Joseph T. Kelley III Featured in the Legal Intelligencer
By: Joseph T. Kelley III, The Legal Intelligencer
Physicians are increasingly parting ways with private practice to join the ranks of health system employees. Hospital and health system employment of physicians grew by 49 percent from 2012 to 2015, according to a September 2016 report by the Physicians Advocacy Institute. Hospital ownership of physician practices has also seen significant growth. As of 2015, hospitals came to own one in four physician practices, a whopping 86 percent growth from 2012. This trend is magnified in the Northeast: by 2015, hospitals employed 42 percent of all physicians and owned 28 percent of all physician practices in this region. Many young physicians will practice their entire professional careers as hospital employees, whether directly or through hospital-owned practices.
Perhaps the two most important documents in the career of a young physician will be his medical degree and employment contract. Yet physicians are often unaware of the inherent traps that pose two significant risks: lack of job security and unwarranted reports to the National Practitioner Data Bank (NPDB). These risks stem from the tension between the physician’s role on the medical staff and as employee (tension between the traditional medical staff model and the emerging employment model).
Medical Staff Bylaws as Contract
Many employment contracts offered by hospitals, health systems or their “captive” practice groups do not provide explicitly for termination only upon cause, but instead offer only a “staff appointment” for a term. First, counsel should identify the body to which the physician is being appointed and review closely its governing documents.
Many physicians would interpret a “two-year appointment” to the “medical staff” to confer job security. This is understandable given that the actions of every hospital medical staff are governed by a set of bylaws, which typically confer substantial safeguards that set forth a host of procedural (notice, hearing(s), right to counsel, multistage review) and substantive (termination only for cause) safeguards to protect his or her staff appointment, 42 C.F.R. 482.12; Joint Commission Standard MS.01.01.01; and see, e.g., 28 Pa. Code Chapter 107.
This perception would seem well-founded in the law. Medicare conditions of hospital participation (COPs), Joint Commission accreditation standards, and state licensure requirements all require hospitals to establish an organized medical staff governed by written bylaws. Pennsylvania hospital licensure regulations also impose extensive medical staff requirements, including that “fair hearing and appellate review mechanisms” must be written into the staff bylaws, as in 28 Pa. Code Section 107.12 and Chapter 107 generally.
Bylaws as Contracts?
But are these bylaws enforceable under a private right of action to protect a physician’s employment status? And if so, may a hospital modify such, at will? The answers here are less clear. Pennsylvania, like most states, holds that a medical staff appointments establish a contractual relationship between hospital and staff physician and that the staff bylaws constitute an “integral part” of this contractual relationship, as in Lyons v. Saint Vincent Health Center, 731 A.2d 206 (Pa. Cmwlth. 1999). However, this view is by no means universal. Moreover, in a closely watched case, Meister v. Marshall, No. A15-1982 (Minn. Ct. App. July 25, 2016) the Minnesota Court of Appeals confirmed a hospital’s authority unilaterally to change its medical staff bylaws to physicians’ detriment without advance notice.
Two Termination Tracks
Perhaps more alarming than the possible modification of the medical staff bylaws is a hospital’s authority to ignore them, or at least sidestep their due process requirements. Medical staff bylaws often include a provision for automatic or permissive termination of staff appointment and clinical privileges upon the termination of the physician’s employment contract. In some bylaws this may operate as a “deemed resignation.” Ominously for physicians, these administrative terminations preclude the physician from full procedural rights, including hearing and appeals. Thus, two distinct, viable tracks for physician termination have emerged: (1) the traditional medical staff track and (2) the employment track. The former implicates an element of professional review, while the latter represents merely a hospital management decision.
In Langenberg v. Warren General Hospital, No. 1:12-CV-175-NBF (W.D. Pa. Nov. 22, 2013), for example, Warren General Hospital (WGH) terminated Dr. Matthew T. Langenberg’s employment on a “noncause” basis under his employment contract. The doctor argued that as a member of the medical staff, the bylaws entitled him to the full “fair hearing process,” which WGH denied him. Judge Nora Barry Fischer, found that WGH’s bylaws permitted the “two tracks” for termination of Langenberg’s employment and that WGH had properly followed the employment termination track. The termination of his employment contract “automatically and immediately” terminated his privileges. WGH’s bylaws only provided for the “fair hearing process” for “adverse actions,” which, as the judge noted, expressly excluded these circumstances. Fischer further reasoned that Langenberg had no cause of action for breach of contract under either his employment agreement or the bylaws and that neither Medicare COPs nor state licensure requirements provided a cause of action. Accordingly, Langenberg found himself an at-will employee without the protection of medical staff due process.
