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Attn: Elliot Zismer

Minneapolis, MN 55402

612-888-1160

80 South 8th Street
Minneapolis, MN, 55402
United States

(612) 888-1160

Leadership Coaching Corner

Apparent Agency Risks and Co-Management Agreements with Independent Specialty Physicians

Kevin Egan, J.D.

Apparent agency is a legal doctrine which imposes liability on a system or hospital for the actions of an independent physician, often unexpectedly.

The co-management of various clinical functions between institutional providers such as hospitals and legally separate, independent physicians or groups is understandably more and more common in the healthcare industry, for many practical reasons. Co-management today often sees hospitals entering into contractual relationships with “independent” groups of physicians who provide management and leadership functions traditionally handled by employed personnel. These efforts are made in the name of clinical integration and quality of care. 

However, the use of these structures generates institutional liability risks which all need to recognize. Many jurisdictions now apply the doctrine of apparent agency in healthcare settings, resulting in the imposition of liability upon the institutional provider for the misdeeds of independent practitioners. Typical of these is Gilbert v. Sycamore Municipal Hospital, 622 N.E. 2d 788 (Ill.1993).

Gilbert involved a rather simple fact pattern, which saw the plaintiff present to Sycamore Municipal with chest pain. A local multi-specialty clinic had contracted to supply emergency room coverage and a member of that group saw the plaintiff, ordered several tests and discharged him. Several hours later, the plaintiff returned via ambulance to Sycamore Municipal, where he died of cardiac arrest. In concluding that the hospital could be held liable for the actions of the independent group which treated the plaintiff, the Illinois Supreme Court recognized that it was reasonable for members of the community to rely upon the hospital, its reputation and those who, by all appearances, acted as if they were hospital employees.

The Court, in effect, concluded that the hospital “held itself out” as responsible for the care provided by the physician without distancing itself in any manner from the actions of an otherwise independent practitioner. In this setting, the appearances observed by the plaintiff when presenting created a set of facts that led the Court to conclude that apparent agency existed when the plaintiff was cared for at the hospital.

This foundation has been expanded in the healthcare setting over the past 20+ years by other jurisdictions and a number of factors have been recognized as creating apparent agency as viewed from the patient’s perspective. Here, appearances are dangerous and can override the most carefully drafted independent contractor agreement.   See, e.g. Wilkins v. Marshalltown Medical and Surgical Center, 758 N.W. 2d 232 (Iowa 2011) and Pamperin v. Trinity Memorial Hospital, 423 N.W. 2d 848 (Wisc. 1988). Today, the doctrine is applied in most jurisdictions when the facts and trappings surrounding problematic outcomes lead to the conclusion that a physician or group providing care or management was seen as an agent or an employee of the hospital or system where the incident occurred. Factors such as the function or nature of the services or leadership provided, the marketing of a given program or service line and the manner in which services were delivered are critical to the creation of apparent agency; each case is very fact-specific.

It should be noted, however, that not all jurisdictions have evolved to this point. For example, Minnesota has not yet extended the apparent agency doctrine to the healthcare setting, although some of its courts suggest that such an extension is now appropriate. (See McElwain v. Van Beek, 447 N.W.2d 442, (Minn. App. 1989).

Hypothetical Case

Community Hospital (CH) struggles to effectively operate its cardiac service line. In an effort to improve both financial profitability and clinical performance, CH contracts with an independent group of cardiologists to supply critical services needed to manage important aspects of the service line.

The contract between CH and the group includes a set of financial incentives for cost savings and perhaps a gain-sharing component. The group chooses to exercise its contractual authority and authorizes the use of an additional and lower-cost brand of implantable cardioverter defibrillator (ICD), which benefits the group financially. As use of the new brand of ICD expands at CH, problems with them begin to affect patient care; leads break and removal is challenging. The manufacturer of the ICD begins a recall of the defibrillator, fearing national liability risks.

Internal counsel commences an inquiry; it reveals that one member of the group, who utilized the problematic ICD at a much higher rate than any other cardiologist, was paid a significant consulting fee by the company which manufactured the troublesome ICD.  

Litigation is on the horizon and CH wonders if it can avoid these challenging facts and liability for the management activities of the group, which it still views as independent.  

Recommendations

Both practitioners and institutional providers need to be aware of this often-hidden risk, which cannot be eliminated simply by rewording a contract or two. 

A thorough approach involves an institutional recognition of these concerns, coupled with clear discussions of the risks inherent in clinical service line co-management. Attention to operational detail is the key. It is prudent to initially survey the universe of contractual co-management relationships in place to get a feel for what is being “outsourced” to allegedly independent physicians. A review of all program marketing efforts, including the following, is critical:

  • Service Line Advertisements,
  • Phone listings,
  • Billboard usage,
  • Television and radio campaigns,
  • Social media use,
  • Health fair flyers,
  • Web page referrals,
  • Office locations,
  • Logos, name tags and coats, and
  • Consent forms.

Senior leadership needs to perhaps modify these marketing tools subtly so as to minimize the presence of factors that might lead a court or a jury to conclude that apparent agency exists. Finally, since this risk will always be present to a degree in the co-management setting, insurance carriers likewise need to work with all to assure that appropriate coverage is present. Only by following these steps can the increased use of clinical co-management continue without undue risk or surprise.