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Barry Rosen: When hospitals, docs fall out

Two recent cases involving hospital bylaws and policies have resulted in pro-hospital and anti-doctor results. The first case prevented a doctor from enforcing medical staff bylaws because of a disclaimer in the bylaws, and the second case required a doctor to pay $425,000 of the hospital’s attorneys’ fees because of fine print found in the hospital’s credentialing policies.

Atta v. Nelson

The law in Maryland and in the majority of states is that hospital bylaws are enforceable as contracts. It is curious, then, that in Atta v. Nelson, a federal court in West Virginia recently bucked the majority rule and held that a hospital’s bylaws did not create a contractual relationship between the hospital and a physician holding privileges there.

The bylaws at issue contained an explicit disclaimer that stated: “The bylaws and the rules and regulations do not create, nor shall be construed as creating a contract of any nature between or among the hospital, the Board, and any person granted any clinical privilege provided for under the terms of [those] documents.”

The court enforced the disclaimer, used as an analogy cases where courts (including Maryland courts) have held that an employee handbook does not create contractual rights if it contains a disclaimer that disavows any intent by the employer to be contractually bound by the policies stated in the handbook.

By contrast, a court in Illinois, in Garibaldi v. Applebaum, held a dozen years ago that such a disclaimer in a hospital’s bylaws was contrary to public policy and unenforceable. Illinois state law requires hospitals to have bylaws that include the right to a fair hearing on adverse decisions affecting physicians’ clinical privileges. The Illinois court would not permit a hospital to skirt the law by inserting a disclaimer in its bylaws.

Similar to Illinois state law, the Joint Commission, which accredits hospitals for Medicare participation and for licensing in most states, also requires that medical staff bylaws contain fair hearing rights.

While Maryland courts have held that hospital bylaws are enforceable contracts, they have yet to be confronted with a case involving bylaws containing a disclaimer of any intent to create a contract. Therefore, one does not know how a Maryland court would deal with such an issue.

Sternberg v. Nanticoke

The Delaware Supreme Court, in Sternberg v. Nanticoke Memorial Hospital Inc., recently upheld an order requiring a physician to pay a hospital more than $425,000 in attorneys’ fees and costs after the physician’s claims against the hospital were dismissed under the immunity provisions of the federal Health Care Quality and Improvement Act.

The physician, an orthopedic surgeon, sued the hospital for tortious interference with existing business relations, defamation and breach of the medical staff bylaws, after the hospital suspended his privileges for disruptive conduct.

The trial court found that the hospital acted reasonably in concluding that the physician’s disruptive behavior threatened patient safety and held that the hospital was entitled to immunity under the act. The act insulates hospitals from damages in such situations, unless the withholding of privileges was done in bad faith or without due process.

The act also permits a substantially prevailing hospital to recover its attorneys’ fees from the complaining physician “if the claim, or the claimant’s conduct during the litigation of the claim, was frivolous, unreasonable, without foundation, or in bad faith.”

However, the credentials policy, to which the physician agreed when he joined the hospital’s medical staff, contained an even broader statement about attorneys’ fees. It stated that “if … an individual institutes legal action and does not prevail, he or she will reimburse the hospital and any member of the medical staff named in the action for all costs incurred in defending such legal action, including reasonable attorney’s fees.”

In upholding the award of attorneys’ fees, the court rejected the physician’s argument that the attorneys’ fees provision of the credentials policy violated public policy because it allowed the hospital to recover attorneys’ fees under a lower standard (where the physician does not prevail) than the standard set forth in the act (where the physician does not prevail and his claim or conduct was frivolous, unreasonable, without foundation, or in bad faith).

The court reasoned that the act does not expressly prohibit contractual attorneys’ fees provisions.

Conclusion

These cases may lead other hospitals to include similar provisions in their own bylaws. If that occurs, parties will have to wait to see whether the approach taken by the West Virginia court in regard to disclaimers takes root elsewhere and whether other courts will enforce more liberal attorneys’ fees provisions.

In all cases, however, physicians should take care to review the language of any credentials policies to which they have agreed before instituting litigation against a hospital arising out of an adverse peer review or disciplinary proceeding.

Barry F. Rosen is chairman and CEO of the law firm of Gordon Feinblatt LLC and heads the Firm’s Health Care Practice Group. He can be reached at 410-576-4224 or [email protected] Catherine A. Bledsoe is a member of the Firm’s Litigation and Health Care Practice Groups and can be reached at 410-576-4198 or [email protected]