Court rulings affect hospital-doctor ties

Two recent federal court decisions require the attention of hospital administrators and physician leaders.

In the first, Doe v. Leavitt, the First Circuit Court of Appeals considered a claim brought by a physician who asserted that a hospital had improperly reported the physician to the National Practitioner Data Bank.

The physician had been temporarily suspended pending an investigation by an ad hoc committee appointed by the Medical Executive Committee, or MEC, which directs the hospital’s medical staff.

Three days later, the ad hoc committee reported its findings to the MEC. The MEC then proposed that the physician be reinstated so long as he agreed to certain contractual modifications, including the requirement of regular proctoring and psychological evaluations. The physician rejected the proposal and instead resigned.

Believing that he had resigned while “under investigation,” the hospital made the report to the data bank. But the physician argued that the “investigation” of the ad hoc committee had terminated and, therefore, the report should not have been made.

The court upheld the hospital’s action and agreed with the interpretation that “an investigation terminates when a final action is taken.”

The ruling makes clear that once a physician investigation is started, a hospital has little or no discretion to avoid a data bank report, unless the investigation is brought to a formal conclusion and final action taken.

Physician leaders need to understand that the commencement of a physician investigation carries with it serious implications for all concerned.

In Kosenske v. Carlisle HMA Inc., the Third Circuit Court of Appeals considered the applicability of the “personal services” exception to an arrangement between a hospital and its anesthesia group.

The hospital had originally struck an agreement with the physician group for the provision of anesthesia services in the hospital on an exclusive basis. Subsequently, the hospital and the group expanded the relationship to include pain management services in a freestanding facility without creating a separate agreement.

The court concluded that the pain management services exposed the hospital to liability under the False Claims Act. It specifically noted the distinction between conventional inpatient anesthesia services (where the hospital is the source of referrals to the physician) and pain management services (where the physician is a primary source of referrals for other hospital services).

In the wake of this case, hospital administrators should revisit the status of contractual relationships with all of its physicians and, in particular, anesthesiology groups that may also be providing pain management services.

Donald Crandlemire, a lawyer and MBA, is of the Crandlemire Group, Concord, which offers legal and consulting services to business and health-care organizations. He can be contacted at 603-379-6850 or