Corporate Structure and Legal Issues© Pavel L Photo and Video

Corporate Structure and Legal Issues
© Pavel L Photo and Video/Shutterstock
It is of utmost importance that each organization recognizes that
its successes lies with its ability to assure the staff, community,
and patients that it holds itself accountable to ensuring the high
est standards of quality professional care and the well-
being of all that enter its hallowed halls.
—Gp
Learning Objectives
The reader, upon completion of this chapter, will be able to:
1. Explain from where a corporation derives its authority.
2. Explain the difference between express, implied, and corpora
te authority.
3. Discuss corporate organization and committee structure.
4. Describe corporate ethics, the Sarbanes Oxley Act of 2002, a
nd corporate compliance.
5. Explain the terms corporate negligence, respondeat superior,
and independent contractor.
6. Describe the duties of healthcare organizations, the chief exe
cutive officer (CEO), and medical staff.
7. Explain the purpose of corporate reorganization and the proc
ess of restructuring.
8. Describe what is meant by parent holding company model.
9. Describe what the Safe Harbor Act is designed to regulate.
This chapter introduces the healthcare professional to the respo
nsibilities, as well as legal risks, of healthcare organizations an
d their governing bodies. Healthcare organizations are incorpora
ted under state law as freestanding for-profit or not-for-
profit corporations. Each corporation has a governing body (e.g.
, board of directors) that has ultimate responsibility for the oper
ation of the organization. The existence of this authority creates
certain duties and liabilities for governing boards and their indi

vidual members. The governing body is legally responsible for e
stablishing and implementing policies regarding the managemen
t and operation of the organization. Responsibility for the day-
to-
day operations of an organization is generally accomplished by
appointing a chief executive officer.
Not-for-
profit healthcare organizations are exempt from federal taxation
under Section 501(c)(3) of the Internal Revenue Code of 1986,
as amended. Such federal exemption usually entitles the organiz
ation to an automatic exemption from state taxes as well. Such t
ax exemption not only relieves the organization from the payme
nt of income taxes and sales taxes, but also permits the organiza
tion to receive contributions from donors, who then may obtain
charitable deductions on their personal income tax returns.
The tax-
exempt status of healthcare corporations is increasingly coming
under scrutiny as they diversify their activities to generate high
er revenues. The City of Pittsburgh initiated a challenge to the p
ayroll tax exemption claimed by the University of Pittsburgh M
edical Center (“UPMC”), which claims the exemption on the bas
is of its status as an “institution of purely public charity,” or “I
PPC,” under Pennsylvania law. Questionable activities of UPM
C’s alleged offenses include: expanding business operations that
include investment partnerships and more than 50 taxable corpo
rations; not offering charitable services through many of its 400
doctors’ offices and outpatient sites; closing facilities in locati
ons with relatively high numbers of Medicare-
eligible, Medicaid-
eligible, or uninsured patients and opening or expanding faciliti
es where there are proportionately more privately insured patien
ts; paying more than 20 officers, directors, and key employees c
ompensation in excess of $1 million, with the chief executive of
ficer (CEO) receiving significantly more, as well as a lavish offi
ce space, private chef and dining room, private chauffeur, and p
rivate jet; turning over unpaid accounts to a collection agency o

r a law firm for further collections and legal action against its p
atients; and the list goes on. The outcome of this case could hav
e far-
reaching consequences for healthcare organizations expanding a
ctivities into questionable tax-
exempt activities and could very likely be precedent setting for
future cases challenging an organization’s tax-exempt status.
9.1 AUTHORITY OF CORPORATIONS
Healthcare corporations—
governmental, charitable, or proprietary—
have certain powers expressly or implicitly granted to them by s
tate statutes. Generally, the authority of a corporation is express
ed in the law under which the corporation is chartered and in th
e corporation’s articles of incorporation. The existence of this a
uthority creates certain duties and liabilities for governing bodi
es and their individual members. Members of the governing bod
y of an organization have both express and implied corporate au
thority.
Express Corporate Authority
Express corporate authority is the power specifically delegated
by statute. A healthcare corporation derives its authority to act f
rom the laws of the state in which it is incorporated. The article
s of incorporation set forth the purpose(s) of the corporation’s e
xistence and the powers the corporation is authorized to exercis
e in order to carry out its purposes.
Implied Corporate Authority
Implied corporate authority is the right to perform any and all a
cts necessary to exercise a corporation’s expressly conferred aut
hority and to accomplish the purpose(s) for which it was created
. Generally, implied corporate authority arises from situations i
n which such authority is required or suggested as a result of a
need for corporate powers not specifically granted in the article
s of incorporation. A governing body, at its own discretion, may
enact new bylaws, rules, and regulations; purchase or mortgage
property; borrow money; purchase equipment; select employees
; adopt corporate resolutions that delineate decision-

making responsibilities; and so forth. These powers can be enu
merated in the articles of incorporation and, in such cases, woul
d be categorized as express rather than implied corporate author
ity.
Select Competent Physicians
The Florida Supreme Court held in Insinga v. LaBella1 that the
corporate negligence doctrine imposes on hospitals an implied d
uty to patients to select competent physicians who, although the
y are independent practitioners, would be providing in-
hospital care to their patients through staff privileges. Hospitals
are in the best position to protect their patients and consequentl
y have an independent duty to provide staff privileges only to c
ompetent independent physicians.
In this case, an action was brought against Canton (who was ma
squerading as a physician, Dr. LaBella), a hospital, and others f
or the wrongful death of a 68-year-
old woman whom Canton had admitted. The patient died while s
he was in the hospital. Canton was found to be a fugitive from j
ustice in Canada where he was under indictment for the manufac
ture and sale of illegal drugs. He fraudulently obtained a medica
l license from the state of Florida and staff privileges at the hos
pital by using the name of LaBella, a deceased physician. Canto
n was extradited to Canada without being served process.
The surgeon in Purcell & Tucson General Hospital v. Zimbelma
n2 performed inappropriate surgery because of his misdiagnosis
of the patient’s ailment. Prior malpractice suits against the surg
eon revealed that the hospital had reason to know or should hav
e known that the surgeon apparently lacked the skill to treat the
patient’s condition. The court held that the hospital had a clear
duty to select competent physicians; to regulate the privileges g
ranted to staff physicians; to ensure that privileges are conferre
d only for those procedures for which the physician is trained an
d qualified; and to restrict, suspend, or require supervision whe
n a physician has demonstrated an inability to perform certain p
rocedures. The hospital assumed the duty of supervising the co
mpetence of its physicians. The department of surgery was actin

g for and on behalf of the hospital in fulfilling this duty. The co
urt noted that it is reasonable to conclude that if the hospital ha
d taken some action against the surgeon, the patient would not h
ave been injured.
Ultra Vires Acts
Ultra vires is a Latin term meaning “beyond the powers.” Ultra
vires acts are those acts conducted by an organization that lie be
yond the scope of authority of a corporation to perform. A gove
rning body, which acts in and on behalf of the corporation, can
be held liable for acting beyond its scope of authority, which is
either expressed (e.g., in its articles of incorporation) or implied
in law. If any action is in violation of a statute or regulation, it
is illegal. An example of an illegal act would be the “known” e
mployment of an unlicensed person in a position that by law req
uires a license. The state, through its attorney general, has the p
ower to prevent the performance of an ultra vires act by means
of an injunction.
9.2 CORPORATE COMMITTEE STRUCTURE
Ultimate responsibility for the functioning of a healthcare corpo
ration rests with the governing body. Ideally, the governing bod
y includes representation from both the community and the orga
nization’s medical staff. The business of the governing body is
generally conducted through a variety of committees. Some of t
hose committees are described here.
Questionable Funds Transfer
Jim, the administrator of East Campus Hospital, was reviewing
his mail and reports placed in his inbox by Carol, his secretary.
He noticed what appeared to be a copy of correspondence that h
ad been forwarded to him from the Bishop. The letter, describin
g a donation that had been made, read:
Dear Bishop John,
Enclosed is a contribution from David and his wife. He originall
y heard about our fundraising activities through the co-
chairman of the fundraising appeal. The care he received at the

East Campus Hospital was outstanding and he would like to mak
e a contribution on our behalf,
Sincerely,
After reading his morning mail and reports, Jim placed the letter
in his outbox for filing. Carol later picked up Jim’s mail and ot
her reports from his outbox. Later that afternoon, Carol walked
back into Jim’s office and inquired, “Did you read this letter for
warded to you from the corporate office?” Handing it to Jim, he
replied, “Yes, I read it.” Carol then asked, “Do you see anything
that piqued your curiosity in this letter?” Jim replied that he ha
d not. Carol, pointing at a strip of whiteout tape, urged Jim to lo
ok more closely. She then asked Jim to turn the letter over and r
ead the words the tape was covering. He turned the letter over,
noting what the letter had said. It appeared that only a copy had
been meant for Jim, not the original correspondence. With the m
issing words inserted, the correspondence read:
Dear Bishop John,
Enclosed is a contribution from David and his wife. He originall
y heard about our fundraising activities through the co-
chairman of the fundraising appeal. The care he received at the
East Campus Hospital was outstanding and he would like to mak
e a contribution on our behalf, earmarked for the East Campus
Hospital.
Sincerely,
Discussion
1. Discuss plausible reasons as to why the whiteout tape was pl
aced over the words, “earmarked for the East Campus.”
2. What action should Jim take? Remember that Jim could not a
bsolutely determine who placed the whiteout tape on the corresp
ondence (e.g., the letter’s author or addressee or corporate empl
oyee who may not want Jim to know that the funds were earmar
ked for his hospital and thus diverted those funds for other corp
orate purposes).
Executive Committee
The executive committee is a working group of the governing b
ody that has delegated authority to act on behalf of the full boar

