Reducing your credentialing liability: all too often, healthcare organizations and their...

As a form of risk management, healthcare financial managers need to know more about the elements of risk and the ways that risk is managed. (a)

In malpractice cases involving physicians, a healthcare organization's credentialing process becomes an important element of the discovery

process. Lawyers for both plaintiff patients and defendant physicians have a vested interest in tying healthcare organizations to the physician's negligence. Lawyers for plaintiff patients view healthcare organizations as "deep pockets" in possible recoveries of damages, while lawyers for defendant physicians may want to redirect culpability from the physicians to healthcare organizations. Some defendant physicians settle early and later testify against the healthcare organization. Healthcare organizations, on the other hand, often prefer not to testify against the physicians to avoid any inference that the organization was negligent and to show support for their medical staff.

Lessons in Negligence

To prove negligence, the plaintiff's lawyers must prove the following:

* A legal duty existed between the plaintiff and the defendant.

* The defendant breached that duty.

* The plaintiff received an injury.

* A causal relationship existed between the defendant's breach of duty and the plaintiff's injury.

Healthcare organizations can be held negligent in a variety of ways. Under the legal doctrine of respondent superior, organizations can be held liable for the negligent acts of employees if the employees were acting within the framework of their job descriptions and/or practice acts and were working on assigned shifts. Under the legal doctrine of ostensible agency, organizations can be held liable for the negligent acts of apparent or ostensible agents, such as physicians and others who have a working relationship with but are not employed by the healthcare organization. Under the legal doctrine of corporate negligence, organizations can be held liable for their own negligence.

The key issue in establishing an agency relation ship is defining the extent to which the patient perceived the physician to be under the organization's control. The following questions are often used to establish the organization-to-physician relationship from the patient's perspective:

* Did the patient rely on the healthcare organization for selection of the physician, such as emergency department physicians, pathologists, radiologists?

* Did the organization make any representations, such as advertisements or announcements, Io the patient regarding the physician's status?

* Did the physician's actions indicate organizational control to the patient (e.g., wearing the organization's lab coat or scrubs, using the organization's prescription pad, maintaining an office in the organization's building)?

Under corporate negligence, which often results in the largest recoveries for plaintiff patients, organizations can be held liable for their own negligence by breaching a duty owed to patients. In proving corporate negligence based on a breach of the credentialing duty, plaintiff patients must prove the following:

* Their physician was negligent, and the negligence resulted in injury.

* The organization credentialed the physician and therefore owed the patient a duty to exercise reasonable care in the selection and supervision of the physician.

* The organization failed to exercise reasonable care because it knew or should have known that the physician was incompetent or unfit.

* The organization's negligence in selection and supervision was a proximate cause of the injuries suffered by the patient (i.e., had the organization not credentialed the physician, the physician would not have been available to injure the patient).

Case law in corporate negligence is well established, with the organization's duty to select competent physicians established in Johnson v. Misericordia Community Hospital, 294 N.W. 2d 501 (1980), and the organization's duty to supervise physicians established in Darling v. Charleston Community Memorial Hospital, 383 U.S. 946 (1966).

The Johnson ca se, while binding only in Wisconsin, provided the following valuable credentialing criteria:

* Require completion of the medical staff application, and verify the accuracy of the applicant's statements.

* Solicit information from the applicant's peers, including those not referenced in the application, who are knowledgeable about the applicant's education, training, experience, health, competence, and ethical character.

* Determine whether the applicant is currently licensed to practice in the state and whether the license has been or is currently being challenged.

* Ask whether the applicant has been involved in any adverse malpractice action or has experienced a loss of medical staff membership or privileges at any other provider organizations.

