Request for references can be "Catch-22" for doctors

Employers asked to provide references for a former employee have long believed that saying nothing, or as little as possible, was the best way to keep from being sued for defamation.

But now employers may have to worry that what they don't say could come back to haunt them as well. Repercussions could come in the form of a fraud or negligent misrepresentation claim filed by an employer who hires an employee without being given the full story on the new hire.

Just how much this worry will change the way employers handle requests for references has yet to be seen. But health care law experts agree that hospitals and physician practices should be prepared to make some changes, given the recent $4 million verdict a Louisiana jury awarded in a federal lawsuit filed in the U.S. District Court for the Eastern District of Louisiana.

The Kadlec Medical Center, in Richland, Wash., and its insurer, Seattle-based Western Professional Insurance, sued Lakeview Anesthesia Associates in Mandeville, La., two of its physicians and Lakeview Regional Medical Center.

Kadlec and its insurer initiated the claim after it paid $8.5 million to settle a malpractice lawsuit a woman's family filed after she sustained severe brain damage during a tubal ligation. A physician the medical center hired after receiving positive recommendations was involved in the surgery.

Through the malpractice lawsuit, Kadlec officials learned that the anesthesiologist, Robert Lee Berry, MD, had been terminated from his employment with Lakeview Anesthesia Associates in late March 2001 "for cause" for reporting to work in an "impaired physical, mental and emotional state," court records show. When Kadlec was considering hiring Dr. Berry in June 2001, it received favorable references from two of the anesthesiologists who terminated him, according to court documents, and relied on those references when it made the decision to hire him.

The revelation about the termination prompted Kadlec and Western Professional to sue for misrepresentation. They also sued Lakeview Regional Medical Center because staff there only provided the dates Dr. Berry was active on its medical staff when Kadlec officials contacted the center for references.

Attorney Brian Cahill, who represented the Kadlec Medical Center, said the jury's decision makes clear that the law creates a duty to disclose important information that the other party doesn't have when hiring an employee.

The law hasn't often been tested in this type of situation because hospitals and insurers are reluctant to sue each other, said Cahill, of Gass, Weber, Mullins, in Milwaukee, Wis. In this case, he said, Western Professional Insurance was ready to stand on principle to change the system.

"What was done here was inappropriate," Cahill said. "It's not the intent of the law or of the credentialing system. If one hospital can't trust the information it gets from another hospital, the whole system falls apart."

Gary Morse, general counsel for Physicians Insurance, which owns Western Professional, said for a physician-owned company, this was an important case to litigate. "This conduct was fraudulent, and it perpetuated an inaccurate stereotype that physicians are always protecting their own," he said.

Neither the physicians at Lakeview Anesthesia Associates nor their attorneys could be reached for comment. Dr. Berry, who surrendered his Washington license and had his Louisiana license suspended, has left Washington and could not be reached for comment. An attorney for Lakeview Regional Medical Center's owner, Hospital Corp. of America, would say only that the decision is being appealed to the 5th U.S. Circuit Court of Appeals.

Accuracy matters

Health care lawyers are watching the appeal closely. Roger King, a health care employment law expert with Jones Day, a law firm with offices worldwide, said the prevailing wisdom of providing dates of employment and positions held is still appropriate. But he noted that wisdom doesn't really answer the question of whether there is a legal or moral duty to truthfully advise prospective employers about former employees. If you decide to do that, he said, you must be totally accurate. "You cannot overestimate or underestimate."

King said that this case, Kadlec Medical Center, et al. v. Lakeview Anesthesia Associates, et al., clearly shows the perils of overreaching, as the anesthesiologists did by writing recommendations for Dr. Berry. "Not writing those letters would have reduced [the anesthesiologists'] liability considerably," he said.

If the ruling against the physicians is upheld on appeal, King said, there are some potential future legal risks to physician practices. For example, practices could find themselves facing a lawsuit if they reveal bad things and facing a lawsuit if they don't.

He added that he has difficulties with the verdict against Lakeview Regional Medical Center because, in part, executives there followed the prevailing wisdom in its disclosure about Dr. Berry. In addition, Dr. Berry was not the medical center's employee, he said.

Whether that portion of the verdict holds up on appeal will turn, in part, on whether the appellate court agrees with a pretrial ruling. In May 2005, the Lakeview Regional Medical Center sought to have the case against it dismissed before trial, arguing that its response was part of its standard business practice in answering such inquiries and that it didn't have a legal obligation to respond to inquiries for information about Dr. Berry.

The judge disagreed, ruling, in part, that "policy considerations weigh heavily in favor of imposing a duty to disclose information related to a doctor's adverse employment history that risks death or bodily injury to future patients."

Lasting impact

Barbara Blackmond, a senior partner at Horty, Springer and Mattern, a Pittsburgh law firm that counsels hospitals and hospital staff organizations, said this verdict will have a significant impact on the way hospitals provide references.

She said her firm advises its clients who find themselves in a "Catch-22" to provide the standard employment information to a prospective employer or credentialing organization and enclose an additional release form that the physician involved signs. By signing the form, the physician releases the hospital from any liability for providing true information about his or her employment. If the physician refuses to sign, she said, courts have held that the prospective employer can refuse to process the doctor's application.

Blackmond said the public's perception of physicians as willing to protect each other at a cost to patient safety is unfair. She said peer review has become a litigious process, and physicians who participate have good reason to be concerned about being sued. However, she believes the verdict in this case will provide additional leverage for peer review organizations when settling professional review disputes because it will give them a bargaining chip against confidentially agreements.

Cahill hopes that does indeed turn out to be the case. "I hope this enters into the equation and becomes leverage for people to be able to say 'We can't let this slide.' "