Public hospital district medical staff bylaws frequently look like the bylaws of other hospitals because most of the federal, state and JCAHO requirements apply to all hospitals. However, some distinctions exist with regard to public hospital districts and the denial or restriction of hospital medical staff privileges. Due to the governmental status of public hospital districts, other unique issues arise, such as conflicts of interest with regard to physicians serving on the board of commissioners. Public hospital districts also have to be especially careful in dealing with physicians with regard to making gifts of public funds. Finally, public hospital districts have express authority to enter into joint ventures with physicians.

The contents of medical staff bylaws for public hospital districts will likely be similar to the content of such bylaws at private not-for-profit hospitals. The state laws regarding peer review and credentialing, as well as the JCAHO requirements for medical staff bylaws, are not affected by public hospital district status. However, a physician's rights under the bylaws may be affected to some extent by the governmental status. A physician who wishes to challenge the denial, reduction, or termination of medical staff membership or privileges at a hospital operated by a public hospital district may follow the same avenues of recourse as a physician on the medical staff at a private hospital; however, three areas are unique to public hospital districts: (1) antitrust claims; (2) due process procedural requirements; and (3) appeals of the public hospital district's action.

Frequently, an aggrieved physician who has lost medical staff membership or privileges will sue the hospital, members of the medical staff, or both for violations of the federal antitrust laws. Public hospital districts, as municipal corporations, are exempt from the application of state antitrust laws. However, hospital districts do still have an exposure under federal antitrust law. The two protections which public hospital districts may have in the federal antitrust arena are from the Local Government Antitrust Act of 1984 (15 USC, Section 35) and State Action exemptions under common-law antitrust principles.

The Local Government Antitrust Act of 1984, provides that no damages may be recovered in antitrust actions from local governments or their officials or employees when they are acting in an official capacity. This is a major distinction between public hospital districts and private not-for-profit hospitals, which can be subject to treble damages for violations of the antitrust laws. Under the Act, local governments are defined as including school or sanitation districts or "any other special function governmental unit established by state law." F urther discussion of the Local Government Antitrust Act may be found in Chapter 6, Topic I: “Antitrust.”

Further Legal Background

A California federal court has held that the above definition includes district hospitals. The court's decision also suggests that the Act's protection can cover the hospital's Chief of Staff, the Chairman of the Medical Executive Committee, and other physicians performing hospital functions. They must be able to show that their peer review actions were taken in an official capacity or based on official action directed by the hospital. A wronged physician may obtain an injunction against the PHD but not damages. [Palm Springs Medical Clinic, Inc. v. Desert Hospital, 628F Supp. 454 (c.d. Cal 1986)]

The State Action Doctrine provides an antitrust immunity where it can be demonstrated that there is a clearly articulated state policy to displace competition with state regulation surrounding the entity. After one U.S. Supreme Court decision, it was felt that public hospital districts would also be immune from federal antitrust laws because of the state action doctrine. [Patrick v. Burget, 486 U.S. 94 (1988)] However, the Ninth Circuit Federal Court of Appeals found that a hospital district in California was not entitled to immunity through the state action doctrine.

Further Legal Background

In the Ninth Circuit case discussed above, the court found the state did not clearly displace competition with regulation in the provision of hospital services and, therefore, the hospital was not shielded by the state action immunity. The court focused on two factors: first, the state gave the district no power to regulate the hospital services market, but merely authorized them to provide hospital services along with their competitors. Also, through numerous legislative actions, the state had committed itself to a competitive market. Therefore, it was determined that the state's policy was to enhance competition rather than replace it. [Lancaster Community Hospital v. Antelope Valley Hospital District, 923 F 2d, 1378 9th Cir. (1991)]

For rural PHDs engaging in specified activities, the state articulates a clear intent to displace competition with regulation int he Interlocal Cooperation Act, thereby protecting them from liability. [RCW 70.44.450] Rural PHDs are local governments, so there is no requirement for active state supervision. However, the state does require PHDs to file interlocal agreements. The agreements can only be between PHDs. Further discussions of the Interlocal Cooperation Act may be found in Chapter Six, Topic I: “Antitrust” and Topic IV: “Change and PHD Law.”

Practical Consideration

In order to provide for antitrust protection, medical staff bylaws should be clear on the following points in order to apply to staff leaders and other physicians performing hospital functions:

• All actions or recommendations made by staff leaders, committees, or other physicians should be done on behalf of the hospital. The medical staff bylaws should not include references to the staff as "an organization" or any other language that may tend to demonstrate that the medical staff, its committees or officers are independent of the hospital.

