Philadelphia Reflections

Charitable Immunity: An Underestimated Revolution

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Until 1939, there was a legal doctrine of Charitable Immunity, which universally shielded hospitals and other charitable institutions from negligence lawsuits. No doubt the underlying reasoning was that charities possess limited funds for unlimited demands, and must be forgiven for imperfect compromises in the face of scarcity. To threaten them in court for falling short of perfection might drive charitable efforts away entirely. Since many professionals donated their services to the common effort, there was some spill-over protection for individual professionals, but this centuries-old doctrine applied to institutions more than individuals. There can be little doubt that improved financing of hospitals by health insurance and government programs resulted in both higher standards and lessened public tolerance for imperfection. One might say that twentieth century America decided it could afford better care, supplied the money for it, and expected to see results. It might also be commented that Medicare and Medicaid were significantly overfunded at first, but with time have become painfully underfunded, particularly by Medicaid.

The New Hampshire Supreme Court, against all prevailing doctrine of the time, held in 1939 that hospitals in that state should no longer be broadly shielded from liability by the doctrine of charitable immunity. By 1991, this new legal view had extended to the point where the Pennsylvania Supreme Court felt a need to define Corporate Negligence, emphasizing a hospital's duty to ensure a patient's safety while in the hospital. The court specified the duty to provide safe facilities, to select and retain only competent physicians, to oversee all persons who practice medicine within the walls, and to formulate and enforce adequate rules of behavior. Looking back, legal scholars point to two particularly significant intervening court decisions. In 1957, eight years before Medicare, the New York Court of Appeals declared that to say the doctor is the captain of the ship, acting on his own responsibility, no longer fits the facts. The court bore down hard on the existence of salaried physicians, and the illuminating fact that hospitals were openly sending out bills for medical services. In 1973, the Superior Court of Delaware deliberately and consciously extended the New York doctrine from salaried physicians to independent contractors working within the hospital. But independent contractors are still working for pay; the courts have been more hesitant to extend the idea of corporate control to volunteers who work without payment of any sort. But the movement is in that direction, so it is increasingly difficult to find anyone to volunteer. The American instinct to volunteer is still very great, as the response in 2005 to the South Asian tidal wave demonstrated, with relief agencies forced to send out appeals for the flood of volunteers please to stay home. But the central fact remains that the original premise was limited resources for unlimited needs; Medicare and Medicaid temporarily made it seem resources would be infinite, so why should an injured patient forgive a volunteer. As it becomes increasingly evident that the 1965 federal promises of infinite support are unsustainable, the invalidation of charitable immunity deserves to be re-examined.

The 1973 date of the Delaware decision is probably significant because that was a time of abandonment of malpractice coverage by insurance companies. If you couldn't sue doctors, and you feel you must sue somebody, plaintiffs were in effect told to sue the hospitals. With charitable immunity, hospitals didn't carry insurance, but they immediately searched for it. And thus, a bigger, far juicier deep pocket was created. Physician malpractice premiums, outside of California, were approximately $100 a year. Those rates proved to be far too low. The temporary collapse and disappearance of malpractice insurance companies took place in 1975. It is very hard to blame the actuaries of a malpractice company in say, California, for failing to take fully into account a decision by the Superior Court of Delaware in their premium-setting.

Before this revolutionary upheaval, a volunteer chief of medical staff was (nominally) in charge of every mistake made by any employee, and that was pretty unfair if he got sued. The captain of the ship idea devolved to department heads, or perhaps just the responsible surgeon in the operating room. If the scrub nurse counted sponges wrong and left one behind in the patient, the responsibility passed upward to one of these captains or sub captains. The manifest unfairness of demanding damages from someone six or more steps removed from the incident, particularly one who had a largely honorary title and no real control, exercised a restraint of sorts on lawsuits. Once the blame was shifted to a nebulous legal entity known as the corporation, blameless blame transformed into a corporate financial liability. The average size of awards against institutions escalated upward, raising the size of claims for similar injuries against individual physicians. Add to that the growing fact that hospital revenues are almost exclusively derived from insurance third parties, and thus the premiums for hospital insurance could only come from insurance as an automatic pass-through. Disaster looms if the intermediate parties have nothing to lose, and the public pays all the cost through health insurance or taxes. None of this adversary system, including the whole tort system and the whole malpractice insurance system, was designed to cope with a financially pain-free defense posture. One paradox of the situation is that the admirers of the plaintiff viewpoint are typically also sympathizers with universal health insurance. The two are utterly incompatible under any set of proposals, so far offered.

If matters had stopped at that point, well, it's only money. But obviously, the counter pressure on health insurers to hold down these costs was inevitable. Hospitals were practically under court order to make rules (the hospital associations would be happy to construct a model set of rules) and enforce them on their attending physicians, to pay professionals salaries wherever possible as a time-tested means of encouraging obedience, and to reorganize themselves as corporations practicing medicine rather than hotels providing space and services. (There are legal barriers, of course. Numerous state constitutions awkwardly state "No person may practice medicine in this state without a license so to do.") Needless to say, physicians resisted this trend toward the corporate practice of medicine, even though its early forms only took the shape of placing the hospital lawyer in charge of conferences about "risk" prevention. Since the lawyer knew very little about the topic, the discussion tends to focus on horror stories of suits that were lost or are in litigation.

This struggle between physicians and administrators for control of the hospital, using malpractice as a debating point, is bad enough. Far worse is the slanting of the system of actual medical organization of the staff. Hospitals now often have thousands of nurses and hundreds of doctors, each reporting upward within two guild structures. You would think the chief of surgery would have a lot to say about the selection of the nursing supervisor in the operating room, but heaven forbid. Nurses are hired and fired through the nursing hierarchy, not the department hierarchy which would cross guild lines. It's sometimes hard to say who is on which side of this issue, and probably everybody is on both sides, sufficient to paralyze rational discussion. Everybody involved wants to diffuse blame for an error through the whole organization, and so resists having responsibility conferred in any consistent way. The chief of surgery, for example, is ambivalent about whether he wants nursing errors legally passed back to him, and thus tends to retreat from asserting himself. It can sometimes be hard to specify the ways this chaos expresses itself in poor quality or higher costs, but it would certainly be remarkable if it didn't.

Originally published: Wednesday, June 21, 2006; most-recently modified: Sunday, July 21, 2019