APPEAL NO. 21118





The South Dakota Association of Healthcare Organizations and the American Hospital Association (hereinafter SDAHO/AHA) concurs with the Jurisdictional Statement of Defendant/Appellant Avera St. Luke’s (St. Luke’s). SDAHO/AHA would also note that additional parties were granted leave by the Supreme Court to file Amicus Curiae Briefs in this case: the South Dakota State Medical Association (Medical Association), the American Medical Association (AMA), and the South Dakota Association of Healthcare Organizations and the American Hospital Association.








The trial court held in the negative.


SDAHO/AHA concurs with the STATEMENT OF THE CASE as set forth in St. Luke’s Brief.


SDAHO/AHA’s main concern in this case is the potential ramifications of Judge Lovrien’s decision on the authority of hospital boards to govern their hospitals in order to meet their obligation to provide quality healthcare services to the community.

SDAHO/AHA declines to take a position on the specific factual dispute between the parties. Accordingly, SDAHO/AHA will rely on St. Luke’s and Plaintiffs/Appellees to provide for the Court more fact-specific statements and will enumerate some factual parts of the Judgment below that are of particular concern to its members.


As representatives of hospitals across South Dakota and the nation, both SDAHO and AHA have a legitimate interest in the role and authority of a Board of Trustees to operate, manage, and govern a hospital. Of particular concern to SDAHO/AHA is the effect of the trial court’s decision that the medical staff bylaws take precedence over and control a board’s authority to make decisions that have an effect on the medical staff.

In summarizing its ruling, the trial court made two findings that characterize the debilitating effect of this decision on other and future boards of trustees. Finding (3) states: "the credentialing manual gives the Board secondary approval authority for actions involving medical staff, no actions originate with the Board itself" (emphasis added), and Finding (4) is similar: "(4) The spirit of the bylaws shows the intention of the contract is to give the Board ratification power over processes which are started by the medical staff." Two things are objectionable about the court’s language. The first is its admitted exclusive reliance on the medical staff bylaws to delineate the authority of the Board. The court below failed to look at or recognize the status of the statutes and administrative rules in South Dakota with regard to corporate powers, the bylaws of the Board of Trustees, or the vast body of case law that exists to aid courts in their review of challenges such as the one from Dr. Mahan. The court’s tunnel vision in looking exclusively at one set of bylaws to significantly limit a corporate board of the authority it has traditionally had and exercised appears to be very shortsighted.

The second objection is that while the court takes away the authority of the Board to take independent action, it fails to recognize or even consider that it is not the medical staff that is ultimately accountable to and for the hospital. In its opinion, the court failed to consider that it has stripped the hospital board of trustees, that is ultimately responsible for governing the hospital, of its ability to make the independent, final decisions that are necessary in meeting the mission of a hospital.






The overriding concern of SDAHO/AHA is the potential effect of the decision of the trial court on the role and authority of hospital boards in general to make decisions that affect the continued viability of a hospital within its community. In addition, the opinion of the court below brings into sharp focus the issues of the interaction between physicians comprising the hospital’s medical staff and the board of trustees. The court’s failure to look at any other laws or cases in placing the Board of Trustees into a subordinate position under the medical staff, other than the medical staff bylaws, could also have negative ramifications on future conflicts between a board and medical staff.

It is SDAHO/AHA’s position that it is the Board of Trustees of the hospital that carries the ultimate responsibility for the hospital’s accomplishment of its mission. To the extent that the lower court’s decision interferes with the board’s authority to meet that responsibility, SDAHO/AHA believes the decision to be incorrect. In order to help this Court understand that ultimate decision-making authority must remain with the Board of Trustees for the continued viable operation of hospitals, SDAHO/AHA will give an overview of the general role and authority of hospital boards, and of the relationship between hospital boards and medical staff. Next, SDAHO/AHA will explore who is ultimately in control of hospitals, and the parameters of said control. In looking at these areas, SDAHO/AHA will examine other sources of authority for the powers of governance exercised by a hospital board. Finally, SDAHO/AHA will show how these factors may have influenced or affected the outcome of the current case.


