Killing the Goose That Laid the Golden Egg

Notwithstanding this developing and ever-changing situation in hospital organization and structure, the statutory laws governing hospital liability have not significantly evolved; they largely operate with a “one-size-suits-all” approach. Worse for the hospitals, however, has been the rampant judicial activism that has served to further expand liability and erode available defenses.

How Did We Get Here?

It all began with the expansion of sovereign liability for publicly owned hospitals by the undercutting of the notice provisions of the New Jersey Tort Claims Act, N.J.S.A. 59:1-1. et seq., in Eagan v. Boyarsky, 158 N.J. 632 (1999), and Lowe v. Zarghami, 158 N.J. 606 (1999).

Under the common law, the Sovereign was immune from suit unless it consented. New Jersey, like most states and the federal government, has abrogated the common law concept of sovereign immunity by creating a statutory framework that must be followed in order to perfect a claim against a public entity or public employee. In New Jersey, this requires notice of an intent to sue within 90 days of accrual, with potential for judicially approved extension up to one year following accrual. See N.J.S.A. 59:8-8 and 9. The above cases expanded the statutory time frames due to the professed lack of knowledge of government ownership/employment, further increasing liability for public institutions.

But the state high court's disregard of explicit statutory language to expand liability against defendant hospitals in the above context was trivial in comparison with the judicial expansion of the doctrine of apparent authority in a hospital setting. This concept was first discussed in New Jersey in Arthur v. St. Peter's Hospital , 169 N.J. Super. 575 (Law Div. 1979). In denying the defendant hospital's motion for summary judgment, in which the hospital argued that it could not be held liable for conduct by independent contractors, the Arthur court found that there was no reason why the apparent authority doctrine could not be applied in a hospital setting. It found that a jury issue existed with regard to whether the hospital had “held out” the physicians involved as if they were employees. (The court did not, however, change the underlying requirement of establishing apparent authority liability, which is reliance by the patient on his belief that the services were being rendered “on behalf of” the hospital.)

The Arthur decision seemed to have limited application, and for many years the apparent authority doctrine continued to be rarely applied, or even pleaded, in a hospital setting. It was not until the New Jersey Supreme Court explicitly approved of the Arthur holding, in Basil v. Wolf, 193 N.J. 38 (2007), that this imputed liability claim gained traction.

In next month's newsletter, we will discuss the implications of Basil v. Wolf' along with other case law that threatens to undermine the fiscal soundness of hospitals, particularly those that serve the less affluent.

Gary L. Riveles, a member of this newsletter's Board of Editors, is a partner in Dughi, Hewitt, and Domalewski, PC, in Cranford, NJ. Cyndee L. Allert is a senior associate with the firm.

A troubling trend is apparent in medical malpractice actions venued in New Jersey: Over the past few decades, our courts have undermined legislation meant to limit hospital liability for tort claims. These storied and venerable institutions, often originally conceived and operated by religious aid societies, are chartered to provide care to the state's citizenry. The overwhelming majority of hospitals in New Jersey are non-profit institutions that rely upon government programs such as Medicaid and charitable care reimbursements for those patients without medical insurance.

Many hospitals, in an effort to improve economies of scale as well as increase negotiating power, have merged into behemoth hospital systems, incorporating a regional or state-wide presence with five or more hospitals combined. Others have stuck to their roots, remaining small, independent community-based institutions. More recently, a third type of hospital has emerged: the for-profit hospital, a type previously unseen but that now has taken over several different institutions in the state of New Jersey.

The variety in hospital structure has lead to a marked disparity ' almost a class system ' among the hospitals. The largest hospital systems generate enormous revenue streams, employ multiple physician groups and enjoy better reimbursement rates from the larger health insurers because of their negotiating power. Similarly, the for-profit hospitals, due to their lack of participation in most health insurance plans, are able to charge service rates significantly higher than the usual negotiated rates for “in-network” providers, likewise leading to large revenue streams. The community hospital, on the other hand, is at the whim of the insurer, often forced to accept reduced service rates, and has higher than average numbers of charity care patients, resulting in a revenue stream that is incapable of meeting or exceeding expenses.

Notwithstanding this developing and ever-changing situation in hospital organization and structure, the statutory laws governing hospital liability have not significantly evolved; they largely operate with a “one-size-suits-all” approach. Worse for the hospitals, however, has been the rampant judicial activism that has served to further expand liability and erode available defenses.

How Did We Get Here?

It all began with the expansion of sovereign liability for publicly owned hospitals by the undercutting of the notice provisions of the New Jersey Tort Claims Act, N.J.S.A. 59:1-1. et seq. , in Eagan v. Boyarsky , 158 N.J. 632 (1999), and Lowe v. Zarghami , 158 N.J. 606 (1999).

Under the common law, the Sovereign was immune from suit unless it consented. New Jersey, like most states and the federal government, has abrogated the common law concept of sovereign immunity by creating a statutory framework that must be followed in order to perfect a claim against a public entity or public employee. In New Jersey, this requires notice of an intent to sue within 90 days of accrual, with potential for judicially approved extension up to one year following accrual. See N.J.S.A. 59:8-8 and 9. The above cases expanded the statutory time frames due to the professed lack of knowledge of government ownership/employment, further increasing liability for public institutions.

But the state high court's disregard of explicit statutory language to expand liability against defendant hospitals in the above context was trivial in comparison with the judicial expansion of the doctrine of apparent authority in a hospital setting. This concept was first discussed in New Jersey in Arthur v. St. Peter ' s Hospital , 169 N.J. Super. 575 (Law Div. 1979). In denying the defendant hospital's motion for summary judgment, in which the hospital argued that it could not be held liable for conduct by independent contractors, the Arthur court found that there was no reason why the apparent authority doctrine could not be applied in a hospital setting. It found that a jury issue existed with regard to whether the hospital had “held out” the physicians involved as if they were employees. (The court did not, however, change the underlying requirement of establishing apparent authority liability, which is reliance by the patient on his belief that the services were being rendered “on behalf of” the hospital.)

The Arthur decision seemed to have limited application, and for many years the apparent authority doctrine continued to be rarely applied, or even pleaded, in a hospital setting. It was not until the New Jersey Supreme Court explicitly approved of the Arthur holding, in Basil v. Wolf , 193 N.J. 38 (2007), that this imputed liability claim gained traction.

In next month's newsletter, we will discuss the implications of Basil v. Wolf' along with other case law that threatens to undermine the fiscal soundness of hospitals, particularly those that serve the less affluent.

Gary L. Riveles, a member of this newsletter's Board of Editors, is a partner in Dughi, Hewitt, and Domalewski, PC, in Cranford, NJ. Cyndee L. Allert is a senior associate with the firm.