Contracts don't let hospitals refuse doctors, Georgia court rules

Physicians say hospitals are using exclusive contracts more often as a way to control staff independence.

By Amy Lynn Sorrel — Posted July 24, 2006

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Georgia hospitals are allowed to engage in exclusive contracts with specialty physicians to provide certain patient services. But they cannot use the agreements to disregard medical staff bylaws and freeze out other doctors by taking away their privileges, a state appeals court recently decided.

In a 3-0 decision, the First Division of the Court of Appeals of Georgia ruled in favor of a dozen cardiologists who sued Satilla Regional Medical Center over a hospital policy that prevented the noncontracted specialists from using any of the hospital's facilities or personnel, even though the physicians had privileges to practice there.

"The resolution did far more than simply restrict existing clinical privileges -- it effectively terminated them altogether," Judge Debra Bernes wrote. The court also reiterated that Georgia case law requires that if hospitals want to take away physicians' privileges so the hospitals can maintain exclusive relationships, that must be stated in the medical staff bylaws or in contracts with individual physicians, not just in a contract with a professional corporation.

Doctors say the ruling reaffirms that hospitals do not have unlimited authority when they enter into such agreements and preserves the sanctity of the medical staff bylaws.

"[Exclusive] contracts can be a good thing, but they are also becoming more of a way for hospitals to reduce physician autonomy and control their practice," said Brian W. Looby, associate general counsel to the Medical Assn. of Georgia, which filed a friend-of-the-court brief supporting the doctors who sued. The American Medical Association/State Medical Societies Litigation Center joined the brief and contributed to the doctors' legal expenses.

"It's undisputed that hospitals are entitled to enter into exclusive agreements, but they cannot unilaterally dispose of physicians without giving them any type of protection," Looby said.

The hospital declined to comment on the ruling or the possibility of an appeal. But Satilla Regional had argued to the court that there was a legal difference between denying doctors access and revoking their privileges.

The doctors rejected that notion, and the appeals court agreed, saying that there is no distinction.

The court victory for the doctors stems from two separate lawsuits filed by cardiologists at Satilla Regional who disputed the hospital's actions with regard to exclusive contracts.

In 2001, Willie W. Bell, MD, and Joel Ferree, MD, under their corporation South Georgia Cardiology Associates, contracted with Satilla Regional as the only providers of cardiology services at the hospital. When the agreement expired in December 2004, the doctors did not renew. But they did state in a letter that they planned to continue to practice individually at the medical center, just as they had under the privileges granted to them over the past 15 years, according to court records.

Satilla Regional notified the doctors that ending the contract triggered an automatic termination of their privileges as outlined in a noncompetition provision in the expired contract. Days later, the hospital entered into an exclusive cardiology contract with Baptist Specialty Physicians.

Drs. Bell and Ferree sued Satilla Regional in January 2005, claiming that the hospital had violated medical staff bylaws. A trial court agreed. It found that Satilla Regional never entered into individual contracts with the doctors that would have allowed the institution to revoke their privileges. Rather, Satilla had contracted with the doctors' corporation. The trial judge then blocked the hospital from prohibiting the doctors from practicing there.

After the injunction, Satilla Regional in February 2005 adopted a resolution stating that only the newly contracted cardiologists could "use the space, equipment, facilities or personnel" of the hospital to exercise their privileges, as long as the agreement was in effect, according to court records. The resolution also outlined that the restrictions did "not constitute a revocation, suspension, limitation or termination of the clinical privileges of the affected physicians, and thus shall not entitle [them] to a hearing or appeal pursuant to the medical staff bylaws."

"But the effect of that resolution was to terminate the privileges of 10 additional cardiologists at the hospital," Looby said. The group of doctors filed their own lawsuit against Satilla Regional. Again, the trial court prevented the hospital from enforcing the limits. The two cases were combined on appeal, and the higher court in June upheld both lower court rulings.

The appeals court determined that the distinction drawn by the hospital would make established due process safeguards "a nullity if a hospital board could avoid those protections by simply re-casting its decision as a 'denial of access to hospital facilities and resources' rather than a 'termination of privileges,' " the opinion states.

Further, the court said the hospital's actions violated the medical staff bylaws, under which "the grant of clinical privileges necessarily included the right to exercise those privileges in the hospital's facilities, unless there was a regulation or 'specific privilege restriction' stating otherwise," Bernes wrote.

According to the MAG's Looby, hospitals appear to be implementing exclusive contracts more frequently and extending them to various departments, where they have typically been used for in-house services, such as anesthesiology, pathology or emergency services.

Although the appeals court has settled current questions surrounding the use of such agreements, if the ruling is overturned, Looby said, it could significantly reduce protections for physicians and disrupt patient care. "It really comes down to doctors participating in the development of the bylaws and being knowledgeable about what they are signing."

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Case at a glance

Satilla Health Services Inc. v. Bell et al.; Satilla Health Services Inc. v. Pilcher et al.

Venue: Court of Appeals of Georgia, First Division
At issue: Whether a hospital that has entered into an exclusive contract with a physician group can legally exclude other doctors with privileges from using the hospital's facilities or resources, without it being considered a revocation of privileges. The court said no.
Potential impact: Doctors say the ruling reinforces their right to protection under medical staff bylaws when hospitals implement exclusive agreements. The hospital says there is a legal difference between limiting doctors' access and taking away their privileges altogether.

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