In addition, the credentialing process should verify information from secondary sources, such as AMA Physician Masterfile, Federation of State Medical Board's Physician Disciplinary Data Bank, U.S. Drug Enforcement Administration lists of violations, and the HCQIA Data Bank. The HCQIA Data Bank, established by the Health Care Quality Improvement Act (HCQIA) of 1986, requires the reporting of the following:

* Malpractice payments made on behalf of a physician or licensed healthcare practitioner

* Licensure actions taken by state licensing boards against physicians

* Adverse professional review actions taken by healthcare organizations against physicians

* Professional review actions taken by a professional society that adversely affect the physician's membership in the society

Defenses to Corporate Negligence

When plaintiff patients bring corporate negligence lawsuits against healthcare organizations, the organizations can pursue a variety of defenses, both procedural and substantive. If plaintiff patients have waited too long to file the claim, healthcare organizations can invoke the statute of limitations. Statutes of limitations are state procedural rules that dictate time limits on the filing of lawsuits. Historically, depending on the state, plaintiff patients had to file a lawsuit within one to seven years of discovering the injury. More recently, in response to tort reform, many states have reduced the time to file to one to three years after discovering the injury.

Another procedural defense healthcare organizations can use is to support the physician's defense, in effect rationalizing that if the physician was not negligent in treating the patient, the issue of whether the healthcare organization was negligent in the credentialing process becomes moot. Healthcare organizations should use this defense cautiously because the physician could, during the lengthy discovery process, admit negligence and settle with the plaintiff patient. When this happens, the plaintiff patient has a clear avenue to the "deep pockets" of the healthcare organization.

Hospitals also can use the HCQIA as a procedural defense. The IICQIA attempts to shield physicians engaged in the peer-review process from lawsuits against physicians the process is reviewing. The act provides protection from both federal and state lawsuits. Some argue that the act's protection of the peer review process extends to hospitals. However, most argue that the act's intent is to protect reviewing physicians, trot to protect the physician or the healthcare organization from lawsuits by patients.

Finally, healthcare organizations can use immunity provided by state statutes as a procedural defense. While attempting to balance the patient's right to recovery with the public's need to protect meaningful peer review, many states have enacted statutes that govern the release of peer--review proceedings. State laws vary widely on this subject, from prohibiting both the discovery of peer reviews and their use at trial to allowing the release of peer reviews in certain circumstances.

Even if state laws strictly prohibit the discovery and use of peer reviews, attorneys for plaintiff patients can build a substantive case against a healthcare organization. First, by using expert witnesses, they can compare the organization's bylaws, medical staff bylaws, rules and regulations, and medical staff application form with standards established by state licensing statutes and by such organizations as the Joint Commission on Accreditation of Healthcare Organizations. Such organizational information is subject to discovery. Next, by checking the secondary data sources, the attorneys can try to determine what the organization knew or should have known when it credentialed the physician. Because organizations are required to check these sources before they grant medical staff member ship and privileges to a physician, the attorneys for the plaintiff patient can argue that the organization knew or should have known about any adverse information in the data before the organization's credentialing decision. Then the question becomes: Why did the organization credential the physician in light of the information, or did the organization not complete due diligence and learn about the information?

Organizations can avoid liability situations if they treat every credentialing decision as a decision they might someday have to justify in court. Healthcare financial managers can play a leader ship role in assessing this risk and taking steps to reduce it.

(a.) For an earlier analysis of this issue, including a case by these authors, see "Reducing Your Credentialing Liability--An Expert's View" in Synergy, November/December 2000.

FAST FACTS

After rising more than 40 percent between 1999 and 2000, the median compensatory jury award in medical malpractice cases remained the same in 2000 and 2001, $1 million. Although the percentage of cases won by medical malpractice plaintiffs rose slightly from 2000 to 2001, the group still last more than 60 percent of the time when the case went to a jury. Source: Current Award Trends in Personal Injury-2002 Edition, Jury Verdict Research[R], March 2003.

Michael Nowicki, EdD, FACHE, FHFMA, is a professor of health administration, Texas State University--San Marcos, and a member of HFMA's South Texas Chapter. His e-mail address is nowicki@txstate.edu.

Jim Summers, PhD, CHE, is a professor of health administration, Texas State University--San Marcos. His e-mail address is summers@txstate.edu.