10 of 279 DOCUMENTS

Copyright @ 1996, American Health Lawyers Association

Journal of Health Law

May, 1996 / June, 1996

Vol. 29, No. 3, HOSPLW Pg. 135

LENGTH: 9645 words

TITLE: Hospital Liability For Independent Contractors: A Practitioners' Guide to Handling Ostensible Agency Issue in
Medical Negligence Trial

AUTHOR: John A. Micheaels * and Elizabeth C. Painter **

* Partner, Beale & Micheaels, P.C., Phoenix, Az.; B.A., 1974, Univ. of California, Santa Barbara; J.D., 1979, Univ. of California,
Davis.
** Associate, Beale & Micheaels, P.C., Phoenix, Az.; B.A., 1987, Univ. of Arizona; J.D., 1991, Univ. of Arizona.

TEXT:

INTRODUCTION

Hospitals routinely contract with independent physician groups for emergency medicine, radiology, anesthesiology and
other critical health care provider services. n1 These independent groups, in turn, employ physicians or corporations of
physicians, to provide these services to the hospital. When these independent physicians, are subject to claims of
misconduct, courts have traditionally relieved the hospital of liability. n2 However, that tradition is changing; courts
across the country have now held hospitals potentially liable for the alleged negligence of these physicians under an
ostensible agency theory. n3 Through a hypothetical case, this article summarizes the current law regarding hospital
liability for independent contractors. It then addresses trial issues and provides practical suggestions for handling an
ostensible agency claim in a medical negligence case.

n1 Health Care Services across a broad spectrum are being integrated into "cradle to grave" delivery systems that provide not only
acute hospital care, but long-term nursing care and full range outpatient services: physician office visits, diagnostic radiology,
pharmaceutical sales and the like. In fact, such integration already is occurring on a large scale. Hospitals and doctors across the country are
forming provider networks under a number of different models ranging from the full integration of Kaiser-Permanente, where a single
provider owns all the medical facilities and employs doctors on a salaried basis, to loose contractual arrangements in which a management
entity provides coordination and billing services for otherwise independent providers. John D. Colombo, Health Care Reform & Federal
Tax Exemption: Rethinking the Issues, 29 WAKE FOREST L.REV.215, 216 (1994).
n2 In the medical setting, physicians have traditionally been treated as independent contractors rather than employees, relieving the
hospital of vicarious liability for their negligent acts. Barry R. Furrow, Enterprise Liability & Health Care Reform: Managing Care &
Managing Risk, 39 ST. LOUIS U. L.J. 86-870.
n3 Hospitals are frequently held responsible for the mistakes of physicians and other professionals who are independent contractors
rather than employees when they are found to be apparent or ostensible employees. Marilyn M. Pesto, Special Problems of the Hospital as
Defendant, C503 ALI-ABA 77, 82 (1990). Emergency room physicians, radiologists and anesthesiologists are most often found by the
courts to be ostensible agents of the hospital. Id. The potential liability of the hospital for mistakes of these health care professionals does not
depend upon whether the professionals are called employees, but rather upon the presence of an indicia of an employment relationship. Id.

HYPOTHETICAL CASE

Facts
A twenty-year-old woman who has recently delivered a baby presents to Hospital A's emergency room with a history of
six-days post-partum, fever, abdominal pain, and vaginal discharge. She receives initial nursing care and is, then,
examined by an emergency room physician who diagnoses endometritis. The physician decides to admit the patient and
consults an obstetrical resident who contacts the patient's attending obstetrician at Hospital B across town. After
consultation regarding the patient's condition, the attending obstetrician directs that the patient be transferred to Hospital
B so that he can provide care at that hospital. The emergency room physician prepares the patient for transfer and signs
the consent for transfer form required by federal law. n4 The patient arrives at Hospital B and within twenty-four hours
dies from a rare toxin- producing organism that had infected the patient's uterus.

n4 42 U.S.C.A. § 1395dd (West Supp. 1995) Examination and Treatment for Emergency Medical Conditions and Women in Labor
Act. Under this provision, a patient has no cause of action against a physician for violating the requirements of an appropriate patient
transfer. The provision holds only the hospital liable. 42 U.S.C.A. § 1395dd(d)(2)(A)(I) (West Supp. 1995).

The patient's family sues Hospital A for the alleged negligence of the emergency room physician under an
ostensible agency theory. The suit against Hospital A is also based on the alleged negligence of the nursing staff and the
resident. The resident is named as a defendant, though the emergency room physician is not. n5

n5 Typically, the emergency room physician is named as a defendant though the identity of individual physicians may be difficult to
ascertain before the limitations period expires on a claim. If the individual physician is not named and the hospital moves successfully for
summary judgment on the ostensible agency theory, the plaintiff will not have a defendant against whom to pursue the action.

The emergency room physician is an employee of ABC, a corporation formed by three emergency room physicians.
ABC contracts with a private physician group, Emergency Medicine Group (EMG), which is a general contractor
providing emergency medical services. n6 According to the written contract with EMG, ABC is an independent
contractor responsible for procuring its own malpractice insurance. EMG contracts with Hospital A to staff emergency
medicine needs. By written contract with Hospital A, EMG sets physician hours, bills patients separately, pays the
physicians a salary, maintains its own liability insurance and otherwise controls the delivery of emergency medical
services. This contract with the hospital also expressly provides that EMG is an independent contractor. However,
Hospital A supplies emergency medicine equipment and provides the facility in which treatment is given. Hospital A
also posts a sign in its emergency room waiting area stating that emergency room physicians are EMG employees and
that patients will be billed separately for its services.

n6 Although this hypothetical is limited to emergency room physicians, radiologist, anesthesiologists and other physicians form private
physician groups which contract with other groups or hospitals directly to provide hospital services. As discussed infra, courts seem more
willing to impose ostensible agency liability for the alleged negligence of emergency medicine physicians since the patient rarely has choice
of selection or is in a position to chose health car providers.

