Lewisburg Community Hosp. Inc., v. Alfredson

• Decision Date: 04 March 1991
• Docket Number: No. 01-S-01-9002-CV00022,01-S-01-9002-CV00022
• Citation: 805 S.W.2d 756
• Parties: LEWISBURG COMMUNITY HOSPITAL, INC. and Republic Health Corporation, Plaintiffs/Appellants, v. David ALFREDSON, M.D. and David Alfredson, M.D., P.C., Defendants/Appellees. 805 S.W.2d 756
• Court: Tennessee Supreme Court

Page 756

805 S.W.2d 756

LEWISBURG COMMUNITY HOSPITAL, INC. and Republic Health Corporation, Plaintiffs/Appellants, v. David ALFREDSON, M.D. and David Alfredson, M.D., P.C. Defendants/Appellees.

No. 01-S-01-9002-CV00022.

805 S.W.2d 756

Supreme Court of Tennessee at Nashville.

March 4, 1991.

Richard A. Buerger, Jeffrey D. Moseley, Peterson & Buerger, Franklin, for plaintiffs/appellants.

Thomas W. Hardin, Hardin, Matthews, Ewing & Matthews, Columbia, for defendants/appellees.

Paul G. Gebhard, Barry Sullivan, Jeffrey T. Shaw, Jenner & Block, Chicago, Ill., Thomas W. Greeson, American College of Radiology, Reston, Va., Kirk B. Johnson, Edward B. Hirshfeld, Michael L. Ile, American Medical Ass'n, Chicago, Ill. for amici curiae.

OPINION

ANDERSON, Justice.

This Court is asked to decide a question of first impression--whether medical staff bylaws constitute a contract between a hospital and a member of the medical staff.

The question arose when the the plaintiff, Dr. David Alfredson ("Alfredson"), filed this action against the defendant, Lewisburg Community Hospital ("Hospital"), because the Hospital terminated his contract to provide exclusive radiological services, and thereafter denied him access to the Hospital's equipment and support personnel. The Hospital maintained its medical staff bylaws did not constitute a contract with Alfredson; that it had not reduced his staff privileges; and that he was not entitled to a hearing. Alfredson argued the Hospital's bylaws constituted a contract, which it breached by reducing his clinical privileges without following the fair hearing procedures set out in the bylaws.

The Court of Appeals held that a hospital's bylaws are an integral part of its contractual relationship with the members of its medical staff, and that a medical staff member has a contractual right to require that the hospital follow its bylaws requiring it to provide a hearing when it takes an action which "significantly reduces a physician's clinical privileges."

We agree and hold that the Hospital's bylaws were an integral part of its contractual relationship with Alfredson, a member of its medical staff, and that he had a contractual right to require the Hospital to follow its bylaws which, in this case, required it to provide hearings to physicians when the Hospital takes an action which "significantly reduces a physician's clinical privileges."

Because the Court of Appeals found the record deficient as to Alfredson's clinical privileges, it remanded the case to the trial court to determine the scope of the clinical privileges and whether the Hospital's action refusing Alfredson access to its staff and equipment "significantly reduced" his privileges. However, we find that the record describes Alfredson's clinical radiology privileges sufficiently for us to determine that the Hospital's action refusing him access to its staff and equipment "significantly reduced his privileges." Accordingly, we hold that the Hospital breached Dr. Alfredson's contract when it denied him a hearing under the Hospital bylaws.

FACTUAL BACKGROUND

The plaintiff, Dr. David Alfredson, graduated from medical school in 1976. After completing a four-year internship and residency in radiology, he signed a contract in March of 1981 with Lewisburg Community Hospital to be the Hospital's exclusive provider of radiological services, conditioned upon his becoming a member of the Hospital's medical staff and obtaining the clinical privileges necessary to practice his specialty. The contract expressly stated that either party could cancel the exclusive arrangement by giving 90 days notice of termination to the other party, and that if the contract was terminated, Alfredson's medical staff membership and clinical privileges would be terminated as well. Alfredson was granted clinical privileges in radiology and became the sole provider of radiological services at the Hospital.

