United Tort v. Quorum Health Resources, LLC (In re Otero County Hospital Ass'n)
Docket: Case No. 11-11-13686 JL; Consolidated Misc. Adv. No. 13-00007; Adversary Nos: 12-1204j through 12-1216j, 12-1208j through 12-1223j, 12-1235j, 12-1238j through 12-1249j, 12-1251j through 12-1261j, 12-1271j, 12-1276j and 12-1278j
Court: United States Bankruptcy Court, D. New Mexico; March 18, 2015; Us Bankruptcy; United States Bankruptcy Court
An eleven-day trial addressed the corporate liability of Quorum Health Resources, LLC (QHR) in relation to the United Tort Claimants (UTC) following experimental procedures performed by Dr. Schlicht on patients. Settlements were reached with the hospital and medical staff, leaving QHR as the sole defendant. The court evaluated QHR's role, noting that while hospitals supervise medical staff, management companies like QHR have a limited, non-medical judgment role. The UTC contends that QHR was negligent in managing the hospital, particularly regarding Dr. Schlicht’s hiring and retention.
The court determined that QHR owed a narrower duty to the UTC than claimed, specifically breaching this duty when the hospital's CEO granted Dr. Schlicht temporary privileges and failed to prompt an investigation into his procedures after learning they were experimental. Additionally, QHR did not adequately inform the hospital's board. The court ruled that the comparative fault doctrine applies, meaning each party is liable only for their respective fault percentages. Issues of causation and damages were reserved for future proceedings. The trial's key issues include QHR's duties to the UTC, any breaches of those duties, and the applicability of joint and several liability versus comparative negligence, while decisions on causation and damages remain pending. The UTC previously consolidated negligence claims linked to Otero County Hospital Association, Inc.’s Chapter 11 bankruptcy for this trial.
The Case Management Order clarified that issues of Corporate Liability do not encompass medical malpractice or damages. An Amended Case Management Order, issued on July 18, 2014, reiterated this deferral for issues unrelated to Corporate Liability to a subsequent trial phase. During the September 2014 trial, only the elements of duty and breach were examined, while causation and damages were deferred. The Court will also determine the applicability of joint and several liability versus comparative negligence. The UTC's claim that all fault should be attributed to QHR was rejected, as evidence indicated fault by the hospital's medical staff. Furthermore, requiring QHR to prove the negligence of others would contradict the established orders, since fault allocation is tied to damages analysis, which is reserved for later. The Court also addressed the UTC's failure to admit that specific doctors caused their injuries, which could affect all adversary proceedings despite causation not being a trial issue.
QHR, a major hospital management company, provided services to Otero County Hospital Association from December 2005 until 2008. Dr. Christian Schlicht, employed at the hospital in 2006, performed procedures including a self-invented method called percutaneous disc arthroplasty (PDA). Many patients, claiming harm from these procedures, initiated lawsuits, prompting the hospital to file for Chapter 11 bankruptcy on August 16, 2011. Most plaintiffs subsequently moved their cases to this Court, resulting in forty-seven adversary proceedings collectively known as the United Tort Claimants (UTC), who settled claims against the hospital in the bankruptcy process, leaving QHR as the sole defendant in the remaining lawsuits.
GCRMC, a nonprofit rural hospital in Alamogordo, New Mexico, entered into a Services Agreement with QHR, a for-profit hospital management company, on December 15, 2005. Under this agreement, QHR provided various administrative services, including staffing with a CEO and CFO, access to purchasing organizations, and management training. The CEO and CFO were QHR employees and were responsible for overseeing hospital operations, communicating with the Board, preparing budgets and financial statements, and managing accounts.
The agreement outlined QHR's limitations, specifying that it had no authority to provide medical services, make clinical decisions, or credential healthcare professionals at the Hospital. The CEO could negotiate physician contracts but required Board authorization to enter into or terminate them. QHR’s role was strictly as an administrative agent, providing guidance, strategic planning, and support through both off-site and on-site teams, including a Regional Vice President and financial analysts. QHR fulfilled its service obligations under the agreement, assisting in the Hospital's strategic and operational planning.
A strategic service partner offers goods or services to the hospital at a discounted price and compensates QHR with an administrative fee for facilitating these purchases. The hospital voluntarily engaged with these partners. Board members and senior management participated in QHR Learning Institute seminars and accessed educational resources. QHR established an Operating Practices Manual to guide its teams toward operational excellence, which mandates that the CEO and CFO keep the regional office updated on significant events that could pose risks to the hospital or QHR.
QHR, along with its employed CEO, managed administrative functions that did not involve medical judgments, with oversight from the Board. The medical staff operated independently with its own administrative team, reporting to them rather than the CEO. The CEO was tasked with ensuring that the hospital maintained policies and procedures for financial and business operations aimed at patient safety and compliance with these policies. The CEO acted as a liaison among various hospital stakeholders and participated as an ex officio member of several committees, including the Medical Executive Committee (MEC), but did not engage in professional medical decision-making.
The CEO is responsible for safeguarding patient safety and quality of care by ensuring compliance with laws and regulations and establishing procedures in accordance with hospital bylaws and operating standards. When issues arise between physicians concerning patient care, the CEO must facilitate discussions with the appropriate parties rather than make medical judgments. In the context of physician privileges, the CEO ensures that a policy framework is in place for the medical staff to evaluate and recommend privileges. This process involves an initial evaluation by a Credentials Committee, review by the MEC, and final approval by the Board. While the medical staff handles the verification of credentials and recommendations, the CEO's role is to ensure that the review process is structured and that the committees function effectively, leading to Board approval of physician privileges.
The Corporate Bylaws designate the CEO of the Hospital as responsible for overall administrative management, acting as an ex officio member of all management committees without voting rights, and serving as the authorized representative of the board. Section 5.6 outlines the CEO’s duties, including implementing hospital policies, liaising between the board, medical staff, and departments, and ensuring compliance with laws and Joint Commission standards. In 2007, the Hospital paid QHR $1,436,664 in management fees, which included over $750,000 for the salaries and benefits of its CEO and CFO.
Governance of the Hospital is vested in a board of trustees, which is responsible for the Hospital's operation, including evaluating the quality and efficiency of patient care based on medical staff recommendations. The Board appointed the CEO and provided necessary administrative support for review and evaluation activities. Comprised mainly of community lay members, the Board consisted of nine members, including two physicians, with minimal turnover. Norm Arnold served as chair for many years and maintained awareness of hospital operations. Bob Vento, a former QHR RVP, and Interim CEO James Richardson praised the Board's effectiveness.
The Board met monthly, often with a QHR off-site representative present to assist with questions and provide educational resources. However, QHR representatives did not control Board meetings or decisions; the Board generally approved proposals from QHR employees, relying on their expertise.
The medical staff is accountable to the Board for quality patient care, responsible for evaluating care quality, monitoring practices, and defining clinical privileges based on credentials. The Board delegated the authority to investigate and evaluate medical staff membership and privileges to the medical staff, retaining final decision-making power unless recommendations were not provided timely, allowing the Board to act independently.
The medical staff at Gerald Champion Regional Medical Center consisted of physicians authorized to treat patients. The Chief of Staff reported to the President and CEO and the Medical Executive Committee (MEC), fulfilling responsibilities outlined in the 2007 Medical Staff Bylaws. Key duties included enforcing bylaws and regulations, implementing sanctions, ensuring compliance with procedural safeguards, and overseeing quality assurance and performance improvement activities. The Chief of Staff also facilitated communication between the medical staff and the Board. During the relevant period, Dr. Frank Bryant held the Chief of Staff position, while Dianna Melendrez served as the Medical Staff Coordinator, who reported to the Senior Vice President of Medical Staff Affairs, not the CEO.
To obtain medical staff privileges, a physician must submit an application to the Chief of Staff, including supporting documentation. The Medical Staff Coordinator verifies the applicant’s credentials and compiles the necessary documents for the Credentials Committee's review. The Credentials Committee evaluates the application and recommends to the MEC, which further investigates and advises the Board. The CEO participates as a nonvoting ex-officio member of the MEC and can attend related meetings. Final appointment decisions rest with the Board based on the MEC's recommendations.