Jury Instructions
The case proceeds to a jury trial. With regard to Hospital A's liability for the emergency room physician's alleged
negligence, the trial judge instructs the jury as follows: n7

If Hospital A allowed the physician to function as an emergency room physician in such a way as to
cause the consuming public to have the reasonable impression that the physician was an actual agent or
employee of the hospital, then Hospital A would be liable for the physician's conduct. In determining
whether the physician is an apparent agent his actual employment status with the hospital is immaterial.
The factors which you should consider in deciding whether the physician was an apparent agent of
Hospital A include the following: (1) whether a reasonable person in the patient's position could have
reasonably believed that the physician was an agent or employee of Hospital A; n8 (2) whether Hospital
A holds out its emergency room as an integral part of the hospital; n9 (3) whether patients coming to the
emergency room, such as the patient, do so because of their desire to be treated by Hospital A or, in the
alternative, by a specific emergency room physician; n10 (4) whether Hospital A selects the physician
that will see the patient or the patient selects his or her own emergency room physician. n11

Plaintiffs have the burden of proof on this issue. n12

 n7 A Maricopa County Superior Court judge in Phoenix, Arizona read this instruction to a jury in a medical negligence action in a
November 1995 trial involving facts similar to the hypothetical.
n8 Thus, while the doctrine was established to protect the necessarily subjective reliance of a particular plaintiff, the court established
an objective standard whereby the plaintiff need only prove only that the hospital's actions would have led any reasonable person to draw the
same conclusion. Pamperin v. Trinity Memorial Hospital, 144 Wis. 2d 188, 423 N.W.2d 848 (Wis. 1988).
n9 Hannola v. City of Lakewood, 426 N.E.2d 1187, 1190 (Ohio Ct. App. 1980). By calling itself a "hospital" and by being a full-
service hospital including an emergency room as part of its facilities, an institution makes a special statement to the public when it opens its
emergency room to provide emergency care for people. Id. In essence, an agency by estoppel is established by creating an effect: that is, the
appearance that the hospital's agents, not independent contractors, will provide medical care to those who enter the hospital. The patient
relies upon this as a fact and he believes he is entering a full-service hospital. Id.
n10 The critical distinction is whether the plaintiff is seeking care from the hospital itself or whether the plaintiff is looking to the
hospital merely as a place for his or her personal physician to provide medical care. Kashishian v. Al-Bitar, 194 Wis. 2d 722, 728 535
N.W.2d 105, 108 (Wis. Ct. App. 1995).
n11 Except when the patient enters a hospital intending to receive care from a specific physician while in the hospital, it is the
reputation of the hospital itself upon which a patient relies. Pamperin v. Trinity Memorial Hosp., 144 Wis. 2d 188, 212 423 N.W.2d 848, 857
(Wis. 1988).
n12 The burden of proving the existence of an agency relationship and the scope of authority is on the party seeking to charge the
alleged principal. See, e.g., Pyskaty, v. Oyama, 641 N.E.2d 552 (Ill. App. Ct. 1994).

Under this instruction, the jury finds without much deliberation that the emergency room physician was an agent of
Hospital A.

SUMMARY OF THE LAW

Traditional Concepts of Ostensible Agency

The jury instruction in the hypothetical is inconsistent with traditional concepts of ostensible agency liability. n13
Ostensible agency liability typically requires evidence of a representation by the principal that another is acting as his
agent as well as reasonable reliance on that representation by the person who claims the agency relationship. n14 In our
hypothetical, to establish traditional ostensible agency liability, the patient's family would have to prove conduct by
Hospital A which caused the patient to believe reasonably that the emergency room physician was an agent of Hospital
A and was authorized to act for the hospital. n15

n13 The key differences between traditional ostensible agency theory and the hypothetical jury instructions is that traditional ostensible
agency theory requires the existence of an affirmative representation and also is premised on the ability of the principal to control the agent.
In the context of discussing a failed attempt to adopt the new concept of "ostensible agency" in Illinois, one author described Uhr v.
Lutheran General Hosp., 226 Ill. App. 3d 236, 589 N.E.2d 723 (Ill. App. Ct. 1992), a case in which the First District Illinois Appellate Court
held that a large, full-service institution is liable for the negligence of a contract staff anesthesiologist under the new concept of "ostensible
agency." Mary A. Wells, Pillage and Plunder in Aircraft Accidents: Potential for Spoilation Penalties for Spoilation of Evidence Can Be
Serious, Including Exclusion of Evidence, Adverse Inferences and Liability for an Independent Tort, 60 DEF. COUNS. J. 280 (1993). The
author explained, "this ruling would abolish the traditional element of control in Illinois in determining whether a hospital will be vicariously
liable for the actions of a contract staff physician, most notably affecting a hospital's relationship with anesthesiologists, radiologists,
pathologists, and emergency care physicians." Id.
n14 RESTATEMENT (SECOND) OF AGENCY § 267(1958).
n15 Reed v. Gershweir, 160 Ariz. 203, 205, 772 P.2d 26, 28 (Ariz. Ct. App. 1989) (to establish apparent agency the record must reflect
that the alleged principal not only represented another as his agent but that the person who relied upon the manifestation was reasonably
justified in doing so under the facts of the case).

A recent Ohio Appeal Court decision applied traditional ostensible agency theory under similar facts. In Latham v.
Ohio State, n16 the court held an attending emergency room physician working for a private physician practice group to
be an independent contractor whose conduct was not imputable to Ohio State University Hospital as a matter of law.
The plaintiff argued the physician was an ostensible agent of the physician. n17 The court found the physician was an
independent contractor of the hospital. Moreover, the court rejected the plaintiff's ostensible agency theory finding no
evidence that the hospital made representations leading the plaintiff to believe the negligent physician was operating as
an agent nor that plaintiff was, thereby, induced to rely upon an alleged ostensible agency relationship. n18 Further, the
plaintiff produced no evidence that the hospital made representations holding out to the general public that the attending
physician was its agent. n19 Therefore, the court rejected ostensible agency liability:
 Patients rarely, if ever, would elect to receive emergency medical care at a particular hospital based on
the contractual arrangement between the hospital and staff physicians. Most probably, hospitals are
typically chosen on the basis of the geographic proximity of the emergency room to the injury, condition
or accident. . . . [A] person needing emergency care does not exercise deliberate and informed choice or
"shop around" for emergency medical care services. Nor is a decision likely ever to be made based upon
the employment structure contained within the hospital. n20

n16 594 N.E.2d 1077 (Ohio Ct. App. 1991).

n17 Id.
n18 Id. at 1080.
n19 Id.
n20 Id.

