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Healthcare Law, Litigation & Public Policy   Medical Licensure & Discipline ♦ Employment Board of Registration

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            In the rapidly changing and complex field of healthcare, physicians may find themselves in the midst of a contract dispute.  Physicians frequently enter into contracts with hospitals and managed care organizations.  In the negotiation of these contracts, physicians may be asked to indemnify and hold harmless the hospital or managed care organization.  This means that in the event a patient files a lawsuit against the hospital or managed care organization, the physician agrees to accept all liability associated with that lawsuit and agrees to pay all damages awarded by the court.

            Physicians should be aware that in recent cases, courts have found that physicians may be held liable for damages awarded in malpractice claims because they were bound by this type of contract. 

            More and more, courts are enforcing the validity of contracts entered into between physicians and hospitals or managed care organizations.  Recently, a California appeals court ruled that a hospital can terminate a physician's staff privileges without going through the normal due process channels set out in the hospital's bylaws (Abrams v. Saint John's Hospital and Health Center).  Here, a hospital contracted with a physician and his professional corporation.  The physician and the rest of the corporation's staff pathologists were required to maintain staff membership at the hospital.  In order to maintain staff membership, the physicians had to sign a contract.  The agreement required each physician to waive any rights to a hearing or review under the hospital's bylaws regarding the termination of staff privileges. 

            The hospital subsequently terminated the physician's staff privileges and did not grant a hearing.  The physician sued to force the hospital to comply with its bylaws requiring due process.  The court found that the hospital was not required to grant the physician a hearing.  The physician waived all rights to due process under the hospital's bylaws, and was bound by the contract.           It is important for a healthcare provider to consult with an attorney and the malpractice carrier before signing any contract.  The physician's malpractice carrier will be able to tell the physician what is covered and what is not covered under the agreement.  Often, insurance carriers do not honor contracts entered into outside of the policy.  Therefore, in the event of a lawsuit, the insured physician may be liable for damages that are not covered by his or her malpractice carrier.

            Specifically, contracts designed to indemnify or hold harmless hospitals and managed care organizations can place the physician in a vulnerable position.  Agreements may require the physician to either accept the financial responsibility of a lawsuit against the hospital or managed care organization, or carry a specific amount of medical malpractice insurance.  The indemnity clause may not be obvious to the physician.  The contract may contain an indemnification clause in small print, and it is possible that the provider may not know that he or she is indemnifying the hospital or managed care organization. 

            Contractual problems may arise when the provider is caught in a dispute between the hospital or managed care organization and the patient.  Physicians should have an attorney review the contract before it is signed to limit potential liability, and check with the malpractice carrier to determine the extent of coverage.


Contracts

by Attorney Frank E. Reardon

August 1994