The Medical Staff Bylaws grant the Chief of Staff, Vice Chief of Staff, MEC, department chief, or CEO the authority to suspend or revoke a physician's privileges without a hearing if immediate action is needed to protect patient safety or prevent imminent harm.
A cause determination requiring professional medical judgment cannot be made by the CEO, who cannot summarily restrict or suspend privileges on such grounds. The Medical Staff Bylaws outline a “Focused Review of Medical Staff Member Conduct” process, initiated via a written request to the Chief of Staff if a physician's conduct threatens patient safety or raises competency concerns. The CEO can initiate this request, which prompts the Medical Executive Committee (MEC) to decide whether to investigate. Should the MEC fail to act, the Board may compel an investigation if evidence supports such action. The MEC is also tasked with requesting evaluations when doubts arise regarding a practitioner's competency.
Physicians with privileges must reapply for medical staff membership biennially, with the Credentials Committee assessing reapplications based on clinical performance and peer reviews, making recommendations to the MEC for Board consideration. Additional proctoring may be required for infrequently used clinical privileges to ensure current competency.
Sue E. Johnson-Phillippe served as CEO from 2005 to July 2007, working with QHR. Organizational charts from March 2007 depict her above the medical staff, with the Chief of Staff and a Senior Vice President in subordinate positions. However, the Corporate Bylaws and Medical Staff Bylaws clarify that the medical staff operates independently from the CEO regarding their responsibilities. Throughout her tenure, Johnson-Phillippe focused on revenue generation and physician recruitment for the Hospital.
The CEO of the Hospital was tasked with physician recruitment, gathering candidate information and sharing it with community physicians, the medical director, and the nursing director. The Board authorized the CEO’s recruitment efforts, which were regularly reported at monthly meetings. Input from the medical staff helped identify specific areas of practice needing recruitment. The recruitment process included on-site visits for prospective physicians and their spouses to assess compatibility. Following the Board's guidance, the CEO handled recruitment and salary negotiations, with legal counsel preparing and reviewing physician contracts. Contracts were signed prior to a physician's appointment to the medical staff, contingent on the granting of privileges.
For new service lines, such as the pain management service line, a community need must be established through demographic studies, and financial feasibility must be assessed by the CFO, considering patient benefits beyond profitability. The Board approved the pain management service line based on community need and feasibility, with QHR ensuring that this did not compromise patient care. Discussions regarding the need for specialists, including in pain management, took place as early as January 2006. The Hospital engaged Fox Hill Associates to assist in recruiting several physicians, including a pain management specialist, with Ms. Johnson-Phillippe recommending their services.
Fox Hill introduced Dr. Christian Schlicht, a candidate for a 100% pain management position, through a letter dated April 20, 2006. The letter indicated Dr. Schlicht's readiness to interview and start at the Hospital soon, noting he had other job offers. Dr. Schlicht, who was the chief of minimally invasive spine surgery at the Veterans Administration Medical Center and board certified in pain management, had subspecialty interests in minimally invasive spine surgery and interventional spine care.
Dr. Schlicht is characterized in the Candidate Introduction Letter as an "innovative physician" who has developed and patented a new treatment for disc fusion known as percutaneous interpositional arthroplasty. The letter serves as a recruitment tool for hospitals, and its claims may not necessarily reflect the physician's own assertions. Ms. Johnson-Phillippe, who read the letter, did not investigate the validity of Dr. Schlicht's patent or his intentions regarding privileges to perform the procedure at the Hospital. She did share the letter with the recruitment team, including Dr. Art Austin, but did not instruct them to verify Dr. Schlicht's credentials or his plans for the new procedure.
Typically, a candidate's CV would provide more detailed information, but the responsibility for verifying the CV's contents did not rest with QHR or the CEO at the Hospital; it was assigned to the medical staff and specifically the Medical Staff Coordinator. Ms. Johnson-Phillippe lacked knowledge of both the PDA procedure performed by Dr. Schlicht on UTC members and the new patented procedure mentioned in the letter. No documentation, aside from the Candidate Introduction Letter, indicated Dr. Schlicht's intention to introduce the new procedure at the Hospital.
On April 21, 2006, a day after receiving the letter, Ms. Johnson-Phillippe informed the Board of an "excellent candidate" for the pain management position. Dr. Austin also conveyed enthusiasm about the potential candidate during the Board meeting. In May 2006, both provided updates on recruitment efforts, highlighting discussions on the community benefits and revenue enhancement associated with hiring a pain management physician. The Board, supported by the CEO, decided to pursue pain management as a new service line, and they engaged Equation Consulting to develop a business model for this and other physician candidates.
The CEO and Board aimed to enhance the Hospital's revenue through the addition of pain management services, prioritizing patient safety over financial gain. During a May 2006 meeting, the Joint Finance/Executive Committee discussed the potential benefits of employing Dr. Schlicht as a pain management specialist, despite concerns about employing rather than admitting independent physicians. Bob Vento, QHR’s RVP, noted that hiring physicians was increasingly common in the industry. The Board approved Dr. Schlicht’s employment agreement in May 2006 and did not feel pressured by the employed physician model.
In subsequent meetings, updates on physician recruitment efforts were provided, including an economic analysis for Dr. Schlicht and a letter of intent sent to him. The employment contract with Dr. Schlicht was signed on July 22 and July 24, 2006, but it mistakenly identified him as an M.D. instead of a D.O. Legal counsel assisted in preparing the contract, and Dr. Schlicht became one of the Hospital’s first employed physicians, earning a salary of $450,589—the highest among the physicians listed on the Hospital’s 2007 tax return.
The contract was executed before Dr. Schlicht received privileges to perform procedures, with the understanding that it would terminate if he did not obtain those privileges. The Board anticipated Dr. Schlicht's arrival in August 2006 and projected that his pain management services could generate over one million dollars in revenue. Additionally, Ms. Johnson-Phillippe engaged Dr. Bryant, an orthopedic surgeon, for staffing assistance, leading to a Services and Management Agreement with Southwest Orthopaedic, P.C., signed in August 2006.
Under the SWO Agreement, the Hospital committed to operating an outpatient pain management clinic and providing a physician for patient care, while Dr. Bryant and Southwest Ortho were responsible for practice management and operational services. Dr. Bryant expressed interest in collaborating with Dr. Schlicht in a letter to Ms. Johnson-Phillippe. Alamogordo Surgery Ventures, LLC (ASV, LLC) was established in late summer or early fall of 2006 to facilitate the Alamogordo Surgery Center's launch, with GCRMC holding a 60% interest, Dr. Schlicht a 10% interest, and Dr. Bryant a 5% interest. This entity aimed to encourage physician investment in the joint venture and the use of the surgery center for outpatient procedures.
Regarding Dr. Schlicht's temporary privileges, the Hospital's policy (MS-C-9140) allows the CEO to grant such privileges under two conditions: (1) to address an important patient care need requiring immediate authorization, and (2) when there is a complete application pending review. The CEO can grant temporary privileges based on immediate patient needs without Credentials Committee or MEC approval, provided current licensure and competence are verified. Examples of immediate needs include covering for an ill physician or employing a practitioner with specific skills not possessed by currently privileged staff. Interim Clean Application Approval can be granted without recommendations from the chief of staff or department chair, contingent upon the pending application awaiting Medical Executive Committee and Board review. The MEC reviews applications only after Credentials Committee approval, indicating that the absence of a recommendation for Interim Clean Application Approval relies on the CEO acting on the Credentials Committee's assessment.
Interim Clean Application Approval requires thorough screening by medical staff prior to the CEO granting temporary privileges, as it is not based on an immediate emergency need. The CEO must ensure that the Credentials Committee approves the temporary privileges before they are granted. To grant these privileges, the medical staff office must receive several documents, including a completed application, verification from the National Practitioner Data Bank, malpractice insurance details, and various licenses and certifications.