In general, hospitals (as is the case with any other corporation) are governed by a Board of Directors called a board of trustees. The role of boards has evolved in four stages in the United States from 1900 to the present. From 1900 to the 1960’s, the role of the hospital board of trustees was honorific. Being a hospital board trustee was considered an honor. One of the main functions of a board member was fundraising for the hospital. Beyond fundraising, hospital boards were responsible for the construction and maintenance of the hospital’s physical facilities. All other responsibilities in that early stage of hospital governance were divided between management and the medical staff.

Hospital boards next went through a transitional stage, wherein they became educated in the legal and regulatory framework under which hospitals functioned. During the 1960’s and 1970’s, boards became more involved in the actual governance of the hospitals, rather than just fundraising. While several economic factors triggered this transitional role, one of the key catalysts was the Darling malpractice case.

The case of Darling v. Charleston Community Memorial Hospital, 211 N.E.2d 253 (IL 1965), involved a father who brought suit against his son’s treating physician and the hospital for negligent emergency treatment that necessitated amputation of the son’s right leg from casting the leg too tightly. The basic dispute in the case centered around the duty that rested upon Defendant hospital. The court affirmed a jury verdict and damage award against Defendant hospital on the ground that it had a duty to supervise the competence of its medical staff members. Id. at 260-261.

This case caused hospital boards to re-examine their role as governing boards and their relationships with medical staff. Hospital boards thus moved into the active oversight status of boards from the 1980’s and continuing into and throughout the 1990’s. This type of governance is characterized by boards that strive to understand their accountabilities, roles, and responsibilities, and to discharge them effectively. These boards actively oversee the development of strategic policy direction, the financial situation and direction of the hospital, and the quality of care provided by the hospital. With the many changing pressures affecting hospitals, such as managed care, capitation, competition, liability, and capital financing concerns, an active and effective governing board is crucial to the successful operation and continued survival of the modern hospital.

The final phase of board governance of hospitals is entitled visionary governance, which entails taking the hospital’s mission and developing strategic goals and plans to enable the hospital to continue to carry out its mission. While virtually all hospital boards are in the active oversight stage, many also are becoming more involved in visionary governance as well.

Hospital boards have been influenced and pressured to assume active responsibility for all aspects of hospital governance by case law and by state statutes and rules that have often developed in response to case law. Uniformly, however, the standard is clear. It is the board of trustees that is charged with the responsibility of keeping the hospital true to its mission. As such, the board has the ultimate decision-making authority over all aspects of the hospital.



A. Over Medical Staffing Decisions

Initially, the medical staff was almost exclusively responsible for quality of care and credentialing matters. The evolution of a new body of case law, and the development of new statutes and rules, has caused the responsibility to shift to the board of trustees of a hospital.

One of the leading cases that articulates the ultimate authority and responsibility of boards over medical staffing decisions is Johnson v. Miserecordia Community Hospital, 301 N.W. 2d 156 (WI 1981). In that case, Plaintiff Johnson, who underwent a surgical procedure to have a pin fragment removed from his right hip, ended up with a permanent paralysis condition of his right thigh muscles. Plaintiff sued the physician for malpractice, but he also brought action against Defendant hospital for negligence in appointing the physician to its medical staff and in granting him orthopedic surgical privileges. The governing board of Defendant hospital under the medical staff bylaws, "delegate(d) the responsibility of evaluating the professional qualifications of an applicant for clinical privileges to the medical staff." Johnson at 160. In fact, the medical staff had performed an evaluation, albeit negligently, and had recommended to the hospital board appointment of the physician in question. The court held that regardless of the role of the medical staff, it is the board of trustees that has the ultimate responsibility in granting or denying staff privileges, and indeed, the Defendant hospital was found liable for Plaintiff’s injuries. Johnson at 165-166. Furthermore, the court quoted language from the Georgia Supreme Court as to the inability of a board of trustees to delegate its responsibility over staffing decisions to any other body, including the medical staff:


. . . the delegation of the Authority (hospital board of trustees) to screen applicants for staff membership on the medical staff does not relieve the Authority of its responsibility . . . Johnson at 167, quoting from Mitchell County Hospital Authority v. Joiner, 189 S.E. 2d 412 (GA 1972).


