On the last day of 2014 the Minnesota Supreme Court gave a hospital medical staff a double victory, ruling that (1) medical staff bylaws constitute a contract between the hospital and medical staff members and (2) the medical staff has the right to sue in its own name.  The twin victories were all the sweeter for the medical staff because they represented a reversal of the rulings of the trial court and the court of appeals.

Both issues are increasingly important as hospitals continue a national wave of merger, consolidation, and acquisition.  More often than not, these transactions require the amendment, if not the wholesale replacement, of the medical staff bylaws of hospitals.  That, in turn, almost invariably requires approval by each medical staff.  So, in practical terms, medical staffs may have a right of approval–or veto–of the transactions.

In the Minnesota case, Avera Marshall Regional Medical Center’s medical staff bylaws included the typical requirement of medical staff approval of any amendment.  Nevertheless, the hospital board simply repealed the bylaws and replaced them with a new set and then informed the medical staff of the action. The medical staff voted to reject both the repeal of the old bylaws and the adoption of the new ones.

Then the medical staff filed a lawsuit seeking a declaratory judgment that it had standing to sue and that the old bylaws constituted an enforceable contract.  The trial court gave the hospital summary judgment on both issues, and the court of appeals agreed.

But the Minnesota Supreme Court disagreed on both counts.  It ruled that the medical staff met the requirements of a statute (Minn. Stat. sec. 540.151) granting standing to sue when “two or more persons associate and act . . . under a common name.”

The Supreme Court also ruled that the bylaws are a contract, rejecting the hospital’s arguments (1) that medical staff membership wasn’t a bargained-for exchange and (2) that the hospital adopted the bylaws simply because state regulations require it.  The court noted that (1) the physicians’ assumption of obligations in return for membership made it a bargained-for exchange and (2) the bylaws in question went far beyond the bare legal requirements of state regulations.

AMA president Robert Wah M.D. praised the outcome, characterizing it as a restoration of the balance of responsibilities between physicians and administrators and calling patients the big winners.