Dr. Schlicht was granted temporary privileges for thirty days by a letter dated August 9, 2006, but many required documents were submitted after this date. The Review Credentials Sign-Off Form indicated that Dr. Schlicht's privileges were acknowledged by the Chief of Staff and Vice President of Medical Staff Affairs on August 28, 2006, suggesting that the August 9 date on the granting letter was likely a typographical error, with the actual date being August 29, 2006. The reasons for granting these privileges were unclear, but it is inferred that they were issued under Interim Clean Application Approval rather than due to an Immediate Patient Need, as there were no patients requiring pain management procedures at the Hospital at that time. The granting of these privileges violated the hospital's policy, as the Credentials Committee did not approve any privileges for Dr. Schlicht until September 5, 2006, a week after the temporary privileges were issued.
QHR breached its duty to UTC by granting Dr. Schlicht temporary privileges prior to receiving approval from the Credentials Committee. Although Dr. Schlicht was scheduled to see patients starting the week after August 30, 2006, he did not attend to any patients until after the necessary approvals were obtained from the Credentials Committee, the Medical Executive Committee (MEC), and the Board. The hospital's policy required separate credentialing for any new procedures, which included a review by the MEC and the Chief Nursing Officer, ensuring that staff were adequately trained. Dr. Schlicht submitted his Application for Medical Staff Appointment and Clinical Privileges on June 15, 2006, identifying his specialty as pain management and listing references. Privileging required specific delineation of privileges sought by the applicant and those granted by the committee. A Delineation of Privileges form was prepared for Dr. Schlicht in August 2006, based on a list he provided. This form included a statement indicating that all privileges had been individually considered based on the physician's qualifications. Dr. Schlicht signed this form on August 21, 2006, confirming that he was only requesting privileges for which he was qualified. Dianna Melendrez, the Medical Staff Coordinator, collected the necessary background information for Dr. Schlicht's credentialing process.
Dr. Art Austin, Vice President of Medical Staff Affairs, oversaw the Medical Staff administration, distinct from the CEO's administrative role. The Medical Staff Coordinator, not the CEO, is responsible for collecting and verifying application references and licensure. Ms. Melendrez prepared an Appointment Summary Sheet for Dr. Schlicht’s application starting July 2006, which logs received documents and completed verifications. The Credentials Committee and the Medical Executive Committee focus primarily on the physician’s CV, board certifications, and professional references during their review, with minimal attention given to the Candidate Introduction Letter from recruiters. Ms. Johnson-Phillippe confirmed that Dr. Schlicht’s Candidate Introduction Letter was not included in the review packet. Dr. Austin, who recruited Dr. Schlicht and served on the Credentials Committee, inquired about a new procedure mentioned in the letter, which Dr. Schlicht described as a concept he was developing with Dr. Masel. The policy requires peer references to assess the applicant’s competence and ethics; Dr. Schlicht listed Dr. Pace, Dr. Masel, and Dr. Echols/Dr. Laub as references. The Appointment Summary Sheet documented the receipt of application items from July 3, 2006, to August 28, 2006, including a malpractice insurance verification. Dr. Masel provided a highly favorable recommendation letter dated July 11, 2006, though it is unclear if it was included in the review materials. In mid-August 2006, Ms. Melendrez requested input from Dr. Pace and Dr. Echols regarding Dr. Schlicht’s privileges, referencing the New Mexico VA Healthcare System’s privilege list, but Dr. Pace could not endorse Dr. Schlicht for certain procedures due to insufficient information regarding his competence.
Dr. Pace reported on a form that Dr. Schlicht had been hospitalized, received medical care, and had health issues that could affect his medical practice, but provided no further details. Normally, Ms. Melendrez would verify any concerning responses with the referring physician, although there is no evidence that she followed up with Dr. Pace regarding these claims. No evidence indicated that Dr. Schlicht's health issues impaired his ability to work.
During a telephone interview, Dr. Echols described Dr. Schlicht as an “excellent physician” with strong skills and a good reputation among peers and staff. Dr. Echols’s positive endorsement was influential to the Credentials Committee and the Medical Executive Committee (MEC). Dr. Echols did not provide individual comments on Dr. Schlicht’s requested privileges but recommended him overall.
Furthermore, Dr. Laub’s recommendation letter indicated that Dr. Schlicht worked as a locum tenens physician from May to July 2006, but could not obtain full privileges for certain procedures due to the limited duration of service. However, Dr. Laub acknowledged Dr. Schlicht's excellent surgical abilities.
The Appointment Summary Sheet reflected that Dr. Pace, Dr. Laub, and Dr. Echols all recommended Dr. Schlicht. The Credentials Committee reviewed the application on September 5, 2006, and approved it for Pain Medicine privileges, assigning Dr. David Masel as Dr. Schlicht’s proctor, a decision subsequently validated by the MEC.
On September 8, 2006, the Medical Executive Committee (MEC) signed the Approval Sheet for Dr. Schlicht’s Delineation of Privileges in Pain Management, which was subsequently approved by the Board on September 27, 2006. Ms. Johnson-Phillippe attended both the Credentials Committee and MEC meetings and was aware that Dr. Masel was assigned as Dr. Schlicht’s proctor. A notification letter was sent to Dr. Schlicht on October 5, 2006, confirming his active staff membership effective September 27, 2006. It was noted that some privileges granted to Dr. Schlicht lacked the required three professional references, particularly for spinal arthroplasty and annuloplasty procedures, as neither Dr. Laub nor Dr. Pace could vouch for Dr. Schlicht’s competency. The documentation for these privileges was incomplete, with critical information missing from the delineation pages.
Dr. Austin recalled reviewing extensive documentation from the VA regarding Dr. Schlicht’s previous procedures, but only a six-page list was presented as evidence at trial. The MEC and Board sometimes utilized an Approval Sheet rather than the full Delineation of Privileges form, which implied the necessary evaluation criteria despite not being explicitly stated. All requested privileges for Dr. Schlicht were granted. The Credentials Committee typically assigned a proctor to oversee physicians in specialized areas unfamiliar to the medical staff, and Dr. Masel was designated to perform chart reviews for Dr. Schlicht.
QHR was not liable for any oversight regarding Dr. Schlicht's privilege grant process, as it did not gather or verify the necessary documentation or recommendations. The medical staff heavily relied on Dr. Echols' endorsement of Dr. Schlicht. The hospital had a structured process in place for granting privileges, which was followed by the relevant committees and the Board. Dr. Schlicht began performing procedures at the Hospital in February 2007, marking the start of his active practice there.
In February or March 2007, a physician practice overview for Dr. Schlicht indicated he performed significantly more procedures than initially projected. A June 2007 billing assessment characterized Dr. Schlicht’s practice as typical of a ramping-up start-up, implying no issues with his competence. During a Board meeting on September 26, 2007, the Board approved a $54,000 expenditure for an additional spine instrument tray due to the high volume of surgeries.
Dr. Schlicht collaborated with orthopedic surgeon Dr. Bryant at the Hospital, performing minimally invasive spine surgeries, including the PDA procedure, where Dr. Bryant often served as the lead surgeon. Although Dr. Schlicht also performed these procedures independently, both physicians believed the PDA procedure did not require Institutional Review Board (IRB) approval as they considered it a safe off-label use of PMMA, a medical device. However, the PDA procedure was experimental and its use of PMMA was not supported by medical literature, thus not constituting an appropriate off-label use. An IRB was not empaneled since the procedure was not intended for systematic research. Dr. Bryant regarded the PDA procedure as within Dr. Schlicht’s privileges, despite Dr. Schlicht not being a licensed surgeon and lacking the qualifications to perform surgeries, even within the realm of minimally invasive procedures.
Diagnosis and treatment of pain through minimally invasive procedures, such as kyphoplasty and vertebroplasty, do not require a surgeon. Dr. Austin viewed the PDA procedure as minimally invasive and not experimental, believing it fell within Dr. Schlicht’s privileges. Dr. Austin described Dr. Schlicht as a proceduralist rather than a surgeon. Dr. Ralph F. Rashbaum distinguished pain management from surgery, indicating that pain specialists can perform procedures involving small incisions not near the spine or nerve roots, such as kyphoplasty or vertebroplasty.
