Ruling affirms that boards of directors of Minnesota nonprofit hospitals have the authority to act in the best interests of the hospitals, their nonprofit missions and their patients

On remand from a decision by the Minnesota Supreme Court, the Lyon County District Court recently ruled that Avera Marshall Regional Medical Center’s Board had the authority to amend the hospital’s medical staff bylaws and did not need approval by two-thirds of the active medical staff in order to do so. This ruling affirms that the boards of directors of Minnesota nonprofit hospitals have the authority to act in the best interests of the hospitals, their nonprofit missions and their patients, and that hospital medical staffs act in an advisory role and do not hold veto power over the hospitals’ boards.

Background

In January 2012 Avera Marshall’s Board made a measured decision to amend the hospital’s medical staff bylaws in response to a strained and increasingly dysfunctional relationship with certain physicians affiliated with a local competing clinic (who at the time held a small majority on Avera Marshall’s medical staff). Physicians affiliated with the local clinic filed a lawsuit seeking to block Avera Marshall’s implementation of the new medical staff bylaws.

The Lyon County District Court rejected the plaintiffs’ request to enjoin the Board’s action and granted summary judgment to Avera Marshall. The Minnesota Court of Appeals affirmed the district court’s opinion in all respects. Medical Staff of Avera Marshall Regional Medical Center v. Avera Marshall, 836 N.W.2d 549 (Minn. Ct. App. 2013). The Minnesota Supreme Court granted review and issued an opinion holding (1) that a medical staff is an unincorporated association with capacity to sue and be sued under Minnesota law, and (2) that, absent language to the contrary, medical staff bylaws can be a contract between an individual physician and a hospital. Medical Staff of Avera Marshall Regional Medical Center v. Avera Marshall, 857 N.W.2d 695 (Minn. 2014). The Supreme Court majority opinion did not address the primary issue in the underlying case—whether Avera Marshall's Board had the authority to unilaterally amend the medical staff bylaws. Instead, the Supreme Court remanded the case for further proceedings on that issue.

Summary Judgment Granted

On remand, the district court granted summary judgment in favor of Avera Marshall on the primary issue, as it affirmed the Board’s ultimate authority to act under both the terms of the particular medical staff bylaws at issue and Minnesota law. The court agreed that a key bylaws provision relating to medical staff approval of bylaws changes “does not and cannot restrict the authority of the Board to amend the medical staff bylaws.” Rather, the language of the medical staff bylaws “clearly reserves such authority to the Board.” In addition, under both Minnesota law and Avera Marshall’s corporate bylaws “[t]he Medical Staff in general and the Plaintiffs in particular serve in an advisory capacity to the Board and are not and cannot be veto-holders over the Board.” Any other contractual construction would lead to what the court deemed to be an illegal and “absurd result.”

Although the district court’s analysis affirms the supremacy of non-profit hospitals’ boards over medical staffs, the individual facts of each case may suggest different approaches to avoid and resolve conflict.