Cent. Kan. Med. Ctr. v. Hatesohl

• Decision Date: 07 September 2018
• Docket Number: 113,834,Nos. 113,675,s. 113,675
• Citation: 425 P.3d 1253
• Parties: CENTRAL KANSAS MEDICAL CENTER, d/b/a St. Rose Ambulatory and Surgery Center, Appellant, v. Stanley M. HATESOHL, M.D.; Great Bend Regional Hospital, L.L.C.; and Central Kansas Family Practice, P.C., Appellees.
• Court: Kansas Supreme Court

425 P.3d 1253

CENTRAL KANSAS MEDICAL CENTER, d/b/a St. Rose Ambulatory and Surgery Center, Appellant,

v.Stanley M. HATESOHL, M.D.; Great Bend Regional Hospital, L.L.C.; and Central Kansas Family Practice, P.C., Appellees.

Nos. 113,675

113,834

Supreme Court of Kansas.

Opinion filed September 7, 2018.

Samuel L. Blatnick, of Kutak Rock LLP, of Kansas City, Missouri, argued the cause, and G. Mark Sappington, Meredith A. Webster, and M. Courtney Koger, of the same firm, were with him on the briefs for appellant.

Stephen H. Netherton, of Hite, Fanning & Honeyman, L.L.P, of Wichita, argued the cause, and Arthur S. Chalmers and Randy J. Troutt, of the same firm, were with him on the briefs for appellee Stanley Hatesohl, M.D.

Keynen J. Wall, of Forbes Law Group, LLC, of Overland Park, argued the cause, and Michael J. Fleming, Frankie J. Forbes, and Quentin Templeton, of the same firm, were with him on the briefs for appellees Great Bend Regional Hospital, LLC, and Central Kansas Family Practice, P.C.

Per Curiam:

This case arises from a contract dispute between Dr. Stanley Hatesohl, a family medicine doctor, and his former employer, Central Kansas Medical Center (CKMC), d/b/a St. Rose Ambulatory and Surgery Center (St. Rose). CKMC is a nonprofit general corporation that is licensed to operate an ambulatory surgical center (ASC). CKMC contracted with Dr. Hatesohl to provide family medicine services at St. Rose for two years. This contract contained several postemployment covenants. After two years, Dr. Hatesohl resigned and began practicing family medicine at Great Bend Regional Hospital's (GBRH) Central Kansas Family Practice clinic (CKFP).

CKMC sued Dr. Hatesohl for violating the postemployment covenants and GBRH and CKFP for tortiously interfering with the contract. The Barton County District Court granted summary judgment for the defendants on the grounds that the contract between CKMC and Dr. Hatesohl violated the Kansas corporate practice of medicine doctrine. This doctrine forbids a corporation from hiring a physician to practice medicine that the corporation itself is not licensed to provide. The Court of Appeals reversed and remanded.

We conclude the district court was correct and hold the contract between CKMC and Dr. Hatesohl violated the corporate practice of medicine doctrine. Consequently, we reverse the decision of the Court of Appeals and affirm the district court's grant of summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND

Dr. Hatesohl is a licensed physician who is board certified in family medicine. In September 2012, he moved to Great Bend to practice family medicine at CKMC, d/b/a St. Rose. He entered into a two-year employment contract with CKMC to provide family medicine services at St. Rose until September 30, 2014. The contract stated that Dr. Hatesohl "shall provide a minimum of forty (40) hours of professional Family Medicine services at [St. Rose's] Family Medicine clinic, known as St. Joseph Family Medicine Clinic ... or such other site or sites as may be mutually agreed upon." The contract also required Dr. Hatesohl to "perform other medical and related duties, including, to the extent applicable to a physician practicing Family Medicine, as determined by [St. Rose]."

The contract contained postemployment covenants that generally prohibited Dr. Hatesohl from doing the following for one year after his employment with St. Rose ended: practicing family medicine within a 50-mile radius of St. Rose; employing St. Rose's staff; and soliciting St. Rose's patients and staff. The contract also forbid Dr. Hatesohl from disclosing or misusing St. Rose's confidential and proprietary information.

At first, Dr. Hatesohl worked in St. Rose's family medicine clinic. But soon, CKMC integrated its family medicine and urgent care practices into one clinic, called St. Rose Family Medicine and Urgent Care. In March 2014, Dr. Hatesohl submitted a letter of resignation, citing frustration with the integration. However, he later rescinded his resignation and worked at St. Rose for the remainder of the contractual period.

In August 2014, Dr. Hatesohl notified St. Rose that he would not renew his contract. When rumors circulated that Dr. Hatesohl was considering employment nearby, Centura Health Corp. (Centura), St. Rose's managing organization, sent him a letter stating its intent to enforce the postemployment covenants. Counsel for Dr. Hatesohl replied that the covenants were not binding because the contract "violates the Kansas prohibitions against the corporate practice of medicine [doctrine]."