In February 2007, the Hospital initiated a 100-Day Financial Turnaround project to review expenses, linking vendor Kyphon, Inc. to spinal fusion procedures and highlighting the need for discussions with Dr. Bryant and Dr. Schlicht regarding cost-saving opportunities. Reports showed a significant increase in Kyphon products purchased, with $40,845 in Q2 and $144,039 in Q3 of 2007. QHR, as a strategic partner, received administrative fees for the use of Kyphon products, which were not intended for spinal fusion. The hospital administration believed that the increased use of these products did not indicate any procedural issues with Dr. Schlicht's practices.
Following the resignation of CEO Ms. Johnson-Phillippe in July 2007, James Richardson became interim CEO and quickly learned of concerns regarding Dr. Schlicht's potential experimental surgeries after receiving a letter from Dr. Schlicht addressing allegations made by Dr. Masel.
Dr. Masel served as the proctor for Dr. Schlicht, responsible for evaluating his performance through chart reviews. The interim CEO, unfamiliar with the medical staff, did not realize Dr. Masel's proctor status during a critical transition period. On July 21, 2007, Dr. Schlicht addressed accusations from Dr. Masel, claiming he was “not a Spine Specialist” and performing “experimental surgery.” In his letter, Dr. Schlicht denied these allegations, explaining that his professional relationship with Dr. Masel ended in May 2007 following a disagreement over a patient referral. He clarified that he had referred a patient to Dr. Masel for an opinion, but Dr. Masel mistakenly believed he had made the initial referral. Dr. Schlicht asserted that Dr. Masel had endorsed the minimally invasive procedure in question and included emails demonstrating their previously cordial relationship, with Dr. Masel praising Dr. Schlicht's patient care. In his correspondence, Dr. Schlicht indicated the end of their business relationship. To counter the claim of “experimental surgery,” Dr. Schlicht referenced an email from Dr. Masel that detailed a CPT billing code for a procedure, suggesting that Dr. Masel recognized it as non-experimental. The allegation of “experimental surgery” was deemed serious, particularly since it came from Dr. Schlicht’s proctor. Although the interim CEO was unaware of this relationship, the previous CEO had knowledge of it. In response to the allegations, the interim CEO consulted several key members of the hospital's leadership team.
Mr. Richardson's awareness of Dr. Bryant performing the PDA procedure alongside Dr. Schlicht is uncertain. He reviewed Dr. Schlicht’s credentials and learned of a competitive issue between Dr. Masel and Dr. Schlicht. Emails indicated Dr. Masel previously commended Dr. Schlicht for patient care, but later accused him of performing experimental surgery amid a business dispute. Mr. Richardson did not pursue further investigation into Dr. Masel’s claims, failing to contact him or involve the medical staff or the Chief of Staff for a focused review. His conclusion, based on his discussions and Dr. Schlicht’s response, was that the accusation stemmed from personal conflict rather than substantive concerns, deeming no immediate action necessary regarding Dr. Schlicht. However, Mr. Richardson's investigation was inadequate as he consulted Dr. Bryant, who had a vested interest in the procedure. Dr. Jones, who spoke with Mr. Richardson, was unaware of the experimental surgery allegation and lacked specialized expertise. Dr. Austin was informed of general concerns about Dr. Schlicht's medical judgment but not of the specific experimental surgery claim. Mr. Richardson's testimony about his awareness of Dr. Masel’s letter was inconsistent, raising doubts about who had actually reviewed the document.
Seven years post-letter, Mr. Richardson could only state uncertainty about having seen Dr. Masel’s letter, which was part of Dr. Schlicht’s peer review process and not typically directed to the CEO. Such letters usually go to the medical staff, specifically the Medical Executive Committee (MEC). Neither Dr. Masel's letter nor Dr. Schlicht's response were presented as evidence in the trial. Mr. Richardson did not inform the Board or the Executive Committee about Dr. Masel’s accusation. Board chair Norm Arnold recalled Dr. Masel's letter being mentioned but noted no minutes from the Executive Session referred to it. Arnold was unsure if he learned of the accusation against Dr. Schlicht regarding experimental surgery. Mr. Richardson did not classify the allegation as a "key event" to QHR’s off-site team despite having the authority to restrict or suspend Dr. Schlicht’s privileges for immediate safety concerns, as outlined in Medical Staff Bylaws. However, making such a decision regarding the PDA procedure required medical expertise, which Mr. Richardson lacked. He could have requested a focused review by the MEC if informed of claims regarding the procedure's safety. Such a request would obligate the MEC to consider an investigation, overseen by the Board if necessary. QHR was responsible for ensuring procedures were in place for evaluating serious allegations against medical staff. Dr. Masel's claim about experimental surgery was significant and warranted an immediate investigation, yet Mr. Richardson’s actions were deemed insufficient.
Dr. Masel accused Dr. Schlicht of improperly conducting experimental surgeries at the Hospital, which warranted a focused review procedure by the Medical Executive Committee (MEC) and notification to the Board. The interim CEO's failure to initiate this investigation or inform the Executive Committee constituted a deviation from the community standard of care. In fall 2007, Dr. Bryant and Dr. Schlicht presented a PowerPoint on the PDA procedure to the Board, where Mr. Richardson inquired about the need for Institutional Review Board (IRB) approval. Despite Dr. Bryant and Dr. Schlicht's assurances that IRB approval was not necessary, Mr. Richardson did not pursue further clarification.
On September 14, 2007, the Hospital received a letter from Molina Healthcare, indicating a “gross and flagrant violation” of medical practice standards concerning a procedure performed by Dr. Schlicht, who Molina believed lacked proper credentials for the procedure, which was not the PDA. Molina requested a Corrective Action Plan within five days. Such a serious allegation could necessitate reporting to the National Practitioner Data Bank, impacting Dr. Schlicht’s career. Dr. Kincaid of Molina visited the Hospital as part of her investigation but did not include Mr. Richardson in the meeting, which he found surprising. Mr. Richardson viewed the Molina Letter as a significant issue due to potential repercussions for Dr. Schlicht's privileges and contacted legal counsel for assistance, involving medical staff leadership in the response.
A QHR Monthly Operating Review on September 21, 2007, highlighted the “Dr. Schlicht/Molina Issue” as a major concern, with Norm Arnold believing the Board was informed of the Molina Letter during an executive session. A trip report by QHR RVP Harry Jarvis on September 26, 2007, noted that Medicaid HMO suspended an employed anesthesiologist for a procedure deemed beyond his capabilities, which was contested by the hospital and physician. Norm Arnold indicated that such issues were typically addressed in executive sessions, yet the minutes from both the Board and Executive Committee do not reflect any discussion about the Molina Letter, and the executive session minutes are missing. The Court found insufficient evidence to conclude that QHR failed to inform the Board regarding the Molina Issue, determining that QHR had indeed updated the Executive Committee about the Molina Letter.
Mr. Richardson received a 15-day extension from Molina to respond, and the Hospital provided Molina with Dr. Schlicht’s file. A letter from Dr. Bryant to Dr. Kincaid on September 27, 2007, defended Dr. Schlicht's qualifications and asserted there was no basis for Molina’s claims of a “gross and flagrant violation.” Subsequently, Dr. Echols expressed his positive observations of Dr. Schlicht’s expertise in a letter dated October 1, 2007. Additionally, Dr. Schlicht's patient sent a complaint letter to Molina on October 10, 2007, regarding Molina's actions. The Hospital responded to the Molina Letter on October 4, 2007, signed by several key officials, affirming Dr. Schlicht's privileges for the contested procedures and urging Molina to promptly resolve the issue. The Hospital’s legal counsel assisted in drafting this response, and Dr. Schlicht voluntarily agreed to refrain from seeing Molina patients until the situation was resolved.