d. It must act within the scope and authority assigned by the gov
erning body. The duties and responsibilities of the committee sh
ould be delineated in the corporate bylaws. The functions of the
executive committee generally include acting as a liaison betwe
en management and the full board, reviewing and making recom
mendations on management proposals, and performing special a
ssignments as may be delegated by the full board from time to ti
me. Business transactions and actions taken by the executive co
mmittee should be reported at regular sessions of the governing
body and ratified. The executive committee generally has all the
powers of the governing body, except such powers as the gover
ning body may be prohibited from delegating in accordance wit
h applicable laws.
Bylaws Committee
The bylaws committee reviews and recommends bylaw changes
to the governing body. Bylaws generally are amended or rescind
ed by a majority vote of the governing body.
Finance Committee
The finance committee is responsible for overseeing the financi
al affairs of the organization and making recommendations to th
e governing body. This committee is responsible for directing a
nd reviewing the preparation of financial statements, operating
budgets, major capital requests, and so on. The governing body
must approve actions of the finance committee.
Joint Conference Committee
The joint conference committee is often a group consisting of a
n equal number of representatives from the executive committee
s of the governing body and medical staff, along with representa
tion from administration and nursing. The committee acts as a f
orum for discussion of matters of policy and practice pertaining
to patient care. The committee generally meets quarterly and re
ports on its activities to the governing body.
Nominating Committee
The nominating committee is generally responsible for developi
ng and recommending to the governing body criteria for governi
ng body membership. The requirements for membership to a gov

erning body generally include a willingness to devote the time a
nd energy necessary to fulfill the commitment as a board membe
r, residence in the community or an identifiable association with
the community served, demonstration of a knowledge of local h
ealthcare issues, possession of the traits of good moral character
and maturity, and professional and appropriate life experiences
necessary to make managerial decisions in the healthcare setting
.
Planning Committee
The planning committee is responsible for recommending to the
governing body the use and development of organizational resou
rces as they relate to the mission and vision of the organization.
Specifically, the planning committee oversees the development
of short-term and long-
range goals, acquisition of major equipment, addition of new ser
vices based on identified community need, program developmen
t, and the preparation of progress reports for the full board. Maj
or issues that the planning committee reviews include the organi
zation’s need to increase market share, expand services, downsi
ze where appropriate, and integrate services across the entire co
ntinuum of care in a competitive marketplace.
The committee generally includes representation from the gover
ning body, administration, medical staff, and nursing. When org
anizational planning affects the delivery of patient care services
, a mechanism for obtaining community input is incorporated int
o the planning process.
Patient Care Committee
The patient care committee reviews the quality of patient care r
endered in the organization and makes recommendations for the
improvement of such care. The committee is generally responsib
le for developing a process to identify patient and family needs
and expectations and to establish a process to continuously impr
ove customer relations. This process often includes development
of a tool to identify patient and family needs and expectations;
methodology for reviewing data; identification of patterns of co
ncern; a mechanism for forwarding information to those respons

ible for implementing change in the organization; and continuin
g review, evaluation, and implementation of plans for improving
organizational performance.
Audit and Regulatory Compliance Committee
The audit and regulatory compliance committee is responsible f
or the assessment of various functions and control systems of th
e organization and for providing management with analysis and
recommendations regarding activities reviewed. Healthcare orga
nizations must be vigilant in conducting their financial affairs.
As the boards of several investment organizations have experien
ced in recent years, failure to do so can result in fines and impri
sonment. An effective audit committee can be helpful in uncove
ring and thwarting poor or inept financial decision making. The
committee should include members from the governing body an
d internal auditing staff. Responsibilities of the committee inclu
de developing corporate auditing policies and procedures; reco
mmending independent auditors to the governing body; reviewin
g the credentials of the independent auditors and facilitating cha
nge in auditors as may be deemed appropriate; reviewing with i
ndependent auditors the proposed scope and general extent of th
eir auditing duties and responsibilities; reviewing the scope and
results of the annual audit with the independent auditors and th
e organization’s management staff; setting, overseeing, reviewi
ng, and acting on the recommendations of the internal audit staf
f; reviewing the internal accounting practices of the corporation
, including policies and procedures; reviewing and evaluating fi
nancial statements (e.g., income statements, balance sheets, cas
h flow reports, investment accounts); promoting the prevention,
detection, deterrence, and reporting of fraud; reviewing the mea
ns for safeguarding assets and, as appropriate, the existence of s
uch assets; ensuring that financial reporting functions are in kee
ping with generally accepted accounting principles; and reviewi
ng the reliability and integrity of financial and operating inform
ation.
Failure on the part of an audit committee to question manageme
nt’s representations may be the basis for committee malfeasance

, because the committee and the governing body may be held lia
ble for their failure to know what they were responsible for reco
gnizing.
Safety Committee
The safety committee is generally charged with responsibility fo
r overseeing the organization’s safety management program. Th
e committee reviews and acts on reports involving the organizat
ion’s emergency preparedness, equipment management, and fire
safety risk management and utilities management programs.
9.3 CORPORATE ETHICS
Corporate ethics describes the ethics of an organization and how
it responds to internal or external circumstances affecting the o
rganization’s mission and values. Ethical behavior in an organiz
ation can be enhanced by providing staff members with a writte
n code of ethics; providing training and education to improve ea
ch staff member’s knowledge base, skills, and competencies; pr
oviding easy access to professional sources to assist in resolvin
g ethical issues in the workplace; and providing systems for con
fidential reporting of breaches in ethical conduct both in and ou
tside the organization. Although most healthcare organizations
have published their mission, vision, and values statements, poli
cy and practice continue to be distant relatives. Commitment to
organizational ethics must begin with the organization’s leaders
hip.
The purpose of organizational ethics in the healthcare setting is
to promote responsible behavior in the decision-
making process. Recent interest in organizational ethics is, in p
art, the result of concerns of government regulations (e.g., Sarb
anes–
Oxley Act, Emergency Medical Treatment and Active Labor Act
) and accrediting agencies that certain unethical practices contin
ue to plague the industry. These practices include billing scams,
inappropriate advertising and marketing, and patient care issues
(e.g., inappropriate patient transfers based on ability to pay, tra
nsferring patients before they have been clinically stabilized). C
ommitment to organizational ethics must begin with the organiz

ation’s leadership.
Corporate Code of Ethics
The following list provides some value statements that should b
e considered when preparing an organization’s code of ethics:
1. Employees and staff members will comply with the organizat
ion’s code of ethics, which includes compassionate care; an und
erstanding and acceptance of the organization’s mission, vision,
and values; and adherence to one’s professional code of conduc
t.
2. The organization will be honest and fair in dealings with em
ployees.
3. The organization will develop and maintain an environment t
hat fosters the highest ethical and legal standards.
4. Employers and employees will be impartial when personal in
terests conflict with those of others.
5. Employees will be free to speak up without fear of retributio
n or retaliation.
6. The pitfalls of groupthink will not be acceptable conduct in t
he organization. The preservation of harmony will not become
more important than the critical evaluation of ideas by “all” em
ployees.
7. Employees will be provided with a safe environment within
which to work.
8. The drive to increase revenues will not be tied to unethical a
ctivities, such as workforce cutbacks as a means to discharge e
mployees when they are encouraged to speak up and then ostraci
zed because of their honesty.
9. Employees will avoid conflict of interest situations by not fa
voring one’s own self-
interests over others, including the organization.
10. Patients will be provided with care that is of the highest qu
ality regardless of the setting.
11. All patients will be treated with honesty, dignity, respect, a
nd courtesy.
12. Patients will be informed of the risks, benefits, and alternat
ives to care.

13. Patients will be treated in a manner that preserves their righ
ts, dignity, autonomy, self-
esteem, privacy, and involvement in their care.
14. Each patient’s culture, religion, and heritage will be respect
ed and addressed as appropriate.
15. The organization will provide assistance to patients and the
ir families through a patient advocate.
16. The organization will provide appropriate support services
for those with language barriers or physical disabilities (e.g., he
aring and seeing impaired).
17. Patients will be provided with a “Patient’s Bill of Rights an
d Responsibilities” on admission to the hospital.
18. Each patient’s right to execute advance directives will be h
onored.
Sarbanes–Oxley Act
The Sarbanes–
Oxley Act of 2002, commonly called SOX or SARBOX, was ena
cted as a response to the misconduct committed by executives at
companies such as Enron, World Com, and Tyco, resulting in in
vestor losses exceeding a half a trillion dollars. To protect inves
tors in public companies and improve the accuracy and reliabilit
y of corporate disclosures, SOX requires top executives of publi
c corporations to vouch for the financial reports of their compan
ies. The act encourages self-
regulation and the need to promote due diligence; selecting a le
ader with morals and core values; examining incentives; constan
tly monitoring the organization’s culture; building a strong, kno
wledgeable governing body; continuously searching for conflict
s of interest in the organization; focusing attention on processes
and controls that support accurate financial reporting through d
ocumented policies and procedures; and establishing strong stan
dards of conduct and a code of ethics that encourages employees
to report unethical or fraudulent behavior without fear of retrib
ution.
The act covers issues such as establishing a public company acc
ounting oversight board, auditor independence, corporate respon

sibility, and enhanced financial disclosure.
Major provisions of SOX include certification of financial repor
ts by CEOs and chief financial officers (CFOs); ban on personal
loans to any executive officer or director; accelerated reporting
of trades by insiders; prohibition on insider trades during pensi
on fund blackout periods; public reporting of CEO and CFO co
mpensation and profits; internal audit board independence; crim
inal and civil penalties for securities violations; obligation to ha
ve an internal audit function, which will need to be certified by
external auditors; significantly longer jail sentences and larger f
ines for corporate executives who knowingly misstate financial
statements; and codes of ethics and standards of conduct for exe
cutive officers and board members (most companies have expan
ded their code of ethics to include all employees and attach the
document to their public reports).
Although not-for-
profit organizations are not legally required to adopt SOX, the a
ccountability and financial reporting requirements are being ado
pted by many not-for-
profit hospitals. Two provisions of the Act that have universal a
pplication to both profit and not-for-profit corporations are:
• Section 802: prohibition from knowingly altering, destroying,
mutilating, concealing, and impeding or covering up governme
nt investigations.
• Section 1107: Proscription of criminal penalties for retaliation
against whistleblowers.
Corporate Compliance Program
The federal government’s initiative to investigate and prosecute
healthcare organizations for criminal wrongdoing, coupled with
strong sanctions imposed after conviction, has resulted in healt
hcare organizations establishing corporate compliance programs
. These programs establish internal mechanisms for preventing,
detecting, and reporting criminal conduct. Sentencing incentives
are in place for organizations that establish such programs. The
following excerpt describes the elements of an effective corpor
ate compliance program.

