Imagine being handed a set of rules to a carnival game and being told that you had to agree to abide by those rules to participate in the game. This carnival game, of course, has prizes that you can win if you follow the rules and, for example, knock down all the bottles. With the prospect of a prize, you pay $5 to throw three balls, knocking down all the bottles. Jumping up and down eagerly awaiting your prize, the carney says you stepped over the line and are disqualified. He sends you packing without an oversized zoo animal to tote on your shoulders. Feeling like you were cheated, you appeal the carney’s decision, arguing that he owes you the giant teddy bear. A panel of your peers (the people in line behind you) rules in your favor with a 2-1 vote, but the carney’s boss disagrees and rejects your appeal. So you sue the carney and his boss for breach of contract. If you could prove that you followed the rules in knocking down the bottles, you would win and be entitled to an overstuffed dust collector because you had a contract. If you are playing the game of hospital medical staff privileges, however, you would lose.
Although it is an oversimplified (and likely overdramatic) analogy to the court’s recent decision in Adem v. Jefferson Memorial Hospital Association, No. 4:11-cv-02102-JAR (E.D. Mo. Nov. 13, 2012), the lesson is instructive. Dr. Adem, an invasive/interventional cardiologist had privileges at Jefferson Memorial Hospital Association, d/b/a Jefferson Regional Medical Center (“JRMC”) since 2002. In April 2011, JRMC notified Dr. Adem of a recommendation that his privileges and medical staff membership be terminated due to alleged performance of unnecessary procedures and unethical conduct. After a fair hearing where a panel voted 2-1 to reinstate Dr. Adem’s privileges, the JRMC Medical Executive Committee reiterated its recommendation to terminate his privileges and medical staff membership, which was later upheld by an Appeal Board.
Dr. Adem sued JRMC for, among other things, racial discrimination under a federal statute, 42 U.S.C. § 1981, prohibiting discrimination in contracting with governmental and quasi-governmental entities. A claim under Section 1981 must therefore be based on a contractual relationship. Dr. Adem argued that JRMC made its Bylaws a binding contract through its acceptance of his application for membership on the medical staff. Relying on Missouri law and the JRMC Bylaws, the court determined that a contract did not exist between Dr. Adem and JRMC. The court stated that hospital bylaws cannot be considered a contract under Missouri law because there is no consideration—no bargained for exchange to create an enforceable contract. State board of health regulations require Missouri hospitals to adopt bylaws governing their professional activities and allow hospitals to unilaterally change them and impose additional or different obligations on medical staff members. Because Missouri hospitals are legally required to adopt bylaws and can impose changes unilaterally, there is no consideration and no contract. The court also relied on language in the Bylaws providing that “nothing set forth in these Bylaws shall be deemed to establish any contractual rights.” The court also rejected Dr. Adem’s claims that JRMC interfered with his potential “business opportunities” with his patients and colleagues because those “business opportunities” were a benefit of having privileges at JRMC.
That is not to say that hospital bylaws never constitute enforceable contracts. The court stated that hospital bylaws can be enforceable as a contract if a contractual relationship is established in a separate document, such as an employment agreement.
What does this mean for health care providers and hospitals? First, both sides must perform a detailed analysis of medical staff bylaws and other contracts when entering into or revising a relationship. Each party should know their rights. Determine what the bylaws provide and whether those bylaws are incorporated into a separate contract that would make them enforceable in court. Second, health care providers seeking to challenge adverse peer review decisions in court face an uphill battle. Hospitals are granted wide latitude by federal and state law to perform peer review actions as long as they substantially follow the rules and act in furtherance of quality care. A hospital’s failure to follow its bylaws when conducting peer review activities, does not, without more, create a cause of action for breach of contract.