November 19, 2001Client Alert

Hospital Medical Exclusive Contracts Find Favor in the Nation’s Courts

Hospital-based physicians, such as radiologists, anesthesiologists and emergency room physicians, who are excluded from practice at a hospital when that hospital enters into an exclusive contract with a hospital-based physician group more and more frequently look to the courts for relief, filing wild claims of conspiracy, tortious interference and other assorted wrongdoing allegedly undertaken by the hospital and its administration and seeking injunctive relief. Physicians should not succeed on such claims, however.

Many courts have analyzed, and dismissed, challenges to medical exclusive contracts. The United States Supreme Court has held that individual physicians attempting to obtain staff privileges at a hospital may be excluded if that hospital has an exclusive contract for provision of those services already in place. Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 26-30 (1984). The Supreme Court's decision in Hyde has been extended by the Seventh Circuit to encompass staff physicians and allow for the revocation of staff privileges after an exclusive contract has been awarded to another contractor. Ezpeleta v. Sisters of Mercy Health Corp., 800 F.2d 119, 122 (7th Cir. 1986). And, in Beard v. Parkview Hospital, 912 F.2d 138 (6th Cir. 1990), the Sixth Circuit ruled that contracts that terminate the ability of staff physicians to practice their specialty at a hospital, but allow them to keep their medical privileges, generally are not challengeable. In Beard, a radiologist was not permitted to practice radiology after resigning from the group that held an exclusive contract with the hospital, even though he remained a member of the medical staff. The court dismissed the radiologist's claims against the hospital after finding that exclusive medical contracts were intended by the hospital "to enhance the quality of care its patients received as well as to improve the efficiency of the hospital."

Courts recognize that hospital management must be given "great deference" to administer hospital bylaws, enter into exclusive contracts and make decisions to deny, limit or terminate physician privileges. Courts will not substitute their "judgment for that of hospital boards throughout the nation, by removing a managerial option that has been universally acknowledged as valid and beneficial to the efficient administration of healthcare." Holt, 590 N.E.2d at 1321-23.

In their legal challenges to exclusive medical contracts, physicians often argue that their "privileges" to practice medicine at a hospital under the medical staff bylaws somehow give them the right to practice their specialty at the hospital indefinitely. Hospital privileges confer no such right, however. There is a distinct legal difference between hospital privileges and the right to exercise those privileges. An understanding of this legal distinction is crucial in an analysis of a challenge to a medical exclusive contract by a physician. See e.g. Collins v. Associated Pathologists, Ltd., 844 F.2d 473, 481 (7th Cir. 1988) ("Staff privileges reflect the hospital's decision that a physician is qualified to practice in the facility, but do not in and of themselves confer employment"); Bartley v. Eastern Main Medical Center, 617 A.2d 1020, 1023 (Me. 1992) ("The granting of privileges signifies that a doctor is qualified to practice at the hospital. ...The right to exercise the privileges, however, is a separate matter.").

If this distinction was not recognized by the courts, exclusive medical "contracts for specialized services to a hospital (e.g., anesthesiology, radiology, pathology) would not, as a practical matter be possible." St. Louis v. Baystate Medical Center, Inc., 568 N.W.2d 1181, 1187-88 (Mass Ct. App. 1991). See also Englestad v. Virginia Municipal Hospital, 718 F.2d 262,268 (8th Cir. 1983) ("Staff privileges do not establish an employment contract with the hospital. Nor do they guarantee a doctor that his authorized practice in the hospital will have a particular economic value. Rather, the use a doctor makes of his staff privileges depends upon some independent service" such as "some independent contractual arrangement."). While a physician may have a right to practice medicine, he or she does "not have the right to practice it in any particular hospital." Holt, 590 N.E.2d at 1323.

While attacks on a decision by a hospital to enter into a medical exclusive contract are becoming more and more common, and while the litigation of such claims typically is both hard fought and contentious, courts for the most part have upheld decisions by hospital and hospital administration to enter in medical exclusive contracts and their right to do so. Put simply, hospitals are given wide deference by the courts to handle their own administrative affairs.

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