Dr. Kincaid's letter dated October 5, 2007, confirmed the removal of Dr. Schlicht's 29-day suspension during Molina's inquiry, contingent on Dr. Schlicht's agreement not to treat Molina patients during the inquiry. Following a lack of response from Molina by October 12, 2007, Mr. Richardson threatened legal action against Molina to expedite the suspension's removal. Molina lifted the suspension effective October 5, 2007, pending further resolution and completed its investigation by December 2007. Subsequently, Molina revised its administrative policy to require residency completion in neurosurgery or orthopedics for credentialing in minimally invasive spine surgery, resulting in Dr. Schlicht's disqualification from performing such surgeries on Molina's insured patients, although his credentials for pain management remained intact. This incident did not necessitate reporting to the National Practitioner Data Bank, and the Hospital did not alter Dr. Schlicht's privileges for non-Molina insured patients. The interim CEO involved the medical staff and the Hospital's legal counsel appropriately regarding the Molina Issue, and QHR was found not to have breached its duty to UTC in this context.
In October 2007, a letter from Benjamin Alii, MD, Ph.D., regarding Dr. Schlicht was deemed fraudulent, containing multiple grammatical errors and inaccuracies regarding Dr. Schlicht's credentials. A subsequent letter from the International College of Surgeons enclosed a temporary Certificate of Fellowship in neurosurgery for Dr. Schlicht, who is not an M.D. or a neurosurgeon. Mr. Richardson testified that he was uncertain if he saw the bogus letter or certificate, but acknowledged their lack of credibility. The court determined that UTC did not prove that Mr. Richardson had seen the fraudulent documents, concluding that even if he had, they would not have influenced the credentialing process, which did not require further investigation based on those documents.
Bogus credentials for a physician warrant investigation, regardless of their role in the credentialing process. Jim Heckert became the Hospital CEO in March 2008. Mr. Richardson did not inform Mr. Heckert about Dr. Masel’s letter, believing the matter was resolved. He provided Mr. Heckert with a list of 30 projects, which likely included issues with Dr. Schlicht. Mr. Heckert was aware of some resolution regarding Molina and previous discord between Dr. Masel and Dr. Schlicht but lacked details. In July 2008, Dr. Bryant and Dr. Schlicht met with Mr. Heckert about acquiring custom instrumentation they designed, but the Hospital did not proceed with the purchase. In fall 2008, Dr. Schlicht sought a bonus tied to his relative value units (RVUs), but an assessment revealed that many of his procedures were billed at an assist level, significantly lowering his RVU credit. Consequently, Dr. Schlicht did not receive bonuses and left the Hospital in November 2008 due to dissatisfaction over this issue. Despite his departure, there were no significant patient complaints against him, and complication rates for his surgeries were normal; he received positive feedback from staff and the community. Shortly before leaving, Dr. Schlicht disclosed to Dr. Bryant an error in the translation of his German training documents, which astonished Dr. Bryant. The timeline and reasons for his surprise remain unclear. The Hospital's Board and CFO anticipated substantial revenue from a new pain management service, with QHR developing a financial turnaround project based on this. However, the Court found that QHR prioritized patient safety over potential profits and did not breach any duty regarding Dr. Schlicht or the new service line.
The Court has an independent obligation to assess its jurisdiction, irrespective of any challenges from the parties. The claims brought by UTC against QHR are based on corporate liability and ordinary negligence under state law. UTC initiated adversary proceedings by removing 47 state court actions to this Court between June 18 and September 12, 2012, prior to the Hospital's Chapter 11 bankruptcy petition. Each of these actions implicated the Hospital, QHR, and others as defendants for alleged negligent conduct causing injury to plaintiffs. The Court confirmed the Hospital's Chapter 11 plan on August 7, 2012, which became effective on September 19, 2012. Most state court actions were removed before the confirmation order and before the plan's effective date. The confirmed plan included a global settlement between UTC and the defendants, excluding claims against QHR still pending. This settlement stipulates payment over several years, allowing UTC to reinstate claims against the Hospital if it defaults on a related note. The outcome of UTC's claims against QHR could impact the Hospital's liability to UTC. The jurisdiction of the Court is evaluated based on the timing of each adversary proceeding's commencement through removal, with subject matter jurisdiction established at that time. Although jurisdiction can be questioned at any moment, the Court is not obligated to continuously reassess its jurisdictional determinations. Since all adversary proceedings began before the confirmation of the third amended plan, the pre-confirmation jurisdictional standards apply.
Bankruptcy courts possess original, though not exclusive, jurisdiction over civil proceedings that arise under Title 11 or are related to a bankruptcy case. In Chapter 11 cases, a civil proceeding is considered "related to" the bankruptcy if its outcome could potentially affect the bankruptcy estate. The standard established in Gardner v. United States allows for jurisdiction over claims involving third parties if the outcome could influence the handling and administration of the estate. The Tenth Circuit's criteria for "related to" jurisdiction are satisfied if the potential impact on the estate is assessed at the time of case removal.
In the context of the adversary proceedings involving UTC, claims against QHR and other parties relate to alleged damages from medical procedures at a hospital. QHR's defense of comparative fault suggests that if applicable, damages would need to be apportioned according to each party's degree of fault, potentially impacting the allowed claims against the bankruptcy estate. All parties involved have consented to the bankruptcy court's authority to issue final judgments in these proceedings.
Additionally, the court addresses whether UTC is bound by their denial of requests for admission regarding Dr. Schlicht and Dr. Bryant's role in causing UTC's injuries. The UTC's denial could be critical to the litigation's outcome, and there is a discussion regarding whether they can amend these responses under Federal Rule of Civil Procedure 36(b). Unanswered requests for admission are considered admitted, highlighting the importance of these denials in the case.
A matter is considered admitted if no written answer or objection is timely submitted to the requesting party, while affirmative denials of requests for admission do not carry binding effect. Citing Langer v. Monarch Life Ins. Co., the denial merely leaves the disputed proposition open for trial, unlike admissions which are conclusive. As such, the UTC is not required to withdraw their denials of QHR’s requests for admission. QHR acknowledges the distinction made by Fed. R. Civ. P. 36 but urges the court to treat the UTC's positions in their briefs as binding admissions. Judicial admissions, which remove a fact from contention and negate the need for proof, do not apply to legal arguments or propositions of law. The court chooses not to treat UTC's retracted position regarding the physicians as a binding fact, deciding instead that justice is better served by addressing the case on its merits.
The UTC's negligence claim against QHR for hospital operations is based on three key allegations: 1) the employment of Dr. Schlicht, 2) granting him procedural privileges, and 3) failing to suspend or revoke those privileges. As these claims are state-law claims, New Mexico's substantive law is applied, adhering to the doctrine of lex loci delicti, which dictates that the law of the place where the wrong occurred governs tort claims.
The legal excerpt addresses the issue of whether a hospital management company, such as QHR, owes a direct duty of care to patients, with particular reference to New Mexico law on negligence. Under New Mexico law, a negligence claim requires the plaintiff to establish four elements: the defendant's duty to the plaintiff, breach of that duty, injury to the plaintiff, and causation linking the breach to the injury. The court highlights that only the duty and breach of duty are under consideration. It notes that the question of duty is a matter of law informed by policy considerations, with established precedents indicating that the existence of a duty is a question for the court.
The doctrine of corporate liability, which establishes a hospital's non-delegable duty of care to its patients, is well established in New Mexico. UTC argues for extending this doctrine to cover hospital management companies like QHR. The excerpt references the case of Darling v. Charleston Community Hospital, which established that a hospital has an independent duty to supervise its physicians and ensure proper care for patients. The court must determine how the New Mexico Supreme Court would rule on this issue, as no prior cases directly address the responsibility of management companies in this context.
The hospital corporate liability doctrine, while extended to some healthcare entities like HMOs, does not apply to hospital management companies, as no cases have established such a precedent. In New Mexico, hospitals have a duty to exercise ordinary care in granting staff privileges and supervising treatment under the corporate negligence doctrine, which may result in liability for negligent actions. This principle aligns with duties recognized in other jurisdictions, which include obligations related to equipment maintenance, staff privilege management, patient treatment oversight, and rule enforcement. In Pennsylvania, hospitals are required to maintain safe facilities, select competent physicians, oversee medical practice within their walls, and enforce policies ensuring quality care. The rationale behind these duties stems from patients' reliance on hospitals as their primary healthcare providers and hospitals' unique ability to monitor physician performance effectively. Importantly, the corporate liability doctrine allows patients to hold hospitals accountable even when physicians are independent contractors, bypassing traditional respondeat superior principles. However, the court concludes that hospital management companies like QHR do not have the same duty of care to patients as hospitals do.
