By Stacy L. Cook, JD, LLM
Partner, Barnes & Thornburg, LLP

On June 15, 2018, a federal jury in Indiana returned a $15 million verdict against CDI Indiana, LLC (the Center for Diagnostic Imaging or “CDI”), holding CDI responsible for the negligence of an independent physician. This case is significant because it holds a third party liable solely for the acts of a physician and could open the way for other patients to avoid the limitations on damages under the Indiana Medical Malpractice Act (the “Act”).

The patient filed suit against CDI, alleging that a radiologist who had an arrangement with CDI failed to diagnose the patient with recurrent cancer. During the trial, CDI argued that it operates as a management company to a medical group, providing administrative services such as arranging for equipment, facilities and billing for the medical group. CDI argued that it was not a health care provider. However, the Carmel imaging facility bears CDI’s name.

CDI had a contract to provide services to the medical group, and the physician in question was an independent contractor of the physician group. The patient’s sole claim of negligence was the physician’s failure to diagnose the cancer. CDI argued that it could not be held liable for the acts of a physician who was not an employee, and not even an independent contractor, of CDI.

The court held that CDI could be found liable for the acts of the physician on the theory of apparent agency, as the patient could have reasonably believed that the physician was working for or under the direction of CDI. Because CDI was not a qualified provider under the Act, the court held that the Act’s $1.25 million limitation on damages did not apply to CDI.

It is not uncommon for a medical practice to have a relationship with a management company. For physicians who have contracts with management companies, there are some important lessons from this case to help protect against a similar result:

• The court likely would not have held CDI liable for the acts of the radiologist if CDI had notified patients that the radiologists at the CDI facility were not employees or independent contractors of CDI. Physicians who have contracts with management companies and/or provide services at facilities should make sure that, if the management company/facility is “visible” to patients, the documents state that the physicians are not employees or independent contractors of the management company/facility.
• There was a dispute in the case about whether CDI was a health care provider and therefore could have been qualified under the Act. Physicians could require in their management company contracts that such companies become qualified under the Act if they provide health care services and if permitted by the Indiana Department of Insurance.
• Management companies often include indemnification clauses in their contracts. These clauses require the physician to reimburse the company for any cost the company incurs as a result of the physician’s acts, including costs to defend a lawsuit. Physicians should have experienced legal counsel review any contracts with management companies to help avoid or minimize such exposure to liability.
• Most malpractice cases are brought in state court, whose judges are familiar with the Act. Patients can bring cases in federal court if the other party, such as a management company, is located in another state.. Physicians who contract with management companies organized in other states could find themselves in federal court in a malpractice case.

CDI has appealed the verdict, and the appeal is pending. The case is Courtney and Brian Webster v. CDI Indiana, LLC.