Medical Staff and medical center leaders, and those who advise them, often view the Medical Staff Bylaws as Holy Writ, or very close thereto. When the Bylaws specifically and directly speak, for example, in matters of credentialing criteria, peer review processes, and Medical Staff hearing procedures, the pronouncements are not viewed as suggestions or hints. Rather, the Medical Staff Bylaws set forth requirements.

Therefore, those who assert that the Medical Staff Bylaws should be viewed as a “contract” are, in fact, affording the Bylaws too little respect, for the Bylaws are more authoritative than a mere agreement between two parties. In California, they are a legally-mandated document. However, the Minnesota courts have now reminded us that many states are still grappling with these questions.

The recent Minnesota Supreme Court decision in Medical Staff of Avera Marshall Regional Medical Center v. Avera Marshall Regional Medical Center, published on December 31, 2014, depicts a disagreement between the Medical Staff leadership on the one hand, and the Hospital leadership on the other, that resembles so many of these conflicts which, in turn, bear striking similarities to arguments that afflict dysfunctional families.

In this case, one realizes quickly that the argument over the content and the nature of the Medical Staff Bylaws is just one dispute in a lengthy skein of disagreements between strong personalities on both sides, and probably masks the real issues that are taking up the combatants’ time. As is typical, these issues reach the courts as a result of a mixture of preening self-importance and lack of perspective, for which well-run hospitals and medical staffs often must pay a price.

The Hospital’s Governing Body “Adopts” New Medical Staff Bylaws

According to the Minnesota Supreme Court’s opinion, the argument was kicked off when the Avera Marshall Regional Medical Center (Hospital) Board of Directors decided to “unilaterally repeal” Medical Staff Bylaws that had been in effect for 17 years, and substitute a document more to the governing body’s liking. In what no doubt was viewed as rubbing salt in the wounds, the Board not only asserted that it not only had the right to unilaterally change the Bylaws, but then also sent a copy of the new Bylaws to the Medical Staff with an announcement that this is for information purposes only, and that the Medical Staff was not being asked to express approval or disapproval.

The Medical Staff reacted to this sequence of events by initiating litigation, asking a District Court to rule that the new Bylaws were a nullity for lacking the Medical Staff’s assent. Both the District Court and, later, the intermediate Court of Appeals concluded that the Medical Staff, as an organization, was not sufficiently well-organized to have the “capacity to sue under Minnesota law.” The courts further determined that because the Medical Staff Bylaws were not “an enforceable contract,” neither the Hospital nor the Board of Directors had the power to unilaterally change them.

The Minnesota Supreme Court Overturns the Lower Courts

The Minnesota Supreme Court disagreed on both points. First, it looked to what appears to be fairly clear Minnesota law providing that an “unincorporated association” has the right to sue. It concluded that the Medical Staff was an unincorporated association, and therefore possessed that right.

This is the first point of significant distinction between Minnesota law and California law, for although California law appears to view a medical staff as an “unincorporated association,” which has the right to sue under Code of Civil Procedure Section 369.5, California law has not granted a medical staff an all-purpose right to sue its governing body (Business and Professions Code Section 2282.5 puts some conditions on this).

California Courts Differ from the Minnesota Court

Second, the Minnesota State Supreme Court concluded that, under Minnesota law, the Medical Staff Bylaws do, in fact, constitute a “contract.” In this regard, the Minnesota Supreme Court aligned itself with other state courts that have found that the Medical Staff Bylaws constitute an “agreement” of sorts.

In contrast, the California Courts of Appeal have found that Medical Staff Bylaws are not a contract — unless the Bylaws themselves claim to be so — because California law requires hospitals to adopt Bylaws and requires medical staff members to comply with them. Therefore, because compliance is a legal obligation, there is a lack of the additional “consideration” necessary to create a contract. California also has taken a more precise approach, going so far as to place many of the key requirements of the Medical Staff Bylaws in statutes.

California law even provides that the medical staff hearing procedures set forth in statute (and required to be included in the Medical Staff Bylaws) cannot be changed, even if the concerned physician and the medical staff were to agree to do so. Certainly, if the Medical Staff Bylaws were only a “contract,” they could be changed by the two “parties” that are usually held out to be the participants in the agreement.

The squabble over whether Medical Staff Bylaws constitute a contract masks the more important point that, contract or not, the Medical Staff Bylaws are there to be observed, and not ignored or flouted. If the Bylaws were enforceable as a contract, however, it would seem to lead to a number of oddities. For example, if the Bylaws describe a department of obstetrics, but not a department of neurosurgery, can the medical staff bring suit to block the discontinuation of the obstetric service at the hospital, and can the orthopedists on staff bring suit to block the creation of a department of neurosurgery?

Practical Lessons to Be Learned

The opinion in Avera Marshall Regional Medical Center demonstrates the risks inherent in a governing body unilaterally imposing its will upon the organized medical staff and dictating a unilateral amendment to the Medical Staff Bylaws. By creating a question regarding the validity of the current or “amended” Medical Staff Bylaws, the governing body has not only fanned the flames of disagreement and ill will between the Hospital and the Medical Staff, but has also risked calling into question whether any of the provisions of the Medical Staff Bylaws are now valid. Had the Hospital prevailed, would provisions such as the hearing code, the standards for professional conduct, the commitment to confidentiality, and the like no longer be enforceable against individual members of the medical staff? Of course, in California, this is addressed by the fact that regulations require both the adoption of, and the individual medical staff member’s compliance with, the Medical Staff Bylaws.

Finally, while the Minnesota State Supreme Court’s decision does not present any reason to now question California law that the Medical Staff Bylaws do not constitute a contract, it again demonstrates the risks of allowing arguments between the hospital and medical staff to fester to the point that litigation erupts.