Liability of Health Care Institutions - Module 5 of 5

Medical Malpractice Module 5:

Liability of Health Care Institutions

Medical malpractice lawsuits usually arise from injuries suffered by a patient in the course of a doctor-patient relationship. However, in practice, malpractice suits often implicate parties other than the doctor. It is in the plaintiff’s interest to sue multiple parties, especially if some of the parties have financial resources to pay substantial damages awards. Since many doctors are affiliated with medical institutions, often with greater financial resources than the doctors, such institutions may be named as defendants in malpractice actions.

Respondeat Superior

The primary legal theory under which a party who was not directly involved in providing medical treatment can be held liable for medical malpractice is the doctrine of respondeat superior. This doctrine holds employers liable for the wrongful acts of an employee, if the employee was acting in the course of his employment and operating under the control of the employer.

In the medical malpractice context, this doctrine has been used to hold physicians liable for the negligent acts of their employees. In one case, a court held a physician liable for the harm suffered by a patient when “subordinate medical personnel” who worked for the physician administered a drug when the physician knew the patient was allergic to the drug. Although the doctor did not administer the drug himself, and was not even present, the court noted that nurses can only administer medication on the written order of a physician. This written order was enough evidence of control over the nurse for the physician to be deemed liable.[1]

While hospitals employ and exercise control over many employees, historically, they had enjoyed state law immunity as charitable institutions. However, over time, hospitals lost immunity from litigation under state laws as they came to be seen more as fee-for-service healthcare providers rather than charities.

In Bing v. Thunig, a New York case, a patient suffered burns when her bed linen caught on fire during a procedure. An attending nurse had spilled solution on the bed prior to the procedure, making it flammable, and leading to the fire. Since the nurse was acting within the scope of her employment, the court held that the hospital should be treated similarly to other employers, and it was found liable for the injuries.[2]

However, the law of employer liability distinguishes between people who serve as employees and those who are independent contractors.

Employers are only liable for negligent acts of employees, who act under their direct control and supervision. However, they are not liable for the conduct of independent contractors, who work under the auspices of an employer, but are not subject to their direct control.

The factors that determine whether one is an employee or an independent contractor include whether an agency relationship is intended, whether the service provided requires specialized skill, whether the employer controls the activity and decision-making, and whether the work is done without supervision.[3]

Physicians practicing medicine in a hospital are often not salaried employees of the hospital, and retain autonomy and control over their medical practice, without close direction and supervision by the hospital. As such, they are generally considered to be independent contractors. Courts are reluctant to find hospitals liable for the conduct of such physicians whose hospital privileges allow them to treat patients in the hospital, but who act independently, with hospitals having limited power of control.[4]

However, even in cases where physicians are not employees of the hospital, courts have found grounds for holding a hospital liable when the hospital holds itself out as providing medical services. In an important decision, the North Carolina Supreme Court laid out the conditions under which a hospital is legally responsible for the medical malpractice of non-employee physicians who work under a hospital’s auspices. The plaintiff must prove:

(1) that the hospital held itself out as providing medical services;

(2) the plaintiff looked to the hospital to perform medical services rather than to a specific, individual doctor; and

(3) the patient accepted the services under a reasonable belief that they were being providing by the hospital.

The court noted, however, that meaningful notice to the patient that the medical services sought would be provided by an independent contractor would generally preclude a finding of hospital liability.[5]

Consider the facts of that case. A hospital contracted with a medical services provider to be the exclusive provider of anesthesia services at the hospital. One of those employed by the contracted provider, a nurse, perforated the esophagus of a patient while administering an anesthetic.  The patient successfully sued the hospital for damages even though the nurse was not a hospital employee. The court applied the test for determining whether the hospital held itself out as providing medical services. The decision cited facts such as the hospital having an anesthesiology department, which the patient could reasonably take to mean the hospital provided such services. Likewise, the fact that the hospital exclusively contracted with the medical services provider to provide anesthesiology services to its patients meant that the patient had no choice as to the doctor who would administer the treatment.

These facts persuaded the court that the plaintiff reasonably believed the hospital held itself out as providing medical services, and as such could be held liable for damages resulting from the medical negligence.[6]

Note that while the law generally will not hold hospitals liable for the negligence of independent contractors, patients may still have recourse to sue the hospital on related grounds. Courts have found hospitals liable for breaching a duty of care when a patient receives medical care in its facilities. Examples of such a breach of a duty of care include the failure to have enough trained medical staff on hand, failure to require consultation with specially trained medical personnel and failure to review treatments provided by medical personnel.[7]

Likewise, the failure of a hospital’s credentials committee to sufficiently investigate the background and qualifications of medical staff to whom it grants hospital privileges can lead to hospital liability for harm caused by such staff.[8]

Managed Care Organizations

Patients enrolled in a managed care organization receive medical care from a physician within a provider network established by the organization. In such a network, physicians may only perform procedures approved by the organization, and only receive reimbursement for approved services.  By overseeing the process for medical treatment and providing other incentives to reduce the number of procedures performed, these organizations reduce the total cost of medical services for the patient.

