On certification to the Superior Court, Appellate Division.
For affirmance -- Justices Clifford, Schreiber, Handler, Pollock, O'Hern and Garibaldi. For reversal -- None. The opinion of the Court was delivered by Pollock, J.
This case presents the question whether a hospital may enter into an exclusive contract with an anesthesiologist or group of anesthesiologists for the provision of all anesthesiological services at the hospital. In an unreported decision, the Chancery Division approved the right of the hospital to enter into such an exclusive contract and therefore dismissed plaintiffs' complaint that challenged the agreement. The Appellate Division affirmed, also in an unreported decision. We now affirm the judgment of the Appellate Division.
Plaintiffs, Jose Belmar, Armando Sulit, and Ying Bang Lin (plaintiff doctors), like the individual defendants, Joseph Cipolla, Shih-Piau Hsu, and Wellington Hsia (defendant doctors), are medical doctors and former partners in the defendant partnership, Anesthesia Associates. Defendant Community Hospital Group, Inc. (Community), a nonprofit corporation, operates John F. Kennedy Community Hospital (J.F.K.), the hospital where Anesthesia Associates practiced anesthesiology.
At the center of this case are two identical agreements signed on February 16, 1968 and renewed on June 8, 1978, between Community and defendant medical doctors Joseph A. Cipolla and Wellington Hsia. Originally, Community also signed a similar contract with Dr. Carlos Burgos, not a party to these proceedings, who resigned from the hospital in 1974 before the events that gave rise to this action.
In the agreements, Community guaranteed fees of "at least $135,000.00 for three anesthesiologists and $180,000.00 for four anesthesiologists." The contracts provided further that staff privileges would be granted to a limited number of physicians, originally set at four, who would comprise the anesthesiology department at J.F.K. Plaintiffs contend that the agreements were nothing more than minimum income guarantees.
Although the trial court noted that the arrangement between the parties was "somewhat haphazard," it found that the contracts contemplated that defendant doctors would have the exclusive right to provide anesthesiological services at the hospital. That finding is supported by substantial credible evidence and we sustain it. Ramirez v. Autosport, 88 N.J. 277, 290 (1982).
Specifically, the contracts provided that all anesthesia at J.F.K. "will be practiced without referrals." The effect of that provision was to prevent surgeons from requesting a particular anesthesiologist for an operation. The provision was important to the defendant doctors, who believed that referrals gave individual surgeons too much control over anesthesiologists' schedules and compensation. From prior experience, the anesthesiologists also thought that the referral system bred discontent in an anesthesiology department.
In exchange, the hospital received the assurance from the doctors that they would not provide anesthesia services at any other hospital and that they would provide those services at J.F.K. "in the operating room on a 24-hour basis." The hospital retained control over the department through a provision for
cancellation on one-year's notice during the first year and on six-months' notice thereafter. Also, the doctors agreed to be bound by the "Medical Staff By-laws, Rules and Regulations." Among other things, the bylaws contained detailed provisions concerning "corrective action," including notice, hearing, and the right to appeal within the governing body of the hospital.
The trial court found that hospitals generally staff an anesthesiology department in one of three ways: an open staff, a non-exclusive closed staff, or through an exclusive contract. Under an open staff arrangement, any anesthesiologist who meets the hospital's professional qualifications is granted staff privileges. A hospital with a non-exclusive closed staff has a maximum number of available positions, and it may award staff privileges until reaching the maximum number. Under both open and closed staff arrangements, staff members provide the necessary coverage for anesthesia services.
The Community Board of Governors, acting on the advice of the hospital's executive director, made the policy decision before opening J.F.K. that the radiology, pathology, and anesthesiology departments should operate under exclusive contracts. According to the executive director, an experienced hospital administrator, the advantages of an exclusive contract for anesthesiology included "better use of * * * operating room personnel," the ability "to process more operative procedures," the avoidance of "fee splitting that exists between surgeon and anesthesiologist," and "better coverage in terms of 24 hour coverage."