In Latham, the plaintiff testified that she chose the Ohio University Hospital because her sister had referred her
there. Without proof that the patient relied on the physician's alleged agency status, the court affirmed judgment in favor
of Ohio State University Hospital.
Several jurisdictions have followed Latham's approach under similar circumstances. n21 These courts have refused,
as a matter of law, to impose vicarious liability upon a hospital until the patient or the patient's family can establish: 1)
that the hospital made an affirmative representation that the physician was acting as its agent; and 2) that the patient
reasonably relied upon such representation. n22

n21 See, e.g., Porter v Sisters of St. Mary, 756 F.2d 669 (8th Cir. 1985) (affirming j.n.o.v. for hospital on ostensible agency claim
because emergency room physician was employed by general contractor which paid physician and billed patients. Mere possibility that
plaintiff may have considered physician to be a hospital employee insufficient as a matter of law); Lopez v. Central Plains Regional Hosp.,
859 S.W.2d 600 (Tex. Ct. App. 1993) (affirming summary judgment for hospital on ostensible agency claim based on fact that hospital had
no contract with physician, did not control method of work or bill patients directly, and plaintiff presented no evidence of justifiable
reliance); Holmes v. University Health Serv., 423 S.E.2d 281 (Ga. Ct. App. 1992) (affirming summary judgment for hospital on plaintiffs'
ostensible agency claim because plaintiff had no evidence that hospital held out emergency room physician as agent or justifiable reliance.
Contract stated doctors were independent contractors, hospital did not select, pay or control manner of treatment); Strickland v. Dekalb
Hosp. Auth., 397 S.E.2d 576 (Ga. Ct. App. 1990) (affirming summary judgment for hospital on ostensible agency theory because no
evidence hospital caused patient to rely upon care and skill of independent contractor emergency room physician); West End Investments of
Atlanta, v. Hills, 372 S.E.2d 665 (Ga. Ct. App. 1988) (affirming summary judgment for hospital under theory of apparent agency absent
evidence that hospital led patient to believe the internist was its employee and patient justifiably relied on any such representation).
n22 Gilbert v. Sycamore Municipal Hosp., 622 N.E.2d 788 (Ill. 1993). See also Dennis Ferraro, Apparent Agency:
Estoppel/Detrimental Reliance/Proximate Cause -- An Evolution From Case Law to Statute, 29 J. OF HEALTH & HOSP. L., 38 (1996).

Under traditional ostensible agency theory, the court in our hypothetical would have instructed the jury differently.
As such, the jury would not likely have imposed vicarious liability on Hospital A. The facts in the hypothetical present
an even stronger case than those in Latham for not imposing liability against the hospital. The emergency room
physician in the hypothetical is an employee of a corporation which has contracted with a private physician practice
group with whom the Hospital contracts to provide emergency room services. Thus, the physician has no direct
contractual relationship with the Hospital. Additionally, the hospital in the hypothetical posted a sign to inform patients
that the physician is not a hospital employee or agent. The patient's family also has no evidence of reliance; n23 the
patient's family has no evidence that Hospital A made any affirmative representations leading the patient to believe that
the emergency room physician was operating as a hospital agent.

n23 Any conversation between the patient and the patient's family about the reasons for choosing one hospital over another may be
excluded from trial as inadmissible hearsay evidence. FED R. EVID. 801.

Traditional Concepts Rejected

Though the Latham decision remains good law in the Tenth District, other districts overseen by the Ohio Appeals Court
as well as other jurisdictions have sharply criticized the Latham decision and consider it an aberration. n24 Essentially
rejecting traditional ostensible agency law, these jurisdictions appear to impose automatic ostensible agency liability on
full-service hospitals that offer patients emergency medical services. n25 An early Ohio opinion, Hannola v. City of
Lakewood, n26 explains that the policy behind this national trend is the general image that all hospitals seem to project
to the community at large and the public's perception of this image. The Hannola court explained:

The image of modern hospitals as centers of medical practice of the highest quality is understandably
cultivated by the hospitals themselves. Nonprofit hospitals do not, of course, advertise as such. But they
do maintain a high degree of visibility in the community through fund-raising campaigns, community
relations programs, public service programs, press releases and the like, all presenting the hospital as a
unified institution vital to community health, rather than as a mere physical shell in which private
physicians practice their profession.

The public, however, has been led to accept its image of the hospital as the correct one; it relies upon this
image in its willingness to make use of hospital facilities. Public outrage, and possibly even an effect in
admissions at a typical hospital, would surely follow a public announcement by the hospital that it
regards all staff doctors as completely independent professionals, conducts no supervision of their
performance and takes no interest in their competence. The public assumes, correctly or not, that the
hospital exerts some measure of control over the medical activities taking place there. n27

n24 See Clark v. Southview Hosp. & Family Health Ctr., 628 N.E.2d 46 (Ohio 1994) (criticizing the Albain v. Flower Hosp., 50 Ohio
St. 3d 251, 553 N.E.2d 1038 (Ohio 1990) decision upon which Latham relies).
n25 See, e.g., Stewart v. Midani, 525 F. Supp. 843 (N.D. Ga. 1991); Clark v. Southview Hosp. & Family Ctr., 628 N.E.2d 46 (Ohio
1994); Brownsville Medical Ctr. v. Garcia, 704 S.W.2d 68 (Tex. Ct. App. 1985); Irving v. Doctors Hosp. of LakeWorth, Inc., 415 So. 2d 55
(Fla. Dist. Ct. App. 1982); Edmonds v. Chamberlain Memorial Hosp., 629 S.W.2d 28 (Tenn. Ct. App. 1981); Capan v. Divine Providence
Hosp., 430 A.2d 647 (Pa. Super. Ct. 1980); Arthur v. St. Peters Hosp., 430 A.2d 647 (Pa. Super. Ct. 1980); Grewe v. Mount Clemens Gen.
Hosp., 273 N.W.2d 429 (Mich. 1978); Adamski v. Tacoma Gen. Hosp., 579 P.2d 970 (Wash. Ct. App. 1978); Mehlman v. Powell, 378 A.2d
1121 (Md. 1977); Mduba v. Benedictine Hosp., 52 A.D.2d 450; Seneris v. Haas, 291 P.2d 915 (Cal. 1955).
n26 426 N.E.2d 1187 (Ohio Ct. App. 1980), quoting Note, Independent Duty of a Hospital to Prevent Physicians' Malpractice, 15
ARIZ. L. REV. 953, 967 (1975).
n27 Id. at 66, 426 N.E.2d at 1190-1191.

