win unless the
defendant presents contradictory evidence). The Supreme Court of Oregon
disagreed, stating, “We think the issue should have been submitted to the
jury.”49 It is not hard to see why a jury could find that the defendant’s conduct was “outrageous” and thus an intentional tort.
Violation of Civil Rights
For well over 50 years now, courts have recognized causes of action for violations of patients’ civil rights. Violation of federal civil rights statutes—such
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as committing discrimination on the basis of race, sex, religion, nationality,
and other protected categories—is an obvious example.50 Less apparent
discrimination is shown in Widgeon v. Eastern Shore Hospital Center.51 In
this unusual case, the plaintiff was involuntarily committed to a Maryland
hospital after an ex parte hearing (one in which only one party is present),
in which the plaintiff’s wife testified 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 had lied about his behavior because she wanted to be free to join her
male friend in Florida. 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, intentional infliction of emotional
distress, and conspiracy to commit these wrongs. The court held that the
complaint stated a valid cause of action under federal law and the Maryland
Declaration of Rights: “That no man ought to be taken or imprisoned or
disseized of his freehold, liberties or privileges, or outlawed, or exiled, or,
in any manner, destroyed, or deprived of his life, liberty or property, but by
the judgment of his peers, or by the Law of the land.”52 This case illustrates
how civil rights may be defined differently at the state level as compared to
the federal level.
219
ex parte hearing
A hearing in which
only one party is
present.
Chapter Summary
This chapter discussed the following topics:
• The essential elements of a valid contract (competent parties, a
“meeting of the minds,” consideration, a purpose that is legal and not
contrary to public policy)
• How contract law impacts analysis of the provider–patient relationship
• How the evolving law around noncompete clauses highlights the roles
of case law and legislation
• Consideration of the effect of racial animus and implicit bias in the
provider–patient relationship
• Standards for terminating a patient–provider relationship without it
being considered abandonment
• Liability for breach of warranty
• The types of intentional torts and how they might arise in the
healthcare setting
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Vocabulary
cause of action
consideration
damages
defamation
exculpatory
ex parte hearing
fiduciary
Good Samaritan laws
informed consent
intentional tort
liability
negligence
prima facie
punitive damages
statute of limitation
strict liability
tort
tortfeasor
Discussion Questions
1. A large urban hospital is having serious financial difficulties, and its
board of directors has decided to close its dialysis clinic, which has
been losing several million dollars a year. There are 51 patients of the
clinic who have not been able to find alternative care, although there
are several other dialysis centers in the area. You have been assigned
to the team managing the closure. What questions do you have? What
will you do? What legal risks might there be?
2. Explain why a case alleging a breach of contract, such as Guilmet v.
Campbell, might be easier to prove than a standard case alleging negligence
(harm resulting from the failure to follow the standard of care).
3. What are some policy arguments in favor of noncompetes, generally and
as to physician contracts? What are some policy arguments against them?
4. Identify three types of intentional torts. For each type, make up a
healthcare-related situation for which the plaintiff would have a prima
facia case.
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221
The Court Decides
Stowers v. Wolodzko
386 Mich. 119, 191 N.W.2d 355 (1971)
Swainson, J.
This case presents complicated issues concerning the liability of a doctor for actions
taken subsequent to a person’s confinement
in a private mental hospital pursuant to a
valid court order. . . .
Plaintiff, a housewife, resided in Livonia,
Michigan, with her husband and children. She
and her husband had been experiencing a
great deal of marital difficulties and she testified that she had informed her husband . . .
that she intended to file for a divorce.
On December 6, 1963, defendant
appeared at plaintiff’s home and introduced
himself as “Dr. Wolodzko.” Dr. Wolodzko had
never met either plaintiff or her husband
before he came to the house. He stated that
he had been called by the husband, who had
asked him to examine plaintiff. Plaintiff testified that defendant told her that he was there
to ask about her husband’s back. She testified that she told him to ask her husband,
and that she had no further conversation with
him or her husband. She testified that he
never told her that he was a psychiatrist.
Dr. Wolodzko stated in his deposition . . .
that he told plaintiff he was there to examine
her. However, upon being questioned upon
this point, he stated that he could “not specifically” recollect having told plaintiff that
he was there to examine her. He stated in
his deposition that he was sure that the fact
he was a psychiatrist would have come out,
but that he couldn’t remember if he had told
plaintiff that he was a psychiatrist.
Plaintiff subsequently spoke to Dr.
Wolodzko at the suggestion of a Livonia
policewoman, following a domestic quarrel
with her husband. He did inform her at that
time that he was a psychiatrist.
On December 30, 1963, defendant
Wolodzko and Dr. Anthony Smyk, apparently
at the request of plaintiff’s husband and without the authorization, knowledge, or consent
of plaintiff, signed a sworn statement certifying that they had examined plaintiff and
found her to be mentally ill. Such certificate
was filed with the Wayne County Probate
Court on January 3, 1964, and on the same
date an order was entered by the probate
court for the temporary hospitalization of
plaintiff until a sanity hearing could be held.
The Judge ordered plaintiff committed to Ardmore Acres, a privately operated institution,
pursuant to the provisions of [Michigan law].
Plaintiff was transported to Ardmore Acres
on January 4, 1964. . . .
The parties are in substantial agreement as to what occurred at Ardmore Acres.
Defendant requested permission to treat the
plaintiff on several different occasions, and
she refused. For six days, she was placed in
the “security room,” which was a bare room
except for the bed. The windows of the room
were covered with wire mesh. During five of
the six days, plaintiff refused to eat, and at
all times refused medication. Defendant telephoned orders to the hospital and prescribed
certain medication. He visited her often
­during her stay.
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
When plaintiff arrived at the hospital she
was refused permission to receive or place
telephone calls, or to receive or write letters. Dr. Wolodzko conceded at the trial that
plaintiff wished to contact her brother in
Texas by telephone and that he forbade her
to do so. After nine days, she was allowed
to call her family, but no one else. Plaintiff
testified on direct examination that once during her hospitalization she asked one of her
children to call her relatives in Texas and that
defendant took her to her room and told her,
“Mrs. Stowers, don’t try that again. If you
do, you will never see your children again.”
It is undisputed that plaintiff repeatedly
requested permission to call an attorney and
that Dr. Wolodzko refused such permission.
At one point when plaintiff refused medication, on the written orders of defendant,
she was held by three nurses and an attendant and was forcibly injected with the medication. Hospital personnel testified at the
trial that the orders concerning medication
and deprivation of communication were pursuant to defendant’s instructions.
Plaintiff, by chance, found an unlocked
telephone near the end of her hospitalization
and made a call to her relatives in Texas. She
was released by court order on January 27,
1964.
Plaintiff filed suit alleging false imprisonment, assault and battery, and malpractice,
against defendant Wolodzko, Anthony Smyk
and Ardmore Acres. Defendants Ardmore
Acres and Smyk were dismissed prior
to trial. At the close of plaintiff’s proofs,
defendant moved for a directed verdict. The
court granted the motion as to the count of
malpractice only, but allowed the counts of
assault and battery and false imprisonment
to go to the jury. At the Conclusion of the
trial, the jury returned a verdict for plaintiff in
the sum of $40,000. . . .
Defendant has raised five issues on
appeal. . . .
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The second issue involves whether or not
there was evidence from which a jury could
find false imprisonment.
“False imprisonment is the unlawful
restraint of an individual’s personal liberty or
freedom of locomotion.” It is clear that plaintiff was restrained against her will. Defendant, however, contends that because the
detention was pursuant to court order (and
hence not unlawful), there can be no liability
for false imprisonment. However, defendant
was not found liable for admitting or keeping
plaintiff in Ardmore Acres. His liability stems
from the fact that after plaintiff was taken to
Ardmore Acres, defendant held her incommunicado and prevented her from attempting to
obtain her release, pursuant to law. Holding
a person incommunicado is clearly a restraint
of one’s freedom, sufficient to allow a jury to
find false imprisonment.
Defendant contends that it was proper for
him to restrict plaintiff’s communication with
the outside world. Defendant’s witness, Dr.
Sidney Bolter, testified that orders restricting
communications and visitors are customary in cases of this type. Hence, defendant
contends these orders were lawful and could
not constitute the basis for an action of false
imprisonment. However, the testimony of
Dr. Bolter is not conclusive on this point.
. . . Psychiatrists have a great deal of
power over their patients. In the case of a
person confined to an institution, this power
is virtually unlimited. All professions (including the legal profession) contain unscrupulous individuals who use their position to
injure others. The law must provide protection against the torts committed by these
individuals. In the case of mental patients, in
order to have this protection, they must be
able to communicate with the outside world.
In our country, even a person who has
committed the most abominable crime has
the right to consult with an attorney.
Our Court and the courts of our sister
States have recognized that interference with
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C hap ter 5: C ontrac ts and Intentional Tor ts
attempts of persons incarcerated to obtain
their freedom may constitute false imprisonment. Further, we have jealously protected
the individual’s rights by providing that a circuit Judge “who willfully or corruptly refuses
or neglects to consider an application, action,
or motion for, habeas corpus is guilty of malfeasance in office.”
. . . [P]laintiff was . . . attempting to communicate with a lawyer or relative in order to
obtain her release. Defendant prevented her
from doing so. We . . . hold that the actions
on the part of defendant constitute false
imprisonment. . . .
A person temporarily committed to an
institution pursuant to statute certainly must
have the right to make telephone calls to an
attorney or relatives. We realize that it may
be necessary to restrict visits to a patient
confined to a mental institution. However,
the same does not apply to the right of a
patient to call an attorney or relative for aid
in obtaining his release. This does not mean
that an individual has an unlimited right to
make numerous telephone calls, once he is
confined pursuant to statute. Rather, it does
mean that such an individual does have a
right to communicate with an attorney and/
or a relative in attempt to obtain his release.
Dr. Bolter was unable to give any valid
reason why a person should not be allowed
to consult with an attorney. We do not
believe there is such a reason. While problems may be caused in a few cases because
of this requirement, the facts in the instant
case provide cogent reasons as to why such
a rule is necessary. Mrs. Stowers was able
to obtain her release after she made the
telephone call to her relatives and they, in
turn, obtained an attorney for her. Prior to
this, because of the order of no communications, she was virtually held a prisoner with
no chance of redress. We, therefore, agree
with the Court of Appeals that there was
sufficient evidence from which a jury could
find that Dr. Wolodzko had committed false
imprisonment.
The Court of Appeals is affirmed.
Discussion Questions
1. What other information would you like to have to fully consider this case?
2. Note that this case was decided in 1971 on facts that occurred in the early 1960s. The case
may remind readers of the classic movie One Flew Over the Cuckoo’s Nest. At the time,
laws addressing involuntary psychiatric commitment were uncommon or nonexistent
in some jurisdictions. Research your state’s standards for involuntary commitment and
determine how these cases would be handled today.
3. According to the opinion, Stowers was committed on the strength of the statement of two
physicians that she was “mentally ill.” What additional evidence would be sufficient today
to have someone committed involuntarily? What would the evidence have to prove? Why?
4. What are the procedural steps to follow under the commitment laws of your state?
~
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~
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Notes
1. Some physicians and hospitals may believe they have full professional
liability coverage under their malpractice insurance policies, but those
policies typically cover only 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. Courts can and often do find legal duties where none existed
previously. See discussion of Tarasoff v. Regents of the Univ. of Cal. in
chapter 10.
3. Tex. Bus. & Com. Code Ann. §§ 15.50(b), 15.50(c).
4. WellSpan Health v. Bayliss, 2005 PA Super 76, 869 A.2d 990 (2005).
5. Exec. Order No. 14,036—Promoting Competition in the
American Economy, 86 FR 36,987, 36,992 (§ 5(g) Further Agency
Responsibilities) (July 9, 2021), https://www.govinfo.gov/content/
pkg/FR-2021-07-14/pdf/2021-15069.pdf [https://perma.
cc/4XGT-8SCH].
6. Oliver v. Brock, 342 So. 2d 1 (Ala. 1976).
7. 342 So. 2d at 5.
8. 61 Am. Jur. 2d, Physicians, Surgeons, Etc. § 121 (2022).
9. Angela R. Holder, Medical Malpractice Law 6 (2d ed. 1978).
10. James v. United States, 483 F. Supp. 581, 585 (1980).
11. McNamara v. Emmons, 36 Cal. App. 2d 199, 97 P.2d 503 (1939).
12. Tarasoff v. Regents of the University of California, 17 Cal. 3d 425, 551
P.2d 334 (Cal. 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).
13. Brady v. Hopper, 751 F.2d 329 (10th Cir. 1984).
14. Freese v. Lemmon, 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 bus 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 an auto
accident after the physician failed to warn his patient not to operate a
motor vehicle).
15. David W. Louisell & Harold Williams, Medical Malpractice § 8.08
at 219 (1973).
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C hap ter 5: C ontrac ts and Intentional Tor ts
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
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225
Norton v. Hamilton, 92 Ga. App. 727, 89 S.E.2d 809 (1955).
Johnson v. Vaughn, 370 S.W.2d 591 (Ky. 1963).
370 S.W.2d at 596.
Payton v. Weaver, 131 Cal. App. 3d 38, 182 Cal. Rptr. 225 (1982).
Cal. Health & Safety Code § 1317 (West 1979).
See Sallie T. Sanford, What Scribner Wrought: How the Invention of
Modern Dialysis Shaped Health Law and Policy, 13 Rich. J. L. & Pub.
Int. 337 (2010). A 2009 case involving Grady Memorial Hospital in
Atlanta raises a larger issue in the context of undocumented immigrants
with ESRD who are not eligible for Medicare or Medicaid and whose
clinic at Grady had closed. See Kevin Sack, Hospital Falters as Refuge
for Illegal Immigrants, N.Y. Times (Nov. 21, 2009), https://www.
nytimes.com/2009/11/21/health/policy/21grady.html [https://
perma.cc/5VEN-XPEN].
Leach v. Drummond Medical Group, Inc., 144 Cal. App. 3d 362, 192
Cal. Rptr. 650 (1983).
Cal. Civ. Code § 51.
Tresemer v. Barke, 86 Cal. App. 3d 656, 150 Cal. Rptr. 384 (1978).
86 Cal. App. 3d at 672, 150 Cal. Rptr. At 394.
Dayna B. Matthew, Just Medicine: A Cure for Racial Inequality in
American Health Care (2005).
Alexandridis v. Jewett, 388 F.2d 829 (1st Cir. 1968).
Stewart v. Rudner, 349 Mich. 459, 84 N.W.2d 816 (1957).
Sullivan v. O’Conner, 363 Mass. 579, 296 N.E.2d 183 (1973).
Guilmet v. Campbell, 385 Mich. 57, 68, 188 N.W.2d 601, 606
(1971).
Mich. Comp. Laws Ann. § 566.132(1)(g) (2009).
For the subject of torts generally, see Restatement (second) of Torts.
For intentional torts specifically, see Restatement §§ 13–62.
Burton v. Leftwich, 123 So. 2d 766 (La. Ct. App. 1960).
Mattocks v. Bell, 194 A.2d 307 (D.C. Ct. App. 1963).
Schloendorff v. Society of New York Hospital, 211 N.Y. 125, 105 N.E.
92 (1914).
Perna v. Pirozzi, 92 N.J. 446, 438, 457, A.2d 431, 461 (1983).
Against the urologist, the plaintiff had a cause of action for breach of
contract, breach of fiduciary duty, and malpractice.
92 N.J. at 461, 457 A.2d at 439.
Mohr v. Williams, 95 Minn. 261, 104 N.W. 12 (1905).
Barnett v. Bachrach, 34 A.2d 626 (D.C. Mun. Ct. App. 1943).
See generally, 53 C.J.S., Libel & Slander §§ 1–9.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
41. Shoemaker v. Friedberg, 80 Cal. App. 2d 911, 916, 183 P.2d 318, 322
(1947).
42. Thornburg v. Long, 178 N.C. 589, 101 S.E. 99 (1919).
43. Stowers v. Wolodzko, 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. Vassiliades v. Garfinckel’s, Brooks Bros., 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. Johnson v. McMurray, 461 So. 2d 775 (Ala. 1984).
46. Hundley v. Martinez, 151 W. Va. 977, 158 S.E.2d 159 (1967).
47. Rockhill v. Pollard, 259 Or. 54, 485 P.2d 28 (1971).
48. 259 Or. at 56–57, 485 P.2d at 29–30.
49. 259 Or. at 55, 485 P.2d at 29.
50. See, e.g., Washington v. Blampin, 226 Cal. App. 2d 604, 38 Cal. Rptr.
235 (1964).
51. Widgeon v. Eastern Shore Hospital Center, 479 A.2d 921 (Md.
1984).
52. Md. Declaration of Rights, Art. 24.
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CHAPTER
NEGLIGENCE
6
After reading this chapter, you will
• understand that four essential elements must be proven for a
plaintiff to prevail in a negligence case;
• know that the standard of care (the duty) in a medical malpractice
case is typically established by expert testimony;
• grasp that the plaintiff’s injuries must be caused by the defendant’s
breach of the duty;
• appreciate the goals of medical error disclosure and apology laws;
and
• see why, under the concept of vicarious liability, one can be liable
for the actions of someone else.
A
s mentioned in chapter 5, a tort is a
Even a dog distinguishes between being
civil wrong not based on contract.
stumbled over and being kicked.
The most common type of tort case
—Oliver Wendell Holmes Jr.,
involves negligence, the unintentional failThe Common Law 7 (1881)
ure to live up to accepted standards of
behavior. Four elements are essential to a
case alleging a negligent tort: (1) the duty of care, (2) breach of that duty,
(3) injury, and (4) causation. Medical malpractice is a type of negligence.
Duty
Duty refers to a legal obligation that the defendant (the alleged tortfeasor)
owes to the plaintiff. Although in some cases there are very precise standards
by which to determine duty, most commonly it is expressed as a general obligation to act with due care—in other words, to conduct oneself as a reasonably prudent person would in similar circumstances. A breach of duty imposes
liability if it results in injury to property or another person.
The most common negligent tort is a motor vehicle accident. The
duty—the standard of care—in such cases may be relatively easy to prove by
standard of care
The caution and
prudence that
a reasonable
person would
exercise under the
circumstances or
that are required
by appropriate
authority for such
situations.
227
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
relying on such measures as traffic laws (e.g., speed limits, traffic lights), the
driving conditions at the time, and common sense about what an average,
reasonable driver would have done under the circumstances.
Although the reasonably prudent person standard suffices in many tort
cases, the most common negligent tort in healthcare—medical malpractice—
usually cannot be judged on the basis of such simple criteria. Most jurors are
not competent to judge whether a healthcare provider has acted reasonably.
The courts have adapted the reasonably prudent person standard for medical malpractice cases so that a physician is measured against other physicians,
nurses against other nurses, pharmacists against other pharmacists, and so on.
They are not measured against the “average person,” per se.
One venerable case stated the rule as follows: “A qualified medical or
dental practitioner should be subject to liability, in an action for negligence,
if [the practitioner] fails to exercise that degree of care and skill which is
expected of the average practitioner in the class to which he belongs, acting
in the same or similar circumstances.”1 Courts generally agree with this concept, but, like all legal standards, it is subject to interpretation when applied
to specific facts. Interpretation is usually required when determining four
aspects of duty in malpractice cases:
1. What would a “reasonable” healthcare provider do under these
circumstances?
2. If the standard is not a national one, where should it be found?
3. What school of medicine (“school rule”) would other providers follow
in this case?
4. Are the profession’s standards adequate?
These questions are considered in the following paragraphs. Expert
witnesses, whose role will be discussed in more detail later in the chapter,
are used to help the jury answer these questions. Expert witnesses also
opine about whether the defendant has met the duty that has thus been
­established—that is, whether the provider has met the standard of care or
has breached it.
The Reasonable Provider
In general terms, healthcare providers are required to provide only “reasonable and ordinary” treatment. Their actions are not typically judged against
those of their most knowledgeable and highly skilled colleagues but against
the knowledge and skill of an average provider in the same line of practice.
For example, if several methods of treatment for a patient’s condition
are available, a provider’s treatment would not be considered malpractice
simply because other providers might have opted for one of the alternative
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229
treatment methods. Thus, the courts usually hold that the provider is not
liable if the chosen treatment would be recognized by a “respectable minority” of the medical profession, even if most providers would have adopted
another treatment plan.2
In one case, a surgeon damaged the patient’s laryngeal nerves while
performing a thyroidectomy.3 In her subsequent lawsuit, the patient did not
claim that the physician was reckless; rather, she claimed that the medical
community recognized two possible surgical procedures for her condition
and that the defendant should have chosen the other one. The Delaware
Supreme Court rejected this argument because the evidence showed that the
two methods were equally acceptable, the risk of nerve damage was roughly
the same for the two procedures, and the choice of method was a matter of
the physician’s professional judgment.
A more difficult problem arises when the provider treats the patient
by a method that even a respectable minority would deem unacceptable
because it verges on experimentation. When standard methods have failed,
however, providers might reasonably turn to innovative techniques if the
condition is sufficiently serious. In one case, a surgeon performed an
unorthodox operation on a patient’s ankle after trying standard techniques
and other physicians had advised amputation.4 The court held that the
operation was justified as a last resort. By way of contrast, a provider who
performs an experimental procedure before attempting standard methods
risks being found to have acted negligently. In one instance, a physician
treating a baby for a curvature of the spine used a surgical procedure he had
developed but no one else had used. The baby 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 baby’s parents that the procedure was unorthodox.5
The Neighborhood: Local, State, or (Usually) National
The second aspect of duty compares the treatment in question with that used
by providers “in the same neighborhood.” Originally, the neighborhood was
considered to be the town or small region where the provider practiced and
similar areas elsewhere in the state or the nation. This principle is called the
locality rule because it measures the standard of care in a given instance solely
by the practices of other providers in the same or a similar locality.
The traditional locality rule was based on the theory that doctors in
remote areas should not be held to the same standards of medical expertise as those in urban areas because of the difficulties of communication
and travel and because they had limited opportunities to keep abreast of
medical advances. It also relied on the fact that in such areas, providers were
often forced to practice in inadequate hospital facilities.6 In most states, the
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COVID Connection
It has long been recognized that during public
health crises and other major emergencies, it is
not always possible to give every patient the optimal care they would otherwise receive. This was
especially so during the COVID-19 pandemic, when
crushing loads of complicated, infectious patients
caused shortages of stuff, space, and staff. In the
face of those shortages, medical practice changed
in myriad ways. Single-use masks were reused
and ventilators were reconfigured for dual-patient
use. Patients were housed in repurposed rooms,
and nurses took on higher patient loads. Elective
procedures were canceled, and routine screenings
were postponed. Even patients in the intensive
care unit were left alone for long stretches.
In response to these challenges, individual hospitals, geographic regions, and even whole states
explicitly invoked crisis standards of care (CSC),
which are guidelines to be followed when overwhelming demand means that services must be rationed.
Invoking CSC may add a level of liability protection
for healthcare workers and facilities when it is impossible to provide a normal level of care. Under common
law, of course, the standard is “due care under the circumstances,” whether CSC have been adopted or not.
Although CSC predated the COVID-19 pandemic, the extraordinary length of the crisis and
the severity of COVID patients’ conditions will
severely test the standards’ “reasonableness.” It
remains to be seen how courts and juries will interpret CSC, in what situations the standards actually
provide protection from liability, and how they will
affect care during future crises.
crisis standards of
care (CSC)
The optimal level
of care that can be
delivered during a
catastrophic event
or public health
emergency that
requires substantial
changes to
normal healthcare
operations.
CH06.indd 230
traditional locality rule has given way to a
broader standard because the original reasons for the rule have all but disappeared.7
As one court stated,
Locality rules have always had the practical
difficulties of: (1) a scarcity of professional
people in a locality or community qualified [or
willing] to testify; and (2) treating as acceptable a negligent standard of care created by
a small and closed community of physicians
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
transportation, communications, and medical education and training which results in
a 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 advancements in [their]
profession.8
For these reasons, the court in
that case held that “the language ‘same
neighborhood’ . . . refer[s] to the national
medical neighborhood or national medical community, of reasonably competent
physicians acting in the same or similar circumstances.”9 This newer, broader
standard is all the more reasonable given
national accreditation standards for
medical education, national certification
for medical board specialties, and advances in communications technology,
including the internet. Today, a majority of jurisdictions employ the
national standard in malpractice cases. Even where the law ostensibly follows a state standard, expert witnesses will typically testify that they know
what the state standard is and that it is the same as the national standard.
For providers who practice under conditions that are less than ideal, the
burden of meeting a national standard is alleviated somewhat by permitting
“justifiable circumstances” as a defense.10 For example, a nurse practitioner
would not be responsible for providing a higher level of care if the necessary
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231
facilities or resources for that care are not available. The test is what is reasonable under the circumstances. All surrounding circumstances are to be
considered in determining whether there was a breach of the standard of care.
The School Rule
The third consideration is whether the care is comparable to that of providers
“in the same general line of practice.” This principle, sometimes called the
school rule, is a throwback to the days when the schools of treatment were school rule
strictly divided. For example, traditional Western medicine as practiced by The principle
that healthcare
MDs—the allopathic school—treats disease by using agents, such as antibiot- practitioners are
ics, that oppose the patient’s symptoms. The homeopathic school posits that judged by the
to cure a patient’s symptoms, the doctor should give medicine that would standards of their
cause in healthy people the same set of symptoms that the patient exhibits. own branch of
medicine.
Practitioners of osteopathic medicine and chiropractic medicine, at least in
the “pure” form of their art, emphasize manipulative techniques to correct
bodily anomalies thought to cause disease and inhibit recovery.
Although still recognized, the distinctions among these schools have
blurred, leaving what is sometimes called the “regular practice of medicine.”
For example, for many years, osteopathy was not considered regular medicine
in some states, and osteopaths were not allowed to prescribe drugs or perform
surgery; they were judged only by the standards prevailing in their own discipline.11 Today, however, all states allow osteopaths to perform surgery and
prescribe drugs, and they are regarded as part of the regular practice of medicine. The school rule remains important, however, because a few branches of
medicine still exist and the trend is toward specialization. Moreover, nonphysician providers such as pharmacists, occupational and physical therapists, and
others are judged by standards that correspond to their “school” of practice.
Alternative forms of treatment such as acupuncture, herbal medicine, faith healing, naturopathy, massage, music therapy, and aromatherapy
claim numerous adherents (see Legal Brief). These techniques are known
to improve psychological and physical well-being in some circumstances,
and their practitioners, who usually do not have medical degrees, generally
apply them without promising or implying that they are practicing medicine.
They are not, therefore, judged by the standards of medical practice unless
they stray from their area of expertise. If
they do, they may be judged against the
standards taught in traditional medical
Legal Brief
schools and may be accused of practicing
medicine without a license.
In applying the school rule, courts
The school rule becomes significant in cases involving complementary and alternative medicine. (See
must decide whether the school is legitifurther discussion of this topic in chapter 8.)
mate. Legitimacy generally depends on
whether rules and principles of practice
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
have been set up to guide the school’s members in treating patients. When
the standard of care is in question, the existence of licensing requirements
will usually suffice as recognition of a separate school.12 In one early case,
the court did not recognize a spiritualist’s practice as following a school
of treatment because the practitioner’s only principle was to diagnose
and treat disease by means of a trance. Because there was no legitimate
school, the practitioner was held to the standards of mainstream medical
practice.13 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.14
The school rule standards also hold nonphysician practitioners
responsible for knowing which diagnoses are in their area of practice 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.15
Even allopathic 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 that the physician should have grasped the seriousness of the
patient’s condition and called in a thoracic surgeon, who might have saved
the patient’s life.16
Assuming that a general practitioner remains in their area of expertise
and does not fail to refer a patient to a specialist when required, most courts
apply the standards of other general practitioners and not those of specialists.17 Physicians who present themselves as specialists, however, are held to
a higher standard of care than that to which general practitioners are held.18
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 chiropractors 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
when using a Stryker saw to remove a cast.19
The Standard of Care in a Post–Roe v. Wade World
The US Supreme Court’s 2022 decision in Dobbs v. Jackson Women’s Health
Organization, which removed federal constitutional protections for abortion,
raises myriad standard-of-care questions for providers. (See chapter 15 for a
full discussion of Dobbs.) What is the permissible scope of abortion services
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233
based on a particular state’s law? How could an organization’s policies be
structured to comply and also support appropriate patient care? Under what
circumstances could or must a licensed healthcare provider counsel a patient
about abortion services if inducing the abortion would be prohibited in that
jurisdiction? Does it matter whether pregnancy is a complicating factor for
the patient’s primary diagnosis (e.g., cancer, infectious disease, or mental illness)? Does failure to provide abortion counseling or certain prenatal testing
procedures amount to professional negligence? If state law ostensibly prohibits counseling, would the First Amendment’s right to freedom of speech
serve as a defense to civil or criminal liability? If a medication has abortifacient
effects, will it be available for other indications?
Further, what are the implications of Dobbs for providers who are
licensed in multiple states? May a state in which abortion is illegal revoke
a provider’s license if the provider induces an abortion in a state where the
procedure is legal? May a licensing board or hospital medical staff discipline a
provider in such a case? Is there possible civil or criminal liability for assisting
or enabling a someone to obtain an abortion in another state? Is it permissible to provide telemedicine across state lines when the two states’ abortion
laws differ? Similarly, may medication to induce abortion be prescribed or
provided across state lines?
Does it matter whether the pregnant patient’s health or life is in
jeopardy? Will those who provide emergency abortion treatment consistent
with national standards of care risk license revocation, civil penalties, or jail
time? In short, the legal landscape around medical care for pregnancy-related
emergencies in abortion-restrictive states creates risks both for patients and
providers.
Finally, what might be the effect of abortion laws on the standard of
care for infertility clinics? In vitro fertilization (IVF) typically results in the
formation of multiple embryos, not all of which are implanted in a woman’s
uterus to begin a pregnancy. In states where “personhood” is considered to
begin at the moment of fertilization, does the destruction of embryos that
were not implanted fall within the definition of “abortion”? If so, what is
the potential civil and criminal liability for infertility clinic personnel? If preimplantation embryos are stored in a freezer, what is their status? Can those
embryos be shipped to another state to be discarded? Does the liability of
IVF specialists depend on the tenacity of local prosecutors?
These and many other questions will need to be litigated repeatedly in the coming years, and the number of different answers is likely to
grow exponentially. Lawyers, consultants, and judges are assured of full
employment because of the Dobbs decision. While this plays out, providers
will face standard-of-care and professional ethics conundrums, and patients
will suffer.
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The Substandard Profession: Helling and Mammograms
A final aspect of duty concerns the profession itself. Physicians are usually
judged by what other physicians would do under the circumstances; however,
on rare occasions, courts have found the profession’s own standards inadequate. In so doing, they have found negligence “as a matter of law” from
the facts of the case.
This sort of decision is relatively uncontroversial in nonmedical contexts. In the context of for-profit businesses, few would dispute the 1932
observation by the aptly named Judge Learned Hand that “a whole calling
may have unduly lagged in the adoption of new and available devices.”20
That case involved commercial boats that would not have sunk had they carried readily available radios capable of receiving storm forecasts. As applied
to healthcare professionals, though, there is significant pushback against the
idea that their own standards could be legally inadequate.
In Favalora v. Aetna Casualty & Surety Co., a 71-year-old patient fell
while being x-rayed. She suffered numerous injuries, including a fractured
femur.21 The patient’s 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 documented her history of sudden fainting
spells. It was not the practice of radiologists to review a patient’s medical history; their role was merely to take and interpret “pictures.” When the judge
explained the legal standard to the jury in this way, it returned a verdict for
the defendant. The appellate court reversed the decision, however, believing
that the accepted practices of the radiology profession were inadequate. In
reaching this decision, the court looked to the custom of teaching hospitals,
which did require radiologists to examine patients’ histories.
Favalora received little attention, perhaps because the case was
decided in Louisiana, a state not often considered a legal bellwether. However, 12 years later, in 1974, a landmark case from Washington State caused
a furor in medicolegal circles.
Barbara Helling, the plaintiff, had been treated by two ophthalmologists from 1959 until 1968 for difficulties with her contact lenses. After
Helling was diagnosed with glaucoma in 1968, she sued her former ophthalmologists and alleged that her vision was permanently damaged because they
did not conduct some simple tests nine years earlier. Although she argued
that her eye problems should have prompted them to test her for glaucoma,
the issue on appeal was different: whether she should have been tested for
glaucoma as a routine matter.
According to expert witnesses for the defense, the standard of practice
at the time did not require routine testing for glaucoma in patients younger
than age 40, and thus both the trial and appellate courts found for the
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ophthalmologists, because Helling was under 40 at the time they treated
her. The Supreme Court of Washington disagreed, however; it held that
reasonable prudence may require a standard of care higher than that actually practiced by the profession, and it reversed the trial court’s decision and
remanded the case for a new trial on the issue of damages (see The Court
Decides: Helling v. Carey at the end of this chapter).
Reaction to Helling
This decision sent shock waves through the physician community, and many
assailed Helling as judicial impertinence toward the medical profession. In
response, the Washington State legislature passed a statute that purported to
overturn the Helling rule:
235
positive predictive
value
The probability
that subjects
with a positive
screening test
truly have
the condition
tested for.
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 learning possessed
at that time by other persons in the same profession, and that as a proximate result
of such failure the plaintiff suffered damages.22
Despite the statute, a later case,
Gates v. Jensen, held that Helling’s rule
was still in effect.23 The Gates court noted
that the original bill had used the word
“practiced” rather than “possessed,” as
in the version that passed the legislature
(quoted earlier). According to the court,
the change in the bill prior to enactment
showed that the standard was not limited
to what members of the profession actually did but could be extended to what
they ought to have done.
The reaction to the Helling decision might have been different—and the
case might have been decided differently—had more critical analysis been
undertaken at trial. Tonometry, the test
that Helling argued should have been
used, measures intraocular pressure and
produces a relatively high number of
false positives. In other words, its positive predictive value is low, perhaps as
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Legal Brief
Consider this example of positive predictive value.
Say the prevalence of a hypothetical disease is 1
percent. In a population of 25,000, there should
be 250 actual cases. If the diagnostic test is 95
percent accurate, it will accurately diagnose about
237 of those cases (95 percent × 250), but it will
falsely diagnose as positive 1,238 others (5 percent × the remaining 24,750), who we postulate
do not have the disease. Thus, there will be a
total of 1,475 positive test results, but only about
16 percent of them will be true positives (237 ÷
1,475). Each positive test result will require further diagnostic procedures, which undoubtedly
will contribute to higher costs and a heightened
level of patient anxiety. Negative test results are
similarly unrealistic and may lead to a false sense
of security in the 13 persons who have the disease
but tested negative.
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low as 5 percent, according to a 1989 report by the US Preventive Services
Task Force (PSTF), an independent advisory panel charged with conducting
impartial assessments of scientific evidence (see Legal Brief).24
Given the inaccuracy of tonometry tests, the relatively low incidence
of the disease in younger persons, and some disagreement about the effectiveness of existing treatment options, there is a question as to whether universal glaucoma screening makes good sense as public policy, irrespective of
Helling’s outcome. Similar issues of false-positive and false-negative results
attend other diagnostic tests, such as prostate-specific antigen screening for
prostate cancer.
Science Versus Politics
The Washington legislature’s involvement in the issue is an example of
political interference in what should be a scientific issue. Another example
occurred in late 2009, when the PSTF recommended changes to the standards for mammography screening. After reviewing the efficacy of five types
of breast cancer screening, the group recommended against routine screening
mammography for women younger than age 50. Rather, the PSTF stated,
“The decision to start regular, biennial screening mammography before the
age of 50 years should be an individual one and [should] take into account
patient context, including the patient’s values regarding specific benefits and
harms.”25
The mammogram issue was virtually the opposite of the question
about glaucoma testing in the Helling case 25 years earlier. Whereas in
Helling, the professional practice (standard of care) not to screen routinely
was considered too loose a standard, a practice of regular mammography
screening was considered too strict. Ocular tonometry is a relatively risk-free
procedure, but certain harms can attend frequent mammograms. According
to the PSTF, these include:
psychological harms, unnecessary imaging tests and biopsies in women without
cancer, and inconvenience due to false-positive screening results. Furthermore,
one must also consider the harms associated with treatment of cancer that would
not become clinically apparent during a woman’s lifetime (overdiagnosis), as
well as the harms of unnecessary earlier treatment of breast cancer that would
have become clinically apparent but would not have shortened a woman’s life.
Radiation exposure (from radiologic tests), although a minor concern, is also a
consideration.26
The timing of the mammogram recommendations was unfortunate.
They were issued during the debate over President Barack Obama’s health
reform initiative, which coalesced to become the Affordable Care Act. The
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thoughtful and nuanced approach taken by
the group of scientists was lost on politicians, much of the media, and virtually all
of the public. The report became a political
football and an occasion for demagoguery,
partisan posturing, and political interference in medical practice (see Mammograms in the Affordable Care Act Debate).
Nevertheless, opinions such as that of the
PSTF provide evidence to consider when
determining the standard of care in malpractice cases.
Breach of Duty
Once the duty (the standard of care) has
been established, the plaintiff must show
that the defendant breached that duty by
presenting evidence of the facts of the
case and testimony from expert witnesses
regarding whether the standard was met.
Typically, these are the same witnesses who
helped establish the duty in the first place.
Expert Witnesses
237
Mammograms in the Affordable Care
Act Debate
In 2009, then Senate majority leader Harry Reid
called the PSTF’s recommendations “outrageous”
and added, “Women should be able to go get
a mammogram and not have to wait until they
are 50 years old,” which of course is not what
the recommendations said. In an editorial in the
Washington Post, the American Cancer Society’s
chief medical officer called the recommendations
“a step backward in the fight against breast cancer.” A New York radiologist surmised that the
guidelines were “the first death panel” and must
have been ordered by someone in the White
House (see R. Langreth & R. Ruiz, Mammogram
Debate Shows Why Reform Will Fail, Forbes [Nov.
19, 2009], https://www.forbes.com/2009/11/19/
mammogram-guidelines-cancer-business-healthcare-obamacare/?sh=22605e02699b [https://
perma.cc/ZH7P-QHUY]).
