Q. The recent decision in the Scott-SSM Healthcare case
in Missouri has highlighted the dangers involved in indemnification
clauses that are often a part of pathology group contracts with
hospitals. In this case, a radiologist who was a member of an independent
group that had a contract to provide radiology services to an SSM
hospital was ruled to be acting as an agent of the hospital, which
resulted in the hospital being vicariously liable for his actions.
This has sent a chill through the spines of hospital administrators,
since every misread CT scan or surgical pathology slide can now
result in damages being assessed against the hospital, even though
the physicians involved are ostensibly independent contractors.
Hospitals are reacting by putting the burden back on the physician
groups through the use of indemnification ("hold harmless") clauses.
However, most physicians’ professional liability carriers exclude
coverage for this type of indemnification related to a physician’s
negligence, since it is a liability assumed under contract. The
net effect is that the corporation owned by the physicians is left
without insurance to fight/fund an indemnification action by the
hospital, exposing it to serious financial damage (over $2 million
in the Scott case).
Q. Is there a way to address the hospital’s concerns about vicarious
liability for the actions of independent physicians who provide specialty services
under contract to the hospital without exposing those independent physician
groups to legal actions for which they have no coverage? If not, how should
pathology groups respond to hospital administrators who insist on indemnification
clauses of this type?
A. You are correct in cautioning pathologists to
beware of indemnification provisions in their contracts with hospitals.
In the typical indemnification clause, the pathology group indemnifies
the hospital against claims based on the negligence of a pathologist
in the group. The group is required to hold the hospital harmless
from any liability attributable to the negligence of a pathologist.
It may be required to bear the expenses the hospital incurs in defending
a lawsuit that alleges negligence by the pathologist.
A hospital may invoke an indemnification clause when the pathologist
and the hospital are sued based on injury to a patient arising,
for example, from the reporting of a false-negative Pap test or
from the misreporting of results of a clinical pathology procedure.
In these situations, the hospital may be named as a defendant because
the test was performed on its premises using laboratory personnel
it employs and with equipment and reagents it supplies. However,
the hospital will assert that the suit is based on the negligence
of the responsible pathologist. Depending on the precise language
of the indemnification clause, the hospital may require the pathology
group to pay for the hospital’s defense or to provide an attorney
to represent the hospital. It will also try to hold the pathology
group liable for any damages assessed against the hospital or for
the amount of any settlement.
The assertion that "most physicians’ professional liability carriers
exclude coverage for this type of indemnification" is, in my view,
an understatement. I am not aware of any malpractice carrier that
covers liability incurred through an indemnification clause. The
simple reason is that malpractice policies insure against the negligence
of the insured-not against liabilities that, like a liability arising
out of an indemnification provision, are assumed contractually.
For this reason, I always urge pathologists to do their best to
resist inclusion of indemnification provisions in their contracts
The question asks whether there is a way "to address the hospital’s
concerns about vicarious liability for the actions of independent
physicians who provide specialty services under contract to the
hospital without exposing those independent physician groups to
legal actions for which they have no coverage." I know of only one
way: The pathology group can ask its insurer to make the hospital
a named insured under the group’s malpractice policy. Adding the
hospital as a named insured will provide insurance coverage if the
hospital is sued based on the alleged negligence of a pathologist.
Professional liability carriers may be unwilling to provide this
additional coverage-or may agree to do so only for a substantial
increase in premium. Nevertheless, this is an issue well worth exploring
when a pathology group purchases malpractice coverage-and when it
is confronted by a hospital with a demand for an indemnification
provision. Being included on the group’s policy as a named insured
should be an acceptable substitute for an indemnification.
Assuming that the named insured approach won’t work, the question
asks how pathology groups should respond to hospital administrators
who insist on indemnification clauses. I have used three arguments:
The issue is illustrated by a situation in which a cytotechnologist
allegedly failed to screen a questionable Pap test. The indemnification
provision gives the hospital an incentive to claim that the pathologist
was negligent. The pathologist has an incentive to argue that the
negligence lies exclusively with the hospital. Of course, when defendants
point fingers at one another, the plaintiff wins. Therefore, an indemnification
clause is not in the interests of the hospital or the pathology group.
- The appeal to fairness and decency. The pathology group can
explain that it simply cannot afford to assume a potentially enormous
uninsured liability. It can point out that the hospital doesn’t
need the indemnification since the hospital has its own coverage.
- The appeal to notions of symmetry. If the pathology group is
required to indemnify the hospital, then the group can say that
the hospital should in fairness indemnify it against the negligence
of the hospital. There is not much advantage in indemnification
by the hospital, but the hope is that the prospect of giving an
indemnification will dissuade the administrator from demanding
- The appeal to practicality. The pathology group can point out
a problem with the indemnification clause that is far from obvious.
Specifically, if the group and the hospital are sued but the clause
is triggered by the negligence of a pathologist, the two defendants
will be pitted against each other. To avoid the indemnification,
the group will have every incentive in the litigation to argue
that it was the hospital-and not the pathologist-that was negligent.
In contrast, to secure the indemnification, the hospital may have
to take the position that the pathologist was negligent.
Generally, these arguments do not carry the day. Despite their
force, the administrator usually insists on the indemnification.
At that point, the pathology group has two choices (assuming that
adding the hospital as a named insured under the group’s malpractice
policy won’t work):
Of course, each pathology group must make its own choice. But every
group that I have ever represented has chosen the second option.
- Refuse to sign the contract and seek a position elsewhere.
- Sign the contract and hope that the clause is never invoked.
Jack R. Bierig
CAP General Counsel
Sidley Austin Brown & Wood
Q. The Health Insurance Portability and Accountability Act
privacy regulations scheduled to take effect April 14 have implications for
how we practice pathology. Fortunately, pathologists are considered indirect
providers, which means that much of the confidential information we have access
to is governed by patient consent forms that have already been obtained by other
physicians. Therefore, pathologists can continue to review patients’ medical
records without obtaining patient consent. But some questions remain:
- What restrictions are placed on our review of medical records? Must our
review be focused on patients with whom we have established a pathologist-patient
relationship, or can any pathologist within the group review any medical record
of any patient at our hospital?
- For quality assurance and educational purposes, pathologists frequently
want to know the results of a followup surgical procedure that took place
at another institution. Will we need patient consent to obtain copies of the
outside pathology report or slides, or both?
- When sending cases to consultants at other institutions, do we need to obtain
prior patient consent?
A. Pathologists review medical records under
three legitimate circumstances: 1. when necessary to complete a
report or answer a question about the care of a patient; 2. in the
course of research; and 3. for QA purposes.
In the first circumstance, a pathologist-patient relationship
exists because treatment by the attending physician includes consultation
between health care providers [Health Insurance Portability and
Accountability Act of 1996, section 164.506(c)]. In the second instance,
the physician must seek specific permission from the patient for
review of the record [164.508(f) and 164.512(i)] unless there is
an exception granted by an institutional review board or a privacy
board. Because quality improvement activities are included in the
definition of health care operations, they are permitted under the
basic consent for treatment [164.506].
A pathologist who is reviewing a record for purposes covered by
the definition of health care operations can review the records
of any patient. Because followup is between two covered entities
and comes under the definition of health care operations, special
consent is not required when asking to review followup surgical
procedures and results from another institution. The same is true
when seeking consults from other institutions.
Henry Travers, MD
Sioux Falls, SD
Member, Council on Scientific Affairs