Given this view, the appeals court in Hannola ultimately held that an institution purporting to be a full-service
hospital makes emergency room treatment available to serve the public, it will be estopped from denying that the
physicians and other medical personnel on duty providing treatment are its agents. As such, the Hannola court found
that a hospital could still be liable for the negligence of its emergency room physicians despite the fact that they are
independent contractors rather than employees. In Hannola, the plaintiff sued the hospital for the death of her husband
which was allegedly caused by the negligence of an emergency room physician. n28 The hospital refuted liability based
on the fact that the physician was an independent contractor employed by a private emergency physician group with
which the hospital had contracted for emergency medical services. n29 The plaintiff testified by affidavit that she knew
Lakewood's reputation for providing the highest quality medical care, and she and her late husband sought emergency
care there because of that reputation and the hospital's reputation induced her to seek emergency treatment there. n30
The hospital responded with evidence that it was not the hospital, but the Foundation that hired the physicians, billed
patients directly, and maintained exclusive control over the hospital's emergency medicine services. n31 The court of
common pleas granted summary judgment in favor of the hospital.

n28 Id. at 1188.

n29 Id.
n30 Id.
n31 Id.

On appeal, the court reversed finding the hospital held itself out to the public as a full-service institution and the
patient relied upon that representation in seeking emergency medical services. n32 The court emphasized that an
emergency room is integral to a full-service hospital and that the crisis circumstances under which patients seek
emergency medical treatment often prevent a patient from choosing the physician. n33 The court concluded "sound
public policy" requires that a full-service hospital not be allowed to insulate itself contractually from the liability of its
emergency medicine physicians. n34

n32 Id. at 1190.

n33 Id.
n34 Id.

The jurisdictions that follow this approach seem to hold that a patient has a right to assume and expect that
treatment is rendered through hospital employees and that the hospital will assume responsibility for any negligence
associated with that treatment. n35 These jurisdictions reject the traditional elements of ostensible agency, such as
representation and justifiable reliance; instead, these courts seem to impose automatic vicarious liability simply because
the hospital offers full services and has developed a reputation that naturally draws patients to seek assistance. In these
jurisdictions, the alleged negligence of emergency medicine physicians will be imputed to hospitals which hold
themselves out as full-service institutions. Hospitals will be subject to liability despite: the absence of a contractual
relationship between the hospital and physician; n36 the private physician group's control over emergency medical
services and billing; n37 and the notification through signs or other writing that the physicians in the hospital are
independent contractors. n38

n35 See, e.g., Gilbert v. Sycamore Mun. Hosp., 622 N.E.2d 788 (Ill. 1993); Kashishian v, Port, 481 N.W.2d 277 (Wis. 1992); Torrence
v. Kusminsky, 408 S.E.2d 684 (W. Va. 1991); Sharsmith v. Hill, 764 P.2d 667 (Wyo. 1988); Richmond City Hosp. Auth. v. Brown, 361
S.E.2d 164 (Ga. 1987); Hill v. St. Clare's Hosp., 490 N.E.2d 823.
n36 See, e.g., Kashishian v, Port, 481 N.W.2d 277 (Wis. 1992) where the court held, "the relevant relationship in this case is between
the hospital and Temply, [the surgical independent contractor resident] not between it and any private physician with whom the plaintiff
contracted. The fact that plaintiff contracted with a private physician as her primary surgeon is not, as a matter or law, inconsistent with
hospital's having clothed Temply [the independent contractor physician] with ostensible authority to act as its agent in assisting the private
doctors. Id. at 284.
n37 See, e.g., Houghland v. Grant, 891 P.2d 563 (N.M. Ct. App. 1995) where the court explained, "the right to control test is not
always the most helpful test. The use of the right to control test in determining whether a professional is an employee has been criticized.
(Citation omitted). Requiring a physician to comply with a hospital's policies and procedures does not per se indicate that the hospital has
sufficient control over the physician to indicate an employer-employee relationship. (Citations omitted). By requiring compliance with its
policies and procedures, a hospital may be merely contributing to the maintenance of professional standards, not controlling the physician."
Id.
n38 It has been suggested, particularly by the dissent in Pamperin v. Trinity Mem. Hosp., supra, 222, 423 N.W.2d at 860, 861, that
hospitals could escape liability for the negligence of their emergency rooms regarding the legal relationship of persons rendering medical
assistance. The dissent, however, misconstrues the concept of notice. Such "notice" will rarely provide the patient with the ability to choose
at a meaningful time: "the plaintiff, who by definition is injured and under stress, is relying upon the hospital to provide the services that the
hospital has held out that it can provide." As such a sign or other written notice indicating that the hospital emergency room physicians are
independent contractors will do little to affect the type of patient reliance on the hospital for quality care when the reliance "has been
demonstrated by her walking (or being wheeled) into the emergency room." Id.

Jurisdictions that impose vicarious liability on hospitals that have independent contractor physicians acknowledge
certain measures hospitals might take to prevent ostensible agency liability, such as posting a sign advising the patient
of the physician's independent contractor relationship with the hospital. n39 However, other jurisdictions hold signs
cannot prevent ostensible agency liability when full-service hospitals offer emergency medicine services since such
notice rarely provides the patient with the ability to choose at a meaningful time. n40 These courts find patients
demonstrate reasonable reliance by simply walking into the hospital emergency room; as such, any notice after the
patient has already arrived at the hospital that some doctors and/or staff have different legal relationships with the
hospital does not diminish the reasonableness of the reliance. n41 According to these courts, informing the patient after
he or she arrives is simply too late to insulate the hospital from liability. n42

n39 See, e.g., Irving, 415 So. 2d 55, 56 (there was no sign in the emergency room or any other matter or thing that would put a person
on notice that the emergency room doctor was not an employee of the hospital). See also Pamperin v. Trinity Memorial Hosp., 423 N.W.2d
848 at 860-861 (Wis. 1988) (Steinmetz, J., dissenting).
n40 Clark, 628 N.E.2d 46, 54, n. 1 (Ohio 1994).
 n41 Id.
n42 Id.