When a hospital enters into an exclusive contract, the contracting anesthesiologists assume many, if not most, of the administrative responsibilities of running an anesthesiology department. At J.F.K. those responsibilities included hiring and firing personnel, establishing department procedures, distributing cases, collecting fees, paying bills, scheduling vacations, and determining the compensation of the anesthesiologists. As the trial court found, exclusive contracts "are not uncommon
and apparently provide the structure for stability and accountability in the provision of anesthesiology services in many hospitals. They certainly take an administrative load off the shoulders of administrators * * *."
On the day before signing their contracts with Community, Drs. Cipolla, Hsia, and Burgos entered into a partnership, Anesthesia Associates, by signing an "Agreement between the members of the department of anesthesiology of John F. Kennedy Community Hospital." The partnership agreement, which was less formal than the agreement with Community, provided for the collection of fees, payment of expenses, and equal division of net profits. Consistent with the hospital regulation that required a department director to be board certified, the agreement provided that a board certified anesthesiologist was to be the chief of the department. The department chief, also known as the director or chairman, was to represent the department at hospital meetings and schedule "daily cases." In fact, Drs. Cipolla and Hsia were the only board certified members of the group and they alternated serving as department chairman. The partners also agreed to share equally in the department's work and, consistent with the contract between defendant doctors and Community, agreed not to honor individual referrals of patients from other doctors. In brief, all anesthesiological work at the hospital was to be channeled through the partnership.
Over the years the department grew, and various anesthesiologists joined and left the staff. The partnership interviewed and recommended doctors for appointment, subject to the hospital's review for competency and proper credentials. Similarly, either the partnership or the hospital could terminate the privilege of practicing anesthesiology at J.F.K. These facts support the finding of the trial court that "[t]he exclusive contract gave Drs. Hsia and Cipolla the right to terminate members of the department."
Dr. Belmar joined the group as an employee in May 1968, and by year-end he was a partner. However, he refused to sign either the partnership agreement or a contract with Community. The trial court, rejecting his claim that he did not know of any contractual arrangements, found that Dr. Belmar's conduct during his association with the department could be understood only by reference to the exclusive contract between Community and the defendant doctors. With specific reference to the contract, the trial court stated, "I am fully persuaded Dr. Belmar knew it existed, participated in its administration, abided by and prospered within its structures and was fully aware not only that it existed, but that his association with the hospital was controlled by it." The trial judge found further that Drs. Sulit and Lin also knew that the department operated under an exclusive contract with the hospital.
Plaintiff Drs. Sulit and Lin joined the department in 1978 with an assurance of full partnership after a two-year probationary period. Shortly before the end of that period, however, Drs. Cipolla and Hsia offered them a "junior partnership." After negotiations, in which Dr. Belmar became embroiled, the parties agreed that Drs. Sulit and Lin would become partners and receive 85% of a full share.
Throughout its life, the partnership was fraught with disharmony. In particular, the trial court found that Dr. Belmar "was a divisive and uncooperative factor in the department." That court further found "as a fact that Dr. Belmar's conduct in the department was uncooperative, abrasive and stubborn."
Finally, on June 8, 1978, Dr. Cipolla sent a letter to Drs. Belmar, Hsu, and Hsia dissolving the partnership. Thereupon Drs. Cipolla, Hsia, Hsu, Sulit, and Lin formed a new partnership known as J.F.K. Anesthesia Associates (J.F.K. Associates). A year later, however, in June 1979, Drs. Sulit and Lin withdrew from J.F.K. Associates and formed a new partnership with Dr. Belmar. The defendant doctors retained control of the scheduling of cases, and as time went on, Drs. Sulit, Lin, and
Belmar received fewer and fewer cases. Although the hospital did not formally terminate plaintiffs' staff privileges, the department's control of the cases prevented the plaintiff doctors from exercising their privileges. Toward the end of 1979, the plaintiff doctors requested the hospital to terminate the contractual arrangement with the defendant ...