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Third Party Contractors

Physicians hired to deliver medical care directly are a particular problem for the medical staff review committees. These physicians, whether hired by the hospital or a third party professional services group, must meet the same qualifications as active staff members. The hospital must ensure the qualifications of all persons who render medical care in the facility. This duty is especially applicable to employees, because the patient has no choice of physicians in this case.

Unfortunately, physicians are often hired completely independently of the staff screening process. This problem is fairly easily dealt with in the context of physicians hired directly by the hospital. For these physicians, it is simply a matter of requiring an approved application for active staff status before the employment contract goes into force.

The problem may, however, become very burdensome in the case of physicians hired by a third party. Third party contractors usually contract with several hospital to provide professional services. Their physician employees often rotate between different hospitals and may practice infrequently at any given hospital. If the third party group covers several hospitals with many physicians, it will be impossible to give each physician the thorough review that is given regular staff members. The hospital must set minimum criteria for the third party employee physicians to meet (restricted license, no criminal charges, and so on), but it will never be able to screen the entire group effectively.

The hospital, in effect, must rely on the judgment of the third party group that hires the physicians. However, since the responsibility for granting staff privileges cannot be delegated, the hospital may still be held liable for improper screening. If the hospital were able to contract out the selection of physician staff without liability, it would totally negate the legal responsibility of the governing body. This would remove the major driving force behind physician review and would tend to lower the overall quality of medical care.

The hospital's only effective protection from an incompetent physician employed by a contractor is an indemnification agreement with the contractor or physician group. As discussed in the chapter on hospital liability, an indemnification agreement is a contract that requires the third party to reimburse the hospital for losses that it incurs through the negligent actions of the third party or its employees.

For example, the hospital recognizes that it cannot properly screen the physicians who are provided to staff the emergency room. Its use of a contractor to supply physicians violates the duty to screen the physicians. If an emergency room physician is unqualified and injures a patient, the hospital and the contractor may be sued. To recover, the plaintiff must prove that the patient suffered a negligent injury and that the emergency room physician did not meet the hospital's criteria for membership in the medical staff. The hospital is not liable for every negligent injury, only those that would have been prevented by proper screening of the staff. If the plaintiff is able to prove both points, the patient may recover damages from the hospital. The hospital would then be reimbursed by the third party group because of the indemnification agreement.

This agreement will be worthless, however, if the third party group does not have sufficient liquid assets to reimburse the hospital. The only sure way to ensure the effectiveness of an indemnification agreement is to either demand proof of insurance from the third party group or require the group to prepay an insurance policy for the hospital. This insurance must be the type that covers all incidents arising during the period of insurance and not the type that covers only claims made during the period.

The indemnification agreement is crucial to the relationship between the hospital and the physicians who cover the emergency room. In a sense, it substitutes for the screening procedure used for other staff members. However, even a comprehensive indemnification agreement does not obviate the duty of the hospital to investigate its selection of a contractor to supply physician services. The hospital itself should investigate the contractor to determine if the group has a reputation of delivering competent, ethical services. This is important because litigation is upsetting and expensive, even if the insurance company pays the attorneys and settlement or judgment costs, and because the reputation of the emergency room will shape public opinion toward the hospital. As emergency rooms have evolved into outpatient clinics, they have become a significant source of business for many hospitals. An incompetent or unprofessional physician group covering the emergency room can seriously detract from this source of business and good will.

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