The Supreme Court of Appeals of West Virginia decided a significant case for hospitals and other health care providers who contract with other companies to provide physician staffing and services. The Court held that hospitals are not vicariously liable for the negligent acts of the contracted physicians.
On November 20, 2012, in Cunningham v. Thomas Hospital, the Court affirmed the dismissal (by summary judgment) of a suit against a hospital. The Court found no actual employment or agency relationship, or joint venture, between the hospital and physicians employed by companies who had contracts with the hospital to provide surgical and hospitalist physicians. As a result, the hospital was not liable for their negligent acts.
The patient was admitted to Thomas Hospital (TMH) through its emergency department, and required a surgical consult. The general surgeon on call was a contracted physician who was employed by Delphi, which had a contract with TMH to provide two doctors to take emergency department surgical call. The contracted physician performed surgery, and the plaintiff (also a physician) developed an abscess. The plaintiff was also seen another Delphi employed doctor, as well as two other doctors, who were employed by Hospitalist Medicine Physicians of Kanawha County, PLLC (HMP), which contracted with TMH to provide a hospitalist program.
The plaintiff and his wife sued TMH, the four contracted doctors, Delphi and HMP, and “sought to hold Thomas Hospital vicariously liable for the alleged negligence of the contracted physicians on the theory that the doctors were employees or actual agents of the hospital, or that the doctors and corporate defendants Delphi and Hospitalist Medicine were engaged in a joint venture with the hospital.” After a period of discovery, the Circuit Judge granted summary judgment to the hospital, finding the physicians were not agents or employees of the hospital and there was no joint venture between them.
The Supreme Court affirmed summary judgment, holding:
[W]e find the Circuit Court of Kanawha County did not err in granting summary judgment in favor of Thomas Hospital based upon the circuit court’s conclusion that [the contracted physicians] were not agents or actual employees of Thomas Hospital. We further find that the circuit court did not err in concluding that Thomas Memorial was not engaged in a joint venture with the other defendants to this action. Accordingly, the circuit court’s order of February 3, 2011, is affirmed.
The opinion contains a detailed discussion of the evidence demonstrating the physicians were the employees of Delphi and HMP, and not the hospital, and concluding there was no joint venture.
First, the court stated that liability for “ostensible agency” – where the physician is “held out” as a hospital employee - is prohibited by W. Va. Code § 55-7B-9 where the physicians have at least $1M in insurance coverage.
Then, discussing plaintiffs’ claim of actual agency, the Court applied the four part test of Paxton v. Crabtree, 184 W. Va. 237, 400 S.E.2d 245 (1990): “(1) Selection and engagement of the servant; (2) Payment of compensation; (3) Power of dismissal; and (4) Power of control. The first three factors are not essential to the existence of the relationship; the fourth, the power of control, is determinative….”
Selection and engagement: The court found the physicians were selected not by TMH, but by Delphi and HMP. Even though the hospital evaluated the physicians, according to the deposition testimony, Delphi and HMP were responsible for selection.
Payment of compensation: The physicians were also compensated by Delphi and HMP and not TMH, nor did the hospital bill for their services or pay their insurance.
Power of dismissal: The hospital did not have the power to terminate the physicians. Under the contracts, the physicians were required to maintain certain qualifications, and if they did not, the contracts provided Delphi/HMP would resolve the issue or find a substitute physician. “There is nothing in [either] agreement that granted Thomas Hospital the authority to terminate [the physicians’] agreement[s] with Delphi or [HMP]…”
Power of control: As to control, the court found no evidence the hospital selected the physicians for the patient or that any of the physicians was a “manager” of the hospital (finding management duties and compensation for them came from Delphi and HMP and not TMH). As to actual control, the court scrutinized the evidence, finding none:
Moreover, we have carefully and thoroughly reviewed the record in this case and find no evidence to establish a question of fact with regard to the element of control exercised by the hospital over [the contracted physicians]. On the contrary, the evidence is clear that the hospital merely exercised a level of control commensurate with that approved by this Court in Shaffer v. Acme Limestone Co., Inc. To reiterate, under Shaffer, Thomas Hospital was permitted to exercise “broad general powers of supervision and control as to the results of the work so as to insure satisfactory performance of the contract[.]” Syl. pt. 4, Shaffer, 206 W. Va. 333, 524 S.E.2d 688.
Additional evidence relied upon by the [plaintiffs] to establish control by Thomas Hospital is simply unpersuasive. For example, the [plaintiffs] assert that Thomas Hospital set the schedules for the three physicians. This assertion is not a correct interpretation of the evidence. Instead, the evidence considered by the circuit court in granting summary judgment demonstrates that Delphi was contractually obligated to provide scheduling services for [the general surgeon]. Similarly, according to the contract between Hospitalist Medicine and Thomas Hospital, [one of the hospitalists], as the on-site medical director, was to “[s]chedule medical coverage by HMP [Hospitalist Medicine] Physicians in accordance with the terms of the Agreement.”
The [plaintiffs] also rely on the fact that Thomas Hospital provided office space and secretarial support to the physicians. We find this evidence inadequate to establish a level of control that would overcome the physicians’ independent-contractor status. The [plaintiffs] further assert that the doctors were obligated to provide services twenty-four hours per day, seven days per week to the hospital. This was simply a term included in Thomas Hospital’s contracts with Delphi and Hospitalist Medicine. Physicians providing the services for which they are contractually obligated does not establish control by the hospital over said physicians.
A final example of the evidence relied upon by the Cunninghams is their contention that Thomas Hospital’s control over [the general surgeon] was evidenced by the fact that he was required to work exclusively at the hospital. Notably, however, while there is an exclusivity provision in the Delphi/Thomas Hospital agreement, [the general surgeon]’s contract with Delphi contained a “Freedom to Contract” clause that stated “[i]t is agreed that Physician may engage in any other professional activities or business during the term of this Agreement so long as such activities are not inconsistent with and do not conflict with Physician’s contractual obligations hereunder.” Thus, this evidence does not create a question with regard to Thomas Hospital’s control over [the general surgeon].
For similar reasons, the Court found no evidence of a joint venture, citing the circuit court’s order which found the plaintiffs could not “prove that Thomas Memorial Hospital exercised the right to control the defendant physicians’ practice of medicine. Similarly, there is no evidence that the other defendants had the right to control the Hospital’s practices with respect to its business.”
This is a good decision for hospitals, particularly where they must rely on companies like Delphi and HMP to recruit and retain physicians. Key to the decision was the language of the contracts which specified the physicians had contracts not with the hospital but with the hospitalist and surgicalist contractors. All payments – salary, benefits and stipend for management services - to the doctors were made by the contractors and the contractors, not the hospital, billed for their services. The contracts also specified that the contractors, not the hospital, selected the physicians; even though the hospital was entitled to approve them, and the physicians had to maintain privileges, it did not amount to control
This decision demonstrates that with attention to the language of contracts, and the presence of insurance of at least $1 million dollars, hospitals will not be liable for physicians in these circumstances.