The Johnson court’s conclusion is clear:


The final appointing authority resides in the hospital’s governing body, although it must rely on the medical staff and in particular the credentials committee (or committee of the whole) to investigate and evaluate an applicant’s qualifications for the requested privileges. However, this delegation of the responsibility to investigate and evaluate the professional competence of applicants for clinical privileges does not relieve the governing body of its duty to appoint only qualified physicians and surgeons to its medical staff and periodically monitor and review their competency. Johnson at 174.


The Johnson case concisely articulates levels of responsibility as between the board and the medical staff: the hospital board has the final, ultimate authority, not secondary authority or mere ratification power. In light of the potential liability of the board, such a ruling makes sense.

The clear majority of the case law that addresses the relationship between medical staff and hospital boards is in accord with the Johnson case, supra. See Siqueira v. Northwestern Memorial Hospital, 477 N.E. 2d 16 (IL 1985). The clear majority of cases not only supports the concept that the ultimate authority over staffing decisions is with the board of trustees, that majority also favors non-judicial review of decisions of the board. The leading case in this area is Shulman v. Washington Hospital Center, 222 F.Supp. 59 (D.D.C. 1963), which held that absent procedural errors or evidence of invidious discrimination, the staffing decisions of a private hospital are not subject to judicial review. The physician in the Shulman case challenged Defendant hospital’s non-renewal of his staff privileges. The court declined to second-guess the hospital board and substitute its judgment for that of the board:


The rule is well established that a private hospital has a right to exclude any physician from practicing therein. The action of hospital authorities in refusing to appoint a physician or surgeon to its medical staff, or declining to renew an appointment that has expired, or excluding any physician or surgeon from practicing in the hospital, is not subject to judicial review. Shulman at 63.


See also Barrows v. Northwestern Memorial Hospital, 525 N.E. 2d 50, 51 (IL 1988). ("It is a well-settled rule that a private hospital has the right to refuse to appoint a physician or surgeon to its medical staff, and this refusal is not subject to judicial review . . . " quoting from Mauer v. Highland Park Hospital Foundation, 232 N.E.2d 776 (IL 1967)).

B. Economic Decisions

It is clear from well-established case law that the hospital board has the ultimate responsibility over staffing and credentialing decisions, regardless of delegation of evaluations to medical staff. The next question is, does the ultimate authority of the hospital board of trustees also extend to financial and economic decisions, or to staffing and credentialing decisions based on economic factors and conditions? The decision of the lower court raises serious questions about the authority of the board to make decisions about the future staffing of the hospital, based on economic or any other considerations, especially the portion of the ruling that mandates acceptance of all applications approved by staff, on a "go forward" basis.

An examination of existing case law clearly supports the premise that a hospital board has the ultimate authority to make financial decisions concerning the hospital. In the case of Stern v. Lucy Webb Hayes National Training School for Deaconesses and Missionaries, 381 F.Supp. 1003 (D.C. 1974), Plaintiffs, who were purchasers of health services, successfully challenged the hospital board’s failure to engage in sound fiscal management of the hospital. The court concluded that the board of trustees had a duty in the management of the hospital’s fiscal and investment affairs. Id. at 1020.

Not only does existing case law support the proposition that hospital boards are vested with the authority and responsibility to make financial decisions for the hospitals, cases also support the concept that a governing body’s decision to close the medical staff for particular procedures based on economic considerations is a valid exercise of the board’s authority to manage the business affairs of the hospital. The case of Kramer v. Kent General Hospital, 1992 WL 91130 (Del. Super. 1992), held that the decision of the hospital board to provide in-patient care on a closed basis is a reasonable exercise of the board’s power to provide for the management of the hospital. In the case of Hutton v. Memorial Hospital, 824 P.2d 61, 63 (CO 1991), the court stated, "[ T] he fact that the Plaintiff satisfie(s) the minimum criteria for obtaining staff privileges do(es) not obligate the hospital to grant him staff privileges."

