Organizational Liability
Introduction
Healthcare organizations can be held directly accountable for accidents that occur partly as a result of their own negligence. A patient may be injured due to the inadequate care of a specific doctor, but the healthcare organization to which that doctor was connected may be responsible for putting that patient with that specific doctor. Thus, there is a need for liability insurance. The purpose of liability insurance is to distribute the costs and economic losses of risks. Premiums increase as needed to cover the costs of litigation. Due to the rising costs of malpractice premiums, physicians may limit their risks by refusing new patients or limiting the complexity of patients they will treat. Several factors affect malpractice, including uncertainty with healthcare policy, inflation, emerging technologies, and high-risk procedures (Pozgar, 2021).
Learning Objectives
- Identify the institutional liability that may result from apparent authority
- Recognize the circumstances under which institutions are subject to direct Tort liability
- Differentiate between an employee and an independent contractor in the healthcare context
- Analyze Tort liability through the application of Respondeat Superior
Direct Tort Liability
Direct tort liability is a legal principle where an individual or entity is legally obliged to take responsibility for causing harm or injury to another person or party due to their own actions or negligence. In this context, “tort” denotes civil wrongdoing, such as negligence, intentional harm, or a breach of duty, that results in harm or losses for someone else. With direct tort liability, the person or entity directly responsible for the wrongful action or negligence is held accountable for the resulting damages without needing to establish any intermediary or third-party liability. It involves holding the party directly at fault legally accountable for their actions or failures and pursuing compensation or legal remedies for the harm inflicted. When the negligent actions of two different parties contribute to the ultimate injury, the two parties are considered joint tortfeasors and will face joint liability. Plaintiffs can recover the full amount of any award from either defendant in this case. This is concerning for healthcare entities that employ negligent providers (Perry & Thompson, 2017).
A. End of Immunity
For decades between the 1940s and 1990s, charitable healthcare organizations and religious hospitals possessed immunity from legal liability under the charitable immunity doctrine. Over time, the doctrine faced criticism for allowing these organizations the ability to evade responsibility for harm caused by their negligence. Changes in the evolving healthcare system have moved away from these types of exemptions; furthermore, Britain and Canada have abandoned this doctrine entirely. While charitable immunity has been completely abolished in some states, others still maintain some version of it. Legal scholars are predicting the possible extinction of the charitable immunity doctrine in the near future (Perry & Thompson, 2017).
B. Establishing Direct Tort Liability
A healthcare organization can be held directly accountable for accidents that occur partly as a result of their own negligence; immunity is no longer applicable because the organization is showing negligence by not complying with proper supervision, monitoring, selection, and/or utilization reviews of those providers.
1. Monitor and Supervise
To safeguard patients, hospitals are required to monitor and assess the treatment patients receive. Although doctors are not required to guarantee specific outcomes, it is still expected that treatment plans are regularly assessed based on the patient’s condition and do not significantly depart from established standards of care. Hospitals must also carry out these assessments to ensure that each patient receives appropriate attention from the attending physician. These principles give rise to hospitals having a general responsibility to monitor and supervise the physicians they employ (Perry & Thompson, 2017).
2. Selection
When a hospital initially brings a physician on board, it is the hospital’s responsibility to ensure that the physician possesses the necessary education, training, and experience suitable for the designated role. These inquiries must be revisited when the hospital assigns a specific role to the physician, such as working in the emergency room, or when considering the physician’s ongoing employment. These obligations also extend to hospitals that grant independent contractors access to their facilities. They should also be aware of any malpractice lawsuits against the physician. These duties also apply to hospitals that permit the usage of their facilities by independent contractors (Perry & Thompson, 2017).
3. Cost Containment and Utilization Review
One area where an insurance plan could potentially be held directly responsible for negligence is in the execution of utilization review processes. Utilization review occurs when the health plan assesses a physician’s request for the approval of a specific treatment. It serves as a secondary evaluation of treatment decisions, primarily aimed at controlling expenses. Managed care organizations that prioritize cost-effective healthcare delivery may also employ some form of utilization review (Perry & Thompson, 2017).
However, these reviews must be conducted with the appropriate level of care because a denied treatment can have a significant impact on the patient. The determination of what constitutes an appropriate level of care is specific to the individual circumstances. Two cases from California, occurring within a five-year period, serve as examples. In the first case, the court ruled that the plan was not negligent, but in the second case, the court identified enough evidence of potential negligence to send the case back to the trial court for further consideration (Perry & Thompson, 2017).
