Hospital’s peer review process may create unintended employment relationship

For the week of January 28, 2008

The anti-discrimination provisions of Title VII apply only to employees. The determination of whether an individual is an “employee” for purposes of that Act depends largely on whether a putative employer exercised control over the “manner and means” by which the individual performed a job. While a number of courts of appeal specifically have held that hospital peer review programs do not constitute such control, the 2d U.S. Court of Appeals recently determined that a hospital’s “quality assurance program” that led a physician into its peer review process may have created an employment relationship, allowing the physician to move forward with claims under Title VII. Salamon v. Our Lady of Victory Hospital, et al., 2d Circ., No. 06-1707-cv, January 31, 2008.

Dr. Barbara Salamon, a board certified gastroenterologist and internist with medical staff privileges at Our Lady of Victory Hospital (OLV) in New York State, sued the hospital and four of its administrator/doctors, claiming that she had been discriminated against on the basis of her gender. According to Salamon, one of the individual defendants (Moore) sexually harassed her and made unwanted advances. When Salamon complained, Moore allegedly gave her “undeserved negative performance reviews.” Salamon also claimed that the remaining defendants were complicit with Moore when they used the hospital’s peer review process to punish her for reporting the harassment.

OLV did not pay a salary or other monetary compensation to Salamon; she billed patients and insurers directly for her services. Salamon’s clinical privileges extended to the use of the hospital’s facilities and equipment in OLV’s GI lab, which was vital to her practice. She also was required to use the services of OLV nursing and support staff in her treatment of patients, although she generally determined which patients to see and treat, and whether or not to admit them to OLV. However, Salamon was required to submit to the hospital’s “Staff Rules and Regulations” and to comply with hospital by-laws. One significant piece of hospital supervision over Salamon was a “quality assurance” process under which hospital practitioners, on a rotating basis, would review procedures conducted by various physicians at OLV. Cases flagged as “problematic” under the process would be discussed further; doctors whose cases were flagged would be subject to a peer review and, if appropriate, reported to the National Practitioners Data Bank (NPDB).

Salamon alleges that her relationships with OLV changed and the level of review of her practice changed significantly after she complained of the unwanted sexual attention by Moore. Her cases began to be reviewed regularly and criticized to an extent substantially greater than other doctors’ cases. As a result of these reviews, Salamon was ordered to undergo a three-month “re-education” and mentoring program, and to perform consistently with certain OLV practices. Salamon was warned that her failure to complete the program would lead to a report to the NPDB. OLV subsequently merged with another area hospital, and the re-education and mentoring program therefore expired without further action.

Salamon filed claims in federal court, including a Title VII claim and claims under related state laws. The district court dismissed those claims on the basis that the staff physician/hospital relationship did not meet the common law criteria for an employer/employee relationship. On appeal, the Second Circuit reversed the decision, allowing the Title VII claims to go forward, along with the related state law claims.

The Second Circuit’s decision was based on its determination that Salamon’s relationship with OLV could, in fact, meet the common law definition of employment. Whether an individual is an employee depends upon a fact-specific analysis of certain factors, including the source of the tools and instrumentalities used, the duration of the relationship, the method of payment, and – most importantly – the hiring party’s right to control the manner and means by which the work is done. This factor includes more than the right to dictate the outcome of the work; conversely, the mere exercise of professional judgment of the worker is not dispositive of the “manner and means” test.

In this case, the Second Circuit found that OLV exercised “substantial control” over the treatment outcomes of Dr. Salamon’s practice, and over the details and methods of her work. The evidence showed that a number of the quality management standards were based not on standards of medical care, but on the maximization of hospital profits, including the alteration of treatment choices and the prescription of generic medications, even when it could mean a difference in the medication’s effectiveness.

While hospital policies that merely reflect professional and governmental regulatory standards may not create the level of control that establishes an employment relationship for purposes of Title VII, the policies imposed upon Dr. Salamon, and the imposition of the peer review process on her cases to such a large degree, may have been motivated by OLV’s goal of maximizing revenue, and/or in reaction to Salamon’s complaints of harassment. Because a reasonable fact finder could conclude that the hospital’s quality assurance standards extended beyond health and safety concerns or Salamon’s specific medical qualifications, and because Salamon was subject to possible negative peer review for violation of those standards, Salamon was able to demonstrate a genuine factual conflict regarding the extent of control exercised by OLV. Therefore, the lower court’s decision was reversed, and the Title VII and related state claims can go forward to a jury.

While summary judgment may be appropriate in some circumstances in which “independent” staff physicians sue a hospital, these cases are fact specific. Hospitals should be aware of this case, as it outlined in some detail the court’s analysis of the hospital’s peer review process. Further, all employers should recognize that the degree of control exercised over individuals can re-categorize an independent contractor into an employee, creating potential exposure to Title VII liability.