An editorial in the New York Times noted the
controversy, saying, “Opponents of the health care
reform bills moving through Congress have seized
on the new recommendations as evidence that the
government is seeking to put bureaucrats between
you and your doctor or that it would ration care
by denying coverage for some mammograms that
are now covered.” The opinion concluded that the
issue should be a matter for medical professionals
and patients to decide, and that it “should not be
injected into the partisan debate over health care
reform” (Editorial, The Controversy Over Mammograms [Nov. 19, 2009], https://www.nytimes.
com/2009/11/20/opinion/20fri1.html [https://
perma.cc/4X6X-56G6]).
Unlike lay witnesses, experts are not limited
to testifying about facts. They may express
opinions about the nature and cause of
a patient’s illness or injury, whether the
defendant treated it properly, and the likely
future effects on the patient. Expert witnesses must have two qualifications. First,
they must be familiar with the practice of
medicine in the area in question, which
now is likely the whole nation.27 Finding physicians in a particular town to
testify against their colleagues and friends can be a daunting task; among trial
lawyers, this situation is sometimes referred to as the “conspiracy of silence”
(see Legal Brief). If a national standard applies, any otherwise qualified expert
in the country is acceptable. A national standard of care therefore eases the
plaintiff’s burden of finding a willing expert, and this is another reason the
locality rule was relaxed.
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
Second, expert witnesses must
be professionally qualified. The basic
Legal Brief
requirement is knowledge of the standard practice involved in treating the
In an Ohio case, the court noted that “[l]ocating an
patient’s condition. They need not pracexpert to testify for the plaintiff in a malpractice
tice the same specialty or even follow the
action is known to be a very difficult task, mainly
same school of medicine (though most
because in most cases, one doctor is reluctant
attorneys prefer that both be true), but
and unwilling to testify against another doctor.
they must be familiar with the type of
Although doctors may complain privately to each
other about the incompetence of other doctors,
treatment involved in the patient’s case.
they are extremely reluctant to air the matter pubFor example, specialists may testify about
licly” (Faulkner v. Pezeshki, 44 Ohio App.2d 186,
the standards for general practitioners if
193–94, 337 N.E.2d 158, 164 [1975]).
they are knowledgeable about them even
though they themselves do not practice as
general practitioners.28 The plaintiff must
“lay a foundation” for expert testimony—that is, persuade 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.
For example, in Gilmore v. O’Sullivan, an obstetrician/gynecologist’s
negligence was alleged in the prenatal care and delivery of the plaintiffs’ son.
The court refused to permit the plaintiffs’ expert to testify because he was not
board certified in obstetrics/gynecology, there was no evidence of the number or types of maternity cases he had handled, he had not delivered a baby
in more than 20 years, he had not performed surgery in 14 years, and he had
pursued no research in or study of obstetrics/gynecology in recent years.29
In a case in Hawaii, a physician who often employed alternative medicine in his general practice was deemed unqualified to testify as an expert
witness on the cause of his patient’s symptoms following breast implantation
by a general surgeon. 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 medicine and
alternative therapies, such as nutritional, vitamin, and herbal remedies. He is
not a pathologist, general surgeon, plastic surgeon, or an immunologist. Prior
to moving to Hawai’i, Dr. Arrington practiced with chiropractic, naturopathic, and
holistic medicine specialists. Nothing in Dr. Arrington’s background or experience
suggested that he would be competent to testify regarding the effects of silicone
on the human body.30
Medical Error Disclosure and Apology Laws
When medical errors occur, patients and their family members want to know
about them and want those responsible to express genuine remorse. And
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most providers want to disclose and apologize for errors and to express sympathy for a bad outcome, regardless of whether it stemmed from negligence.
Ethical principles support this kind of transparency, but a medical “culture of
silence” works against it. In addition to the challenge of knowing how to conduct such a difficult communication, providers cite concerns that their statements could be used against them in a subsequent medical malpractice trial.31
To allay these fears, as of 2020, 39 states and the District of Columbia
had adopted apology laws.32 These laws differ in their particulars, but they
generally provide that a healthcare provider’s prompt apology, expression
of sympathy, offer of compensation, or similar statement is inadmissible
in a subsequent malpractice trial. In the nine states with full apology laws,
statements of fault are explicitly protected. In states with partial apology
laws, it can be unclear what beyond an expression of sympathy is protected.
Without statutory protection, such out-of-court statements might be used
as evidence in court under the typical “admission against interest” exception
to the hearsay rule.
A recent Arizona case illustrates how these protections can function.
During a vaginal delivery, one of Sean and Jodie Coleman’s twins suffered
brain damage. In deposition statements, the Colemans testified that their
obstetrician, Dr. Amon, told them that he was sorry, that he felt he had let
them down by not making sure the on-call obstetrician followed the preexisting plan for a cesarean section, and that a surgical delivery might have avoided
the brain damage. (Dr. Amon recalled these conversations differently.)
Citing Arizona’s “I’m Sorry Statute,” the trial court prevented the parents from introducing these statements into evidence during trial as an admission against interest. The appeals court upheld that decision and the constitutionality of the law, noting that although the law “excludes potentially relevant
evidence for certain purposes, it furthers the legislature’s policy goal of encouraging healthcare providers to speak with patients freely and with compassion
about adverse or unforeseen medical outcomes without fear their words might
later be used against them in litigation.”33 (Appendix 6.2 includes the text of
Arizona’s law and a “partial apology” law from the state of Michigan.)
It must be noted that the underlying facts that prompt an apology
are not shielded by an apology law; the usual means of proving one’s case in
court still apply. Furthermore, of course, a non-apology such as “I’m sorry
you feel that way” or an apology without an attempt at remediation might
ring hollow and, in fact, could spur aggressive litigation.
Key purposes of apology laws are to reduce the number of medical malpractice cases, lower overall payouts, and, ultimately, decrease the
instances of medical error. In theory, transparency about the facts should
reduce the need to file suit to learn the truth of what happened, prompt an
effort at appropriate compensation, and lead to improvement in the quality
of care in the future. Evidence about whether apology laws achieve these ends
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239
hearsay
Information not
personally known
by a witness
that is offered to
prove the truth
of the matter
asserted. Hearsay
is generally
inadmissible
because its truth
cannot be verified
through crossexamination of
that witness.
An admission
against interest
is one of the
many exceptions
to the hearsay
rule because it
is considered
inherently reliable.
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
remains preliminary and equivocal, though research suggests that full apology laws are more likely to achieve their purposes than partial ones.34
Furthermore, the evidence to date does not fully consider the increasing use of communication and resolution programs (CRPs). In CRPs, health
systems and liability insurers encourage disclosure of unanticipated outcomes
and proactively seek resolution, including apology, explanation, and compensation. The most comprehensive of these programs incorporate communication training and systemic response to prevent recurrence. While CRPs
are still in their infancy and depend on strong institutional leadership, initial
reports show promising outcomes.35
Other Evidence of the Standard
In some instances, a plaintiff is permitted to introduce medical treatises as
evidence to prove the standard of care. Because medical publications are
hearsay—out-of-court statements offered to prove the truth of the matter
asserted—most states limit their use to impeaching (i.e., challenging) the
credibility of an expert witness or reinforcing the opinion given in an expert’s
testimony.36 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.37 In states
that use 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 government
agencies, standards of private accrediting agencies, and similar published
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 of The Joint Commission on Accreditation of Hospitals (now The Joint Commission) and provisions of the
hospital’s medical staff bylaws were admissible as evidence that the hospital
was negligent in failing to review the physician’s hospital practice.38 Darling
is also a case, like Helling, in which the court found inadequate the practice
of an entire calling, namely: hospital administration (see chapter 7 for more
details about Darling).
Similarly, a statute or other law may be used to establish the standard of
care. Negligence that is established by showing a violation of law is negligence
per se. This doctrine requires that several elements be proven, including that:
1. violation of the statute occurred and an injury resulted,
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.39
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In Landeros v. Flood, the defendant physician examined an 11-monthold 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, she and her common-law
husband had abused the child repeatedly. 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 was returned home, where she
was again severely injured.
Because the matter was not reported to the authorities as required by
law, the court allowed the child’s guardian ad litem (from the Latin word
litem, meaning “lawsuit”) to bring suit on the child’s behalf against the doctor and the hospital. “Plaintiff is entitled to prove by expert testimony that
defendants should reasonably have foreseen that her caretakers were likely
to resume their physical abuse and inflict further injuries on her if she were
returned directly to their custody.”40 Similar laws require that abuse of other
vulnerable persons also be reported.
241
guardian ad litem
A person
appointed by a
court to represent
the interests of
a minor or an
incompetent
person, typically
during a court
proceeding.
Inexcusable Outcomes (“Adverse” or “Never” Events)
In some cases—for example, when the outcome is so egregious that it is
indefensible—no expert testimony is required to establish professional negligence.41 (Although the error is obvious, expert testimony would usually still
be required to establish damages.)
One example of a “never event” is
surgery conducted on the wrong body
part. One such error resulted in the
Legal Brief
removal of a patient’s healthy left kidney
when the plan was to remove the other
The Joint Commission’s National Patient Safety
one due to cancer.42 This error left the
Goals state, “Wrong-site surgery should never
patient facing a lifetime of dialysis and the
happen, yet it is an ongoing problem in healthcare
hospital facing huge fines and tort liability.
that compromises patient safety.” It recommends
Another example is shown by
marking the procedure site as one way to protect
Hammer v. Rosen,43 in which three lay
patients from this error “when there is more than
witnesses testified that the defendant had
one possible location for a procedure. Examples
include different limbs, fingers and toes, lesions,
beaten an incompetent psychiatric patient.
level of the spine, and organs.” Some observers
The defendant physician claimed that
suggest that marking the wrong site is prudent
without expert testimony, the plaintiff
as well. (See National Practice Safety Goals Effeccould not prove that the beatings devitive January 2021, The Joint Comm’n, https://www.
ated from standard treatments, but the
jointcommission.org/-/media/tjc/documents/
court held otherwise, because “the very
standards/national-patient-safety-goals/2021/
npsg_chapter_obs_jan2021.pdf [https://perma.
nature of the acts complained of bespeaks
cc/F2XT-4X4J].)
improper treatment and malpractice.”
(Why experts were not asked to testify is
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not clear from the opinion, but the plaintiff’s attorneys may have thought it
unnecessary. As things turned out, they were right.)
In 1999, the Institute of Medicine issued the report To Err Is Human,
which estimated that as many as 98,000 people die in US hospitals each year
as a result of serious medical errors. This number may significantly understate the problem, however; another estimate is that more than four times
that many people die each year from hospital errors.44 There are at least two
dozen types of untoward medical occurrences that can result in injury or
death and are usually preventable. Some would not require expert testimony
to establish negligence. The National Quality Forum categorizes them as
seen in appendix 6.1.
Res Ipsa Loquitur
res ipsa loquitur
A rule of law that
even when there
is no specific
evidence of
negligence, one is
presumed to have
been negligent
if one had
exclusive control
of the cause of
the accident
or injury that
could not have
happened without
negligence.
Perhaps the most complex exception to the need for expert testimony is the
doctrine of res ipsa loquitur (Latin for “the thing speaks for itself”). Res
ipsa, as it is commonly known, dates back to Byrne v. Boadle, an English
case decided more than a century and a half ago.45 Plaintiff Byrne was walking down the street when he was hit by a barrel of flour that had rolled out
of the upper level of a warehouse owned by defendant Boadle. The precise
negligent act or omission was never determined, but the court found Boadle
responsible because barrels of flour do not fall out of buildings unless someone has been negligent. The fact that this one did so “spoke for itself.”
Three conditions must be present for res ipsa to apply:
1. The accident or injury 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 or injury.
3. The plaintiff could not have contributed to the accident or injury.
The judge determines whether the doctrine applies in a particular case. Once
a judge decides that res ipsa applies, an inference of negligence has been created, meaning that the case must go to the jury, which can then decide for
the plaintiff or the defendant.
Though res ipsa is not commonly used in cases that get as far as a
trial, it can be helpful in medical malpractice cases because it is sometimes
impossible for patients to know the precise cause of their adverse outcome,
particularly if they were anesthetized during the treatment. A plaintiff who is
permitted to invoke res ipsa can prevail even without proving that the defendant committed specific negligent acts. (Plaintiffs’ attorneys would prefer,
however, to point to specific negligent acts in making their case rather than
to rely on res ipsa, because proving specific negligence has a more dramatic
effect on the jury.)
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Requirement 1
The primary difficulty for malpractice plaintiffs in res ipsa cases is the first
requirement: the accident or injury must be of a type that normally would
not occur without someone’s negligence. The general test is whether, on the
basis of common knowledge and ordinary experience, someone could infer
that the defendant was negligent. In one example, a patient underwent surgery for removal of part of his colon.46 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 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 outcomes.
In contrast, laypersons clearly understand that leaving foreign objects
in a patient after surgery is negligence, and res ipsa is frequently used in such
cases. In fact, this is often the example given when teaching law students
about the doctrine. In Jefferson v. United States, the plaintiff was a soldier
who had undergone a gallbladder operation.47 Eight months later, after he
had been suffering spells of nausea and vomiting, another operation disclosed
that a towel had eroded his small intestine. It was 30 inches long and 18
inches wide and marked “Medical Department US Army.” In this case, the
thing almost literally “spoke” for itself!
Requirement 2
In addition to showing that the accident or injury would not normally occur
without someone’s negligence, the plaintiff must show that the defendant
had sole control of the apparent cause of the accident or injury. This requirement can be a problem for malpractice plaintiffs. In cases involving surgery,
there is often more than one defendant, and traditionally res ipsa cannot be
applied in an action involving multiple defendants if any one of them alone
might have caused the plaintiff’s injury.48
A major departure from the rule, however, was the California case of
Ybarra v. Spangard.49 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 against all the defendants who had any control over
the patient while he was anesthetized. They included the surgeon, the consulting physician, the anesthesiologist, the owner of the hospital, and several
hospital employees. The court held,
[W]here a plaintiff receives unusual injuries while unconscious and in the course of
medical treatment, all those defendants who had any control over his body or the
instrumentalities which might have caused the injuries may properly be called upon
to meet the inference of negligence by giving an explanation of their conduct.50
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Ybarra is by no means the majority view: it has been questioned by
numerous authorities, and its applicability is extremely fact dependent. It is
mentioned here, however, for the sake of thoroughness.
gross negligence
A lack of even
slight diligence
or care; the
omission of even
such diligence
as careless and
inattentive people
would exercise in
avoiding danger to
their own person
or property.
Requirement 3
The third requirement for the use of res ipsa is showing that the plaintiff
could not have contributed to the accident or injury. In many cases, this
requirement is not difficult: a patient under anesthesia, for example, clearly
has no responsibility for events that transpired during the surgery. However,
if the injury could have been caused at least in part 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 surgery and under the influence of
painkilling drugs.51 Scalding water spilled on the patient, who claimed that res
ipsa should apply because the injury occurred while she was under sedation
and did not understand what was going on. The court held that the doctrine
did not fit this case because witnesses testified that the plaintiff confessed to
spilling the water on herself and that she was awake and alert at the time.
As all these cases show, the applicability of res ipsa loquitur depends on
the facts of each individual case. Where it applies, settlement is likely or, if a
settlement agreement proves elusive, perhaps a trial, arbitration, or mediation
on damages alone would be possible.
Good Samaritan Statutes
Good Samaritan statutes, discussed more completely in chapter 11, typically provide a defense for healthcare providers who voluntarily render aid
at the scene of an accident even if they do so negligently (see Legal Brief).
Sometimes these statutes cover laypeople
as well. These statutes, which most states
Legal Brief
have in some form, commonly provide
that healthcare providers who voluntarily
provide emergency care will be held liable
One might question the need for Good Samaritan
only if they act in a grossly negligent manstatutes. Given that negligence is judged according to the standard of “due care under the circumner.52 There is also a federal rule to this
stances,” it can be argued that nothing short of
effect that applies in the air, on airplanes.
gross negligence could lead to liability for renderMost of these statutes do not
ing care in a true emergency.
require anyone to assist in emergenIn fact, research fails to reveal any cases in
cies, but they do protect those who do
which Good Samaritan statutes have been applied
volunteer their aid. They do not apply,
to traditional emergency situations, such as when
a nurse happens on the scene of an automobile
however, when the assistance is provided
accident and renders first aid.
as part of a person’s job or when the aid is
paid for. However, a couple of states (and
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the nation of France) have created a duty to assist, with immunity from civil
suit for persons who comply with the law.53 (These laws would be difficult to
enforce but set forth a societal expectation.) References to a Good Samaritan
statute may thus indicate either immunity or a duty to assist, or both.
Strict Liability
By definition, strict liability does not fit into a discussion of negligence;
rather, strict liability imposes liability 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 midnineteenth century, when society decided that some wrongdoing must be
shown before persons could be held responsible for injuries caused by their
actions. Thus, negligence must be proven in most tort cases. Strict liability
is 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 in these situations is to place the burden of
inevitable losses on those best able to bear them, even if they dealt with the
danger as carefully as possible.
Developments in product liability law have imposed strict liability
on the manufacturers and vendors of various products. The doctrine
imposes liability on those responsible for defective goods that pose an
unreasonable risk of injury and do in fact result in injury, regardless of
how much care was taken to prevent the dangerous defect.54 Accidents
caused by defective automobile parts are good examples, and product
recalls are a direct result of developments in the law of product liability.
In the healthcare context, the theory can be applied to defective medical
devices.
Strict liability does not apply to
services, only to products. For example,
Legal Brief
courts have generally held that when giving blood, hospitals are providing a serOne of the authors of this book once had a case
vice—not a product—and therefore strict
involving a defective ventilator that malfunctioned,
liability does not apply if the blood carcausing the death of the patient. The physician
55
ries defects (e.g., an infectious disease).
tactfully explained to the patient’s family that the
Most states have “blood shield laws”
device was not known to be faulty and that the
to this effect. One unresolved issue is
manufacturer had been notified of the incident.
whether products liability theories apply
The family did not file suit against the physician
or the hospital; rather, they claimed against the
(or ought to apply) to human tissue,
manufacturer under products liability law.
sperm, and other bodily substances that
are donated or sold.
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
Causation, Injury, and Damages
Causation
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 an
intermediate
cause); the act
or omission
from which an
injury results as
a natural, direct,
uninterrupted
consequence and
without which the
injury would not
have occurred.
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For a plaintiff to prevail, proving that a provider failed to meet the standard
of care and that the patient was injured is not enough. The plaintiff must
show that negligence was the proximate cause of the injury and damages.
An injury is the proximate result of a negligent act if:
• it 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
substandard conduct on the part of the defendant. Therefore, the plaintiff’s
burden of proof is lower than that of the government in a criminal prosecution, where proof beyond a reasonable doubt is required. The plaintiff in a
civil trial need only prove that there is a strong likelihood (a “preponderance
of the evidence”) 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, it may be difficult to determine whether the patient’s injuries were caused by that lapse.
This element is especially difficult to determine in healthcare cases because
the patient presumably already had some illness or impairment. Physicians
can be absolved from liability, despite their negligence, if there is inadequate
proof of causation. For example, in Henderson v. Mason, the defendant
physician negligently failed to discover a small piece of steel embedded
in the patient’s eye. The steel was eventually discovered and removed by
another physician.56 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—in other words, the defendant’s
negligence was not a “but for” cause of the patient’s injury, so proximate
cause was not proved.
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 charging
him with negligence, the court decided that the obstetrician’s failure to
treat the patient did not cause the miscarriage because his presence 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.57
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Injury and Damages
The question of damages is closely related to the element of causation. In
addition to proving that the injury was caused by negligence, the plaintiff
must prove what those injuries are worth. Punitive damages are seldom
awarded in negligence cases; the most common damages are called actual
or compensatory damages, which are intended to “make the plaintiff whole.”
They compensate the plaintiff for out-of-pocket loss (e.g., the cost of medical and rehabilitation treatments, lost earnings) and for noneconomic loss
(e.g., pain and suffering). 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 values to noneconomic injuries, sometimes in large amounts. For this reason, people who argue for reform in the
tort system often suggest limitations on recovery for pain and suffering; several states have statutes that limit noneconomic damages, and these statutes
have sometimes been upheld as constitutional.58 (Reform of the tort system
is discussed at the end of this chapter.)
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 fails to make that
early diagnosis be liable for damages even though the chances are great that
earlier diagnosis would not have prevented the patient’s death?
The courts have been divided on this question. Some jurisdictions
have held that the defendant should not be liable if the patient more likely
than not would have died anyway.59 Other courts have concluded that if the
defendant increased the risk of death by lessening the chance of survival,
such conduct was enough to permit the jury to decide the proximate cause
issue, at least when the chance of survival was significant.60 In one case, the
Supreme Court of Washington summarized this point as follows: “[I]t is not
for the wrongdoer, who put the possibility of recovery beyond realization, to
say afterward that the result was inevitable.”61
In that Washington case, the defendants allegedly failed to diagnose
the patient’s lung cancer in its early stage, and the patient eventually died.62
The defendants offered evidence that, given that type of lung cancer, death
within several years was virtually certain regardless of how early the cancer
was diagnosed. The defendants moved for summary judgment. Because the
plaintiff could not produce expert testimony that the delayed 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
diagnosed when the defendants first examined the patient, his chances of
surviving five years (a common metric for successful cancer treatment) would
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have been 39 percent, but at the time the cancer was actually diagnosed, his
chances were 25 percent. Thus, the delayed diagnosis may have reduced the
chance of a five-year survival by 14 percent.
The appellate court held that the reduced probability 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 negligence.”63 The court also noted,
however, that if the jury found the defendants liable, they would not necessarily be liable for all damages caused by the patient’s death, only for those
resulting from the early death.
Defenses
Malpractice defendants may have legal defenses that can clear or reduce their
liability even if a plaintiff can prove all the elements of the case. For example,
a statute of limitation 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 (discussed in chapter 1), can also be used but have no greater
significance in malpractice cases than in any other civil litigation.
Contributory and Comparative Negligence
contributory
negligence and
comparative
negligence
Common-law
doctrines relating
to allocation of
responsibility
when the plaintiff
was partially at
fault.
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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 reasonably prudent person would have done, and if the patient’s negligence
contributed in any way to the injury, they cannot recover damages for the
physician’s negligence. In one old case, a physician who was grossly intoxicated treated a patient negligently.64 The court refused to hold the doctor
liable on the grounds 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 negligence 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 Schultz v. Tasche, an 18-year-old
Wisconsin woman was treated negligently for a fracture of the femur. As a
result, the ends of the broken bone were not put in apposition but were negligently allowed to override and unite, thus causing a shortening, lameness,
weakness, and pain in the leg.65 The appellate court decided that the patient
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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 damages awarded.
Although nominally a contributory negligence case, Schultz—decided
a century ago—illustrates the comparative negligence approach adopted by
nearly all states because of the harsh “all-or-nothing” requirement of traditional contributory negligence. Several theories of comparative negligence
exist, but all attempt to compensate the injured party in some way despite the
injured party’s own negligence. A later Wisconsin case illustrates one variation.66 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 and Mandatory Arbitration
Historically, defendant physicians could raise exculpatory contracts as a
defense. An exculpatory contract is one in which a party forfeits in advance
the right to sue; in other words, it allows one party to release the other party
from liability for its future negligence. Absent separate consideration and the
releasor’s clear understanding of the effect of the agreement, exculpatory
contracts are invalid in most contexts, including in healthcare (see chapter
5 for a discussion of consideration). The landmark case is Tunkle v. Regents
of the University of California, in which, nearly 60 years ago, the Supreme
Court of California held that a contract between a hospital and a patient
that attempted to release the hospital from malpractice liability in advance
was contrary to public policy.67 The key provision of the contract read as
follows:
Release: The hospital is a nonprofit, charitable institution. In consideration of the
hospital and allied services to be rendered and the rates charged therefor, the
patient or his legal representative agrees to and hereby releases The Regents of
the University of California, and the hospital from any and all liability for the negligent or wrongful acts or omissions of its employees, if the hospital has used due
care in selecting its employees.68
The court held that this provision was not part of a fair bargain. It
essentially says, “If you want to get treated, you must sign on the dotted
line.” In a footnote, the opinion points out that when the plaintiff signed
the release, he “was in great pain, under sedation, and probably unable to
read.”69 This fact was not the underlying rationale for the decision, however.
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public policy
The general,
well-settled, and
usually unwritten
sense of public
opinion relating
to the duties of
citizens to one
another; the
common sense
and common
conscience of
the citizenry as
a whole that
is applied to
matters of public
health, safety, and
welfare.
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There is a controversial trend toward including mandatory arbitration
clauses in patient agreements such as health insurance and nursing home
contracts. They are ubiquitous in many commercial settings and may lead to
quicker dispute resolution and lower payouts, but patient advocates argue
against them in the healthcare arena. They assert that the same kinds of
public policy objections applicable to exculpatory contracts are relevant to
arbitration provisions as well: they disadvantage vulnerable people; they result
from an inequality in bargaining power; and many patients are unaware of
what they are signing. In addition, opponents claim that mandatory arbitration lacks the transparency of the judicial system and denies injured parties
their right to a jury trial. State law on the subject varies widely.70
Release
In contrast with an exculpatory contract such as the “release” at issue in
Tunkle, a negotiated settlement agreement signed by a patient following
treatment may operate to bar a later suit for injuries arising from the same
negligent act. The situation is more complicated when a person wrongfully
injures a patient and a provider’s treatment aggravates the injury later. If the
patient settles with the original tortfeasor and releases that person, does the
release also cover the provider? 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
who treated him. Three and a half years after the original injury, the plaintiff
had settled with the ski resort and signed a form releasing the resort
from any and all liability . . . and any and all other loss and damage 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 . . . and from all liability, claims, demands, controversies, damages, actions,
and causes of action whatsoever, either in law or equity, which the undersigned,
individually or in any other capacity . . . may have by reason of or in any wise incident [to] or resulting from the accident hereinbefore mentioned.71
The court held that this language was broad enough to include the
subsequent malpractice claims and dismissed the suit against the physicians
and the hospital. It reasoned that the injury created the need for the medical treatment, and therefore the malpractice was a proximate result of the ski
resort’s negligence. The physicians and the hospital were not excluded from
the terms of the release, so the release was considered to extinguish all claims
for all parties jointly liable for the injury. The court stated, “Such a release
is presumed in law to be a release for the benefit of all the wrongdoers who
might also be liable.”72
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The outcome in other states may vary, and even in this case, the harsh
result might have been avoided by more precise crafting of the release document to clarify the parties’ intentions. Nevertheless, the case is an example
of a release being used successfully as a defense to a negligence claim against
someone who was not a party to the contract.
Assumption of Risk
In many jurisdictions, people who perceive a risk and still voluntarily expose
themselves to that risk are 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
treatment were made known to the patient. (This issue is closely related to
informed consent, discussed in chapter 12.) 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.73
Assumption of risk does not include the risk of a physician’s negligence. In the Karp case, if death had been caused by an error unrelated to
the novelty of the surgery (e.g., a mishap in administering anesthesia), the
defendants could have been held liable.
Workers’ Compensation Laws
Workers’ compensation statutes may provide a defense to employed physicians who are sued by fellow employees treated in the course of their employment (discussed more thoroughly in chapter 5). In many states, workers’
compensation laws are the exclusive remedy for employees, and a malpractice
suit against the physician will not be permitted. Some courts, however, have
allowed such suits.
assumption of risk
An affirmative
defense that
a defendant
can raise in a
negligence action;
the doctrine under
which individuals
are barred from
recovering
damages for
injuries sustained
after voluntarily
exposing
themselves to
known dangers.
Governmental Immunity
Governmental immunity is based on the historical concept of sovereign immunity, a principle derived from early English law that holds that the s­ overeign—
in the United States, a locality, state, or the federal government—cannot
commit a legal wrong and is immune from suit or prosecution. Sovereign
immunity has been waived (abandoned) by most legislatures today (including
the federal government) to allow tort claims against the government.
Waivers of sovereign immunity come with certain limitations and procedural requirements. Many states, for example, require that a claim be filed
with the relevant governmental risk management office 60 days before filing
suit in court. The Federal Tort Claims Act74 has special procedures that apply
to tort claims against the federal government. And, under the Feres doctrine,
active-duty members of the military have historically been limited in their
CH06.indd 251
sovereign
immunity
A venerable
legal doctrine
exempting
the sovereign
(monarch or
government entity)
from liability for
wrongs.
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
ability to bring medical malpractice claims against military providers.75 That
changed somewhat in 2020 with the enactment of the National Defense
Authorization Act (NDAA).76 The NDAA creates an exception to the Feres
doctrine allowing service members to recover for medical malpractice by a
US Department of Defense healthcare provider working in a covered military
medical treatment facility.
Correlatively, federal and state statutes may grant immunity to individual government employees in certain situations. Thus, it is sometimes a
defense to litigation that the individual is immune from liability; in return,
the government entity assumes the responsibility.
Statutes of Limitation
Statutes of limitation 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.
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 plaintiff. In many malpractice cases, however, the beginning of the statutory period is difficult to determine, particularly if the adverse result appears
months or years after the negligent treatment. There are three specific times
at which the allowable timeframe for a lawsuit might begin, depending on
the state’s law and the particular circumstances:
1. When the alleged negligent treatment is rendered77
2. When the patient discovers or should have discovered the alleged
malpractice (the “discovery rule”)78
3. When the treatment ends or, in a few states, when the physician–patient
relationship ends79
Particular circumstances create other possibilities. For example, if a
physician fraudulently conceals malpractice, the limitation period begins
only at discovery of the negligence.80 Likewise, the period is often delayed
(“tolled,” to use the common legal terminology) in the case of patients
who are minors. In one old case, 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.81 Suit was allowed 22 years later because it was brought after the
injured person reached the age of majority, which was then 21. Moreover,
some courts have decided that, despite the discovery rule, an action for
wrongful death accrues at the date of the death.82 The limitation periods
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253
vary by state, especially with regard to age-related legal disability and medical malpractice cases, and they are seldom as long today as in the old case
mentioned earlier.
Liability for Acts of Others: Vicarious Liability
Even if they have not been personally negligent, healthcare providers can be
held liable for the negligence of others. This principle, known as vicarious
liability, arises under the common-law doctrine of respondeat superior (“let
the superior respond”), the responsibility of the superior for the acts of their
subordinates. Thus, hospitals, physicians, and other providers are responsible
for the negligent acts of their nurses, paramedics, X-ray technicians, and other
persons in their employ or under their supervision.83 (See chapter 7 for an
additional discussion of this concept.)
Countersuits by Physicians
vicarious liability
Attachment of
responsibility to
a person whose
agent caused the
plaintiff’s injuries.
respondeat
superior
A doctrine in the
common law
of agency that
provides that
a principal—
the employer
(superior)—is
responsible for
the actions of
their agent done
in the course of
employment.
Being the defendant in a lawsuit can be an expensive and angst-ridden
experience, especially for physicians. Even if insurance covers attorneys’
fees, expenses, and damage awards, the providers might lose work time,
experience increased anxiety, see their reputations suffer, and, perhaps,
see their malpractice insurance premiums rise. Providers who prevail in a
lawsuit often ask afterward, “Can I now sue the plaintiff or the plaintiff ’s
lawyer to get back at them for this outrage?” In most cases the answer is,
“Yes, you can, but you will lose.” Even if the original suit was frivolous, a
provider will have difficulty recovering damages in most states. The remote
possibility of revenge is usually not worth the additional cost (see Legal
Brief).
The legal theories on which physicians have based countersuits in malpracLegal Brief
tice cases include defamation, negligence,
abuse of process, and malicious prosThe revenge-seeking defendant would be well
ecution. Claims of defamation are rarely
advised to heed Justice Learned Hand’s remark:
successful because statements made in
“After some dozen years of experience I must say
the course of legal proceedings are “privithat as a litigant I should dread a lawsuit beyond
leged” (protected against being used as
almost anything else short of sickness and death”
(quoted in Richard A. Posner, Law and Literature 135
evidence in court).84 Furthermore, courts
[1998]).
have held that an attorney owes no duty
to an adverse party in litigation, so a
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
negligence theory will not help a physician’s countersuit.85 Abuse of process
is difficult to prove because, in itself, filing suit is not sufficient to sustain the
cause of action.
Providers have, however, sometimes successfully sued for malicious prosecution, an intentional tort. Although it sounds as if it would only refer to malicious criminal prosecutions, malicious prosecution is available for both civil and
criminal defendants. In such cases, they generally must show that:
• the malpractice suit was decided in the provider’s favor,
• there was no probable cause to believe that the provider was liable, and
• the plaintiff or their attorney acted with malice in bringing the suit.
Although these cases are difficult for a provider to win, ill will or
the lack of any reasonable possibility of success may support an allegation
of malice. Most states require that actual damages be shown, and in some
states, special damages—such as damages that arise from an arrest of the
person or seizure of property—must be proven.86 Damages common to anyone involved in litigation—such as attorneys’ fees, injury to reputation, and
mental distress—are not sufficient to uphold such an allegation. In short, it
is seldom a good idea to pursue a countersuit after the successful defense of
a malpractice claim.
Reforming the Tort System
Periodically, the healthcare system encounters a “malpractice crisis,” during
which the cost of professional liability insurance rises steeply. These crises
have multiple causes, but they are usually triggered by economic factors.
Drops in the stock market cause insurance companies to lose investment
income, which prompts them to raise their premiums, which causes providers
to call for reform of the medical liability system. Press reports of high damage awards also prompt calls for change. State legislatures have responded
enacting reforms such as the following, either to the tort system as a whole,
or specifically as to medical malpractice standards:
• Limiting awards for “pain and suffering”
• Shortening the statute of limitation
• Eliminating “joint and several” liability so that any one of multiple
defendants is liable only for their percentage fault
• Requiring pretrial screening of claims
• Requiring arbitration or mediation in lieu of civil litigation
• Limiting attorneys’ contingency fees
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255
• Allowing the defendant to deduct from the jury’s award any payments
made to the plaintiff by other sources (e.g., 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
• Improving peer review measures to identify incompetent providers
• Allowing insurers to pay out the award over time rather than in a
lump sum (i.e., structured settlements, which are discussed later in this
chapter)
These attempts at tort reform have been only moderately successful in
reducing malpractice cases, overall payments, or medical malpractice insurance premiums. Providers and others continue to blame malpractice suits for
rising healthcare costs, doctors continue to practice defensive medicine, and
the courts have struck down some of the reforms. For example, in 2010, the
Supreme Court of Georgia ruled that the state legislature had no constitutional authority to limit pain and suffering awards.87
In addition, some of the reforms disproportionally affect people with
certain types of injuries. For example, when negligent medical care causes
disfigurement, infertility, or pain but does not affect earning potential, the
economic damages might be minimal while the pain and suffering are real.
Settlements
Rather than defend a tort case, if an individual or insurance company wants
to resolve a case without trial, there are numerous options for designing a
settlement agreement. Structured settlements are financial arrangements that
compensate the plaintiff through periodic payments rather than the traditional form of a lump sum. The total amount paid thus depends on how long
the patient lives. These settlements are typically handled through income
annuity contracts (or structured annuities) managed by insurance companies.
A structured settlement incorporated into a trial judgment by agreement of
the parties and with the approval of the court is similar.
When it comes to settling a case, there is sometimes a difference of
opinion between an individual provider, on one hand, and an institutional
provider (e.g., a hospital) and its insurer, on the other. The insurance coverage
documents will typically specify which party has the ultimate power to agree to
a settlement, though the actual decision process might be more flexible. Risk
tolerance and publicity concerns often come into play, in addition to financial
or reputational factors.
For example, a physician employed by a hospital might want to avoid
being reported to the National Practitioner Data Bank and thus be more
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256
T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
inclined to risk a trial, whereas the hospital
employer might want to settle to avoid
Law in Action
negative publicity. On the other hand, a
physician who is individually insured is
The National Practitioner Data Bank (NPDB) is a weblikely to be most concerned about a verbased repository that includes information about
dict exceeding their coverage limits and
providers’ malpractice settlements and judgments
thus be more inclined to settle, a consider(above a specified threshold), as well as adverse
ation that is less likely to affect a hospital
licensing and privileging actions. Established by
defendant.
Congress in 1986, it is intended to prevent practiThe dramatic rise in the percenttioners, primarily physicians, from moving state to
state without disclosure or discovery of information
age of employed physicians impacts this
that might indicate performance concerns.
dynamic. One reason for the trend toward
Federal regulations require specified entiemployment is to get the medical malties to report to and/or query the NPDB, including
practice protection of the employer hosprior to granting privileges. NPDB reports are
pital or health system. That protection
confidential, and not available to the public. (See
comes with less official power to shape the
chapter 8 for more details about the origins and
function of the NPDB.)
course of a medical malpractice defense,
though, of course, that will depend on the
circumstances. Complicating this dynamic
is the fact that an institutional provider, particularly a big system, will generally be a less sympathetic defendant than an individual provider. And the
institutional provider will have deeper pockets and higher medical malpractice coverage limits. Both factors could push medical malpractice payouts
higher overall.
EXHIBIT 6.1
Example of
a Structured
Settlement
$ 1 million
Age
0
Trust fund balance
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72
Annual cost
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257
One of the authors’ personal experience with a structured settlement
includes a negligence case at a US Navy hospital in the 1970s. A baby suffered severe brain damage because of a lack of oxygen during delivery, but
with proper care, she was expected to have a normal 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 be sufficient over time to cover the expected cost of custodial care for 72 years,
the life expectancy of a newborn in the mid-1970s. To prevent the parents
from receiving a windfall, the language of the trust document provided that
the funds would revert to the government if the child died before age 72.
(See exhibit 6.1 for a graph depicting this type of structured settlement.)
More than 40 years after the settlement was approved, the father of the
child reported that her neurological condition remained unchanged and
that she was in a facility that provided around-the-clock care. The trust was
functioning as planned, and its principal and accumulated interest seemed
to be sufficient.
Chapter Summary
This chapter discussed the following topics:
•
•
•
•
•
•
•
The four basic elements of a tort case
The standard of care
Breach of duty
Injury and causation
Vicarious liability
Provider countersuits
Tort reform
Vocabulary
arbitration
assumption of risk
contributory and comparative negligence
crisis standards of care (CSC)
gross negligence
guardian ad litem
hearsay
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
positive predictive value
proximate cause
public policy
res ipsa loquitur
respondeat superior
school rule
sovereign immunity
standard of care
vicarious liability
Discussion Questions
1. What are the four elements of proof necessary for a plaintiff to succeed
in a negligence case? Make up a situation in which one of the four is
missing but the others are present.