4. Conclusion
Organizations can be held liable for inadequate selection of providers, insufficient training and monitoring, as well as improper utilization reviews. Reasonable precautions should be taken by organizations to ensure the best approach for developing rules for conduct, selection, supervision, and monitoring is followed to discourage being held liable. Constant communication with staff and enforcement of policy are best practices. The ability to show a failure to follow the rules established does not automatically excuse the organization; however, inadequate rules could show direct negligence liability for the organization (Perry & Thompson, 2017). Organizations may be held liable for negligent practices such as:
- Allowing a physician to practice outside his/her scope of practice
- Not providing consistent time for supervision
- Lack of emergency coverage and procedures
- Lack of sufficient monitoring of physician’s practice and/or documentation
- Lack of consistent feedback prior to evaluation
- Violation of professional boundaries
Vicarious Liability for Torts of an Agent [YouTube] 2014 by The Business Professor
Respondeat Superior
The primary approach for torts by agents is respondeat superior which is the legal doctrine that ascribes the responsibility to a party for the acts of others known as vicarious liability. This doctrine stipulates that employers can be held responsible for the wrongful actions of their employees. This concept stems from the nature of agency itself, where a principal delegates a task to an agent, who agrees to carry it out while operating under the principal’s authority. In essence, the agent is considered an extension of the principal, acting on their behalf and under their control. Therefore, when an agent commits a tort, it can be inferred that the wrongful act was executed on behalf of and under the control of the principal. Consequently, it is reasonable to attribute vicarious liability to the principal. This extension of liability also serves the purpose of ensuring that plaintiffs have the opportunity to seek damages from additional parties who may have the financial means to adequately compensate them, promoting fairness in the legal system (Perry & Thompson, 2017).
According to Perry and Thompson (2017), when distinguishing between an individual being classified as an employee or an independent contractor, the key factor to consider is the level of control involved. If a principal has the authority to control the way an agent carries out the services, especially regarding the physical aspects of the work, the agent is considered an employee.
When control only extends to the specific outcome of the work and not the methods used, it increases the likelihood of classifying someone as an independent contractor. Other factors to take into account include the payment method (such as salary or output-based compensation), the provision of tools and workspace, and the level of expertise required in the given occupation. Combining these elements results in a somewhat complex assessment to determine whether an individual qualifies as an employee or an independent contractor. It may be helpful to create separate lists of factors that indicate employee status and those suggesting independent contractor status, followed by an overall analysis to determine which category is more applicable. It’s essential to remember that control often plays a pivotal role in this determination. Lastly, there should be a determination of whether the harm caused was within the “scope of employment” and part of the job (Perry & Thompson, 2017).
Independent Contractor vs. Employee
The scope of employment is straightforward for most healthcare providers. What is a bit more convoluted is whether or not they are actually considered hospital employees. In a traditional view, nurses and administrative staff are considered employees of the hospital. However, some nurses could be employed by a physician and contracted by the hospital. In this circumstance, the physician is the employer of the nurse in cases of respondeat superior. Alternately, physicians who are under contract with hospitals are functioning as independent contractors (Perry & Thompson, 2017).
At times, courts used legal restrictions on the corporate practice of medicine to argue that hospitals and insurance plans could not be held indirectly responsible for the mistakes of the doctors they were affiliated with. Additionally, in some cases, courts applied the “captain of the ship” doctrine, often in conjunction with the “borrowed servant” doctrine. This doctrine asserted that the attending physician had overall control over the patient’s entire treatment, making it difficult to assign vicarious liability to the hospital. Courts are more likely to consider contracting physicians as employees. Once a hospital chooses to employ a provider, then that provider is no longer independent of the hospital. However, this concept becomes more complex in areas like surgical teams that consist of many different members performing various functions (surgeon, anesthesiologist, nurse, physician’s assistant, surgical technologist, etc.).
