General Practice Liable For Acts Of Practitioner

The release of the Supreme Court's judgment in Ryan v Health and Disability Commissioner ends long-running litigation regarding the extent of potential liability of healthcare providers.  By a 4-1 majority, the Supreme Court found that Moore Street Medical Centre (MSMC) was liable for the acts of one of its GP owners in the context of a breach of the Code of Health and Disability Services Consumers' Rights (the Code).  This decision is relevant to health professionals who operate in a collective and should be considered when making commercial structuring decisions.

Dr Ryan and Dr Sparks were GPs who practised from and owned MSMC.  While Dr Ryan was on leave, Dr Sparks saw one of Dr Ryan's patients and mistakenly prescribed an antibiotic to which the patient had a documented allergy.  Despite a check by the dispensing pharmacist, the prescription was confirmed and the patient suffered an allergic reaction that resulted in a hospital admission.  The patient complained to the Health and Disability Commissioner, who found that Dr Sparks had breached the Code and that MSMC was also liable for Dr Spark's breaches.

Liability was attributed to MSMC under section 72 of the Health and Disability Commissioner Act 1994.  Section 72 provides for an "employing authority" to be liable for the acts and omissions of its employees, agents and members (in addition to the employee, agent or member themselves being liable).  This is subject to certain provisos:

  • Employees: The employing authority has a defence if it took reasonably practicable steps to prevent the employee from doing or omitting to do the act or omission
  • Agents and members: The acts and omissions of agents and members are not attributed to the employing authority if the act or omission occurs without the employing authority's express or implied authority (referred to as the "without authority proviso").

The Supreme Court found that MSMC was a partnership between Dr Ryan and Dr Sparks, and in prescribing medication to Dr Ryan's patient Dr Sparks was acting as an agent of MSMC.  The decision focuses on MSMC's liability for the acts of Dr Sparks as an agent (acting on behalf of MSMC and as a partner of the business).  It was common ground in the earlier proceedings that Dr Sparks was not an employee of MSMC.  If Dr Sparks had been an employee, the systems and policies that MSMC had in place would likely have provided a defence on the basis that it took reasonably practicable steps to prevent the prescribing error.

In considering whether the without authority proviso applied (with the effect that Dr Sparks' actions would not be attributed to MSMC), the Court considered possible interpretations of section 72.  The majority considered that it should be read broadly, making the employing authority liable for any acts or omissions of an agent or member that occur in the scope of their express or implied authority.  The alternative (supported by William Young J in the minority) was to read it narrowly, making the employing authority liable only if it authorises the particular act or omission in issue.

The New Zealand Medical Association (as an intervener) submitted that the broader interpretation taken by the majority conflicts with GPs' views of their organisational structure and liability, does not recognise the inability of practitioners to effectively monitor each other's practices, and would disincentivise practitioners from operating in a collective.

The Court emphasised that its conclusion was based on the facts of the present case, and that the same conclusion may not be available where doctors practice independently and separately from the same premises.  To that end, it is relevant to note some of the features of MSMC:

  • Although MSMC was not itself a corporate entity, it presented to the public as a single, integrated medical services provider.  Each of Dr Ryan's and Dr Sparks' services were offered to the public under MSMC's name.  Patient files were kept in a centralised system and there was a shared booking system.
  • MSMC rented premises, employed staff and owned the equipment and practice management systems.  There was a bank account in the name of MSMC, into which Dr Ryan and Dr Sparks each paid an agreed sum to cover expenses.
  • MSMC policies and procedures applied to all staff at MSMC, including Dr Ryan and Dr Sparks.
  • Dr Ryan and Dr Sparks maintained separate patient registers and separate bank accounts.  They each directly received fees from patients registered to them.  If they saw a patient registered to the other doctor, they would invoice the other doctor for their consultation fee.  If a patient saw an employed doctor other than Dr Ryan or Dr Sparks or received other services (eg nursing services) those fees were paid to the MSMC account.  The separate accounts and individual income streams were not determinative in assessing whether Dr Sparks was acting as an agent.
  • There was no partnership agreement between Dr Ryan and Dr Sparks (or any other written agreement dealing with the relationship between them in respect of MSMC).

The decision in this case, and the factors considered by the Court, should be taken into account by health professionals when structuring collective practice arrangements.  Practice owners should consider both whether they should be employees of the practice, and what arrangements could be put in place between themselves as owners to address responsibility in circumstances such as these.