2. How can the standard of care be proven in a medical malpractice
case? Devise a situation in which it would be difficult to establish the
standard of care, and then one in which doing so would be easy.
3. Have crisis standards of care been invoked in your area as a defense of
a pandemic-era medical malpractice case? What do you think of how
the CSCs were used in that case and its resolution?
4. What are some examples of tort reform in the medical malpractice
context? How would you evaluate whether they are a good idea or
not? In other words, what would be the measure of their success?
5. Do you think healthcare providers should apologize for their mistakes?
Why or why not? If providers do intend to apologize for their mistakes,
what sorts of institutional or other supports might make doing so less
fraught and more fruitful for all involved?
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259
The Court Decides
Helling v. Carey
83 Wash. 2d 514, 519 P.2d 981 (1974)
Hunter, J.
We find this to be a unique case. The testimony of the medical experts is undisputed
concerning the standards of the profession
for the specialty of ophthalmology. . . . The
issue is whether the defendants’ compliance with the standard of the profession
of ophthalmology, which does not require
the giving of a routine pressure test to persons under 40 years of age, should insulate
them from liability under the facts of this
case. . . .
[The court points to evidence that the
incidence of glaucoma in persons under
the age of 40 was about 1 in 25,000.] However, that one person, the plaintiff in this
instance, is entitled to the same protection,
as afforded persons over 40, essential for
timely detection of the evidence of glaucoma where it can be arrested to avoid the
grave and devastating result of this disease.
The test is a simple pressure test, relatively
inexpensive. There is no judgment factor
involved, and there is no doubt that by giving the test the evidence of glaucoma can be
detected. . . .
Justice Holmes stated in Texas & Pac. Ry.
v. Behymer:
What usually is done may be evidence of
what ought to be done, but what ought to
be done is fixed by a standard of reasonable
prudence, whether it usually is complied with
or not.
In [another case,] Justice [Learned] Hand
stated:
[I]n most cases reasonable prudence is in
fact common prudence; but strictly it is never
its measure; a whole calling may have unduly
lagged in the adoption of new and available
devices. It never may set its own tests, however persuasive be its usages. Courts must in
the end say which is required; there are precautions so imperative that even their universal disregard will not excuse their omission.
Under the facts of this case reasonable
prudence required the timely giving of the
pressure test to this plaintiff. The precaution
of giving this test to detect the incidence of
glaucoma to patients under 40 years of age
is so imperative that irrespective of its disregard by the standards of the ophthalmology
profession, it is the duty of the courts to say
what is required to protect patients under 40
from the damaging results of glaucoma.
We therefore hold, as a matter of law, that
the reasonable standard that should have
been followed under the undisputed facts of
this case was the timely giving of this simple,
harmless pressure test to this plaintiff and
that, in failing to do so, the defendants were
negligent, which proximately resulted in the
blindness sustained by the plaintiff for which
the defendants are liable.
The judgment of the trial court and
the decision of the Court of Appeals [are]
reversed. . . .
(continued)
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260
T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
(continued from previous page)
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 decision an example of “judge-made law”? Is it “judicial activism”? Is it to be
admired or disdained? Fashion an argument supporting each point of view.
3. The legislation that attempted to overturn the Helling precedent has been on the books
since 1974, but it has had little effect. Why do you suppose this is so, and why has the
legislature not seen fit to reinforce it?
4. Consider the discussion in the text concerning whether Helling is good public policy.
Explain how a test that is 95 percent accurate can result in positive test results that are
truly positive only 16 percent of the time.
~
~
The Court Decides
Perin v. Hayne
210 N.W.2d 609 (Iowa 1973)
McCormick, J.
This is an appeal from a directed verdict for a
doctor in a malpractice action. We affirm.
The claim arose from an anterior approach
cervical fusion performed on plaintiff Ilene
Perin by defendant Robert A. Hayne. . . . The
fusion was successful in eliminating pain,
weakness and numbness in plaintiff’s back,
neck, right arm and hand caused by two
protruded cervical discs, but plaintiff alleged
she suffered paralysis of a vocal chord [sic]
because of injury to the right recurrent laryngeal nerve during surgery. . . . The injury
reduced her voice to a hoarse whisper.
She sought damages on four theories:
specific negligence, res ipsa loquitur, breach
of express warranty and battery or trespass.
After both parties had rested, the trial court
CH06.indd 260
sustained defendant’s motion for directed
verdict, holding the evidence insufficient to
support jury consideration of the case on
any of the pleaded theories. Plaintiff assigns
this ruling as error. We must review each of
the pleaded bases for recovery in the light of
applicable law and the evidence.
I. Specific negligence. Plaintiff alleges there
was sufficient evidence to support jury
submission of her charge [that] defendant
negligently cut or injured the recurrent
laryngeal nerve. Plaintiff had protruded
discs at the level of the fifth and sixth cervical interspaces. The purpose of surgery was
to remove the protruded discs and fuse the
vertebrae with bone dowels from her hip.
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261
(continued from previous page)
Removal of a disc ends the pinching of the
nerve in the spinal column which causes the
patient’s pain. The bone supplants the disc.
The procedure involves an incision in the
front of the neck at one side of the midline
at a level slightly below the “Adam’s apple.”
Four columns run through the neck. The
vertebrae and spinal cord are in the axial or
bone column at the rear. In order to get to
the axial column the surgeon must retract
the visceral column which lies in front of
it. The visceral column, like the vascular
columns on each side of it, is covered with
a protective fibrous sheath, called fascia. It
contains the esophagus and trachea. The
recurrent laryngeal nerve, which supplies
sensitivity to the muscles that move the
vocal chord, is located between the esophagus and trachea.
The surgeon does not enter the visceral
column during the cervical fusion procedure.
The same pliancy which enables the neck to
be turned enables the visceral column to be
retracted to one side to permit access to the
axial column. The retraction is accomplished
by using a gauze-padded retractor specifically designed for retraction of the visceral
column during this surgery.
The record shows the defendant used this
procedure in the present case. Plaintiff was
under general anesthetic. The anesthesia
record is normal, and there is no evidence
of any unusual occurrence during surgery.
Defendant denied any possibility the laryngeal nerve was severed. He said it could not
be severed unless the visceral fascia was
entered, and it was not. He also believed it
would be impossible to sever the nerve during such surgery without also severing the
esophagus or trachea or both.
[An expert witness for the plaintiff testified that it would be unusual to specifically
encounter the laryngeal nerve during this
surgery but that “the injury could occur
despite the exercise of all proper skill and
care.”]
Defendant testified he did not know
the cause of the injury but presumed it
resulted from contusion of the nerve incident to retraction of the visceral column. He
thought plaintiff’s laryngeal nerve may have
been peculiarly susceptible to such injury.
He insisted the surgery was done just as it
always was and if he were doing it again he
would do it the same way. He said one study
has shown the surgery will result in paralysis
of a vocal chord in two- or three-tenths of
one percent of cases in which it is used. He
also said there is no way to predict or prevent
such instances.
In considering the propriety of the verdict
directed for defendant we give the evidence
supporting plaintiff’s claim the most favorable construction it will reasonably bear.
We recognize three possible means to
establish specific negligence of a physician.
One is through expert testimony, the second
through evidence showing [that] the physician’s lack of care is so obvious as to be
within comprehension of the layman, and the
third (actually an extension of the second)
evidence that the physician injured a part of
the body not involved in the treatment. The
first means is the rule and the others are
exceptions to it.
In this case plaintiff asserts [that] a jury
question was generated by the first and third
means. We do not agree.
Plaintiff alleges the laryngeal nerve was
negligently cut or injured. The record is
devoid of any evidence the nerve was severed during surgery. . . .
The doctors agree the technique
employed by defendant was proper. The sole
basis for suggesting the expert testimony
would support a finding of specific negligence is that the nerve was injured during
retraction. Where an injury may occur despite
(continued)
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
(continued from previous page)
due care, a finding of negligence cannot be
predicated solely on the fact it did occur.
Plaintiff also maintains there is evidence
of negligence from the fact this is a case of
injury to a part of the body not involved in
the treatment. However, that is not so. The
surgical procedure did include retraction of
the visceral column. It was very much in the
surgical field.
Trial court did not err in directing a verdict for defendant on the issue of specific
negligence.
II. Res ipsa loquitur. Plaintiff also alleges
the applicability of the doctrine of res ipsa
loquitur. Our most recent statement of the
doctrine appears in [a 1973 case]:
Under the doctrine of res ipsa loquitur,
where (1) injury or damage is caused by an
instrumentality under the exclusive control
of defendant and (2) the occurrence is such
as in the ordinary course of things would
not happen if reasonable care had been
used, the happening of the injury permits,
but does not compel, an inference defendant was negligent.
The contest in this case concerns presence of the second foundation fact [from the
quoted paragraph].
Defendant argues the second foundation
fact for res ipsa loquitur is absent because it
does not lie in the common knowledge of laymen to say injury to the laryngeal nerve does
not occur if due care is exercised in anterior
approach cervical fusion surgery.
We must initially decide what has previously been an open question in this jurisdiction: may the common experience to establish the second foundation fact for res ipsa
loquitur be shown by expert testimony?
[The court proceeds to review cases from
Wisconsin, California, Oregon, and Washington, plus three legal treatises on the subject.
It quotes with favor the following from the
Restatement of Torts:]
CH06.indd 262
In the usual case the basis of past experience from which this conclusion may be
drawn is common to the community, and is
a matter of general knowledge, which the
court recognizes on much the same basis as
when it takes judicial notice of facts which
everyone knows. It may, however, be supplied by the evidence of the parties; and
expert testimony that such an event usually does not occur without negligence may
afford a sufficient basis for the inference.
Thus we disagree with defendant’s contention [that] the second foundation fact
must be based exclusively on the common
knowledge of laymen.
In this case, however, even considering
the expert testimony, the record at best only
supports an inference [that] plaintiff suffered
an extremely rare injury in anterior approach
cervical fusion surgery which may occur
even when due care is exercised. Rarity of
the occurrence is not a sufficient predicate
for application of res ipsa loquitur. . . . There
is no basis in the present case, in expert
testimony or otherwise, for saying plaintiff’s
injury is more likely the result of negligence
than some cause for which the defendant is
not responsible.
We do not believe there was any basis in
this case for submission of res ipsa loquitur.
Trial court did not err in refusing to submit it.
III. Express warranty. [The court dismisses
this count, saying that the evidence supporting her argument that the physician guaranteed a good result was equivocal in nature:
“There comes a point when a question of
fact may be generated as to whether the doctor has warranted a cure or a specific result.
However, in the present case the evidence
does not rise to that level.”]
IV. Battery or trespass. Plaintiff contends
there was also sufficient evidence to submit
the case to the jury on the theory of battery
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or trespass. In effect, she alleges she consented to fusion of two vertebrae (removal
of only one protruded disc) thinking there
would be a separate operation if additional
vertebrae had to be fused. She asserts the
fact four vertebrae were fused combined with
defendant’s assurances and failure to warn
her of specific hazards vitiated her consent
and makes the paralyzed vocal chord the
result of battery or trespass for which defendant is liable even without negligence. There
was no evidence or contention by her in the
trial court nor is there any assertion here that
she would not have consented to the surgery
had she known those things she says were
withheld from her prior to surgery.
Defendant testified plaintiff was fully
advised as to the nature of her problem and
the scope of corrective surgery. He acknowledges he did not advise her of the hazard of
vocal chord paralysis. He believed the possibility of such occurrence was negligible and
outweighed by the danger of undue apprehension if warning of the risk was given.
[The court next begins a discussion of the
distinction between consent and informed
consent, quoting with approval from its own
landmark case Cobbs v. Grant.]
Where a doctor obtains consent of the
patient to perform one type of treatment
and subsequently performs a substantially
different treatment for which consent was
not obtained, there is a clear case of battery.
However, when an undisclosed potential
complication results, the occurrence of which
was not an integral part of the treatment
procedure but merely a known risk, the
courts are divided on the issue of whether
this should be deemed to be a battery or
negligence.
...
We agree with the majority trend. The battery theory should be reserved for those
263
circumstances when a doctor performs an
operation to which the patient has not consented. When the patient gives permission to
perform one type of treatment and the doctor
performs another, the requisite element of
deliberate intent to deviate from the consent
given is present. However, when the patient
consents to certain treatment and the doctor
performs that treatment but an undisclosed
inherent complication with a low probability
occurs, no intentional deviation from the
consent given appears; rather, the doctor in
obtaining consent may have failed to meet
his due care duty to disclose pertinent information. In that situation the action should be
pleaded in negligence.
From our approval of this analysis it
should be clear we believe the battery or
trespass theory pleaded by plaintiff in this
case is limited in its applicability to surgery
to which the patient has not consented.
There must be a substantial difference
between the surgery consented to and the
surgery which is done. Plaintiff asserts she
consented to only one fusion rather than two.
Assuming this is true, the most that could
be argued is [that] the second fusion was a
battery or trespass. But she does not claim
damages for a second fusion. She asks damages because of injury to the laryngeal nerve
during surgery. The evidence is undisputed
that whether one or two fusions were to be
done the path to the axial column had to be
cleared by retraction of the visceral column.
Hence, any injury caused by such retraction occurred during a procedure to which
consent had been given. Retraction of the
visceral column during the surgery was not a
battery or trespass.
We have no occasion to reach the question whether failure to advise plaintiff of the
risk of laryngeal nerve injury would in the
circumstances of this case have generated
a jury issue on negligence, but we do point
(continued)
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T h e L aw o f H e a l th c a re Ad mi n i stra ti o n
(continued from previous page)
out that recovery on such basis is precluded
unless a plaintiff also establishes he would
not have submitted to the procedure if he
had been advised of the risk. . . . There is no
evidence plaintiff would have withheld her
consent in this case.
...
Affirmed.
Discussion Questions
1. Has due care been shown? Need it be?
2. What is the “second foundation fact,” and how does “common experience” 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 procedure be a
substantial difference justifying damages for battery even though no other injury (and, in
fact, a benefit) 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?
~
~
Notes
1. Pederson v. Dumouchel, 431 P.2d 973, 978 (Wash. 1967).
2. Baldor v. Rogers, 81 So. 2d 658 (Fla. 1954), reh’g denied, 81 So. 2d
661 (Fla. 1955); Angela R. Holder, Medical Malpractice Law 47
(2d ed. 1978).
3. DeFilippo v. Preston, 53 Del. 539, 173 A.2d 333 (1961).
4. Miller v. Toles, 183 Mich. 252, 150 N.W. 118 (1914).
5. 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).
6. Faulkner v. Pezeshki, 44 Ohio App. 2d 186, 337 N.E.2d 158 (1975).
7. Small v. Howard, 128 Mass. 131, 35 Am. R. 363 (1880) was overruled
by Brune v. Belinkoff, 235 N.E.2d 793 (Mass. 1968).
8. Zills v. Brown, 382 So. 2d 528, 532 (Ala. 1980).
9. 382 So. 2d at 532. See also Morrison v. MacNamara, 407 A.2d 555
(D.C. 1979).
10. Drs. Lane, Bryant, Eubanks & Dulaney v. Otts, 412 So. 2d 254 (Ala.
1982).
11. Jon R. Waltz & Fred E. Inbau, Medical Jurisprudence 54 (1971).
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265
12. See, e.g., Dolan v. Galluzzo, 77 Ill. 2d 279, 396 N.E.2d 13 (1979)
(a podiatrist was held to standards of podiatrists; physician testimony
excluded).
13. Nelson v. Harrington, 72 Wis. 591, 40 N.W. 228 (1888). See also
Hansen v. Pock, 57 Mont. 51, 187 P. 282 (1920) (an herbologist was
held to standards of surgical and medical practice in the absence of a
school of practice).
14. Spead v. Tomlinson, 73 N.H. 46, 59 A. 376 (1904).
15. Mostrom v. Pettibon, 25 Wash. App. 158, 607 P.2d 864 (1980).
See also Kelly v. Carroll, 36 Wash. 2d 482, 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 standard medical care is needed).
16. 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).
17. See, e.g., Sinz v. Owens, 33 Cal. 2d 749, 205 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 are held to the degree of care commensurate
with their training and experience).
18. See, e.g., Lewis v. Soriano, 374 So. 2d 829 (Miss. 1979).
19. Thompson v. Brent, 245 So. 2d 751 (La. App. 1971).
20. The TJ Hooper, 60 F.2d 737, 740 (2d Cir. 1932).
21. Favalora v. Aetna Casualty & Surety Co., 144 So. 2d 544 (La. App.
1962).
22. Wash. Rev. Code § 4.24.290 (1975, as amended) (emphasis added).
23. Gates v. Jensen, 92 Wash. 2d 246, 595 P.2d 919 (1979).
24. Guide to Clinical Preventive Services 124 (U.S. Prev. Serv. Task
Force 1989). The report states, “There is insufficient evidence to
recommend routine performance of tonometry by primary care
physicians as an effective screening test for glaucoma. . . . The
limited specificity of tonometry combined with the low prevalence
of [glaucoma] results in a positive predictive value of only 5% in
asymptomatic populations.”
25. Screening for Breast Cancer: U.S. Preventive Services Task
Force Recommendation Statement, 151 Ann. Int. Med. 716–26
(U.S. Prev. Serv. Task Force Nov. 2009), at http://www.annals.org/
content/151/10/716.full [https://perma.cc/73RC-7VRZ].
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26. Id.
27. If the state still follows the locality rule, the witness must practice
in or be knowledgeable about local practices. See, e.g., Johnson
v. Richardson, No. W2009-02626-C0A-R3-CV (Tenn. Ct. App.,
Aug. 12, 2010), http://www.tba2.org/tba_files/TCA/2010/
johnsont_081310.pdf [https://perma.cc/3HUE-VNSK]; Callahan v.
William Beaumont Hosp., 400 Mich. 177, 254 N.W.2d 31 (1977).
28. See, e.g., Siirila v. Barrios, 398 Mich. 576, 248 N.W.2d 171 (1976).
29. Gilmore v. O’Sullivan, 106 Mich. App. 35, 307 N.W.2d 695 (1981).
30. Craft v. Peebles, 893 P.2d 138, 153 (Haw. 1995).
31. Anna C. Mastroianni, Michelle M. Mello, Shannon Sommer, Mary
Hardy & Thomas H. Gallagher, The Flaws in State “Apology” and
“Disclosure” Laws Dilute Their Impact on Malpractice Suits, 29 Health
Aff. 1611 (2010).
32. Nina E. Ross & William J. Newman, The Role of Apology Laws in
Medical Malpractice, 49 J. Am. Acad. Psychiatry & L. 1, (2021).
33. Coleman v. Amon, 252 Ariz. 107, 498 P.3d 638 (Ariz. Ct. App., 2021).
34. Mastroianni, et al., supra note 31.
35. Michelle M. Mello, Richard C. Boothman, Timothy McDonald,
Jeffrey Driver, Alan Lembitz, Darren Bouwmeester, Benjamin Dunlap
& Thomas Gallagher, Communication-and-Resolution Programs: The
Challenges and Lessons Learned from Six Early Adopters, 33 Health
Aff. 20 (2014).
36. R. P. Bergen, Law & Medicine: Medical Books as Evidence, 217 J. Am.
Med. Ass’n 527 (1971).
37. Burnside v. Evangelical Deaconess Hosp., 46 Wis. 2d 519, 175 N.W.
2d 230 (1970).
38. Darling v. Charleston Community Memorial Hospital, 33 1ll. 2d 326,
211 N.E.2d 253, 14 A.L.R.3d 860 (1965), cert. denied, 383 U.S. 946
(1966).
39. See, e.g., Cal. Evid. Code § 669 (Supp. 1985).
40. Landeros v. Flood, 17 Cal.3d 399, 412, 551 P.2d 389 (1976).
41. See, e.g., Sinz v. Owens, 33 Cal. 2d 749, 205 P.2d 3 (1949).
42. Paul Sisson, Sharp Fined for Botched Kidney Removal, San Diego UnionTrib. (Oct. 24, 2013), https://www.sandiegouniontribune.com/
news/health/sdut-sharp-alvarado-kidney-fall-fine-2013oct24-story.html
[https://perma.cc/3GXU-E78H] (last visited May 26, 2022).
43. Hammer v. Rosen, 7 N.Y.2d 376, 380, 165 N.E.2d 756, 757 (1960).
44. To Err Is Human: Building a Safer Health System, Inst. of
Med. (National Academies Press 1999). Fifteen years after the
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45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
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267
original report, it was reported that despite some progress, patient
safety remained a serious public health issue. See Free from Harm:
Accelerating Patient Safety Improvement Fifteen Years After To
Err Is Human (Inst. Healthcare Imp. 2015), http://www.ihi.org/
resources/Pages/Publications/Free-from-Harm-Accelerating-PatientSafety-Improvement.aspx [https://perma.cc/99QP-XKD3].
Byrne v. Boadle, 2 H. & C. 722, 159 Eng. Rep. 299 (1863).
Jamison v. Debenham, 203 Cal. App. 2d 744, 21 Cal. Rptr. 848
(1962).
Jefferson v. United States, 77 F. Supp. 706 (Md. 1948), aff’d, 178
F.2d 518 (4th Cir. 1949), aff’d, 340 U.S. 135 (1950).
Waltz & Inbau, supra note 11, at 100.
Ybarra v. Spangard, 25 Cal. 2d 486, 154 P.2d 687 (1944).
Ybarra, 25 Cal. 2d at 494, 154 P.2d at 691. Ybarra has been
followed in some California cases—see, e.g., Hale v. Venuto, 137 Cal.
App. 3d 910, 187 Cal. Rptr. 357 (1982)—and has been cited with
approval in some other jurisdictions. It has also been questioned
and “distinguished” (considered inapplicable) in numerous decisions
(see, e.g., Barret v. Emanuel Hosp., 64 Ore. App. 635, 669 P.2d 835
(1983).
Rice v. California Lutheran Hospital, 158 P.2d 579 (Cal. App. 1945),
rev’d on other grounds, 27 Cal. 296, 163 P.2d 860 (1945).
See, e.g., Vt. Stat. Ann. tit. 12, § 519(b) (1973).
Vt. Stat. Ann. tit. 12, § 519 (1973); Minn. Stat. Ann. § 604.05 (as
amended 1984) (West Supp. 1985).
See Restatement (Second) of Torts § 402A.
See, e.g., 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,
e.g., Wis. Stat. § 146.31(2) (West Supp. 1986).
Henderson v. Mason, 386 S.W.2d 879 (Tex. Civ. App. 1964).
Mehigan v. Sheehan, 94 N.H. 274, 51 A.2d 632 (1947).
See, e.g., Johnson v. St. Vincent Hospital, Inc., 273 Ind. 374, 404
N.E.2d 585 (1980).
See, e.g., Cornfeldt v. Tongen, 295 N.W.2d 638 (Minn. 1980);
Hanselmann v. McCardle, 275 S.C. 46, 267 S.E.2d 531 (1980); Hiser v.
Randolph, 126 Ariz. 608, 617 P.2d 774 (Ariz. Ct. App. 1980); Cooper
v. Sisters of Charity of Cincinnati, Inc., 272 N.E.2d 97 (Ohio 1971).
See, e.g., Hamil v. Bashline, 481 Pa. 256, 392 A.2d 1280 (1978);
McBride v. United States, 462 F.2d 72 (9th Cir. 1972).
Herskovits v. Group Health Cooperative of Puget Sound, 99 Wash. 2d
609, 614, 664 P.2d 474, 476 (1983).
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62. Id. See also Glicklich v. Spievack, 16 Mass. App. 488, 452 N.E.2d 287
(1983), appeal denied, 454 N.E.2d 1276 (Mass. 1983) (diagnosis
of breast cancer delayed for nine months; jury verdict for plaintiff
upheld).
63. Herskovits, supra note 62, 99 Wash. 2d at 614, 664 P.2d at 477.
64. Champs v. Stone, 74 Ohio App. 344, 58 N.E.2d 803 (1944).
65. Schultz v. Tasche, 166 Wis. 561, 165 N.W. 292 (1917).
66. Schuster v. St. Vincent Hosp., 45 Wis. 2d 135, 172 N.W.2d 421
(1969).
67. Tunkle v. Regents of the University of California, 60 Cal. 2d 92, 94,
32 Cal. Rptr. 33, 34, 383 P.2d 441, 442 (1963).
68. Id.
69. Tunkle, 383 P.2d at 449.
70. See generally, Sarah Sachs, The Jury Is Out: Mandating Pre-Treatment
Arbitration Clauses in Patient Intake Contracts, 2018 J. Disp. Resol.
(2018), https://scholarship.law.missouri.edu/jdr/vol2018/iss2/16
[https://perma.cc/BA2E-4UPY], and Kaitlin V. Treadway, PreDispute Binding Arbitration Agreements for Medical Malpractice
Claims: A Right-Threatening Procedure, 7 Stetson J. Advoc. & L.
(2020), https://www2.stetson.edu/advocacy-journal/pre-disputebinding-arbitration-agreements-for-medical-malpractice-claims-a-rightthreatening-procedure/ [https://perma.cc/R7TA-38LH].
71. Whitt v. Hutchison, 43 Ohio St. 2d 53, 61, 330 N.E.2d 678, 684
(1975).
72. Id.
73. Karp v. Cooley, 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 12. See also Holder, supra note 2, at 306–9.
74. 28 U.S.C. §§ 1346(b), 1402(b), 2401(b), and 2761-2680.
75. Feres v. United States, 340 U.S. 135 (1950).
76. 10 U.S.C. §2733a.
77. Alan Richards Moritz & R. Crawford Morris, Handbook of Legal
Medicine 211 (Mosby 1970); Hill v. Hays, 193 Kan. 453, 395 P.2d
298 (1964).
78. See, e.g., Cates v. Bald Estate, 54 Mich. App 717, 221 N.W.2d 474
(1974).
79. Tort Law—Statute of Limitations in Medical Malpractice Actions,
1970 Wis. L. Rev. 915, 918 (1970); Alan J. Sobel, Torts—Medical
Malpractice—Statute of Limitations—Foreign Objects—The Adoption
of the Discovery Rule—Legislative or Judicial Prerogative—Melnyk v.
Cleveland Clinic, 6 Akron L. Rev. 265, 267–68 (1973).
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80.
81.
82.
83.
84.
85.
86.
87.
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269
Bauer v. Bowen, 63 N.J. Super. 225, 164 A.2d 357 (1960).
Chaffin v. Nicosia, 261 Ind. 698, 310 N.E.2d 867 (1974).
Hubbard v. Libi, 229 N.W.2d 82 (N.D. 1975).
See, e.g., 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).
Huene v. Carnes, 121 Cal. App. 3d 432, 175 Cal. Rptr. 374 (1981).
See, e.g., Friedman v. Dozorc, 412 Mich. 1, 312 N.W.2d 585 (1981),
and Hill v. Willmott, 561 S.W.2d 331 (Ky. App. 1978).
See, e.g., Dakters v. Shane, 64 Ohio App. 2d 196, 412 N.E.2d 399
(1978); Berlin v. Nathan, Ill. App. 3d 940, 381 N.E.2d 1367 (1978),
cert. denied, 444 U.S. 828, reh’g denied, 444 U.S. 974 (1979).
Atlanta Oculopic Surgery, P.C. v. Nestlehutt, 691 S.E.2d 218 (Ga.
2010).
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Appendix 6.1: National Quality Forum’s Preventable Medical Errors
1. Surgical or Invasive Procedure Events
A. Surgery or other invasive procedure performed on the wrong site
B. Surgery or other invasive procedure performed on the wrong patient
C. Wrong surgical or other invasive procedure performed on a patient
D. Unintended retention of a foreign object in a patient after surgery or other invasive procedure
E. Intraoperative or immediately postoperative/post procedure death in [a healthy patient who
undergoes anesthesia]
2. Product or Device Events
A. Patient death or serious injury associated with the use of contaminated drugs, devices, or
biologics provided by the healthcare setting
B. Patient death or serious injury associated with the use or function of a device in patient care, in
which the device is used or functions other than as intended
C. Patient death or serious injury associated with intravascular air embolism that occurs while being
cared for in a healthcare setting
3. Patient Protection Events
A. Discharge or release of a patient/resident of any age, who is unable to make decisions, to other
than an authorized person
B. Patient death or serious injury associated with patient elopement (disappearance)
C. Patient suicide, attempted suicide, or self-harm that results in serious injury, while being cared for
in a healthcare setting
4. Care Management Events
A. Patient death or serious injury associated with a medication error (e.g., errors involving the wrong
drug, wrong dose, wrong patient, wrong time, wrong rate, wrong preparation, wrong route of
administration)
B. Patient death or serious injury associated with unsafe administration of blood products
C. Maternal death or serious injury associated with labor or delivery in a low-risk pregnancy while
being cared for in a healthcare setting
D. Death or serious injury of a neonate associated with labor or delivery in a low-risk pregnancy
E. Patient death or serious injury associated with a fall while being cared for in a healthcare setting
F. Any Stage 3, Stage 4, and unstageable pressure ulcers acquired after admission/presentation to a
healthcare setting
G. Artificial insemination with the wrong donor sperm or wrong egg
H. Patient death or serious injury resulting from the irretrievable loss of an irreplaceable biological
specimen
I. Patient death or serious injury resulting from failure to follow up or communicate laboratory,
pathology, or radiology test results
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5. Environmental Events
A. Patient or staff death or serious injury associated with an electric shock in the course of a patient
care process in a healthcare setting
B. Any incident in which systems designated for oxygen or other gas to be delivered to a patient
contain no gas, contain the wrong gas, or are contaminated by toxic substances
C. Patient or staff death or serious injury associated with a burn incurred from any source in the
course of a patient care process in a healthcare setting
D. Patient death or serious injury associated with the use of physical restraints or bedrails while
being cared for in a healthcare setting
6. Radiologic Events: Death or serious injury of a patient or staff associated with the introduction of a
metallic object into the MRI area
7. Potential Criminal Events
A. Any instance of care ordered by or provided by someone impersonating a physician, nurse,
pharmacist, or other licensed healthcare provider
B. Abduction of a patient/resident of any age
C. Sexual abuse/assault on a patient or staff member within or on the grounds of a healthcare
setting
D. Death or serious injury of a patient or staff member resulting from a physical assault (i.e., battery)
that occurs within or on the grounds of a healthcare setting
Source: List of SREs [Serious Reportable Events], Nat’l Quality Forum, http://www.qualityforum.org/Topics/SREs/List_
of_SREs.aspx#srei [https://perma.cc/RX35-ZJFU].
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Appendix 6.2: State Apology Laws
Ariz. Rev. Stat. § 12-2605 (full apology law)
Any statement, affirmation, gesture or conduct expressing apology, responsibility, liability, sympathy,
commiseration, condolence, compassion or a general sense of benevolence that was made by
a health care provider or an employee of a health care provider to the patient, a relative of the
patient, the patient’s survivors or a health care decision maker for the patient and that relates to
the discomfort, pain, suffering, injury or death of the patient as the result of the unanticipated
outcome of medical care is inadmissible as evidence of an admission of liability or as evidence of an
admission against interest.
Mich. Comp. Laws. § 600.2155 (partial apology law)
(1) A statement, writing, or action that expresses sympathy, compassion, commiseration, or a general
sense of benevolence relating to the pain, suffering, or death of an individual and that is made to
that individual or to the individual’s family is inadmissible as evidence of an admission of liability in
an action for medical malpractice.
(2) This section does not apply to a statement of fault, negligence, or culpable conduct that is part of
or made in addition to a statement, writing, or action described in subsection (1).
(3) As used in this section, “family” means spouse, parent, grandparent, stepmother, stepfather,
child, adopted child, grandchild, brother, sister, half brother, half sister, father-in-law, or
mother-in-law.
Source: Apology Inadmissibility Laws: Summary of State Legislation, Am. Med. Assoc. (2012), http://www.akleg.gov/
basis/get_documents.asp?session=28&docid=23660 [https://perma.cc/GY3T-3S6U].
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CHAPTER
LIABILITY OF THE HEALTHCARE
INSTITUTION
7
After reading this chapter, you will
• appreciate that the earliest healthcare institutions were religious
works of mercy that were usually immune from liability for
negligence;
• grasp that the concept of independent contractor is less viable
today as a defense in medical malpractice cases that arise out of
hospital-based treatment;
• know that under respondeat superior, the corporation is
responsible through the acts of an agent, whereas under the
principle of corporate liability, it owes a duty directly to the
plaintiff; and
• recognize that managed care organizations’ efforts to reduce costs
present challenging liability issues, including those related to
preemption by the Employee Retirement Income Security Act.
Background
As mentioned in chapter 1, the history of healthcare institutions begins with
the almshouses of the Middle Ages. From then until the mid-nineteenth century, those institutions had little to do with medical care and more to do with
housing unfortunates and keeping them away from “respectable” society.
They were religious charities, and, as the word almshouses implies, they were
supported by donated money and services. A vestige of this history is church
groups’ sponsorship of so many of today’s hospitals.
Given their charitable nature, hospitals and many other organizations
were held to be immune from tort liability lest their good deeds be diminished
by jury awards. Some courts adopted this position because they considered
the assets of a charitable corporation to be held in trust for its beneficiaries and
feared that the implied trust would be violated by payment of money damages.
Others held that the beneficiaries of a charity (including the general public)
273
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charitable
immunity
The venerable
principle (now
discredited)
that a charitable
organization is not
to be held liable
for the tortious
actions of its
agents.
implicitly waived their rights to sue when accepting the benefits of charitable
services. Still others based the rule simply on concepts of public policy, specifying that tort liability should apply only to a profit-making enterprise.1
Whatever its rationale, support for the doctrine of charitable ­immunity
waned as modern medicine evolved in the twentieth century (see chapter 1),
and the concept had virtually disappeared by the 1970s. The public’s perception of hospitals as purely charitable organizations had changed.2 Health plans
and government programs (rather than alms) paid for operational expenses;
liability insurance was available to cover defense costs and jury awards; and
healthcare more readily adopted the traits of market-driven industries. In addition, immunity hardly seemed fair to the injured patients and their families. The
courts began to treat not-for-profit enterprises in the same manner as other
companies insofar as third-party liability claims were concerned, and thus charitable immunity was overturned in a series of state-by-state judicial decisions
once the rationale for immunity dissolved. (As discussed in chapter 6, however,
government hospitals still enjoy immunity or partial immunity in some jurisdictions, justified as “sovereign immunity” rather than charitable immunity.)
The demise of charitable immunity is exemplified by the decisions of
two courts. As long ago as 1969—in the state that was the US birthplace
of the doctrine—the Massachusetts Supreme Judicial Court decided to
abandon it:
In the past on many occasions we have declined to renounce the defence [sic] of
charitable immunity. . . . We took this position because we were of [the] opinion that
any renunciation preferably should be accomplished prospectively and that this
should be best done by legislative action. Now it appears that only three or four
States still adhere to the doctrine. It seems likely that no legislative action in this
Commonwealth is probable in the near future. Accordingly, we take this occasion
to give adequate warning that the next time we are squarely confronted by a legal
question respecting the charitable immunity doctrine it is our intention to abolish it.3
Wisconsin had never adopted the principle in the first place, and in
2001 its high court declined to do so, calling this legal fiction “an antiquated
doctrine that fails to reflect the emergence of hospitals as modern health care
facilities.”4
With the end of charitable immunity, healthcare became one of the
most dramatically changing areas of personal injury law. This chapter reviews
evolving legal principles that have affected traditional hospital liability standards since the 1970s, including the following:
• Independent contractor status
• Captain-of-the-ship and borrowed-servant doctrines
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275
• Apparent agency or agency by estoppel
• Corporate liability
This chapter begins with a refresher course on the traditional rules of
respondeat superior, proceeds to address the principles identified in the previous list, and ends with a section on the liability of managed care and similar
organizations.
Respondeat Superior Versus Independent Contractor
Status
Respondeat Superior Defined
As noted in chapter 6, respondeat superior (vicarious liability) is the principle
that an employer is liable for a tort an employee commits within the scope
of employment. The idea is based on the principle qui facit per alium, facit
per se—“one who acts through another, acts for himself.” Even though the
employer is not directly at fault, it controls the means and methods of the
employee’s work and thus should answer for the employee’s negligence. Presumably, the imposition of liability encourages the employer to apply sound
procedures for controlling employees’ job performance.
Liability asserted based on respondeat superior depends on the answers
to three questions:
1. Was a tort committed?
2. Was the person who committed the tort an agent or an employee of
the defendant?
3. Was the tort committed within the scope of the agent’s or employee’s
duties?
The duty of a healthcare institution
(see Legal Brief) is to have its employees
use the same reasonable level of care
that is practiced in similar organizations
in similar circumstances.5 Patients are
entitled to the care their medical conditions require.6 As discussed in chapter 6,
to prove breach of this duty, the plaintiff
must usually produce expert testimony
about the applicable standard of care
under the circumstances of the case.7 Not
surprisingly, the plaintiff’s experts will
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Legal Brief
For the sake of simplicity and readability, throughout much of this book the term hospital is used
as shorthand for a healthcare institution because
the general principles that apply to hospitals also
usually apply to other corporate healthcare providers. Any discussion that applies solely or primarily
to an actual hospital should be apparent from the
context.
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testify that other hospitals or other doctors would have treated the patient
differently. The defense will call witnesses who will say, “Oh, no! What the
doctor [or nurse, or hospital] did was perfectly reasonable.” The battle of the
experts is on, and the jury will be asked to decide who is correct.
Sometimes, expert testimony is not necessary—such as when the situation involves routine or nonprofessional care (e.g., helping a patient to the
bathroom or out of a wheelchair),8 when a provider’s order is violated,9 or
when common sense makes the breach of duty apparent.10 Common sense
underlies the US Department of Health and Human Services’ list of adverse
events discussed in chapter 6. (See The Court Decides: Norton v. Argonaut
Insurance Co. at the end of this chapter for a case in which all parties—hospital, physician, and nurse—were held liable for a fatal medication error that
common sense indicates could have been prevented if appropriate precautions had been in place.)
Whether experts testify or not, the principle of vicarious liability is
based on public policy considerations. The employer is often able to establish systems and quality measures to reduce risk, and it usually has insurance
coverage or superior financial means to compensate for the damage caused
by the employee’s tort. Besides, a corporation can act only through agents
and employees. Not holding the organization liable for its employees’ actions
would mean that the company would not be responsible for decisions made
and acts committed in furtherance of institutional aims.