Generally, managed care organizations that contract with physicians explicitly provide that the organization is not legally responsible for negligence on the part of the physician. However, patients who suffer harm while being treated by a doctor in a managed care provider network may still have legal recourse.  Managed care organizations can be sued under the theory that contracted physicians acted as agents of the organizations. Alternatively, courts have found that negligent credentialing of network physicians, and improper review of medical utilization procedures can form a basis for liability.[9]

At the same time, federal law may limit claims against managed care organizations when patients are enrolled in employee benefits plans because ERISA preempts state law regarding liability for harm suffered by beneficiaries of many employee benefits plans. Under ERISA, plan participants may only recover benefits owed to them under the plan and not additional damages.[10] Courts have interpreted this statute to exclude recovery for punitive and compensatory damages, severely limiting potential recovery in a lawsuit.[11]

However, ERISA will generally not limit recovery when a claim involves the quality of care provided, as opposed to decisions about the provisions of benefits. For example, the Seventh Circuit Court of Appeals held that a patient’s lawsuit against a managed care organization could proceed when the organization refused to authorize a blood test that the patient’s physician had deemed medically necessary (though that case was dismissed on other grounds). The rationale was that the suit focused on the quality of the medical care provided, and not on the provision of benefits or whether the managed care organization would cover the cost of the test.[12]

Stabilization Requirement

A federal law, the Emergency Medical Treatment and Active Labor Act, or “EMTALA,” requires hospitals that accept Medicare payments to treat anyone seeking medical attention, regardless of citizenship, legal status or ability to pay. Specifically, hospitals must provide appropriate medical screening and stabilize any person suffering from an emergency medical condition. The hospital may not discharge or transfer the patient until she’s stabilized unless the transfer is necessary to provide better treatment.[13]

While such emergency patients enjoy a doctor-patient relationship with the medical personnel providing services, courts have made it clear that the law requiring treatment is not intended to create a federal medical malpractice statute. Individual physicians may be held liable for a breach of duty to the patient, but they cannot be personal sued under federal law merely for violating the EMTALA.[14]

However, in addition to applicable civil fines against the doctors, the statute does provide for individual civil actions against the hospitals who fail to meet the Emergency Medical Treatment requirements if a patient suffers personal harm as a result.[15]

Alternative Sources of Liability

Breach of Contract

Proving negligence requires showing that a doctor failed to meet the expectations of customary medical care, and usually requires expert witnesses to make the case. As such, medical malpractice suits based on negligence can require substantial evidence of wrongdoing and involve high litigation costs.

An alternative to a negligence-based suit is one based on breach of contract. When a doctor agrees to treat a patient, the agreement forms a contractual relationship between the parties. The doctor represents himself as a qualified physician who will provide medical services using an ordinary degree of skill and care, and, in return the patient agrees to pay. This arrangement can give rise to a contract even if the formal language of contracts is not employed.

If the patient believes that the doctor has not performed as required in the agreement, and especially if the doctor makes specific promises or guarantees regarding the treatment, the patient may be able to bring a lawsuit alleging breach of contract. For example, in one case, a plastic surgeon promised his patient that he would perform surgery using only internal incisions, so that no scar would be visible after the surgery. When the surgeon performed the surgery using external incisions, the patient successfully sued for breach of contract.[16]

To limit widespread breach of contract litigation, courts have required that the plaintiff present “clear proof” of specific promises made by a doctor to demonstrate the existence of a contractual relationship.[17] Moreover, some jurisdictions are reluctant to allow lawsuits to proceed based on a physician’s promises. This reluctance is rooted in public policy concerns that if physicians fear being sued, they will employ overcautious medical treatment, which is wasteful, and may refrain from offering any reassurances to patients anxious about undergoing medical procedures.[18]

Product Liability

In tort law, manufacturers and suppliers of defective products can be held liable for the harm caused to the users of such products which stem from the defect. In the medical provider context, patients who suffered harm in the course of treatment have sometimes sought to use the doctrine of product liability to hold medical institutions liable for harm that results from faulty medical equipment or dangerous medication.

To successfully recover damages in a product liability claim, the plaintiff must show that the product in question was unreasonably dangerous and the seller who provided the product is in the business of selling such a product. Courts have ruled that when a hospital regularly supplies specific products to its patients, it’s considered to be in the business of selling such products.[19]

In addition, doctors have the duty to warn patients of known dangers and side effects of medical devices and prescription drugs they administer. Since the dangers of such products may not be readily understood by patients, the law considers doctors to be learned intermediaries, who are required to convey the warnings published by the manufacturers of such products to the patients they are treating. [20]

Medical Malpractice Reform

Due to the increased number of malpractice lawsuits in recent decades, some states have taken legislative steps to reform the medical malpractice system.  

To protect themselves, doctors facing high risks of being sued will often practice defensive medicine, in which they overuse medical resources to defend against possible claims of failure to provide comprehensive medical treatment. Defensive medicine wastes valuable medical resources and raises the cost of medical treatment. Additionally, the prevalence of malpractice lawsuits, including many with little merit, increases malpractice insurance premiums, imposing financial burdens on practicing physicians.