In addition, courts have held that a board decision concerning staffing, even based on economic factors, is not subject to judicial review. In the case of Barrows v. Northwestern Memorial Hospital, supra, Plaintiff physician attempted to challenge the Defendant hospital board’s denial of staff privileges, based on the business decision that Defendant hospital’s pediatric department did not need another pediatrician of Plaintiff’s particular qualifications. Id. at 51. The court noted the well-settled rule that "a private hospital has the right to refuse to appoint a physician or surgeon to its medical staff, and this refusal is not subject to judicial review; the decision of the hospital authorities in such matters is final." Barrows at 51-52, quoting from Mauer v. Highland Park Hospital Foundation, 232 N.E.2d 776 (IL, 1967). The Barrows court, in revisiting the non-judicial review standard of staff membership decisions of private hospital boards, declined to change its adherence to the majority review. Id. at 55. See also Muzquiz v. W. A. Foote Mem. Hosp., Inc., 70 F.3rd 422 (6th Cir. 1995); and Sarin v. Samaritan Health Ctr., 440 N.W.2d 80 (MI. 1989).

Case law thus clearly upholds the authority and responsibility of a board of trustees to make financial, economic and business decisions of a hospital, even when the decisions affect appointment or non-appointment of medical staff.

C. Economic Credentialing

Into the controversy surrounding the use of economic criteria in credentialing physicians has come the concept of economic credentialing. Plaintiffs/Appellees in this case, and the Medical Association, have attempted to categorize the actions of St. Luke’s Board as economic credentialing, which they urge is an unacceptable practice. SDAHO/AHA agrees with St. Luke’s and with the lower court on this issue. The actions of St. Luke’s Board of Trustees in the current case did not constitute a case of economic credentialing, and this case is an inappropriate forum in which to render a decision on that issue. There are no statutes or rules in South Dakota to guide a court in deciding the merits of the issues of economic credentialing, nor is there any case law precedent. SDAHO/AHA concurs with the lower court that the issue of economic credentialing is not an appropriate basis upon which to decide the merits of the current case.

Having said that, SDAHO/AHA would like to respond to some of the statements that Plaintiffs/Appellees and the Medical Association will undoubtedly make in their Briefs on the issue of economic credentialing. SDAHO/AHA would point out that there is a controversy over the very definition of economic credentialing. The AMA defines economic credentialing as the use of economic criteria not related to quality to determine an individual physician’s qualifications for the granting or renewal of medical staff membership privileges. Realistically, however, the credentialing practice in most hospitals has been


[ A] process in which assessment of current and prospective medical staff members has been conducted by medical staff representatives. This responsibility has been delegated by the hospital board, based on acceptance of the notion that professional peers have the knowledge and capability to assess practitioners’ education and experience, and how they will influence their professional judgment and activity, subject to final decision making by the hospital board.


In the past, courts have upheld the authority of hospital boards to make staff decisions based on economic factors. Whether this case precedent will in the future extend to upholding the practice of economic credentialing remains to be seen. One thing is certain:


If one accepts that all kinds of health care organizations -- hospitals, physician groups, HMOs, payers -- will be very attentive to efficiency, productivity, and cost, and . . . payment arrangements will be the product of negotiations between payer and provider entities, use of economic criteria by hospitals in making appointment and clinical privilege decisions is but one element of the business orientation taking hold in health care . . . Not only is economic credentialing here to stay, but the emphasis on controlling costs of health services and the adoption of new organizational structures for delivery of services in a more competitive environment will enhance the prominence of economic criteria in decisions of payers and providers. The line between quality and business considerations in establishing and implementing privileging and performance standards for providers may become blurred in the decision making by hospitals and other provider entities . . .


