Hospital Liability in Minnesota for Negligent Credentialing and Privileging of Physicians

Copyright © 2005

INTRODUCTION

Minnesota appellate courts have never decided whether a hospital should be liable for its negligence in granting credentials or privileges to an incompetent physician who later commits malpractice on a hospital patient. This gap in Minnesota's common law will likely change in light of a decision made on June 29, 2005, by the Wilkin County District Court, which recognized that patients do have a common law cause of action against hospitals for negligent credentialing and privileging decisions. The district court certified the issue as important and doubtful, thus giving the hospital in that case the immediate right of appeal. An appeal is expected with amicus participation by several organizations.[1]

Physicians cannot treat patients at a particular hospital unless they demonstrate their competency. The hospital decides what physicians can practice at its facility and what procedures they can perform. Credentialing decisions relate to who can practice at the hospital, and privileging decisions relate to what specific procedures can be performed by the physician. Credentials might be denied because the physician has committed malpractice on an unusually high number of patients or is actively engaged in alcohol or substance abuse. Certain privileges might be denied because the physician lacks the training, experience, and skill to perform certain procedures. A general surgeon, for example, may have privileges to perform routine general surgical procedures, but the surgeon may be barred from performing brain surgery. The surgeon may also be barred from performing more complex gastric bypass procedures because of inadequate training and experience in that area and a history of poor outcomes in prior gastric bypass procedures.

Hospitals make credentialing and privileging decisions by considering a number of factors, including the applicant's training, experience and skills, patient outcomes, history of malpractice lawsuits[2] and discipline, and evidence of malpractice insurance coverage. Typically, hospitals require physicians to go through the credentialing and privileging process every two years, but organizations can revisit their decisions at any time as the need arises.

Whereas hospitals have detailed information about the competency of particular physicians, patients do not. Records and proceedings of hospital review organizations, for example, are confidential.[3] Most malpractice settlements are confidential. Few consumers are more ignorant about the service they are purchasing than the patient contracting for health care services, often times during a medical crisis when they need immediate medical services. Because hospitals decide which physicians are competent to treat patients at their hospitals, patients have every expectation and right to assume that hospitals will protect them from incompetent physicians and substandard care.

Patient advocates contend that hospitals owe a duty to patients to use reasonable care in making credentialing and privileging decisions. When hospitals act unreasonably and patients suffer harm as a result of the malpractice of a physician, patient advocates contend that both the physician and the hospital must be held accountable for their separate acts of negligence. Hospital advocates disagree. They contend that Minnesota's peer review statute, Minn. Stat. §§ 145.61-.67, immunizes credentialing and privileging decisions by hospitals.

As outlined below, patient advocates have a decisive edge in this debate. Although Minnesota appellate courts have never decided the issue at hand, they will look to other jurisdictions for guidance and virtually every other state addressing the issue has recognized common law causes of action for negligent credentialing and privileging. In addition, the plain and unambiguous language of Minnesota's peer review statute imposes a duty on hospitals to use reasonable care when making credentialing and privileging decisions.

I. HOSPITALS HAVE ASSUMED A DUTY TO ACT REASONABLY IN GRANTING CREDENTIALS AND PRIVILEGES.
Virtually all hospitals hold themselves out to the public as institutions that meet the standards established by the Joint Commission on Accreditation of Health Care Organizations (“JCAHCO”). This accrediting body has placed the ultimate responsibility for the competency of medical staff squarely on hospitals. By seeking and receiving accreditation, hospitals have affirmatively agreed to protect their patients from incompetent physicians.

JCAHCO standards place an affirmative duty on hospitals to collect relevant data regarding the issuance of credentials and privileges to physicians. This includes a duty to gather information at least once every two years from the National Practitioners Data Bank, which gathers data about each payment made on behalf of a physician to settle a malpractice claim and each disciplinary action taken by a state's board of medical practice.[4] This information, along with information requested from the physician, allows the hospital to determine whether a physician should be granted credentials to treat patients at the hospital and what privileges should or should not be granted to the physician.

