In a carefully watched case on disclosure duties in medical staff credentialing, the US District Court of Appeals for the Fifth Circuit held on May 8, 2008, that under Louisiana law a peer review body has no affirmative duty to disclose negative information about a physician to inquiring hospitals. When, however, a peer review body does choose to provide some information in response to a credentialing inquiry, it must ensure that the information is factually accurate.

In the decision, Kadlec Medical Center v. Lakeview Anesthesia Associates, the Court of Appeals distinguished between two sets of responses to an inquiring hospital regarding a physician with a substance abuse problem. The response by Lakeview Medical Center (“Lakeview”) did not include intentional or negligent misrepresentations. Lakeview thus had no affirmative duty to disclose its concerns about the physician to Kadlec Medical Center (“Kadlec”), the Court of Appeals held, overturning the lower court’s ruling. In contrast, Lakeview Anesthesia Associates (“Anesthesia Associates”) did provide misleading information to Kadlec. The Court of Appeal sustained the lower court’s holding that Anesthesia Associates did violate its duty to Kadlec and therefore was liable.

Dr. Berry, an anesthesiologist, was investigated by Lakeview and terminated from Anesthesia Associates due to his addiction to Demerol that impaired his ability to safely care for patients. Before Lakeview took any action against Dr. Berry’s privileges, he resigned. Less than three months after terminating Dr. Berry, two  Anesthesia Associates physicians who participated in the termination sent glowing letters of reference about Dr. Berry to a staffing agency with the intention that the letters be provided to future employers. Both letters ultimately were sent to Kadlec. Neither letter mentioned Dr. Berry’s addiction or the danger to patients that Anesthesia Associates had documented as the reasons for his termination. 

Lakeview’s response was not forthcoming either, but with key distinctions from the Anesthesia Associates response. Kadlec sent a credentialing questionnaire and other documents regarding Dr. Berry’s qualifications to Lakeview. Instead of completing and returning those forms, Lakeview sent a response that is typical for hospitals in such situations: A short letter stating that, due to the large volume of inquiries into the Medical Staff office, Lakeview could provide only the dates on which Dr. Berry was a member of the Active Staff at Lakeview and a telephone number to contact Lakeview if it could be of further assistance. 

Comparing the Anesthesia Associates letters with the Lakeview letter, the Court of Appeals disagreed with the district court and held that because Lakeview did not make any misleading statements to Kadlec about Dr. Berry’s qualifications, it was not liable for intentional misrepresentation. Anesthesia Associates, however, was liable because the statements in its two letters were patently false and misleading. The Court held that if a party chooses to respond to a credentialing inquiry, then it has a duty to ensure that the statements it makes about a physician are factually accurate and not misleading. That is, once a party volunteers information, it assumes a duty to ensure that the information is correct. The Court concluded that because Anesthesia Associates created a misapprehension about Dr. Berry’s qualifications, “it had a duty to disclose his drug use and for-cause firing to complete the whole picture.” Lakeview, on the other hand, did not volunteer any information about Dr. Berry’s performance or qualifications and the statements it made about his tenure at Lakeview were factually accurate. 

The Court also reversed the lower court’s ruling that Lakeview had an affirmative duty to disclose to Kadlec the negative information Lakeview knew about Dr. Berry. The Court held that because Lakeview did not have a fiduciary or confidential relationship with Kadlec, it had no duty to disclose negative information about Dr. Berry to Kadlec. The Court rejected Kadlec’s argument that Lakeview’s duty arose from the fact that it conveyed information as part of its normal course of business. The Court held instead that providing reference information was a purely gratuitous endeavor which did not create a duty to disclose.  When it declined to find a special relationship between querying and responding hospitals, the Court specifically acknowledged that hospitals have genuine concerns about avoiding defamation claims from physicians.

The Court of Appeal’s ruling in Kadlec does not answer all the questions that the district court’s original ruling raised for hospitals and medical staffs across the country. For example, many hospitals and medical staffs take the position that when an inquiry by another peer review organization is made, it is their moral (if not legal) duty to provide detailed information of their concerns about a practitioner. But what about cases where the practitioner never had a hearing to address those concerns (such as this one)? What about rumors and innuendos – should those be shared? Almost always, the answer is “no” – but what kind of warning to the inquiring entity is appropriate? What about cases – such as this one – where the inquiries cross state lines? Are the immunity protections of each state sufficient to protect the hospitals from liability for their communication? A good practice to address each of these concerns is always to insist on a specific release from liability from the practitioner before sharing any information with the other entity. And to check with the hospital or Medical Staff counsel if there are any questions. 

At the very least, the Court’s reasoning and holdings provide some reassurance to hospitals and medical staffs that they can, if they choose, use a standard response disclosing only the dates of staff membership when responding to inquiries from other peer review organizations. Even so, peer reviewers should not allow the Kadlec decision to lull them into a false sense of complacency; for example, remaining silent when a physician’s behavior is truly egregious may persuade a court to find liability for the failure to disclose. Perhaps the most important message in the case is that if a Medical Staff decides to give information reflecting on the practitioner’s qualifications, misrepresentations may be actionable. 

It is very important to remember, however, that Kadlec was decided under Louisiana State law; Hospitals and medical staffs always should consider the laws of their own states before relying on the Kadlec ruling when making decisions regarding how much information to disclose. At the very least, hospitals and medical staffs would be wise to observe the following Kadlec rule: If they choose to respond to a credentialing inquiry, the statements they make must be factually correct and not create any confusion or misapprehension about a practitioner’s qualifications.

If you have questions about the Court of Appeals’ decision in Kadlec, please contact Lowell C. Brown, Sarah G. Benator, or Patricia M. Kosich.

Lowell C. Brown
brown.lowell@arentfox.com
213.443.7516

Sarah G. Benator
benator.sarah@arentfox.com
213.443.7518

Patricia M. Kosich
kosich.patricia@arentfox.com
213.443.7521