• Bylaws should provide that the board either appoints medical staff officers and department chairs or, if elected, that the board approves the election.

In general, a hospital's ability to terminate physician staff privileges is affected by the designation of the hospital as public or private. Because a public hospital district's termination of physician staff privileges is considered action by a governmental entity, a public hospital must meet constitutional principles of due process when making decisions about physician staff privileges. Unlike private hospitals, which must only comply with the terms of its own bylaws, public hospitals are subject to judicial review and their decisions may be reviewed for arbitrariness or capriciousness.

However, as a practical matter, all hospitals should be complying with the due process procedural requirements of the Health Care Quality Improvement Act of 1986. The Health Care Quality Improvement Act outlines certain due process requirements which, when followed, grant broad immunity to hospitals and physicians who participate in credentialing and peer review activities. The procedural requirements include an outline of strict requirements regarding written notices, reasons for the proposed action, right to request a hearing, etc. The Act needs to be scrupulously followed to attain the benefits of immunity. [42 USC Section 11101-11152]

Practical Considerations

The effect of the Healthcare Quality Improvement Act, as well as many of the JCAHO bylaw requirements, brings private hospitals up to the level of procedural due process requirements of public hospital districts. In other words, all hospitals have an interest in following the due process requirements of the Healthcare Quality Improvement Act in order to obtain the immunity provisions granted under the Act, whereas public hospital districts have always been subject to such standards due to the constitutional rights of the parties affected.

The Washington State Supreme Court has determined that the proceedings under the medical staff bylaws of a public hospital district concerning a physician's privileges are quasi-judicial in nature. [Ritter v. Board of Commissioners, 96 Wn. 2d 503 (1981)] Thus, the appeal to a superior court for judicial review of the proceedings of a public hospital district should be filed pursuant to Chapter 7.16 RCW, which sets forth the procedures for a Writ of Review.

Further Legal Background

The board of commissioners, in making a determination regarding a physician's privileges, is acting in a quasi-judicial manner as opposed to taking an administrative action, provided that they act in a manner similar to a court in reviewing the record, considering briefs of counsel, hearing oral argument and issuing a decision. In addition, the board action should involve the application of the medical staff bylaws standards to past and present facts and for the purpose of determining the outcome. [Washington Federation of State Employees v. State Personnel Board, 23 Wn. App. 142 (1979)]

Practical Considerations

When a Writ of Review to a superior court is sought pursuant to RCW 7.16.040, the appeal must be made within fourteen days of the final decision. Prior court decisions have held that where there is no statute or court rule prescribing the time limit for seeking a Writ of Review, the appropriate time limit is that set forth in the rules governing appeals from courts of limited jurisdiction. [Vance v. Seattle, 18 Wn. App. 418 (1977)] Under CRLJ 73(b) and RALJ 2.5, the time allowed to file a Notice of Appeal is fourteen days from the date of the final decision. The filing of the application for the Writ within the fourteen day period is jurisdictional. [Davidson v. Thomas, 55 Wn. App. 794 (1989)] Accordingly, the court lacks jurisdiction to grant a Writ of Review pursuant to RCW 7.16.040 if the physician fails to apply for the Writ within the fourteen day appeal period.

All meetings, proceedings, and deliberations of the board of commissioners concerning the granting, denial, revocation, restriction or other consideration of a physician's privileges, may be treated as confidential and may be conducted in Executive Session. However, the final action of the board of commissioners with regard to such decision must be done in public session. Thus, if the medical staff bylaws direct the board of commissioners to hold hearings or deliberate in some other manner with regard to a physician's privileges prior to a final decision by the board, the proceeding may be conducted in a closed session. In addition, any subcommittees of the board of commissioners may meet or deliberate in a closed session. The proceedings themselves generally will be subject to the medical staff bylaws. [RCW 70.44.062]

Conflicts of interest potentially apply in a number of public hospital district situations. Section K of this chapter covers this topic in general, but the following details some physician-specific concerns.

From time to time public hospital districts have physicians elected to their board of commissioners. At least one Assistant Attorney General has concluded that this violates the conflict of interest statute set forth in Chapter 42.23 RCW. In other words, the role of physician as commissioner may directly or indirectly benefit the physician as a member of the medical staff, because of a financial benefit to the physician. The better analysis is probably that the issue depends on the facts and circumstances of each individual situation. The facts to be considered should include the nature of the physician's privileges, the size of the medical staff, and the extent of the physician's practice at the public hospital district. To date, the State Auditor's Office has made findings with regard to physicians on the board of commissioners in certain instances; however, the Attorney General's Office has not found it necessary to take any action with regard to such circumstances.