Apparent Authority
Apparent authority is a legal doctrine that deals with the authority of individuals or entities to act on behalf of another party based on the appearance or perception of authority rather than actual or express authority. In the context of contracts and agency law, it typically arises when a principal (a person or entity) leads a third party to believe that an agent (another person or entity) has the authority to act on the principal’s behalf, even if that agent does not have actual authority to do so. Under this doctrine, hospitals can be liable for the torts of nurses and physicians. Through words, actions, or circumstances, the principal (a hospital) must create a reasonable belief in the third party (patient) that the agent (physician) has the authority to act on the principal’s behalf. The third party must reasonably rely on the representation or appearance of authority when interacting with the agent. The third party must suffer some form of harm or detriment as a result of their reliance on the agent’s apparent authority.
Apparent authority is distinct from actual authority, where the agent genuinely possesses the authority to act on behalf of the principal, either explicitly (express authority) or implicitly (implied authority). Apparent authority is based on the perception of authority created by the principal’s actions or representations. A similar theory is provided in Restatement (Second) of Torts § 429 (1966):
“One who employs an independent contractor to perform services for another that are accepted in the reasonable belief that the services are being rendered by the employer or by his servants is subject to liability for physical harm caused by the negligence of the contractor in supplying such services, to the same extent as though the employer were supplying them himself or by his servants.”
Furthermore, the conditions for applying the concept of apparent authority in tort cases involve the principal’s actions or expressions that cause a reasonable belief in the third party that someone is acting as their apparent agent, followed by the third party’s reasonable trust in this belief. It’s important to emphasize that when seeking compensation from a healthcare institution based on apparent authority, it’s a form of secondary liability. To establish such liability, evidence of the primary liability of the healthcare professional involved must be provided (Perry & Thompson, 2017).
When a patient chooses a hospital for their healthcare, the contractual relationship between the physician and hospital may not be clear. Nonetheless, patients trust that the physicians treating them have been vetted by the hospital where they practice.
Conclusion
Both respondeat superior and apparent authority are methods through which the legal system assigns vicarious liability to healthcare institutions for the wrongful acts of their physicians. In the case of respondeat superior, liability arises when the organization exercises a significant degree of control over the physician. A healthcare institution might consider reducing its liability by loosening this control. However, there are often valid reasons for maintaining some level of control over physicians. Regardless of whether physicians are legally classified as employees or independent contractors of a healthcare institution, the public perception of the institution is heavily influenced by the actions of these physicians. To establish and uphold a positive reputation, healthcare institutions may find it necessary to maintain a certain level of control over their physicians, despite the potential liability implications. Conversely, apparent authority stems from insufficient communication between the healthcare institution and patients. This issue can typically be addressed by improving communication practices (Perry & Thompson, 2017).
Key Takeaways
- Direct Tort Liability: A healthcare organization can be held directly accountable for accidents that occur partly as a result of their own negligence; immunity is no longer applicable because the organization is showing negligence by not complying with proper supervision, monitoring, selection, and/or utilization reviews of those providers.
- Respondeat Superior: A common-law doctrine that makes an employer liable for the actions of an employee when the actions take place within the scope of employment.
- Apparent Authority: When someone reasonably believes a person has the authority to act on behalf of another person or entity to engage in business transactions or enter into contracts, stemming from the person’s actions leading to the belief that they have been given authority to act.
- Organizations may be held liable for negligent practices such as:
- Allowing a physician to practice outside his/her scope of practice
- Not providing consistent time for supervision
- Lack of emergency coverage and procedures
- Lack of sufficient monitoring of physician’s practice and/or documentation
- Lack of consistent feedback prior to evaluation
- Violation of professional boundaries
References
- Pozgar, G. D. (2021). Legal and Ethical Essentials of Health Care Administration, 2nd ed. Jones & Bartlett Learning
- Perry, J. E. & Thompson, D. B. (2017). Law and Ethics in the Business of Health Care. West Academic Publishing
as two or more persons jointly or severally liable in tort for the same injury to person or property, whether or not judgment has been recovered against all or some of them
Is a person, business, or corporation that provides goods or services under a written contract or a verbal agreement. Unlike employees, independent contractors do not work regularly for an employer but work as required, when they may be subject to law of agency.
is a Latin phrase that literally means “let the master answer.” It is also a legal doctrine applicable in many civil claims throughout the United States. Under the legal doctrine, an employer can be held accountable for negligence or wrongdoing committed by their employee or agent.
is a legal doctrine that deals with the authority of individuals or entities to act on behalf of another party based on the appearance or perception of authority, rather than actual or express authority.