An “effective program to prevent and detect violations of the la
w” means a program that has been reasonably designed, implem
ented, and enforced so that it generally will be effective in prev
enting and detecting criminal conduct. Failure to prevent or dete
ct the instant offense, by itself, does not mean that the program
was not effective. The hallmark of an effective program to prev
ent and detect violations of law is that the organization exercise
d due diligence in seeking to prevent and detect criminal conduc
t by its employees and other agents. Due diligence requires that
an organization will, at the very least, have implemented the fol
lowing:
1. The organization must have established compliance standard
s and procedures to be followed by its employees and other agen
ts that are reasonably capable of reducing the prospect of crimin
al conduct.
2. Specific individual(s) within high-
level personnel of the organization must have been assigned ove
rall responsibility to oversee compliance with such standards an
d procedures.
3. The organization must have used due care not to delegate su
bstantial discretionary authority to individuals whom the organi
zation knew, or should have known through the exercise of due
diligence, had a propensity to engage in illegal conduct.
4. The organization must have taken steps to communicate effe
ctively its standards and procedures to all employees and other
agents, for example, by requiring participation in training progr
ams or by disseminating publications that explain in a practical
manner what is required.
5. The organization must have taken reasonable steps to achiev
e compliance with its standards, for example, by utilizing monit
oring and auditing systems reasonably designed to detect crimin
al conduct by its employees and other agents and by having in p
lace and publicizing a reporting system whereby employees and
other agents could report criminal conduct by others within the
organization without fear of retribution.
6. The standards must have been consistently enforced through

appropriate disciplinary mechanisms, including, as appropriate,
discipline of individuals who are responsible for the failure to d
etect an offense. Adequate discipline of individuals who are res
ponsible for an offense is a necessary component of enforcemen
t; however, the discipline that will be appropriate will be case s
pecific.
7. After an offense has been detected, the organization must ha
ve taken all reasonable steps to respond appropriately to the off
ense and to prevent similar offenses—
including any necessary modifications to its program to prevent
and detect violations of the law.3
As noted in the following reality check, the duties and responsib
ilities of the compliance officer can be compromised when the c
orporation pays the salary of the compliance officer. As they sa
y in the world of finance, “follow the money,” and then you will
know where loyalties lie.
Compliance Officer and Confidentiality
The employee who decides to place confidence and trust in a co
rporate compliance officer must understand the following points
, among others, prior to filing a complaint against any organizat
ional practice, individual, and/or department within or entity ow
ned by the organization:
• The compliance officer is hired by and is responsible to the c
orporation by which he or she is hired.
• Compliance officers often report directly to the organization’
s corporate counsel, CEO, and/or board of directors/trustees.
• The compliance officer is expected to abide by the laws of the
land and follow the code(s) of ethics applicable to compliance
officers in general and any ethical principles or codes of ethics t
hat apply to his or her profession. For example, a compliance of
ficer who is a lawyer is expected to adhere to those professional
code(s) of ethics that apply to lawyers from both a professional
and state licensing standpoint. Failure to do so can result in pro
fessional discipline and sanctions against the compliance officer
.

• Compliance officers are expected to maintain confidentiality
of the names of employees who file complaints.
• Organizations often have compliance hotlines to protect the id
entity of employees who file complaints.
The compliance officer is in a difficult position trying to balanc
e: (1) the confidentiality and privacy rights of employees; (2) sa
tisfying the expectations of management and the governing body
who pays the compliance officer’s salary; and (3) adhering to a
pplicable laws, rules, and regulations pertaining to the complian
ce officer’s duties and responsibilities. Visualizing Lady Justice
, these three demands weigh heavily on the compliance officer
who sits alone on the opposite side of the scales.
When working for a salary paid by an organization, adhering to
standards of ethical conduct are not necessarily consistent with
a compliance officer’s list of priorities, as Phil was about to lea
rn.
Phil, having exhausted all other appeals in his complaint, called
Beth, the compliance officer, to speak with her about a decision
that the human resources department had made that he believed
was out of compliance with the Federal Equal Pay Act. The offi
ce assistant, Mary, stated, “Beth will not be in the office until n
ext week.” Phil then scheduled a telephone conference with Bet
h for the following week. He asked Mary, “Will my telephone c
onference with Beth remain confidential?” Mary said, “Most cer
tainly. Our office is here for you. Everything in our office is co
nfidential.”
The following week Phil called Beth to discuss his concern that
certain professionals were performing the same work as he was
and were getting paid more. He described the specifics of his co
ncern. Beth asked, “Is it OK for me to reveal your name to hum
an resources so I can obtain the necessary records that I would n
eed from them to see if you are being paid equally to others for
the same work?” Phil agreed to Beth’s request. During his discu
ssion with Beth, Phil discussed several other corporate leadershi
p concerns with her and asked that his conversations remain con
fidential. Beth replied, “If you wanted confidentiality, then you

should have asked for it before speaking to me.” Phil replied, “
Confidentiality was promised prior to our discussion and I am s
urprised at your response.” Beth replied, “Well, you are wrong.”
Discussion
1. What lessons could employees learn from Phil’s experience?
2. Discuss how this scenario could have ended with a win-
win conclusion for both the employee and the compliance office
r.
9.4 CORPORATE NEGLIGENCE
There are duties that a healthcare corporation itself owes to the
general public and to its patients. These duties arise from statut
es, regulations, principles of law developed by the courts, and t
he internal operating rules of the organization. A corporation is
treated no differently than an individual. If a corporation has a
duty and fails in the exercise of that duty, it has the same liabili
ty to the injured party as an individual would have.
Corporate negligence is a doctrine under which the hospital is li
able if it fails to uphold the proper standard of care owed the pa
tient, which is to ensure the patient’s safety and well-
being while at the hospital. This theory of liability creates a non
-
delegable duty which the hospital owes directly to a patient. Th
erefore, an injured party does not have to rely on and establish t
he negligence of a third party.4
Corporate negligence occurs when a healthcare corporation fails
to perform those duties it owes directly to a patient or to anyon
e else to whom a duty may extend. If such a duty is breached an
d a patient is injured as a result of that breach, the organization
can be held culpable under the theory of corporate negligence.
Hospitals once enjoyed complete tort immunity as charitable ins
titutions. However, as hospitals evolved into more sophisticated
corporate entities that expected fees for their services, their tor
t immunity receded. Courts first recognized that hospitals could
be held liable for the negligence of their employees under the th
eory of respondeat superior. Liability later extended for nonemp
loyees who acted as a hospital’s ostensible agents. In Thompson

v. Nason Hospital,5 the evolution continued. The Pennsylvania
court recognized that hospitals are more than mere conduits thro
ugh which healthcare professionals are brought into contact wit
h patients. Hospitals owe some nondelegable duties directly to t
heir patients independent of the negligence of their employees o
r ostensible agents, such as a duty to:
• use reasonable care in the maintenance of safe facilities and e
quipment;
• select and retain competent physicians;
• oversee all persons who practice medicine within their walls;
and
• formulate, adopt, and enforce rules and policies to ensure qua
lity care.
Darling—A Benchmark Case
A benchmark case in the healthcare field that has had a major i
mpact on the liability of healthcare organizations was decided i
n 1965 in Darling v. Charleston Community Memorial Hospital.
6 The court enunciated a corporate negligence doctrine under w
hich hospitals have a duty to provide an adequately trained medi
cal and nursing staff. A hospital is responsible, in conjunction
with its medical staff, for establishing policies and procedures f
or monitoring the quality of medicine practiced within the hospi
tal.
The Darling case involved an 18-year-
old college football player who was preparing for a career as a t
eacher and coach. The patient, a defensive halfback for his colle
ge football team, was injured during a play. He was rushed to th
e emergency department of a small, accredited community hospi
tal where the only physician on emergency duty that day was Dr
. Alexander, a general practitioner. Alexander had not treated a
major leg fracture in 3 years.
The physician examined the patient and ordered an X-
ray that revealed that the tibia and the fibula of the right leg had
been fractured. The physician reduced the fracture and applied
a plaster cast from a point 3 or 4 inches below the groin to the t
oes. Shortly after the cast had been applied, the patient began to

complain continually of pain. The physician split the cast and c
ontinued to visit the patient frequently while the patient remain
ed in the hospital. Not thinking it was necessary, the emergency
department physician did not call in any specialists for consulta
tion.
After 2 weeks, the student was transferred to a larger hospital a
nd placed under the care of an orthopedic surgeon. The specialis
t found a considerable amount of dead tissue in the fractured leg
. During a period of 2 months, the specialist removed increasing
amounts of tissue in a futile attempt to save the leg until it beca
me necessary to amputate the leg 8 inches below the knee. The s
tudent’s father did not agree to a settlement and filed suit again
st the emergency department physician and the hospital. Althou
gh the physician later settled out of court for $40,000, the case
continued against the hospital.
The documentary evidence relied on to establish the standard of
care included the rules and regulations of the Illinois Departme
nt of Public Health under the Hospital Licensing Act; the standa
rds for hospital accreditation, today known as The Joint Commis
sion; and the bylaws, rules, and regulations of Charleston Hospi
tal. These documents were admitted into evidence without objec
tion. No specific evidence was offered that the hospital failed to
conform to the usual and customary practices of hospitals in th
e community.
The trial court instructed the jury to consider those documents,
along with all other evidence, in determining the hospital’s liabi
lity. Under the circumstances in which the case reached the Illin
ois Supreme Court, it was held that the verdict against the hospi
tal should be sustained if the evidence supported the verdict on
any one or more of the 20 allegations of negligence. Allegations
asserted that the hospital was negligent in its failure to: (1) pro
vide a sufficient number of trained nurses for bedside care—
in this case, nurses who were capable of recognizing the progres
sive gangrenous condition of the plaintiff’s right leg; and (2) fai
lure of its nurses to bring the patient’s condition to the attention
of the administration and staff so that adequate consultation co

