Marketing Tools May Increase Hospitals' Liability Exposure

"We're [name omitted] Hospital, and you can't get any better than this."

"...At the forefront of medicine."

"We give you what you want: quality, affordable health care, delivered by physicians of your choice."

THESE ARE SOME of the actual pitches found in print advertisements and broadcast commercials touting the abilities of medical institutions throughout the country. While theses marketing tools may help health care providers appear more attractive and desirable to the public, they can and do increase these providers' liability exposure as well.

Marketing has come to be recognized by hospital and other health care providers as a necessary management function in a highly competitive environment. U.S. hospitals spent $1.81 billion on advertising and marketing of their services in 1993, up more than 12 percent from the previous year, according to Quality Expectations, an Evanston, Ill. -based research institute. Marketing consumed an average of nearly $376,200 per hospital, with the majority of that money aimed at reaching consumers.

The "big business" approach to health care delivery evolved from modest roots. Built as charitable institutions to treat the poor or the lowest classes of society, because the wealthy were treated by doctors in their homes, hospitals once were purely charitable institutions. But hospitals have since turned into major industries. They have assumed extensive responsibilities and provide a variety of services to patients, often taking an active role in medical treatment. Hospitals provide sophisticated and highly integrated technical and specialist services. Doctors must follow hospital regulations and submit their work to staff review. Indeed, patients have come to expect that hospitals control the activities that take place on their premises.

Hospital advertisements feed into this perception, though, as they often fail to communicate clearly to consumers that independent contractors, and not hospital employees, provide certain health care services.

Generally, physicians who work at hospitals are not employees of the institutions. Rather, they are independent contractors who arrange to use the hospital facilities when needed by their patients. The doctors are not paid salaries; they separately bill patients for their services. Alternatively, hospital staff (i.g., nurses) carry out medical services at the facility and earn salaries paid by the facility.

But imagine if hospitals announced to the public what they often claim in liability situations - that their physicians are independent contractors whose performance the hospitals neither supervise, nor take responsibility for. Such advertising would be counterproductive to its intended goal - to boost hospital name recognition and increase market share by assuring potential customers of quality care and sound management.

Most patients are not aware of the relationship between the doctor and the hospital and, often, advertisements perpetuate the confusion. And, as one court said, "It would be absurd to require . . . a patient to be familiar with the law of respondent superior and so to inquire of each person who treated him whether he is an employee of the hospital or an independent contractor." Grewe v. Mount Clemens General Hospital, 404 Mich. 240, 273 N.W.2d 429, 433-34 (1978).

The impact of advertising does not go unnoticed, nor should it. Based on hospitals' claims about their resources and expertise, patients often turn to a particular facility for treatment, not to a doctor acting independently. Courts have become more sensitive to the impact of modern health care marketing' consequently, hospitals have been experiencing a steady expansion of liability based, in part, on statements they make and impressions they convey in their advertisements and promotional material.

Apparent Agency

It is well-established that a principal is bound not only by the authority it actually gives but also by the authority it appears to give. In cases in which hospitals allow, or even encourage, patients to believe that independent contractor physicians are authorized agents of the facility, courts have held the hospitals vicariously liable under the doctrine of ostensible or apparent agency. Indeed, Sec. 429 of the Restatement (Second) of Torts provides that, "One who employs an independent contractor to perform services for another which 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."

In a recent Illinois case addressing this issue, Gilbert v. Sycamore Municipal Hospital, 622 N.E.2d 788 (Ill. 1993), the emergency room was considered a hospital function even though it was staffed by physicians considered to be independent contractors. ER patients were not informed that their doctors were not employees. The court said liability attached to the hospital if the plaintiff ER patient could show that:

(1) the hospital or its agent held itself out in a manner that would lead a reasonable person to conclude that the individual who was alleged to be negligent was an employee or agent of the hospital; (2) the hospital had knowledge of and acquiesced in those actions; (3) the plaintiff acted in reliance on the conduct of the hospital or its agent, consistent with ordinary care and prudence.

The element of justifiable reliance is satisfied where a plaintiff relies on the hospital to provide complete ER care, rather than on a specific physician. Liability will not be found if the patient knew, or should have known, that the treating physician was an independent contractor.

