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Judicial Review of Internal Policy Decisions of Private Nonprofit Hospitals: A Common Law Approach

Published online by Cambridge University Press:  24 February 2021

John J. McMahon
John J. McMahon*
Affiliation:
1965, St. Louis University; 1976, Harvard Law School; Idaho Supreme Court
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Abstract

Internal policy decisions of private nonprofit hospitals can have a powerful impact. For example, the denial of medical staff privileges to a physician can limit his income and perhaps damage his reputation. The rejection of a prospective father’s request to assist his wife in the hospital’s delivery room during childbirth deprives the couple of the opportunity to share one of life’s most profound experiences.

Plaintiffs aggrieved by, and seeking to challenge, a policy decision of a private nonprofit hospital often turn instinctively to the fourteenth amendment to the U.S. Constitution for a remedy, hoping to prove (1) “state action” by the hospital and (2) violation of the constitutional rights of the plaintiff. Currently, suggests the author, such an approach is likely to be of limited usefulness. As an alternative, the plaintiff may be able to marshall a common law challenge based on the argument that the hospital, although privately owned, is “affected with a public interest”—that is, it is sufficiently “public” in nature and function that it has a common law duty to serve the public fairly and reasonably, a duty enforceable in a state court. Courts that characterize private nonprofit hospitals as enterprises affected with a public interest (as many courts currently do) will review the challenged hospital policy decision and will decide whether or not, on balance, it was “procedurally fair” and “substantively rational.” This common law approach to judicial review, whose roots are deep in medieval English law, will have a bright future if state courts are willing to heed their common law heritage.

Type
Articles
Information
American Journal of Law & Medicine , Volume 3 , Issue 2 , Summer 1977 , pp. 149 - 181
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 1977

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Footnotes

Mr. McMahon’s other writings have appeared in The New Republic, Cross Currents, and The Living Wilderness.

References

1 Concerning the expression “private nonprofit hospitals,” several comments are in order. “Hospitals” is used in this Article only in the narrowest sense of the word. For example, it is not intended to include nonhospital clinics, health maintenance organizations (HMOs), or group practices. To include such facilities and organizations would have made the analysis unnecessarily complex, although others may wish to explore this line. “Nonprofit” in this Article means organized and chartered as a nonprofit corporation under the applicable state statute. Again, expanding the discussion to proprietary hospitals would have raised special issues, and in any case the vast majority of private hospitals are nonprofit. “Private” means not owned by, governed by, or licensed in the name of, any governmental entity. When the phrase “private hospital” is used herein, it should be read to mean “private nonprofit hospital” as defined above.

2 For example, the federal courts have been nearly unanimous in refusing to find “state action” in the actions of private hospitals due simply to their receipt of Hill-Burton funds. See Cronin, Private Hospitals that Receive Public Funds Under the Hill-Burton Program: The State Action Implications, 12 NEW ENG. L. REV. 525 (1977)Google Scholar.

3 Virtually every law establishes classifications that treat groups differently from each other. The equal protection clause of the fourteenth amendment does not require that people be treated the same—only that the ways in which they are treated differently be reasonable. Obviously, the degree of “reasonableness” insisted upon by the courts will determine whether or not a given law passes muster.

Under the “old equal protection,” courts do not overturn a classification if it was rationally, or even conceivably, related to a valid legislative goal. The “new equal protection,” by contrast, employs far tougher scrutiny. For an outline of this transition and a list of the instances when the “new equal protection” will be invoked, see Note, The Evolution of Equal Protection—Education, Municipal Services and Wealth, 7 HARV. CIV. RIGHTS-CIV. LIB. L. REV. 103 (1971).

The all-or-nothing approach of requiring “strict scrutiny” for certain types of classification while requiring only a “rational relation” for others appears to be undergoing modification (by the Burger Court). See Note, The New, New Equal Protection, 72 MICH. L. REV. 508 (1974); Gunther, The Supreme Court, 1971 Term—Foreword—In Search of Evolving Doctrine in a Changing Court: A Model for a New Equal Protection, 86 HARV. L. REV. 1 (1972)CrossRefGoogle Scholar.

Again, it is not the author’s purpose here to analyze the constitutional approach in detail.