uld be secured.
Although these generalities provided the jury with no practical
guidance for determining what constitutes reasonable care, they
were considered relevant to aid the jury in deciding what was fe
asible and what the hospital knew or should have known concer
ning its responsibilities for patient care.
Evidence relating to the hospital’s failure to review Alexander’s
work, to require consultation or examination by specialists, and
to require proper nursing care was found to be sufficient to sup
port a verdict for the patient. Judgment was eventually returned
against the hospital in the amount of $100,000. The Illinois Sup
reme Court held that the hospital could not limit its liability as
a charitable corporation to the amount of its liability insurance.
[T]he doctrine of charitable immunity can no longer stand…a do
ctrine which limits the liability of charitable corporations to the
amount of liability insurance that they see fit to carry permits t
hem to determine whether or not they will be liable for their tort
s and the amount of that liability, if any.7
In effect, the hospital was liable as a corporate entity for the ne
gligent acts of its employees and physicians. Among other thing
s, the Darling case demonstrates the importance of the governin
g body’s duty to establish a mechanism for the evaluation, coun
seling, and, when necessary, taking action against those physici
ans who pose an unreasonable risk of harm to patients. Physicia
n review and monitoring is best accomplished through peer revi
ew. Most states provide statutory protection from liability for p
eer review activities conducted in a reasonable manner without
malice.
Corporate Officer/Director
An officer or a director of a corporation is not personally liable
for the torts of corporate employees. To incur liability, the offic
er or the director ordinarily must be shown to have in some way
authorized, directed, or participated in a tortious act. The admi
nistrator of the estate of the deceased in Hunt v. Rabon8 brough
t a malpractice action against hospital trustees and others for th
e wrongful death of the decedent during an operation at the hosp

ital. A contractor had incorrectly crossed the oxygen and nitrous
oxide lines of a newly installed medical gas system leading to t
he operating room. The trustees filed a demurrer—
a pleading claiming that the facts of the case were not sufficient
for an action against them individually as trustees. The lower c
ourt sustained the demurrer, and the plaintiff appealed. On appe
al, the South Carolina Supreme Court held that the allegations p
resented were insufficient to hold the trustees liable for the wro
ngs alleged.
9.5 DOCTRINE OF RESPONDEAT SUPERIOR
Respondeat superior (“let the master respond”) is a legal doctrin
e holding employers liable, in certain cases, for the wrongful ac
ts of their agents (employees). This doctrine has also been referr
ed to as vicarious liability, whereby an employer is answerable f
or the torts committed by employees. In the healthcare setting, a
n organization, for example, is liable for the negligent acts of it
s employees, even though there has been no wrongful conduct o
n the part of the organization. For liability to be imputed to the
employer:
1. A master–
servant relationship must exist between the employer and the e
mployee, and
2. The wrongful act of the employee must have occurred within
the scope of his or her employment.
The question of liability frequently rests on whether persons tre
ating a patient are independent agents (responsible for their own
acts) or employees of the organization. The answer to this depe
nds on whether the organization can exercise control over the pa
rticular act that was the proximate cause of the injury. The basic
rationale for imposing liability on an employer developed beca
use of the employer’s right to control the physical acts of its em
ployees. It is not necessary that the employer actually exercise c
ontrol, only that it possesses the right, power, or authority to do
so.
When filing a lawsuit, the plaintiff’s attorney generally names b

oth the employer and employee. This occurs because the employ
er is generally in a better financial condition to cover the judgm
ent. The employer is not without remedy if liability has been im
posed against the organization as a result of an employee’s negl
igent act. The employer, if sued, may seek indemnification (i.e.,
compensation for the financial loss caused by the employee’s n
egligent act) from the employee.
Independent Contractor
An independent contractor relationship is established when the
principal has no right of control over the manner in which the a
gent’s work is to be performed. The independent contractor, the
refore, is responsible for his or her own negligent acts. However
, some cases indicate that an organization may be held liable for
an independent contractor’s negligence. For example, in Mehlm
an v. Powell,9 the court held that a hospital may be found vicari
ously liable for the negligence of an emergency department phy
sician who was not a hospital employee but who worked in the e
mergency department in the capacity of an independent contract
or. The court reasoned that the hospital maintained control over
billing procedures, maintained an emergency department in the
main hospital, and represented to the patient that the members o
f the emergency department staff were its employees, which ma
y have caused the patient to rely on the skill and competence of
the staff. In another case a hospital was found vicariously liable
for the negligent acts of independently contracted emergency d
epartment physicians. In Schiavone v. Victory Mem. Hosp.,10 t
he decedent was transported to the hospital emergency departme
nt by ambulance. The patient sought emergency treatment from t
he hospital, not from any specific physician of the patient’s own
choosing. Thus, the hospital was vicariously liable for the alleg
ed malpractice of the appellant even though he was an independ
ent contractor with the hospital at the time of the occurrence.
The doctrine of respondeat superior may impose liability on an
organization for a nurse’s acts or omissions that result in injury
to a patient. Whether such liability attaches depends on whether
the conduct of the nurse was wrongful and whether the nurse w

as subject to the control of the organization at the time the act i
n question was performed.
Determination of whether a nurse practitioner’s conduct was wr
ongful in a given situation depends on the standard of conduct t
o which the nurse practitioner is expected to adhere. In liability
deliberations, the nurse practitioner who is subject to the contro
l of the organization at the time of the negligent conduct is cons
idered an employee and not a borrowed servant of the organizati
on.
INDEPENDENT CONTRACTOR NEGLIGENT
Citation:Hoffman v. Moore Reg’l Hosp., Inc., 441 S.E.2d 567 (
N.C. Ct. App. 1994)
Facts
Hoffman was admitted to the hospital with an order for a renal a
rteriogram. After her admission, Hoffman was presented with a
consent form for the procedure. The consent listed five radiolog
ists on the form but did not specify which radiologist would per
form the procedure. The list of radiologists was composed of me
mbers of the Pinehurst radiology group, which determined whic
h radiologist would cover the hospital each day. Dr. Lina was as
signed to perform Hoffman’s procedure. Following the renal art
eriogram, Lina determined that an angioplasty was necessary. B
ecause of complications during the procedure, Hoffman had to b
e transferred to University Medical Center. Her condition deteri
orated during the following year and she eventually died. Mr. H
offman then sought to hold the hospital liable for the negligence
of the radiologist under the theory of respondeat superior. The t
rial court dismissed the claim that the hospital was liable under
the theory of respondeat superior.
Issue
Was the hospital liable for the malpractice of Lina under the the
ory of respondeat superior?
Holding
The North Carolina Court of Appeals held that the hospital was
not liable for the negligence of Lina under the theory of respond

eat superior.
Reason
The court of appeals held that Lina was not an employee of the
hospital. He was not subject to supervision or control by the hos
pital. There was no evidence that Hoffman would have sought tr
eatment elsewhere if she had known for a fact that Lina was not
an employee.
Discussion
1. Under what conditions could the hospital have been liable fo
r Lina’s alleged negligence?
2. Can the patient recover damages from the radiologist who pe
rformed the radiologic procedure?
3. Can the patient recover damages from the Pinehurst radiolog
y group?
9.6 GOVERNING BODY RESPONSIBILITIES
Along with the corporate authority that is granted to the governi
ng body, duties are attached to its individual members. These re
sponsibilities are considered duties because they are imposed by
law and can be enforced in legal proceedings. Governing body
members are considered by law to have the highest measure of a
ccountability. They have a fiduciary duty that requires acting pr
imarily for the benefit of the corporation. The general duties of
a governing body are both implied and express. Failure of a gov
erning body to perform its duties may constitute mismanagemen
t to such a degree that the appointment of a receiver to manage t
he affairs of the corporation may be warranted.
The duty to supervise and manage is as applicable to the trustee
s as it is to the managers of any other business corporation. In b
oth instances, there is a duty to act as a reasonably prudent pers
on would act under similar circumstances. The governing body
must act prudently in administering the affairs of the organizati
on and exercise its powers in good faith.
Appointment of a Chief Executive Officer
The governing body is responsible for appointing a CEO to act a
s its agent in the management of the organization. The CEO is r
esponsible for the day-to-day operations of the organization.

The individual selected as CEO must possess the competence an
d the character necessary to maintain satisfactory standards of p
atient care within the organization. The responsibilities and auth
ority of the CEO should be expressed in an appropriate job desc
ription, as well as in any formal agreement or contract that the o
rganization has with the CEO. Some state health codes describe
the responsibilities of administrators in broad terms. They gener
ally provide that the CEO/administrator shall be responsible for
the overall management of the organization; enforcement of any
applicable federal, state, and local regulations, as well as the or
ganization’s bylaws, policies, and procedures; appointment of,
with the approval of the governing body, a qualified medical dir
ector; liaison between the governing body and medical staff; an
d appointment of an administrative person to act during the CE
O’s absence from the organization.
The general duty of a governing body is to exercise due care an
d diligence in supervising and managing the organization. This
duty does not cease with the selection of a CEO. A governing b
ody can be liable if the level of patient care becomes inadequate
because of the governing body’s failure to properly supervise t
he management of the organization. With these responsibilities i
n mind, the governing body must closely monitor the effectiven
ess of the organization’s leadership, beginning with the CEO. T
he Board should require a self-
evaluation by the CEO on an annual basis after which the board
also reevaluates the CEO.
Licensure
To comply with federal requirements, the various states have in
corporated licensing requirements in their regulations. Administ
rators are licensed under the laws of their individual states. Stat
utes generally provide that the administrator of a nursing facilit
y be licensed in accordance with state law.
States that require administrators to be licensed provide penaltie
s ranging from fines to imprisonment for those administrators fu
nctioning without a license. A $5,000 fine was imposed on a nur
sing facility for operating without a licensed administrator for 5