The facts in many of these cases differ from the facts of our hypothetical. For instance, in some cases the hospitals
billed and collected payment directly from the patient, n43 paid the emergency room physician hourly, n44 selected the
emergency room physicians, n45 employed a large staff of doctors and paid their salaries, n46 billed patients without
any indication to identify the emergency room physicians as members of an independent group, n47 provided the
physician with staff privileges n48 or controlled the manner of work. n49 These factors might be relevant under a
traditional ostensible agency analysis. However, under our hypothetical jury instruction these factors make little
difference.

n43 See Clark v. Southview Hosp. & Family Ctr., 628 N.E.2d 46 (Ohio 1994) (hospital directly billed and collected payments for
emergency services); Stewart v. Midani, 525 F. Supp. 843 (N.D. Ga. 1991) (emphasizing billing and collection as pertinent factors in
holding independent contractor to be physician ostensible agent of hospital); Brownsville Medical Ctr. v. Garcia, 704 S.W.2d 68 (Tex. Ct.
App. 1985) (hospital billed patients directly).
n44 Irving v. Doctors Hosp. of Lakeworth, 415 So. 2d 55 (Fla. Dist. Ct. App. 1982).
n45 See Edmonds v. Chamberlain Memorial Hosp., 629 S.W.2d 28 (Tenn. Ct. App. 1981); Seneris v. Haas, 291 P.2d 915 (Cal. 1955).
n46 Capan v. Divine Providence Hosp., 430 A.2d 647 (Pa. Super. Ct. 1980); Arthur v. St. Peters Hosp., 405 A.2d 443 (N.J. Super. Ct.
Law. Div. 1979).
n47 Arthur v. St. Peters Hosp., 405 A.2d 443 (N.J. Super. Ct. Law. Div. 1979).
n48 Grewe v. Mount Clemens Gen, Hosp., 273 N.W.2d 429 (Mich. 1978).
n49 Mduba v. Benedictine Hosp., 52 A.D.2d 450 (N.Y. App. Div. 1976).

Under the hypothetical jury instruction, the court does not instruct the jury to consider whether: there is a contract
between the hospital and the physician; the hospital has control over emergency medical services or patient billing;
and/or there is notice by the hospital to patients about the relationship between the hospital and its emergency medical
physicians. Instead, the instruction focuses the jury's attention upon the inherently integral nature of emergency
medicine in a full-service hospital, and whether a reasonable patient would have believed that an agency relationship
existed. All other factors concerning the physician's relationship to the hospital are relevant only to the extent they relate
to the patient's reasonable belief about whether an agency relationship exists.

Courts in Transition
Some jurisdictions continue to struggle with the choice between traditional ostensible agency analysis versus the
national trend of imposing automatic liability. For instance, in Beeck v. Tucson General Hospital, n50 the Arizona
Court of Appeals found the existence of an employer/employee relationship between an emergency room radiologist
and a hospital before imposing vicarious liability against the hospital for the radiologist's alleged negligence. The court
found the following factors determinative of an employer/employee relationship: (1) the physician's employment
contract identified the physician as a department chairman, and the language of the contract seemed to assume he was
an employee of the hospital; (2) on a monthly basis, the hospital paid the radiologist and his partners 33 percent of 95
percent of the gross revenues of the X-ray department; (3) the hospital billed for the physician's services and the
physician agreed to receive no other compensation; (4) the hospital controlled working hours, vacation time, billing
time, and employment of technicians; (5) the hospital permitted an annual one month vacation during a pre-approved
time; (6) the hospital provided the necessary supplies; (7) the radiology department was a virtual monopoly (patients
could not have another radiologist examine their X-rays); (8) the patient did not choose the physician and did not have
any direct contact with the physician; and (9) the radiology service was an inherent function of the hospital. n51

n50 500 P.2d 1153 (Ariz. Ct. App. 1972).

n51 Id. at 1157-1158.

In Arizona today, Beeck is cited as the seminal case on hospital liability for independent contractor negligence
under an ostensible agency theory. n52 However, more recent Arizona opinions, while citing Beeck, follow the national
trend and impose essentially automatic liability on hospitals for the alleged negligence of independent contractor
physicians without significant discussion or analysis. n53 For instance, in Barrett v. Samaritan Health, the plaintiff sued
the hospital for alleged negligence of an emergency room physician who was an employee of a private emergency
medicine physician group. The hospital denied liability claiming the physician was an independent contractor under
the physician group's contract with the hospital. The trial granted summary judgment for the hospital based on the
physician's independent contractor status. Citing Beeck, the appellate court reversed. The appellate court held that
liability based on ostensible agency could apply based on the fact that the patient could not choose her own emergency
room physician and that emergency medical services are an integral part of a full-service hospital. Though it cited
Beeck, the appellate court seemed to rely more heavily on the national trend, which automatically finds an ostensible
agency relationship, because the court remanded the case to superior court without any instruction to consider the Beeck
factors.

n52 Barrett v. Samaritan Health Services, 735 P.2d 460 (Ariz. Ct. App. 1987).
n53 Id.

Thus, the Barrett decision exemplifies a court's struggle to reconcile traditional ostensible agency law with new
policy decisions that insist upon hospital liability for all physicians who provide services.

