By taking certain precautions, a county hospital can dramatically reduce the risk of possible liability for terminating an independent contractor physician’s contract to provide emergency room services. That seems to be the primary message of a recent Eighth Circuit Court of Appeals decision.

A county hospital in Monticello, Arkansas entered into a contract with a professional services corporation (the “Corporation”) for staffing the emergency room. The Corporation then executed separate independent contractor agreements with physicians to provide ER services. Thus, the physicians had no direct contractual relationship with the hospital. Both contracts provided that the hospital had an unqualified right to remove ER doctors and stated that removal “is not subject to the review provisions in the Medical Staff Bylaws.”

Dr. Schueller was an emergency room physician at the hospital who had entered into an independent contractor agreement with the Corporation. Allegedly as a result of patient complaints about him, the hospital exercised its peremptory right to remove him. He sued the hospital for deprivation of his property (his supposed right to practice medicine at the hospital) without “due process” and for tortious interference with his contractual relations. Summary judgment was entered for the hospital and was affirmed on appeal. The appellate court ruled against the physician because he was not a party to a contract with the hospital, and because both the hospital’s contract and his with the Corporation stated expressly that removal was at the sole discretion of the hospital. Schueller v. Goddard, No. 09-3047 (8th Cir., Feb. 1, 2011)

The lesson of this case is that a public hospital apparently can minimize the risk of litigation over the propriety of removing an independent contractor physician’s privilege to practice at the hospital by the simple expedients of (a) contracting with a separate entity to provide doctors who have entered into an agreement with that entity rather than with the hospital directly, and (b) making sure that the documents contain appropriate exculpatory language. Although the decision relates to a public hospital, the reasoning probably is applicable to private hospitals as well (while “due process” ordinarily is not required when a non-governmental body terminates a contract, a court might deem a hospital’s receipt of federal and state funds to result in imposition of that obligation). The recent case does not deal with the permissibility of removal of a physician in violation of employment discrimination laws or with the question of whether it would be actionable if the termination was the result of a conspiracy among doctors practicing at the hospital to eliminate a competitor.