4 days in Magnolias Nursing and Convalescent Center v. Depart
ment of Health and Rehabilitation Services.11 The statute prohi
biting operation of a nursing home without a licensed administr
ator was not considered vague, ambiguous, or unconstitutional.
Responsibility
The CEO is responsible for the supervision of the administrative
staff and managers who assist in the daily operations of the org
anization. The CEO derives authority from the owner or governi
ng body. The CEO of an organization owned and operated by a
governmental agency may be an appointed public official. The
CEO is responsible to lead and oversee the implementation of th
e Company’s long- and short-
term plans in accordance with its strategy.
The CEO must implement the policies of the governing body, as
well as interpret policies. Appropriate action must be taken wh
ere noncompliance with rules and regulations occurs. The CEO i
s responsible for making periodic reports to the governing body
regarding policy implementation.
There may be occasions when the CEO believes that following a
direction of the governing body may create a danger to the pati
ents or others. If the CEO knows or should have known, as a rea
sonably prudent person, of a danger or unreasonable risk or har
m that will be created by certain directed activity but neverthele
ss proceeds as directed, he or she could become personally liabl
e for any resulting injury. The CEO, therefore, must take approp
riate steps to notify the governing body of any policies that crea
te dangers or unreasonable risks.
Although the CEO cannot assume the functions of the professio
nal staff, he or she must ensure that proper admission and disch
arge policies and procedures are formulated and carried out. He
or she must cooperate with the professional staff in maintaining
satisfactory standards of medical care. The CEO must keep abre
ast of regulatory changes that affect organizational operations.
Periodic meetings should be conducted to inform the staff of reg
ulatory changes affecting their duties and responsibilities. The
CEO should designate a representative for administrative covera

ge during those hours he or she is absent from the organization.
This individual should be capable of dealing with administrative
matters and be able to contact the CEO when major problems ar
ise.
Tort Liability
The wrongful injury to another by the CEO in the performance o
f his or her duties can result in the CEO being liable to the one i
njured. Because the CEO is subject to the control of the organiz
ation, the organization also may be liable for the torts of the CE
O that occur within the scope of his or her employment. When p
erforming the duties that he or she was employed to perform, th
e CEO works for the benefit of the organization and not as an in
dividual. Because the organization gains from the work perform
ed by its employees, the law renders the organization legally res
ponsible for the acts of employees while performing the work of
the organization.
Liability for the Acts of Others
The CEO is not liable for the negligent acts of other employees
as long as he or she personally took no part in the commission o
f the negligent act and was not negligent in selecting or directin
g the person committing the injury. However, under the doctrine
of respondeat superior, a healthcare facility can be liable for an
employee’s negligent acts.
Anesthesia Abuse and CEO Dilemma
Anytown Hospital has an outstanding reputation for surgical ser
vices. The operating room supervisor and a surgical nurse told
Bob Wright, the CEO, that Dr. Flipton, an anesthesiologist, was
abusing the use of anesthesia gases in the hospital’s dental suite
. He was reportedly seen by operating staff testing “laughing ga
s” by holding a mask against his face for short periods of time.
This scene would be followed by a string of silly, seemingly me
aningless jokes. Bob has repeatedly discussed this matter with t
he medical executive committee. The medical executive commit
tee refuses to take any action without definitive action by the de
partment chair. Bob suspects that if he pursues the matter furthe

r with the governing board, he could end up without a job. The
governing body is generally unable to resolve disciplinary actio
ns against a physician without support of the medical executive
committee.
Discussion
1. What do you believe the ethical issues are for Bob knowing t
hat doing the right thing and job survival could be in conlict?
2. Which of the following would you do if you were in Bob’s p
osition, with two children in college and hefty mortgage paymen
ts?
a. Voluntarily leave my job
b. Aggressively pursue the problem
c. Secretly enlist the aid of the medical staff
d. Confront Dr. Flipton
e. Other options (explain)
Case Reviews
Over the years, a fair number of cases have dealt with administr
ators and their management of healthcare organizations. In gene
ral, an administrator employed for the duration of satisfactory p
erformance has no property right in the position, as was pointed
out in Bleeker v. Dukakis.12 The administrator of the Woodlan
d Nursing Home had been hired through an oral agreement unde
r which his continued employment was contingent upon satisfact
ory work performance. “The assistant commissioner determined
that Woodland was being managed improperly and that the appe
llant should be replaced.”13 The administrator’s appointment w
as considered to be at the will of the employers even though the
nursing facility’s policies provided a procedure for warning and
an opportunity to correct work performance deficiencies.
Dealing with the legal system can be a harrowing experience, ev
en in those instances where the administrator is eventually exon
erated from either negligence or criminal activity. Presented her
e are a few agonizing moments in the lives of some boards and t
heir administrators.
• An administrator’s license was revoked for concealment of th
e identities of the facility’s owners in Loren v. Board of Examin

ers of Nursing Home Administrators.14 The court found that the
record contained substantial evidence to support the board’s fin
ding. The administrator had actively participated in a scheme to
divert checks belonging to the nursing home to undisclosed part
ners of the home. The crime of knowingly filing false statement
s as to the facility’s ownership with the intent of defrauding the
U.S. government and the state of New York involved moral turp
itude and subjected the administrator to disciplinary action.
• An administrator’s plea to misdemeanor counts for mismanag
ement was considered a proper basis for suspending his nursing
home license for one year.15
• A nursing facility’s exclusion from a Medicaid rate incentive
program was considered rationally related to the encouragement
of superior health care after the administrator was indicted for
accepting excessive payments from the residents’ relatives.16
• Although cases of alleged wrongdoing do not always end in a
finding for the plaintiff, going through the ordeal is, at best, a
most uncomfortable experience for the defendant. The court in S
tate v. Serebin17 held that the evidence of inadequate staffing a
nd diet was found to be insufficient to support homicide charges
against the administrator when the resident left the facility and
died of exposure.
Leadership is responsible for leading, and that includes acceptin
g responsibility for addressing those areas in the organization th
at need improvement, as noted in the following reality check.
CEO Challenges Board Appointed Consultants
The hospital’s board of directors had hired a consulting firm to
review the quality of patient care being delivered at the hospital
where Nathan was employed as the CEO. Following the 2-
week review, the consultants presented Nathan and his leadershi
p group with a verbal report. During the consultant’s exit revie
w, Nathan appeared somewhat agitated by the report as he sat re
stlessly in his seat. When the written preliminary report listing t
he hospital’s deficiencies was presented to Nathan following the
verbal report, he abruptly stood up and said, “This is not just a

bout the hospital! This is about my job!” Nathan then angrily lef
t the room, followed by his managers, with the exception of two
. They never looked back—
no goodbyes, just angry and disgruntled stone-cold faces.
Discussion
1. Describe how the CEO’s conduct could affect his staff.
2. Discuss what disciplinary action, if any, should be taken.
Medical Staff Appointments and Privileging
The governing body is responsible for ensuring the medical staf
f bylaws, rules, and regulations include application requirement
s for clinical privileges and admission to the medical staff; a pr
ocess for granting emergency staff privileges; requirements for
medical staff consultations; a peer review process; a process for
auditing medical records; a process for addressing disruptive p
hysicians and substance abuse; and a process for instituting corr
ective action (disciplinary actions can take the form of a letter o
f reprimand, suspension, or termination of privileges).
The governing body has a responsibility to appoint competent m
embers to its professional staff. Failure of the governing body t
o properly screen a medical staff applicant’s credentials can lea
d to liability for injuries suffered by patients as a result of that
omission, as was the case in Johnson v. Misericordia Communit
y Hospital,18 where the patient brought a malpractice action ag
ainst the hospital and its liability insurer for alleged negligence
in granting orthopedic privileges to a physician who performed
an operation to remove a pin fragment from the patient’s hip. T
he Wisconsin Court of Appeals found the hospital negligent for
failing to scrutinize the physician’s credentials before approvin
g his application for orthopedic privileges. The hospital failed t
o adhere to procedures established under both its own bylaws an
d state statute. The measure of quality and the degree of quality
control exercised in a hospital are the direct responsibilities of t
he medical staff. Hospital supervision of the manner of appoint
ment of physicians to its staff is mandatory, not optional. On ap
peal by the hospital, the Wisconsin Supreme Court affirmed the
appellate court’s decision, finding that if the hospital had exerci

sed ordinary care, it would not have appointed the physician to t
he medical staff.
Ensure Medical Staff Competency
Healthcare organizations have a responsibility to ensure the co
mpetency of their medical staff and to evaluate the quality of m
edical treatment rendered on their premises. A court of appeals i
n Elam v. College Park Hospital19 held that a hospital is liable
to a patient under the doctrine of corporate negligence for the n
egligent conduct of independent physicians and surgeons who ar
e neither employees nor agents of the hospital.
In Dykema v. Carolina Emergency Physicians, P.C.,20 Dykema
began having respiratory symptoms, cough, and shortness of bre
ath for which Dr. King, his family physician, saw him. He soug
ht a second opinion from the Center for Family Medicine (“Cent
er”), part of the Greenville Hospital System. Dykema went to th
e Center with complaints of cough, shortness of breath, and tigh
tness in the chest. A third-
year medical student, Dr. Gemas, and Dr. Pearman, an attending
faculty member, saw Dykema that day. Pearman prescribed anti
biotics for persistent bronchitis and told Dykema to return in 1
week or sooner if his condition worsened.
Early Sunday morning, February 6, Mrs. Dykema called the Cen
ter concerning her husband’s worsening condition and was advis
ed to take him to the hospital the next day. She brought him to t
he hospital at approximately 1:00 PM on February 6, and Dr. Co
nnell, a medical resident and employee of Greenville Hospital S
ystem, saw him. Connell diagnosed viral bronchitis and advised
Dykema to continue his antibiotics and keep his follow-
up appointment at the center on February 8. The next morning,
February 7, Mrs. Dykema called the Center and spoke with a rec
eptionist and requested that her husband be seen immediately be
cause of his worsening condition. She was told there were no ea
rlier appointments available and that she should keep the appoin
tment on February 8. Dykema died on the morning of February
8, prior to his scheduled appointment. The cause of death was a
progressive showering of pulmonary emboli, pieces of which m

