ABA Health eSource
December 2010 Volume 7 Number 4

CMS Proposed Rule for Delegated Telemedicine Credentialing:
Second-Tier Liability and Other Challenges

By Keith Wright, Kitch Drutchas Wagner Valitutti & Sherbrook, Detroit, MI

AuthorOn May 26, 2010, the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule 1 allowing hospitals and critical access hospitals providing telemedicine to patients (the “Originating Site Hospital”) to rely on the credentialing and privileging decisions of the hospital 2 where the telemedicine physician is physically located (the “Distant Site Hospital”). However, as a condition of delegating the Originating Site Hospital’s credentialing function to the Distant Site Hospital, the Originating Site Hospital has an affirmative duty, among other requirements, to provide internal review information of the physician’s performance of telemedicine privileges to the Distant Site Hospital for use in its periodic appraisal of the physician. 3

Failure to fulfill this affirmative duty could result in the Distant Site Hospital continuing to grant privileges that it would not otherwise have granted if it had all of the necessary information from the Originating Site Hospital. This could lead to second-tier corporate liability in one of two ways. First, the Originating Site Hospital could face a lawsuit directly from a patient treated at the Distant Site Hospital by the telemedicine physician. Second, a patient can sue the Distant Site Hospital based on the physician’s malpractice, which in turn sues the Originating Site Hospital arguing that had the Originating Site Hospital disclosed its internal review information, the Distant Site Hospital would have made a different decision regarding credentialing and granting privileges.

CMS issued this proposed rule in response to survey reports that found hospitals that followed the Joint Commission standards did not comply with the Medicare Conditions of Participation. Although this is only a proposed rule and enforcement will not begin until March 2011, it still provides hospitals with insight into where CMS is heading with respect to delegated credentialing. 4 These hospitals now have the opportunity to proactively review telemedicine agreements and policies for compliance and identify issues to be ready for the final rule. 5

I. What are the requirements under the proposed rule for an Originating Site Hospital to delegate credentialing to a Distant Site Hospital?

Overall, delegated credentialing under the proposed rule is widely viewed as a necessary step to increase the use of telemedicine and to decrease the costs resulting from a “duplicative and burdensome process for . . . hospitals involved in this process, particularly small hospitals, which often lack adequate resources to fully carry out the traditional credentialing and privileging process . . . .” 6 Furthermore, these small hospitals often lack in-house medical staff with the clinical expertise to adequately credential the wide range of specialty physicians that larger hospitals can provide for telemedicine services. 7

As a condition of delegating credentialing to the Distant Site Hospital, both hospitals must enter into an agreement specifying that it is the responsibility of the Distant Site Hospital providing the telemedicine services to meet the existing credentialing requirements in 42 C.F.R. §482.12(a)(1) through (a)(7) with regard to its physicians and practitioners who are providing telemedicine services. 8 Furthermore, the Originating Site Hospital must ensure that it meets other requirements summarized as follows:

(i) The Distant Site Hospital must be a Medicare-participating hospital.

(ii) The telemedicine physician must have privileges at the Distant Site Hospital and the Distant Site Hospital must provide a current list of the physician’s privileges.

(iii) The telemedicine physician must hold a license issued or recognized by the State in which the Originating Site Hospital is located.

(iv) The Originating Site Hospital must have evidence of an internal review of the telemedicine physician’s performance of telemedicine privileges and send performance information to the Distant Site Hospital for use in its periodic appraisal of the physician. At a minimum, this information must include all adverse events that result from the telemedicine services provided by the telemedicine physician to the Originating Site Hospital’s patients and all complaints the Originating Site Hospital has received about the telemedicine physician. 9

This fourth requirement places an affirmative duty on the Originating Site Hospital to disclose adverse events that may have an effect on the Distant Site Distant Site Hospital’s decision to grant privileges. As such, an Originating Site Hospital that delegates its credentialing function for telemedicine must establish an open channel of communication to minimize exposure to liability based on a claim of negligently failing to disclose required information to the Distant Site Distant Site Hospital.

II. How can the sharing of credentialing information lead to Originating Site Hospital corporate liability?

As shown in two recent cases, a hospital can face corporate liability to a patient or another hospital if it does not disclose adverse information in violation of the law, or provides misleading and inaccurate information when it knows that another hospital is basing its credentialing decisions on the disclosures. Therefore, an Originating Site Hospital that delegates credentialing functions must be sure it provides adequate internal review information to the Distant Site Hospital for its credentialing and privileging decisions.

