The legal structure of a hospital is the same as that of any corporation. There is a board that oversees the overall operation of the facility, officers that carry on the day-to-day business of the corporation, and front-line employees who carry out the orders of the of officers. If the hospital is a for-profit institution, the board is called a board of directors; if the hospital is a nonprofit, it is called a board of trustees. The duty of the board is to select the officers of the hospital, make policy decisions, and monitor the management of the hospital to ensure that the board's policy decisions are being carried out. If the hospital is private, the board owes its allegiance to the stockholders, who have the right to remove the board if they are not satisfied with its performance. If the hospital is nonprofit, the board owes a duty to the general public. In most states, the only person with standing to challenge the board of a nonprofit hospital is the attorney general. However, since the attorney general seldom has enough resources to monitor trustees, a board of trustees may have more freedom of action than a board of directors.
The liability of the board is synonymous with the liability of the hospital--with limited exceptions. The liability for the actions of all persons for whom the courts may hold the hospital responsible flows to the board, and thus to the corporation itself. There are two situations where the actions of the board are not charged to the corporation. The first is when the board acts in a way that is prohibited by the rules of the corporation(either by the bylaws or by the articles of incorporation) or acts illegally. These actions are termed ultra vires and do not bind the corporation. If the actions harm anyone, the board members themselves may be sued and held individually liable for damages. The second situation involves certain transactions that, while not illegal or specifically forbidden by the corporation rules, are not in the interests of the corporation. This does not apply to simple, bad business decisions; it usually involves a director or trustee abusing a duty to the corporation by making a deal that is personally rewarding at the expense of the corporation.
Board members may be held personally liable if they neglect their duty to the corporation. An example of this would be a refusal to dismiss a staff member whom the board knows to be guilty of severe misconduct. The hospital would be liable for the misconduct, and the board members could be sued individually for dereliction of their duty to supervise the hospital operations. While most cases involve personal knowledge of the wrongdoing, the law may hold the board members liable if they should have known of the wrongdoing. This prevents the board from avoiding liability by not inquiring into potential misconduct.
When the hospital corporation is first formed, all of the rights and duties of the corporation are vested in the board. The board may then delegate certain duties to employee or medical staff committees. The board still retains the responsibility for these tasks and can be held liable if the tasks are improperly performed. Since the board must delegate most tasks in order to function effectively, its primary function becomes the supervision of these tasks. When the supervision involves employees, the hospital board functions much like other corporate boards. It is in the supervision of medical staff members that a hospital board deviates most significantly from the usual corporate pattern. While many corporations are involved in the supervision of highly trained professionals, only hospitals delegate the task entirely to the professional group. The hospital board must formally approve all medical staff committees decisions, but the board seldom attempts to evaluate independently the committees' decisions. The most important of these decisions is the granting and reviewing of medical staff privileges.
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