The employer and the responsible employee(s) are often named as
codefendants, but the employer is usually the main target because of its
“deep pockets.” In a healthcare context, the employer, a faceless corporation, is often a less sympathetic defendant than an individual, admired
healthcare provider. Chapter 6 includes a discussion of this phenomenon as
well as potential conflicts between individual and institutional providers over
whether to settle a case or instead proceed to trial.
Independent Contractor Defined
Because respondeat superior is based on employers’ right to control the means
and methods of employees’ work, employers are not liable for the negligence
of independent contractors. An independent contractor has sole control over
the means and methods of the work to be accomplished, although the person
who employs, hires, or appoints a contractor retains the general power of
approval over the final work product. For example, if a homeowner hires an
independent contractor to build a house, provides the plans, and retains the
power to approve the result but does not control the day-to-day activities of
the laborers, then the contractor is responsible for the laborers’ actions. In
effect, the owner is saying, “Here’s what I want built. Go do it, and tell me
when you’re done.”
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In the context of hospital liability, a physician in private practice who
is a member of the medical staff was traditionally considered an independent
contractor, and the hospital could use the physician’s independent status to
avoid liability for the doctor’s malpractice (see also The Joint Employer Concept in chapter 4). There are numerous old cases to this effect. For example,
in Heins v. Synkonis, the hospital was not held liable for the negligence of a
private physician because the hospital merely provided office space for the
doctor’s outpatient clinic and no actual or apparent employment relationship
existed between the hospital and the independent contractor doctor.11 Things
are not so simple today, and many hospital-based outpatient practices are, or
appear to be, functioning under the hospital’s auspices. The facts of each case
will determine where liability lies.
Erosion of Physicians’ Independent Contractor Status
The Heins case was decided in 1975, and although old cases are not necessarily bad law, its rationale has eroded over the years, making the independent contractor defense less viable today, particularly when the malpractice
occurs within hospital walls. Some of the factors prompting courts to see an
employment-like relationship include the following:
• Physicians are much more likely to be employees of a health system,
hospital, or multispecialty clinic.
• Patients use hospitals’ emergency services more frequently, and
inpatients are more likely to arrive through the emergency department
(ED). In these instances, the patients will not have selected the
physicians who treat them, at least for the initial phases of their stay.
Private physicians commonly tell patients to go to the ED if they
have concerns outside normal office hours. “Meet me at the ED” has
morphed into “the ER docs will take care of you.”
• Medical practice has become increasingly institutionalized and
specialized.
• The number of contracts with hospital-based specialists has increased
dramatically.
Employment of Physicians
Because of lifestyle preferences, economic forces, insurance contracting
realities, the effects of reforms implemented under the Affordable Care Act
(ACA), and fraud laws that provide “safe harbors” for many transactions
(see chapter 9), physicians are increasingly becoming employees of hospitals,
clinics, or health systems. Young physicians coming out of residency often
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
prefer to focus their energies on patient care rather than the business aspects
of private practice, for which they may not feel well suited. At the other end
of the age spectrum, baby boomer physicians frequently choose to sell their
practices and become employees for many of the same reasons. According to
one report,
With the steady decline since 2012 in the share of physicians working in private
practices, there has been a concurrent increase in the share of physicians working directly for a hospital or for a practice at least partially owned by a hospital or
health system. Almost 40% of patient care physicians worked either directly for a
hospital or for a practice with at least partial hospital or health system ownership
in 2020, up from 34.7% in 2018 and 29% in 2012.12
This trend is in sharp contrast to the long-standing image of the private practice physician working independently or with a couple of partners
and whose professional judgment went unquestioned by nonphysicians. Such
was the autonomy of the medical doctor that for decades “corporate practice
of medicine” laws in many states forbade doctors from becoming employees.
Those laws are somewhat anachronistic today, and various exceptions and
“workarounds” have developed to lessen their effect. (This issue is also discussed in a Legal Brief in chapter 8.)
Apparent Agency, Agency by Estoppel, Etc.
apparent agency
The power to
act on behalf
of a principal,
even though the
power has not
been expressly
granted. This
power arises when
it is reasonable
for a third party
to infer from the
circumstances
that the purported
agent is acting
on the principal’s
behalf.
CH07.indd 278
Concepts such as apparent agency—also referred to as agency by estoppel,
ostensible agency, nondelegable duty, and inherent or integral duty—can also
counter the independent contractor defense and protect the interests of the
innocent third party. (There are fine distinctions among these concepts, and
some courts may note the difference, but as a practical matter, they are virtually indistinguishable.13)
In the hospital setting, many physicians and others who are not on
the human resources payroll have contracts to provide patient services. This
arrangement is especially true of anesthesiologists; radiologists; pathologists;
and specialists in emergency medicine, nuclear medicine, and a few other
clinical fields. They are not technically hospital employees, but to the average person, they appear to be. Under the circumstances, liability may attach,
though no actual authority was given and the provider was technically an
independent contractor.
Two Delaware cases illustrate this concept. In Vanaman v. Milford
Memorial Hospital, a private physician was on call to provide emergency services.14 The court held that it was for the jury to decide whether 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
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hospital could be liable for the doctor’s negligence if it held the physician out
to be its employee and the patient justifiably relied on that representation.
Schagrin v. Wilmington Medical Center15 is in the same vein. The court found
that a medical partnership staffing an ED may be an agent of the hospital and
not an independent 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.
Similarly, in Jackson v. Power,16 the Supreme Court of Alaska held that
a hospital’s duty to provide emergency care is “nondelegable” and cannot be
avoided by claiming that its ED physicians are independent contractors. The
court summarized its ruling as follows:
We are persuaded that the circumstances under which emergency room care is
provided in a modern hospital mandates the rule we adopt today. Not only is this
rule consonant with the public perception of the hospital as a multifaceted health
care facility responsible for the quality of medical care and treatment rendered, it
also treats tort liability in the medical arena in a manner that is consistent with the
commercialization of American medicine. Finally, we simply cannot fathom why
liability should depend upon the technical employment status of the emergency
room physician who treats the patient. It is the hospital’s duty to provide the physician, which it may do through any means at its disposal. The means employed,
however, will not change the fact that the hospital will be responsible for the care
rendered by physicians it has a duty to provide.
The outcome depends on the facts of each specific case, but many
courts seem increasingly inclined to find a hospital liable irrespective of a purported independent contractor status by applying such principles as apparent agency, agency by estoppel, and so on. This is particularly likely where
patients do not choose their providers but
rely on those provided by the hospital. We
thus see the gradual demise of the hospiLegal Brief
tal’s independent contractor defense.
Erosion of Captain-of-the-Ship
and Borrowed-Servant
Doctrines
For many years, two other doctrines helped
hospitals escape liability for providers’
acts: the captain-of-the-ship and borrowed-­
servant concepts, most notably invoked
CH07.indd 279
As discussed in chapter 6, the US Supreme Court’s
2022 decision in Dobbs v. Jackson Women’s
Health Organization, which removed federal constitutional protections for abortion, raises many
unanswered questions. The principles of vicarious
liability, apparent agency, and so on, that we discussed earlier will apply in abortion-related cases
as in other tort-law situations. (See chapter 15 for
a full discussion of the Dobbs decision.)
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when negligence occurs during surgery. The former presumed that a surgeon
was the “captain” during surgery and, like the captain of a real ship, responsible
for what occurred within the surgery suite. Thus, the hospital’s argument was
that the surgeon, not the hospital, was liable for any negligence that occurred
during surgery. This argument was bolstered by the borrowed-servant doctrine, the related principle that one who is normally an employee of one person
or entity (e.g., an employee of a hospital) may be borrowed by another—a
surgeon, for example—thereby becoming a servant of the surgeon and making
the surgeon liable for the “borrowed” employee’s negligence. (Readers who
have watched Downton Abbey will appreciate the idea of “borrowing servants.”)
In any vicarious liability case, the basis for liability is one’s right of
control over the negligent activities of another. As the number of persons on
surgical teams has grown and as anesthesiologists, nurses, surgical assistants,
and others have been increasingly recognized as performing independent
functions pursuant to hospital policies and their own professions’ standards
of care, the courts have realized that imposing liability on the chief surgeon
alone for the negligent acts of all surgical team members is not sound legal
doctrine. Whether the surgeon or the hospital was the sole controlling master
or whether both had control to justify joint liability is for the jury to decide.
Many cases involving a miscount of instruments or surgical sponges
illustrate erosion of the captain-of-the-ship and borrowed-servant doctrines.
For example, in Tonsic v. Wagner, the trial court applied the captain-of-theship doctrine to hold the surgeon liable when neither the scrub nurse, a
circulating nurse, nor an intern counted
the surgical instruments at the conclusion
Law in Action
of a colectomy.17 As a result, a clamp was
not removed from the patient. The trial
court did not permit the jury to consider
During a deposition in a case involving a retained
the vicarious liability of the hospital, which
surgical sponge, an exchange between the chief
employed the nurses. The Pennsylvania
operating room nurse and the plaintiff’s lawyer
went as follows:
Supreme Court reversed the decision, noting that under the law of agency, a negAttorney. When the operation was over, did you
ligent party may be the employee of two
or anyone else count the sponges that had been
masters simultaneously, even when the
used?
masters are not joint employers. In such
Nurse. No, sir.
situations both masters may be liable.18
Accordingly, the plaintiff was entitled to a
Attorney. Why not?
new trial in her suit against the hospital (see
Nurse. Well, we didn’t count them before the surLaw in Action).
gery, so it wouldn’t have done any good to count
The trend has been observable for
them afterward, would it?
decades.19 When medical care is provided
Understandably, the case was settled before trial.
by highly specialized, sophisticated teams
of professionals working in an institutional
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281
setting, determining who is exercising what control over whom at any given
time is difficult. In such cases, many consider it logical that the corporate institution must share in the liability or bear sole responsibility depending on the facts.
Doctrine of Corporate Liability
Under the doctrine of corporate liability, the hospital is negligent because it
breached a duty it owed directly to the patient. This liability is not “vicarious”; rather, it attaches to the corporation because the hospital owes a legal
duty directly to the patient, and this duty is not delegable to the medical staff
or other personnel. A Connecticut court defined corporate 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 purposes of the corporation to follow . . . the established standard of
conduct to which the corporation should conform.”20
As previously discussed, healthcare systems are more than “doctors’
workshops.” They arrange, furnish, and provide the community with an
entire range of health-related services—preventive, curative, and palliative;
outpatient and inpatient; acute and long term. As their vision has expanded,
so have their duties.
Before the mid-1960s, courts generally limited hospitals’ corporate
duties to such issues as selection and retention of employees and maintenance
of hospital equipment, buildings, and grounds; these duties remain areas of
potential liability today. “Slip and fall” cases are in this category. Negligence
regarding equipment is seen when there are unrepaired defects, when equipment is misused,21 or when it is used for an unintended purpose.22 The duty
of reasonable care regarding the use of equipment and its selection for an
intended purpose also includes a duty to inspect the equipment systematically and regularly before use.23 Rules and regulations of licensing authorities,
accreditation standards, and instructional manuals supplied by manufacturers
to maintain equipment can be admitted at trial as evidence of expected standards of care. Failure on the part of hospital and medical personnel to comply
with such standards constitutes evidence of breach of duty.
Under negligence theories, physicians and institutional providers have
a duty to warn a patient of known risks when the patient is furnished with
a medical device. Moreover, courts are now extending the duty to include
informing patients of risks that become known after the device is furnished.
Thus, if a heart pacemaker is implanted and later recalled because of a defect,
the hospital and the physician have a duty to notify the patient if they know
or should know of the recall.
Regarding the availability of equipment and services, one is not
required to possess the newest and most modern equipment available on the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
market, but there is a duty to have available the usual and customary equipment and staff for any service that the hospital renders. (The same applies to
physicians’ offices, nursing homes, and other facilities.) For example, providers have been found liable for using unsterilized hypodermic needles.24 In
Garcia v. Memorial Hospital, a hospital did not have a pediatric endotracheal
tube that might have saved a child’s life.25 The hospital operated an ED and
held itself out as providing a full range of emergency services, and the court
held that availability of a pediatric endotracheal tube is usual and customary
in EDs. In another example, a Pennsylvania hospital was found liable when its
electrocardiogram machine in the ED broke down and no backup instrument
was available.26 The emergency patient had to be taken to another location
for the test, but he died there.
Healthcare organizations also have a corporate responsibility to exercise reasonable care in selecting and retaining employees. In Wilson N. Jones
Memorial Hospital v. Davis,27 the hospital had to pay the plaintiff both compensatory and punitive damages for failure to investigate the background
and references of an applicant for the position of orderly. The hospital’s
normal hiring procedure was to obtain four employment references and
three personal references. Established policy 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 executive employed the applicant as an
orderly without checking any of the references. The justification, asserted
after the fact, was that the hospital had a critical need for personnel. This is a
good lesson in the danger of establishing a rule or policy you are not willing
to follow or enforce.
After the individual began work, an inquiry was sent to one of the references, who verified that the orderly had worked for him for approximately
four months but did not answer any of the other questions on the reference
form. The hospital failed to follow up. Furthermore, the employee had stated
that he received his training as an orderly while in the US Navy, but again
the hospital did not inquire, saying the armed services had not been cooperative with it in the past. However, the plaintiff requested information from
the Navy and promptly learned that the orderly had been expelled from the
Navy’s Medical Corps School after a single month’s training, that he had
been diagnosed as having a serious drug problem, and that he had a criminal
record. The orderly also had listed three personal references on his application and included a local telephone number for each. The hospital attempted
to contact only one of these references, and that attempt was unsuccessful.
Soon after he was hired, the orderly attempted to remove a Foley catheter from a patient’s bladder without first deflating the bulb; this action seriously injured the patient. The hospital was held liable for both compensatory
and punitive damages. The hospital’s critical need for orderlies at the time
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did not justify its failure to exercise reasonable care in the employee selection
process. Moreover, the punitive damages awarded in the case were assigned
as a result of “such an entire want of care as to indicate that the act . . . was
the result of conscious indifference to the rights, welfare, and safety of the
patients in the hospital.”28
Failure to Adopt or Follow Rules
Hospital bylaws, rules and regulations, and the accreditation standards of
The Joint Commission are admissible as evidence at trial.29 If violation of
a hospital 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 strong evidence. For example, in Pederson v. Dumouchel, a hospital
was held liable when—in violation of hospital policy—it permitted nonemergency dental surgery to be performed under a general anesthetic without the
supervision of a medical doctor.30
Typically, the existence of a rule and evidence of its breach are submitted
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 policy requiring that bedside rails be raised if a patient is restless, obese, or under sedation,
unless the attending physician issues an order to the contrary.31 The plaintiff
sustained injuries when he fell from the bed, and the jury was entitled to consider the violation of this written standard as evidence of negligence. In another
example, a Michigan case noted that an administrative regulation requiring
hospitals to have written policies regarding medical consultations and to record
consultations was intended to protect hospitalized patients.32 Accordingly, the
plaintiff was entitled to have the jury instructed on the purpose of this rule.
Another variation of corporate liability is a hospital’s failure to have
and to implement adequate rules regarding communication of vital information on patient care to others who are or will be responsible for treating the
patient. For example, in Keene v. Methodist Hospital,33 an injured patient was
seen at about 2:00 a.m. on December 25 by an on-call physician in a hospital
ED. The patient was sent home after X-rays were taken, and a few hours later,
a radiologist examined the films and detected a possible skull fracture. The
radiologist suggested further X-ray studies and dictated a tentative diagnosis
and recommendations into a recorder, but he did not communicate further
with the attending physician, the patient, the patient’s family, or hospital
administration. Because of the Christmas holiday, the dictation was not
transcribed for two days. During this period, the patient lost consciousness,
was returned to the hospital for emergency surgery, and died because of a
fractured skull and hemorrhage.
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The court stated that the patient “would not have died from his head
injuries if he had been treated for a skull fracture during the morning of
December 25” and found both the ED physician and the radiologist liable.
In addition, the hospital was held liable because “[i]t is the duty of the Hospital to adopt procedures which would ensure that the opinion of a radiologist showing the possibility of a severe injury would be immediately conveyed
to the proper persons.”34 Thus, failure to have and to follow proper rules,
regulations, or systems when indicated by recognized professional standards
can result in liability—whether it is called corporate negligence or vicarious
liability.35
Negligence in Selection and Retention of Medical Staff
The law in most states now recognizes that a corporate healthcare institution
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 provider was not competent to
perform the permitted clinical procedures. This doctrine emerged from the
1965 landmark case Darling v. Charleston Community Memorial Hospital,36
in which the Illinois Supreme Court held that a hospital could be liable
under either (1) respondeat superior, if nurse employees failed to notify medical and hospital administrators when they knew that a patient was receiving
inadequate medical care, or (2) corporate liability, if the hospital failed to
review and monitor the quality of care generally rendered to patients by the
private physician. The private physician in this case was a general practitioner
who had been permitted by the hospital to practice orthopedic medicine and
whose clinical competence had not been reviewed in his more than three
decades of practice.
Significantly, Darling also established that to prove the standard of
care expected of a hospital, the jury may consider standards set forth in medical staff bylaws as well as those promulgated by The Joint Commission and
state licensing authorities. 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 their medical staff members.
The Illinois court rejected the view that a hospital simply procures
nurses and doctors who then act on their own responsibility. A hospital treats
patients and acts through its nurses and doctors, even if the latter are not
employees.37 Following the Darling decision, one commentator wrote,
Even in the absence of an employer-employee . . . relationship . . . there now
appears to be some chance . . . to impose liability on the hospital on the theory
of independent negligence in failing to review, supervise, or consult about, the
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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 inadequacy of the treatment being given.38
Case law has firmly established that hospital administration and medical staff have a joint role with respect to the clinical performance of individual
practitioners. The governing body of a hospital has a responsibility to adopt
corporate and medical staff bylaws providing for an organized medical staff
accountable to the board for quality of care. The governing board grants
medical staff appointments, delineates privileges on an individual basis, and
reappoints clinicians on the basis of the recommendations of medical staff
committees. In ruling on these recommendations, the board must be satisfied
that the peer review process is working properly and avoid rubber-stamping
recommendations submitted by the medical staff. The responsibility of the
governing body is nondelegable; the board does, however, delegate to the
medical staff the authority to implement the credentialing process and prepare recommendations for appointments and reappointments (more on this
subject in chapter 8).
Other leading cases have recognized the corporate duty of a hospital
to exercise reasonable care in the selection and retention of the medical staff.
A 1971 Georgia case, Joiner v. Mitchell County Hospital Authority, held that
members of the medical staff who make physician appointment recommendations to the governing body of a hospital are agents of the hospital.39 In
considering these recommendations, the governing body must act in good
faith and with reasonable care.40 Nevada’s Supreme Court recognized a similar institutional duty in Moore v. Board of Trustees of Carson-Tahoe Hospital, a
case concerning medical staff privileges.41 The court stated,
The purpose of the community hospital is to provide patient care of the highest
possible quality. To implement this duty of providing competent medical care to
the patients, it is the responsibility of the institution to create a workable system
whereby the medical staff of the hospital continually reviews and evaluates the
quality of care being rendered within the institution. The staff must be organized
with the proper structure to carry out the role delegated to it by the governing
body. All powers of the medical staff flow from the board of trustees, and the
staff must be held accountable for its control of quality. . . . The role of the hospital vis-a-vis the community is changing rapidly. The hospital’s role is no longer
limited to the furnishing of physical facilities and equipment where a physician
treats his private patients and practices his profession in his own individualized
manner. . . .
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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.42
In Gonzales v. Nork, the defendant performed an unsuccessful and
allegedly unnecessary laminectomy and spinal fusion procedure on a 27-yearold man who had been injured in an automobile accident.43 Complications
developed that substantially reduced his life expectancy, and at trial, he
presented evidence showing that the surgeon had performed more than
three dozen similar operations negligently or unnecessarily. The trial court
issued a lengthy opinion recognizing that the hospital owed a duty of care
to the patient with respect to the delineation of surgical privileges extended
to private surgeons. The court stated forcefully that this duty included the
obligation to protect the patient from acts of malpractice by an independently
retained doctor if the hospital knew or should have known that such acts
were likely to occur. Even though the hospital had no actual knowledge of
Dr. Nork’s propensity to commit malpractice or perform unnecessary surgery, its failure to have a system for acquiring such knowledge justified the
finding of negligence. Gonzales v. Nork was decided in the 1970s, and today’s
risk management, quality assurance, and peer review functions are at least in
part a response to it and similar cases.
A landmark Wisconsin case in 1981 took a particularly enlightened
view of the role of a hospital in its relations with the medical staff. In
Johnson v. Misericordia Community Hospital (see The Court Decides at the
end of this chapter), the plaintiff alleged that the hospital was negligent
in granting orthopedic surgical privileges to a particular physician.44 The
Wisconsin Supreme Court affirmed a jury verdict for the plaintiff on the
following bases:
1. The hospital failed to inquire into the physician’s professional
background and qualifications prior to granting a staff appointment.
2. The hospital failed to adhere to its own bylaw provisions and to
Wisconsin statutes pertaining to medical credentialing.
3. The exercise of ordinary care would have disclosed the physician’s lack
of qualifications.
4. Had the hospital exercised due diligence, it would not have appointed
the physician to the medical staff.
5. By not exercising due diligence, the hospital exposed patients to a
“foreseeable risk of unreasonable harm.”
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Johnson stands for the now well-recognized proposition that, as the Wisconsin court plainly and simply phrased it, “A hospital has a duty to exercise due
care in the selection of its medical staff.”45
Only licensed practitioners can actually treat patients, but the governing board and administration are responsible for ensuring that the organized
medical staff periodically reviews the clinical behavior of staff providers.
Rather than second-guess medical care, the governing board delegates the
review and evaluation functions to the medical staff, which in turn is accountable to the board for its recommendations in a process known as credentialing (see a complete discussion in chapter 8).
The medical staff is responsible for developing reasonable criteria and
fundamentally fair procedures for evaluation, appointment, and delineation
of privileges. The medical staff must gather information and data that support its recommendations and must forward the information to the governing body. The board, in turn, is responsible for approving the criteria and
procedures for appointment, the delineation of privileges, and the renewal
of appointments. It then acts on the medical staff’s recommendations after
ensuring that all supporting information is complete.
Hospitals must develop a credentialing process for other p
­ rofessionals—
physician’s assistants, nurse practitioners, podiatrists, technicians, pharmacists, and other providers—who also work in their facilities. Institutions must
evaluate the competencies of these individuals just as they do those of the
medical staff. Moreover, procedures must be developed to review periodically
the performance of each of these professionals. The scope of their clinical
activities is a matter for the medical and nursing staffs to develop according
to local licensure laws and professional custom and usage.
The cases discussed in this section illustrate significant changes in the
theories of hospital liability. The law of agency and respondeat superior no
longer suffice to explain corporate duty; rather, in the hospital setting, the
rules of respondeat superior and corporate or independent negligence have
essentially become one.
In any given case, the applicable legal theory—corporate negligence
or respondeat superior—is becoming increasingly difficult to determine, but it
probably does not matter much. Just as in Bing v. Thunig46—which in 1957
eliminated any distinction between the administrative and professional acts
of nurses for the purposes of respondeat superior—the distinction between
hospitals’ vicarious liability (respondeat superior) and direct liability (corporate negligence) has nearly disappeared for all practical purposes. In any
event, hospital rules, standards of accreditation, and licensure regulations
must be realistic, known to all affected persons, implementable, and consistently enforced. Furthermore, the rules must be regularly and systematically
reviewed; if they are not realistic and workable, they should be eliminated.
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Liability of Managed Care Organizations
Managed care organization (MCO) is a general term used to describe any
number of health insurance arrangements that integrate the payment for
healthcare with its provision in an effort to improve quality and reduce costs.
The cost-cutting mechanisms are our focus here. Among those mechanisms
are contracts with physicians, hospitals, skilled nursing facilities, pharmacies,
and other healthcare providers to offer services to their members at reduced
payment rates. These providers make up the MCO’s “network,” and they
offer a range of services that varies depending on the type of plan chosen.
There are generally three types of plans:
utilization review
(UR)
Systematic
(usually
retrospective)
review of the
efficiency and
medical necessity
of healthcare
services based
on established
guidelines.
utilization
management (UM)
Proactive
techniques to
improve the
efficiency and to
control the cost
of health services
by influencing
providers’
medical decisionmaking. UM
typically includes
concurrent peer
review processes.
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1. Health maintenance organizations (HMOs) usually only pay for care in
the network; the patient’s primary care doctor coordinates the care.
2. Preferred-provider organizations (PPOs) usually pay more if care
is provided in the network, but they still pay part of the cost if the
patient goes outside the network.
3. Point-of-service plans let the patient choose between an HMO or
a PPO each time they need care, and the level of payment will vary
accordingly.47
MCOs have mechanisms for reviewing the medical necessity of specific
services, controlling inpatient admissions and lengths of stay, establishing
cost-sharing incentives for outpatient surgery, contracting selectively with
certain healthcare providers, and managing high-cost healthcare cases intensively. They proliferated in the 1980s, during the frenzy over efficiency and
cost savings; as with the first wave of physician-hospital organizations (see
chapter 3), whether they have had any significant effect on rising healthcare
costs is debatable.
In general, managed care plans tend to emphasize preventive and primary care and to limit access to more costly services. In many MCOs, select
primary care physicians act as gatekeepers who must be consulted before the
patient can see a specialist. Many patients also must obtain MCO authorization for hospitalization or for hospitalization to extend beyond a certain
number of days. This process is often referred to as utilization review (UR)
or utilization management (UM), and the requests for authorization are
often handled by nurses specially trained to administer the program. Authorization can be refused for a number of reasons; for example, the proposed
treatment may not be a covered benefit, the proposed treatment may not be
medically necessary, or the request may not have been made in a timely or
procedurally correct manner.
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Quality Versus Cost Savings
Any of these reasons to deny care can be legitimate, but when UR denials
appear to result from financial pressures, aggrieved patients often allege that
the health plan neglected quality in favor of economy. They assert that a
particular authorization request was denied for nonclinical reasons, that they
were refused necessary treatment, or that they were discharged from the hospital prematurely. The aphorism that patients were being sent home “sicker
and quicker” arose out of this last assertion.
Typical of the cases that first raised these issues were two from California
in the late 1980s. In Wickline v. State,48 the plaintiff argued that the d
­ ecision to
admit patients or extend their stay is a medical one that only a physician—and
not a health plan—should make; she attempted to assert liability against the
state’s Medi-Cal program after a UR decision led to her being discharged early,
which resulted in complications that caused her to lose a leg.
The trial court decided in the patient’s favor, but the appellate court
reversed the decision, emphasizing the difference between prospective and
retrospective UR:
In . . . prospective utilization review, authority for the rendering of health care services must be obtained before medical care is rendered. Its purpose is to promote
the well recognized public interest in controlling health care costs by reducing
unnecessary services while still intending to assure [sic] that appropriate medical
and hospital services are provided to the patient in need. However, such a cost
containment strategy creates new and added pressures on the quality assurance
portion of the utilization review mechanism. The stakes, the risks at issue, are
much higher when a prospective cost containment review process is utilized than
when a retrospective review process is used.
A mistaken conclusion about medical necessity following retrospective
review will result in the wrongful withholding of payment. An erroneous decision in
a prospective review process, on the other hand, in practical consequences, results
in the withholding of necessary care, potentially leading to a patient’s permanent
disability or death.49
The court went on to hold that it was ultimately the physician’s responsibility, not MediCal’s, to decide when the patient should be discharged:
Third party payors 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. . . . However, the physician who complies
without protest with the limitations imposed by a third party payor, when his medical judgment dictates otherwise, cannot avoid his ultimate responsibility for his
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
patient’s care. He cannot point to the health care payor as the liability scapegoat
when the consequences of his own determinative medical decisions go sour.50
dictum
Latin meaning
“remark”—a
comment in a legal
opinion that is not
binding because it
is not required to
reach the decision
but that states
a related legal
principle; plural
dicta.
The court concluded that although the physician was “intimidated” by
Medi-Cal’s UR decision, he was not “paralyzed” by it and should have made
a greater effort to keep his patient in the hospital. There is irony in this
outcome: the court agreed with the plaintiff’s argument that the decision to
discharge is one for physicians to make, and she lost her appeal as a result.
Four years later, the other California case—decided by different judges
on the same appellate court—limited the applicability of Wickline’s broad
language. In Wilson v. Blue Cross of Southern California,51 a physician had
requested three to four weeks of additional care for a depressed psychiatric
patient. Based on a prospective review, the insurance company declined to
pay for any further care. Because nobody else could afford to pay, the patient
was discharged. He committed suicide less than three weeks later.
The Wilson court found that there was “substantial evidence that
[the] decision not to approve further hospitalization was a substantial factor
in bringing about the decedent’s demise,”52 and it remanded the case for
further proceedings. In their decision, the justices characterized Wickline’s
statement that “the decision to discharge is . . . the responsibility of the
patient’s own treating doctor” as being dictum and overly broad. According
to the Wilson court, “This broadly stated language was unnecessary to the
[earlier] decision and in all contexts does not correctly state the law relative
to causation issues in a tort case.”53
Over the next few years, cases in several other states addressed the
issue of MCOs’ allegedly wrongful denial of treatment, and the results were
mixed. The decisions often depended on interpretation of the Employee
Retirement Income Security Act (ERISA) of 1974.54
ERISA Preemption Complicates Matters
Congress passed ERISA in 1974, largely to protect employer-sponsored pension plans, but it also affects employer-sponsored health benefit plans. Then,
as now, most people under age 65 get their health insurance through an
employer-sponsored plan, either the coverage sponsored by their employer
or that of their spouse or parent. And more than half of employer-sponsored
plans are now self-insured plans, where the employer (typically a large company) bears the financial risk but contracts with an insurer to administer the
claims. As described earlier, the rise of managed care dates to the 1980s, after
ERISA’s enactment.
ERISA does not require employers to offer a health insurance plan, but
the ACA’s employer mandate now has that effect for large employers. Additionally, ERISA does not require employer-sponsored plans to cover particular
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291
treatments. Prior to passage of the ACA, there was very little substantive regulation of the content of employer-sponsored health insurance. What ERISA
does is establish a nationally uniform regulatory structure for employer-sponsored plans, and in doing so it preempts (supersedes) vast areas of state law.
Because of its complicated and confusing preemption framework,55 ERISA
has had a huge, and mostly unintended, effect on healthcare.
Broadly speaking, that impact is seen in three areas:
1. ERISA complicates state efforts at overarching health reform. That
is because ERISA prohibits states from directly requiring employer
participation in comprehensive reform frameworks.
2. ERISA limits the reach of state efforts to regulate the details of health
insurance coverage for its citizens. That is because ERISA shields selfinsured employer plans from state mandates related to health insurance
(see Law in Action).
3. ERISA shields MCOs from the consequences of most of their
negligent coverage decisions. That is because, as detailed later, it
generally supplants potentially broad state tort damages with limited
ERISA recovery options.
Aetna Health, Inc. v. Davila, decided by the US Supreme Court in
2004, highlights some of the effects of ERISA preemption.56 The facts of
the cases—plural, because two lawsuits were consolidated and decided as
one—typify many patients’ situations. The first patient, Juan Davila, had been
prescribed Vioxx for arthritis pain, but his MCO refused to pay for it and
approved a less expensive drug instead. According to the decision, Davila “suffered a severe reaction that required extensive treatment and hospitalization.”
The second patient, Ruby Calid, had undergone surgery, and her physician felt she needed an extended hospital stay. The MCO’s discharge nurse
denied this request, after which the patient “experienced postsurgery complications forcing her to return to the hospital.” She argued in her lawsuit that
“these complications would not have occurred had [the MCO] approved
coverage for a longer hospital stay.”57
Both patients sued their health plans under a Texas law enacted in
2000 that allowed state tort damages for, among other things, an MCO’s
negligent coverage decisions. The US Supreme Court found the Texas law
to be preempted by ERISA. In his opinion for a unanimous court, Justice
Clarence Thomas wrote that “a benefit determination is part and parcel of
the ordinary fiduciary responsibilities connected to the administration of a
plan. . . . The fact that a benefits determination is infused with medical judgments does not alter this result.”58 He drew no distinction between medical
and nonmedical judgments by benefits plan administrators, and he summed
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
up the Supreme Court’s decision as follows: “[R]espondents bring suit only to
Law in Action
rectify a wrongful denial of benefits promised under ERISA-regulated plans, and do
The ongoing effort to protect patients from “surnot attempt to remedy any violation of a
prise bills” illustrates another effect of ERISA
legal duty independent of ERISA. We hold
preemption. For years, commercially insured
that respondents’ state causes of action fall
patients sometimes got unexpected medical bills
within the scope of [ERISA’s preemption
(a practice known as “balance billing”) when they
language] and are therefore completely
received emergency care, nonemergency care from
pre-empted . . . and removable to federal
out-of-network providers at in-network facilities,
and air ambulance services from out-of-network
district court.”59
providers, among other situations. More than 30
ERISA is thus the exclusive remedy
states had laws aimed at protecting patients from
for beneficiaries of employer-sponsored
balance billing, but because ERISA preemption
plans when challenging their MCOs’ UR
prevents states from regulating employers’ selfdecisions. Because ERISA allows only confunded plans, the state laws did not protect a huge
tractual damages and equitable relief (e.g.,
percentage of patients.
To end this practice, in late 2020, Congress
an injunction or repayment), the kinds of
passed and the president signed the No Surprises
remedies that would otherwise be available
Act (NSA), 42 U.S.C. §§ 300gg-131–135. Beginning
in state court are precluded. These preJanuary 1, 2022, as to emergency, air ambulance,
cluded remedies include awards for comand other specified services, it is illegal for providpensatory damages (e.g., money awards
ers to “balance bill” patients for more than their
for lost wages, pain and suffering, loss of
in-network cost-sharing amount if they did not
choose or know that the service would come from
consortium). As Justice Thomas pointed
an out-of-network provider.
out, Davila and Calid did have remedies
We can expect legal challenges and lobbying
under ERISA: they could have paid for the
efforts concerning the details of the law and its
disputed treatment (the medicine and the
regulations. This is particularly likely as to the
extra hospital days) and sought reimburseprocess for determining how much the insurer is
ment, or they could have sued preempto pay the provider in an NSA situation. States with
precursor laws are likely to revise or retract them.
tively to force the coverage. As a practical
Business strategies based on balance billing will
matter, though, those limited remedies are
be reevaluated. And health policy analysists will
hardly worth suing over and would not
wonder whether the new law reduces premiums
have “made the plaintiffs whole.”
and overall healthcare costs, as some predict.
The decision also creates a strange
injustice: tort and bad-faith claims against
non-ERISA health plans (i.e., individual
insurance policies, government plans, church-sponsored plans that have
elected not to be covered by ERISA) are not affected. Patients who suffer injury because of non-ERISA plans’ UR decisions are free to pursue
­traditional remedies in state court, whereas patients with identical injuries
resulting from identical decisions made by ERISA plans have no viable claim.
In a strongly worded concurring opinion that was joined by ­Justice
Stephen Breyer, Justice Ruth Bader Ginsburg wrote, “I . . . join the
Court’s opinion. But, with greater enthusiasm . . . I also join the rising
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293
judicial chorus urging that Congress and
[this] Court revisit what is an unjust and
Legal Brief
increasingly tangled ERISA regime.”60
She pointed out with favor the suggesI would like to compliment the House [ACA] bill
tion of one court of appeals: “The vital
for
one particular achievement. The convoluted
thing . . . is that either Congress or the
language brilliantly upholds the tradition of the
Court act quickly, because the current
original ERISA legislation in defying rational and
situation is plainly untenable.”61 These
straightforward analysis. That we’re already tryexhortations were written in 2004, and
ing to parse whether ERISA preemption is being
relaxed is an indication that Congress isn’t sure
the health reform debate of 2009–10
what to do.
was a grand opportunity for Congress
to address the “tangled ERISA regime,”
— Peter D. Jacobson, JD, MPH,
but unfortunately the injustice created
University of Michigan
by ERISA preemption was not addressed
(personal communication with one of the
(see Legal Brief).
authors)
It seems that ERISA preemption
issues will remain a tangled web unless
Congress decides to act. Because the issues pit patient rights against business
interests, risk raising healthcare costs, and would require bipartisan consensus, there is considerable doubt whether that will occur anytime soon.
Chapter Summary
This chapter discussed the following topics:
•
•
•
•
•
•
The history and demise of charitable immunity
The independent contractor concept
Agency concepts (apparent and “by estoppel”)
Vicarious and corporate liability
The rise of managed care
The Employee Retirement Income Security Act (ERISA) and
employer-sponsored health plans
Vocabulary
apparent agency
charitable immunity
dictum
utilization management (UM)
utilization review (UR)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Discussion Questions
1. Explain at least three reasons why hospitals today are more likely to be
liable for negligence that occurs within their walls than hospitals would
have been in the mid-twentieth century. From a policy perspective, do
you agree with this trend?
2. How is corporate liability different from vicarious liability under
respondeat superior?
3. What is the liability of an MCO when it makes decisions about
insurance coverage for hospital stays for a patient covered by employersponsored insurance? Why might an accountable care organization’s
liability for similar decisions be analyzed differently?
4. How has the federal No Surprises Act affected patients, providers, or
insurers? What is the current status of litigation over its regulations?
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295
The Court Decides
Norton v. Argonaut Insurance Co.
144 So. 2d 249 (La. Ct. App. 1962)
Landry, J.
[The plaintiffs are the parents of an infant
who died after a medication error in a 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 discharged from the hospital
at two and a half months, and her mother
administered the medication at home by using
a medicine dropper. The child was readmitted about two weeks later—on December 29,
1959—by her pediatrician, Dr. Bombet.]
On this occasion [Dr. Bombet] issued
admission orders on the infant to be placed
in the child’s hospital chart or record.
Included in his admission orders were
instructions regarding medication, diet, etc.,
and the notation that special medication was
being administered by the mother. In this
connection it appears that Mrs. Norton preferred to continue administration of the daily
maintenance dose of the Lanoxin herself
since she had been performing this function
since the child’s initial admission to the hospital on December 15th. Dr. Bombet noted in
the hospital admission orders of December
29, 1959, that special medication was being
given by the mother to thusly advise the hospital staff and employees that some medication was being administered the child other
than that which he placed on the order sheet
and would, therefore, be administered by the
hospital nursing staff.