4 It has been suggested that, conceptually, a court can always find some “rational relation” between the classification and some purported goal if it wants to. See Ely, Legislative and Administrative Motivation in Constitutional Law, 79 YALE L.J. 1205 (1970)CrossRefGoogle Scholar.

5 94 U.S. 113 (1876). The assertion that the grain storage warehouses are enterprises “affected with a public interest” appears at 94 U.S. 130.

6 In this Article, a “privately owned” enterprise is one owned by a party or parties other than government. The label “privately owned” is not intended to rule out the possibility of the enterprise so labeled being “publicly held” in the sense that its shares are sold on the open market.

7 ld. at 126.

8 Id. at 130.

9 This section of the Article relies heavily upon PLUCKNETT, A CONCISE HISTORY OF THE COMMON LAW (5th ed. 1956), and Pollock, F. & Maitland, F. THE HISTORY OF ENGLISH LAW, (2d ed. 1911)Google Scholar.

10 BRACTON, ON THE LAWS AND CUSTOMS OF ENGLAND (Thorne ed. 1968).

11 Sutherland, A. QUO WARRANTO PROCEEDINGS IN THE REIGN OF EDWARD I, 1278-1294 (1963)Google Scholar.

12 Streeter v. Brogan, 113 N.J. Super. 486, 491, 274 A.2d 312, 315 (Ch. Div. 1971).

13 Id. at 493, 274 A.2d at 316.

14 94 U.S. 113 (1876).

15 Id. at 141.

16 Id. at 140.

17 Id. at 132.

18 Id. at 125. In updating the list given in the quoted passage, a recent article stated:

[A]mong the various items that have been subject to extensive regulation, including in many instances the regulation of price, the quality of service and, indeed, the prudence of investment and rate of return, are milk, theatre tickets, alcoholic beverages, bread, used cars, agricultural commodities, water, sewer services, natural gas, electricity, telephone and telegraph services, transportation services of all kinds, warehouses, docks, toll bridges, stockyards, ice, steamheating, and cotton ginning, as well as other enterprises.

Babcock, and Feurer, Land as a Commodity “Affected with a Public Interest,” 52 WASH. L. REV. 289, 310-311 (1977)Google Scholar.

19 94 U.S. at 126.

20 Id. at 130.

21 Id. at 131.

22 New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650, 658 (1885). See also Louisville Gas Co. v. Citizens’ Gas Co., 115 U.S. 683, 692 (1885).

23 94 U.S. at 132.

24 New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650, 658 (1885); Louisville Gas Co. v. Citizens’ Gas-Light Co., 115 U.S. 683, 692 (1885).

25 In Shepard v. Milwaukee Gas Light Co., the Wisconsin Supreme Court put its view of the indispensability of natural gas in the form of a rhetorical question:

If a company were chartered with the exclusive privilege of manufacturing and selling bread in the city of Milwaukee, would it be contended that the company were under no obligation to supply or sell bread to any but such person or persons as the company should capriciously select?

6 Wise. 539, 547 (1858).

26 See Pensacola Telegraph Co. v. Western Union Telegraph Co., 96 U.S. 1 (1878).

27 See State ex rel. Webster v. Nebraska Telephone Co., 17 Neb. 126, 22 N.W. 237 (1885).

28 See National Broadcasting Co. v. U.S., 319 U.S. 190 (1943).

29 94 U.S. at 124.

30 Id. at 125.

31 New Orleans Gas Co. v. Louisiana Light Co., 115 U.S. 650, 653 (1885).

32 A presentation of the evolving concept of “public use” in eminent domain law is beyond the scope of this Article. For a thorough treatment, see Bosselman, F. P. THE TAKING ISSUE (1973)Google Scholar. Many western states have developed a sizeable body of law relating to private companies’ use of eminent domain power and the resulting public use requirement. The Montana constitution, for example, recognizes the power of the sovereign to acquire, and to authorize others to acquire, private property for public use through eminent domain proceedings. The Montana legislature, since the earliest days of statehood, has seen fit to grant the right to exercise this power to railroad corporations, mine owners, loggers, and, indeed, to all private corporations. The history of the public’s rights in property so acquired is traced in Kaze, Eminent Domain: Exploitation of Montana’s Natural Resources, 35 MONTANA L. REV. 279 (1974)Google Scholar.