oved to his lungs and caused a fatal blockage. The defendant ho
spital was found liable for the full $2 million in actual damages.
FAULTY CREDENTIALING PROCESS
Citation:Candler Gen. Hosp., Inc. v. Persaud, 442 S.E.2d 775 (G
a. Ct. App. 1994)
Facts
On or about February 15, 1990, the patient in this case was refer
red to Dr. Freeman for consultation and treatment of gallstones.
Freeman recommended that the patient undergo a laparoscopic l
aser cholecystectomy procedure.
On February 16, 1990, Freeman requested and was granted temp
orary privileges to perform the procedure. The privileges were g
ranted based on a certificate he had received after completing a
laparoscopic laser cholecystectomy workshop, which he took on
February 10, 1990. Freeman performed the cholecystectomy on
February 20, 1990, with the assistance of Dr. Thomas.
A complaint by the administrator of the patient’s estate, support
ed by an expert’s affidavit, alleged that the cholecystectomy wa
s negligently performed, and as a result, the patient bled to deat
h. The complaint charged the hospital with negligence in permit
ting Freeman to perform the procedure on the decedent without
having instituted any standards, training requirements, or “proto
cols,” or otherwise instituted any method for judging the qualifi
cations of a surgeon to perform the procedure. The complaint al
so alleged that the hospital knew or reasonably should have kno
wn that it did not have a credentialing process that could have a
ssured the hospital of the physicians’ education, training, and a
bility to perform the procedure.
The trial court denied the hospital’s motion for summary judgm
ent, finding that the plaintiffs’ evidence was sufficient to raise a
question of fact regarding whether surgical privileges should ha
ve been issued by the hospital to Freeman. The hospital appeale
d.
Issue
Was there a material issue of fact as to whether the hospital was

negligent in granting the specific privileges requested by Freem
an?
Holding
The Georgia Court of Appeals held that there was a material iss
ue of fact as to whether the hospital was negligent in granting th
e specific privileges requested, thus precluding summary judgm
ent.
Reason
The court found that a hospital has a direct and independent res
ponsibility to its patients to take reasonable steps to ensure that
physicians using hospital facilities are qualified for the privileg
es granted. The hospital owed a duty to the plaintiffs’ decedent
to act in good faith and with reasonable care to ensure that the s
urgeon was qualified to practice the procedure that he was grant
ed privileges to perform.
Discussion
1. Describe the credentialing issues in this case.
2. Discuss what steps a hospital should take to help ensure that
a physician is competent to perform the procedures he or she is
requesting privileges for.
Discipline Abusive Behavior
It is the responsibility of the CEO, medical board, and governin
g body to ensure that caregivers who engage in verbal or abusiv
e behavior are appropriately disciplined. Accrediting bodies that
claim a zero tolerance for such behavior must support surveyor
s who report inappropriate behavior. Further, to punish an indivi
dual for reporting such behavior and abuse is tantamount to bein
g complicit with allowing inappropriate behavior to continue. T
he healthcare industry has a long history of making excuses for
allowing abusive behavior. Failure to effectively address such b
ehavior must not be tolerated in a civil society.
Disruptive physicians can have a negative impact on an organiz
ation’s staff and ultimately affect the quality of patient care. Ha
ving the right policies in place as they relate to conflict resoluti
on is a must for an effective working environment. Criteria othe
r than academic credentials (e.g., a physician’s ability to work

with others) should be considered before granting medical staff
privileges. The reality check illustrates how disruptive physicia
n behavior can be harmful to patients, staff, and hospital survey
ors who are on site to examine the hospital’s quality of care.
Privileges Denied: Inability to Work with Others
The court, in Ladenheim v. Union County Hospital District,21 h
eld that the physician’s inability to work with other members of
the staff was sufficient grounds to deny him staff privileges. Th
e physician’s record was replete with evidence of his inability t
o work effectively with other members of the hospital staff. As
stated in Huffaker v. Bailey,22 most courts have found that the
ability to work smoothly with others is reasonably related to the
objective of ensuring patient welfare. The conclusion seems jus
tified because healthcare professionals frequently are required t
o work together or in teams. A staff member who, because of pe
rsonality characteristics or other problems, is incapable of getti
ng along with others could severely hinder the effective treatme
nt of patients.
Rage in the O.R.
For generations, bad behavior by doctors has been explained aw
ay as an inevitable product of stress or tacitly accepted by admi
nistrators.…But that time-
honored tolerance is waning…as a result of regulations imposed
in 2009 by the Joint Commission, the group that accredits hospi
tals. These rules require hospitals to institute procedures for dea
ling with this drop of behavior, which can take passive forms su
ch as refusing to answer pages or attend meetings. The commiss
ion has called for a “zero tolerance” approach.
—Sandra G. Boodman, The Washington Post, March 5, 2013
Disruptive Physician
Stephen, a hospital administrative consultant, selected a comple
x case on the 10th floor orthopedic unit for review. Stephen revi
ewed the patient’s record. Following several questions about the
patient’s care, a staff nurse asked, “Would you like Dr. Willia

ms, the orthopedist, to discuss this case with you?” Stephen said
, “Sure, that will be fine.” Dr. Williams soon arrived and appear
ed a bit disturbed that he had been summoned. Stephen introduc
ed himself and said that he just had a few questions he would li
ke to ask. Stephen asked Dr. Williams which diagnoses the patie
nt related to the organization at the time of admission and which
diagnoses were made during the course of the patient’s hospital
ization. Dr. Williams said, “I am treating the patient for her orth
opedic problems, not all of these other diagnoses.” Following a
few questions with the physician, Stephen asked to interview th
e patient. Dr. Williams agreed, “OK.” Stephen asked, “Could yo
u please ask the patient if I could speak with her?” Dr. Williams
said, “That’s not necessary.” Dr. Williams and Stephen walked
to the entrance of the patient’s room. Stephen waited outside the
patient’s room. Dr. Williams walked into the patient’s room, re
turned to the hallway, and said, “The patient was sleeping, but I
woke her up.”
Upon entry to the patient’s room, realizing Dr. Williams had for
gotten Stephen’s name, Stephen introduced himself to the patien
t. Dr. Williams asked Stephen if he wanted him to leave the roo
m. Stephen, politely, said, “You can stay if you would like.”
The patient said, “Oh, I know what you do. My husband is a nur
se.” Stephen smiled and asked about her care. She said that it w
as excellent. She said the food could be better but she was pleas
ed with her overall care. She talked about her hip fracture and b
ack problems. Dr. Williams, interrupting the conversation, proc
eeded to tell the patient about her orthopedic issues. He describ
ed in explicit and frightening detail how the discs in her back w
ere collapsing and how things could progress and how she could
eventually be confined to a wheelchair.
Following his brief conversation with the patient, Stephen said,
“You will be all right.” The patient smiled and said, “Thank you
.” Upon leaving the room, Dr. Williams asked, “What kind of do
ctor are you?” Stephen replied, “I am not a doctor; I am an admi
nistrative consultant.” Not having listened to Stephen’s answer,
Dr. Williams said in a threatening manner, just outside the patie

nt’s room, “Don’t you ever tell one of my patients they are goin
g to be OK!” Stephen said calmly, “I was not speaking clinicall
y; I was relating a compassionate goodbye to the patient.” Steph
en then extended his hand to Dr. Williams, saying, “Thank you f
or your time.” Dr. Williams shook Stephen’s hand and then quic
kly walked away down the corridor.
Discussion
1. What action, if any, should the hospital consider taking to in
vestigate the physician’s behavior? Discuss your answer.
2. What information should Stephen share with the corporate le
aders, if any? Discuss your answer.
3. Dr. Williams later apologized to Stephen for his conduct, sta
ting that he thought Stephen was a physician and believed him t
o be out of place for saying that his patient would be OK. Discu
ss how this affects how you would handle the conversation betw
een Stephen and Dr. Williams.
In another case, the court, in Pick v. Santa Ana-
Tustin Community Hospital,23 held that the petitioner’s demons
trated lack of ability to work with others in the hospital setting
was sufficient to support the denial of his application for admiss
ion to the medical staff. There was evidence that the petitioner
presented a real and substantial danger to patients treated by hi
m and that the patients might receive less than a high quality of
medical care.
Suspend Privileges
A physician who challenges a board’s decision to suspend his m
edical staff privileges will find that a court will generally uphol
d the board’s decision in a legal action. As was the case in Bouq
uett v. St. Elizabeth’s Corp.,24 where an ophthalmologist broug
ht an action to challenge suspension of his medical staff privile
ges after a felony conviction in a federal court for conspiracy to
distribute Dilaudid. He later was sentenced to 5 years of incarc
eration. On appeal, the Ohio Supreme Court held that the convic
tion of the ophthalmologist justified summary suspension of the
physician’s staff privileges pursuant to a hospital bylaw permitt
ing summary suspension in the best interest of patient care in th

e hospital. A governing body has broad discretion in determinin
g who shall be granted medical staff privileges. Unless an organ
ization has been arbitrary and/or capricious or has abused its dis
cretion, the courts generally will not interfere with a board’s de
cision to suspend physicians convicted on drug-
related felony charges.
Enforce Standards of Professional Ethics
Meyers applied for medical staff privileges. Shortly thereafter, t
he Credentials Committee, the Medical Executive Committee (
MEC), and the board of the hospital approved Meyers for appoi
ntment to the medical staff. All initial appointments to the medi
cal staff were provisional for 1 year.
Within a year of Meyers’s initial appointment, the Credentials C
ommittee began to evaluate Meyers for advancement to active st
aff. The Credentials Committee was concerned about Meyers’s h
istory: moving from hospital to hospital after disputes with hosp
ital staff; his failure to fully, and in a timely manner, disclose d
isciplinary and corrective action taken against him in another st
ate; and the quality of his patient care. The MEC voted to accep
t the Credentials Committee decision to revoke Meyers’s staff p
rivileges. The MEC then recommended to the board the revocati
on of Meyers’s privileges.
The board notified Meyers that a three-
member board committee would conduct an independent review.
This committee discussed concerns about Meyers’s behavior an
d his inability to get along with others, in addition to questions
about his surgical technique. The committee questioned Meyers
about several incident reports concerning disruptive behavior, h
is history of problems at other hospitals, his failure to complete
medical records, his hostility toward the operating room staff (e
.g., reports of breaking the sterile field), and his failure to provi
de appropriate coverage for patients while he was out of town.
Meyers did acknowledge that he had a personality problem.
The three-
member committee of the board voted to deny Meyers’s appoint
ment to active staff. The reasons cited for the committee’s decis