Physician Conduct For Which Hospitals May be Held Liable

Although vicarious liability may be imposed automatically, hospitals are not liable for all physician conduct. n54 The
courts that hold hospitals automatically liable for the alleged misconduct of emergency room physicians involve claims
of medical malpractice. n55 The decisions hold the hospitals responsible for the physician's alleged deviation from the
applicable standard of care. For example, if a physician misdiagnoses a patient, as alleged in the hypothetical, the
hospital may be held liable. Hospitals can also be held liable for a physician's alleged violation of federal law pertaining
to transfers, as in our hypothetical. n56 By contrast, hospitals are typically relieved of ostensible agency liability for
allegations of intentional misconduct by the physician or conduct outside the course and scope of the physician's
medical treatment of the patient. n57

n54 Albain v. Flower Hosp., 553 N.E.2d 1038 (Ohio 1990).

n55 See supra note 25 and accompanying text.
n56 See, e.g., Baber v. Hospital Corp. of Am., 977 F.2d 872, 877 (4th Cir. 1992); See also, Burditt v. United States Dep't of Health &
Human Servs., 934 F.2d 1362, 1374 (5th Cir. 1991) (A hospital may have an indemnity claim against a hospital for a violation of this law if
the hospital is held liable for the physician's alleged violations). Id.
n57 See generally Olson v. Staggs-Bilt Homes, 534 P.2d 1073 (Ariz. Ct. App. 1975).

Hospitals may also be held liable for negligent supervision, selection and retention of a physician. However, these
claims involve independent negligence against the hospital and, therefore, do not involve an agency analysis.

TRIAL ISSUES

Under the developing trend, ostensible agency may be the critical issue at trial. The aforementioned cases that adopted
the new approach to ostensible agency typically arise in the context of reversing a summary judgment motion for the
hospital, or affirming a jury verdict for the plaintiff on the issue. n58 In all of the cases, no court granted the plaintiff
summary judgment on the issue of ostensible agency. n59 Rather, every court remanded the case for trial on the issue in
accordance with the court's opinion.

n58 See supra note 25.

n59 See supra note 25.

In light of this current trend, counsel for the hospital must consider from the outset of all litigation the implications
of such potential liability based on ostensible agency theory. This potential liability raises various issues concerning pre-
trial strategy, discovery, evidence, jury instructions, settlement, and indemnification which should all be addressed as
early as possible.

Pre-trial Strategy
Whether or Not to Seek a Joint Defense. The threat of hospital liability for the alleged negligence of an independent
contractor physician inherently strains the hospital's relationship with these physicians. The hospital may resent
incurring defense costs and risking a potential judgment for the physician's alleged mistake. The hospital may also
believe the physician's and/or the private physician group's malpractice insurance carrier should assume responsibility
for the cost of litigation. As such, the hospital may decide to refuse responsibility for litigation costs and to advise the
physician of the hospital's position. The hospital can accomplish this by tendering its defense to the physician's carrier,
filing a pretrial motion to avoid such liability, or filing a third party complaint for indemnity against the physician
and/or the physician group. However, the hospital should first consider that these actions may make the physician feel
that the hospital blames him or her for the lawsuit and that it expects the physician to assume full responsibility for the
lawsuit even though the hospital profits from the physician's work. As such, if the hospital appears quick to accuse the
physician, he or she may be more inclined to blame other hospital personnel for the alleged error and to refuse
cooperation with the hospital in presenting a joint defense.
To avoid this situation, hospitals could adopt a uniform policy to procure malpractice insurance for each
independent contractor and to defend these physicians in every medical negligence case. The hospital and physician
would then have an incentive to work together to defeat the claim. However, the hospital would have to be prepared to
offer the physician separate counsel in the event the physician's interests conflicted with the hospital's interest. Though
it is costly in terms of insurance premiums and defense costs, this approach may be more cost-effective in the long-run
as it saves the hospital from litigating the ostensible agency issue at trial and from the risks of alienating the physician at
trial.
If we assume that the hospital will ultimately get brought into the suit based on ostensible agency theory, it may be
in the hospital's best interest to avoid alienating the physician charged with negligence as it could impede the hospitals
ability to defend itself. In particular, when the hospital denies any agency relationship with the physician, the hospital
may not be able to meet with that physician to prepare her for deposition and trial or even to learn the facts of the case.
First, defense counsel may be precluded from meeting ex parte with a patient's treating physician as a matter of state
law. n60 In our hypothetical and in most instances, the physician will have treated the patient; thus, the statute would
almost always apply. Second, if the physician's interests conflict with the interests of the hospital and the physician has
separate counsel, state laws or supreme court rules often mandate that the hospital's counsel may not meet ex parte with
the physician to prepare for trial or deposition. n61

n60 See, e.g., Duquette v. Superior Court, 778 P.2d 634 (Ariz. Ct. App. 1989).
n61 Ariz. Sup. Ct. R. 42, Ethical Rule 4.2 (1995); See also, Jordan v. Sinai Hosp. Of Detroit, 429 N.W.2d 891 (Mich. Ct. App. 1988)
(denying hospital's motion to conduct ex parte hearings with plaintiff's treating physicians).

Whether Hospital Should Tender its Defense. If it chooses not to defend its independent contractors, the hospital must
then decide whether or not to tender its defense and/or seek indemnity from the physician's carrier, as discussed below,
and/or file a pre-trial motion on the ostensible agency issue. Since the hospital is not working with the physician on a
joint defense, it is essential that the hospital adopt from the outset a consistent position on the physician's liability so
that it can respond to requests for admissions and interrogatories, and/or file a notice of non-party at fault against a
physician who is not a named defendant.

Discovery
Confirm Physician's Independent Contractor Status. If the hospital intends to deny ostensible agency liability, hospital
defense counsel must obtain evidence necessary to defeat the claim through discovery. For instance, defense counsel
must obtain from the physician a copy of his contract with the private physician group, as well as the group's contract
with the hospital. Through deposition testimony or requests for admission, counsel should try to elicit various
statements from the physician confirming that she is an independent contractor over whom the hospital has no control,
that the hospital had no involvement with the treatment at issue, and that the hospital placed patients on notice of this
relationship through a sign, admission forms, or other written materials. Clearly, the physician's cooperation is
imperative at this stage of the litigation.

No Evidence of Hospital Affirmative Representations. Hospital defense counsel must also establish that plaintiff has
no evidence of an affirmative representation by the hospital. To this end, counsel for the hospital should attempt to
discover any representations that the physician acted as the hospital's agent. Moreover, assuming counsel does discover
affirmative representations by the hospital, counsel should discover all information to show that reliance by the plaintiff
upon any such representation was not reasonable.
 However, the trend of imposing automatic agency liability on the hospital merely by virtue of its status as a full-
service hospital that provides emergency room services forebodes that all of this evidence may not defeat an ostensible
agency claim. Many courts tend to hold hospitals liable for an independent contractor's alleged negligence merely if the
hospital held itself out as a full-service institution with a good reputation. n62

n62 See supra note 25.