33 94 U.S. at 131.

34 The Binghamton Bridge, 70 U.S. 142-43 (3 Wall.) (1866).

35 See Woodbury v. Tampa Waterworks Co., 57 Fla. 243, 49 So. 556 (1909); Salisbury v. Spenser Ry. Co. v. Southern Power Co. 179 N.C. 18, 101 S.E. 593 (1919); Turnpike Co. v. News Co., 43 N.J.L. 381 (Sup. Ct. 1881).

36 Interstate Commerce Comm’n v. Oregon-Wash. R.R. & Navigation Co., 288 U.S. 14, 47 (1933). In so holding, Justice Cardozo was not innovating. As early as 1891, a water company had been held subject to the duty to serve without discrimination all persons who wished to be customers, despite the fact that there was no language in the company’s charter imposing such a duty. See Haugen v. Albina Light & Water Co., 21 Or. 411, 28 P. 244 (1891).

37 Griffin v. Goldsboro Water Co., 122 N.C. 206, 209, 30 S.E. 319, 320 (1898).

38 Nebbia v. New York, 291 U.S. 502, 536 (1934).

39 Id.

40 The importance of current social and economic conditions in relation to the question of whether or not a particular enterprise is affected with a public interest was stressed in Arterburn, The Original and First Test of Public Service Callings, 75 U. PA. L. REV. 411 (1926-27)Google Scholar.

41 Nebbia v. New York, 291 U.S. 502, 536 (1934).Nebbia is most famous injudicial history as one of the cases sounding the death knell for “substantive due process,” a tool that the U.S. Supreme Court had used for several decades as a means of turning all legislative policy decisions into constitutional issues subject to judicial oversight.

42 Figures on the percentage of Americans who receive hospital services at least once during their lifetime, or on the number of hospital encounters experienced by an “average” American during his lifetime, are difficult to find. However, some related statistics are available. For example, during 1970 alone, 9 percent of the total population of this country spent some time as hospital inpatients. R. ANDERSEN, R. GREELEY, J. KRAVITZ, & O. ANDERSON, HEALTH SERVICE USE: NATIONAL TRENDS AND VARIATIONS 16 (HEW Pub. No. (H-SM) 733004, October 1972).

43 BUREAU OF THE CENSUS, U.S. COMMERCE DEP’T. STATISTICAL ABSTRACT OF THE UNITED STATES 54 (1976).

44 94 U.S. at 145.

45 It is important to emphasize again that this Article is advocating a common law, not a constitutional law, basis for judicial review; and that the question of whether or not a hospital’s governmental involvements are sufficient to raise “state action” questions is quite different from the question of whether or not such involvements contribute to the likelihood that the hospital will be perceived by the courts as affected with a public interest.

46 The word “monopoly” conjures up images of such giant enterprises as the American Tobacco Trust and the Standard Oil Company of early antitrust fame, or IBM and others of our own day. The term should not be so restricted, for it is entirely possible to have a merely local or regional monopoly:

A monopoly raises duties which may be enforced against the possessors of the monopoly. This has been recognized from the earliest times. The rule that one who pursued a common calling was obliged to serve all comers on reasonable terms, seems to have been based on the fact that innkeepers, carriers, farriers, and the like, were few, and each had a virtual monopoly in his neighborhood.

Wilson v. Newspaper & Mail Deliverers’ Union, 123 N.J. Eq. 347, 350, 197 A. 720, 722 (1938).

47 Greisman v. Newcomb Hosp., 40 N.J. 389, 192 A.2d 817 (1963). See also Note, The Physician’s Right to Hospital Staff Membership: The Public-Private Dichotomy, 1966 WASH. U. L.Q. 485 (1966)Google Scholar.