Based on the court's comments, advertising clearly played a direct role in its ruling:

"Hospitals increasingly hold themselves out to the public in expensive advertising campaigns as offering and rendering quality health services. One need only pick up a daily newspaper to see full- and half-page advertisements extolling medical areas. Modern hospitals have spent billions of dollars marketing themselves, nurturing the image with the consuming public that they are full-care modern health facilities. All of these expenditures have but one purpose: to persuade those in need of medical services to obtain those services at a specific hospital. In essence, hospitals have become big business, competing with each other for health care dollars." Gilbert, 156 Ill. 2d at 520, quoting, Kashishian v. Port, 167 Wis.2d 24, 38, 481 N.W.2d 277, 282 (1992).

Concurring in this thinking, an Illinois appeals court found that "the business and marketing practices of modern hospitals" are realities of modern-day health care which must be factored in when determining liability. Grutzius v. Franciscan Sisters Health Care, 623 N.E.2d 853 (Ill. App., 3d Dist.m1993).

In the recent case of Kashishian v. Port, cited above, the Wisconsin Supreme Court said that, if a hospital holds itself out to the public as providing complete health care, it will be held liable for the treating physician's malpractice even if that doctor is an independent contractor. The "holding out" element is satisfied if the hospital promotes itself as a provider of care without informing the patient that the care is provided by independent contractors. Pamperin v. Trinity Memorial Hospital, 144 Wis.2d 188, 201-10, 423 N.E.2d 848, 856-57 (1988).

The Wisconsin high court also was concerned about the raised expectations a hospital creates in the public's mind.

In Kashishian, a cardiovascular patient submitted an advertisement to the court that the defendant hospital was holding itself out as providing quality health care in specialized areas of medicine. The court quoted the advertisement as saying that "[Mount Sinai Medical Center has] an international reputation for excellence in cardiovascular medicine. In fact, there's only a handful of hospitals in the country that can come up to our comprehensive capabilities and our record."

Concluding that the hospital held out itself and the people who worked there as experts in a particular area, the court found it was reasonable for a trier of fact to conclude that the defendant doctor, an independent contractor, was acting under the apparent authority of the hospital.

Agency by Estoppel

Some courts confuse apparent agency with agency by estoppel, using the terms interchangeable. But agency by estoppel is predicated on the arguably stricter standard of the Restatement (Second) of Agency Sec. 267 (1958), which provides that "One who represents that another is his servant or agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant to other agent as if he were such."

Agency by estoppel gives rise to tort liability where the injury would not have occurred but for the injured party's justifiable reliance on the apparent agency. Under this theory, there generally should be actual reliance on the principals representations by the injured party that caused or induced the party to act or forbear. Mehlman v. Power, 378 A.2d 1121, 1123 (Md. 1977).

"Theoretically, there need be no casual relationship between the principals conduct and the plaintiff's reliance to warrant a conclusion of ostensible agency; such a casual relationship and such a change of position, however, is the essence of estoppel to deny agency." Janulis and Hornstein, "Damned If You Do, Damned If You Don't: Hospitals' Liability for Physicians' Malpractice," 64 Neb. L. Rev. 689, 697 (1985).

In Baptist Memorial Hospital System v. Smith, 822 S.W.2d 67 (Tex. App. 1991), a Texas appeals court found liability based on this theory. It determined that the hospital intentionally or carelessly caused the injured patient's reasonable belief that the treating doctor was a hospital employee when, in fact, he was not. This finding was based, in part, on the hospital's advertisements, which the court construed as affirmative acts of inducement. The hospital placed ads in San Antonio Magazine that referred to "Skilled Health Care Professionals" and hospital emergency rooms "staffed twenty-four hours a day by licensed physicians."

Last month, the Ohio Supreme Court, in Clark v. Southview Hospital & Family Health Center, 628 N.E.2d 46 (March 16), pointed to the plaintiff's reliance on various hospital promotional and marketing pamphlets and brochures, and" Emergency Handbook & Physician Directory'" and newspaper, radio and television advertisements in holding a hospital liable under the doctrine of agency by estoppel. In Clark, the patient passed up a closer medical facility for emergency care in order to be treated at a more distant hospital, which she believed, from its promotions, would offer her better care.