ion were Meyers’s failure to satisfy requirements that he abide
by the ethics of the profession, work cooperatively with others,
complete medical records in a timely manner, and abide by hosp
ital standards. The committee outlined Meyers’s pattern of rude,
abusive, and disruptive behavior that included, but was not limi
ted to, temper tantrums, attempted interference with the right of
an attending physician to refer a patient to the surgeon of his c
hoice or to transfer the patient, condescending remarks toward
women, refusal to speak to a member of his surgical team durin
g surgical procedures, and several instances of throwing a scalp
el during surgery. The committee informed Meyers that this beh
avior could have an adverse effect on the quality of patient care.
As for his failure to complete timely medical records, the com
mittee stated that delinquent records can place patients at risk.
The committee issued its recommendation that Meyers not be re
appointed to the hospital’s staff because of his failure to meet et
hical standards and his inability to work cooperatively with othe
rs. In May, the board adopted and affirmed the Fair Hearing Co
mmittee’s recommendation. Ultimately, after further appeals, th
e board revoked Meyers’s privileges.
Meyers brought suit, seeking a permanent injunction to require t
he hospital to reinstate him to staff. The court denied Meyers’s
motion. Quality patient care requires that physicians possess at l
east a reasonable ability to work with others. The board was con
cerned that Meyers’s behavior would continue resulting in a pati
ent injury.25
Duty to Be Financially Scrupulous
Healthcare organizations searching for alternate sources of inco
me must do so scrupulously and not find themselves in what cou
ld be construed as questionable corporate activities. Smith v. va
n Gorkum26 involved a board of directors that authorized the sa
le of its company through a cash-
out merger for a tendered price per share nearly 50% over the m
arket price. Although that might sound like a good deal, the gov
erning body did not make any inquiry to determine whether it w
as the best deal available. In fact, it made no decision during a

hastily arranged, brief meeting in which it relied solely on the C
EO’s report regarding the desirability of the move. The Delawar
e Supreme Court held that the board’s decision to approve a pro
posed cash-
out merger was not a product of informed business judgment an
d that it acted in a grossly negligent manner in approving amend
ments to the merger proposal.
A triable claim of illegal fee splitting was stated in Hauptman v.
Grand Manor Health Related Facility, Inc.,27 by the allegations
of a psychiatrist that a nursing home barred him from continuin
g to treat its residents unless he joined a professional corporatio
n, the members of which included owners of the nursing home.
Under the proposed agreement, the nursing home would retain 2
0% of the fees collected on his behalf. Although Section 6509(a
) of the New York Education Law does not prohibit members of
a professional corporation from pooling fees, the statute did not
apply to forced conscription into a corporation at the price of s
urrendering a portion of one’s fees unwillingly. Likewise, Title
8, Section 29.1[b][4] of the New York Compilation of Codes an
d Rules expressly forbids a professional corporation from chargi
ng a fee for billing and office expenses based on a percentage of
income from a practice. The psychiatrist’s allegations also sho
wed possible violation of New York Public Health Law § 2801(
b), which prohibited exclusion of a practitioner on grounds not r
elated to reasonable objectives of the organization.
A California bank, in Lynch v. Redfield Foundation,28 refused t
o honor corporate drafts unless all trustees concurred. They coul
d not agree, and funds in a noninterest-
bearing account continued to grow in principal from $4,900 to $
47,000 over a 5-
year period. Although two trustees did try to carry on corporate
functions despite a dissident trustee, their good faith did not pro
tect them from liability in this case. The money could have been
transferred to at least an interest-
bearing account without the third trustee’s signature. The truste
es were held jointly liable to pay to the corporation the statutor

y rate of simple interest.
Duty to Require Competitive Bidding
Many states have developed regulations requiring competitive b
idding for work or services commissioned by public organizatio
ns. The fundamental purpose of this requirement is to eliminate
or at least reduce the possibility that such abuses as fraud, favor
itism, improvidence, or extravagance will intrude into an organi
zation’s business practices. Contracts made in violation of a stat
ute are considered illegal and could result in personal liability f
or board members, especially if the members become aware of a
fraudulent activity and allow it to continue. The mere appearan
ce of favoritism toward one contractor over another could give r
ise to an unlawful action. For example, a board member’s pressi
ng the administrator to favor one ambulance transporter over ot
hers because of his or her social acquaintance with the owner is
suspect. An organization’s governing body should avoid even th
e appearance of wrongdoing by requiring competitive bidding.
Board Fails the Community
At a time when many hospitals were on the brink of bankruptcy
and struggling to survive, Brad, the administrator of Hospital A,
one of three in a multihospital system, had a positive bottom li
ne of approximately $6 million. The hospital was located in an
upscale, affluent community. The corporate directors siphoned o
ff funds from Hospital A for many years to support the operatio
ns and pet capital projects of two of the system’s failing hospita
ls. Meanwhile, Hospital A was suffering from lack of supplies a
nd funds for Hospital A’s capital projects, leading to a slow det
erioration of Hospital A’s facilities. The physicians and commu
nity members, aware of the positive bottom line, were disturbed
that Hospital A’s funds from operations and what few donation
s being made were allocated to fund the day-to-
day operations of the system’s failing two hospitals. As a result,
it was difficult to get community members to donate to their o
wn community hospital. The community had no trust their donat
ions would remain in the community.

The needs of the hospital continued to suffer as corporate leader
ship was expanding nonrevenue-
producing projects, relocating corporate offices to more costly s
ites, building lavish office suites, adding staff with vague job de
scriptions that only served to burden and penalize the revenue-
producing entities, and jeopardizing patient care with their pet p
rojects by deluging hospital staff with paperwork so they could
produce even more paperwork to justify their own existence. Ho
spital staff felt that corporate staff had become an obstacle to th
e provision of quality patient care. No relief from battlefield fat
igue seemed to be on the horizon.
Brad was able to work with a variety of local community leader
s (e.g., a banker, lawyer, physician, newspaper editor, and real e
state agent) to establish a fundraising board whose mission was
to oversee the local fundraising process and help assure that don
ations were used for Hospital A’s needs. Although many of the
corporate leaders privately objected to the concept, the board re
luctantly recognized the community fundraising board’s existen
ce, hoping to make inroads into the pockets of the wealthy. Wit
h half-
hearted support by corporate leadership, the death of many of th
e board’s founding fathers, and eventual resignation of battle fat
igued Brad, who had developed community trust, the community
board slowly faded out of existence under the leadership of the
administrators that followed him. As Brad predicted and relayed
to the board prior to his departure, you will lose your best hosp
ital because you failed to recognize its needs that served the nee
ds of the community.
Discussion
1. Discuss the ethical issues related to Brad’s dilemma regardin
g cash flow to other entities in the corporation. Do you consider
this an isolated incident or an all too frequent occurrence with t
he rise of multihospital systems?
2. Discuss what steps you would take to resolve the resource all
ocation issues if you were in Brad’s position.
3. Discuss the community’s reluctance to donate to the local ho

spital. What would you do?
Duty to Avoid Conflicts of Interest
A conflict of interest involves those situations in which a perso
n has opportunity to promote self-
interests that could have a detrimental effect on an organization
with which he or she has a special relationship (e.g., employee,
board member). The potential for conflict of interest exists for i
ndividuals at all levels within an organization. Disclosure of pot
ential conflicts of interest should be made so that appropriate ac
tion may be taken to ensure that such conflict does not inapprop
riately influence important organizational and/or health care dec
isions. Board members, physicians, and employees are required
by most organizations to submit a form disclosing potential conf
licts of interest that might negatively impact the organization’s
reputation or financial resources.
Governing body members must refrain from self-
dealing and avoid conflict-of-
interest situations. Each board member should submit in writing
all outstanding voting shares (where applicable) or any relation
ships or transactions in which the director might or could have a
conflict of interest. Membership on the governing body or its c
ommittees should not be used for private gain. Board members a
re expected to disclose potential conflicts of interest and withdr
aw from the boardroom at the time of voting on such issues. Bo
ard members who suspect a conflict of interest by another board
member have a right and a duty to raise pertinent questions reg
arding any potential conflict. Conflict of interest is presumed to
exist when a board member or a firm with which he or she is as
sociated may benefit or lose from the passage of a proposed acti
on.
Membership on the governing body of a nonprofit organization i
s deemed a public service. Neither the court nor the community
expects or desires such public service to be turned to private gai
n. Thus, the standards imposed on board members regarding the
investment of trust funds, self-
dealing transactions, or personal compensation may be stricter t

han those for directors of business corporations.
The essential rules regarding self-
dealing are clear. Generally, a contract between the organizatio
n and a trustee financially interested in the transaction is voidab
le by the organization in the event that the interested trustee spo
ke or voted in favor of the arrangement or did not disclose fully
the material facts regarding his or her interest. This resolution
of the self-
dealing problem is based on the belief that if an interested board
member does not participate in the governing body’s action and
does make full disclosure of his or her interest, the disintereste
d remaining members of the governing body are able to protect t
he organization’s interests. Statutory provisions in some states s
pecifically forbid self-
dealing transactions altogether, irrespective of disclosure or the
fairness of the deal.
Duty to Provide Adequate Insurance
One basic protection for tangible property is adequate insurance
against negligence, fire, and other risks. This duty extends to k
eeping the physical plant of the corporation in good repair and a
ppropriating funds for such purpose when necessary.
The duty of the governing body is to purchase insurance against
different risks. Organizations face as much risk of losing their t
angible and intangible assets through judgments for negligence
as they do through fires or other disasters. When this is true, the
duty to insure against the risks of fire is as great as the duty to
insure against the risks of negligent conduct.
Criminal Activity Insurance Settlement
Johns Hopkins Hospital agreed to a $190 million settlement as t
he result of Dr. Nikita Levy’s secret taping of patients during pe
lvic examinations. An investigation was begun and Dr. Levy wa
s later found dead at home, which was attributed to suicide. The
hospital stated that the settlement would be paid by insurance.
But many legal and ethical questions remain unanswered—
for example, how was Dr. Levy able to go undetected for so ma
ny years? The “patient’s rights to privacy,” amongst many other