II. MINNESOTA SHOULD FOLLOW THE MAJORITY RULE AND RECOGNIZE A COMMON LAW CAUSE OF ACTION FOR NEGLIGENT CREDENTIALING AND PRIVILEGING.
No Minnesota appellate court has decided whether our courts should recognize a common law cause of action of negligent credentialing and privileging. In Kraushaar v. Austin Medical Clinic, P.A., 393 N.W.2d 217 (Minn. App. 1986), the court affirmed the trial court's grant of summary judgment to the defendant hospital on a claim of negligent credentialing not because the court did not recognize such a cause of action, but because the plaintiffs had not presented any evidence to support their claim. The court did not address the preliminary issue of whether a cause of action existed for negligent credentialing.

At least three Minnesota district courts have decided that Minnesota recognizes a common law cause of action for negligent credentialing and privileging.[5] Although these decisions may provide persuasive guidance to trial courts across the state, these decisions have no binding effect.

A. METHOD FOR DECIDING WHETHER TO RECOGNIZE NEW CAUSE OF ACTION.
The Minnesota Supreme Court has stated that our courts possess the “power to recognize and abolish common law doctrines.”[6] If the issue is whether to recognize a new cause of action, the trial courts are directed to consider what other states have decided[7] with an eye toward identifying and following the majority rule.[8]

Our jurisprudence recognizes that the common law is a living body of principles that evolves over time to reflect and embody our collective sense of justice. As a society, our sense of justice springs from our innate sense of what is right and what is wrong, and to assure that those harmed by the wrongful conduct of another have recourse in our civil courts. As the Minnesota Supreme Court has explained, the common law is:

the embodiment of broad and comprehensive unwritten principles, inspired by natural reason, an innate sense of justice, adopted by common consent, for the regulation and government of the affairs of men. It is the growth of the ages, and an examination of many of it principles, as enunciated and discussed in the books, discloses a constant improvement and development in keeping with advancing civilizations and new conditions of society. Its guiding star has always been the rule of right and wrong, and in this country its principles demonstrate that there is in fact, as well as theory, a remedy for all wrongs.[9]

B. ALMOST EVERY STATE RECOGNIZES A CAUSE OF ACTION FOR NEGLIGENT CREDENTIALING AND PRIVILEGING.
Any survey of applicable case law in other jurisdictions must begin with Johnson v. Misericordia Community Hosp., 99 Wis. 2d 708, 301 N.W. 2d 156, 164 (1981). This case has been widely cited as the seminal case on this issue. In that case, plaintiff alleged that the hospital negligently granted privileges to an orthopedic surgeon who had a history of seven malpractice cases at the time he performed surgery on plaintiff.[10] The trial court agreed that the common law permitted such a claim against the hospital, and the jury assigned 80% fault to the hospital. On appeal, the Wisconsin Supreme Court held that such a claim existed at common law, holding that  

[t]he failure of a hospital to scrutinize the credentials of its medical staff of applicants could foreseeably result in the appointment of unqualified physicians and surgeons to its staff. Thus, the granting of staff privileges to these doctors would undoubtedly create an unreasonable risk of harm or injury to their patients. Therefore, the failure to investigate a medical staff applicant's qualifications for the privileges requested gives rise to a foreseeable risk of unreasonable harm. [11]

Virtually every state that has addressed whether a cause of action exists for negligent credentialing and privileging has held in the affirmative.[12] Only two state court decisions have rejected the cause of action.[13] One decision rested on a state statute that expressly barred such causes of action against a hospital.[14] The other can only be a described as a “lone wolf” decision that has been expressly or implicitly rejected by every other jurisdiction considering the issue.[15]

Following the majority trend in other jurisdictions is consistent with the methodology for determining whether to recognize a new common law cause of action. Following the trend also comports with our basic notions of right and wrong—those harmed by the negligent conduct of others should have a remedy against wrongdoers. Our collective conscience should not tolerate a regime where hospitals can unreasonably expose their patients to incompetent physicians with impunity.

III. MINNESOTA'S PEER REVIEW STATUTE DOES NOT ABROGATE THE COMMON LAW CAUSE OF ACTION FOR NEGLIGENT CREDENTIALING AND PRIVILEGING.
Minnesota's peer review statute is set forth at Minn. Stat. §§ 145.61 to 145.67. Hospitals contend that the peer review statute (1) impliedly abrogates any common law causes of action for negligent credentialing and privileging, and/or (2) requires a plaintiff pursuing such a claim to prove malice on the part of the hospital.[16] These arguments are as inconsistent as they are confounding because they are based on a disregard of the plain and unambiguous language of Minnesota's peer review statute.

