Cookeville Reg’l Med. Ctr. Auth. v. Cardiac Anesthesia Serv. (Summary)

BREACH OF CONTRACT

Cookeville Reg’l Med. Ctr. Auth. v. Cardiac Anesthesia Serv., No. M2007-02561-COA-R3-CV (Tenn. Ct. App. Nov. 24, 2009)

The Tennessee Court of Appeals overturned a trial court’s contract decision in favor of a physician group and ruled that the group violated a Tennessee statute when it entered into a financial arrangement whereby the group agreed to split fees with a hospital. That arrangement made the underlying contract unenforceable under state law.

A physician group agreed to provide cardiac anesthesia services for three years at the hospital. Harmony failed, however, and the hospital alleged breach of contract and terminated the agreement. The hospital later filed a lawsuit, in 2006, which prompted the physician group to counterclaim breach of contract. The trial court found for the physician group, and a jury later awarded it approximately $1.4 million in damages.

On appeal, the hospital argued that the provision in the contract that required the physician group to be paid 20% of its collected gross fees for its collection efforts, with the remaining 80% of those fees going to the hospital, violated Tenn. Code Ann. §63-6-225 as to physician fee‑splitting. As a result, the hospital argued, the contract itself was unenforceable and the physician group should not be able to recover. The appeals court found that the contract could be enforceable only if it came under either of the statute’s two exceptions: (1) where the fee is split to pay for goods or services, or (2) if all parties to the transaction, including the payor, agree to the fee split. As the contract in question did not fit within either exception, the court ruled that the contract was unenforceable and reversed the lower court’s decision and vacated the damages award.