Medical directorships: legal risks and liability considerations for physicians
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Medical directorships can offer physicians meaningful leadership opportunities within healthcare organizations. These roles often involve oversight of clinical care, staffing, policies, and other administrative responsibilities within a facility or organization.
However, physicians may underestimate the potential liability associated with serving as a medical director. Some assume their exposure will be minimal if a claim for substandard care is brought against the facility. In reality, medical directors may still be named in litigation and face personal financial risk, even when a contract includes indemnification language.
This article outlines several legal and liability considerations physicians should understand when serving in a medical directorship role. It concludes with a practical checklist that physicians can use to review their contracts, insurance protections, and responsibilities before accepting, or continuing, in a medical directorship position.
Stark Law and referral risks
Physicians should be cautious of medical directorship arrangements that implicitly or explicitly expect patient referrals to the facility. Such arrangements violate Stark Law, a regulatory framework that prohibits physicians from referring patients to medical entities in which they have a financial interest.
Organizations may attempt to incentivize referrals by offering gifts or other benefits to physicians. These incentives may include below–fair market rent for medical office space provided by the facility. Such arrangements are also illegal.
Penalties for Stark Law violations can be severe. Civil monetary penalties may reach $15,000 per service inappropriately referred and up to $100,000 for each overall plan of inappropriate referral. The most serious infractions may also result in imprisonment and exclusion from federally funded programs such as Medicare and Medicaid.
Real-world case: Alta Vista Healthcare and Wellness Center, LLC.
The U.S. Department of Justice required Alta Vista to pay over $3 million to the federal government and $596,000 to the state of California. The case involved extravagant gifts and stipends given to physicians to induce patient referrals.
If concerns arise regarding incentives or referral arrangements with a facility, consulting legal counsel can help physicians avoid significant financial penalties and potential damage to their practice and reputation.
Dual roles: treating physician and medical director
It is common for physicians to act as medical directors for skilled nursing facilities (SNFs) in which they also treat patients. MIEC has seen a number of lawsuits in which physicians were named as defendants both as treating physicians and in their capacity as medical directors.
In addition to allegations related to direct patient care, claims may include alleged failures related to medical director responsibilities. These allegations often include:
- Negligent supervision of nursing staff
- Failure to establish standards for quality of treatment
- Negligent participation in drafting policies and procedures
Medical directors have also been accused of failing to act when they were aware that their facility received citations for problems with staffing or patient care but did not take action to remedy these concerns.
Elder abuse allegations are sometimes included in these lawsuits. Physicians may not realize that if elder abuse is found by a jury, a plaintiff may be entitled to enhanced damages, including attorneys’ fees. Statutory caps on non-economic damages, such as California’s MICRA cap for pain and suffering, do not apply in these cases. Plaintiffs may also seek punitive damages, which are not covered by a physician’s professional liability insurance.
Insurance and indemnification gaps
Physicians may feel protected by a contract for a medical directorship that includes an indemnification clause for acts or omissions related to their role. Unfortunately, a memorable MIEC case demonstrated that this protection is not always reliable.
In that case, the physician was sued both as a treating physician and as the medical director of a skilled nursing facility. The nursing home’s insurance company denied coverage to the physician, citing an extra-contractual exclusion.
Despite the physician’s understanding that he was covered in his role as medical director, he was not. It is important to note that MIEC’s policy specifically excludes coverage for liability assigned to a medical director.
As a result, physicians may face personal financial exposure if they are found negligent solely in their role as medical director – even if they believed they were insured by the facility.
Insurance coverage limits and litigation strategy
Too often, an organization’s insurance policy contains gaps or critical limitations. A physician may not realize that a facility’s policy limit is only $1 million.
In claims involving elder abuse, egregious neglect, or failure to meet nursing standards, a $1 million policy limit may be insufficient to cover the damages sought.
In some cases, plaintiffs include allegations against an individual physician in their capacity as a treating physician in order to expand the available insurance coverage. When a physician serves both as clinician and medical director of the defendant facility, it may be difficult to extricate that physician from the lawsuit—even if the primary allegations involve substandard nursing care rather than the physician’s direct patient care.
Real-world jury verdicts in skilled nursing facility cases
Several notable jury verdicts illustrate how juries may respond to cases involving patient neglect in skilled nursing facilities.
- $677 million verdict (July 2010) against a skilled nursing company (Lavender v. Skilled Healthcare Group) that owned 22 California facilities and was found liable for improper staffing that resulted in harm to residents.
- $32 million verdict (October 2023) in Cooley v. Life Care Services, LLC et al. for negligence, elder abuse, abandonment, and neglect. The plaintiff suffered multiple falls resulting in a broken arm and transfers between medical facilities, including evacuation to a hospitallocatedin the path of a wildfire 80 miles away. The verdict included $10 million in economic and non-economic damages and $22 million in punitive damages.
- $20.5 million verdict (August 2024) against Muir Woods Memory Care alleging elder neglect, negligence, and wrongful death following four falls in eight months. $17 million of the verdict consisted of punitive damages.
Although these cases ultimately involved liability against facilities rather than individual physicians, they illustrate how juries may view cases involving patient neglect in skilled nursing settings. Defending a physician medical director in similar circumstances could be extremely difficult.
Liability considerations for EMS medical directors
Similar liability concerns may arise for medical directors of emergency medical services (EMS). While these emergency physicians rarely provide direct patient care, they are responsible for oversight of the organization’s operations and the clinical acts or omissions of EMS providers.
Oversight responsibilities may include:
- Emergency medical technician training
- Case reviews
- Policies and procedures
- Emergency care protocols
- Base physician certification
- Response times
- Administrative oversight
Failures in these areas, particularly when patient harm occurs, may result in the medical director being named in litigation against the EMS agency.
Real-world cases:
- Iowa family sues city, first responders, EMS, and medical directors after drug error: Paramedic administered incorrect medication resulting in a patient’s death.
- D.C. Fire EMS medical director named in wrongful death suit: Paramedics told a 39-year-old patient he had acid reflux. The patient later died of a heart attack after the medicsdeparted.
- Dario Gurrola and Fernando Herrera v. David Duncan, et al.: Two individuals with prior felony convictions sued the medical director of the California EMS agency for barring them from EMT certification despite state law disqualifying applicants with felony convictions within the prior ten years.
Contract review checklist for medical directors’
Protection of our policyholders remains MIEC’s primary goal. If you are currently serving as a medical director for any facility or organization, reviewing the following questions may help clarify your responsibilities and potential exposure:
- Does the contract include a specific indemnification clause?
- Do you have a declaration page listing you as an additional insured under the facility’s insurance policy?
- Are the insurance limits sufficient to cover foreseeable claims?
- Do you clearly understand your duties as medical director?
- Has the facility ever been cited by state regulators?
- If so, what violations were cited and were they corrected?
If you have questions about your medical directorship contract or relationship with a facility or organization, please contact our Underwriting or Claims team for further assistance.