A hospital and physician group that wrote referral letters on behalf of an anesthesiologist had no duty to disclose to a future employer their investigation into the anesthesiologist's on-duty use of narcotics, according to a recent decision by the fifth circuit court of appeals. The court found, however, that the hospital and physician group had a duty to avoid affirmative misrepresentations in the referral letters.
Background. The anesthesiologist, Dr. Robert Berry, was employed Lakeview Anesthesia Associates (LAA), a physician group that was the exclusive provider of anesthesia services to Lakeview Medical Center (Lakeview). Dr. Berry was fired by LAA when it was discovered that he had been making excessive and undocumented withdrawals of narcotics from the hospital pharmacy for personal use. Referral letters written by Lakeview and LAA, and relied on by Kadlec Medical Center (Kadlec), Dr. Berry's future employer, did not disclose LAA's termination of Dr. Berry, his on-duty drug use, or the investigation into Dr. Berry's undocumented withdrawals of narcotics.
While under the influence of narcotics at Kadlec, Dr. Berry failed to resuscitate a patient who stopped breathing during a routine surgical procedure, and the patient lapsed into a permanent vegetative state. The patient's family sued Dr. Berry and Kadlec, whose insurers settled the claims against them.
Following the settlement of the patient's claims, Kadlec sued Lakeview and LAA, alleging that misrepresentations in, and omissions from, their referral letters led to Kadlec's hiring of Dr. Berry and the resulting expenditure of millions of dollars to settle the lawsuit brought by the patient.
Affirmative misrepresentations. On appeal from a jury verdict in favor of Kadlec on its negligent and intentional misrepresentation claims, Lakeview and LAA argued that any representations in, or omissions from, the referral letters could not establish liability. Once they volunteered information in the referral letters, however, Lakeview and LAA had a duty under the Health Care Quality Improvement Act and state regulations to avoid affirmative misrepresentations, the court said. LAA's referral letters were materially misleading, therefore, LAA incurred a duty to cure the misleading statements by disclosing to Kadlec that Dr. Berry had been fired for on-the-job drug use.
Duty to disclose. Lakeview's referral letter, however, was not misleading, the court concluded. Therefore Lakeview could not be held liable for negligent or intentional misrepresentation. Absent misleading statements, Lakeview did not have a fiduciary or contractual duty to disclose what it knew about Dr. Berry, the court said.
Causation. The court found that Kadlec’s hiring of Dr. Berry and his subsequent on-duty drug use were “easily associated with” the risk of harm brought about by the misleading nature of LAA's referral letters. The harm to the patient and Kadlec, therefore, was a foreseeable consequence of LAA's conduct, the court concluded.
Accordingly, the appellate court upheld the district court's finding of liability against LAA and reversed the judgment against Lakeview.
Kadlec Medical Center v. Lakeview Anesthesia Associates, 5th Cir., May 8, 2008, Health Care Compliance Reporter ¶800,503.
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