There are certainly more sides to the issue of economic credentialing than the position of the Medical Association. In absence of the clear applicability of economic credentialing to the current facts facing this Court, and in absence of statutory or case precedent guidance, SDAHO/AHA would urge the Court to defer any ruling on this issue to a later time and case.


As noted at the outset, SDAHO/AHA has declined to take a position on the actual merits of this case, i.e., whether the trial court’s decision is correct as to the specific facts presented to the Court in the Mahan case. Rather, SDAHO/AHA is interested in the potential ramifications of the lower court’s ruling that the medical staff bylaws control a board of trustees’ authority in general, and its authority to make decisions that have an effect on the medical staff in particular, whether such decisions are motivated by quality of care considerations or by economic considerations.

A. Trial Court’s Exclusive Reliance on Medical Staff Bylaws

Not only did the trial court give preference to the medical staff bylaws, it in essence ignored the plethora of other authority that defines and affects the relationship between a hospital’s medical staff and its board of trustees. The trial court found, under the case of St. John’s Hospital Medical Staff v. St. John Regional Medical Center, Inc., 245 N.W.2d 472 (SD 1976), that the medical staff bylaws constituted a contract between the medical staff and the board of trustees. While that may be true, that does not mean it is the exclusive authority, and that no other statutes, regulations, or case law principles apply to the relationship between the medical staff and the board. By viewing the bylaws in a vacuum, the court misconstrued the portions of the bylaws that reserve ultimate decision-making authority in the board of trustees.

What other guidelines exist to aid a court in interpreting the relationship between a hospital board and its medical staff, and in determining who has the ultimate responsibility for all decisions? First, there are South Dakota statutes and administrative rules. South Dakota corporate law requires that a corporation be governed by a board of directors. "The affairs of a corporation shall be managed by a board of directors." SDCL 47-23-13. South Dakota law thus places the management responsibility on the board of trustees. South Dakota also has administrative rules that impose requirements on a hospital board. A hospital is required to have "a medical staff organized under bylaws and rules approved by the governing body and responsible to the governing body of the hospital for the quality of all medical care provided patients in the hospital and for the ethical and professional practices of its member." ARSD 44:04:04:02:01 (emphasis added). There are also the duties and powers of the board of trustees own corporate bylaws, which (in the case of St. Luke’s) make the board responsible to "govern the business and property of the corporation," in accordance with state law (Article V, Section 1 of St. Luke’s Corporate Bylaws).

There are also federal laws that affect the relationship between medical staff and boards of a hospital. The Medicare Conditions of Participation contain requirements for hospitals (42 CRF Ch. IV). Subpart B - Administration, Section 482.12, requires that a hospital "must have an effective governing body legally responsible for the conduct of the hospital as an institution."

Finally, there is an array of cases that refine and clarify the role of and the authority of a hospital board to operate, manage, and govern a hospital. As shown in the preceding sections of this Brief, the majority of these cases supports the final and ultimate authority of hospital boards over all decisions, including those relating to appointment or non-appointment of medical staff, whether based on economic or other factors. Nowhere is there case precedent for stripping the hospital board of that power and vesting it in the medical staff. Furthermore, the majority view of the cases upholds the decision-making authority of hospital boards to the point of removing their decisions from judicial review in the absence of severe procedural deficiencies or invidious discrimination.

B. The Mahan Case

Having chosen to ignore the rule of nonjudicial review of board decisions of private hospitals, the lower court still should have read and interpreted the medical staff bylaws within the context of the fundamental authority inherent in a board and essential to its ability to meet its obligations to the hospital. The source of a hospital board’s inherent authority is found in corporate law, in rules and regulations, in federal law, and in case law.

If the medical staff bylaws are viewed in this broader context, it is clear that they are consistent with the statutes and cases that require that ultimate decision-making authority remain with the board of trustees. For example, Article III, Section 2(a) states: "Initial appointments and reappointments to the medical staff shall be made by the Governing Body." The fact that the governing body is to receive a recommendation from the medical staff on appointments does not reduce its power to secondary authority only. It does not even require the Board to act. Rather, the requirement is for a recommendation from the medical staff, which is consistent with the requirements of the Administrative Rules of South Dakota and the Medicare Conditions of Participation.