Patients generally perceive hospitals as their healthcare providers, not individual physicians or hospital administrators, and they typically remain unaware of any hospital management companies involved. Hospital management companies, like QHR, provide administrative services but do not supervise or evaluate physicians' performance, nor do they have the same responsibilities as hospitals concerning patient care. Consequently, the court will not impose the same corporate liability on hospital management companies, meaning they do not share the same duty of care related to staff privileges and medical supervision as hospitals do. However, this does not preclude hospital management companies from owing a duty to patients under ordinary negligence principles. The court will consider whether QHR, through its own actions, has a duty to patients based on ordinary negligence. The UTC claims that QHR had a duty regarding the employment and supervision of Dr. Schlicht, while QHR argues that it bears no such duty as its role was limited to nonmedical administrative tasks.
In New Mexico negligence cases, the duty analysis has been clarified to focus on policy considerations rather than foreseeability. The New Mexico Supreme Court's decision in *Del Sol* overruled previous cases that allowed foreseeability to influence the duty determination, emphasizing that duty is a legal question independent of factual specifics about breach. The court established that policy reasons must be articulated when determining whether a duty exists or should be limited, relying on legal precedents and statutes.
Additionally, absent a legal obligation to protect another's interests, there is generally no duty to prevent harm. A special relationship, such as supervisory or treatment relationships, may impose a duty to protect. However, a party lacks a duty to prevent injury if they do not have control over the situation causing the harm. When an individual acts, they must exercise reasonable care if their actions increase the risk of physical harm. The court must base any determination to modify or limit a duty on specific policy reasons, while also considering the relationship of the parties, the nature of the plaintiff's interest, and the defendant's conduct as they relate to policy.
A firearm manufacturer does not owe a duty to a victim of a home invasion due to public policy and the absence of a relationship between the parties, as established in prior case law. QHR argues that it has no relationship with the Hospital's patients, emphasizing its administrative role and lack of control over medical decisions and credentialing. The Hospital's Corporate Bylaws assign responsibility for medical staff evaluations to the medical staff, and the Services Agreement clarifies that QHR is not responsible for credentialing healthcare professionals. The court recognizes that a hospital management company's role is significantly narrower than that of the hospital itself, with the medical staff primarily responsible for patient care quality and the hospital board overseeing all hospital decisions. While management companies can review financial aspects of physician contracts, they cannot assess physician competence or care quality. This aligns with regulations stating that only physicians can make medical judgments. However, the court is not entirely persuaded that a hospital management company has no direct duty to patients, acknowledging that patients expect safe healthcare from treating physicians and that management companies play a role in this process, particularly regarding the responsibilities of the hospital's chief executive officer to monitor quality and operational status.
The regulations stipulate that a hospital must effectively organize its operations, ensuring communication among its governing body, medical staff, and nursing services, while also holding regular meetings to report pertinent information to the governing body. The objective is to establish licensing standards that guarantee adequate patient care and protect the health and safety of both patients and hospital employees. The CEO is responsible for implementing hospital policies and facilitating communication among the board, medical staff, and various departments.
The dual responsibility for patient safety lies with both the medical staff and hospital administrators, who coordinate to address potential issues. Hospital management companies, like QHR, are tasked with ensuring compliance with state and federal regulations regarding patient safety and must maintain procedures that protect patients. When such companies employ a hospital's CEO and CFO, they assume the responsibilities of those positions, thereby owing a duty of care to hospital patients.
This duty includes appropriately involving medical staff in medical evaluations and informing the board and medical staff about known or potential patient safety issues. The conclusion is based on public policies reflected in regulations aimed at maintaining healthcare quality. While some duties of hospital management companies may overlap with those of hospitals under corporate negligence, their responsibilities are more limited, particularly in not evaluating medical staff competency or making medical judgments. Concerns regarding the impact of recognizing a direct duty of care to patients on the willingness of management companies to serve rural hospitals are acknowledged but deemed insufficient to restrict the duty of care.
Potential chilling effects related to hospital management liability are alleviated by causation and comparative fault principles. A hospital management company, while sharing some responsibility for patient safety, is ultimately liable only for actions that causally connect to a patient's injury, with liability generally limited by proportional fault. The court will evaluate QHR's responsibilities concerning the employment, privileging, and supervision of Dr. Schlicht regarding any breaches of duty to the UTC.
Breach of duty in negligence claims involves failing to meet the required standard of care, which is determined by the finder of fact. Expert testimony is typically necessary to establish whether a defendant deviated from the standard of care in professional malpractice cases. However, in instances where negligence can be assessed through common knowledge, expert testimony may not be required.
The UTC claims multiple breaches of QHR's duty, including: 1) failure related to introducing a new pain management service line; 2) improper hiring of Dr. Schlicht; 3) inadequate temporary privileging of Dr. Schlicht; and 4) insufficient investigation into allegations that Dr. Schlicht performed experimental surgery at the hospital.
Breach of duty claims against QHR include prioritizing revenue over patient safety, failing to empanel an Institutional Review Board (IRB), mishandling the Molina Issue, and not addressing fraudulent credentials for Dr. Schlicht. The Court will evaluate each breach separately.
In the case of the Pain Management New Service Line, UTC argues that QHR did not meet the standard of care in assessing community need and financial viability before introducing this service. However, the Court found that QHR appropriately conducted its assessment, adhered to Hospital policies, and did not breach any duty regarding the new service line.
Regarding the recruitment of Dr. Schlicht, UTC contends that the CEO acted inappropriately after receiving a Candidate Introduction Letter promoting a “new patented procedure” by Dr. Schlicht. They argue that it was premature for the CEO to declare Dr. Schlicht as an “excellent candidate” without prior investigation. The Court disagreed, noting that the standard hiring process was followed and the Board approved Dr. Schlicht's employment.
Concerning the granting of temporary privileges to Dr. Schlicht, UTC claims the CEO acted against policy by granting these privileges before obtaining necessary documentation. The Court clarified that the privileges were granted on August 29, 2006, not August 9, and that while the CEO did not obtain prior approval from the Credentials Committee as required by policy, no expert testimony was presented to demonstrate that this action fell below the standard of care. The Court concluded that the determination of the CEO's actions could be assessed based on lay knowledge regarding ordinary care in such circumstances.
QHR breached its duty to the UTC by failing to secure the Credentials Committee's approval prior to granting temporary privileges to Dr. Schlicht, compromising the procedures designed to protect patient safety. However, Dr. Schlicht did not perform any procedures on UTC members under these temporary privileges. The UTC contended that QHR mishandled Dr. Schlicht's privileging and appointment to the hospital’s medical staff by improperly relying on his VA privileges and not obtaining the required three physician references for each procedure. Notably, two recommending physicians were unable to endorse four of the procedures as they had not observed Dr. Schlicht performing them. Dr. Echols, who supervised Dr. Schlicht, provided a verbal recommendation without a detailed form, while Dr. Austin mentioned reviewing extensive documentation that was not presented at trial. The Court found insufficient evidence to conclude that QHR breached any duty in Dr. Schlicht’s privileging process, affirming that it was the CEO's responsibility to ensure proper committee approvals, while the administrative support staff handled credential verification. The UTC's concerns fell outside QHR's responsibilities. Additionally, Dr. Masel accused Dr. Schlicht of performing experimental surgery, but the interim CEO, unfamiliar with the medical staff dynamics, did not recognize Dr. Masel as Dr. Schlicht's proctor. The interim CEO did not treat Dr. Masel's claims as a priority issue and conducted a limited investigation, noting past praise for Dr. Schlicht from Dr. Masel prior to their conflict.