48 A number of state courts—many of them state supreme courts—have explicitly adopted, or suggested that they would adopt in appropriate fact situations, the common law approach to private hospitals’ internal policy decisions espoused in Greisman. Many, but not all, of the pertinent cases involve physicians’ access to medical staff privileges; a few involve patients’ access to hospital services, and similar issues. Greisman is alive and well in New Jersey, as can be seen in the recent case of Doe v. Bridgeton Hosp. Ass’n, 71 N.J. 478, 366 A.2d 641 (1976). Other cases in which state courts have accepted the Greisman approach include Willis v. Santa Ana Community Hosp. Ass’n, 58 Cal. 2d 806, 376 P.2d 568, 26 Cal. Rptr. 640 (1962) and Ascherman v. St. Francis Memorial Hosp., 45 Cal. App. 3d 507, 119 Cal. Rptr. 407 (1975); Hawkins v. Kinsie, 540 P.2d 345 (Colo. Ct. App. 1975); Silver v. Castle Memorial Hosp., 53 Hawaii 475, 497 P.2d 564 (1972); Bricker v. Sceva Speare Memorial Hosp., 111 N.H. 276, 281 A.2d 589 (1971); Kurk v. Medical Soc’y of County of Queens, 46 Misc. 2d 790, 260 N.Y.S.2d 520 (1965); Davidson v. Youngstown Hospital Ass’n, 19 Ohio App. 2d 246, 250 N.E.2d 892 (1969); and Woodard v. Porter Hosp., Inc., 125 Vt. 419, 217 A.2d 37 (1966).

Some courts take the anomalous position of resolving the merits of the complaint while refusing to take a stand on the threshold question of review ability. See Wilmington General Hosp. v. Manlove, 54 Del. 15, 174 A.2d 135 (Sup. Ct. 1961); Hulit v. St. Vincent’s Hosp., 520 P.2d 99 (Mont. Sup. Ct. 1974); Huffaker v. Bailey, 273 Or. 273, 540 P.2d 1398 (1975); and Hagan v. Osteopathic General Hosp, of Rhode Island, 102 R.I. 717, 232 A.2d 596 (1967). Other courts review the actions of the hospital’s governing board to determine whether or not there is a “conspiracy” among board members to deprive a medical staff applicant of the right to practice his profession. See Burkhart v. Community Medical Centre, 432 S.W.2d 433 (Ky. Sup. Ct. 1968); Cowan v. Gibson, 392 S.W.2d 307 (S.C. Sup. Ct. 1965); and Nashville Memorial Hosp., Inc. v. Binkley, 534 S.W.2d 318 (Tenn. Sup. Ct. 1976). Still other courts show themselves unmistakably receptive to the common law approach. See Datillo v. Tucson General Hosp., 23 Ariz. App. 392, 533 P.2d 89 (1975) and Rao v. Auburn General Hosp., 10 Wash. App. 361, 517 P.2d 240 (1973).

Cases in those jurisdictions frequently described as hostile to the notion of judicial review of private hospitals’ internal policy decisions generally pre-date Greisman, dismiss the Greis-man approach without any critical evaluation, or misinterpret the approach as an attempt to make private decisions into “state action” in fourteenth amendment terms. See Moore v. Andalusia Hosp., Inc., 284 Ala. 259, 224 So.2d 617 (1969); Edson v. Griffin Hosp., 21 Conn. Supp. 55, 144 A.2d 341 (Super. Ct. 1958); Monyek v. Parkway General Hosp., Inc., 273 So.2d 430 (Fla. Dist. Ct. App. 1973); Mauer v. Highland Park Hosp. Foundation, 90 Ill. App. 2d 409, 232 N.E.2d 776 (1967); Foote v. Community Hosp, of Beloit, 195 Kan. 385, 405 P.2d 423 (1965); Glass v. Doctors Hosp., Inc., 213 Md. 44, 131 A.2d 254 (1957); Ponca City Hosp., Inc. v. Murphree, 545 P.2d 738 (Okla. Sup. Ct. 1976); Adler v. Montefiore Hosp. Ass’n of W. Pa., 453 Pa. 60, 311 A.2d 634 (1973); Weary v. Baylor Univ. Hosp., 360 S.W.2d 895 (Tex. Ct. Civ. App. 1962); Khoury v. Community Memorial Hosp., Inc., 203 Va. 236, 123 S.E.2d 533 (1962); State ex rei. Sams v. Ohio Valley General Hosp. Ass’n, 149W. Va.229, 140S.E.2d457 (1965).

49 40 N.J. at 395, 192 A.2d at 820.