The State Auditor's Office has found, in some circumstances that a physician's relationship with the public hospital district, particularly as an officer of the medical staff may, at a minimum, require a disclosure on the financial statements in accordance with Generally Accepted Accounting Principles (GAAP), if the hospital enters into a joint venture or other contractual relationship with the physician. Other classic physician conflict of interest issues (i.e., physician conflicts in credentialing and peer review matters, and physician-hospital economic competition) are not unique to public hospital districts. The strict conflict of interest statute for municipal officers, Chapter 42.23 RCW, which applies to public hospital district board members and other officers, usually will not affect physicians as they ordinarily are not municipal officers, as defined in the statute, RCW 42.23.020(2).

Article VIII Section 7 of the Washington State Constitution prohibits municipalities from lending credit or making a gift of public funds except for the necessary support of the poor and infirm. This restriction applies to public hospital districts in a number of situations and is also discussed in Chapter 6, Topic IV: “Change and PHD Law.”

The issue frequently arises with regard to the medical staff in terms of whether the district can give goods or services to physicians. For example, frequently hospitals will wish to provide equipment to physicians to use in their offices free of charge, provide free services to their offices, sell things to physicians at a rate discounted below the hospital's cost, or provide free meals or other gratuities for physicians on the medical staff. As is the case with all health care providers, public hospital districts are subject to various prohibitions for rewarding physicians for referring their patients to the hospital, such as federal fraud and abuse laws and state anti-rebating laws.

An analysis of the Gift of Public Funds Prohibition with regard to a physician would be the same as the analysis with regard to any other person or entity dealing with the hospital. In at least one case, the Washington Supreme Court has held that "for purposes of Constitution Article VIII Section 7, a gift is a transfer of property without consideration and with donative intent. Receipt of valuable consideration assures that a transaction is not a gift." [See Louthan v. King County, 94 Wn. 2d 422 (1980)] In other cases, the courts have looked for the public benefit achieved from the activity and whether it amounts to consideration for the funds expended. [Johnson v. Johnson, 96 Wn. 2d 255 (1981)]

In accordance with the Gift of Public Funds provision set forth above, public hospital districts generally are precluded from reimbursing physicians for travel, meals, entertainment, or educational expenses unless: (1) the hospital has a contract with the physician to do so in return for the provision of services for the hospital, or; (2) under certain circumstances where the physician is a candidate for a medical staff position.

Further Legal Background

As discussed above, it is difficult for a public hospital district to justify payment for goods or services on behalf of a physician unless the district is contractually obligated to do so. The hospital district has to walk a fine line between the gift of public fund prohibitions, the federal fraud and abuse laws, and the state anti-rebating laws.

However, a public hospital district may pay actual necessary travel expenses and living expenses incurred while in travel status for qualified physicians (and other health care providers) who are candidates for medical staff positions when the district finds that its facilities are not adequately staffed and it determines that personal interviews with these candidates are necessary or desirable. Interviews must be held in the district. These expenses may include expenses of family members accompanying the candidate. Thus, as a recruitment tool, public hospital districts are able to bring physicians to the district for interviews and pay their expenses accordingly. [RCW 70.44.060(9)]

In addition, a district is authorized to contract with current or prospective physicians (and other health care providers) for the payment or reimbursement of their health care training or education expenses in return for the provision of services "beneficial to the public hospital district." These expenses can include debt obligations that the physician (or other health care provider) has incurred. [RCW 70.44.060(10)]

Public hospital districts are specifically permitted by statute to engage in business ventures with physicians. The statute states that public hospital districts may contract or join with any other public hospital district, any publicly owned hospital, any non profit hospital, any corporation, or individual to acquire or provide services or facilities to be used by individuals, districts, hospitals, or others, including the providing of health maintenance services. Thus, public hospital districts are given specific authority to enter into joint ventures with private entities, such as physicians, for the provision of healthcare services. These joint ventures may take the shape of many different forms, with one major exception being the formation of a separate for profit corporation. Washington State Constitution Article VII Section 8 prohibits municipalities from owning, directly or indirectly, shares of stock or bonds in corporations, companies or associations. Thus, a hospital and physician could not participate in owning the stock of a corporation formed for the purposes of a joint venture. [RCW 70.44.240]