Are Your Physicians Properly Insured? Pending Lawsuit Could Hold Health Care Facilities Liable for Uninsured Physicians

New Jersey law requires all physicians to maintain malpractice insurance for the benefit of patients to whom they provide medical treatment (N.J.S.A. 45:9-19.17). In the alternative, a physician may file a letter of credit in the amount of $500,000 with the Board of Medical Examiners (BME) confirming the physician’s financial ability to pay a judgment. Failure to comply with this statute could result in disciplinary action and civil penalties. What impact does this law have on health care facilities that allow noncompliant physicians to practice at their facility? A recent Supreme Court decision may ultimately pave the way for lawsuits against entities that grant privileges to these uninsured physicians.

Recently, the New Jersey Supreme Court delivered a decision that may ultimately impose liability on health care facilities that permit uninsured physicians to practice medicine at their facility. In Jarrell v. Kaul, the Supreme Court reversed the Appellate Division’s grant of summary judgment to an Ambulatory Surgical Center (ASC) that allowed a doctor to perform medical procedures despite knowing he was not insured to perform those procedures. The patient, Jarrell, underwent spinal fusion at an ASC center, but the physician performing the procedure did not have medical malpractice insurance that covered him for the procedure. According to the reported case, the doctor allegedly advised the BME that he had enough liquid assets to cover any claims but there was no proof that he ever obtained approval from the BME that his representation constituted compliance with the letter of credit requirement. The owners of the ASC knew that the doctor did not have insurance but nevertheless permitted him to perform the procedure.

The procedure was performed without immediate complications; however the patient later developed drop foot. The patient sued the doctor and the ASC. The ASC moved to have the case dismissed against it, claiming that it could not be held responsible for negligent hiring. The trial court granted the motion and the appellate division affirmed (agreed).

The Supreme Court came to a different conclusion. It held that a health care facility that grants privileges to a physician has a continuing duty to ensure that the physician has and maintains the required medical malpractice insurance or have an approved BME letter of credit. The Supreme Court remanded the case back down to the trial court for further proceedings.

The conclusion of this case may have a significant impact on the liability of health care facilities who fail to take reasonable steps to confirm that all physicians to whom they issue privileges have and maintain malpractice insurance. While the decision on this case may remain outstanding for an unknown period of time, it is imperative that health care facilities take steps to confirm that all physicians to whom it grants privileges comply with the statutory requirements. This could include developing a standard operating procedure to monitor each physician’s compliance with the law. Implementing simple policies and procedures now could help insulate the health care facility from liability for the acts of its physicians. Contact Frier Levitt to speak to an attorney.

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