The interim CEO's review involved consulting Dr. Austin, Dr. Bryant, Dr. Schlicht, and Dr. Jones, as well as examining Dr. Schlicht’s credentialing file. Following this review, the CEO dismissed Dr. Masel’s claim of experimental surgery as stemming from a business dispute between Dr. Masel and Dr. Schlicht, finding no need for further action. However, the consulted physicians lacked the necessary qualifications to assess Dr. Masel’s claims, as Dr. Austin (internal medicine) and Dr. Jones (family medicine) were not surgeons and had no expertise in pain management or back surgery. They were also unaware of the specific allegation that Dr. Schlicht was performing experimental surgeries. Dr. Bryant’s objectivity was compromised due to his collaboration with Dr. Schlicht on PDA procedures, creating a potential conflict of interest.
General Donald Wagner, an expert in hospital administration, indicated that the seriousness of Dr. Masel's assertion warranted a thorough investigation, particularly given the interim CEO's unfamiliarity with the staff and reliance on others for information. The court noted that the collective knowledge of QHR’s leadership, including that of former CEO Sue Johnson-Phillippe, who was aware of Dr. Masel’s proctor role, could be imputed to QHR. Citing relevant case law, the court emphasized that a corporation is accountable for the knowledge of its employees acting within their authority. The court concluded that the interim CEO's dismissal of the matter, based on insufficient inquiry, was inappropriate given the gravity of the allegations.
QHR, through its interim CEO, failed to notify the Board or its Executive Committee about Dr. Masel’s assertion regarding Dr. Schlicht's conduct and did not request a focused review from the Medical Executive Committee (MEC) as mandated by the Medical Staff Bylaws. This inaction constituted a breach of the duty of care by not involving medical staff in evaluating critical medical issues and failing to inform the Board about significant patient safety concerns.
QHR cited the Dodd-Anderson v. Henderson case to argue that the responsibilities outlined in the Restatement (Second) of Torts 324A47 do not apply to medical malpractice cases, asserting that the chief of staff had no administrative duty to supervise physicians as defined by hospital bylaws. Unlike the Dodd-Anderson case, where the chief of staff lacked knowledge of a physician's incompetence, QHR's interim CEO was aware of serious allegations against Dr. Schlicht that warranted further investigation, which was neglected.
The CEO had the authority to initiate a focused review under Sections 6.1 and 6.2 of the Medical Staff Bylaws but failed to do so, breaching the standard of care expected from hospital management under New Mexico regulations and hospital bylaws.
Additionally, the UTC contended that QHR failed to empanel an Institutional Review Board (IRB) to oversee the PDA procedures performed by Dr. Schlicht and Dr. Bryant. After receiving Dr. Masel's letter, the interim CEO attended a presentation by Dr. Schlicht and Dr. Bryant regarding the PDA procedures and, despite questioning the need for an IRB, was informed by the physicians that it was not necessary, as the procedures involved acceptable off-label use of a medical device.
QHR did not breach its duty to UTC by failing to submit the PDA procedure to an Institutional Review Board (IRB). Federal regulations require IRB review to protect human subjects in research involving systematic investigations aimed at generalizable knowledge. However, neither Dr. Bryant nor Dr. Schlicht developed a research protocol or intended to conduct such investigations; they were treating patients with a known medical device, PMMA, in a novel manner. Although the PDA procedure was experimental and should ideally have undergone IRB scrutiny, the lack of intent to conduct research negated the necessity for IRB approval. Physicians using approved devices in unapproved ways may face malpractice claims but do not require IRB oversight.
Regarding the Molina issue, an insurance provider accused Dr. Schlicht of a "gross and flagrant violation" related to a treatment that was not a PDA procedure. The Court found that QHR handled this situation appropriately, engaging legal counsel and the medical staff to address both due process and medical judgment concerns. The interim CEO flagged the issue to QHR corporate as significant, indicating proper corporate oversight. Testimony confirmed that matters like these would be discussed in Executive Sessions rather than full Board meetings. The evidence did not support claims that QHR failed to inform the Board about the Molina issue, affirming that QHR did not breach its duty in this context either.
QHR is accused by the UTC of breaching its duty by improperly influencing the hospital Board to approve a new pain management service line, hire Dr. Schlicht, and allow him to perform an untested procedure, prioritizing financial gain over patient safety. The UTC's expert testimonies support this assertion. However, the Court concludes that QHR did not breach its duty, stating that a management company must ensure adherence to safety procedures but does not inherently breach duty based solely on profit motives unless it results in actual failure to protect patients. The Court specifically found no breach related to the new service line, hiring Dr. Schlicht, granting him medical staff privileges, not empaneling an IRB, or responding to a violation charge. Furthermore, regarding falsified credentials linked to Dr. Schlicht, the Court determined that QHR could not be held liable as there was no evidence that QHR's management was aware of these bogus credentials. The Court did identify breaches in QHR’s failure to involve the medical staff in evaluating experimental surgery claims and inappropriately granting Dr. Schlicht temporary privileges, despite him not performing procedures during that time. Lastly, the UTC argues for the application of joint and several liability based on public policy concerning the PDA procedure's inherent dangers under QHR's control.
The UTC contends that public policy necessitates joint and several liability due to QHR serving as the gatekeeper for the Hospital and being the "but for" cause of UTC's injuries. Joint and several liability means that each tortfeasor is responsible for the entire injury, regardless of their individual fault share, allowing them to later determine their specific liabilities among themselves. In contrast, New Mexico has largely adopted a pure comparative fault system, where each tortfeasor is only liable for their proportionate fault, with joint and several liability being mostly abolished, except for specific exceptions.
These exceptions to joint and several liability include intentional torts, vicarious liability, products liability, and situations grounded in public policy. The New Mexico Supreme Court has ruled that an activity deemed inherently dangerous creates a specific exception, where an employer is liable for injuries caused by failures in precaution when employing independent contractors. However, this ruling does not apply to UTC's claims against QHR, as QHR was acting as an independent contractor for the Hospital, not as the employer of an independent contractor.
The New Mexico Court of Appeals clarified the application of the inherently dangerous activity exception to comparative fault in its rulings in Enriquez v. Cochran and Gulf Ins. Co. v. Cottone. The court emphasized that the inquiry should focus on the connection of the parties to the dangerous activity and their ability to control or influence the execution of that activity, rather than the employer-independent contractor relationship. If a party can control the manner in which a dangerous activity is conducted, it bears a nondelegable duty to mitigate risks associated with that activity. Conversely, if a party lacks such control, the inherently dangerous activity exception does not apply.
In the case at hand, the court determined that QHR did not have the ability to control how the PDA procedures were performed. While QHR could oversee certain administrative aspects of hospital operations and ensure compliance with safety protocols, this did not equate to control over medical practices or the specific execution of procedures by physicians. The authority to evaluate medical risks and make procedural judgments rested solely with the hospital's medical staff, not with QHR. Consequently, even if the PDA procedures were deemed inherently dangerous, the court concluded that the exception to comparative fault was inapplicable due to QHR's lack of control over the medical procedures in question.
A summary suspension of Dr. Schlicht’s or Dr. Bryant’s privileges to perform the PDA procedure necessitates professional medical judgment, which QHR is not equipped to make; this responsibility lies with the Hospital’s medical staff and Board. The Court determined that QHR did not have sufficient control over the PDA procedure to invoke the "inherently dangerous activity" exception to joint and several liability, thus not requiring an assessment of the procedure's danger. The UTC argues for joint and several liability, claiming QHR's negligence was the direct cause of patient injuries. However, this argument fails because it resembles the abandoned successive tortfeasor exception and conflates joint and several liability with "but for" causation, which would undermine comparative fault principles. The Court reinforces that hospital management companies are not expected to make medical judgments, a responsibility that rests with medical professionals. Therefore, applying comparative fault is more aligned with public policy, allowing for the apportionment of damages relative to each party's fault, which will be determined in a later trial phase. QHR breached its duty of care by granting temporary privileges to Dr. Schlicht without proper approval and failing to involve the medical staff in investigating concerns about Dr. Schlicht’s practices. If damages are awarded, the Court will apply comparative fault in its calculation. The United Tort Claimants refer to the plaintiffs listed in the established Master Docket for Consolidated Matters.