On January 2, 1960 (Saturday) Dr. Stotler
examined the Norton baby at approximately
noon while in the course of making his
rounds in the hospital. As a result of this
examination he concluded that the child
needed an increase in the daily maintenance
dose of Lanoxin and instructed Mrs. Norton,
who was present in the room, to increase the
daily dose of the Lanoxin for that day only to
3 c.cs. instead of the usual 2.5 c.cs. Following this instruction to Mrs. Norton, Dr. Stotler
went to the nurse’s station in the hospital
pediatric unit floor to check the hospital chart
or record on the Norton infant and noted on
the Doctor’s Order Sheet contained therein
certain instructions among which only the
following is pertinent to the issues involved
herein: “Give 3.0 cc Lanoxin today for 1 dose
only.”
Dr. Stotler’s entry of the foregoing order
for medication constitutes the basis of plaintiff’s claim against Aetna as the professional
liability insurer of Dr. Stotler. It is frankly
conceded by Aetna that unless Dr. Stotler
indicated on the order sheet that he had
instructed the patient’s mother to increase
the daily maintenance dose of Lanoxin to
3.0 c.cs. and administer the medication, his
entry of the aforesaid prescription on the
order sheet would indicate that the nursing
staff of the hospital was to give the medication prescribed. It is further conceded that
under such circumstances the child was
subjected to the possibility of being administered a second dose of Lanoxin. The possibility thus presented is exactly what occurred
in the instant case. A member of the nursing
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
staff noting Dr. Stotler’s orders, administered
3 c.cs. of Lanoxin in its injectible [sic] form
instead of the elixir form which Dr. Stotler
intended. . . . It is readily conceded by all
concerned that the 3 c.cs. of Lanoxin administered the baby by hypodermic was a lethal
overdose and was in fact the cause of the
infant’s demise.
. . . [The day in question was a Saturday,
and the regular staff was not on duty. Florence Evans, a registered nurse whose regular
duties were administrative in nature, was
assisting in the pediatric unit that day. She
had not engaged in the actual clinical practice of nursing for some time, and she did not
know that Lanoxin was available in oral form;
the last she knew, Lanoxin was given only by
injection. Noting the doctor’s orders for “3 cc
of Lanoxin,” and seeing no indication that
it had been given, she decided to inject the
medication herself, even though she sensed
that this “appeared to be a rather large
dose,” according to the court.]
. . . She discussed the matter very briefly
with the student nurse, Miss Meadows, and
inquired of the Registered Nurse, Miss Sipes,
whether or not the child had previously
received Lanoxin. Mrs. Evans then examined the patient’s hospital chart and found
nothing [to indicate that] the child had been
receiving Lanoxin while in the hospital.
. . . Considering administration of the
drug only by hypodermic needle, Mrs. Evans,
accompanied by the Student Nurse, Miss
Meadows, went to the medicine room of the
pediatric unit and obtained two ampules of
Lanoxin each containing 2 c.cs. of the drug
in its injectable [sic] form. While pondering
the advisability of . . . administering what she
considered to be a large dose, Mrs. Evans
noted that Dr. Beskin, one of the consultants
on the child’s case, had entered the pediatric
ward so Mrs. Evans consulted him about the
matter and was advised that if Dr. Stotler
prescribed 3 c.cs. he meant 3 c.cs. Still not
certain about the matter Mrs. Evans also
CH07.indd 296
discussed the subject with Dr. Ruiz and was
informed by him in effect that although the
dose was the maximum dose that if the doctor had prescribed that amount she could
give it. [Despite her misgivings, she did give
the injection. The baby went into distress,
and despite emergency efforts, she died a
little more than an hour later.]
. . . The rule applicable in the instant case
is well stated in the following language [of an
earlier Louisiana case]:
(1) A physician, surgeon or dentist, according to the jurisprudence of this court and
of the Louisiana Courts of Appeal, is not
required to exercise the highest degree of
skill and care possible. As a general rule it
is his duty to exercise the degree of skill
ordinarily employed, under similar circumstances, by the members of his profession
in good standing in the same community
or locality, and to use reasonable care and
diligence, along with his best judgment, in
the application of his skill to the case.
. . . [I]t is manifest that Dr. Stotler was
negligent in failing to denote the intended
route of administration and failing to indicate that the medication prescribed had
already been given or was to be given by the
patient’s mother. It is conceded by counsel
for Dr. Stotler that the doctor’s oversight in
this regard exposed the child to the distinct
possibility of being given a double oral dose
of the medicine. Although it is by no means
certain from the evidence that a second dose
of oral Lanoxin would have proven fatal,
Dr. Stotler’s own testimony dose [sic] make
it clear that in all probability it would have
produced nausea. In this regard his testimony is to the effect that even if the strength
of two oral doses were sufficient to produce
death in all probability death would not
result for the reason that nausea produced
by overdosing would have most probably
induced the child to vomit the second dose
thereby saving her life. The contention that
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Dr. Stotler followed the practice and custom
usually engaged in by similar practitioners
in the community is clearly refuted and contradicted by the evidence of record herein.
Of the four medical experts who testified
herein only Dr. Stotler testified in effect that
it was the customary and usual practice to
write a prescription in the manner shown.
The testimony of Drs. Beskin, Bombet and
Ruiz falls far short of corroborating Dr. Stotler in this important aspect. The testimony
of Dr. Stotler’s colleagues was clearly to the
effect that the better practice is to specify
the route of administration intended. . . . In
view of the foregoing, we hold that the act
acknowledged by Dr. Stotler does not relieve
him from liability to plaintiffs herein on the
ground that it accorded with that degree of
skill and care employed, under similar circumstances, by other members of his profession in good standing in the community. We
find and hold that the record before us fails
to establish that physicians in good standing in the community follow the procedure
adopted by defendant herein but rather the
contrary is shown.
Pretermitting the issue of charitable
immunity (with which we are not herein
concerned in view of the fact that the suit
is against the insurer of the hospital in the
instant case) it is the settled jurisprudence
of this state that a hospital is responsible for
the negligence of its employees including,
inter alia, nurses and attendants under the
doctrine of respondeat superior.
[I]t is not disputed that Mrs. Evans was
not only an employee of the hospital but that
on the day in question she was in charge of
the entire institution as the senior employee
on duty at the time.
Although there have been instances in
our jurisprudence wherein the alleged negligence of nurses has been made the basis of
an action for damages for personal injuries
. . . we are not aware of any prior decision
297
which fixes the responsibility or duty of care
owed by nurses to patients under their care
or treatment. The general rule, however,
seems to be to extend to nurses the same
rules which govern the duty and liability of
physicians in the performance of professional
services. Thus . . . we find the rule stated as
follows:
The same rules that govern the duty and
liability of physicians and surgeons in the
performance of professional services are
applicable to practitioners of the kindred
branches of the healing profession, such
as dentists, and, likewise, are applicable to
practitioners such as drugless healers, oculists, and manipulators of X-ray machines
and other machines or devices.
The foregoing rule appears to be wellfounded and we see no valid reason why it
should not be adopted as the law of this state.
Tested in the light of [this rule] the negligence
of Mrs. Evans is patent upon the face of the
record. We readily agree with the statement
of Dr. Ruiz that a nurse who is unfamiliar with
the fact that the drug in question is prepared
in oral form for administration to infants by
mouth is not properly and adequately trained
for duty in a pediatric ward. As laudable as
her intentions are conceded to have been
on the occasion in question, her unfamiliarity with the drug was a contributing factor in
the child’s death. In this regard we are of the
opinion that she was negligent in attempting to administer a drug with which she was
not familiar. While we concede that a nurse
does not have the same degree of knowledge
regarding drugs as is possessed by members
of the medical profession, nevertheless, common sense dictates that no nurse should
attempt to administer a drug under the circumstances shown in [this] case. Not only
was Mrs. Evans unfamiliar with the medicine
in question but she also violated what has
been shown to be the rule generally practiced
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
by the members of the nursing profession
in the community and which rule, we might
add, strikes us as being most reasonable and
prudent, namely, the practice of calling the
prescribing physician when in doubt about
an order for medication. . . For obvious reasons we believe it the duty of a nurse when in
doubt about an order for medication to make
absolutely certain what the doctor intended
both as to dosage and route. . .
The evidence . . . leaves not the slightest
doubt that when Dr. Stotler entered the order
for the medication on the chart, it was the
duty of the hospital nursing staff to administer it. Dr. Stotler frankly concedes this important fact and for that reason acknowledged
that he should have indicated on the chart
that the medication had been given or was to
be given by the mother, otherwise some nurse
on the pediatric unit would give it as was
required of the hospital staff. Not only was
there a duty on the part of Dr. Stotler to make
this clear so as to prevent duplication of the
medication but also he was under the obligation of specifying or in some manner indicating the route considering the drug is prepared
in two forms in which dosage is measured
in cubic centimeters. In dealing with modern
drugs, especially of the type with which we
are herein concerned, it is the duty of the
prescribing physician who knows that the
prescribed medication will be administered by
a nurse or third party, to make certain as to
the lines of communication between himself
and the party whom he knows will ultimately
execute his orders. Any failure in such communication which may prove fatal or injurious to the patient must be charged to the
prescribing physician who has full knowledge
of the drug and its effects upon the human
system. The duty of communication between
physician and nurse is more important when
we consider that the nurse who administers
the medication is not held to the same degree
of knowledge with respect thereto as the
prescribing physician. It, therefore, becomes
the duty of the physician to make his intentions clear and unmistakable. If, as the record
shows, Dr. Stotler had ordered elixir Lanoxin,
or specified the route to be oral, it would have
clearly informed all nurses of his intention to
administer the medication by mouth. Instead,
however, he wrote his order in an uncertain,
confusing manner considering that the drug
in question comes in oral and injectible form
and that in both forms dosage is prescribed in
terms of cubic centimeters.
It is settled jurisprudence of this state
that where the negligence of two persons
combines to produce injury to a third, the
parties at fault are [jointly] liable to the
injured plaintiff.
[Thus, the court affirmed the jury’s verdict
and held everybody liable.]
Discussion Questions
1. How many mistakes can you count in this set of facts? At how many points could the
chain of errors have been interrupted?
2. If you were the hospital administrator, the chief of the medical staff, or the chief of
nursing, what action would you take to prevent recurrence of this tragedy?
3. This child’s death occurred more than 50 years ago, yet a 2007 report by the Institute of
Medicine (Preventing Medication Errors) states that at least 1.5 million people are injured
each year because of medication errors. According to the report, on average, at least one
medication error is made per hospital per patient per day. What safeguards are in place in
hospitals today to prevent these kinds of mistakes?
~
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~
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299
The Court Decides
Johnson v. Misericordia Community Hospital
99 Wis. 2d 708, 301 N.W.2d 156 (1981)
Coffey, J.
[This case involves negligent surgery performed on Mr. Johnson by Dr. Salinsky at
Misericordia Community Hospital in July
1975. Because of undisputed negligence by
the doctor, the patient (plaintiff ) has “a permanent paralytic condition of his right thigh
muscles with resultant atrophy and weakness and loss of function.” The doctor settled
before trial, but the hospital disputed allegations that it was negligent. A verdict in favor
of the plaintiff was affirmed by the court of
appeals.
Misericordia Community Hospital had previously been a religiously affiliated hospital,
but it was sold to a private group of physicians who first operated it as a nursing home
but subsequently reinstituted acute care services there. At the time of the incidents in this
case, the hospital was not accredited by The
Joint Commission.]
On March 5, 1973 . . . Dr. Salinsky applied
for orthopedic privileges on the medical staff.
In his application, Salinsky stated that he was
on the active medical staff of [other hospitals
and that] his privileges at other hospitals
had never “been suspended, diminished,
revoked, or not renewed.” In another part of
the application form, he failed to answer any
of the questions pertaining to his malpractice
insurance, i.e., carrier, policy number, amount
of coverage, expiration date, [and] agent, and
represented that he had requested privileges
only for those surgical procedures in which
he was qualified by certification.
In addition to requiring the above information, the application provided that significant
misstatements or omissions would be a
cause for denial of appointment. Also, in the
application, Salinsky authorized Misericordia to contact his malpractice carriers, past
and present, and all the hospitals that he
had previously been associated with, for the
purpose of obtaining any information bearing
on his professional competence, as well as
his moral and ethical qualifications for staff
membership. [The application also contained
language releasing the hospital from any liability as a result of doing a background check
on the applicant.]
Mrs. Jane Bekos, Misericordia’s medical
staff coordinator (appointed April of 1973)
testifying from the hospital records, noted
that Salinsky’s appointment to the medical
staff was recommended by the then hospital
administrator, David A. Scott, Sr., on June 22,
1973. Salinsky’s appointment and requested
orthopedic privileges, according to the hospital records, were not marked approved until
August 8, 1973. This approval of his appointment was endorsed by Salinsky himself.
Such approval would, according to accepted
medical administrative procedure, not be
signed by the applicant but by the chief of
the respective medical section. Additionally,
the record establishes that Salinsky was elevated to the position of Chief of Staff shortly
after he joined the medical staff. However,
the court record and the hospital records are
devoid of any information concerning the procedure utilized by the Misericordia authorities in approving either Salinsky’s appointment to the staff with orthopedic privileges or
his elevation to the position of Chief of Staff.
(continued)
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(continued from previous page)
Mrs. Bekos testified that although her
hospital administrative duties entailed
obtaining all the information available
regarding an applicant from the hospitals
and doctors referred to in the application for
medical staff privileges, she failed to contact
any of the references in Salinsky’s case. In
her testimony she attempted to justify her
failure to investigate Salinsky’s application
because she believed he had been a member
of the medical staff prior to her employment
in April of 1973, even though his application
was not marked approved until some four
months later on August 8, 1973. Further,
Mrs. Bekos stated that an examination of the
Misericordia records reflected that at no time
was an investigation made by anyone of any
of the statements recited in his application.
At trial, the representatives of two
­Milwaukee hospitals . . . gave testimony
concerning the accepted procedure for evaluating applicants for medical staff privileges.
Briefly, they stated that the hospital’s governing body, i.e., the board of directors or board
of trustees, has the ultimate responsibility in
granting or denying staff privileges. However,
the governing board delegates the responsibility of evaluating the professional qualifications of an applicant for clinical privileges to
the medical staff. The credentials committee
(or committee of the whole) conducts an
investigation of the applying physician’s or
surgeon’s education, training, health, ethics
and experience through contacts with his
peers in the specialty in which he is seeking
privileges, as well as the references listed
in his application to determine the veracity
of his statements and to solicit comments
dealing with the applicant’s credentials. Once
[this has been done, a recommendation is
relayed] to the governing body, which . . . has
the final appointing authority.
The record demonstrates that had [such
an investigation been conducted, Misericordia] would have found, contrary to [Dr.
Salinsky’s] representations, that he had in
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fact experienced denial and restriction of
his privileges, as well as never having been
granted privileges at the very same hospitals
he listed in his application. This information
was readily available to Misericordia, and a
review of Salinsky’s associations with various
Milwaukee orthopedic surgeons and hospital
personnel would have revealed that they considered Salinsky’s competence as an orthopedic surgeon suspect, and viewed it with a
great deal of concern.
[The court summarizes some of Dr. Salinsky’s professional history. At one hospital,
his request for expanded orthopedic privileges was denied after being on the staff for
a year and a half. At another, his privileges
were temporarily suspended and subsequently limited after a report of “continued
flagrant bad practices.” At a third, his initial
application for privileges was flatly denied.
The court adds, “The testimony at trial established many other discrepancies in Salinsky’s Misericordia application,” and it points
out that experts in the field testified that, in
their opinion, a prudent hospital would not
have granted Salinsky’s application under
these circumstances.]
The jury found that the hospital was negligent in granting orthopedic surgical privileges to Dr. Salinsky and thus apportioned
eighty percent of the causal negligence to
Misericordia. Damages were awarded in the
sum of $315,000 for past and future personal
injuries and $90,000 for past and future
impairment of earning capacity. . . .
Issues
1. Does a hospital owe a duty to its patients
to use due care in the selection of its
medical staff and the granting of specialized surgical (orthopedic) privileges?
2. What is the standard of care that a hospital must exercise in the discharge of this
duty to its patients[,] and did Misericordia fail to exercise that standard of care
in this case?
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Duty
At the outset, it must be noted that Dr. Salinsky was an independent contractor, not an
employee of Misericordia, and that the plaintiff is not claiming that Misericordia is vicariously liable for the negligence of Dr. Salinsky
under the theory of respondeat superior.
Rather, Johnson’s claim is premised on the
alleged duty of care owed by the hospital
directly to its patients.
. . . “The concept of duty in Wisconsin, as
it relates to negligence cases, is irrevocably
interwoven with foreseeability. Foreseeability
is a fundamental element of negligence.” In
[a prior case,] this court set the standard for
determining when a duty arises:
A defendant’s duty is established when
it can be said that it was foreseeable that
his act or omission to act may cause harm to
someone. A party is negligent when he commits an act when some harm to someone is
foreseeable. Once negligence is established,
the defendant is liable for unforeseeable
consequences as well as foreseeable ones.
In addition, he is liable to unforeseeable
plaintiffs.
Further, we defined the term “duty” as it
relates to the law of negligence:
The duty of any person is the obligation
of due care to refrain from any act which
will cause foreseeable harm to others even
though the nature of that harm and the
identity of the harmed person or harmed
interest is unknown at the time of the act.
Thus, the issue of whether Misericordia
should be held to a duty of due care in the
granting of medical staff privileges depends
upon whether it is foreseeable that a hospital’s failure to properly investigate and verify
the accuracy of an applicant’s statements
dealing with his training, experience and
qualifications as well as to weigh and pass
judgment on the applicant would present an
unreasonable risk of harm to its patients.
The failure of a hospital to scrutinize the
credentials of its medical staff applicants
could foreseeably result in the appointment
of unqualified physicians and surgeons to its
staff. Thus, the granting of staff privileges to
these doctors would undoubtedly create an
unreasonable risk of harm or injury to their
patients. Therefore, the failure to investigate
a medical staff applicant’s qualifications for
the privileges requested gives rise to a foreseeable risk of unreasonable harm and we
hold that a hospital has a duty to exercise
due care in the selection of its medical staff.
Our holding herein is in accord with
the public’s perception of the modern day
medical scientific research center with its
computed axial tomography (CAT-scan),
radio nucleide imaging thermography, microsurgery, etc., formerly known as a general
hospital. The public is indeed entitled to
expect quality care and treatment while [they
are patients] in our highly technical and
medically computed hospital complexes. The
concept that a hospital does not undertake
to treat patients, does not undertake to act
through its doctors and nurses, but only
procures them to act solely upon their own
responsibility, no longer reflects the fact.
. . . [T]he person who avails himself of our
modern “hospital facilities” . . . expects that
the hospital staff will do all it reasonably can
to cure him and does not anticipate that its
nurses, doctors and other employees will be
acting solely on their own responsibility.
Further, our holding is supported by the
decisions of a number of courts from other
jurisdictions. These cases hold that a hospital has a direct and independent responsibility to its patients, over and above that of the
physicians and surgeons practicing therein,
to take reasonable steps to (1) insure that
its medical staff is qualified for the privileges granted and/or (2) to evaluate the care
provided.
(continued)
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(continued from previous page)
[The court here embarks on a lengthy discussion of similar cases from various other
states. It points out the leading case of Darling v. Charleston Community Memorial Hospital, in which the Supreme Court of Illinois
found a direct duty flowing from hospital to
patient regarding the qualifications of members of the medical staff. The Johnson court
favorably quotes from the Darling opinion,
including the following passage: “The Standards for Hospital Accreditation, the state
licensing regulations and the defendant’s
bylaws demonstrate that the medical profession and other responsible authorities regard
it as both desirable and feasible that a hospital assume certain responsibilities for the
care of the patient.”]
There was credible evidence to the effect
that a hospital, exercising ordinary care,
[would have known of the deficiencies in Dr.
Salinsky’s qualifications and] would not have
appointed Salinsky to its medical staff. . . .
This court has held “. . . a jury’s finding
of negligence . . . will not be set aside when
there is any credible evidence that under any
reasonable view supports the verdict.
. . . Thus, the jury’s finding of negligence
on the part of Misericordia must be upheld
[because] the testimony of [the expert witnesses] constituted credible evidence which
reasonably supports this finding.
In summary, we hold that a hospital owes
a duty to its patients to exercise reasonable
care in the selection of its medical staff and
in granting specialized privileges. The final
appointing authority resides in the hospital’s
governing body, although it must rely on the
medical staff and in particular the credentials committee (or committee of the whole)
to investigate and evaluate an applicant’s
qualifications for the requested privileges.
However, this delegation of the responsibility
to investigate and evaluate the professional
competence of applicants for clinical privileges does not relieve the governing body of
CH07.indd 302
its duty to appoint only qualified physicians
and surgeons to its medical staff and periodically monitor and review their competency.
The credentials committee (or committee of
the whole) must investigate the qualifications of applicants. [Paragraph break added.]
The facts of this case demonstrate that
a hospital should, at a minimum, require
completion of the application and verify
the accuracy of the applicant’s statements,
especially in regard to his medical education, training and experience. Additionally, it
should: (1) solicit information from the applicant’s peers, including those not referenced
in his application, who are knowledgeable
about his education, training, experience,
health, competence and ethical character;
(2) determine if the applicant is currently
licensed to practice in this state and if his
licensure or registration has been or is currently being challenged; and (3) inquire
whether the applicant has been involved in
any adverse malpractice action and whether
he has experienced a loss of medical organization membership or medical privileges
or membership at any other hospital. The
investigating committee must also evaluate
the information gained through its inquiries
and make a reasonable judgment as to the
approval or denial of each application for
staff privileges. The hospital will be charged
with gaining and evaluating the knowledge
that would have been acquired had it exercised ordinary care in investigating its medical staff applicants and the hospital’s failure
to exercise that degree of care, skill and
judgment that is exercised by the average
hospital in approving an applicant’s request
for privileges is negligence. This is not to say
that hospitals are insurers of the competence
of their medical staff, for a hospital will not
be negligent if it exercises the noted standard of care in selecting its staff.
The decision of the Court of Appeals is
affirmed.
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Discussion Questions
1. In the opening paragraph of his classic 1881 treatise The Common Law, Oliver Wendell
Holmes Jr. wrote, “The life of the law has not been logic: it has been experience. The
felt necessities of the time, the prevalent moral and political theories, institutions of
public policy, avowed or unconscious, even the prejudices which judges share with their
fellow-men, have had a good deal more to do than the syllogism in determining the rules
by which men should be governed.” How is this case an example of the truth of this
passage?
2. Do you agree with the court’s rationale? What would have been the implications of the
opposite result?
3. Does this decision mean that a hospital will be liable for every incident of malpractice
committed by nonemployee members of its medical staff? Why or why not? Describe
a situation in which a hospital would be unlikely to be found liable for a physician’s
negligence that occurred within the hospital.
~
~
Notes
1. The origin of immunity in the United States is generally attributed
to McDonald v. Massachusetts Gen. Hosp., 120 Mass. 432, 21 A.529
(1876). This decision was a determining factor in the famous case of
Schloendorff v. Society of New York Hospital, 211 N.Y. 125, 105 N.E.
92 (1914), which is generally cited today for its dictum on negligence
versus battery (see chapter 12).
2. For a landmark case abolishing charitable immunity, see President &
Directors of Georgetown College v. Hughes, 130 F.2d 810 (D.C. Cir.
1942).
3. Colby v. Carney Hospital, 356 Mass. 527, 528, 254 N.E. 2d 407, 408
(1969) (internal citations omitted).
4. Lewis v. Physicians Ins. Co. of Wisconsin, 627 N.W.2d 484, 492 (Wis.
2001).
5. Foley v. Bishop Clarkson Memorial Hosp., 185 Neb. 89, 173 N.W.2d
881 (1970); Kastler v. Iowa Methodist Hosp., 193 N.W.2d 98 (Iowa
1917); McGillivray v. Rapides Iberia Management Enterprises, 493 So.
2d 819 (La. Ct. App. 1986). In addition, Lamont v. Brookwood Health
Services, Inc., 446 So. 2d 1018 (Ala. 1983), held that the standard of
care for hospitals was determined by the national hospital community.
6. Foley, 185 Neb. at 95, 173 N.W.2d at 885.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
7. See, e.g., Reifschneider v. Nebraska Methodist Hosp., 222 Neb. 782,
387 N.W.2d 486 (1986) (when a semiconscious patient was placed on
a cart in the hospital emergency department without use of restraints,
expert testimony was required to establish expected standard of care);
Rosemont, Inc. v. Marshall, 481 So. 2d 1126 (Ala. 1985) (standard
of care with respect to observation and supervision of patient’s
ambulatory status requires expert testimony).
8. See, e.g., Keeton v. Maury County Hosp., 713 S.W.2d 314 (Tenn. App.
1986) (the hospital staff knew or could foresee that the patient would
be in danger if moving about unassisted; expert testimony was not
necessary to establish breach of duty).
9. Reifschneider, 222 Neb. 782, 387 N.W.2d 486 (violation of a
physician’s order that patient be attended at all times presented a prima
facie case of negligence).
10. Hastings v. Baton Rouge Gen. Hosp., 498 So. 2d 713 (La. 1986)
(violation of hospital bylaws constitutes breach of duty and eliminates
the need for expert testimony); Therrel v. Fonde, 495 So. 2d 1046
(Ala. 1986) (when facts establish a significant delay in treatment,
expert testimony is not necessary to support a jury verdict that the
defendant failed to provide adequate security).
11. Heins v. Synkonis, 58 Mich. App. 119, 227 N.W.2d 247 (1975).
12. AMA Analysis Shows Most Physicians Work Outside of Private Practice,
Am. Med. Assoc. (May 5, 2021), https://www.ama-assn.org/presscenter/press-releases/ama-analysis-shows-most-physicians-workoutside-private-practice [https://perma.cc/RL6M-SR9F].
13. See, e.g., Sanchez v. Medicorp Health Sys., 270 Va. 299, 303 (2005);
Baptist Memorial Hosp. System v. Sampson, 969 S.W.2d 945 (Tex.
1998). In Baptist Memorial, the Texas Supreme Court wrote, “Many
courts use the terms ostensible agency, apparent agency, apparent
authority, and agency by estoppel interchangeably. As a practical
matter, there is no distinction among them.”
14. Vanaman v. Milford Memorial Hospital, 272 A.2d 718 (Del. 1970).
15. Schagrin v. Wilmington Medical Center, 304 A.2d 61 (Del. Super. Ct.
1973). See also, e.g., Mehlman v. Powell, 281 Md. 269, 378 A.2d 1121
(1977); Paintsville Hosp. Co. v. Rose, 683 S.W.2d 255 (Ky. 1985);
Jackson v. Power, 743 P.2d 1376 (1987).
16. Jackson v. Power, 743 P.2d 1376, 1385 (Alaska 1987).
17. Tonsic v. Wagner, 458 Pa. 246, 329 A.2d 497 (1974).
18. See Restatement (Second) of Agency § 226 (1958).
19. The trend was anticipated and forecast by Arthur Southwick (the
original author of this textbook) as early as 1960, when he wrote,
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C h a p t er 7 : L iab ility of the H ealthc are Institution
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
CH07.indd 305
305
“The third trend in the law of hospital liability is the most significant.
It is the increasing tendency . . . to impose vicarious liability on facts
where none would have been imposed heretofore. By some leading
decisions it no longer follows that a professional person using his own
skill, judgment and discretion in regard to the means and methods
of his work is an independent contractor. . . . Gradually, the test of
hospital liability for another’s act is becoming simply a question of
whether or not the actor causing injury was a part of the medical care
organization.” Arthur F. Southwick, Vicarious Liability of Hospitals, 44
Marq. L. Rev. 151, 182 (1960).
Bader v. United Orthodox Synagogue, 148 Conn. 449, 453, 172 A.2d
192, 194 (1961).
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).
Phillips v. Powell, 210 Cal. 39, 290 P.2d 441 (1930); Milner v.
Huntsville Memorial Hosp., 398 S.W.2d 647 (Tex. App. 1966).
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).
Peck v. Charles B. Towns. Hosp., 275 A.D. 302, 89 N.Y.S.2d 190
(1949).
Garcia v. Memorial Hospital, 557 S.W.2d 859 (Tex. 1977).
Hamil v. Bashline, 224 Pa. Super. 407, 307 A.2d 57 (1973).
Wilson N. Jones Memorial Hospital v. Davis, 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).
Wilson N. Jones Memorial Hospital v. Davis, 553 S.W.2d at 181.
Darling v. Charleston Community Memorial Hosp., 33 Ill. 2d 326,
211 N.E.2d 253 (1965), cert. denied, 383 U.S. 946 (1966). There are
many other cases in accord, some of which are cited later.
Pederson v. Dumouchel, 72 Wash. 2d 73, 431 P.2d 973 (1967).
Burks v. Christ Hospital, 19 Ohio St. 2d 128, 249 N.E.2d 829
(1969).
Kakligian v. Henry Ford Hosp., 48 Mich. App. 325, 210 N.W.2d 463
(1973).
Keene v. Methodist Hospital, 324 F. Supp. 233 (N.D. Ind. 1971).
Keene, 324 F. Supp. at 234–35.
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.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
CH07.indd 306
Bishop Clarkson Memorial Hosp., 185 Neb. 89, 173 N.W.2d 881
[1970]). Moreover, hospitals are held to standards and practices
prevailing generally, not only in the local community but also in similar
or like communities in similar circumstances (Dickinson v. Mailliard,
175 N.W.2d 588 [Iowa 1970]).
Darling v. Charleston Community Memorial Hospital, 33 Ill. 2d 326,
211 N.E.2d 253, cert. denied, 383 U.S. 946 (1966).
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).
Andrea G. Nadel, Hospital’s Liability for Negligence in Failing
to Review or Supervise Treatment Given by Doctor, or to Require
Consultation, 12 A.L.R.4th 57 § 2[a], superceding W. E. Shipley.
Hospital’s Liability for Negligence in Failing to Review or Supervise
Treatment Given by Doctor, or to Require Consultation, 14 A.L.R.3d
873, 879 (1967).
Joiner v. Mitchell County Hospital Authority, 125 Ga. App. 1, 186
S.E.2d 307, aff’d, 229 Ga. 140, 189 S.E.2d 412 (1972).
The New York courts have also recognized that hospitals have a duty
to patients to select and retain staff physicians with care. See Fiorentino
v. Wenger, 19 N.Y.2d 407, 227 N.E.2d 296, 299, 280 N.Y.S.2d 373,
378 (1967), in which the court stated, “More particularly, in the
context of the present case, a hospital will not be liable for an act of
malpractice performed by an independently retained healer, unless it
has reason to know that the act of malpractice would take place.”
Moore v. Board of Trustees of Carson-Tahoe Hospital, 88 Nev. 207,
495 P.2d 605, cert. denied, 409 U.S. 879 (1972).
Id., 495 P.2d at 608. See also Pedroza v. Bryant, 101 Wash. 2d 226,
677 P.2d 166 (1984) (hospitals owe independent duty to patients to
use reasonable care in selection and retention of medical staff; duty
does not extend to the patient of a physician who allegedly committed
malpractice in private office practice).
Gonzales v. Nork, Civ. No. 228566 (Super. Ct. Sacramento County,
Cal. Nov. 27, 1973), rev’d for failure to grant jury trial, 60 Cal. App.
3d 728, 131 Cal. Rptr. 717 (1976), rev’d and remanded, 20 Cal. 3d
500, 573 P.2d 458, 143 Cal. Rptr. 240 (1978).
Johnson v. Misericordia Community Hospital, 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).
Johnson, 99 Wis. 2d at 723, 301 N.W.2d at 164.
Bing v. Thunig, 2 N.Y.2d 656, 143 N.E.2d 3, 163 N.Y.S.2d 3
(1957).
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307
47. See, e.g., Medline Plus, Nat’l Libr. Med., https://medlineplus.gov/
managedcare.html [https://perma.cc/9CTP-PJHZ] (last visited June
10, 2022).
48. Wickline v. State, 192 Cal. App. 3d 1630, 239 Cal. Rptr. 810 (Ct.
App. 1986).
49. Wickline, 192 Cal. App. 3d at 1633–35, 239 Cal. Rptr. at 811–12.
50. Wickline, 192 Cal. App. 3d at 1645, 239 Cal. Rptr. at 819.
51. Wilson v. Blue Cross of Southern California, 222 Cal.App.3d 660, 271
Cal. Rptr. 876 (Ct. App. 1990).
52. Wilson, 222 Cal.App.3d at 672, 271 Cal. Rptr. at 883.
53. Both quotes Wilson, 222 Cal.App.3d at 667, 271 Cal. Rptr. at 880.
54. U.S.C. § 1001 et seq.
55. 29 U.S.C. § 1144(a).
56. Aetna Health, Inc. v. Davila, 542 U.S. 200 (2004).
57. Davila, 542 U.S. at 205.
58. Davila, 542 U.S. at 219.
59. Davila, 542 U.S. at 214 (internal quotation marks omitted).
60. Davila, 542 U.S.at 222 (Ginsburg, J. dissenting) (internal quotation
marks omitted).
61. Davila, 542 U.S. at 223 (Ginsburg, J. dissenting).
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02/01/23 2:01 PM
CHAPTER
MEDICAL STAFF PRIVILEGES AND PEER
REVIEW
8
After reading this chapter, you will
• know that the hospital board is ultimately responsible for the
overall quality of care rendered in the facility;
• understand that medical staff membership is not limited to those
with a doctor of medicine (MD) degree;
• recognize the role that physicians play in accountable care
organizations and similar entities outside Medicare;
• be aware that the courts usually support a hospital’s decision
on medical staff privileges if a fundamentally fair process was
followed;
• appreciate the liability issues inherent in the peer review process
under the Health Care Quality Improvement Act; and
• understand the emerging role of complementary and alternative
medicine practitioners.
Overview
This chapter concentrates on the relationship between the general acute care
hospital and its organized medical staff, especially as it relates to ­medical staff
privileges. The chapter also explores differences in the hospital–­physician
relationship when physicians are employees rather than independent
contractors.
With some minor variations, the principles discussed here apply both
to hospitals and to other healthcare institutions that grant licensed professionals the privilege to use their facilities when caring for patients. Therefore, unless otherwise indicated by the context, in this chapter, the word
hospital usually includes other kinds of healthcare provider organizations.
In addition, note that the term physician includes not only those with an
MD degree, but also certain other licensed practitioners as defined by the
Medicare statute.
309
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The Medical Staff Organization
A structured medical staff is an essential part of a hospital. It is a miniature
version of a corporation, complete with bylaws and rules that regulate the
functions delegated to it by the governing board; some medical staffs are, in
fact, incorporated, although this is not common. The functions of the medical staff organization include the following:
• Serving as liaison between the board and the medical staff
• Implementing the clinical aspects of corporate policies
• Investigating applicants’ backgrounds and recommending applicants for
medical staff membership
• Supervising the quality of medical care provided throughout the facility
by means of a peer review process
• Providing continuing medical education
The medical staff organization is founded on a set of bylaws approved
by the hospital’s governing board. These bylaws define the structure of the
medical staff, its areas of delegated authority, the functions of its committees,
processes for peer review actions, and the lines of communication between
the staff and the governing board.
If a multihospital system has separate medical staffs for each facility,
the system’s governing board must have a mechanism for communicating
with each facility’s medical staff, and each medical staff must have a means of
interacting with the corporate office. Healthcare systems commonly employ
a physician liaison—referred to as the chief medical officer, corporate director
of medical affairs, or similar title—to help form a meaningful relationship
between staff physicians and hospital and system administrators.
Because peer review and selection of medical staff members are
responsibilities of the hospital’s governing board, physician representation
on the board is advisable. Although conflicts between clinical and operational
interests can occur, the arguments favoring integration of physicians into
hospital governance far outweigh those favoring a board of trustees made up
entirely of lay members.
The passage of the Affordable Care Act (ACA) in 2010 raised salient
questions about the relationship between the hospital corporation and its
medical staff members. For example, consider the following:
• As hospital–physician integration becomes more prevalent, prompted
by arrangements such as accountable care organizations (ACOs), how
will the management and control of operational functions and quality
review be allocated?
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311
• As physicians increasingly choose to work within large entities, will
patient care improve and become more equitable?
• How can hospital management support physicians in their individual
practices, or require them to take Medicaid patients, in the absence of
an ACO or other integrative arrangements?
• How will the quality of care be assessed and controlled?
• As hospital–physician relationships change, will there be joint liability
for decisions about the selection of the medical staff?
• If the hospital corporation creates an ACO and the ACO improves
its quality metrics and reduces the costs to Medicare, how will the
resulting shared savings be divided among participating physicians and
facilities?
Answers to these and similar questions will continue to evolve as public policy
decisions on healthcare reform are made.
Relationships Among Board, Management,
and Medical Staff
For many years, hospitals have been described as resting on a “three-legged
stool” comprising the governing board, medical staff, and executive management. For a hospital to run smoothly and serve its community well, the three
legs of that stool must be stable. The Joint Commission put it this way:
How well leaders work together and manage conflict affects a hospital’s performance. In fulfilling its role, the governing body involves senior managers and
leaders of the organized medical staff in governance and management functions.
Good relationships thrive when leaders work together to develop the mission, vision, and goals of the hospital; encourage honest and open communication; and address conflicts of interest.1
A breakdown in this tripartite relationship can have serious consequences, as exemplified by a Minnesota case in which a medical staff filed suit
against its own hospital. Tension and conflict had begun after a city-owned
hospital was acquired by an out-of-state health system in 2009. The hospital
board attempted to deal with the situation by unilaterally rescinding and
replacing the medical staff organization’s bylaws, but disgruntled members
of the medical staff filed suit. The hospital asked that the case be dismissed
on the grounds that the medical staff lacked standing to sue.