On October 1, 2014—the day after his contract with St. Rose expired—Dr. Hatesohl entered into an employment contract with GBRH to practice family medicine at CKFP, which was located across the street from St. Rose. Around that time, Dr. Hatesohl forwarded emails from his St. Rose account to his personal one, which contained information that St. Rose claims was confidential. At CKFP, Dr. Hatesohl continued to treat around 50-60 patients from St. Rose.

In November 2014, CKMC petitioned for injunctive relief and damages against Dr. Hatesohl, GBRH, and CKFP, alleging: (1) Dr. Hatesohl breached his contract by competing within a 50-mile radius of St. Rose, soliciting its patients and staff, and misappropriating its confidential information; (2) GBRH and CKFP (referred to collectively as GBRH from now on) tortiously interfered with Dr. Hatesohl's contract with St. Rose; and (3) Dr. Hatesohl was unjustly enriched. CKMC also moved for a restraining order and a temporary injunction to prevent Dr. Hatesohl from violating the postemployment covenants.

Dr. Hatesohl and GBRH countered that the contract was unenforceable because it violated Kansas' common law prohibition against the corporate practice of medicine, as set forth in two key cases: Early Detection Center, Inc. v. Wilson , 248 Kan. 869, 811 P.2d 860 (1991), and St. Francis Regional Med. Center, Inc. v. Weiss , 254 Kan. 728, 869 P.2d 606 (1994). In Early Detection Center , this court held that "[a] general corporation is prohibited from providing medical services or acting through licensed practitioners" and any such contract is unenforceable. 248 Kan. at 880, 811 P.2d 860. In St. Francis , this court recognized a statutory exception that permits a corporation with a hospital license to contract for the services of licensed physicians. 254 Kan. at 746, 869 P.2d 606. Relying on these cases, they argued St. Rose violated the prohibition against the corporate practice of medicine by acting outside the scope of its ASC license to employ Dr. Hatesohl to practice family medicine.

That same month, the Barton County District Court held a hearing on the motion for a restraining order. The court denied that motion and scheduled an evidentiary hearing on the temporary injunction motion for December. Meanwhile, CKMC filed a reply in support of its motion for a temporary injunction, arguing the St. Francis exception extends to any licensed medical care facility, including St. Rose. Thus, CKMC claimed St. Rose could employ Dr. Hatesohl without violating the corporate practice of medicine doctrine.

In December 2014, the court held a three-day evidentiary hearing on the temporary injunction motion. Leanne Irsik, senior vice-president and site administrator of Centura at St. Rose, testified about CKMC's corporate structure and medical licenses. She explained that CKMC is a Kansas nonprofit general corporation that operates as St. Rose. At that time, St. Rose offered a variety of medical services that were housed in separate departments: primary care, laboratory, imaging, cardiopulmonary/sleep lab, home health and hospice, general surgery, and ASC. St. Rose held an ASC medical care facility license, as well as pharmacy, home health, and radiation materials licenses.

Irsik testified that Dr. Hatesohl worked in the primary care clinic called St. Rose Family Medicine and Urgent Care. He had privileges to provide consulting services in the ASC department but did not have privileges to perform surgeries there. Irsik affirmed that family medicine "is a branch of medicine that addresses the care of a patient from the beginning to the end of life and focuses on general health and wellness of patients" whereas an ASC provides primarily surgical and diagnostic services to patients who can stay no longer than 24 hours. She emphasized that the primary care clinic and the ASC operated as separate sections of St. Rose and had separate identifying numbers for billing purposes. But all payments ultimately flowed to CKMC.

Irsik also traced the history of CKMC's medical care facility licenses. Until 2011, CKMC was licensed as a hospital. But in January 2011, CKMC sent a letter to the Kansas Department of Health and Environment (KDHE) declaring its intention to transition

to "an outpatient model, including comprehensive urgent care services, same-day surgery and cancer care." The letter explained, "As part of this transition, CKMC will terminate its hospital license and seek licensure for part of its existing facility as an ambulatory surgery center. The entire new facility will now be referred to as St. Rose Ambulatory & Surgery Center."

In April 2011, the KDHE granted St. Rose a medical care facility license that recognized St. Rose as "a Kansas ambulatory surgical center as defined at KAR 28-34-50 et seq." See K.A.R. 28-34-50(b)(2) (defining an ASC as "an establishment with ... permanent facilities that are equipped and operated primarily for the purpose of performing surgical procedures and do not provide services or other accommodations for patients to stay more than 24 hours"). The next month, the KDHE sent a letter confirming that CKMC "is no longer doing business as a Kansas licensed general hospital." Since then, St. Rose has renewed its ASC license each year.

The parties entered St. Rose's ASC license applications into evidence. Each application asked St. Rose to designate the type of medical care facility license...