Evidence
Standard of Proof Under Traditional Ostensible Agency Theory. Under traditional ostensible agency theory, a plaintiff
alleging medical negligence has the burden of proving: 1) an affirmative representation by the hospital; 2) that the
physician acted as the hospital's agent; and 3) that plaintiff reasonably relied on such representation. n63 Under
traditional ostensible agency theory, plaintiffs need evidence of statements by the hospital or its agents, written
materials or uniforms/name tags issued by the hospital, evidence that the physician worked as an agent or employee of
the hospital, and evidence that the patient at issue relied upon those representations in seeking treatment from the
hospital. n64

n63 See supra notes 16-21 and accompanying text.

n64 Latham v. Ohio State Univ. Hosp., 594 N.E.2d 1077 (Ohio Ct. App. 1991).

Standard of Proof Under Modern Ostensible Agency Theory. Under the modern trend, plaintiffs can establish
representations of agency with statements by hospital administrative departments that the hospital offers twenty-four
hour emergency medical services and a fully equipped emergency room. n65 Plaintiff will try to produce promotional
and marketing materials which characterize the hospital as a full-service institution with a good reputation. n66 In
addition, to satisfy the requirement that plaintiff reasonably relied on the representation, counsel for plaintiff will
attempt to elicit plaintiff testimony that the plaintiff and/or the plaintiff's decedent knew of the hospital's good
reputation as a full-service institution. n67 Moreover, plaintiff's counsel will try to produce newspaper advertisements
touting the hospital's medical virtues and quality of care, n68 state regulations, hospital bylaws and hospital governing
board directives regarding the hospital's responsibilities for controlling its medical facilities and the quality of care
provided. n69 It would also be significant for plaintiff's case that the physician's report was issued on hospital stationary
showing the physician as director of a hospital department. n70 Also relevant to the issue of ostensible agency are the
absence of a sign in the emergency room or any other written materials notifying the patient of the physician's
relationship with the hospital, n71 and hospital involvement in billing procedures. n72

n65 Clark v. Southview Hosp. & Family Health Ctr., 628 N.E.2d 46 (Ohio 1994).
n66 Id. at 47.
n67 Richmond County Hosp Auth. v. Brown, 361 S.E.2d 164, 167 (Ga. 1987); Whitlow v. Good Samaritan Hosp., 536 N.E.2d 659,
663 (Ohio Ct. App. 1987); Hannola v. City of Lakewood, 426 N.E.2d 1187, 1189 (Ohio Ct. App. 1980).
n68 Gilbert v. Sycamore Mun. Hosp., 622 N.E.2d 788, 793 (Ill. 1993) (quoting Kashishian v. Port, 481 N.W.2d 277 (Wis. 1992).
n69 See, e.g., Kelly v. St. Luke's Hosp. of Kansas City, 826 S.W.2d 391, 394 (Mo. Ct. App. 1992); Irving v. Doctors Hosp. of Lake
Worth, 415 So. 2d 55, 56 (Fla. Dist. Ct. App. 1982); Mduba v. Benedictine Hosp., 52 A.D.2d 450, (N.Y. App. Div. 1976).
n70 Whitaker v. Zirkle, 374 S.E.2d 106, 109 (Ga. App. 1988).
n71 See, e.g., Irving v. Doctors Hosp. of Lake Worth, 415 So. 2d 55, 56 (Fla. Dist. Ct. App. 1982); Mehlan v. Powell, 378 A.2d 1121
(Md. 1977).
n72 See, e.g., Stewart v. Midani, 525 F. Supp. 843, 853 (N.D. Ga. 1981); Brown v. Moore, 247 F.2d 711 (3rd Cir. 1957), cert. denied,
78 S.Ct. 148 (1957).

Plaintiffs try to establish reliance with testimony that the patient entered the hospital through the emergency room
or under other circumstances which prevented the patient from choosing his or her own physician and receiving
treatment from a physician other than the patient's own personal physician. n73 In response, defendant hospitals offer
the contracts between the hospital and the private physician groups and/or the physician to disprove the alleged agency
relationship. n74 Counsel for the hospital should also try to produce written materials such as signs or admission forms
which specifically state that hospital emergency room physicians are not employees, n75 and affidavits from hospital
administrators avowing that the hospital's relationship with the subject physician is governed by an attached contract
which details the private group's control over medical services and establishes that the hospital exercises no control over
the physician. n76

n73 See supra note 25 and accompanying text.

n74 See supra note 25 and accompanying text.
n75 Holmes v. Univ. Health Serv, 423 S.E.2d 281, 283 (Ga. Ct. App. 1992).
n76 O.H. Progue v. Hospital Auth. Of DeKalb County, 170 S.E.2d 53 (Ga. Ct. App. 1969).

Counsel for the hospital should be aware that all of this evidence is not sufficient to defeat an ostensible agency
claim as a matter of law under the modern rule. n77 Indeed, the only evidence a hospital can offer that would seem to
defeat ostensible agency as a matter of law and as a matter of fact at trial is a denial that the hospital holds itself out as a
full-service institution with a good reputation.

n77 See supra note 25 and accompanying text.

Jury Instructions
If the hospital intends to deny ostensible agency liability at trial, hospital counsel should be prepared to offer
instructions on the traditional elements of ostensible agency liability, n78 as well as instructions tailored to the hospital
setting. However, counsel for the hospital should keep in mind that courts are more likely to adopt jury instructions
resembling those in the hypothetical than the traditional ones. Therefore, counsel should be prepared to offer an
instruction consistent with the modern approach to ostensible agency which emphasizes the plaintiff's burden of proof
on representation and reliance.

n78 See, e.g., Ca BAJI, 13.10.5 (1995 Rev.).

Settlement
Under the procedural rules in many states, the parties can participate in formal pre-trial settlement proceedings. n79 In
the event the independent contractor physician is not named as a defendant, he or she (and his or her malpractice carrier)
may have little incentive to participate in settlement, unless the hospital has formally tendered its defense or filed a third
party complaint against the physician. However, the hospital may not be in a position to offer any settlement,
particularly if plaintiff's claim is essentially aimed at the actions of the physician. This situation may well prevent the
parties from entering into serious pre-trial settlement discussions.

n79 See, e.g., Ariz R. Civ. P. 16.

