Med staff-hospital fights turn nasty and more litigious

Lawsuits are expected to keep coming as the economics of medicine evolves.

By Tanya Albert Henry — Posted April 19, 2004

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Judges this year will decide how much authority hospital boards have over medical staffs as the two square off in courtrooms nationwide.

For years, tension has been commonplace in physician-hospital relationships, and the two sides are no strangers to the legal system. But mounting economic pressures as well as heightened focus on quality of care are pushing more and more hospital boards and medical staffs to ask the courts to resolve disputes.

New lawsuits in Florida, Arkansas and Idaho join suits filed last year in California, New York and Ohio giving courts a key role in solving what has become an ongoing struggle for power.

"The court is usually a last-ditch resort," said John D. Blum, a law professor at Loyola University in Chicago who focuses on medical quality assurance. "When the parties go to court, there is open hostility, and they are not on the same page."

Indeed, that is the case in the three latest lawsuits.

Generally speaking, hospital medical staffs say they need autonomy to make decisions about who is granted privileges, and they say they should determine when peer review is done.

Medical staff members argue that they are best able to make decisions that most serve the interest of patients. And they say they have the skill and training necessary to initiate and conduct peer review.

Hospital boards counter that they have the ultimate responsibility to ensure that hospitals meet their communities' needs and to ensure that their institutions are financially strong.

Some hospital executives say it's a conflict of interest if a physician on their hospital staff has a financial stake in a competing entity. Also, some hospital executives say they should have the right to initiate peer review if the medical board chooses not to.

Challenging a Florida law

For the better part of a decade, Lawnwood Regional Medical Center Inc., in St. Lucie County, Fla., and its medical staff have argued over what authority each possesses.

Several years ago, a St. Lucie County court sided with the medical staff in a dispute in which the hospital claimed the medical staff had failed to peer-review physicians who hospital officials believed were responsible for problems in the hospital's pathology laboratory. The state agency for health care administration found "serious pathological issues involving misdiagnosis."

After that disagreement, the hospital succeeded in getting state lawmakers to pass the St. Lucie County Hospital Governance Law. It applies only to that one county and says hospital bylaws win out when they conflict with medical staff bylaws on medical staff privileges, quality assurance, peer review and contracts for hospital-based services.

In an unusual twist, both the hospital and the medical staff have filed lawsuits over the law.

The hospital sued the medical staff in the state capital, Tallahassee, in December 2003, asking the court to declare the law constitutional. The medical staff sued the hospital in St. Lucie County in January, asking that court to declare the law unconstitutional.

"The canary in the coal mine here is that the hospital can unilaterally rewrite medical staff bylaws," said Thomas Porter Crapps, an attorney representing the medical staff. "The board wants to interfere with medical decision-making."

Francis B. Geary Jr., the attorney representing Lawnwood, said that is not the hospital's intent. He said the law puts it on equal footing with other hospitals in the state. It also allows the board to initiate peer review if it believes the medical staff is not taking steps against a questionable physician whose work the hospital would be held legally responsible for, he said.

"It's a quality-of-care issue," he said.

The court decisions likely will impact what happens to other medical staffs in the state, prompting the American Medical Association/State Medical Societies Litigation Center to support the physicians.

"If they [hospital officials] succeeded," Crapps asked, "why not try it in other parts of the state?"

Economic credentialing

Lawsuits are under way in two other states, with physicians suing hospital boards that are trying to take away their privileges because they have economic interests in competing hospitals.

Six cardiologists in Little Rock, Ark., are suing Baptist Health in state court, challenging a hospital board policy that denies staff privileges to anyone who has an ownership interest in a competing hospital.

The six cardiologists are partial owners of the Arkansas Heart Hospital, but the court is allowing them to continue practicing at Baptist while the case is heard.

Cardiologist Bruce E. Murphy, MD, said the new policy would force patients to arbitrarily discontinue relationships with their physicians.

"The decision of the board of trustees was made by those who do not care for patients," Dr. Murphy said. "They overlooked the physician-patient relationship, a relationship that is sacrosanct. Is it fair to base staff membership in a hospital on nonmedical reasons?"

Mark Lowman, a vice president at Baptist Health, said he could not comment on the lawsuit. But regarding the policy, he said the board acted to protect the nonprofit hospital.