At the heart of the case was the question of who has ultimate control of a hospital: the governing board or the medical staff. The lower
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
courts granted summary judgment in the
hospital’s favor, and the medical staff
The Joint Commission on Discord
appealed. In December 2014, the MinneA hospital with an organized medical staff and
sota Supreme Court ruled that the medical
governing body that cannot agree on amendments
staff could in fact sue the hospital, and it
to critical documents has evidenced a breakdown
remanded the case for further proceedings
in the required collaborative relationship.
on the merits of the claims.2
—The Joint Commission, Comprehensive
Thus, after more than two years of
­Accreditation Manual,
procedural
wrangling and nearly six years
Rationale for MS.01.01.03 (2021)
of discontent, the ultimate issue remained
unsettled, the drama and dysfunction continued, and the case shifted back to the trial court. The hospital again moved
for summary judgment, that motion was again granted, and the medical staff
again appealed. In July 2016, the Minnesota Court of Appeals affirmed the
trial court’s decision.3 The case has not reappeared in the legal literature
and perhaps has been resolved, but one suspects that the friction between
the physicians and the governing board continued for some time. It serves
as a reminder of the serious problems that can arise when there are disputes
between the medical staff and hospital leadership. Given the ACA’s emphasis
on hospital–physician integration and quality measurement, maintaining a
well-balanced “three-legged stool” is more important than ever (see The
Joint Commission on Discord).
privileging
The process
whereby the
specific scope
and content
of patient care
(clinical) services
are authorized
for a healthcare
practitioner by
a healthcare
organization
on the basis of
evaluation of
the individual’s
credentials and
performance
(The Joint
Commission, Hospital
Accreditation
Standards, Glossary
at GL-9, GL-32).
CH08.indd 312
Appointment of the Medical Staff
Duty of Reasonable Care
As discussed in chapter 7, the hospital governing board has ultimate responsibility for the quality of patient care, and members of the governing board
have a duty to exercise reasonable care in (1) reviewing the credentials of
medical staff applicants and (2) privileging them to work in the facility. If
the physicians are employees, respondeat superior applies and the hospital may
be held liable for negligence in granting medical staff privileges. A hospital
may also be held liable for negligence in granting privileges to independent
contractors because the hospital’s duty to select medical staff physicians carefully and to monitor the quality of care is separate from its responsibility as
an employer.4 This concept is referred to variously as corporate liability, institutional liability, or direct liability.
The governing board may not abdicate its responsibility for quality. The
board’s duty cannot be delegated to the medical staff organization, the local
medical society, or any other group or individual. Although lay members of
the governing board might not be qualified to judge physicians’ professional
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C h a p te r 8: Medic al Staff Pr iv ileges and Peer Rev iew
competencies, they must ensure that a
reliable review process is in place so that
physicians’ peers may do so. The board
thus authorizes the medical staff to investigate applicants’ backgrounds and quality concerns involving active physician
members. The board usually approves the
medical staff’s recommendations, but the
staff’s role is advisory only; the board has
ultimate decision-making responsibility
(see Legal Brief).5
Standards for Medical Staff
Appointments
Legal Brief
A physician friend and I (Stuart Showalter) were
talking about appointments to the medical staff.
He made a comment that led me to ask, “Who
makes the decisions about medical staff privileges
in your hospital?” His reply was, “The medical staff
credentials committee, of course.”
I had to disabuse him of this notion. Although
the medical staff’s recommendations are usually
adopted, the board has ultimate responsibility to
decide. Board members must therefore ensure
that the medical staff committee is following the
credentialing process properly and must be prepared to ask appropriate questions and exercise
independent judgment.
Nearly a century ago, the US Supreme
Court held that a licensed physician does
not have a constitutional right to a medical staff appointment.6 However, as discussed in chapter 4, government hospitals are engaged in “state action” when they make decisions about medical
staff privileges. Therefore, they must extend the constitutional rights of due
process and equal protection to applicants for medical staff appointments and
to current staff members who are subject to disciplinary action.7
Private hospitals, on the other hand, are not instrumentalities of the
state for constitutional purposes.8 They do not become “state actors” merely
because they are highly regulated and receive payments from government
programs such Medicare and Medicaid,9 and they are not performing a public
function when appointing physicians to their medical staffs.10
Having said that, any difference between public and private hospitals’
duties in matters of medical staff privileges disappeared decades ago because
of accreditation standards and statutory law.11 Thus, healthcare organizations—whether public or private—must ensure that their medical staff
­policies are fundamentally fair. Privileging decisions must be based solely
on the individual’s skills and the community’s needs and must be devoid
of illegal discrimination or other inappropriate factors to infect the process.
Fortunately, overt racial discrimination—such as was involved in the Simkins
case discussed in chapter 1—is rare today, but more subtle forms of bias can
occur based on gender, race, religion, sexual orientation, or other criteria.
Allegations of anticompetitive motives are also a staple of court cases challenging denials of medical staff privileges, as will be seen in the Patrick case
later in this chapter.
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313
credentialing
A process for
establishing the
qualifications
and competence
of medical staff
applicants through
review of their
training, licensure,
and practice
history.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
In a legal challenge to a decision about medical staff privileges, the
focus is often on whether fair and appropriate processes were followed rather
than on the substance of the decision. Several statutes and principles shape
this duty, including:
• constitutional provisions, when applicable (as explained earlier),
• state and federal nondiscrimination statutes,
• the public policy of fundamental fairness as expressed in judicial
decisions,
• state and federal antitrust statutes prohibiting unlawful restraints of
trade, and
• tort law precedents prohibiting malicious interference with a
physician’s right to practice.
Discrimination Against Non-MD Providers
In addition to constitutional issues and nondiscrimination statutes regarding race, sex, and so on, hospitals are prohibited by common law from
arbitrarily excluding whole classes of non-MD practitioners. A seminal case
on this point was decided six decades ago in New Jersey. In Greisman v.
Newcomb Hospital,12 the plaintiff was a doctor of osteopathy (DO) who had
been granted an unrestricted license to practice medicine and surgery in the
state of New Jersey. He was the only osteopath in an area of about 100,000
people, and Newcomb Hospital—a private not-for-profit corporation—was
the only hospital.
Newcomb Hospital refused to permit Dr. Greisman to apply for
admission to its medical staff. Its decision rested on a provision in the hospital’s bylaws stating that applicants must be graduates of a medical school
approved by the American Medical Association (AMA) and must be members
of the county medical society. The county had not acted on Dr. Greisman’s
application to the county medical society, and he was not a graduate of an
approved school because the AMA did not approve schools of osteopathy at
the time.
By the time the case came to the New Jersey Supreme Court, the
American Hospital Association and The Joint Commission had changed their
policies and begun to approve of hospitals having DOs on their staffs. Following their lead, the AMA adopted a policy statement allowing DOs “where
it was determined locally that they practice on the same scientific principles as
those adhered to by the American Medical Association.”13 The state medical
society in New Jersey had also dropped its opposition. Thus, the Supreme
Court of New Jersey—without the benefit of a constitutional or statutory
foundation and without relying on tort or antitrust principles—simply held
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315
that the hospital could not arbitrarily refuse to consider Dr. Greisman’s application. The decision was based on what the court felt was a fundamental public policy: A hospital has a duty to serve the public’s best interests, especially
when it is the only hospital in town.
In addition to common-law principles, statutes may prohibit a hospital
from summarily dismissing an application solely because the applicant is an
osteopath, a podiatrist, or a non-MD practitioner. For example, the relevant
Ohio statute reads as follows:
The governing body of any hospital, in considering and acting upon applications
for staff membership or professional privileges within the scope of the applicants’ respective licensures, shall not discriminate against a qualified person
solely on the basis of whether that person is certified to practice medicine,
osteopathic medicine, or podiatry, or licensed to practice dentistry or psychology. Staff membership or professional privileges shall be considered and acted
on in accordance with standards and procedures established [by the governing
body].14
The California statute includes an affirmative obligation to allow podiatrists
access to hospital facilities:
The rules of a health facility shall include provisions for use of the facility
by, and staff privileges for, duly licensed podiatrists within the scope of their
respective licensure, subject to rules and regulations governing such use or
privileges established by the health facility. Such rules and regulations shall
not discriminate on the basis of whether the staff member holds a[n] MD, DO,
or DPM degree.15
A similar California provision requiring medical staffs to be open to clinical psychologists includes language that summarizes the general principle at
work: “Competence shall be determined by health facility rules and medical
staff bylaws that are necessary and are applied in good faith, equally and in
a nondiscriminatory manner, to all practitioners, regardless of whether they
hold an MD, DO, DDS, DPM, or doctoral degree in psychology.”16
Rather than listing specific degrees, The Joint Commission simply
states that “licensed independent practitioners are credentialed and privileged
by the organized medical staff.” It defines a licensed independent practitioner
as “any individual permitted by law and by the organization to provide care,
treatment, and services, without direction or supervision.”17 In short, applicants for hospital privileges must be evaluated fairly based on their professional qualifications and competence. Exclusion of entire classes of non-MD
practitioners is not permitted.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
General Standards and Judicial Review
If we assume that the hospital does not discriminate against entire classes of
persons, how may it define its qualifications for medical staff privileges? This
question was the focus of Sosa v. Board of Managers of Val Verde Memorial
Hospital.18 Over a number of years, Dr. Sosa had attempted and failed to gain
appointment to the medical staff of Val Verde Memorial Hospital. His application had been denied after the medical staff credentials committee found
his “character, qualifications, and standing in the community” inadequate.
Although the hospital’s written criteria were vague, the committee listed nine
specific reasons—each supported by evidence—for denying him privileges
(see Law in Action).
The hospital board concurred with the committee’s recommendations, and the US Court of Appeals deemed the hospital’s standards sufficiently clear, stating,
[S]taff appointments may be . . . refused if the refusal is based upon any reasonable basis such as the professional and ethical qualifications of the physicians or
the common good of the public and the Hospital. Admittedly, standards such as
“character, qualifications, and standing” are
Law in Action
very general, but this court recognizes that in
the area of personal fitness for medical staff
privileges precise standards are difficult if not
In Dr. Sosa’s case, the evidence showed that the
doctor had:
• abandoned obstetric patients in active labor
because they could not pay his bill;
• lacked knowledge of basic surgery techniques,
operating procedures, and instrument use;
• demonstrated an unstable physical demeanor
and a markedly nervous manner, both of which
were likely to jeopardize surgical patients;
• suffered from an unstable and dangerous
mental condition, which manifested in anger
and fits of rage;
• received unsatisfactory reports from references
in his application;
• followed an itinerant medical practice pattern
since completing his education;
• pleaded guilty to two felony charges;
• had his license to practice suspended in two
states; and
• violated five of the ten principles of medical
ethics.
impossible to articulate.
The subjectives of selection simply
cannot be minutely codified. 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 codified 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 reasonably 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.19
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317
The court concluded with this excellent summary of the principles of judicial
review in this area:
It is the [hospital] Board, not the court, which is charged with the responsibility 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 governing board must be given
discretion in its selection so that it can have confidence 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 [ensuring]
that the qualifications imposed by the Board are reasonably related to the operation of the hospital and fairly administered. 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. Courts must not attempt to take on the escutcheon of Caduceus.20
This case demonstrates that due process and fundamental fairness cannot be defined precisely; they are general principles that allow for interpretation based on the time, place, and circumstances of each case. An applicant
must be given notice of the charges under consideration and an opportunity
to rebut them at a hearing on the matter, but otherwise the standards are,
by necessity, indefinite. They will be shaped by the staff bylaws, and those
bylaws should, of course, be consistent with applicable laws and accreditation
standards.
Consistent with these standards, the courts have upheld adverse
actions against physicians for the following reasons:
• Lack of surgical judgment, lack of a surgical assistant, and assisting
another who had no surgical privileges (all backed by supporting
evidence)21
• Failure to carry prescribed malpractice insurance coverage22
• Failure to comply with rules regarding the maintenance and
completion of medical records23
• Failure to supply references with the application24
• Violation of a rule requiring a full staff member to be in attendance
when an associate medical staff member performs major surgery25
• Refusal to abide by reasonable medical staff bylaws26
• Refusal to serve on a rotating basis in the emergency department27
• Failure to consult with other physicians before performing surgery or
delivering medical treatment, as defined by medical staff protocols28
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318
T h e L aw o f H e a l th c a re A d mi n i stra ti o n
The circumstances of each case are different, but this list demonstrates that
the courts give healthcare institutions considerable leeway to make decisions
based on the needs of patients and the quality of care.
Peer Review, Discipline, and the Health Care Quality
Improvement Act
The governing board is responsible for monitoring the professional qualifications of the medical staff, but most board directors are not qualified to judge
the professional competence of clinicians. For this reason, under the board’s
supervision, the medical staff organization must continually assess the quality
of care provided in the facility. (This topic is closely related to the utilization
review and case management function discussed in chapter 2.) Quality assessment has increased in importance with advances in the ability to collect data
on process and outcome metrics related to patient care. Another driver is
the increased role that quality data play in insurance reimbursement arrangements, from shared savings programs to hospital readmission penalties. The
following discussion begins with a summary of the common law governing
peer review and discipline, proceeds to a lengthy discussion of peer review
under the federal Health Care Quality Improvement Act (HCQIA) of 1986
and concludes with a few words about the confidentiality of peer review
records and about national fraud data banks.
The Common Law
As noted earlier, the courts generally defer to a hospital’s decisions about
medical staff discipline if fair processes were followed and there is sufficient
evidence of poor quality or intolerable behavior. Moore v. Board of Trustees of
Carson-Tahoe Hospital is a classic example of the hospital’s duties under the
common law—to wit, to exercise reasonable care in selecting and retaining
medical staff and to extend due process to the physician when disciplinary
action is undertaken.29
Moore involved the termination of a medical staff appointment at a
Nevada public hospital. Dr. Moore had been licensed to practice in Nevada
and was certified by his professional board in obstetrics and gynecology.
The specific acts that led to Dr. Moore’s termination were not expressly
prohibited in the medical staff bylaws or Carson-Tahoe Hospital’s rules and
regulations, but the hospital’s governing body terminated his privileges on
the ground of “unprofessional conduct.” The facts showed that he did not
exercise proper sterile technique in administering a spinal anesthetic to an
obstetrics patient. Specifically, he had not worn sterile gloves while preparing the medication, performing the skin preparation, and handling the spinal
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319
needle. Two days later, the chief of the
medical staff, with concurrence of another
Legal Decision Point
physician, canceled Dr. Moore’s scheduled
surgery for that day, attesting that he was
Why do you suppose Dr. Moore was “in no condi“in no condition physically or mentally
tion”
to perform the intended surgery? Should the
to perform surgery” (see Legal Decision
trial record and appellate decision have described
Point).
his condition specifically? Why do you suppose
Dr. Moore sued to regain his hosthey did not?
pital privileges. He did not allege any deficiency in the procedural aspects of the case
because at the hearing he was permitted to
have counsel, call witnesses of his own, and cross-examine adverse witnesses.
But he claimed that “unprofessional conduct” was too vague a standard on
which to revoke his privileges and that he was, therefore, denied substantive
due process of law.
The Nevada Supreme Court disagreed, citing this language from a Florida
Legal Brief
case: “Detailed description of prohibited
conduct is concededly impossible, perhaps even undesirable in view of rapidly
“Substantive due process” is a principle of constishifting standards of medical excellence
tutional law stating that the Fifth and ­Fourteenth
Amendments to the US Constitution protect cerand fact that a human life may be and
tain fundamental, unenumerated rights from govquite often is involved in the ultimate
ernment interference. These rights, also known
decision of the board.”30 The court held
as “liberty interests,” are often described as
that the language “unprofessional conapplying to intimate and family decisions. Over
duct” was objective enough to justify the
many decades, the US Supreme Court has brought
board’s decision to terminate the doctor’s
within this privacy-grounded right a variety of
practices including interracial marriage, contraprivileges.
ceptive use, homeschooling, consensual adult
In rendering its opinion, the
sexual activity, and same-sex marriage. The right
Nevada Supreme Court made these obserto abortion was grounded in substantive due
vations about the status of the hospital as
process until June 2022, when the Supreme Court
an institution—prophetic words that ring
overruled precedent to that effect and allowed
even truer more than four decades later:
states to prohibit or criminalize it. Although the
Today, in response to demands of the public,
the hospital is becoming a community health
center. 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 institu-
decision, Dobbs v. Jackson Women’s Health Organization, explicitly concerned only the right to
obtain an abortion, the dissenting justices and
many commentators fear that the case may lead to
the weakening or repudiation of other substantive
due process rights as well, as called for by Justice
Clarence Thomas in his concurrence, which no
other justice joined. (See the discussion of Dobbs
in chapter 15.)
tion to create a workable system whereby the
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
medical staff of the hospital continually reviews and evaluates the quality of care
being rendered within the institution. The staff must be organized with a proper
structure to carry out the role delegated to it by the governing body. All powers
of the medical staff flow from the board of trustees, and the staff must be held
accountable for its control of quality. The concept of corporate responsibility for
the quality of medical care was forcibly advanced in Darling v. Charleston Community Memorial Hospital, wherein the Illinois Supreme Court held that hospitals and
their governing bodies may be held liable for injuries resulting from imprudent or
careless supervision of members of their medical staffs.
The role of the hospital vis-a-vis the community is changing rapidly. The
hospital’s role is no longer limited to the furnishing of physical facilities and equipment where a physician treats his private patients and practices his profession in
his own individualized manner.
The right to enjoy medical staff privileges in a community hospital is not an
absolute right, but rather is subject to the reasonable rules and regulations of the
hospital. Licensing, per se, furnishes no continuing control with respect to a physician’s
The Triple Aim
professional competence and therefore does
not assure the public of quality patient care.
According to the Institute for Healthcare Improvement (IHI), a focus on three critical objectives
simultaneously can lead us to better models for
providing healthcare. The IHI calls this approach
the “Triple Aim,” and it is intended to
• improve the health of the defined population;
• enhance the patient care experience (including
quality, access, reliability); and
• reduce, or at least control, the cost of care.
In 2007, the IHI launched initiatives to translate the Triple Aim concept into specific actions for
change. The result was a model and a set of specific objectives to fulfill the Triple Aim in practice.
This system includes the following components:
• A focus on individuals and families
• Redesign of primary care services and
structures
• Population health management
• A cost-control platform
• System integration and execution
See Triple Aim for Populations, Inst. for
Healthcare Improvement, http://www.ihi.org/
Topics/TripleAim [https://perma.cc/
W52D-RE4X] (last visited June 18, 2022).
CH08.indd 320
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 also
be predicated upon a reasonable standard.31
Moore stands as an excellent example of how (1) the medical staff properly
exercises its responsibility for quality-ofcare issues; (2) a governing board should
act on the medical staff’s recommended
corrective action before injury to a patient
occurs; and (3) courts usually defer to a
hospital’s decisions if they are based on
reasonable criteria related to the quality
of care.
Moore and cases like it give healthcare organizations the incentive, authority,
and responsibility to focus on quality and
to pursue the “triple aim” of better health,
better care, and reduced cost (see The
Triple Aim).
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321
The Joint Commission’s accreditation standards for medical staff privileges are based on the following areas of general competency:
•
•
•
•
•
•
Patient care
Medical or clinical knowledge
Practice-based learning and improvement
Interpersonal and communication skills
Professionalism
Systems-based practice32
The standards also include the concepts of focused professional practice
evaluation (used when specific questions about competency arise) and ongoing professional practice evaluation.33 Together, these processes are intended
to identify performance issues that affect the quality of care and to resolve
them as early as possible, with intervention by the organized medical staff if
necessary.
Peer Review Under the Health Care Quality Improvement Act
Peer review is meant to be a discreet evaluation of physicians’ performance
to see whether accepted standards of care were met and to suggest quality improvements if they were not. The HCQIA provides a framework
for accomplishing peer review and for protecting persons involved in the
process.34
The courts’ deference to hospitals’ decisions about staff privileges
waned somewhat in the 1970s, for two major reasons. The first was the
large increase in medical malpractice lawsuits in the 1970s. As the number
of suits increased, so did the perception of medical incompetence and fear
that discredited physicians could move across state lines and begin practice
again without anyone knowing about their substandard performance. This
apprehension prompted the creation of the HCQIA’s National Practitioner
Data Bank (NPDB).
The second reason for increased scrutiny of hospitals’ privileging
decisions involved claims of malicious interference with the right to practice
and antitrust suits for restraint of trade. The 1988 US Supreme Court case
Patrick v. Burget is a prime example.35
The Patrick Case
Dr. Timothy Patrick was a general and vascular surgeon in Astoria, Oregon,
a coastal town of 10,000 people located far from a major population center. After practicing with the Astoria Clinic for a year, Dr. Patrick started a
competing practice and, along with his former colleagues, maintained his
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
surgical privileges at Astoria’s only hospital. According to the US Supreme
Court’s opinion,
After petitioner established his independent practice, the physicians associated
with the Astoria Clinic consistently refused to have professional dealings with
him. Petitioner received virtually no referrals from physicians at the Clinic, even
though the Clinic at times did not have a general surgeon on its staff. Rather
than refer surgery patients to petitioner, Clinic doctors referred them to surgeons
located as far as 50 miles from Astoria. In addition, Clinic physicians showed
reluctance to assist petitioner with his own patients. Clinic doctors often declined
to give consultations, and Clinic surgeons refused to provide backup coverage
for patients under petitioner’s care. At the same time, Clinic physicians repeatedly criticized petitioner for failing to obtain outside consultations and adequate
backup coverage.36
Eventually, this “openly hostile” situation (quoting the US Court of Appeals
for the Ninth Circuit) deteriorated to the point that the Astoria Clinic’s
physicians initiated and participated in peer review actions that terminated
Dr. Patrick’s medical staff privileges. He then sued under the antitrust laws
and won a jury verdict of $650,000, which was tripled as required by antitrust law. When damages on the state law claim were added, the total award
to Dr. Patrick was more than $2 million.
On appeal, the Ninth Circuit found “substantial evidence that [the
defendants] had acted in bad faith in the peer-review process” and that the
process could be considered “shabby, unprincipled and unprofessional.”37
Ouch. Nevertheless, and despite the fact that the defendants had used peer
review for their own financial advantage, the appellate court ruled that the
clinic’s doctors were immune from antitrust liability because of the state
action doctrine. (See the section on antitrust law in chapter 14.)
The US Supreme Court ultimately took the case and reversed the
Ninth Circuit Court of Appeals. The high court ruled that Oregon’s peer
review law did not amount to state action because “no state actor in Oregon
actively supervises hospital peer-review decisions.” Thus, the court held,
[T]he state-action doctrine does not protect the peer-review activities challenged
in this case from application of the federal antitrust laws. In so holding, we are
not unmindful of the policy argument that respondents and their amici have
advanced for reaching the opposite conclusion. They contend that effective peer
review is essential to the provision of quality medical care and that any threat of
antitrust liability will prevent physicians from participating openly and actively
in peer-review proceedings. This argument, however, essentially challenges the
wisdom of applying the antitrust laws to the sphere of medical care, and as such
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323
is properly directed to the legislative branch.
To the extent that Congress has declined to
exempt medical peer review from the reach of
Law in Action
the antitrust laws, peer review is immune from
antitrust scrutiny only if the State effectively
has made this conduct its own.
38
This decision and the amount of
damages awarded to Dr. Patrick sent shock
waves through the medical community
and made physicians and others understandably more reluctant to participate in
peer review, which is a potentially fraught
and time-consuming process in the best of
circumstances.
As a direct result of the trial court
verdict in Patrick, and even before the US
Supreme Court issued its opinion, Congress passed the HCQIA. The “findings”
section of the act summarizes Congress’s
rationale:
State and municipal authorities may be immune
from federal antitrust lawsuits (see chapter 14).
Thus, in contrast with the Patrick case, the peer
review activities of a government hospital—a taxing district or “hospital authority,” for example—
may amount to state action and thus be exempt
from antitrust scrutiny. For example, in Crosby v.
Hosp. Authority of Valdosta and Lowndes County
(93 F.3d 1515, 1530 [11th Cir. 1996]), the US Court of
Appeals for the Eleventh Circuit stated, “Because
of the control exercised by the [Hospital] Authority
over peer review decisions and the statutory context of peer review in Georgia, we conclude that
the actions of individual doctors on peer review
committees should be considered [state] actions.”
Constitutional and statutory requirements relating to fundamental fairness would still apply, of
course.
• A rise in the number of malpractice cases
• The potential for incompetent physicians to move from state to state
and start practice anew
• The threat of physician liability under the antitrust laws
• The need for improved peer review activities39
With these statements as its foundation, the HCQIA grants immunity
from most civil money damages to healthcare professionals who engage in
appropriate peer review, which is referred to as “professional review activities” (see Legal Brief). This immunity is a powerful defense for the credentialing entity and the individuals who
conduct peer review.
Legal Brief
The HCQIA also authorized the
creation of the NPDB as a reporting system for information on the competence
The HCQIA was sponsored by Representative Ron
of providers, including MDs, DOs, denWyden of Oregon, who specifically referred to the
tists, and nurse practitioners. Two cases
jury verdict in Patrick as an example of the need to
protect persons who perform peer review (89 Cong.
decided by the US Court of Appeals for
Rec. E2366 [daily ed., June 26, 1986]).
the Fifth Circuit in 2008 demonstrate the
HCQIA’s effects.
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The Poliner Case
In Poliner v. Texas Health System, an interventional cardiologist’s catheterization lab and echocardiography privileges at Presbyterian Hospital in Dallas
were temporarily suspended while his manner of handling certain patients
was being investigated.40 (Today, The Joint Commission would call this type
of investigation a “focused professional practice evaluation.”) Quality concerns had been reported to the director of the cardiac catheterization lab and
to the chair of the internal medicine department. The bylaws of this not-forprofit hospital allowed for summary suspension of privileges “when the acts
of a practitioner through his lack of competence, impaired status, behavior or
failure to care adequately for his patients constitutes a present danger to the
health of his patients.” Dr. Poliner was given a few hours to decide whether
to voluntarily suspend his privileges in lieu of having them summarily suspended and was told not to consult a lawyer.41 Dr. Poliner agreed, albeit
reluctantly, to “voluntarily” suspend of his privilege to use the cath lab. In
the subsequent litigation, this was viewed as effectively an imposed summary
suspension, and the jury looked disfavorably on the pressure for Dr. Poliner
to avoid legal counsel.
An ad hoc committee of cardiologists convened 29 days later to review
a sample of Dr. Poliner’s cases. It chose at random the records of 44 patients
and found evidence of substandard care in more than half of them. The
committee reported its findings to the hospital’s internal medicine advisory
committee (IMAC). The IMAC’s minutes identified the following concerns
about Dr. Poliner’s competencies:
•
•
•
•
Poor clinical judgment
Inadequate skills, including in angiocardiography and echocardiography
Unsatisfactory documentation of medical records
Substandard patient care
Based on the evidence before it, the IMAC recommended continued
suspension of Dr. Poliner’s cath lab and echocardiography privileges. He
requested a hearing, as provided for in the hospital bylaws. The hearing
committee (a separate group from the IMAC) upheld the original suspension based on the evidence available at the time, but it recommended that
his privileges be reinstated with the limitation that he consult with another
cardiologist before performing interventional procedures. After a month,
this condition was to be changed to post-procedure review. The hospital’s
governing board accepted these recommendations and, subject to these
conditions, Dr. Poliner was reinstated. Approximately 18 months later, he
filed suit against the hospital and the doctors who had been involved in the
peer-review process.
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Dr. Poliner’s lawsuit alleged federal and state antitrust violations;
violations of the Deceptive Trade Practices Act; and numerous tort claims,
including defamation. The case went to a trial by jury on the issue of temporary restrictions of Dr. Poliner’s privileges, and the appellate court summarized the outcome as follows:
The jury found for Poliner on his defamation claims. Poliner was able to offer evidence at trial of actual loss of income of about $10,000—but was awarded more
than $90 million in defamation damages, nearly all for mental anguish and injury
to career. The jury also awarded $110 million in punitive damages. The district court
ordered a remittitur of the damages and entered judgment against Defendants.42
By its remittitur, the trial court reduced the verdict to slightly more
than $11 million—still a huge amount considering that the actual damages were only about $10,000. The defendants appealed, arguing that the
­HCQIA’s immunity provisions protected them from liability in any amount,
and that the case should have been dismissed on that basis. The appellate
court agreed, and in doing so, it provided a good summary of the HCQIA’s
history and its immunity provisions:
remittitur
A judge’s order
reducing an
excessive jury
award.
Congress passed the Health Care Quality Improvement Act because it was concerned
about “[t]he increasing occurrence of medical malpractice and the need to improve
the quality of medical care,” and because “[t]here is a national need to restrict the
ability of incompetent physicians to move from State to State without disclosure or
discovery of the physician’s previous damaging or incompetent performance.” Congress viewed peer review as an important component of remedying these problems,
but recognized that lawsuits for money damages dampened the willingness of people to participate in peer review. Accordingly, Congress “grant[ed] limited immunity
from suits for money damages to participants in professional peer review actions.”
When a “professional review action” as defined by the statute meets certain standards, the HCQIA provides that participants in the peer review “shall not
be liable in damages under any law of the United States or of any State (or political subdivision thereof ) with respect to the action.” The statute establishes four
requirements for immunity:
For purposes of the protection set forth in section 11111(a) of this title, a
professional review action must be taken—
(1) in the reasonable belief that the action was in the furtherance of quality
health care,
(2) after a reasonable effort to obtain the facts of the matter,
(3) after adequate notice and hearing procedures are afforded to the physician
involved or after such other procedures as are fair to the physician under the
circumstances, and
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(4) in the reasonable belief that the action was warranted by the facts
known after such reasonable effort to obtain facts and after meeting the
requirement of paragraph (3).43
The court found that the actions of the ad hoc committee, the IMAC,
the Hearing Committee, and the hospital board fit the definition of “professional review actions” (see Legal Brief) and that there was a “reasonable
belief that the action was in the furtherance of quality health care”:
The ad hoc committee’s review, upon which the extension of the abeyance rested,
speaks for itself. A group of six cardiologists reviewed 44 of Poliner’s cases and
concluded that he gave substandard care in more than half of the cases. We
conclude that . . . the belief that temporarily restricting Poliner’s cath lab privileges during an investigation would further quality health care was objectively
reasonable.44
The court added, “No reasonable jury could conclude that Defendants failed to make a ‘reasonable effort to obtain the facts.’” The piece de
resistance of the opinion is its closing language:
This case demonstrates how the process provisions of the HCQIA work in tandem:
legitimate concerns lead to temporary restrictions and an investigation; an investigation reveals that a doctor may in fact be a danger; and in response, the hospital
continues to limit the physician’s privileges. The hearing process is allowed to play
out unencumbered by the fears and urgency that would necessarily obtain if the
physician were midstream returned to full privileges during the few days necessary
for a fully informed and considered decision resting on all the facts and a process in
which the physician has had an opportunity
Legal Brief
to confront the facts and give his explanations. The interplay of these provisions may
work hardships on individual physicians,
The HCQIA defines a professional review action in
part as “an action or recommendation of a professional review body which is taken or made in the
conduct of professional review activity, which is
based on the competence or professional conduct
of an individual physician (which conduct affects
or could affect adversely the health or welfare of
a patient or patients), and which affects (or may
affect) adversely the clinical privileges, or membership in a professional society, of the physician”
(42 U.S.C. § 11151(9)).
but the provisions reflect Congress’ balancing of the significant interests of the physician and “the public health ramifications of
allowing incompetent physicians to practice
while the slow wheels of justice grind.” . . .
[T]he temporary restrictions [of Dr.
Poliner’s privileges] were “tailored to address
the health care concerns” that had been
raised—[about] procedures in the cath lab—
leaving untouched Poliner’s other privileges.
Nor was the information relayed to [the chair
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of the internal medicine department] “so obviously mistaken or inadequate as to
make reliance on [it] unreasonable.” There was an objectively reasonable basis for
concluding that temporarily restricting Poliner’s privileges during the course of the
investigation was warranted by the facts then known. . . .
To allow an attack years later upon the ultimate “truth” of judgments
made by peer reviewers supported by objective evidence would drain all meaning
from the statute. The congressional grant of immunity accepts that few physicians would be willing to serve on peer review committees under such a threat;
as our sister circuit explains, “the intent of [the HCQIA] was not to disturb, but to
reinforce, the preexisting reluctance of courts to substitute their judgment on the
merits for that of health care professionals and of the governing bodies of hospitals in an area within their expertise.” At the least, It is not our role to re-weigh this
judgment and balancing of interests by Congress.
IV. Conclusion
Not only has Poliner failed to rebut the statutory presumption that the peer
review actions were taken in compliance with the statutory standards, the evidence independently demonstrates that the peer review actions met the statutory
­requirements. . . .
We REVERSE the judgment of the district court and RENDER judgment for
Defendants.45
The Kadlec Case
In Poliner, the HCQIA achieved its purpose of promoting quality care, and
the defendants were held to be immune from liability. Kadlec Medical Center
v. Lakeview Anesthesia Associates stands in contrast and demonstrates the difficulties that can be encountered if the HCQIA’s provisions are not followed.46
Interestingly, both cases were before the Fifth Circuit Court of Appeals at
roughly the same time.
When the chain of events leading to this lawsuit began, Dr. Robert
Berry was a licensed anesthesiologist. He was part of a group medical practice
known as Louisiana Anesthesia Associates (LAA) that had an exclusive contract to provide anesthesia services at Lakeview Regional Medical Center in
southeast Louisiana. He also was a man with a drug problem. When officials
at Lakeview and his partners at LAA learned of his substance abuse, Dr. Berry
was fired “for cause” by LAA, his practice group, and he was not permitted
to return to Lakeview, the hospital where he had privileges and where LAA
had an exclusive contract. However, no one at LAA or Lakeview reported
these facts to the hospital board, the Louisiana Board of Medical Examiners,
or the NPDB.
After leaving LAA and Lakeview, Dr. Berry obtained locum tenens (or
“traveling physician”) privileges in Shreveport, Louisiana, and eventually
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applied through a staffing firm for a similar position at Kadlec Medical Center
in Richland, Washington. On receipt of the application, Kadlec conducted its
usual background check, including making inquiries to LAA and Lakeview
about Dr. Berry’s performance history. LAA’s response was false and misleading, and Lakeview’s was vague (presumably for fear of a lawsuit for defamation or malicious interference with his professional relations). In the absence
of negative background information, Kadlec granted anesthesia privileges to
Dr. Berry. Eventually, his narcotics problem led to the near death of a patient,
who was left in a permanent vegetative state.
To defend and settle the resulting lawsuit, Kadlec and its insurance
carrier paid more than $8 million in damages. They then sued LAA and
Lakeview to recover the money, alleging that the defendants had misled
Kadlec directly and by failing to comply with their reporting obligations.
In the end, the group practice was held liable for misrepresentation,
but Lakeview was not found liable because, although its actions might have
been unethical, it had no legal duty under Louisiana law to respond, and the
response it sent was so vague that it contained no substantive information.
Apparently, in Louisiana, if you don’t say anything, you can’t misrepresent
anything. Note that evolving legal standards and reporting obligations might
well lead to a different outcome in a similar tragic case.
A lengthy excerpt from the court of appeals’ decision is given at the
end of this chapter (see The Court Decides).
Lessons from Poliner and Kadlec
Poliner and Kadlec demonstrate the continuing importance of professional
review (peer review) activities today. The courts and the public at large want
hospitals and physicians to monitor quality and patient safety ever more carefully
than they did in the past, and payment and accreditation standards require more
quality assessment as well. Electronic records facilitate meeting these expectations, compliance with which seem a reasonable exchange for a grant of immunity from tort liability under the HCQIA and state laws.47 In addition, various
provisions of the ACA mandate that more attention be paid to the quality of
healthcare and emphasize the dangers of impaired or incompetent physicians.
One commentator predicts that, despite the hospital’s exoneration in
Kadlec, hospitals generally can “anticipate an expanded obligation to disclose
risky physician behavior”:
Just as physicians are not simply service providers, and patients not simply
courted consumers, hospitals are not simply doctors’ workshops. . . . [They]
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are increasingly being held liable for the negligent actions of nonemployee
physicians. They are increasingly viewed as having a duty to their patients to
appropriately monitor the quality of care provided by staff physicians, employed
or not, and to credential only those who practice safely and competently. In
addition, hospitals face increased obligations to monitor the quality of care provided within their facilities and to report impaired or unsafe physicians. When
hospitals can be held responsible under the theories of vicarious liability or
negligent credentialing, they have a heightened need for complete credentialing
information.48
Applying a patient-centric framework to this topic, the commentator
sees the healthcare system as a web of relationships, not a series of bilateral
transactions: “Although they are likely to be unaffiliated businesses, in the
credentialing process hospitals are part of a relational web that aims to ensure
high-quality patient care.”49 This vision was what the HCQIA was implicitly
promoting, and it would seem to be consistent with the current trend of
hospital–physician integration. Similarly, another commentator argues for
increasing institutions’ responsibility for quality and patient safety. He calls
this model of fiduciary duty “protective intervention”:
Fiduciary duties are expanding in tandem with expanded tort obligations. . . . The
recognition of institutional responsibility to better handle informed consent, disclosure of data, and revelation of errors turns the hospital finally into a recognizable legal fiduciary with an obligation to protect its patients from harm from third
parties.
This duty of “protective intervention” captures the more intense obligations whose shadows we can see cast by regulatory initiatives and institutionassumed obligations. Hospitals now have to collect data on adverse events and
report them to the state regulators and to patients in many states. They have to
manage and coordinate their care to protect their patients. It is no longer a world
in which the hospital is little more than a brick shell for physicians, with a loose
contract relationship with patients.
A fiduciary duty provides the building blocks for remedies that strengthen
the patient’s recovery opportunities. . . . Such an expansion . . . strengthens the
hands of internal hospital risk managers and compliance officers, as they advise
administrators of the increasing necessity of implementing modern data mining,
electronic medical records, reporting of adverse events, and better coordination
and management of the institution. And it properly imposes on hospital managers a higher duty to protect their patients, their beneficiaries, from harm to the
greatest extent possible. They have become “fiduciaries,” stewards of their
patients’ safety.50
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Confidentiality of Peer Review Records
Poliner and Kadlec also raise the question of the confidentiality of peer review
records. Plaintiffs’ attorneys in medical malpractice cases want access to negative assessments, and physicians who challenge adverse actions taken against
them want access to the peer review records to support their claims of bad
faith and conspiracy on the part of the reviewers.
