Medical staff credentialing: taking steps to avoid liability.

• Author: King, Daniel D.

THERE are three means for evaluating the competence of physicians:

1. State licensing boards, through examinations, determine whether a physician has the minimum level of skill and competence to practice medicine.

2. Certification, by one of the 23 specialty boards recognized by the American Medical Association, is evidence that the physician has reached a higher level of competence in a given field.

3. Individual hospitals, through credentialing, review the competence of a physician and grant hospital privileges.

   Although hospital credentialing has existed for many years, it did not become a meaningful process until the involvement of the Joint Commission on Accreditation of Hospitals, now the Joint Commission on Accreditation of HealthCare Organizations (JCAHO). Since its formation in 1952, the JCAHO has performed the hospital accreditation function. Its standards require that accredited hospitals have the means to review physicians before granting hospital privileges.

   While the JCAHO is a private organization and its accreditation is not required by all states, accreditation is considered quasi-mandatory in the hospital industry. Since 1986, for example, only a JCAHO-accredited facility with an acceptable utilization review plan is eligible to receive medicare payments. Unlike the decisions of state licensing boards and of specialty certification boards, however, hospital credentialing is hospital specific and does not carry over to other institutions.

   Traditionally, hospitals were not liable for the negligent acts of physicians who practiced there unless the hospital committed a separate negligent act. Physicians were considered independent contractors, not employees or agents of the hospital. Physicians have vigorously defended their autonomy from hospitals. For example, organizations of radiologists and pathologists have both stated it undesirable for physicians to work for hospitals at a fixed salary, and the American College of Anesthesiologists has declared salaried hospital practice to be unethical.

   The dual payment system in this country--separate payments by patients to hospitals and physicians--has arisen because of the belief that physicians and hospitals are separate entities. For instance, Blue Cross covers hospital care; Blue Shield covers physicians' services; Medicare Part A pays for hospital services; Medicare Part B for physicians' services. Thus, attempts to make hospitals liable for the negligence of their physicians under the theory of respondeat superior have failed to date.

   In the 1964 landmark decision, Darling v. Charleston Community Hospital,(1) the plaintiff presented an alternate theory of liability--that hospitals would be held liable for negligently granting privileges to incompetent doctors. By holding for the plaintiff, the Illinois Supreme Court made hospitals potential co-defendants in malpractice suits and changed the nature of the credentialing of physicians.

   Credentialing by hospitals takes on two roles. First is the traditional function of ensuring that the patient will receive the best of care. Second is the elimination of the risk of being sued by rejecting unqualified physicians and by removing incompetent physicians from staffs.

   NEGLIGENT CREDENTIALING

   1. Common Law

      The Darling court was among the first to recognize that hospitals are more than just a building in which various independent contractors perform services. "The concept that the hospital does not undertake to treat the patient, does not undertake to act through its doctors and nurses, but undertakes instead simply to require them to act upon their own responsibility, no longer reflects the fact," the Darling court stated. Although some states--including Texas(2)--still prohibit the corporate practice of medicine, hospitals can be liable for injuries to patients based either on an agency theory or on a theory that the hospital negligently credentialed the physician.

      Texas adopted the theory of corporate negligence for hospitals in Jeffcoat v. Phillips,(3) in which the plaintiff brought a malpractice action against his doctor, the hospital and the county medical society for excessive scars resulting from an appendectomy. Although the Texas Court of Civil Appeals held for the hospital, it stated that had there been a credentialing requirement in the hospital's bylaws, as there was in Darling, the result would have been different. Important to the court was the fact that Darling had chosen his own physician. Thus, the court said that respondeat superior was not a basis for liability.

      Nine years later, in Park North General Hospital v. Hickman,(4) the Texas Court of Appeals in San Antonio held that the hospital had a duty to its patients "to exercise reasonable care in the selection of its medical staff and in granting specialized privileges to them. They also have the duty to periodically monitor and review their competency." The plaintiff in that case underwent plastic surgery by a physician who was not competent to perform the procedure. Following the rule established in Jeffcoat, the plaintiff introduced into evidence the bylaws and the rules and regulations of the hospital that required the hospital to investigate all physicians before granting privileges and to reevaluate their skills periodically. The court stated that the duty of the hospital to its patients is similar to the duty a person owes society at large when lending a car to someone else. If the friend drives negligently, the owner may be liable for the injuries caused.

      Under that analogy, the five elements of corporate hospital liability should be: (1) the hospital granted privileges to the physician; (2) the physician was incompetent or reckless; (3) the hospital knew or should have known that the physician was incompetent or reckless; (4) the physician was negligent when treating the patient; and (5) the physician's negligence was the proximate cause of the patient's injuries.(5)

      An alternate standard for extending liability to hospitals for the selection of the medical staff is found in Section 411 of the Restatement (Second) of Torts: "An employer is subject to liability for physical harm to third persons caused by his failure to exercise reasonable care to employ a competent and careful contractor (A) to do work which will involve a risk of physical harm unless it is skillfully and carefully done, or (B) to perform any duty which the employee owes to third persons."

      Under the theory of negligent credentialing, the hospital, the board of trustees,(6) the chief of staff,(7) the executive committee and department chairman,(8) and even the medical staff(9) might be liable for negligent credentialing.

   2. Legislation

1. Health Care Quality Improvement Act of 1986

   Historically, physicians who lost their privileges at one hospital could move to another where their reputations were not known. This permitted them to practice despite their incompetency. Responding to this problem, Congress enacted the Health Care Quality Improvement Act of 1986, 42 U.S.C. [sections][sections] 11101-11152 (HCQIA).

   The act has three parts: (1) It provides immunity for all peer review committees that meet certain standards. (2) It requires hospitals and insurance carriers to report information relating to the competence of physicians to a national data bank. (3) It requires hospitals to request information from this national data bank on all physicians who apply for hospital privileges. As an incentive, the act confers benefits on hospitals that comply, and it substantially penalizes those that fail to do so.

   The reasons behind the act are listed in 42 U.S.C. [sections] 11101. 1. The increasing occurrence of medical malpractice and the need to improve the care of medical care have become nationwide problems that warrant greater efforts than those that can be undertaken by any individual state. 2. There is a national need to restrict the ability of incompetent physicians to move from state to state without disclosure or discovery of the physician's previous damaging or incompetent performance. 3. This nationwide problem can be remedied through effective professional peer review. 4. The threat of private money damage liability under federal law, including treble damage liability under antitrust law, unreasonably discourages physicians from participating in effective professional peer review. 5. There is an overriding national need to provide incentive and protection for physicians who engage in effective professional peer review.(10)

   In order to remove the threat of doctors suing member of peer review committees, the act...