"As an industry, hospitals spend enormous amounts of money advertising in an effort to complete with each other for the health care dollar, thereby inducing the public to rely on them in their time of medical need," the court said, adding, "The public, in looking to the hospital to provide such care,is unaware of and unconcerned with the technical complexities and nuances surrounding the contractual an employment arrangements between the hospital and the various medical personnel operating therein." (For a further discussion of Clark, see article.)

Respondeat Superior

The rule of respondeat superior is limited to imposing indirect liability on an institution as a result of its employees' negligence. An employee's acts must be sufficiently connected to his employment so as to justify requiring that the employer bear the loss. Courts that have found a hospital vicariously liable on this theory have done so strictly in the context of an employer-employee relationship. This theory generally means that a hospital has a direct duty to provide a safe place for patients and exercise due care in selecting its staff employees.

Corporate Negligence

The corporate negligence doctrine, on the other hand, holds that a hospital owes and independent duty to its patients to use reasonable care. This subjects the hospital to direct liability for its own acts and for its failure to fulfill obligations owed to the patient. The failure to exercise reasonable care in the selection and retention of medical staff represents the greatest expansion of hospital liability under this theory.

In Darling v. Charleston Community Memorial Hospital, 33 Ill. 2d 326, 211 N.E.2d 253 (1965), the court held that hospital regulations and bylaws are evidence of the standard of care. Perhaps advertisements also may be recognized as indicia of a self-imposed standard of care.

Non-Delegable Duty

This theory generally arises when a hospital contracts with a physician or professional corporation to staff certain hospital services, such as the emergency room. Regardless of the physician's status, the hospital may be held accountable for negligent acts because they involve non-delegable duties of the hospital to the public. The court said it has been determined that, when a party has been determined that, when a party has undertaken to do a certain thing or to do it in a particular manner, it cannot, by employing an independent contractor, avoid liability for injury resulting from a non-performance of duties assumed by the independent contractor under its agreement. Schagrin v. Wilmington Medical Center, 304 A.2d 61 (Del. 1973).

In the context of hospital advertising, liability based on the theory of a non-delegable duty has not taken hold - perhaps because sufficient factual grounds have not supported application of the doctrine.

Enterprise Liability

Courts have recognized that even contract doctors perform services that are "an inherent function of the hospital, a function without which the hospital could not properly achieve its purpose." Beech v. Tucson General Hospital, 18 Ariz. App. 165, 170, 500 P.2d 1153, 1158 (1972). They are an integral part of the total hospital function or enterprise. It remains to be seen whether the courts will move toward establishing and "enterprise tort" against hospitals for injuries occurring within their walls.

To date, few courts appear even to have considered a theory of enterprise liability against hospitals - see, e.g., Alden v. Providence Hospital, 382 F.2d 163, 166 (D.C. Cir.1967); Adamski v. Tacoma General Hospital, 579 P.2d 970 & n.5 (Wash. App.1978). However, two commentators have suggested and enterprise tort doctrine as a basis for imposing liability for any tort occurring as part of the hospital enterprise. See, Southwick, "Hospital Liability: Two Theories Have Been Merged," 4 J. Legal Med. 1, 3-5 (1983); Comment, "The Hospital-Physician Relationship: Hospital Responsibility for Malpractice of Physicians," 50 Wash. L. Rev. 385, 418-19 (1975).

Courts that have extended hospitals' liability based on their marketing techniques have recognized the changing role of such institutions in the delivery of health care. Courts apparently are taking notice of hospital administrators' efforts to increase business through advertising.

As the court in Kashishian recognized, "Since modern hospitals are run like businesses, it is reasonable to require them to insure against malpractice by all their personnel, including doctors." Hospitals can negotiate insurance premiums along with other items of employment and absorb them as a cost of doing business, the court said, adding that "If hospitals become more directly involved in malpractice liability, they will undoubtedly develop a treater interest in monitoring the quality of care being provided."