The ownership of the Hospital changed. Republic Health Corporation took control in January of 1983 and began negotiating a new exclusive radiology agreement with Alfredson sometime that year. By 1983 Alfredson had formed a professional corporation, through which he conducted his practice. He required, and the Hospital agreed, that the agreement be between his professional corporation and the Hospital. The Hospital also agreed to the deletion of the clause providing that Alfredson's clinical privileges would be automatically terminated if the radiology agreement was cancelled without cause. These demands were reflected in a new contract between Alfredson, on behalf of his professional corporation, and the Hospital effective February 1, 1984. The contract provided that it would be renewed automatically every year unless either party terminated the contract with 90 days advance written notice. The contract provided that David Alfredson, P.C. would be the "exclusive source of specialist services" required for the operation of the Hospital's radiology department. The contract specifically provided that termination without cause would not result in automatic termination of medical staff membership. ¹

Beginning in late November 1984, the Hospital and Alfredson had differences over the Hospital's new separate contract with another contractor for the provision of computerized tomography services (CAT scans). The legal dispute was resolved, and the Hospital, Alfredson, and the other contractor executed mutual covenants not to sue.

At least in part because of these differences, on October 3, 1985, the Hospital formally notified Alfredson that his exclusive radiology agreement would be terminated without cause after the 90-day time period set out in the contract. On January 1, 1986, the Hospital administrator instructed Alfredson to vacate his office by midnight, and also informed him that he would no longer have access to the Hospital's equipment and support personnel, because the Hospital had entered into a new exclusive radiology agreement with Radiology Services, Inc., a company owned, in part, by other physicians on the Hospital's medical staff. The Hospital also informed Alfredson that he remained an active member of the Hospital's medical staff. While Alfredson was allowed to attend medical staff meetings, the Hospital prohibited him from using its equipment and personnel and from charging any fees for reading and interpreting film taken on Hospital equipment. Alfredson remained in Lewisburg and attempted to establish an out-patient radiological practice, with limited success.

PROCEDURAL HISTORY

In May 1986, Alfredson filed this litigation against the Hospital in the Marshall County Circuit Court, claiming his hospital clinical privileges had been reduced and alleging multiple theories of recovery. After discovery, both the Hospital and Alfredson moved for summary judgment. The trial court granted the Hospital's motion for summary judgment in its entirety. The Court of Appeals upheld the trial court's action as to most of Alfredson's claims, based on a finding that there was no promise of lifetime employment, on the covenant not to sue, on the termination of the exclusive radiology contract, and on the new exclusive radiology contract. However, the Court of Appeals vacated the trial court's summary judgment determination that the medical staff bylaws did not constitute a contract between the Hospital and Alfredson, and that Alfredson's medical staff appointment was separate from his clinical privileges. In addition, the Court of Appeals found genuine factual issues existed as to whether the Hospital significantly reduced Alfredson's clinical privileges by denying him access to its radiological equipment and staff, and held as a result that neither the Hospital nor Alfredson was entitled to judgment as a matter of law.

On appeal, the Hospital argues the Court of Appeals erred in partially vacating the trial court summary judgment in favor of the Hospital. It contends it was not required to follow its own fair hearing procedures because Alfredson's "medical staff privileges have not been curtailed"; that the medical staff bylaws do not constitute a contract between the Hospital and Alfredson; and that Alfredson's medical staff appointment was separate from his clinical privileges. Alfredson insists, on the other hand, that the Hospital had breached the radiology agreement and its own bylaws, which were a part of that agreement, by limiting his clinical privileges without following the bylaws' fair hearing procedure. He contends that, as a matter of law, the medical staff bylaws did constitute a contract between the Hospital and himself, and that his medical staff appointment was inseparable from his clinical privileges.

JUDICIAL REVIEW

The Hospital first argues that its actions with respect to Dr. Alfredson were a business decision and that great deference must be given to business decisions of a private hospital, citing Nashville Memorial Hospital, Inc. v. Binkley, 534 S.W.2d 318 (Tenn.1976). The Hospital argues the decision to exclude a physician from the medical staff is a management decision within the discretion of the governing body, and that private hospitals may exclude licensed physicians from the hospital for any cause deemed sufficient by the governing body. Although the Binkley court states in dictum the general rule that private hospitals have a right to exclude licensed physicians for any cause deemed sufficient, Binkley qualified that general rule in racial discrimination cases by allowing a judicial review of the physician's tort conspiracy claim, saying:

Everyone has the right to establish and conduct a lawful business or engage in a lawful profession, and is entitled to the protection of organized society, through its courts, whenever that right is unlawfully invaded....

Id. at 321. When Binkley was decided by this Court, no administrative rules and regulations were in effect requiring hospital staff bylaws to contain fair hearing...