Conversely, hospitals have a strong interest in preserving the confidentiality of these records. To be most effective, the peer review process must be
an honest and candid evaluation of a practitioner’s activities. Confidentiality of
the peer review committee’s minutes and deliberations is essential to a full and
honest process. As the court in Bredice v. Doctors Hospital, Inc. stated in 1973,
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. . . .
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 discussions and deliberations to the discovery process, without a showing of exceptional 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 conduct in a malpractice suit.51
This view has been reaffirmed over the years. For example, in 1992, the
Fifth Circuit Court of Appeals wrote, “As Congress has recognized, peer review
materials are sensitive and inherently confidential, and protecting that confidentiality serves an important public interest [citing the HCQIA] . . . [T]he
­medical peer review process ‘is a sine qua non of adequate hospital care.’”52
Following the line of reasoning begun in Bredice, state legislatures
addressed the confidentiality issue in the early 1970s. Today, all jurisdictions
have some form of legislation establishing a degree of peer review privilege.
For example, the Georgia statute provides the following:
[T]he proceedings and records of medical review committees shall not be subject
to discovery or introduction into evidence in any civil action against a provider of
professional health services arising out of the matters which are the subject of
evaluation and review by such committee; and no person who was in attendance
at a meeting of such committee shall be permitted or required to testify in any
such civil action as to any evidence or other matters produced or presented
during the proceedings of such committee or as to any findings, recommendations, evaluations, opinions, or other actions of such committee or any members
thereof.53
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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 exceptions
to the protection. Therefore, the application of the privilege is also likely to
vary from state to state and even from court to court, depending on the facts
of the case. 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.
National Fraud Data Banks
As mentioned earlier, one aspect of the HCQIA was the creation of the
NPDB to promote patient safety and quality of care. Entities that conduct
professional review activities are supposed to report to the NPDB any significant adverse peer review actions taken against practitioners and to query the
NPDB during the credentialing process to procure an applicant’s disciplinary
history. Entities that fail to do so can lose their immunity protections. Certain
malpractice judgments and settlements as well as state licensing board actions
are also to be reported.
In addition to the NPDB, in 1996 Congress mandated creation of the
Healthcare Integrity and Protection Data Bank (HIPDB) “to combat fraud
and abuse in health insurance and health care delivery.”54 The HIPDB was
intended to augment other tools, and useful information found in the HIPDB
and the NPDB can help alleviate the problem of incompetent physicians who
cross state lines to begin a new practice. Nevertheless, the two data banks
are somewhat redundant, and many—particularly the NPDB—were skeptical
about them from the outset. Hospitals and other providers were reluctant to
report incidents to the data banks, a good deal of information was out of date
or inaccurate, and physicians who were
wrongly reported had difficulty clearing
their names. Even the US Department of
Law in Action
Health and Human Services (HHS), the
agency that administers the Medicare and
The National Practitioner Data Bank website is
Medicaid programs, failed to report all of
http://www.npdb.hrsa.gov, and a history of the
its adverse actions against providers to the
NPDB can be found at http://www.npdb.hrsa.gov/
HIPDB as required by law.55
topNavigation/timeline.jsp.
Recognizing these deficiencies,
Although not perfect, if used correctly,
HHS strengthened its compliance efforts
the NPDB can significantly thwart physicians’
and improved the NPDB/HIPDB sysattempts to move to a new location and receive
hospital privileges unencumbered by their past
tem. Furthermore, the ACA required
wrongdoings.
that the duplication between the data
banks be eliminated and the HIPDB be
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discontinued.56 This change was implemented in 2013, and there is now
a single database for submitting queries and receiving responses (see Law
in Action).
Quality Issues and Accountable Care Organizations
Exclusive Contracts with Physicians
For many years, hospitals have entered into exclusive contracts with physicians and physician groups to staff such departments as radiology, emergency,
anesthesiology, and pathology. Kadlec provides one example. These arrangements have withstood legal challenges as an appropriate business decision
when they were aimed at overall improvement in the quality of patient care,
and not as a disparagement of any particular provider.57
In Adler v. Montefiore Hospital Association of Western Pennsylvania,58
the plaintiff, Dr. Adler, had been employed by a private hospital for six
years as the part-time director of the cardiology laboratory with full medical
staff privileges. When Montefiore evolved into a teaching hospital, it hired
a full-time director, Dr. Curtiss, to replace Dr. Adler. Dr. Curtiss was then
granted exclusive privileges to perform cardiac catheterizations, a change that
significantly limited the number of procedures Dr. Adler was permitted to
perform. In Dr. Adler’s subsequent lawsuit, the exclusive arrangement was
upheld as reasonably related to the hospital’s purposes, especially because it
was a teaching institution.
Catheterization, the court held, was a laboratory procedure—more
like radiology than surgery. The exclusive contract was considered part of the
hospital’s effort to ensure the quality of care and improve efficiency. Accordingly, the hospital had not violated Dr. Adler’s rights to due process and
equal protection because he was obliged to yield to reasonable rules intended
to benefit the hospital’s patients, the physicians, the university’s medical students, and the public.
Although this case was decided more than 40 years ago, Adler is
still cited when courts refuse to intervene in hospitals’ decisions to confer
exclusive privileges on designated physician groups, even when the contracts
have restricted the medical staff privileges of other qualified and competent
physicians.59
In addition to bringing due process arguments, plaintiffs have challenged exclusive service contracts 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
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reasonable restraint of trade that actually promotes competition among hospitals and is consistent with efforts to promote high-quality care.60 (Antitrust
cases are discussed in chapter 14.)
Economic Credentialing
Ideally, decisions on medical staff privileges are based on physician competence and the quality of care. However, the institution’s financial stability
depends on providing care at a cost that will be reimbursed. When physicians’ utilization patterns begin to affect the bottom line negatively, financial
considerations may creep into credentialing decisions. This practice is known
as economic credentialing. Although there is no standard definition of the
term, the AMA defines it—disapprovingly—as “the use of economic criteria
unrelated to quality of care or professional competence in determining a physician’s qualifications for initial or continuing hospital medical staff membership or privileges.”61 Whether economic criteria are permissible is a matter of
considerable dispute, and the outcome of any legal challenge might depend
on particulars of the practice environment in a given geographic area.
At least two scenarios provide a motive for economic credentialing.
The first is admission of patients to an acute care hospital when those patients
could be served more economically on an outpatient basis or in another type
of inpatient facility (e.g., skilled nursing facility, inpatient hospice, nursing
home). The dearth of reported decisions suggests that the utilization review
and case management function, rather than the credentialing process, is coping with this situation adequately. Given hospitals’ incentive to keep costs as
low as possible, this supposition is likely true.
The second scenario involves a kind of loyalty oath. Hospitals ask their
physicians whether they have any financial interest in a competing facility, such as another hospital, an imaging center, or an ambulatory surgery
center. If they do, hospitals sometimes condition these physicians’ medical
staff privileges on their agreement 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 hospital. This scenario raises issues under both state and
federal laws.
A 1978 case upheld this practice. In Cobb County-Kennestone Hospital Authority v. Prince,62 a government hospital 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 . . . [a]nd
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.”63 Some staff physicians—who privately owned and operated a CT scanner outside the hospital complex—challenged this policy as an
arbitrary restriction on their medical judgment. In upholding the hospital’s
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policy as reasonable and “strikingly similar” to exclusive service contracts, the
Supreme Court of Georgia observed that
[The hospital’s resolution] 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 pre-eminent 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.64
A 2006 case, however, did not defer to the hospital administration. In
Baptist Health v. Murphy,65 the defendant, a multihospital system, adopted a
policy to deny staff appointments or clinical privileges “to any practitioner
who, directly or indirectly, acquires or holds an ownership or investment
interest in a competing hospital.”66 The policy—apparently a revenueenhancing measure—was challenged by cardiologists who had an ownership
interest in another hospital and held medical staff privileges at both Baptist
Health and the other facility. The trial court issued a preliminary injunction against enforcement of the policy, and the Supreme Court of Arkansas
affirmed that decision, holding that the hospital’s actions amounted to an
intentional, tortious interference with the physicians’ business relationships
with their patients:
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 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 credentialing policy, Defendant
intended to disrupt and interfere with the doctor-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 facilities and not Plaintiffs’ facilities.67
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After further hearings the Supreme Court of Arkansas again affirmed
the decision to enjoin Baptist Health’s policy;68 thus, economic credentialing
now appears to be legally objectionable in Arkansas.
As the HHS Office of Inspector General notes, “In addition to the
antikickback statute, hospitals should make sure that their credentialing
­policies comply with all other applicable Federal and State laws and regulations, some of which may prohibit or limit economic credentialing.”69 Thus,
hospital administration would be well advised to seek legal counsel when
considering adopting a policy that sets economic criteria or establishes a loyalty standard for medical staff appointments and privileges.
Furthermore, the ACA amended the physician self-referral (Stark)
law and placed severe limitations on physicians’ ability to own or invest in
hospitals.70 Physician-owned hospitals that did not have a Medicare provider
agreement before December 31, 2010, may not participate in the M
­ edicare
program. Those that did have a provider agreement may continue to
­participate—but only under certain significant conditions that address facility
expansion, conflicts of interest, bona fide investments, patient safety issues,
and conversion of facilities. If these amendments to the Stark self-referral law
remain in place, issues such as those raised in Baptist Health may become
moot because physician ownership of hospitals will be severely limited. (The
Stark law and other fraud statutes are discussed more fully in chapter 9.)
Medical Staff Issues in Accountable Care Organizations
The premise of the ACA was that fundamental change is needed in the US
healthcare system. One of the act’s most significant changes regarding medical staff was the creation of the Medicare Shared Savings Program, under
which groups of providers, organized as ACOs, “work together to manage
and coordinate care for Medicare fee-for-service beneficiaries.”71
In other words, ACOs are meant to improve quality, coordinate care
in varied settings, and reduce unnecessary costs; they have the ultimate goals
of helping patients get the right care at the right time and avoiding duplication of services. A successful ACO—one that delivers high-quality care and
reduces costs to the Medicare program—will share in any savings that it
generates for the government.
ACOs and similar shared savings models outside Medicare continue
the trend of hospital–physician alignment, which began with physicianhospital organizations in the 1990s. As the economics of physician practice
changed and cost-containment pressures increased, employment by a hospital
or integrated delivery system became an attractive option for many physicians. An increasing percentage of physicians, particularly new graduates,
now choose to become employees of large groups or healthcare systems.
Under health reform, hospitals have new reasons to strengthen the bond with
their medical staffs.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
Whether as an ACO or otherwise, hospital–physician relationships
take a variety of forms: joint ventures; facility leasing; management contracts;
and outright employment of the physician by a hospital, clinic, medical foundation, faculty practice plan, or hospital-owned group practice. As ACOs
become common and as more physicians become employees, these integrated
relationships will add new management challenges and will strain the traditional legal concepts of medical staff privileges.
As discussed in chapter 4, when the concept of employment at will
applies, employees are not entitled to substantive or procedural due process
and can be dismissed without a hearing, prior notice, or cause. Employed
physicians are typically at-will employees; their medical staff privileges, however, are a different matter. Unless the employment contract makes employment and staff privileges coterminous, the hospital must take separate action
and follow regular medical staff procedures if it wants to revoke the privileges
of a physician it has dismissed from employment.
Similarly, a hospital’s decision not to renew an exclusive service contract—with a radiology group, for example—usually does not require due
process but depends on the terms of the contract. For example, in a Minnesota case, a municipal hospital (a state actor) had an unwritten at-will
arrangement with its director of pathology. When the hospital terminated the
contract, the physician filed suit, arguing that he should have been afforded
formal due process. The court disagreed. Although loss of the directorship
position made his medical staff privileges virtually worthless—pathologists do
not normally admit and treat patients, after all—that directorship “stemmed
solely from his oral contract with the hospital, not [from] his staff membership. Accordingly . . . we must distinguish the termination of a contractually
created director’s position from the termination or reduction of staff privileges.”72
These traditional viewpoints may
Legal Brief
need to be reconsidered and contractual and bylaws provisions reexamined
Members of a physician group that provides excluas physicians become more involved in
sive services for certain hospital departments
hospital governance under an ACO or
(e.g., pathology, radiology, anesthesiology) must
other integrated arrangement (see Legal
be members of both the group and the hospital
Brief). The concept of economic credenmedical staff. Contracts between the hospital and
tialing discussed earlier may also need to
the group should provide that if physicians leave
be reviewed. In short, the idea of hospithe practice, their medical staff appointments
end and they must reapply for privileges to contal–physician alignment—being as it is all
tinue practicing in the facility. These contractual
about money and control—will present
arrangements will need to be reviewed if the
myriad new issues in the realm of medical
physician group becomes part of an ACO with the
staff privileges, perhaps for the courts but
hospital.
certainly for hospital administration.
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337
Complementary and Alternative Medicine, Integrative
Healthcare
In his 1982 Pulitzer Prize–winning book The Social Transformation of
American Medicine, Professor Paul Starr chronicles how physicians gradually
assumed a dominant role in the US medical establishment. He notes that a
century ago, physicians had much less prestige and influence than they have
today. They were in competition with faith healers, herbalists (Thomsonians),
eclectics (botanics), homeopaths, midwives, naturopaths, hydropathists,
osteopaths, chiropractors, and others.
The field changed after the famous Flexner Report, issued in 1910,
prompted reforms in medical education to systemize it and increase its scientific grounding; when medical education caught up with medical science,
allopathic physicians consolidated their power. While this shift had a number
of positive effects, it also—in combination with discriminatory medical school
admissions criteria—limited the ability of women and practitioners of color to
provide healthcare. By the time of the Great Depression, one survey reported
that “all the non-M.D. practitioners combined—osteopaths, chiropractors,
Christian Scientists and other faith healers, midwives, and chiropodists—took
care of only 5.1 percent of all attended cases of illness [in the study].”73
Ever since, as one law review article remarked, “Organized medicine . . . has
fought to maintain a firm grip on the philosophy of health care generally, as
well as on the specific treatments patients should have available to them.”74
By the 1950s, “mainstream medicine” had essentially suppressed
some healers (e.g., homeopaths, eclectics), but it reluctantly acceded to the
licensure of others (e.g., osteopaths) who had scientific training. By the mid1960s, the grip that physicians once held had loosened such that Medicare
defined a physician as an individual holding any of these degrees: doctor of
medicine (MD), doctor of osteopathic medicine (DO), doctor of dental surgery (DDS), doctor of dental medicine (DMD), doctor of podiatric medicine
(DPM), doctor of optometry (OD), and doctor of chiropractic (DC).75 This
definition holds today.
Now the field is changing again. In an ironic twist, some practices
that were once disdained are gaining acceptance through policies designed
to promote wellness and prevention. State licensing is reaching naturopaths,
acupuncturists, midwives, and Eastern Medicine practitioners, among other
schools. As one court stated in a 2001 case involving a state health plan’s
insurance coverage,
[T]here are many medical schools in the United States that are teaching alternative approaches to some traditional practices. As more and more doctors become
familiar with alternative practices, we can anticipate the availability and increasing
utilization of . . . alternative treatments. . . .
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
If a licensed alternative medical provider indicates that the treatment is
based on sound medical, biological or scientific principles; widely prescribed and
recognized by other alternative medical providers; and considered efficacious and
safe, the [state health plan] should not reject the treatment solely because traditional doctors do not yet utilize the treatment or are completely unfamiliar with the
practice. In that instance, the new treatment should be carefully evaluated under
the other provisions of the plan, and not automatically excluded solely because no
traditional physician is as yet prescribing [it].76
Legal Brief
CAM is recognized by the National Institutes of
Health (NIH), which houses the National Center
for Complementary and Integrative Health (formerly the National Center for Complementary and
Alternative Medicine), the federal government’s
“lead agency for scientific research on the diverse
medical and health care systems, practices, and
products that are not generally considered part
of conventional medicine” (42 U.S.C. § 287c-21;
see also National Center for Complementary and
Integrative Health, About NCCIH, https://nccih.
nih.gov/about [https://perma.cc/LTL6-645P] [last
modified September 24, 2017]).
CAM and integrative medicine are mentioned
numerous times in the health reform legislation.
Such treatments are part of an interdisciplinary,
patient-centered “medical home” and are included
in a new NIH council on prevention and health promotion. Furthermore, the ACA’s definition of the
“health care workforce” encompasses “all health
care providers with direct patient care and support
responsibilities, such as . . . licensed complementary and alternative medicine providers [and]
integrative health practitioners” (ACA §§ 3502,
4001, and 5001).
For an example of an integrative healthcare
program in a university’s physician practice group,
see Integrative Medicine, UTMB Health, http://
fammed.utmb.edu/education/integrative-medicine [https://perma.cc/N8GE-LQW5] (last visited
June 18, 2022).
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The treatments to which this court
referred are an essential component of
integrative healthcare—a philosophy that
focuses not only on the conventional
treatment of a patient’s condition but also
on the whole person (mind, body, spirit)
to promote health and wellness. When
used in conjunction with a physician’s
prescribed therapies, the nontraditional
treatments are complementary; when used
in isolation, they are alternative. Collectively, the term for such treatments is
complementary and alternative medicine
(CAM) (see Legal Brief). By adopting
CAM principles, physicians and other
licensed practitioners who practice integrative healthcare incorporate some of
the very practices the medical establishment scorned two or three generations
ago: acupuncture, naturopathy, massage
therapy, yoga, meditation, herbalism,
Ayurveda, hypnotherapy, midwifery, and
shamanism, to name a few.77 Respecting and incorporating traditional healing
modalities from a patient’s culture can
also have immense benefits for hospitals’
diversity, equity, and inclusion goals.
CAM principles are seen as entirely
consistent with the ACA’s emphasis on
cost reduction, coordinated care, chronic
disease management, and reducing health
disparities, and they are fast becoming
part of integrated systems’ offerings.
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339
These practices are also gaining recognition as disciplines worthy of licensure
in their own right. State licensure of naturopaths is now common; and state
licensure or regulation of other CAM providers is no longer unusual.78
Legal Issues and Credentialing for Complementary and Alternative
Medicine and Integrative Healthcare Providers
Over the years, some CAM and integrative healthcare practitioners have been
charged with practicing medicine without a license or, if licensed, for unprofessional conduct.79 Otherwise, research reveals only a few reported cases
involving these practitioners, and in those cases CAM was only tangentially
related to the issue (e.g., regulatory enforcement for misleading advertising,
the revocation of a physician’s license because of fraud or gross negligence).80
In contrast with years ago—when osteopaths, for example, challenged their
exclusion from medical staffs—research reveals no recent cases in which nonphysician CAM and integrative healthcare practitioners have sought and been
denied medical staff privileges.
In independent practice, the liability issues of massage therapists or
herbalists, for example, are theirs alone. However, in a hospital setting, the
corporation must consider respondeat superior issues and questions about
licensure, credentialing, scope of practice, medical supervision, professional
liability insurance, and health plan coverage, among others. No single answer
can address the myriad questions involved because there is no standard system for credentialing CAM and integrative healthcare providers, and the
educational requirements and licensing vary widely from state to state.81
Organizations will have to address these questions independently as CAM
and integrative healthcare become more popular.
Society is more health conscious than ever, and CAM and integrative
healthcare have regained credibility. As one article commented, “Legislative recognition trumps medical recognition,”82 but licensure and scope of
practice vary by state. How the issues surrounding hospital credentialing will
play out over time remains to be seen, but—as discussed earlier—the general
principle remains that decisions should be based on individual merit rather
than discrimination against an entire class of providers.
Chapter Summary
This chapter discussed the following topics:
• Medical staff privileges
• The governing board’s role
• Non-MD practitioners
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
•
•
•
•
•
Peer review
Confidentiality of peer review records
Quality assurance
Economic credentialing
Complementary and alternative medicine
Vocabulary
credentialing
privileging
remittitur
Discussion Questions
1. Who has ultimate responsibility for decisions about medical staff
membership, and why? How should this responsibility be fulfilled?
2. What differences are there, if any, between the due process standards
that apply to public hospitals and those that apply to private hospitals?
3. What categories of professionals are permitted membership on the
medical staff?
4. What issues of confidentiality and liability does the hospital’s peer
review function present?
5. Explain how the HCQIA establishes an “objective reasonableness”
requirement rather than a subjective “good faith standard” for peer
review committees.
6. What are the medical staff privileges of contract physicians and CAM
and integrative healthcare providers?
7. Research the status of economic credentialing in your state and the
effects of the Baptist Health case and similar decisions.
8. Explain the concept of the ACO and its role in the 2010 health reform
legislation.
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The Court Decides
Kadlec Medical Center v. Lakeview Anesthesia Associates
527 F.3d 412 (5th Cir. 2008)
Reavley, Circuit Judge
Kadlec Medical Center and its insurer, Western Professional Insurance Company, filed
this diversity action in Louisiana district
court against Louisiana Anesthesia Associates (LAA), its shareholders, and Lakeview
Regional Medical Center (Lakeview Medical).
The LAA shareholders worked with Dr. Robert
Berry—an anesthesiologist and former LAA
shareholder—at Lakeview Medical, where the
defendants discovered his on-duty use of narcotics. In referral letters written by the defendants and relied on by Kadlec, his future
employer, the defendants did not disclose
Dr. Berry’s drug use. [Note: Dr. Berry was not
technically an employee of either Kadlec or
Lakeview Medical, although he did have staff
privileges at both facilities. In common with
most laypeople, some judges have a difficult
time understanding the concept of privileges
in the healthcare context.]
While under the influence of Demerol at
Kadlec, Dr. Berry’s negligent performance
led to the near-death of a patient, resulting
in a lawsuit against Kadlec. Plaintiffs claim
here that the defendants’ misleading referral
letters were a legal cause of plaintiffs’ financial injury, i.e., having to pay over $8 million
to defend and settle the lawsuit. The jury
found in favor of the plaintiffs and judgment
followed. We reverse the judgment against
Lakeview Medical, vacate the remainder of
the judgment, and remand.
I. Factual Background
Dr. Berry was a licensed anesthesiologist in
Louisiana and practiced with Drs. William
Preau, Mark Dennis, David Baldone, and Allan
Parr at LAA. From November 2000 until his
termination on March 13, 2001, Dr. Berry was
a shareholder of LAA, the exclusive provider
of anesthesia services to Lakeview Medical (a
Louisiana hospital).
In November 2000, a small management
team at Lakeview Medical investigated Dr.
Berry after nurses expressed concern about
his undocumented and suspicious withdrawals of Demerol. [The findings were discussed
with Dr. Berry’s LAA partners, who confronted
him with the evidence, but his drug-related
problems continued and his performance
deteriorated. In March 2001, Lakeview CEO
Max Lauderdale] . . . decided that it was in
the best interest of patient safety that Dr.
Berry not practice at the hospital. Dr. Dennis
and his three partners at LAA fired Dr. Berry
and signed his termination letter on March
27, 2001, which explained that he was fired
“for cause”:
[You have been fired for cause because]
you have reported to work in an impaired
physical, mental, and emotional state.
Your impaired condition has prevented
you from properly performing your
duties and puts our patients at significant risk. . . . [P]lease consider your
termination effective March 13, 2001.
At Lakeview Medical, Lauderdale ordered
the Chief Nursing Officer to notify the administration if Dr. Berry returned.
Despite recognizing Dr. Berry’s drug
problem and the danger he posed to
(continued)
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(continued from previous page)
patients, neither Dr. Dennis nor Lauderdale
reported Dr. Berry’s impairment [or discipline] to the hospital’s Medical Executive
Committee, . . . to Lakeview Medical’s Board
of Trustees, . . . to the Louisiana Board of
Medical Examiners or to the National Practitioner’s Data Bank. . . .
After leaving LAA and Lakeview Medical,
Dr. Berry briefly obtained work as a locum
tenens (traveling physician) at a hospital in
Shreveport, Louisiana. In October 2001, he
applied through Staff Care, a leading locum
tenens staffing firm, for locum tenens privileges at Kadlec Medical Center in Washington
State. After receiving his application, Kadlec
began its credentialing process. Kadlec
examined a variety of materials, including referral letters from LAA and Lakeview
Medical.
LAA’s Dr. Preau and Dr. Dennis, two
months after firing Dr. Berry for his on-thejob drug use, submitted referral letters for
Dr. Berry to Staff Care, with the intention
that they be provided to future employers.
The letter from Dr. Dennis stated that he had
worked with Dr. Berry for four years, that he
was an excellent clinician, and that he would
be an asset to any anesthesia service. Dr.
Preau’s letter said that he worked with Berry
at Lakeview Medical and that he recommended him highly as an anesthesiologist.
Dr. Preau’s and Dr. Dennis’s letters were submitted on June 3, 2001, only sixty-eight days
after they fired him for using narcotics while
on-duty and stating in his termination letter
that Dr. Berry’s behavior put “patients at significant risk.”
On October 17, 2001, Kadlec sent Lake­
view Medical a request for credentialing
information about Berry. The request included
a detailed confidential questionnaire, a delineation of privileges, and a signed consent for
release of information. The interrogatories on
the questionnaire asked whether “[Dr. Berry]
has been subject to any disciplinary action,”
if “[Dr. Berry has] the ability (health status) to
CH08.indd 342
perform the privileges requested,” whether
“[Dr. Berry has] shown any signs of behavior/
personality problems or impairments,” and
whether Dr. Berry has satisfactory “judgement” [sic].
Nine days later, Lakeview Medical
responded to the requests for credentialing information about fourteen different
physicians. In thirteen cases, it responded
fully and completely to the request, filling
out forms with all the information asked for
by the requesting health care provider. The
fourteenth request, from Kadlec concerning
Berry, was handled differently. Instead of
completing the multi-part forms, Lakeview
Medical staff drafted a short letter. In its
entirety, it read:
This letter is written in response to your
inquiry regarding [Dr. Berry]. Due to the
large volume of inquiries received in
this office, the following information is
provided.
Our records indicate that Dr.
Robert L. Berry was on the Active Medical Staff of Lakeview Regional Medical
Center in the field of Anesthesiology
from March 04, 1997 through September 04, 2001.
If I can be of further assistance,
you may contact me at (504) 867-4076.
The letter did not disclose LAA’s termination of Dr. Berry; his on-duty drug use; the
investigation into Dr. Berry’s undocumented
and suspicious withdrawals of Demerol that
“violated the standard of care”; or any other
negative information. The employee who
drafted the letter said at trial that she just
followed a form letter, which is one of many
that Lakeview Medical used.
Kadlec then credentialed Dr. Berry, and he
began working there. After working at Kadlec
without incident for a number of months, [Dr.
Berry’s performance began to deteriorate
again in November 2002. He seemed sick
on occasion and exhibited mood swings. On
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November 12, he again appeared sick, several of his surgery patients suffered adverse
effects, and he almost passed out during one
procedure.] . . .
Kimberley Jones was Dr. Berry’s fifth
patient that morning. She was in for what
should have been a routine, fifteen minute
tubal ligation. When they moved her into the
recovery room, one nurse noticed that her
fingernails were blue, and she was not breathing. Dr. Berry failed to resuscitate her, and she
is now in a permanent vegetative state. . . .
Jones’s family sued Dr. Berry and Kadlec
in Washington. Dr. Berry’s insurer settled
the claim against him. . . . Western, Kadlec’s
insurer, settled the claim against Kadlec.
[Western’s payout was approximately $8.25
million.]
....
III. Discussion
A. The Intentional and Negligent Misrepresentation Claims
The plaintiffs allege that the defendants
committed two torts: intentional misrepresentation and negligent misrepresentation. The elements of a claim for intentional
­misrepresentation in Louisiana are: (1) a misrepresentation of a material fact; (2) made
with intent to deceive; and (3) causing
justifiable reliance with resultant injury. To
establish a claim for intentional misrepresentation when it is by silence or inaction,
plaintiffs also must show that the defendant
owed a duty to the plaintiff to disclose the
information. To make out a negligent misrepresentation claim in Louisiana: (1) there
must be a legal duty on the part of the defendant to supply correct information; (2) there
must be a breach of that duty, which can
occur by omission as well as by affirmative
misrepresentation; and (3) the breach must
have caused damages to the plaintiff based
on the plaintiff’s reasonable reliance on the
misrepresentation.
343
The defendants argue that any representations in, or omissions from, the referral letters cannot establish liability. We begin our
analysis below by holding that after choosing to write referral letters, the defendants
assumed a duty not to make affirmative misrepresentations in the letters. We next analyze whether the letters were misleading, and
we conclude that the LAA defendants’ letters
were misleading, but the letter from Lakeview
Medical was not. We also examine whether
the defendants had an affirmative duty to
disclose negative information about Dr. Berry
in their referral letters, and we conclude that
there was not an affirmative duty to disclose.
Based on these holdings, Lake­view Medical
did not breach any duty owed to Kadlec, and
therefore the judgment against it is reversed.
Finally, we examine other challenges to the
LAA defendants’ liability, and we conclude
that they are without merit.
1. The Affirmative Misrepresentations. The
defendants owed a duty to Kadlec to avoid
affirmative misrepresentations in the referral letters. In Louisiana, “[a]lthough a party
may keep absolute silence and violate no
rule of law or equity . . . if he volunteers to
speak and to convey information which may
influence the conduct of the other party, he
is bound to [disclose] the whole truth.” In
negligent misrepresentation cases, Louisiana
courts have held that even when there is no
initial duty to disclose information, “once [a
party] volunteer[s] information, it assume[s]
a duty to insure [sic] that the information
­volunteered [is] correct.”
Consistent with these cases, the defendants had a legal duty not to make affirmative misrepresentations in their referral
letters. . . . Here, defendants were recommending an anesthesiologist, who held
the lives of patients in his hands every day.
Policy considerations dictate that the defendants had a duty to avoid misrepresentations in their referral letters if they misled
(continued)
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
(continued from previous page)
plaintiffs into thinking that Dr. Berry was
an “excellent” anesthesiologist, when they
had information that he was a drug addict.
Indeed, if defendants’ statements created a
misapprehension about Dr. Berry’s suitability to work as an anesthesiologist, then by
“volunteer[ing] to speak and to convey information which . . . influence[d] the conduct of
[Kadlec], [they were] bound to [disclose] the
whole truth.” In other words, if they created a
misapprehension about Dr. Berry due to their
own statements, they incurred a duty to disclose information about his drug use and forcause firing to complete the whole picture.
. . . The letter from Dr. Preau stated that
Dr. Berry was an “excellent anesthesiologist”
and that he “recommend[ed] him highly.” Dr.
Dennis’s letter said that Dr. Berry was “an
excellent physician” who “he is sure will be
an asset to [his future employer’s] anesthesia
service.” These letters are false on their face
and materially misleading. . . .
The question as to whether Lakeview
Medical’s letter was misleading is more difficult. The letter does not comment on Dr. Berry’s proficiency as an anesthesiologist, and
it does not recommend him to Kadlec. . . .
[W]hatever the real reason that Lakeview
Medical did not respond in full to Kadlec’s
inquiry, Kadlec did not present evidence that
this could have affirmatively misled it into
thinking that Dr. Berry had an uncheckered
history at Lakeview Medical.
Kadlec also says that the letter was misleading because it erroneously reported that
Dr. Berry was on Lakeview Medical’s active
medical staff until September 4, 2001. [The
court finds that although Dr. Berry did not
return to work at Lakeview after his March
13 termination, technically he was on the
medical staff until he formally resigned on
October 1.]
In sum, we hold that the letters from the
LAA defendants were affirmatively misleading, but the letter from Lakeview Medical was
not. . . . We now examine the theory that,
CH08.indd 344
even assuming that there were no misleading
statements in the referral letters, the defendants had an affirmative duty to disclose. . . .
[The court proceeds to analyze this issue
and concludes, despite “compelling policy
arguments,” that Louisiana courts would
not impose on the defendants an affirmative
duty to disclose possible impairments. Such
a duty would exist, according to the court’s
reading of Louisiana law, only if there were
a “special relationship” between the parties.
That relationship apparently would need to
be contractual or fiduciary in nature.]
3. Legal Cause
....
The LAA defendants . . . argue that Kadlec
had multiple warning signs . . . and had it
responded with an investigation, plaintiffs’
injuries would have been avoided. . . . The
jury . . . concluded that the LAA defendants
negligently and intentionally misled Kadlec
about Dr. Berry’s drug addiction. By intentionally covering up Dr. Berry’s drug addiction
in communications with a future employer,
they should have foreseen that the future
employer might miss the warning signs of Dr.
Berry’s addiction. This was within the scope
of the risk they took.
Indeed, both plaintiffs’ and defendants’
witnesses agreed at trial that narcotics addiction is a disease, that addicts try to hide
their disease from their co-workers, and that
particularly in the case of narcotics-addicted
anesthesiologists, for whom livelihood and
drug supply are in the same place, colleagues may be the last to know about their
addiction and impairment. This is not a case
where a future tortious act is so unforeseeable that it should relieve the earlier tortfeasor of liability. . . .
E. Summary and Remand Instructions
....
The district court entered judgment
consistent with how the jury allocated fault
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among the entities it found to be legally
responsible for the plaintiffs’ injuries. The
jury’s allocation was as follows: Dr. Dennis 20%; Dr. Preau 5%; Lakeview Medical
25%; Kadlec 17%; and Dr. Berry 33%. We
have affirmed the liability finding of the jury
against the LAA defendants. But now that we
have reversed the judgment against Lakeview
Medical, the question arises whether there
must be a reapportionment of fault with a
corresponding change to damages assessed
against the LAA defendants. It is possible that
345
this is unnecessary, if under Louisiana law
we can simply compare the fault percentages
of the remaining parties. But Louisiana law
might also require a reapportionment of fault
and, therefore, a fresh determination of damages. Because there was no briefing on this
issue, we vacate the judgment against the
LAA defendants and remand the case to the
district court to determine what, if anything,
needs to be redone on the apportionment and
damages issues, and then to enter judgment
against the LAA defendants accordingly.
Discussion Questions
1. Kadlec is a decision by a federal court in a lawsuit brought by a plaintiff located in the
state of Washington on a question regarding Louisiana state law. Can you explain why
the case was filed in Louisiana and why Louisiana law rather than the law of Washington
applies?
2. The US Court of Appeals for the Fifth Circuit is headquartered in New Orleans. Many of
its judges are likely members of the Louisiana bar. Nevertheless, this federal court is
presuming to gauge what a state court would decide if presented with these issues. What
procedural mechanism might the district court or court of appeals have used to dispose of
the Kadlec case without guessing what the Louisiana courts would do?
3. If this case were to come up today or in your state, how do you think it would be decided?
In other words, what differences in law, accreditation standards, hospital practices, or
other factors might affect this analysis?
~
~
Notes
1. The Joint Commission, Introduction to Leadership Structure, in
Hospital Accreditation Standards, Standards LD.01.01 through
LD.01.07.01 (The Joint Commission, 2009).
2. Med. Staff of Avera Marshall Reg’l Med. Ctr. v. Avera Marshall, 857
N.W.2d 695 (Minn. 2014).
3. Meister v. Avera Marshall Reg’l Med. Ctr., No. A15-1982 (Ct. App.
July 25, 2016).
4. See, e.g., 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).
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
5. See generally, Thomas C. Shields, Guidelines for Reviewing Applications
for Privileges, 9 Hosp. Med. Staff 11 (September 1980). See also
Leonard v. Board of Directors, Prower 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 465 (Colo. 1986) (the
executive committee of the medical staff has no standing to challenge
the decision of the board restoring a physician’s privileges).
6. Hayman v. Galveston, 273 U.S. 414 (1927).
7. See, e.g., Sosa v. Board of Managers of Val Verde Memorial Hosp.,
437 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).
8. See, e.g., Barrett v. United Hosp., 376 F. Supp. 791 (S.D.N.Y., aff’d
mem, 506 F.2d 1395 (2d Cir. 1974); Jackson v. Metropolitan Edison
Co., 419 U.S. 345 (1974).
9. Barrett, 376 F. Supp. at 800–805.
10. Id. at 799; accord Lubin v. Crittenden Hosp. Ass’n, 713 F.2d 414 (8th
Cir. 1983), cert. denied, 465 U.S. 1025 (1984).
11. See, e.g., Arthur F. Southwick, The Physician’s Right to Due Process in
Public and Private Hospitals: Is There a Difference? 9:1 Medicolegal
News 4 (1981). First expressed more than three decades ago, these
insights have proved true.
12. Greisman v. Newcomb Hospital, 40 N.J. 389, 192 A.2d 817 (1963).
Some cases are contra; see, e.g., Limmer v. Samaritan Health Serv., 710
P.2d 1077 (Ariz. App. 1985). By statute and accreditation standards,
the Greisman position has been vindicated.
13. Greisman, 40 N.J. at 393.
14. Ohio Rev. Code Ann. § 3701.351(B).
15. Cal. Health & Safety Code § 1316.
16. Cal. Health & Safety Code § 1316.5(a)(2).
17. See the “Overview” section of the Medical Staff chapter, the Hospital
Accreditation Standards.
18. Sosa v. Board of Managers of Val Verde Memorial Hospital, 437 F.2d
173 (5th Cir. 1971).
19. Id., 437 F.2d at 176–77 (citations omitted; emphasis added).
20. Id., 437 F.2d at 177 (emphasis added). See also Schooler 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
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21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
CH08.indd 347
347
followed, a hospital may deny staff appointment if there is evidence
that the physician displayed an inability to work harmoniously with
other doctors and hospital personnel and charged patients excessive
fees).
Woodbury v. McKinnon, 447 F.2d 839 (5th Cir. 1971).
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 hospitals 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); 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 is not subject to jurisdiction of the Sherman Act).
Board of Trustees of the Memorial Hosp. v. Pratt, 72 Wyo. 120, 262
P.2d 682 (1953); Peterson v. Tucson Gen. Hosp., Inc., 559 P.2d 186
(Ariz. Ct. App. 1976).
Rao v. Board of County Commiss’rs, 80 Wash. 2d 695, 497 P.2d 591
(1972).
Selden v. City of Sterling, 316 Ill. App. 455, 45 N.E.2d 329 (1942).
Yeargin v. Hamilton Memorial Hosp., 225 Ga. 661, 171 S.E.2d 136
(1969), cert. denied, 397 U.S. 963 (1970).
Yeargin v. Hamilton Memorial Hosp., 229 Ga. 870, 195 S.E.2d 8
(1972).
Fahey v. Holy Family Hosp., 32 Ill. App. 3d 537, 336 N.E.2d 309
(1975).