Moreover, the employment policies of most health systems still set forth that all employees are at-will unless a separate agreement sets forth the contrary. As a result, a physician with only a “staff appointment” is merely an employee-at-will unless he negotiates separate job protections in his employment agreement. The fact that physicians typically face restrictive covenants upon termination further underscores the need for job security. Accordingly, counsel should be acutely aware of any grounds for termination that deprive the physician of full due process rights under the bylaws and negotiate for explicit job security protections.
Central to this discussion are the implications on NPDB reporting. The NPDB is a system “to collect and release certain information relating to the professional competence and conduct of physicians, dentists, and other health care practitioners,” 45 CFR Section 60.1. Health care providers must report to the NPDB certain adverse events involving practitioners, and must check the NPDB as part of practitioner screening. A bad NPDB report can operate as a blackball affecting a practitioner’s practice.
The duty to report arises when a hospital: takes “professional review action” that adversely effects clinical privileges for more than 30 days, or accepts the practitioner’s “surrender” of clinical privileges either while under investigation by the hospital relating to possible incompetence or improper professional conduct, or in return for not conducting an investigation, 42 U.S.C. Section 11133(a)(1).
2015 amendments to the NPDB Guidebook have muddied the reporting waters by declaring that the term “investigation” will be interpreted “expansively” and restricting deference to the hospital and its bylaws on whether an “investigation” is in process, NPDB Guidebook, E-34 (2015). A physician may be “under investigation” without notice.
Significantly, the guidebook explicitly recognizes the “two tracks” for physician termination. It notes that where a hospital follows an “employment termination procedure,” instead of the “professional review process” set forth in the bylaws, no NPDB report is necessary. If, however, the employment termination procedure involves “professional review” activity, a NPDB report is required despite the label.
Thus, attorneys must be very careful in advising on or negotiating a physician’s departure from a hospital. If the hospital has commenced an investigation the resignation may trigger a NPDB report. The physician and hospital are further precluded from negotiating the physician’s resignation to avoid an investigation. Counsel on both sides should communicate regarding whether the circumstances give rise to an “investigation;” a lack of clarity on reporting obligations does not benefit either party.
On the other hand, the guidebook’s recognition of the “employment track” does provide flexibility to both sides to resolve conflict without a NPDB report, which neither party may want. For example, discipline and other adverse employment action that does not implicate clinical competency or realistically risk patient safety, can be diverted away from the medical staff track.
Tips for physicians and their counsel
Closely review the applicable bylaws particularly with respect to:
• Procedural rights they provide and the bases for termination.
• Grounds for “automatic” or “administrative” termination of staff appointment and their interplay with employment.
• Whether they state that they are enforceable or may can be amended without notice.
• Negotiate an express term in the employment agreement during which the hospital may only terminate “for cause” and pursuant to the terms of the employment agreement itself.
• Define limited grounds for “cause,” avoiding the incorporation of broad or subjective grounds by reference.
• Investigate the circumstances of any review, investigation or proceeding involving the physician prior to effecting any resignation.
• Do not negotiate for a resignation while the physician may be under “investigation” or to avoid one.
Tips for hospital counsel
• Recommend the updating of staff bylaws to take into account 2015 Guidebook amendments.
• Establish clear procedures for an “employment termination track” for practitioners focusing only on compliance with conditions of employment and avoiding review of competence or professionalism.
• Communicate clearly to the physician regarding the status of any “investigation” or “professional review: activity. •
ABOUT JOSEPH T. KELLEY
Joseph T. Kelley III focuses his practice on healthcare law and issues of privacy, compliance, regulatory and administrative law. Mr. Kelley serves as compliance and privacy counsel to behavioral health care providers and other large and small businesses.
Mr. Kelley received his B.A. from Tulane University and his JD from Villanova University School of Law. He is a member of the American Health Lawyers Association, Association of Corporate Counsel. He writes and lectures on Privacy Information Governance and regulatory compliance in Behavioral Health and Long Term Care industries.
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