A. RULES OF STATUTORY INTERPRETATION AND CONSTRUCTION.
When analyzing Minnesota's peer review statute, well-established rules of statutory interpretation and construction govern the method of analysis. The object of statutory interpretation is to give effect to the legislature's intent.[17] “If the legislature's intent is clearly manifested by the plain and unambiguous language of the statute, statutory construction is neither necessary nor permitted.”[18] A statute is ambiguous only when its language is subject to more than one reasonable interpretation.[19] If statutory construction is necessary, words and phrases are construed according to the rules of grammar and their most natural and obvious usage unless to do so would be inconsistent with the manifest intent of the legislature.[20] “Unless a statute manifests a legislative intent to modify the common law, it presumably will not alter the common law.”[21]

B. Minn. Stat. § 145.63, Subd. 1.
Hospitals cite Minn. Stat. § 145.63 to supports it contention that the peer review statute immunizes them from suit for credentialing and privileging decision. This section is entitled “Limitation on liability for sponsoring organizations, review organizations, and members of review organizations.” Subdivision 1 of this section is entitled “Members, directors, and officers.” The first two sentences of subdivision 1 are similar in many respects, but have profoundly different meanings.

The first sentence of subdivision 1 provides as follows:

No review organization and no person who is a member or employee, director, or officer of, who acts in an advisory capacity to, or who furnishes counsel or services to, a review organization shall be liable for damages or other relief in any action brought by a person or persons whose activities have been scrutinized or reviewed by a review organization, by reason of the performance by the person of any duty, function, or activity of such review organization, unless the performance of such duty, function, or activity was motivated by malice toward the person affected thereby.

(emphasis added).

This first sentence applies only to actions “brought by a person or persons whose activities have been scrutinized or reviewed by a review organization . . . .” The plain meaning of this language is that any limitation imposed by this first sentence of subdivision 1 applies only to health professionals whose activities have been scrutinized or reviewed by a review organization. An example would be an action initiated by a physician against a hospital that has denied credentials or certain privileges to the physician. In that scenario, the physician will have to show that the review organization was motivated by malice toward the physician in order to obtain relief. This first sentence of subdivision 1 has no bearing to an action initiated by a patient against a hospital for negligent credentialing and privileging decisions. Contrary to the position taken by hospitals on this issue, the first sentence of Minn. Stat. § 145.63, subd. 1, cannot serve as a basis for requiring a patient to show malice on the part of the hospital as a condition for obtaining relief.

The second sentence of subdivision 1 provides as follows:

No review organization and no person shall be liable for damages or other relief in any action by reason of the performance of the review organization or person of any duty, function, or activity as a review organization or a member of a review committee or by reason of any recommendation or action of the review committee when the person acts in the reasonable belief that the action or recommendation is warranted by facts known to the person or the review organization after reasonable efforts to ascertain the facts upon which the review organization's action or recommendation is made . . . .

(emphasis added).

The plain meaning of the second sentence of subdivision 1 is that the hospital can avoid liability for its credentialing and privileging decisions only when such decisions are made “in the reasonable belief” that such decisions are warranted and “after reasonable efforts to ascertain the facts” have been made. Patient advocates fully agree that a hospital should not be liable for damages or other relief if it has made a reasonable credentialing or privileging decision after reasonable inquiry has been made by the hospital. Patient advocates agree with the legislature that a hospital cannot escape liability when it acts unreasonably in making credentialing or privileging decisions. The plain language of this second sentence squarely controverts any contention that the above language was intended to immunize hospitals from liability when they grant credentials or privileges in an unreasonable manner.

C. Minn. Stat. § 145.64.
Hospitals also cite Minn. Stat. § 145.64 to support its contention that the peer review statute provides immunity to hospitals for credentialing and privileging decisions. This section, entitled “Confidentiality of records of review organization,” shields from discovery and use at trial all records and proceedings of the review organization. Hospitals allege that they cannot defend themselves at trial because they are prohibited from disclosing how they made credentialing and privileging decisions. Minn. Stat. § 145.66, in fact, declares that any person making disclosures prohibited by Minn. Stat. § 145.64 is guilty of a misdemeanor.

