Legal Review and Commentary

Court overturns malicious credentialing verdict

$2.4 million settlement reached with 2 physicians

News: A patient undergoing back surgery experienced a cardiac arrest after losing excessive amounts of blood during the procedure. Although he was resuscitated, the man suffered severe and permanent brain damage. The patient and his family sued the surgeon, anesthesiologist, and acute care facility, and they argued that the doctors acted negligently during the surgery and that the facility acted with malice in credentialing the surgeon to practice there. After settling with the two doctors for $2.4 million, the plaintiffs achieved a jury verdict of $11.4 million against the facility. That verdict, however, was overturned on appeal for a lack of evidence tending to show malice on the part of the facility.

Background: A 40-year-old longshoreman underwent elective back surgery at an acute care facility. During the procedure, the patient lost a lot of blood before the surgeon, the anesthesiologist, or anyone else noticed. In the 45 minutes it took to prepare a transfusion, the man lost almost all of the blood in his body and went into cardiac arrest. Although he was resuscitated, he suffered severe and permanent brain damage, which left him profoundly disabled and unable to care for himself. Following the surgery, the acute care facility suspended the doctor pending an investigation. Nevertheless, he apparently performed two more surgeries the next month at the facility before allowing his privileges to expire without applying for renewal.

The patient's wife, individually and on behalf of the patient and their three minor children, sued the acute care facility, the surgeon, and the anesthesiologist. After settling with the two physicians for approximately $2.4 million, the plaintiffs pursued their claims against the facility. The plaintiffs claimed that the facility's negligence resulted in the delayed blood transfusion for the patient, and they also argued that the facility had acted with malice in credentialing the surgeon to practice at the facility. During the litigation, the acute care facility asserted the peer review privilege, thereby preventing the deliberations of its peer review committee in granting privileges to the surgeon from being disclosed in discovery or introduced into evidence. Nevertheless, the plaintiffs were able to point out that the acute care facility granted the doctor's application for privileges despite the doctor's alarming history:

  • The doctor's application for a Mississippi medical license had been denied several years earlier because he had forged the names of his partner and office manager on it.
  • Over the preceding five years, he had been sued 10 times for medical professional liability.
  • He had been suspected by his office manager and colleagues of abusing hydrocodone, a narcotic analgesic used to relieve pain, to the point that family members convinced him to enter a treatment program for his chemical abuse.
  • Two years after the doctor's release from the program, his office manager resigned because she still suspected him of having a drug problem.
  • The State Board of Medical Examiners was investigating the doctor for allegations of suspected drug abuse.

Furthermore, the facility failed to act after granting the doctor's application for privileges even after the doctor was suspended from practicing at a nearby regional hospital for operating on the wrong leg of a patient.

The jury found that the acute care facility had acted negligently and maliciously. It returned actual damages of $28.6 million and punitive damages of $12 million, apportioning 40% of those damages to the facility. A high-low settlement agreement entered into between the parties, however, reduced the award against the acute care facility to $11.4 million in actual damages. On appeal, the Texas Supreme Court reversed the jury's verdict against the facility for malicious credentialing, even though it sympathized that the necessary evidence of malice was unavailable due to the confidential nature of peer review proceedings. The high court also found that the jury probably would have apportioned responsibility differently had it been restricted to considering only the facility's negligence. Accordingly, the court remanded the case for a new trial on negligence.

What this means to you: Every hospital has the legal duty to maintain a qualified medical staff, which hospitals satisfy through the process of credentialing physicians and granting privileges for specific procedures.

"Regardless of whether physicians are credentialed through core and special privileging or standard privilege specifications, there must be formal recognition and attestation of current medical professional or technical competence and performance by adherence to the applicable professional standard for direct medical care or peer review," says Ellen L. Barton, JD, CPCU, a risk management consultant in Phoenix, MD. Such a process defines a physician's scope of practice and the clinical services that he or she may provide, and it ensures that a physician provides services only within the scope of privileges granted. If a hospital credentials a physician inappropriately, not only may the physician be liable for injuries due to substandard practice, but the hospital also may be subject to liability.

Barton notes that the process through which a hospital credentials a physician involves several steps. A physician first must complete a detailed application asking for a variety of specific information, including information relating to licensure, claims history, prior health care affiliations, and information from the Drug Enforcement Administration. A physician-applicant attests to the veracity of the information and further consents to the release of said information for verification purposes.

"The facts in this scenario point out that information regarding this physician was apparently available and pointed to his unsuitability for the practice of medicine. Clearly the hospital should have been able to obtain verification of the Mississippi licensure denial as well as his alarming claims frequency. Further, the hospital also should have been able to obtain information from the state medical board regarding his suspected drug problem," notes Barton.

The hospital in this scenario had ample opportunity to discover the red flags present in this physician's history. "The fact that this surgeon was granted privileges at the hospital after being suspended from another facility is evidence of a faulty credentialing process at the very least. Further, the fact that this surgeon performed two more surgeries after the hospital suspended his privileges is unconscionable and points to a deficiency in the hospital's communication system as well as its seeming disregard for patient safety," suggests Barton. Barton recognizes the possible complacency among health care providers about the credentialing process due to the fact that the credentialing verification process has become almost completely computerized. "However, the computerized credentialing process is not fail-safe, and it relies in large part on the veracity of the applicant. Therefore, there must be a thorough review of the information obtained, and if any discrepancies are detected, further investigation is warranted," recommends Barton.

Finally, although the facts do not indicate how long the physician had been on staff at the facility, the scenario raises the issue of whether the hospital not only inappropriately credentialed this physician, but also renewed his privileges without the requisite degree of scrutiny. Barton says that the facility in this case was clearly negligent in credentialing this physician, and she sympathizes with the problems associated with the confidentiality afforded to health care institutions in the credentialing process. "Although the court found that a finding of malice was prevented in this case, one would have to state that this hospital's negligence was so blatant as to shock the conscience. To "ignore the smell of smoke when the fire is not visible" creates a danger of exposing oneself and, in this case, patients to the possibility of getting burned.


  • Texas Supreme Court, Case No. 03-0497.