The lower court’s ruling that all staff applicants who receive a favorable recommendation from the medical staff must be admitted is clearly inconsistent with the other standards and the case law summarized above. Even internally, the medical staff bylaws do not support this "rubber stamp" authority only of the board of trustees. Section 1.5-7 of the Credentialing Manual attached to the medical staff bylaws (Exhibit 200, Prelim. Inj. Hearing) contains several paragraphs detailing the options of the board upon receipt of a recommendation from the reviewing committee of the medical staff. The Board can either accept or reject the recommendation of the medical staff. A separate paragraph then deals with the procedure to be followed "[ i] f the Board’s preliminary decision is adverse to the practitioner in respect to either the appointment or clinical privileges, and is contrary to the recommendation of the Executive Committee (of the medical staff) . . . " Id. at 75 (emphasis added). Clearly, it is contemplated under the medical staff bylaws themselves that there will be times when the board does not merely acquiesce in and approve the recommendation of the medical staff. The Board has the ultimate decision-making authority.

These are just examples of the effect of looking at the medical staff bylaws in conjunction with other appropriate standards and measures of the authority of a hospital board. The court below failed to do this, which was error, and which led to an improper interpretation of the authority of hospital boards to make decisions affecting medical staff.


The role of the hospital board of trustees has evolved over the past decades to the point of pro-active management of hospitals. Courts have held boards to a high level of responsibility for all facets of hospital governance.

The relationship between hospital boards and medical staff has also changed over the years. The issue of economical credentialing will remain, but the current case does not turn on this issue, and this Court should leave the consideration of economic credentialing to other forums.

There are many factors that influence the relationship between hospital boards and medical staff. The lower court failed to consider any other legitimate guidelines in ruling on a challenge of the hospital’s authority to make staffing decisions affecting the continued viability of the hospital, but instead chose to rely solely on the medical staff bylaws. By this action, the lower court significantly limited and adversely affected the authority of a Board to govern its hospital.

SDAHO/AHA urges this Court to reverse the decision of the lower court and to thus restore the authority of a hospital board of trustees to operate, manage and govern a hospital, in accordance with statutes and case law. Alternatively, SDAHO/AHA urges the Court to remand this case for review of the facts under proper standards and guidelines of the authority of hospital boards, rather than exclusively within the framework of the medical staff bylaws.

Respectfully submitted this 30th day of November, 1999.



Darla Pollman Rogers
P. O. Box 1117
Pierre, South Dakota 57501
Telephone (605) 224-7889
Facsimile (605) 224-6090
Attorney for SDAHO/AHA



The undersigned hereby certifies that she served a copy of the foregoing BRIEF OF AMICUS CURIAE SOUTH DAKOTA ASSOCIATION OF HEALTHCARE ORGANIZATIONS and AMERICAN HOSPITAL ASSOCIATION upon the persons herein next designated, on the date below shown, by depositing a copy thereof in the United States mail at Pierre, South Dakota, postage prepaid, in an envelope addressed to said addressee, to-wit:

Edwin E. Evans
Melissa C. Hinton
Davenport, Evans, Hurwitz & Smith
P. O. Box 1030
Sioux Falls, South Dakota 57101-1030

Chester A. Groseclose, Jr.
Richardson, Groseclose, Wyly, Wise & Sauck
P. O. Box 1030
Aberdeen, South Dakota 57401-1030

Richard G. Braman
Thomas S. Darling
Gray, Plant, Mooty, Mooty & Bennett
3400 City Center
33 South Sixth Street
Minneapolis, Minnesota 55402

David A. Gerdes
May, Adam, Gerdes & Thompson
P. O. Box 160
Pierre, South Dakota 57501

Dated this thirtieth day of November, 1999.


Darla Pollman Rogers

P. O. Box 1117
Pierre, South Dakota 57501


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