Moore v. Board of Trustees of Carson-Tahoe Hospital, 88 Nev. 207,
495 P.2d 605 (1972), cert. denied, 409 U.S. 879 (1972).
Moore, 88 Nev. at 211, 495 P.2d at 607 (quoting North Broward
Hosp. Dist. v. Mizell, 148 So. 2d 1, 5 (Fla. 1962).
Moore, 88 Nev. at 211–12, 495 P.2d at 608 (emphasis added).
Hospital Accreditation Standards, MS.06.01.01. These
competencies were developed jointly by the Accreditation Council
for Graduate Medical Education and the American Board of Medical
Specialties.
Hospital Accreditation Standards, MS.07.08.01 and MS.08.01.03.
42 U.S.C. §§ 11101 et seq.
Patrick v. Burget, 486 U.S. 94 (1988).
Patrick, 486 U.S. at 96.
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
37. Patrick, 486 U.S. at 98 and n.3.
38. Patrick, 486 U.S. at 105–06.
39. See generally, Margo Heffernan, The Health Care Quality Improvement
Act of 1986 and the National Practitioner Data Bank: The Controversy
over Practitioner Privacy Versus Public Access, 84(2) Bull. Med.
Libr. Ass’n 263–69 (1996), https://www.ncbi.nlm.nih.gov/pmc/
articles/PMC299426/pdf/mlab00375-0113.pdf [https://perma.cc/
X2UN-FZCU].
40. Poliner v. Texas Health System, 537 F.3d 368 (5th Cir. 2008).
Footnotes are omitted from the original passages.
41. Poliner, 537 F.3d at n.11.
42. Poliner, 537 F.3d at 370.
43. Poliner, 537 F.3d at 376–77.
44. Poliner, 537 F.3d at 379.
45. Poliner, 537 F.3d at 384–85 (internal citations omitted).
46. Kadlec Medical Center v. Lakeview Anesthesia Associates, 527 F.3d 412
(5th Cir. 2008).
47. 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).
48. Sallie Thieme Sanford, Candor After Kadlec: Why, Despite the Fifth
Circuit’s Decision, Hospitals Should Anticipate an Expanded Obligation
to Disclose Risky Physician Behavior, 1 Drexel L. Rev. 383, 386 (2009).
49. Id.
50. See Barry R. Furrow, Patient Safety and the Fiduciary Hospital:
Sharpening Judicial Remedies, 1 Drexel L. Rev. 439, 483 (2009).
51. Bredice v. Doctors Hospital, Inc., 50 F.R.D. 249, 250–51 (D.D.C
1970), aff’d, 479 F.2d 920 (D.C. Cir. 1973).
52. U.S. v. Harris Methodist Fort Worth, 970 F.2d 94 (5th Cir. 1992). See
also Laws v. Georgetown University Hospital, 656 F. Supp. 824, 826
(D.D.C.1987); Mewborn v. Heckler, 101 F.R.D. 691 (D.D.C. 1984).
53. O.C.G.A. § 31-7-143 (2010).
54. National Practitioner Data Bank, HHS, https://www.npdb.hrsa.gov/
[https://perma.cc/LDB2-K4GH] (last visited June 18, 2016).
55. CMS Reporting to the Healthcare Integrity and Protection
Internet Bank, OIG Report (Sept. 2010), https://oig.hhs.gov/oei/
reports/oei-07-09-00292.asp [https://perma.cc/B92P-8SGF].
56. Pub. L. No. 111-148, § 6403.
57. See, e.g., Blank v. Palo Alto-Stanford Hosp. Center, 234 Cal. App.
2d 377, 44 Cal. Rptr. 572 (1965), and Major v. Memorial Hospitals
Ass’n, 84 Cal. Rptr. 2d 510, 71 Cal. App. 4th 1380 (1999).
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349
58. 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).
59. 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 that has an affiliation agreement with a university’s
medical school may restrict staff appointments to those physicians who
also hold a university faculty appointment).
60. See, e.g., 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 federal Sherman Antitrust Act or the civil rights statutes).
61. Am. Med. Ass’n Policy H-230.976.
62. Cobb County-Kennestone Hosp. Auth. v. Prince, 242 Ga. 139, 249
S.E.2d 581 (1978).
63. 242 Ga. 150, 249 S.E.2d at 588.
64. Id.
65. Baptist Health v. Murphy, 226 S.W.3d 800 (2006).
66. Baptist Health, 226 S.W.3d at 805.
67. Baptist Health, 226 S.W.3d at 808–9.
68. Baptist Health v. Murphy, 2010 Ark. 358 (2010).
69. HHS Office of Inspector General, Supplemental Compliance Program
Guidance for Hospitals, 70 Fed. Reg. 4858, 4869 at n.59 (Jan. 31,
2005).
70. 42 U.S.C. § 1395nn, as amended by Pub. L. No. 111-148, § 6001.
71. ACA § 3022.
72. Engelstad v. Virginia Mun. Hosp., 718 F.2d 262, 268 (8th Cir.
1983).
73. Paul Starr, The Social Transformation of American Medicine 127
(Basic Books 1982).
74. Kathleen M. Boozang, Western Medicine Opens the Door to Alternative
Medicine, 24 Am. J. L. & Med. 185, 186 (1998), quoted in Murray
v. State Health Benefits Comm., 337 N.J. Super. 435, 767 A.2d 509
(N.J. Super. Ch., 2001).
75. 42 U.S.C. § 1395x(r).
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T h e L aw o f H e a l th c a re A d mi n i stra ti o n
76. Murray v. State Health Benefits Comm., 337 N.J. Super. 435, 445–46,
767 A.2d 509, 514 (N.J. Super. Ch. 2001).
77. See National Center for Complementary and Alternative Medicine,
http://NCCIH.nih.gov/health/whatiscam/#definingcam [https://
perma.cc/4UWC-PHF2].
78. See Licensure of NDs, North Carolina Ass’n of Naturopathic
Physicians, http://ncanp.com/legislation/ [https://perma.cc/JU523JT8] (last visited June 18, 2022).
79. See, e.g., People v. Cantor, 198 Cal. App. 2d Supp. 843, 18 Cal. Rptr.
363 (Cal. Super. 1961) (hypnotist); People v. Amber, 76 Misc.2d 267,
349 N.Y.S.2d 604 (N.Y. Sup. 1973) (naturopathy); Williams v. State
ex rel. Medical Licensure Commission, 453 So.2d 1051 (Ala. Civ. App.
1984) (naturopathy and homeopathy); State v. Howard, 337 S.E.2d
598, 78 N.C. App. 262 (N.C. App. 1985) (naturopathy); Sabastier v.
State, 504 So.2d 45, 12 Fla. L. Weekly 811 (Fla. App. 4 Dist. 1987)
(homeopathy); State Dept. of Health v. Hinze, 441 N.W.2d 593, 232
Neb. 550 (Neb. 1989) (naturopathy); State v. Mountjoy, 891 P.2d
376, 257 Kan. 163 (Kan. 1995) (midwifery).
80. See, e.g., FTC v. Qt, Inc., 448 F. Supp. 2d 908 (N.D. Ill., 2006)
(defendants enjoined from falsely advertising their “Q-Ray bracelet”
in infomercials as a pain-relieving device); United States v. Lane LabsUSA, Inc., 324 F. Supp. 2d 547 (2004) (defendants enjoined from
marketing certain products as treatments for cancer and HIV/AIDS).
81. See generally, David M. Eisenberg et al., Credentialing Complementary
and Alternative Medical Providers, 137 Ann. Int. Med. 965 (Dec. 17,
2002). It is noted, by way of comparison, that all states license MDs,
DOs, and DCs, but only about half license massage therapists. Only
three states license homeopaths who are not also MDs or DOs.
82. Id.
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CHAPTER
FRAUD AND ABUSE LAWS AND CORPORATE
COMPLIANCE
9
After reading this chapter, you will
• understand the basic federal laws relating to healthcare fraud and
abuse and how the Affordable Care Act has affected them;
• be able to explain why the 1863 False Claims Act is such a powerful
tool when applied to modern healthcare operations;
• understand that a violation of either the Anti-Kickback Statute
or the Physician Self-Referral Law (also known as “Stark” or the
“Stark law” after the name of its congressional sponsor) can
support a False Claims Act case even in the absence of other
evidence of wrongdoing;
• appreciate the importance of the Anti-Kickback Statute’s safe
harbors and Stark’s exceptions to properly structured healthcare
business arrangements;
• know that the other federal and state statutes might also be
implicated by fraudulent activities; and
• recognize the necessity of maintaining a robust corporate integrity
program.
Introduction
As we all know, healthcare is a multitrillion-dollar industry, and it grows every
year. According to the Centers for Medicare & Medicaid Services (CMS),
total national health expenditures were $4.1 trillion in 2020—nearly 20 percent of the US gross domestic product. Although 2020 was an atypical year
given the vast COVID-19-related expenditures and fewer elective procedures
than usual, national health expenditures are projected to continue growing
at an average rate of 5.5 percent per year. They are expected to total nearly
$6.2 trillion annually by 2028.1 Given the astronomical sums involved, it is
no wonder that this sector of the economy is a prime target for malefactors
who want to defraud the government and health insurance companies.
351
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Protecting the public fisc is a key impetus behind the government’s
efforts to combat improper healthcare billing. It is not, however, the only
one. Other motivators include concern that some healthcare payment
arrangements promote unnecessary care, encourage harmful overutilization,
put financial incentives ahead of patient needs, or lead to unfair competition
among providers. Appreciating these broader purposes helps explain how
otherwise responsible providers can get ensnared in healthcare fraud and
abuse laws.
This chapter discusses the three most significant federal laws aimed at
curbing healthcare fraud and gives examples of how those laws are enforced.
These three laws are the False Claims Act (FCA), the Anti-Kickback Statute
(AKS), and Physician Self-Referral Law (commonly known simply as Stark).
The chapter also briefly covers state laws aimed at protecting Medicaid
expenditures, the federal Civil Monetary Penalties Law (CMP), and the Foreign Corrupt Practices Act (FCPA).
The chapter concludes with a review of corporate integrity programs,
now a required component of any major healthcare entity. These programs,
which go by a variety of names, aim to promote legal compliance and business ethics as well as reduce penalties for lapses that are caught and corrected.
Upright organizations must be sensitive to the potential for their employees
and independent medical staff members to be implicated in prohibited billing
practices, illegal financial arrangements, or 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 such conduct is simply the
right thing to do.
The Enforcement Climate and Practical Challenges for
Healthcare Providers
“Follow the money” is often said in the context of corruption scandals,
but it could also be the mantra of those who commit healthcare fraud: they
wish to follow the money to its source, which in large measure is government healthcare programs. For example, in 2020, Medicare spending totaled
$828.5 billion and Medicaid spending was $671.2 billion.2 These numbers
are expected to continue to rise as a result of the aging of the population,
increased demand for treatment of chronic diseases, and the high cost of new
drugs and technology.
Government entities—both federal and state—are obvious targets
for fraud because of these numbers, and elimination of fraud is therefore
a high priority for law enforcement and policymakers. Each year, more
resources are allocated to the US Department of Justice (DOJ), the Federal
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353
Bureau of Investigation, the Offices of the United States Attorneys, the
US Department of Health and Human Services (HHS), the HHS Office
of Inspector General (OIG), and other
enforcement agencies. State attorneys
Legal Brief
general conduct their own investigations and prosecutions, often working
closely with federal officials. Also of
In fiscal year 2021, the DOJ obtained more than
great importance is the fact that the
$5.6 billion in settlements and judgments from
FCA allows private individuals who have
civil cases involving fraud and false claims. Of
firsthand knowledge of fraud to sue on
that amount, more than $5 billion related to cases
involving the healthcare industry, including drug
behalf of the government and to collect
and medical device manufacturers, managed care
a significant percentage of any proceeds
providers, hospitals, pharmacies, hospice organirecovered.
zations, laboratories, and physicians. This amount
The key federal laws—FCA, AKS,
reflects recoveries arising only from federal losses,
and Stark—present challenges for even
but in many cases the DOJ’s efforts resulted in
the most well-intentioned providers. They
recoveries for states.
Representative fraud settlements include the
prohibit activities that are standard and
following:
acceptable in other businesses. They are
complex, difficult to apply, and frequently
• Arriva Medical LLC and its parent, Alere Inc.,
agreed to pay $160 million to settle allegations
amended. Their financial penalties (in the
that Arriva paid kickbacks to Medicare
form of fines, verdicts, or settlements) can
beneficiaries by providing them “free” or “no
be enormous, especially under the FCA.
cost” diabetic testing glucometers and by
Criminal penalties, including jail time, are
routinely waiving or not making reasonable
possible as well, and harm to reputations
efforts to collect their copayments for
is a definite risk because publicizing the
glucometers and diabetic testing supplies.
• Apria Healthcare LLC paid $40.5 million to
cases is part of the government’s broader
resolve allegations that it submitted false
deterrence strategy.
claims for the rental of costly noninvasive
Combating healthcare fraud and
ventilators to program beneficiaries who did
abuse has been and will continue to be
not need the devices or were not using them.
a high priority for the DOJ, no mat• St. Jude Medical Inc. paid $27 million to settle
ter which political party is in power. In
allegations that it knowingly sold defective
implantable heart devices and failed to disclose
part, this is because the joint DOJ-HHS
serious adverse health events in connection with
Health Care Fraud and Abuse Control
premature battery depletion in those devices.
Program recovers more than $8 for every
See Justice Department’s False Claims Act
$1 spent on its investigations; it returns
Settlements and Judgments Exceed $5.6 Billion in
more than $4 billion to the US Treasury
Fiscal Year 2021: Second Largest Amount Recorded,
every year.3
­Largest Since 2014, DOJ Off. Pub. Aff., Just. News
As these statistics show, preventing
(Feb. 1, 2022), https://www.justice.gov/opa/pr/
fraud and abuse should be a top priorjustice-department-s-false-claims-act-settlementsand-judgments-exceed-56-billion-fiscal-year
ity for healthcare executives, and a basic
[https://perma.cc/ZN5P-SMMV].
understanding of the major criminal and
civil fraud statutes is therefore essential.
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False Claims Act
In 1862, the US House of Representatives convened a “Select Committee” to study military
contractor fraud. In his report, committee member
Charles Van Wyck condemned those who committed the “many frauds that have been exposed” and
added, “Worse than traitors in arms are the men
who pretend loyalty to the flag, who feast and fatten on the misfortunes of the nation, while patriotic blood is crimsoning the plains of the south
and their countrymen are moldering in the dust.”
(H.R. Rep. No. 37-50 [1863], at 47. This quotation
is often misattributed to President Abraham Lincoln, presumably because the FCA was sometimes
known as the “Lincoln Law.”)
Among those to whom Van Wyck was alluding
was financier J. P. Morgan, who had profiteered
by selling defective rifles to the Union Army at a
markup of over 600 percent (Matthew Josephson,
The Robber Barons: The Great American Capitalists,
1861–1901, 60–61 [1962]). Morgan is known as one
of the “robber barons” of the Gilded Age of the
late 1800s.
The federal government’s main weapon
in the war on fraud and abuse is the False
Claims Act.4 The FCA was enacted during
the Civil War to combat fraud in claims
related to the provision of goods and services to the Union Army. Examples given
to support passage of the law included military contractors billing the Union Army
for lame donkeys and gunpowder cut
with sawdust. For more than a century,
FCA prosecutions centered on military
contracting. In recent decades, however,
most cases have related to healthcare billing, primarily Medicare and Medicaid, but
other federal programs as well.
The FCA has been the US government’s primary mechanism to prevent
fraud, waste, and abuse in federal programs, and it has become the primary way
in which alleged violations of the AKS and
Stark (both discussed later) are pursued. The FCA establishes liability for
anyone who
• “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 provision was
added in 1986 to deal with reverse false claims—attempts to avoid
paying money owed to the government.)
The Krizek Case: An Early, Enduring Example
The Krizek case of the early 1990s provides an enduring example of a deceptively straightforward FCA case. George Krizek was a psychiatrist trained at
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355
Charles University in Prague and Beth
Israel Hospital in New York City. He and
Legal Brief
his wife, Blanka Krizek, were political refugees to the United States (because Dr.
Although this chapter focuses on federal fraud
Krizek refused to render politically motilaws, each state has its own laws that complement
vated psychiatric evaluations on behalf
those of the federal government. Thus, both state
of the authoritarian regime of Czechoand federal enforcement mechanisms can be in
slovakia), and he was lauded as a hero of
play for the same conduct, and federal and state
the Czech Republic following the fall of
agencies often work together to investigate and
prosecute wrongdoing. The main focus of state
communism there. Dr. Krizek had been
laws is protecting the fiscal integrity of Medicaid
practicing in Washington, DC, for 21
programs.
years when the government filed a false
Appendix 9.1 contains a summary of five
claims action against him.
major fraud statutes as listed by the HHS Office of
According to the court, Dr. Krizek
Inspector General.
was a “capable and competent physician,”
many of whose patients suffered from
“horribly severe psychiatric disorders and
often suffered simultaneously from other serious medical conditions.”5 Many
of his patients were also low-income “dual eligibles” (patients covered by
both Medicare and Medicaid). The prosecution could not prove that Dr.
Krizek rendered inappropriate care, but numerous false claims related to
upcoding (assigning a higher-reimbursed code than is warranted) were his
downfall.
This case was one of the first significant federal prosecutions of healthcare fraud under the FCA. It was triggered by data showing that Dr. Krizek
billed Medicare for face-to-face sessions at a much higher level than other
area psychiatrists. His was a small practice, with billing and other business
matters handled by his wife (who was also charged in the case) and another
part-time employee.
The evidence showed that Dr. Krizek charged the government for
a full face-to-face session—45 to 50 minutes—regardless of whether he
spent 20 minutes or two hours with a patient. He argued that even if he
spent only half an hour or less with the patient in person, he considered
related services—such as medication management and discussions with other
­physicians—to be part of patient care, and therefore he believed that he had
not harmed the government. According to Blanka Krizek, he was always
thinking of his patients.
One piece of evidence related to a statistical sampling of his patients
showed that his practice submitted 23 claims for full (45–50 minute) sessions in a single day. The court was impressed with neither Dr. Krizek’s
argument nor his management skills: “While Dr. Krizek was a dedicated and
competent doctor . . . his billing practices, or at a minimum his oversight of
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[the] billing system, was seriously deficient. Dr. Krizek knew little or nothing of the details of how the bills were submitted [on his behalf].”6 The
court concluded that
Dr. Krizek must be held accountable for his billing system along with those who
carried it out. . . . The Court . . . will hold the defendants liable under the False
Claims Act on those days where claims were submitted in excess of the equivalent
of twelve . . . claims (nine patient-treatment hours) in a single day and where
the defendants cannot establish that Dr. Krizek legitimately devoted the claimed
amount of time to patient care on the day in question.7
This is an example of a case that should have settled. The Krizeks
refused early settlement offers, however, and the government continued its
prosecution of the case. The case—one of the first major FCA cases related
to healthcare billing—raised many complex and novel legal issues. At one
point, Dr. Krizek’s attorneys withdrew, informing the court that they were
“unable to continue working with their client.” They were replaced by the
Krizeks’ newly minted lawyer daughter, Monika Krizek, and by the pro bono
(free) services of a major law firm that the court helped them obtain. Ultimately, they were able to settle the case for approximately the government’s
initial offer.8
Among the many interesting aspects of the published Krizek court
opinions (four in all), perhaps the most noteworthy is the trial court’s displeasure with how the government handled the case. After years of litigation,
the federal district court judge railed at the ongoing prosecution:
When it began its case, the Government was seeking over $80 million worth of
damages, a figure that the Court of Appeals declared was “astronomical.” Despite
the fact that Dr. Krizek is incapable of paying such a sum, the Government continues to relentlessly pursue Dr. Krizek, who is at this point a broken and sick man.
The Government’s pursuit of Dr. Krizek is reminiscent of Inspector Javert’s quest
to capture Jean Valjean in Victor Hugo’s Les Misérables. While the Government’s
vigor in pursuing violators of the law is to be commended, there comes a point
when a civilized society must say enough is enough. That point has been reached
in this case.9
Echoing the judge’s comments, some view this case as one of overly
zealous prosecution of a dedicated, underpaid immigrant physician confused
by the complexities of federal billing rules. Others view it as one of blatant
overbilling, perhaps to the detriment of vulnerable patients, and in expectation of lax government oversight. Regardless of how one views this early and
leading case, it demonstrates the seriousness with which the government
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viewed and continues to view fraud and abuse allegations related to federal
healthcare billing.
FCA Scienter Requirement
The civil FCA includes a scienter (knowledge) requirement. For liability to
be found, the defendant must have acted “knowingly.” What does that mean?
First-year law students are painfully aware of the Socratic dialogue that could
attend the definition of “knowingly.” For example, consider the following
classroom dialogue:
scienter
Knowledge by a
defendant that
their acts were
illegal or their
statements were
fraudulent.
Professor Sanford: 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: I guess so. Unless you were mentally incompetent, you knew
what you were doing. You were mailing a claim form and expecting to get paid.
Sanford: How much did I expect to get paid?
Showalter: Whatever amount is on the form.
Sanford: 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 those forms had errors on them?
Showalter: Well . . . [shifting in his seat and beginning to sweat]
Sanford: Well, what? Are the forms that have errors on them “false claims”?
Showalter: Well, they’re erroneous. But if you didn’t know they had errors and just
assumed that your staff were doing their jobs correctly . . .
Sanford: Assumed? Never assume anything in this class or any legal matter!
Showalter: Sorry. You’re right, of course.
Sanford: Let’s consider another case. Suppose that I know my claims contain the
occasional error—some are over, some are under—but I think they will all balance
out in the end, sort of the “no harm, no foul” approach to billing. And suppose I
think that the False Claims Act applies only to overbilling the government on purpose, which I haven’t done. What say you now?
Showalter: 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!
So goes this uncomfortable exchange for a few more minutes. In 1986,
Congress addressed the issue of scienter by amending the FCA to say that “no
proof of specific intent to defraud” is required. Instead, the person must either
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One of the Krizek opinions describes the doctor’s
conduct being as struthious, a word that means
“ostrich-like.” The OIG’s physician education training materials feature a picture of a man with his
head in the sand, ostrich-like, as a depiction of
what it means to act with “reckless disregard”
of the truth or falsity of a claim (A Roadmap for
New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse, OIG, https://oig.hhs.gov/
compliance/physician-education/ [https://perma.
cc/4VK6-9W8D]).
(1) have actual knowledge that the information is false; (2) act in deliberate ignorance
of the truth or falsity of the information; or
(3) act with reckless disregard of whether it
is true or false.10 As stated in the committee
report accompanying the 1986 amendment,
The Committee is firm in its intentions that the
act not punish honest mistakes or incorrect
claims submitted through mere negligence.
But the Committee 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 delved into the practical meaning of “knowingly” in the context
of healthcare billing. Although Dr. Krizek
was not personally involved in the billing
process, the court found that he and his
wife (who managed the billing) had submitted the claims knowingly: “These were
not ‘mistakes’ [or] merely negligent conduct. Under the statutory 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
To counter a claim of reckless disregard or deliberate ignorance,
healthcare providers must have in place mechanisms to verify the accuracy
of their claims. Furthermore, section 6032 of the Deficit Reduction Act of
200513 requires all entities that receive $5 million or more in annual Medicaid
payments to have written policies that provide detailed information about the
FCA, applicable state laws, the penalties afforded to whistleblowers (qui tam
relators), and the role of those laws in preventing fraud, waste, and abuse in
federal healthcare programs. These policies must cover all employees, contractors, and agents of the entity.
What Makes a Claim “False” Under the FCA?
The FCA does not define the word “false.” Among the types of healthcare
claims that have been held to be “false” are the following:
• Filing claims for services not rendered or not medically necessary
• Misrepresenting the time, location, frequency, duration, or provider of
services
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• Assigning a higher payment than the procedure or diagnosis warrants
(upcoding)
• Billing a battery of services (e.g., laboratory tests) separately
(unbundling) when they were meant to be billed as a group
• Violating the “three-day rule,” which states that outpatient diagnostic
procedures performed on any of the three days before hospitalization
are deemed part of the Medicare diagnosis-related group payment and
are not to be billed separately
• Billing for services that are said to have been “incident to” a physician’s
services but were not provided under the physician’s direct supervision
• Paying “kickbacks” to induce referrals of federally reimbursed
healthcare services (a violation of the AKS that then forms the basis for
a “bootstrapped” FCA case)
• Referring patients to entities in which the physician has a statutorily
improper financial interest (a violation of Stark that then forms the
basis for a “bootstrapped” FCA case)
The last two points deserve particular attention because they might
not be obvious to students. Not infrequently, FCA plaintiffs argue that a violation of the AKS or Stark (described in more detail in the following sections)
violates the FCA, even though the claim is otherwise legitimate.14 These are
known as “bootstrapped” FCA cases.
The theory is that the underlying violation of the AKS or Stark renders
the related billing “false.” For example, in United States ex rel. Pogue v. American Healthcorp,15 a trial court refused to dismiss an FCA case based solely
on violations of the AKS and Stark. (There was no allegation that the care
provided was unnecessary or that it was improperly coded for billing.) 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.”16
It held, in effect, that AKS and Stark violations create prohibited financial
relationships that taint the Medicare claims, and therefore the FCA applies.
In 2016, the US Supreme Court held the implied certification rationale to be valid in certain circumstances.17 As explained by the court, not
every violation of law connected to billing will support an FCA case. A key
legal question will be whether the violation was “material” to the billing—
whether the federal government would have paid the bill had it known of
the violation. Violations of AKS and Stark are highly likely to be found to
be material because one condition of Medicare participation is agreeing to
comply with these statutes.
In addition, the Affordable Care Act (ACA) codifies the implied
certification rationale, at least insofar as the AKS is concerned. The ACA
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Legal Brief
When the government wants to make regulatory
compliance a precondition for payment, it certainly
knows how to do so. The Medicare claim form
(CMS-1500) states in boldface type: “Any person
who knowingly files a statement of claim containing any misrepresentation or any false, incomplete
or misleading information may be guilty of a criminal act punishable under law and may be subject
to civil penalties.” It also includes the following
language:
states that “a claim that includes items or
services resulting from a violation of the
[AKS] constitutes a false or fraudulent
claim for purposes of [the civil FCA].”18
Thus, compliance with the AKS is a
precondition for payment, and noncompliance will support an FCA claim. The
Medicare claim form adds weight to this
position (see Legal Brief ).
Qui tam Relators and Government
Investigators
A unique feature of the FCA is its provision for qui tam relators. Although
NOTICE: This is to certify that the foregoing
relators are often referred to as “whistleinformation is true, accurate and complete.
I understand that payment and satisfaction
blowers,” especially in the media, in some
of this claim will be from Federal and State
respects, they are more like bounty huntfunds, and that any false claims, statements,
ers. The FCA allows a person with inside
or documents, or concealment of a material
knowledge to serve as a plaintiff and file
fact, may be prosecuted under applicable
an FCA suit on behalf of the government
Federal or State laws.
against entities or individuals. If the case
This notice appears to turn what would otherwise
results in a monetary recovery (either by
be an implied certification into an express condisettlement or court decision), the qui
tion for payment.
tam plaintiff will collect a share of the
money.
Of course, the government can
initiate an FCA case on its own. It can be alerted to potential fraud issues by
data mining, billing audits, hotline reports, or media stories, among other
sources. The OIG often leads the investigations, and the resulting cases are
brought by the DOJ.
At least 31 states also have false claims statutes that authorize private
individuals to file suit on behalf of the government. These laws are a separate
basis for liability, independent of the federal FCA, and they can be used for
recovery in cases involving Medicaid and other state programs. The standards
and defenses under state law differ from those under the federal statute.
Any person with information about healthcare fraud can be a qui
tam relator. Here, a “person” is defined as “any natural person, partnership,
corporation, association, or other legal entity, including any State or political subdivision of a State.”19 The relator must file the complaint, which is
immediately placed under seal (not made public or given to the defendant)
pending an investigation, and file a copy with the US attorney general and
the local US attorney.
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The government then has 60 days,
plus extensions for good cause, to deterLegal Brief
mine whether to pursue the case. The
government is statutorily obligated to
Qui tam (“he who”) is shorthand for a Latin phrase
investigate the claims. The investigation
that
means “he who sues for the king as well as
(which usually takes longer than 60 days)
for himself.” In such a case, the plaintiff (relator)
is typically led by the OIG and involves a
files suit as a kind of “private attorney general”
variety of investigatory techniques includon behalf of the government. The government
ing issuance of subpoenas for billing and
can choose to take over the prosecution, but if it
declines to do so the relator can proceed alone.
other records. If the government decides
Federal qui tam cases are cited as United
to take over the case (to “intervene”), the
States
ex rel. [name] v. [name of defendant]. Ex rel.
relator will receive 15 to 25 percent of
means “by the relation of ” (or, more loosely, “at the
any amount recovered. If the government
request of ”) and indicates the name of the relator.
declines to intervene, the relator may still
pursue the matter and, if successful, will
receive up to 30 percent of the recovery
(see Legal Brief). Most FCA cases are now initiated by relators. Where the
government declines to intervene, the cases are typically dropped, and the
lawsuit is never unsealed.
To file suit, the potential qui tam plaintiff and the allegations must
meet certain conditions. The same allegations or transactions must not have
been disclosed publicly at an earlier date—unless the qui tam plaintiff is the
original source of the previously disclosed information. Original source means
someone who gave the government the information in the first place or who
has information additional to that previously disclosed.20
Federal law provides a remedy for relators who are discharged,
demoted, harassed, or otherwise discriminated against because they filed
a qui tam case.21 Given the financial incentives and the protection against
employment-related retaliation, the qui tam lawsuit has become a common
and effective means of combating fraud and abuse. If a healthcare provider
learns (e.g. through a subpoena or other official government inquiry) that
it is the target of a qui tam lawsuit, it should act promptly to retain knowledgeable legal counsel, halt any routine document destruction, and prohibit
retaliatory employment action against the known or suspected relator.
FCA Penalties: Civil, Criminal, and Exclusion
Because of the way the civil FCA calculates penalties, verdicts and settlements
in civil fraud cases can be enormous. Furthermore, temporary or permanent
exclusion from Medicare and Medicaid participation—a possibility for serious
violations of the fraud laws—can amount to a “death sentence” for healthcare
providers and administrators. And offenders convicted of criminal offenses
can receive massive fines and lengthy jail terms.
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United States v. Lorenzo provides an example of how quickly civil penalties can add up. Dr. Lorenzo, a dentist, billed Medicare for “consultations”
on nursing home residents. Medicare did not cover these dental services, and
Dr. Lorenzo’s examinations, according to the court, “were nothing more
than the oral cancer screening that previously had been done as part of a
routine dental examination. None of these examinations had been conducted
at the request of an attending physician or because of a specifically identified
medical concern.”22
The government proved that Dr. Lorenzo had submitted 3,683 false
claims, and, as a result, he had received overpayments totaling $130,719.20.
The FCA allows monetary damages of up to three times the overpayment
plus a per-claim penalty that, at the time, had a maximum of $10,000 per
fraudulent claim. Applying this formula, the court assessed damages of
approximately $19 million, nearly 150 times the amount of the fraud. This
decision was rendered in 1991, when the FCA’s per-claim penalties were
much lower than they are today.
In 2015, Congress amended the statute to allow agencies to update
the per-claim penalties regularly for inflation. The adjustments are published
in the Federal Register, and they serve as a prime example of how important
administrative law has become. As of December 2021, the range of perclaim penalties for cases prosecuted by the DOJ was $11,803 to $23,605.
That means, for example, that for two fraudulently submitted Medicare
claims worth $100 each, the possible FCA penalties could be three times the
damages (or $600) plus $23,605 for each claim (or $47,310) for a total of
$47,910. Thus, today, Dr. Lorenzo’s fraudulent billing could result in fines
of more than $86 million—and that amount is before the addition of statutorily authorized attorneys’ fees.
Some agencies’ monetary penalty ranges are even higher. For example,
the Railroad Retirement Board set a range of $12,537 to $25,076 for claims
submitted to that agency for retirement, disability, or Medicare benefits.23
Curiously, the term claim was not defined in the FCA, and over the
years, its meaning has been a matter of considerable dispute. This is especially
so in healthcare where, for example, each line item on a billing form could
be considered a separate claim. Therefore, using the DOJ penalty range for
2022, up to $23,605 in penalties could be assessed for each false code. By
this line of reasoning, 20 false codes could result in a fine of nearly half a
million dollars plus three times the amount of money the government paid
for the false claims.
The definition of claim was addressed in one of the Krizek appeals
court decisions. The court held that each billing form was one claim, irrespective of the number of false codes it contained. The court asserted that the
form was merely one request for payment of the total sum it represented.24
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This definition seems logical and is consistent with other cases defining a
claim as “a demand for money or for some transfer of public property.”25
A separate provision of federal law makes filing false claims a criminal
offense.26 If convicted, an organization will be subject to huge monetary
penalties, perhaps in the millions of dollars depending on the amounts falsely
claimed. An individual who is convicted of submitting a criminal false claim
may likewise be given a huge fine and may be sentenced to up to 10 years
in prison.
Although potential risk to patients’ health is an important factor in the
government’s decision to proceed criminally, the possibility of criminal prosecution is not limited to rogue actors. The DOJ’s policy for criminal prosecution of corporate employees and executives is expressed in the 2015 “Yates
Memorandum”27 (so called because it was written by Sally Yates, who later
became the acting US attorney general). Titled “Individual Accountability
for Corporate Wrongdoing,” this memo stresses that one of the most effective ways to combat corporate misconduct is to hold individuals responsible,
not just the corporate entity.
Of course, the standards of proof are higher in criminal prosecutions than in civil cases. In a civil FCA action, the standard is merely “a
preponderance of the evidence”—in other words, it is more likely than
not that the defendant did what is alleged. In criminal FCA cases, the
government must prove beyond a reasonable doubt that the defendant
knew the claim was false. For this reason, and because the penalties in civil
actions are already severe, fewer criminal false claims cases are brought
than civil cases.
A further incentive to avoid submitting fraudulent claims is the threat
of the so-called death penalty (exclusion from Medicare and Medicaid). The
OIG has the authority under the 1981 Exclusions Statute to exclude individuals and entities from federally funded healthcare programs for a variety
of reasons, including a liability or conviction for Medicare or Medicaid fraud.
Those that are excluded can receive no payment from federal healthcare
programs for any items or services they furnish, order, or prescribe, and they
cannot be employed by any provider of health benefits funded directly or
indirectly by the United States.
The OIG maintains a “List of Excluded Individuals/Entities” (LEIE).
Anyone who hires an individual or entity on the LEIE may be subject to civil
monetary penalties under the CMP, which is described in more detail later in
this chapter. To avoid CMP liability, healthcare entities must routinely check
the list to ensure that new hires and current employees are not on it. (In the
case of healthcare systems and facilities, this is typically done by a compliance
or human resources department, and it is a recommended procedure for even
small provider practices.)
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COVID Connection
As part of its effort to respond to the pandemic,
the federal government released hundreds of billions of dollars in various forms of aid. Not surprisingly, some of this aid was diverted for improper
purposes. Using the FCA (and other laws), the
DOJ is pursuing those who misused COVID-19
relief funds. The splashiest prosecutions in 2020
and 2021 targeted malefactors who spent money
from the Paycheck Protection Program to buy
luxury goods rather than to support their employees. (See Katie Benner, Justice Dept. Announces
Dozens of Fraud Charges in Small-Business Aid
Program, N.Y. Times [Sept. 10, 2020], https://www.
nytimes.com/2020/09/10/us/politics/ppp-fraudcoronavirus.html [https://perma.cc/ADU6-7RL3]).
Healthcare providers, among the biggest
recipients of COVID-19-related funds, should anticipate audits into their use of this money. In 2021,
the DOJ established a COVID-19 Fraud Enforcement
Task Force and charged several healthcare providers with fraudulently using COVID-19 relief funds,
among other improper pandemic-related activities
(such as forging vaccine cards).
Any individual may be excluded
who (1) has a direct or indirect ownership
or control interest in a sanctioned entity
and has acted in “deliberate ignorance”
of the information; or (2) is an officer or
a managing employee of a convicted or
excluded entity, irrespective of whether
the individual participated in the offense.28
Any excluded person who retains ownership or control or who continues to serve
as an officer or a managing employee in
such entity may be fined $20,000 for each
day the relationship continues.29
Anti-Kickback Statute
In some industries, it is acceptable to reward
those who refer business to you. However, in
the Federal health care programs, paying for
referrals is a crime.
—HHS Office of Inspector General30
The 1972 federal law that has come to
be known as the Anti-Kickback Statute
prohibits the knowing and willful payment of “remuneration” to induce
or reward patient referrals or the generation of business involving any item
or service payable by a federal healthcare program (e.g., drugs, supplies, or
healthcare services for Medicare or Medicaid patients).
Remuneration includes anything of value, and it can take many forms
besides cash, such as free or reduced rent, expensive hotel stays and meals,
or excessive compensation for medical directorships or consultancies. The
AKS applies to “any plan or program that provides health benefits, whether
directly, through insurance, or otherwise, which is funded directly, in whole
or in part, by the United States Government.”31 Thus, unlike the FCA, which
applies to all federal payments, the AKS applies only to federal healthcare
payments.
The AKS was passed a few years after the establishment of Medicare
and Medicaid, amid concerns about rising program costs and evidence of
overutilization of healthcare services linked to improper financial incentives.
It covers the payers of “kickbacks” (those who offer or pay remuneration)
as well as the recipients of the kickbacks (those who solicit or receive the
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remuneration). Note that the term kickback has an inherently negative connotation. Each party’s intent is a key element of their liability under the AKS.
A key section of the AKS reads as follows:
(1) Whoever knowingly and willfully solicits or receives any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash
or in kind—
(A) in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made
in whole or in part under a Federal health care program, or
(B) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for
which payment may be made in whole or in part under a Federal health care
program,
shall be guilty of a felony and upon conviction thereof, shall be fined not more than
$100,000 or imprisoned for not more than ten years, or both.
(2). Whoever knowingly and willfully offers or pays any remuneration (including
any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or
in kind to any person to induce such person—
(A) to refer an individual to a person for the furnishing or arranging for the
furnishing of any item or service for which payment may be made in whole or
in part under a Federal health care program, or
(B) to purchase, lease, order, or arrange