Apparent Agency May Extend Liability to Healthcare Organizations

The Indiana Supreme Court was recently presented two appeals that may expand healthcare organizations’ liability for non-employed physicians, groups with exclusive privileges and other contractors/vendors. The extension of liability, if it occurs, will be based on apparent agency – a legal doctrine that allows a patient to hold a healthcare organization liable for the actions of independent contractors outside of the employment context.

Healthcare organizations may be liable for vicarious liability or direct liability. Vicarious liability involves liability based only on the negligence of employees or agents. Direct liability involves liability based on actions taken by the hospital itself such as negligent credentialing claims and negligent hiring claims. Prior to 1999, Indiana courts routinely held that hospitals were not vicariously liable for independently contracted physicians because physicians had total control over the medical decision making for their patients.

In 1999, the Indiana Supreme Court decided Sword v. NKC Hospitals, Inc., 714 N.E.2d 142 (Ind. 1999), finding it possible to hold a hospital vicariously liable for a non-employee’s actions if the patient reasonably believed, based on the hospital’s actions or inactions, that the physician was acting on behalf of the hospital. However, the Court went further and created a rebuttable presumption that, absent meaningful notice to the patient that their doctor did not work for the hospital, the hospital held itself out to the patient as the provider of care, and the patient relied on the hospital’s manifestation. This not only made it possible for patients to hold hospitals vicariously liable but made it easier for plaintiffs to recover against a hospital. This holding by the Court greatly expanded a hospital’s liability for non-employed physicians on staff such as the ED physicians, pathologists, and anesthesiologist.

For two decades, the Sword Doctrine was narrowly construed to apply only to hospitals, but recent cases have expanded liability to other types of healthcare entities, such as a diagnostic imaging company (Webster v. CDI Indiana, LLC, 917 F.3d 574 (7th Cir., 2019)).

On September 22, 2021, the Indiana Supreme Court heard oral arguments in two cases that seek to expand vicarious liability to a wide range of healthcare facilities and organizations. In Wilson v. Anonymous, Plaintiff seeks to hold a physician group liable for the alleged negligence of a physical therapist whose physical therapy employer shared a premises with the physician group. Wilson v. Anonymous, 172 N.E.3d 274 (Ind. 2021). In Arrendale v. Am. Imaging & MRI, LLC, Plaintiff seeks to hold an MRI facility liable for the alleged negligence of an independent radiologist. Arrendale v. Am. Imaging & MRI, LLC, 172 N.E.2d 274 (Ind. 2021). During oral arguments, the Indiana Supreme Court focused on the ease of all medical facilities providing meaningful notice that patient care was not provided by the facility or its employees.

Potential expansion of the Sword Doctrine to include all healthcare facilities could have a huge impact on organizations who do not directly render healthcare, and thus are not “qualified providers” under the Indiana Medical Malpractice Act. If held vicariously liable for the negligence of an independent contractor, non-qualified providers would not benefit from the cap on damages provided by the Medical Malpractice Act. Yet, even if the Court expands vicarious liability to some or all healthcare facilities and organizations, there are ways to mitigate risk and protect your organization.

The attorneys of the Katz Korin Cunningham health care group are available to answer any questions you may have including how you can protect your organization.

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