50 Id. at 396, 192 A.2d at 821.

51 Id. at 396, 192 A.2d at 820.

52 Id. at 396, 192 A.2d at 820. See also Chafee, Jr. The Internal Affairs of Associations Not for Profit, 43 HARV. L. REV. 993 (1930)CrossRefGoogle Scholar; Note, Judicial Control of the Activities of Private Associations, 76 HARV. L. REV. 983 (1963)Google Scholar.

53 40 N.J. at 402-04, 192 A.2d at 824-25 (emphasis added).

54 Id. at 396-97, 192 A.2d at 821.

55 The quoted passages are from Messenger v. Pa. R.R., 36 N.J.L. 407 (Sup. Ct. 1873). See also Priest, Possible Adaptation of Public Utility Concepts in the Health Care Field, 35 LAW & CONTEMP. PROB. 839 (1970)CrossRefGoogle Scholar.

56 Woodard v. Porter Hosp., Inc., 125 Vt. 419, 422, 217 A.2d 37, 39 (1966).

57 That Greisman recognizes in hospitals a “public” quality similar to that of common carriers, rather than “publicness” in terms of governmental ownership and control, is acknowledged—somewhat tentatively—at Note, Judicial Review of Private Hospital Activities, 75 MICH. L. REV. 455, 450 (1976)Google Scholar.

58 The Supreme Court of Hawaii, reflecting upon the common law approach employed in Greisman, correctly perceived that this area is exceedingly complex. Silver v. Castle Memorial Hosp., 53 Hawaii 475, 481-83, 497 P.2d 564, 570 (1974).

59 For a discussion of the distinction between the “duty to use care” and the “duty to serve,” see Arterburn, supra note 40.

60 For the common law approach to the regulation of railroads, see New England Express Co. v. Maine Central R.R., 57 Me. 188 (1869); McDuffee v. R.R., 52 N.H. 430 (1873); Sandford v. R.R. Co., 24 Pa. 378 (1855).

61 Streeter V. Brogan, 113 N.J. Super. 486, 492, 274 A.2d 312, 316 (Ch. Div. 1971).

62 See State v. Consumers Trust Co., 157 Ind. 345, 61 N.E. 674 (1901); Travaini v. Maricopa County, 9 Ariz. App. 228, 450 P.2d 1021 (1969).

It should be noted that the common law granted equal access to all who paid equal rates. Those who seek to elaborate a right to hospital care for all Americans, regardless of ability to pay, thus will find little comfort in the common law approach.

63 Veach v. City of Phoenix, 102 Ariz. 195, 427 P.2d 335 (1967).

64 City of Chicago v. O’Connell, 278 Ill. 591, 116 N.E. 210 (1917). See also State v. Atlantic Coast Line R.R., 53 Fla. 650, 44 So. 213 (1907).

65 12 Cal.3d 541,550, 526 P.2d 253, 260-61, 116 Cal. Rptr. 245, 251-52 (1974) (emphasis added).

66 The issue of physician access to hospitals has undergone rapid evolution in the past decade and one half. The issue has evolved from one of concern simply with expulsion and exclusion from a hospital staff to one of concern with any kind of interference with staff privileges. The right at stake is now based not upon “economic necessity” when faced with an organization that exercises a stranglehold over one’s livelihood, but rather with a recognition of the common law right “to fully practice one’s profession.” A full documentation of this evolution would require a separate article.

67 12 Cal.3d at 550 n.7, 526 P.2d at 259 n.7, 116 Cal. Rptr. at 251 n.7.

68 The treatment that follows is derived from the two cases where these concepts have been most fully developed: Silver v. Castle Memorial Hosp., 53 Hawaii 475, 497 P.2d 564 (1972) and Pinsker v. Pacific Coast Soc’y of Orthodontists, 12 Cal.3d 541, 526 P.2d 253, 116 Cal. Rptr. 245 (1974). See also Bricker v. Sceva Speare Memorial Hosp., Ill N.H. 276, 281 A.2d 589 (1971).

69 The authorities listed in note 68 supra are split on the question of whether or not one must be allowed the assistance of counsel at such hearings.

70 Pinsker v. Pacific Coast Soc’y of Orthodontists, 12 Cal.3d 541, 555-56, 526 P.2d 253, 263-64, 116 Cal. Rptr. 245, 255-56 (1974).