One response to the problem of frequent litigation has been for states to impose caps on monetary compensation in malpractice cases. Such caps limit the damages awards available to patients, which discourages those who sue doctors seeking to achieve windfalls of excessively high damages awards. Similarly, by reducing the risk of such awards, the medical malpractice insurance premiums are reduced.  

Note that these caps are generally for recovery of non-economic damages, such as pain, suffering and mental anguish. They do not limit recoveries for economic harms, such as costs of medical care, loss of income and future earnings potential.

Some states have implemented caps using a tiered system, which permits higher damage awards for more serious types of injuries. This maintains the disincentive to pursue excessive awards while still allowing those who have suffered substantial, life-altering injuries to be made whole through higher levels of compensation. Note, however, that such differentiation between patients’ abilities to recover damages has been challenged in courts.[21]

Another example of a medical litigation reform is to cap the amount that attorneys may charge as contingency fees for representing plaintiffs in malpractice actions. Most medical malpractice cases involve attorneys who work on contingency bases, in which the attorney is paid primarily by taking a fixed percentage of the damages award. By limiting potential payment to the attorney, this reform discourages attorneys from accepting cases with little merit by reducing the potential return for their legal services. This cap may be in the form of a limit of the percentage of the damages award the attorney may take, or a limit on the total dollar amount the attorney may accept as a fee.

States may also approach the problem of burdensome litigation by requiring plaintiffs to demonstrate a preliminary finding of merit before the case may proceed to trial. Some states require the plaintiff to produce a certificate of merit, which is a signed affidavit by a medical professional attesting to his or her belief that the allegations underlying the suit have merit and are not frivolous. In other jurisdictions, plaintiffs present their cases to medical review panels, which determine whether the contentions state a reasonable case for medical negligence.

Finally, states may encourage or mandate that plaintiffs engage in alternative dispute resolution, such as pre-trial mediation, in an attempt to reach an agreement between the parties.  Note, however, that agreement to settle is entirely up to the parties, who may always elect to have the dispute adjudicated at trial.

Placing such barriers to frivolous medical malpractice lawsuits saves time and money for physicians who need not respond immediately to any claim of wrongdoing and reduces the burden on the civil court system by screening out cases which have little merit without employing the resources of the courts.

Thank you for participating in LawShelf’s course on medical malpractice. We hope that you now have a comprehensive introduction to this high-stake area of torts law and we encourage you to take advantage of our other courses in tort law and other areas that you find interesting or useful.

[1] Walstad v. University of Minnesota Hospitals, 442 F.2d 634, 640-41 (8th Cir. 1971).

[2] Bing v. Thunig, 2 N.Y.2d 656, 659-667 (1957).

[3] See Menzie v. Windham Community Memorial Hosp., 774 F. Supp. 91, 94-96 (D. Conn. 1991); Restatement (Second) of Agency § 220.

[4] See Banks v. St. Mary's Hosp. & Medical Center, 558 F.Supp. 1334, 1338 (D. Colo. 1983).

[5] Diggs v. Novant Health, 117 N.C. App. 290, 307 (Ct. App. 2006).

[6] Id. at 307-08.

[7] Darling v. Charleston Hospital, 211 N.E.2d 253, 258 (Ill. 1965).

[8] Johnson v. Misericordia Community Hosp., 301 N.W.2d 156, 167-78 (Wis. 1981).

[9] See Boyd v. Albert Einstein Med. Center, 547 A.2d 1229,1232 (Pa. Super. Ct. 1988); McClellan v. Health Maintenance Organization, 604 A.2d 1053, 1058-59 (Pa. Super. Ct. 1992).

[10] 29 U.S.C. § 1132(a)(1).

[11] See, e.g., Klemhans v. Lisle Savings Profit Trust, 810 F.2d 618, 627 (7th Cir. 1987).

[12] Dukes v. U.S. Health Care Systems of Pennsylvania, 848 F. Supp. 39 (E.D. Pa. 1994).

[13] 42 U.S.C. § 1395dd.

[14] See Correa Ortiz v. Mercado Sile, 2002 WL 731762 at *1 (D. Puerto Rico 2002).

[15] 42 U.S.C. § 1395dd(d)(2)(A).

[16] Frank v. Maliniak, 249 N.Y.S. 514, 515-16 (Sup Ct. App. Div. 1931).

[17] Van Leeuwan v. Nuzzi, 810 F. Supp. 1120, 1123 (D. Colo. 1993).

[18] See Sullivan v. O'Connor, 296 N.E.2d 183, 185-86 (Mass. 1973).

[19] Karibjanian v. Thomas Jefferson University Hosp.,717 F. Supp. 1081, 1084-85 (E.D. Pa. 1989).

[20] Tresemerv. Barke, 86 Cal. App. 3d 656, 671 (Ct. App. 1978).

[21] See Fla.Stat. Ann.§ 766.118; North Broward Hosp. Dist. v. Kalitan, 174 So. 3d 403, 411-12 (Fla. Dist. Ct. App. 2015).