Moreover, the hospital also may not be in a position to negotiate a settlement with plaintiff, in the event that the
physician has separate counsel to provide a defense independent of the hospital. Under this scenario, counsel for the
hospital would need to determine whether or not it was in danger of being held liable for the negligence of the physician
before it could negotiate the best possible settlement on behalf of the hospital.

Indemnity
If the basis of the complaint against the physician is solely his or her own alleged negligence, the hospital may be
entitled to seek indemnity from the physician. n80 To avoid inconsistencies and to apprise all interested parties of the
hospital's position, hospitals should adopt a uniform policy decision regarding whether or not it should tender its
defense, and whether or not it should implead the independent contractor physicians and/or the private physician group.
A party must be given timely notice of a tender of defense to be bound by any judgment in a subsequent indemnity
action. As such, if counsel for hospital anticipates seeking indemnification from the physician, counsel must make this
decision as soon as possible in order to comply with this notice requirement.
 n80 Barrett v. Samaritan Health Services, 735 P.2d 460 (Ariz. Ct. App. 1987).

Additionally, the party who is ultimately indemnified must be given sufficient opportunity to defend the claim. This
opportunity creates the obligation to accept the hospital's tender of defense. If the physician improperly denies the
hospital's tender of defense, the hospital has a claim against that physician for fees and costs incurred in defending the
claim.
However, the hospital should not tender its defense and give notice to the physician merely to preserve the hospital's
right to indemnify the physician. Counsel for the hospital should remember that indemnification is not the hospital's
only option; the hospital has the choice of working with the physician on a joint defense. As such, early tender may be
detrimental to the hospital's relationship with the individual physician and may discourage the physician from
cooperating with the hospital throughout discovery.
Hospital counsel must also consider the proper party to whom it will tender its defense. The physician is ultimately
the responsible party and the person against whom the jury will assess liability. However, the physician may also be
required to indemnify the private group for any liability incurred through the physician's own negligence. Ultimately, if
the physician is required to indemnify the physician group, this could affect the hospital's course of action in pursuing
its defense. Consequently, hospital counsel should review the contracts between hospital and physician, hospital and the
physician group, and physician group and physician before tendering its defense or impleading the physician and/or
physician group.

PRACTICAL SUGGESTIONS

Hospitals should consider taking the following steps in order to avoid ostensible agency liability in the emergency room
department setting, to the extent that such avoidance is possible. First, the hospital should post a large, visible sign in
the emergency department waiting room stating that emergency room physicians are not hospital employees. The sign
should also indicate that the emergency room physicians are independent contractors of the private physician group
which will bill patients separately. Second, the hospital's emergency department's Conditions on Admissions form
should clearly and conspicuously state in bold type that emergency room physicians are independent contractors, for
whose conduct the hospital is not liable, rather than employees or agents of the hospital. The form should also state that
the emergency room physicians are employed by the private group which will bill the patient separately. Third, the
hospital should consider having emergency room physicians wear name tags, uniforms, or some other type of
identifying clothing that distinguishes them from hospital employees.
Under the apparent national trend, it does not appear that these steps will necessarily prevent derivative liability
against the hospital for independent contractor negligence. Rather, the trend appears to be that the hospital will
automatically be vicariously liable for the negligence of its independent contractor physicians, particularly in an
emergency room setting. Accordingly, hospitals should consider amending their contracts with the private physician
groups to include a provision that the physician group will be responsible for the legal defense of its physicians.
Moreover, such contracts should provide that the physician group will agree to indemnify the hospital for all costs
involved in the litigation, settlement, or judgment of the medical negligence claim against the physician. Moreover, the
hospital should also negotiate a provision that the group and its emergency medicine member physicians are
contractually obligated to acquire liability insurance for defense and indemnity obligations.
The following provisions illustrate one way to incorporate these provisions into the hospital's contract with the
physician group:

This agreement is made upon the express condition that the hospital is to be free from liability and claim
for damages by reason of any injury for any cause arising from the negligence or other tortious conduct
of the physicians and/or [the private group]. The Physicians hereby agree to indemnify and hold harmless
the Hospital against any liability, loss, expenses (including defense costs and attorney's fees) and
obligations on account of or arising from or out of any such negligence or other tortious conduct
whatsoever by the Physicians. The physician [and/or the private physician group] hereby agrees to
indemnify and hold harmless the Hospital against any liability, loss, expenses (including defense costs
and attorney's fees) and obligations on account of or arising from or out of any such negligence or other
tortious conduct whatsoever by the physician [and/or the private physician group] and/or which is
attributable to the physician [and/or the private physician group]. n81
 n81 See, e.g., Ollerich v. Rotering, 419 N.W.2d 548, 549 (S.D. 1988) (Quoting the indemnity provision found in the emergency room
physician's agreement).

Although this provision will not guarantee automatic indemnity, a contractual indemnity claim is easier to prove
and pursue than a common law indemnity claim. Furthermore, such a provision may give the private group, the
emergency medicine member physicians involved, and their insurers greater incentive to participate in the defense and
settlement even when the group and the member physicians are not parties to the lawsuit.
The hospital should also consider including a contractual provision that the private group and its member
physicians obtain liability insurance for their indemnity obligations specifically to the hospital. Without a contractual
provision, the hospital is left with only a common law indemnity claim which may be defeated with any evidence of
active negligence on the part of the hospital.

CONCLUSION

Courts now honor the public's perception that hospitals employ and control the physicians providing care and treatment.
Accordingly, hospitals must prepare for and plan a defense to automatic liability for independent contractor physician
negligence based on ostensible agency theory. Because the issue of ostensible agency can impact so many aspects of
litigation, such as pretrial discovery, trial evidence, and settlement, it is important to develop an aggressive defense
strategy. To that end, it is probably more cost-effective for hospital defense counsel to anticipate that the hospital will be
held vicariously liable for the medical negligence of its independent contractor physicians rather than to wait for the
automatic imposition of vicarious liability.