"The board looked at it as an option based on the concern that niche hospitals would hurt community hospitals' ability to provide care, especially trauma care," Lowman said. "The policy was not directed at any particular doctor or niche hospital. It was directed toward the future."

Four Idaho physicians are fighting a similar battle against Eastern Idaho Health Services Inc.

In March, the physicians filed a lawsuit claiming that a policy that punishes physicians who refer patients to competing health care facilities in which they have a financial interest is "arbitrary, unreasonable and capricious." The four physicians who filed the complaint had their privileges at Eastern Idaho Health Services revoked. They are part owners in Mountain View Hospital, a small, general acute care hospital in Idaho Falls that opened in 2002.

David Marx Jr., who is representing the physicians, said it is one thing for hospitals to say physicians who have an economic interest in another hospital can't hold a position in their hospital that has fiduciary duties. "It's another thing to say a physician can't be on a medical staff."

The hospital would not comment on the pending litigation, but a letter on its Web site from the board of trustees said their rules let physicians "refer patients to facilities in which they have a financial stake." But the letter said it doesn't allow them to "steer a lopsided share of well-insured, profitable cases" to other facilities.

Beginning of trend

Experts believe that these lawsuits are most likely the first of many.

Disputes are erupting because the traditional "three-legged stool" corporate structure that consists of the hospital board, hospital administration and medical staff doesn't fit the needs of a changing health care environment that has seen an increasing number of specialty hospitals and a push for quality improvement, Blum said.

"It's a business and culture clash," he said. "We need to begin thinking about a different structure for the system."

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Cases at a glance 1

At least two medical staffs have filed lawsuits this year seeking to end economic credentialing by hospital boards.

Case: Bruce E. Murphy, MD; Scott L. Beau, MD; David C. Bauman, MD; D. Andrew Henry, MD; David M. Mego, MD; and William A. Rollefson, MD; v. Baptist Health
Venue: Circuit Court of Pulaski County, Ark., 13th Division
At issue: Whether a hospital can deny privileges to physicians who have economic interest, directly or indirectly, in a competing hospital.
Potential impact: The hospital says it needs to use economic credentialing to ensure long-term viability. Physicians say economic credentialing will have an adverse effect on care.

Case: Gregory Biddulph, MD; Philip R. McCowin, MD; Barbara Nelson, MD; Timothy Thurman, MD; and Mountain View Hospital v. HCA Inc. and Eastern Idaho Health Services Inc., doing business as Eastern Idaho Regional Medical Center
Venue: District Court, 7th Judicial District, Bonneville County, Idaho
At issue: Whether a hospital can deny privileges when a physician refers patients to a competing hospital in which he or she has a financial interest.
Potential impact: Doctors say denying privileges to a physician based on economic reasons denies patients the ability to chose where their procedures are performed. Hospital officials say they need to consider economic interests to ensure the hospital stays financially sound.

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Cases at a glance 2

The medical staff of a Florida hospital has sued the hospital, and the hospital has sued the medical staff president in a dispute over the constitutionality of a state law aimed at just one county.

Case: John Lanza, MD, and Anil Desai, MD, individually and on behalf of the Lawnwood Regional Medical Center Hospital and Heart Institute Medical staff v. Lawnwood Medical Center Inc., doing business as Lawnwood Regional Medical Center and Heart Institute
Venue: Circuit Court of the 19th Judicial Circuit in and for St. Lucie County, Fla.

Case: Lawnwood Medical Center Inc., doing business as Lawnwood Regional Medical Center and Heart Institute v. Charles Crist, attorney general of the state of Florida; John T. Lanza, MD, as president of the medical staff of Lawnwood Regional Medical Center and Heart Institute and member of the medical executive committee of Lawnwood Regional Medical Center and Heart Institute
Venue: Circuit Court of the 2nd Judicial Circuit in and for Leon County

At issue: Whether a new law calling for hospital board bylaws to take precedence when there is a conflict between medical staff and hospital board bylaws in St. Lucie County, Fla., is constitutional.
Potential impact: The hospital says the law allows it to initiate peer review. Physicians say the law would allow the hospital board to unilaterally rewrite medical staff bylaws.

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