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Three Appeals Judges evaluate whether doctor is agent of hospital

This week, a Court of Appeals panel was called upon to decide whether an O.B. Gyn was actually an agent of Memorial Hospital in Shiawasssee County, by reason of a "recruiting agreement" with the Hospital.  The court's opinion noted that Cesar Mario Coloyan Chaves, M.D., was recruited by the Hospital to provide specialty care at the hospital pursuant to an agreement under which the Hospital loaned Chaves money to start a practice, guaranteed a certain level of income, paid his employees and malpractice insurance, and provided his equipment and supplies.  It also promised to forgive a portion of Chaves' debt for each year he practiced through the Hospital.The agreement identified Chaves as an "independent contractor" but also allowed the Hospital total access to his books and obligated Chaves to provide certain services within the community.  

Tavy Pasieka argued that pursuant to this agreement, Chaves was actually an employee or agent of the Hospital, making the Hospital responsible for allegedly negligent care she received from Chaves in treating suspected uterine cancer.  The Court noted that the Hospital "over-simplified" the issue when it argued that its "lack of control over how Chaves practiced medicine" was determinative:  further analysis is required than simply looking at whether the doctor reserved the right to make professional treatment decisions.  The Court also noted that simply identifying Chaves as an independent contractor within the contract was not determinative.

On analysis of the issue, the three judges concluded that Chaves was not an agent of the hospital.  It pointed out that Pasieka's attorneys analogized her argument to the "economic reality" test in workers' compensation claims:  they argued that Chaves' practice was, in reality, dominated by the economic strength of the Hospital, making Chaves an agent or employee of the hospital.  The Court rejected this argument. 

The judges explained that the "economic reality" test was used in workers compensation claims to balance the unequal bargaining power in most employment relationships.  That test was unrelated to the issue of whether a third-party should be able to look to one contracting party to indemnify for the injuries caused by the other party to the contract.  Rather, where third-parties are concerned, the Court held that the "control test" should determine whether a Hospital is responsible for the actions of a doctor.

The court panel concluded that if there is an argument that a doctor was actually an agent of the hospital (not an "apparent" agent by estoppel principles), the Hospital's ability to controi the doctor should be determinative.  By that analysis, Memorial Hospital did not preserve the type of control over Chaves' practice that would make it responsible for his mistakes.  When this "control test" is applied to the "highly individualized nature of [a] professional practice," the Court must look not to a principal's control of the doctor's indivdual patient judgments, but rather to those elements of his practice which an "employer/principal" reasonably could control. 

The latter would include, for example, employee staffing, overhead, hours of practice, locations, exclusivity of privileges and other indicia of agency "control."  When the Court applied this test to the relationship between Chaves and Memorial, it deemed the evidence insufficient to hold Memorial responsible for Chaves' negligence, despite its underwriting of his practice as described above.

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