The Court has consolidated forty-seven adversary proceedings for a unified trial on liability, with an identical Case Management Order issued for each. The legal issues identified by UTC and QHR in the Pretrial Order include whether QHR owed a duty to UTC and whether a breach of that duty occurred by failing to meet the standard of care. Notably, causation and damages were not raised as issues in this context. Any factual findings in the Memorandum Opinion's Discussion section that are not reiterated in the Findings of Fact are incorporated by reference into that section.
Dr. Schlicht referenced the PDA procedure using various terms, including interpositional disc arthroplasty. The Hospital has a modified policy regarding temporary privileges, which is not detailed in this excerpt. The process for temporary privileging and the CEO's involvement is addressed later in the document. Additionally, a severance payment of $236,000 was made to former CEO Sue Johnson-Phillippe following her 2007 termination.
The 2006 Medical Staff Bylaws allowed the CEO to request an investigation into a physician's conduct if reliable information indicated potential harm to patient safety or care quality. Investigations could be initiated by various hospital officials upon reliable information of detrimental conduct, unethical behavior, or non-compliance with bylaws. Proctoring is part of the evaluation process for physician performance, with specific references detailed in the bylaws.
There was no contention regarding the Chief Nursing Officer's performance, and no evidence was presented to support any claims against them. An Appointment Summary Sheet lacked a received date for Dr. Masel's reference, although a recommendation letter was included in the evidence for another investigation. The 2007 Medical Staff Bylaws established that initial medical staff appointments conferred provisional status, requiring a minimum of twelve months of proctoring. Dr. Rashbaum is noted as a board-certified orthopedic surgeon and founder of the Texas Back Institute. Dr. Masel's letter was not admitted into evidence during the trial, though some details could be inferred from Dr. Schlicht's responses.
Counsel informed the Court that a special master in related state court actions deemed Dr. Masel's letter privileged under the Review Organization Immunity Act (ROIA), rendering it undiscoverable. No requests were made to this Court to produce or assess the letter's privilege status in these proceedings. The Court may infer that the letter was part of Dr. Masel’s one-year peer review, although this inference is not necessary for the Court's decision. Expert testimony indicated that letters like Dr. Masel's are typically not seen by hospital CEOs during the peer review process. However, once Mr. Richardson read Dr. Schlicht's response to Dr. Masel's allegations, he was obligated to take appropriate action.
An email from the surgical team indicated a significant breakthrough in outpatient treatment for degenerative disc issues, suggesting a high level of confidence in their findings. According to Medical Staff Bylaws, the Medical Executive Committee (MEC) can choose to initiate or forgo an investigation based on discussions regarding requests for investigation. If the MEC fails to act contrary to the evidence, the Board of Directors may direct them to investigate.
Considering these factors and expert testimony, the Court inferred that the CEO had the authority to invoke focused review procedures outlined in the bylaws. Furthermore, the Court noted its jurisdiction by taking judicial notice of documents in the Hospital's Chapter 11 case, affirming that these facts are undisputed and emphasizing the Court's obligation to ensure its jurisdiction and that of the district court.
Section 157(b)(5) of Title 28 mandates that personal injury tort claims be tried in the district court where the bankruptcy case is pending. The United States Supreme Court's decision in Stern v. Marshall clarifies that this provision is not jurisdictional and can be waived, as demonstrated by a defendant consenting to a court's resolution of the claim. Although there is a question of whether the claims in this case are personal injury tort claims, all parties have agreed to have them tried in this Court. Under 28 U.S.C. 1334(b), district courts maintain original, but not exclusive, jurisdiction over civil proceedings related to bankruptcy cases. Furthermore, 28 U.S.C. 157(a) allows district courts to refer bankruptcy cases and related proceedings to bankruptcy judges. The District of New Mexico has referred all such cases to the bankruptcy court, as outlined in Administrative Order Misc. No. 84-0324. Section 157(c)(2) permits the district court to refer related proceedings to a bankruptcy judge for resolution, contingent upon the consent of all involved parties. Additionally, Rule 36(b) establishes that an admission made under this rule is conclusive unless the court permits its withdrawal or amendment, promoting the merits of the case without causing prejudice to the opposing party. The excerpt also notes that Health Maintenance Organizations (HMOs) can be liable for medical malpractice due to corporate negligence in the selection and oversight of physicians.
In Sokolsky v. Eidelman, the Pennsylvania Superior Court recognized the application of corporate negligence theory to health maintenance organizations and professional medical corporations. The excerpt cites several cases illustrating the limits of hospital liability under this theory, specifically regarding negligent granting of staff privileges and supervision of treatment. It references Larson v. Wasemiller, which discusses the tort of negligent credentialing recognized in 27 states, and Gafner v. Down East Community Hospital, emphasizing that hospitals must ensure their practitioners are properly credentialed and licensed. Johnson v. Misc.ordia Community Hospital further explains that hospitals have an independent responsibility to their patients, separate from the responsibilities of physicians, to ensure staff qualifications and evaluate care quality.
The excerpt also highlights a shift in public perception regarding hospitals as providers of medical services, with doctors viewed as instruments of the hospital. In New Mexico, the principle of foreseeability is central to determining a negligent actor's duty to potential plaintiffs, as established in Herrera and other cited cases. The New Mexico Supreme Court has adopted the Restatement (Third) of Torts regarding the duty of care, which states that an actor generally has a duty to exercise reasonable care when their actions create a risk of physical harm.
In exceptional circumstances, courts may limit or deny liability if there is a clear countervailing principle or policy, potentially modifying a defendant's duty of care. The Restatement (Third) of Torts indicates that QHR was engaged to provide non-medical administrative services to the Hospital and was restricted from directing medical decisions. The hospital's medical staff is accountable to its governing body for the quality of care and ethical practices, as mandated by New Mexico Administrative Code and federal regulations. The governing body is responsible for overseeing hospital operations and appointing medical staff based on established by-laws. The court clarifies that a hospital's chief executive officer may not have a personal duty to patients, which involves further policy analysis. New Mexico follows a comparative fault doctrine, which will influence damage awards. Certain standard of care breaches, like communication errors between doctors or surgical oversights, are considered within common knowledge and do not require expert testimony. Conversely, evaluations of prison officials' conduct or professional conflict of interest claims necessitate expert input. The New Mexico Uniform Jury Instructions define "ordinary care" as the level of caution a reasonable person would take, emphasizing that the required standard of care increases with the level of foreseeable risk.
The Court's determination of no breach of duty does not imply that the actions in question align with the narrowly defined duty of QHR to the UTC. This finding simply indicates that the UTC's claims lack sufficient support. According to the Restatement (Second) of Torts § 324A, a party who provides necessary services to protect a third person may be liable for harm due to a lack of reasonable care if certain conditions are met; however, the Court does not invoke this section to establish QHR's duty to the UTC. Relevant case law, including Staudt v. Froedtert Mem’l Lutheran Hosp., illustrates that physicians can be liable for malpractice but may also use approved medical products for unapproved purposes without liability.
New Mexico law (N.M.S.A. 1978 § 41-3A-1) abolishes joint and several liability for most causes of action under the comparative fault doctrine, making defendants liable only for their proportional fault. Specifically, joint and several liability still applies in cases involving intentional harm, vicarious liability, strict liability for defective products, or in other public policy situations. UTC has withdrawn its argument for joint and several liability under the successive tortfeasor doctrine. If a court finds that a defendant had sufficient control over an activity, it must apply a three-prong test to evaluate whether that activity is inherently dangerous, as established in Gabaldon v. Erisa Mortg. Co.
The elements of causation in negligence claims require both cause in fact and proximate cause. "But for" causation relates to the cause in fact requirement, as clarified in Chamberland v. Roswell Osteopathic Clinic, Inc. Although the specific form of comparative fault from Rizzo has been replaced by statute, the underlying principles of comparative fault remain unchanged.
