The Minnesota Court of Appeals recently upheld a district court opinion holding: (1) a hospital medical staff was not a separate legal entity with capacity to sue; and (2) the bylaws governing a hospital medical staff do not create a contractual relationship. Medical Staff of Avera Marshall Regional Medical Center v. Avera Marshall, Minn. Appeals No. A12-2117 (July 22, 2013).

Background

In 2012, the medical staff, medical executive committee (“MEC”), chief of staff and chief of staff-elect, brought a declaratory judgment action against Avera Marshall Regional Medical Center (“Avera Marshall”), a nonprofit hospital, asking the court to enjoin Avera Marshall from unilaterally repealing the old medical staff bylaws and imposing new ones. Leading up to the decision to repeal the bylaws was an almost two-year history of friction between a majority of the medical staff and Avera Marshall. At the time, the medical staff bylaws provided a process for revising the bylaws, which included, in part, review by the MEC or special committee of the MEC and then, after providing at least 30 days’ notice, a vote by the medical staff with a two-thirds majority required to alter the bylaws. The bylaws further stated that all changes to the bylaws “become effective upon the approval of the Board of Directors” and included language stating the powers of the medical staff to discharge its responsibilities under the bylaws were subject to the authority of the board of directors. Lastly, the enumerated purpose of the bylaws was to:

initiate and maintain rules, regulations and policies for the internal governance of the Medical Staff [and to] provide a means whereby issues concerning the Medical Staff and the Medical Center may be directly discussed by the Medical Staff with the Board of Directors and the Administration, with the understanding that the Medical Staff is subject to the ultimate authority of the Board of Directors.

As a condition of receiving privileges at Avera Marshall, the physicians agreed to be bound by and comply with the bylaws.

On January 17, 2012, Avera Marshall sent a letter to the medical staff advising it was repealing the medical staff bylaws and promulgating new bylaws, which were approved by the board of directors. The letter asked for feedback regarding revisions by March 1. The new bylaws were set to take effect on April 1 and contained substantive changes, including added requirements for eligibility to serve on the medical staff, more clearly defined work requirements for the medical staff, modified process and timing for electing staff officers, and modified clinical rules and regulations. On March 20, 2012, the medical staff voted with the majority to reject the repeal and the new bylaws. Disregarding the vote, Avera Marshall proceeded to institute the new bylaws on May 1, 2012, at which time the declaratory judgment action was filed.

At the beginning of his 25-page opinion, Judge Michael Kirk identified the underlying issues as two compelling policy interests: the hospital management’s ability to control its operations and provide a safe environment for patients through bylaws governing the staff; and the competing interest of the medical staff to carry out its obligations to the patients by controlling how it organizes itself and influences information of and compliance with the bylaws. Procedurally, the court was evaluating whether the medical staff had legal capacity to sue and whether the bylaws constituted a contract.

Holding 1: A hospital staff is not a separate legal entity with capacity to sue.

Describing itself as an unincorporated association, the medical staff argued it was suing in its representative capacity, a form recognized as a legal entity. The court disagreed, concluding that the medical staff, like a police department, civil service commission or public utilities commission, was not a legal entity with the capacity to sue or be sued. The medical staff at Avera Marshall served under the authority of the hospital, the hospital had ultimate authority to approve or deny requests for privileges, and the hospital retained authority to unilaterally adopt and amend bylaws, rules and regulations. Based on these factors and the authority granted to the board by the Minnesota rules and statutes addressing governance of hospitals and nonprofit corporations, the court concluded the medical staff was not a separate legal entity.

Holding 2: The bylaws governing a hospital’s medical staff do not create a contractual relationship between a medical staff and a hospital.

Although it determined the medical staff lacked capacity to file suit, the court proceeded to consider the second issue of whether the bylaws created a contractual relationship. The appellate court agreed with the district court’s finding that the medical staff bylaws cannot constitute a contract. First, the bylaws memorialize a preexisting duty of the parties. Minnesota law requires, in part, a governing body be responsible for management and operation of a hospital, including appointing the medical staff, and further requires the medical staff to be responsible to the governing body for the clinical work of the hospital and to formulate and adopt bylaws. Second, Avera Marshall never indicated an intent to be strictly bound by the terms of the bylaws because Avera Marshall reserved authority and repeatedly emphasized that the bylaws were subject to its ultimate control. Due to the lack of consideration, the court opined there was no contractual relationship, and the hospital had the authority to unilaterally amend the bylaws.

Notably, the court distinguished the case from a Minnesota Supreme Court case, Campbell v. St. Mary’s Hosp., 312 Minn. 379, 387-88 (1977), which evaluated whether a terminated physician was provided the “full measure of his contractual due process rights” set forth in the bylaws. The court observed that Campbell lacked any analysis of why the bylaws in that case constituted a contract. Furthermore, the Campbell case focused on the individual rights of the physician as opposed to the authority of the hospital to set bylaws and govern the staff. In a footnote, the court in Avera Marshall expressly stated it was reaching no opinion on the issue of how bylaws govern fair hearing and due process requirements.

Going forward, Minnesota hospitals – like any hospital – should still proceed in accordance with the due process requirements set forth in their bylaws. However, depending on the state in which they are located, the Avera Marshall case suggests that at least in Minnesota, hospitals may have some flexibility to unilaterally modify their medical staff bylaws. Nonetheless, hospitals that are accredited by the Joint Commission must still be mindful that the Joint Commission prohibits unilateral amendment of medical staff bylaws.