Lakeview Regional Medical Center in Louisiana Had No Duty to Disclose a Physician’s Drug Usage to Kadlec Medical Center in Washington State

On May 8, 2008, the United States Court of Appeals for the Fifth Circuit reversed, in part, a precedent-setting case in which a Lousiana District Court held that, in order to protect future patients of an impaired physician, a hospital, medical group and two physicians had a duty to disclose such impairment to a second hospital where the physician had  relocated and applied for privileges. Kadlec Med. Ctr. v. Lakeview Anesthesia Assoc., No. 06-30745 (5th Cir., May 8, 2008).

To understand the potential impact of Kadlec, a little history is necessary. In May 2006   hospitals around the country suddenly learned that they could be liable for withholding information about impaired physicians from hospitals sending credentialing reference requests. In the 2006 case, Kadlec Medical Center (Kadlec) had won an award of more than $4 million against Lakeview Regional Medical Center (“Lakeview”), the anesthesiology group Lakeview Anesthesia Assoc., and two individual anesthesiologists who were members of Lakeview Anesthesia Assoc. (“Physicians”) ? all three referred to as “defendants” ? for intentional and negligent misrepresentation in a credentialing reference matter.

The impaired physician had an addiction to Demerol and had been terminated by Lakeview Anesthesia. He moved to Washington State and applied for medical staff membership and clinical privileges at Kadlec, who sent reference requests to the defendants. Lakeview sent a reply stating that, due to a large volume of reference requests, it could only provide the dates of the physician’s medical staff membership. However, one of the defendant physicians sent a reply praising the physician as an “excellent clinician” and stating that he would be “an asset to any anesthesia service.” The other defendant physician’s letter stated that he “highly recommended” the physician. These letters were sent only two months after Lakeview Anesthesia fired the physician for reporting to work in an impaired state and putting their patients “at significant risk.”

Based, in part, on these reference letters, Kadlec granted the physician anesthesia privileges. After a number of problem surgeries, the physician participated in a routine surgery while impaired by Demerol. The patient sustained severe brain damage during the surgery and is in a permanent vegetative state.

This was the first reported verdict in the country where one hospital successfully sued another hospital for failure to disclose a physician’s impairment in a reference request. Commentators across the country stated that hospitals could no longer ignore credentialing reference questions concerning impairment and medical staff corrective action against physicians See Hinshaw Health Law Alert, June 14, 2006. Many hospitals and medical staffs revised their policies and procedures to more fully comply with this decision, resulting in the release of information concerning physicians’ impairments, disruptive behaviors and other problems, which might have led to corrective actions by medical staffs.

Now, after two years, a hospital’s duty to disclose such behavior has again been brought to national attention. The Fifth Circuit Court of Appeals, which has jurisdiction over Lousiana, Mississippi and Texas, reversed the District Court’s judgment against Lakeview, upheld the award against Lakeview Anesthesia and the physicians, and remanded the proceedings to the District Court.

In reviewing the District Court’s decision, the Fifth Circuit reviewed Lousiana law concerning the two tort claims upon which the judgment against the Defendants was based: intentional misrepresentation and negligent misrepresentation. The Fifth Circuit conducted a three-tier analysis. First, the Court analyzed whether Lakeview, Lakeview Anesthesia and the physicians had a duty not to make affirmative misrepresentations in their reference letters. Second, the Court analyzed whether the reference letters were misleading. Third, the Court analyzed whether there was a duty to disclose the physician’s impairment, regardless of whether a reference letter is misleading.

The results of the Court’s analysis is as follows:

• First, it held that the defendants did have a legal duty not to make affirmative misrepresentations in their reference letters.
• Second, it held that, since Lakeview sent a neutral letter stating only facts, Lakeview’s letter was not misleading, even though it withheld any information about the physician’s impairment.

As a result, the Court reversed the judgment against Lakeview. However, the letters sent by the physicians were a  misrepresentation of the facts and negligently and intentionally misled Kadlec about the impairment of the physician. The judgment against Lakeview Anesthesia and the physicians was upheld.

The result of the Court’s third analysis is what is most significant to the health care industry. In its analysis of whether or not the defendants had a duty to disclose the physician’s impairment, the Court stated that, absent a special circumstance, such as a fiduciary or confidential relationship or a contractual relationship, the Defendants did not have a duty to disclose the physician’s impairment. The Court found that the hospitals, one in Louisiana and one in Washington State, had only a gratuitous relationship through the credentialing process. There was no special or pecuniary relationship. Therefore, Lakeview did not have a duty to disclose the physician’s impairment to Kadlec.

An interesting aside in the Court’s opinion is that, although Kadlec had no duty to disclose, the Court stated that Kadlec might have had an ethical obligation to disclose the physician’s impairment. It did not go into any more detail about ethical obligations.

What to do now? Will this decision start a trend away from full and truthful disclosure concerning physicians who are impaired or have had corrective action taken against them, or will hospitals continue with such disclosures?  Many hospitals found the first Kadlec decision the justification for meeting its ethical obligations of passing on information concerning impaired or problem physicians who created danger to patients or disrupted hospital operations.

The Fifth Circuit held that as long as a hospital or physician sends only a neutral, fact-based reference letter, there is no duty to disclose anything beyond the neutral facts. However, what happens if a hospital does disclose such information?  Kadlec did not address the question of liability for making such disclosures. Should hospitals now retreat from the more socially and ethically responsible position of informing hospitals and medical staffs of impaired or unqualified physicians? Without existing caselaw outside of the Fifth Circuit, it is impossible to say what a court outside of Louisana, Mississippi and Texas would do if faced with a similar case.

Hospitals will need to review with counsel their particular state and applicable federal laws concerning the duty to disclose, in order to determine how those laws, in light of Kadlec, might affect their policies and procedures. Whether or not a hospital will continue to disclose such information in credentialing reference letters should be a Board decision, which involves input from many perspectives: administration, medical staff, attorneys and any other interested persons.

For further information, please contact Doug Marshall or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.