s, were severely violated. The pain and suffering will not be reli
eved by this settlement. Placement of this case is difficult in an
y particular chapter. So this chapter may be most appropriate as
ultimately it is the hospital’s responsibility to be ever vigilant f
or both negligent and criminal acts that impact the lives of the v
ery patients it serves to heal. Peer review must not be merely a
process for meeting regulatory requirements. The time is now fo
r hospital boards to improve the process and consider the pros a
nd cons of a profession’s process of self-review.
Duty to Comply with Law
The governing body in general and its agents (assigned represen
tatives) in particular are responsible for compliance with federal
, state, and local laws regarding the operation of the organizatio
n. Depending on the scope of the wrong committed and the inten
t of the governing body, failure to comply could subject board
members and/or their agents to civil liability and, in some insta
nces, to criminal prosecution. The organization and its designat
ed officers are responsible to address deficiencies identified dur
ing inspections by both governmental and nongovernmental age
ncies.
Failure to comply with applicable statutory regulations can be c
ostly. This was the case in People v. Casa Blanca Convalescent
Homes,29 in which there was evidence of numerous and prolong
ed deficiencies in resident care. The nursing home’s practice of
providing insufficient personnel constituted not only illegal pra
ctice, but also unfair business practice in violation of Section 1
7200 of the California Business and Professions Code. The trial
court was found to have properly assessed a fine of $2,500 for e
ach of 67 violations, totaling $167,500, where the evidence sho
wed that the operator of the nursing home had the financial abili
ty to pay that amount.
Duty to Comply with Accreditation Standards
The governing body is responsible for compliance with applicab
le standards promulgated by accrediting bodies. Noncompliance
could cause an organization to lose accreditation, which in turn
could provide grounds for third-

party reimbursement agencies (e.g., Medicare) to deny payment
for treatment rendered to patients.
Cardiologists Flagging Woeful Patient Care Say They Paid with
Their Jobs
San Jose, CA—
When a California cardiologist and cardiac surgeon went to thei
r superiors complaining of woeful patient care at their hospital,
one had her job shifted to a satellite outpatient clinic, while the
other’s contract was terminated. Now, as their ensuing lawsuit
—naming two additional cardiologists among the defendants—
moves into its next phase, the plaintiffs have given an exclusive
interview to heartwire detailing their experiences.
• • •
Some of their complaints have already been upheld. For exampl
e, the JC—a not-for-
profit organization that accredits over 19,000 health care organi
zations in the U.S.—
put the SCVMC on “conditional accreditation” for six months in
2010/2011.
—Lisa Nainggolan, heartwire, January 25, 2012
The findings by Joint Commission surveyors, for example, durin
g accreditation surveys must be addressed and corrected. Consul
tative remarks are often offered during a survey to highlight an
area of concern that should also be taken seriously by the organi
zation. They should be regarded as significant in identifying are
as needing corrective action, as are the written reports provided
by surveyors at the time of a survey.
Conflicts of Interests
The articles below describe how pervasive the conflicts of inter
est are between inspection agencies and accrediting bodies.
Hospital Accreditation and Conflicts of Interest
The mission of accrediting bodies is to improve the quality of c
are rendered in the nation’s hospitals through its survey process
. The Joint Commission (JC), an accrediting body in the healthc
are industry, for example, is dependent upon the hospitals it sur

veys/inspects to reimburse it for the costs of those surveys. This
means the JC needs to maintain satisfied clients, and in so doin
g, a conflict arises. How credible can a survey be when the accr
editing body is dependent on the organizations it surveys for fin
ancial survival? Further, hospitals evaluate the performance of t
he surveyors. The survival of the surveyor in his or her job is de
pendent upon good evaluations from the contracting hospitals. C
onflicting interests here encourage surveyors/inspectors to be ca
reful about what he or she scores because of fear of retaliation b
y both the organizations surveyed and the employer. Accreditin
g organizations are far from effective in protecting the consume
r from the human errors that result in more than 100,000 deaths
and injuries annually in the nation’s hospitals.
Food Inspection Is Often Flawed
The voluntary quality control system widely used in the nation’s
$1 trillion domestic food industry is rife with conflicts of inter
est, inexperienced auditors and cursory inspections that produce
inflated ratings, according to food retail executives and other i
ndustry experts.
• • •
Suppliers “will hunt down the fastest, cheapest, easiest and leas
t-intrusive third-
party auditors that will provide the certificate” that will allow t
hem to sell their product.…until that model flips, there will cont
inue to be a false sense of security in terms of what these syste
ms offer.
—Lena H. Sun, The Washington Post, October 22, 2010
Long Waits for Generics
In general, we oppose user fees that allow a regulated industry t
o fund the regulators. A government agency can become depend
ent on the companies it’s supposed to objectively regulate, whic
h can influence decisions. In a 2006 survey…many FDA employ
ees said they felt pressured to hastily and perhaps improperly ap
prove user-

free drugs. And at least one felt the agency viewed industry, not
the American public, as its client.
—Jim Guest, Consumer Reports, November 2010
The food inspection process is similar to that of the healthcare i
ndustry. Food makers often know when inspectors will audit the
ir facilities and they vigorously prepare for those inspections. T
his was also true with hospitals up until several years ago, when
the JC decided to conduct unannounced surveys. This change o
ccurred mostly due to criticism from its own surveyors, the Cent
ers for Medicare and Medicaid Services, the public, as well as s
ome of the surveyed organizations.
Food makers often score high in their inspections and still have
recalls and outbreaks. The JC, up until several years ago, scored
hospitals. They discontinued the scoring process because of crit
icism once again from its own surveyors and others. Because of
the competition between hospitals, the surveyors were pressured
to provide high scores by the organizations they surveyed. Larg
e billboards could be seen on Florida highways advertising scor
es of 100, yet, in actuality, they may have not provided any bett
er quality of care then a hospital that scored 80. One small town
hospital advertised in a newspaper that it scored 100 on a Joint
Commission survey. This same hospital had no full-
time emergency department physician. One young lady said, “I
was home recently and saw plastered in a full page ad that my h
ometown hospital scored 100 in its most recent accreditation sur
vey. I would not take my dog to that hospital. They killed my m
om.” As with hospitals, the food companies typically pay food i
ndustry inspectors, creating a conflict of interest for inspectors
who might fear they will lose business if they do not hand out hi
gh ratings.
Accreditation in both the healthcare and food industries is plagu
ed by one major disturbing issue: There is a transparent conflict
of interest between various inspecting agencies and those entiti
es they are inspecting, placing the public’s health at risk to bene
fit their bottom line. Someone has to regulate the regulators.
Joint Commission National Patient Safety Goals

The Joint Commission is striving to improve patient safety by id
entifying national patient safety goals, as well as adding and rev
ising standards in the accreditation process. National patient saf
ety goals have included improving the patient identification pro
cess (e.g., using two patient identifiers when administering med
ications); eliminating transfusion errors; improving the effectiv
eness of communication among caregivers; timely reporting of c
ritical test results; improving the safety of medication use; redu
cing harm from anticoagulation therapy; reducing the risk of ho
spital-
acquired infections; accurately reconciling medications; commu
nicating each patient’s medication list to the next provider; prov
iding a reconciled medication list to each patient at discharge; r
educing the risk of patient harm resulting from falls; preventing
healthcare-
associated pressure ulcers; identifying and addressing safety ris
ks inherent in various patient populations served (e.g., adults, c
hildren); identifying individuals at risk for suicide; reducing the
risks for falls and injury; and developing a Universal Protocol f
or Preventing Wrong Site, Wrong Procedure, and Wrong Patient
Invasive Procedures. The protocol requires implementation of a
process verifying the correct procedure, for the correct patient,
at the correct site, including the marking of the procedure site w
ith the patient’s participation. A pre-procedure time-
out (immediately prior to surgery) requires that all participants i
nvolved in an invasive procedure unanimously agree that the cor
rect patient is on the surgical table and is about to undergo the c
orrect procedure at the correct site.
Periodically, The Joint Commission introduces new national pat
ient safety goals into its survey process. Surveyors from The Joi
nt Commission evaluate organizations at the time of an organiza
tion’s accreditation survey, determining compliance with patient
safety goals and the standards outlined in its accreditation man
ual. From time to time, goals are incorporated into the standards
section of the accreditation manual. The goals encourage compl
iance with safe practices in the delivery of patient care and are

designed to reduce the likelihood of medical errors. As a result
of the frequency of questions asked as to interpretation, implem
entation, and the periodic introduction of new goals into the sur
vey process, The Joint Commission website (http://www.jointco
mmission.org) should be referenced for current information.
Joint Commission Complaint Process
The Joint Commission has implemented a patient complaint pro
cess that requires the healthcare organizations it accredits to ed
ucate employers and employees as to their right to report safety
or quality concerns to The Joint Commission. The Joint Commis
sion policy forbids accredited organizations from taking retaliat
ory actions against employees for having reported quality of car
e concerns to The Joint Commission. Patient complaints may be
reported by:
• Email ([email protected])
• Fax (Office of Quality Monitoring at 630-792-5636)
• Mail (Office of Quality Monitoring, The Joint Commission, O
ne Renaissance Boulevard, Oakbrook Terrace, IL 60181)
• Telephone (800-994-
6610) for questions about how to file a complaint (8:30 AM to 5
:00 PM, Central Time, weekdays). NOTE: Surveyors may query
staff during the survey process as to what procedures an organiz
ation has in place for addressing quality of care concerns and ho
w employees and patients are educated as to The Joint Commiss
ion’s complaint process.
Duty to Provide Adequate and Competent Staff
Adequate staffing requires that managers not merely employ suf
ficient staff to provide patient care but also insure that each pos
ition is filled with an individual with the appropriate qualificati
ons for the job for which he or she is hired. The importance of s
ound hiring practices is well borne out in the following reality c
heck.
Matching Responsibilities with Qualifications
An off-
duty Joint Commission surveyor entered a hospital in his homet

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