71 The more cumbersome aspects of these procedural safeguards need not be present in every instance:

Of course, if an unsuccessful applicant does not care to know the reason for his rejection or does not wish to contest his exclusion, there is no necessity for an association to conduct a meaningless procedure. Accordingly, it is permissible for an association to initially reject an applicant without explanation, so long as the association clearly indicates to the applicant that, if he desires, the association will inform him of the reason for the rejection and will afford him an opportunity to respond.

Id. at 555 n.13, 526 P.2d at 263 n.13, 116 Cal. Rptr. at 256 n.13.

72 For more discussion of this point, see Part 1(B) and (C) of this Article.

73 Greisman v. Newcomb Hosp., 40 N.J. 389, 403, 192 A.2d 817, 824 (1963).

74 Id. at 404, 192 A.2d at 825.

75 Willis v. Santa Ana Community Hosp. Ass’n, 58 Cal. 2d 806, 810, 376 P.2d 568, 570, 26 Cal. Rptr. 640, 642 (1962).

76 Silver v. Castle Memorial Hosp., 53 Hawaii 475, 484, 497 P.2d 564, 571 (1972) (emphasis added).

77 Hathaway v. Worcester City Hosp., 475 F.2d 701, 706 (1st Cir. 1973). The case was tried in federal court on constitutional grounds, but the same result should follow in a state court on common law grounds.

78 45 Cal. App. 3d 507, 119 Cal. Rptr. 507 (1975).

79 Id. at 513, 119 Cal. Rptr. at 511.

80 40 N.J. at 389, 192 A.2d at 825.

81 60 Cal. 2d 92, 98-100, 383 P.2d 441, 445-46, 32 Cal. Rptr. 33, 37-38 (1963).

82 Id. at 102, 383 P.2d at 447, 32 Cal. Rptr. at 39.

83 The doctrine of “substantive due process” was used by a conservative, but activist, federal judiciary to overturn liberal legislative policy decisions during the first third of the twentieth century. For example, a New York statute restricting employees of bakeries to a maximum 60-hour work week was overturned because of the U.S. Supreme Court’s purported concern lest the workers be deprived of property without due process of law—i.e., that they were being denied their freedom to contract for longer work hours if they so pleased. Lochner v. New York, 198 U.S. 45 (1905). The demise of the doctrine of substantive due process occurred through such cases as Nebbia v. New York, 291 U.S. 502 (1934).

84 17 Ch. D. 615 (1881).

85 40 N.J. at 403, 192 A.2d at 825.

86 Medical Soc’y of Mobile County v. Walker, 16 So. 2d 321, 324 (Ala. Sup. Ct. 1944). See also Harris v. Thomas, 217 S.W. 1068 (Tex. Ct. App. 1920); State ex rel. Hartigan v. Monongalia County Medical Soc’y, 97 W. Va. 273, 124 S.E. 826 (1924).

87 Kurk v. Medical Soc’y of County of Queens, 46 Misc. 2d 790, 797-98, 260 N.Y.S.2d 520, 527 (1965).

88 428 F.2d 1071 (D.C. Cir. 1970).

89 32 N.J. 358, 161 A.2d 69 (1960).

90 See Note, Torts—Governmental Immunity, 25 MERCER L. REV. 969 (1974)Google Scholar. The doctrine of charitable immunity has undergone a similar decline.

91 Chief Justice Vanderbilt of the New Jersey Supreme Court stated two decades ago:

One of the great virtues of the common law is its dynamic nature that makes it adaptable to the requirements of society at the time of its application in court. There is not a rule of the common law in force today that has not evolved from some earlier rule of common law, gradually in some instances, more suddenly in others, leaving the common law of today when compared with the common law of centuries ago as different as day is from night. … Dean Pound posed the problem admirably in his Interpretations of Legal History (1922) when he stated, “Law must be stable, and yet it cannot stand still.”

State v. Culver, 23 N.J. 495, 505, 129 A.2d 715, 721 (1957).

92 See Tobriner, and Grodin, The Individual and the Public Service Enterprise in the New Industrial State, 55 CAL. L. REV. 1247 (1967)CrossRefGoogle Scholar.