These sections pose obstacles both to hospitals and patients involved in a negligent credentialing or privileging case, but they do not preclude either side from putting forth a case. Minn. Stat. § 145.64, for example, permits the discovery and use at trial of the same information available to the review organization “otherwise available from original sources.” Witnesses who testified before the review organization and members of the organization itself are also permitted to testify “as to matters within the person's knowledge.” These witnesses, however, cannot be asked about their testimony before the review organization or opinions formed as a result of the organization's hearings.

Far from providing a basis for immunizing hospitals from suit, Minn. Stat. § 145.64 specifically contemplates that credentialing and privileging decisions may be at issue in a civil trial. Indeed, the statute merely precludes the discovery of and use at trial of one subset of the universe of evidence otherwise available to the parties. All litigants face this challenge every day by virtue of the existence of privileges and the rules of evidence. Both patients and hospitals may face obstacles when litigating negligent credentialing and privileging claims, but they can do so without running afoul of the proscriptions of Minn. Stat. §§ 145.64 and 145.66.

D. Minn. Stat. § 145.67.
Hospital advocates typically do not discuss Minn. Stat. § 145.67 when they contend that the peer review statute abrogates any common law causes of action for negligent credentialing and privileging. This last section of the peer review statute is entitled “Protection of patient.” It states:

Nothing contained in sections 145.61 to 145.67 shall be construed to relieve any person of any liability which the person has incurred or may incur to a patient as a result of furnishing health care to such patient.

Minn. Stat. 145.61 provides the definitions for §§ 145.61 to 145.67. It does not define “person.” Because “person” is not defined here, the legislature directs us to Minn. Stat. § 645.44 for the definition.[22] Minn. Stat. § 645.44, subd. 7, defines “person” as follows: “‘Person' may extend and be applied to bodies politic and corporate, and to partnerships and other unincorporated associations.” Hospitals, therefore, are “persons” for purposes of Minn. Stat. § 145.67.

Hospitals also furnish “health care” to a patient for purposes of Minn. Stat. § 145.67 because “health care” is defined to include “services furnished by a hospital.” Minn. Stat. § 145.61, subd. 4. Because hospitals are “persons” that furnish “health care” to patients for purposes of Minn. Stat. § 145.67, “[n]othing contained in sections 145.61 to 145.67 shall be construed to relieve [a hospital] of any liability [it] has incurred or may incur to a patient as a result of furnishing health care to such patient.” Minn. Stat. § 145.67 expressly forbids our courts from construing the peer review statute in the manner that would abrogate any common law causes of action a patient may have against a hospital.

Minn. Stat. § 145.67 is intended to protect patients. In enacting this section of the peer review statute, the legislature made it abundantly clear that the peer review statute cannot be construed to limit the liability of health care professionals and hospitals whose negligence has been a substantial cause of harm to patients. This is fully consistent with Minn. Stat. § 145.63, subd. 1, which contemplates that liability attaches to credentialing and privileging decisions that are made in an unreasonable manner.

CONCLUSION
Minnesota should follow the overwhelming majority trend and recognize common law causes of action for negligent credentialing and privileging decisions made my hospitals. Nothing in Minnesota's peer review statute immunizes hospitals from such claims, and the statute itself imposes a duty on hospitals to act reasonably in making these decisions. Compared to patients, hospitals have far greater access to information and insight into the competency of physicians who wish to treat patients. Much of the information available to hospitals is inaccessible to patients by virtue of legislation or confidential settlement agreements.

If hospitals are not held legally accountable for unreasonable decisions, they have little motivation to protect patients from incompetent physicians. Patient safety suffers under such a regime, and individual physicians and their insurers are left to pay for the entire harm suffered by the patient, even though the negligence of both the physician and the hospital were a direct and substantial cause of the harm suffered by the patient.

In recent years, hospitals and large health care systems have started behaving like traditional business entities as they compete in the marketplace for the billions of dollars of patient revenues at stake. Hospitals have a financial incentive to open their doors to more physicians because more physicians will mean more patients and more patient revenues. Hospitals undoubtedly have a duty to protect their patients from incompetent physicians, but that duty means very little if hospitals are not held legally accountable for breaching that duty. Holding hospitals accountable for their acts of negligence not only comports with our most fundamental notions of what is fair and just, but is in line with the principles and policies that underlie our tort system that has evolved under the common law over the past several hundred years.