First, Fazaldin v. Englewood Hospital 10 is an example of how failing to provide any information can potentially lead to liability to a patient. In Fazaldin, the plaintiff brought a malpractice claim against her surgeon, Dr. Stenson, and Englewood Hospital. In addition to the malpractice claim, the plaintiff sued Beth Israel Medical Center where Dr. Stenson held privileges before Englewood Hospital. The basis of this claim was Beth Israel’s complete failure to report past actions by Dr. Stenson to licensing authorities and the National Practitioner Data Bank (“NPDB”). As a result, Englwood’s review of the NPDB did not reveal any adverse information regarding Dr. Stenson’s practice and granted privileges to Dr. Stenson. The thrust of plaintiff’s argument was that Beth Israel’s failure to report as required by law was a proximate cause of her injuries because if there had been an NPDB report, Englewood would not have granted privileges to Dr. Stenson. On appeal, the court remanded the case back to the trial court upon finding that there were genuine issues and the jury should consider whether Beth Israel’s failure to report was a proximate cause of plaintiff’s injuries. 11

Additionally, misleading information can lead to liability to another hospital as seen in Kadlec Medical Center v. Lakeview Anesthesia. 12 In Kadlec, a group practice terminated an anesthesiologist, Dr. Berry, while he was under investigation at Lakeview Medical Center for a drug problem and posing a risk to patients. 13 After leaving Lakeview Medical Center, Dr. Berry obtained a locums tenens position at Kadlec Medical Center. Kadlec began its credentialing process and sent a letter to Lakeview requesting credentialing information. Lakeview responded with only the dates that Dr. Berry held privileges. Additionally, Dr. Berry provided letters from his former group practice stating that he was highly recommended, even though the group practice terminated his employment for risks to patient safety just two months before. 14 Subsequently, a patient sued Kadlec and Dr. Berry for malpractice when Dr. Berry’s negligent performance of anesthesiology under the influence of Demerol led to the near death of the patient. 15 Kadlec then filed suit against Lakeview and Dr. Berry’s former group practice, alleging that the misleading referral letters were a legal cause of Kadlec’s loss in the underlying malpractice lawsuit. 16 At trial, Kadlec prevailed on the issue that both referral letters were misleading. On appeal, the Fifth Circuit reversed the trial court’s decision in part, holding that absent a pecuniary interest or special relationship, a hospital does not have a duty to disclose negative information in response to a credentialing request. However, if it does respond, the information provided must not be factually misleading. The court did not find that Lakeview’s letter was misleading. However, the letter from the group practice stating Dr. Berry was highly recommended was factually misleading. 17 Therefore, the court upheld the judgment against Dr. Berry’s former group practice. 18

Although an Originating Site Hospital will not face issues like inadequate surgical ability and probably not impairment of a physician in the telemedicine context, the cases are still instructive on how a hospital can face liability based on failing to report as required by law as in Fazaldin, or providing inaccurate or incomplete information as in Kadlec. In fact, the special relationship between the Originating Site Hospital and Distant Site Hospital established by the proposed rule and a delegated credentialing agreement provides a stronger basis for liability based on the Originating Site Hospital’s failure to report information or providing less than truthful responses. As such, the Originating Site Hospital should take special precautions to ensure compliance with the requirement to report on the physician’s performance as required under the proposed rule.

A. What should an Originating Site Hospital do to minimize the risks associated with a breakdown in communication?

Beyond adverse events and complaints received at the Originating Site Hospital, the proposed rule does not explicitly define what information the Originating Site Hospital should provide to the Distant Site Hospital. It is important that the parties’ expectations are set out in the agreement for the credentialing delegation, and the Originating Site Hospital has to implement good practical policies that guide staff on when and how to report to the Distant Site Hospital on the physician’s performance. Furthermore, to the extent that any exchange of information contains peer review, both hospitals must determine how to exchange the information in a way that will maintain peer review confidentiality and immunity. This is even more complicated when telemedicine services extend across state lines (as they often do).

Additionally, many times the reason for providing incomplete or inaccurate information on a physician’s performance is the fear that the hospital will face liability for defamation. Therefore, the Originating Site Hospital and Distant Site Hospital may consider making the physician a party to any agreement for delegated credentialing. As a result, the hospital should use provisions waiving any claim against the Originating Site Hospital for the free flow of communications with the Distant Site Hospital for ongoing practice review.

III. What are other challenges with delegated credentialing under the proposed rule?

In addition to the possibility of second-tier corporate liability, an Originating Site Hospital must be aware of and meet other obligations in providing telemedicine services to its patients.

Although the proposed rule allows delegated credentialing, it does not eliminate every responsibility of the Originating Site Hospital to verify the telemedicine physician’s history. For example, the Originating Site Hospital would still be required to query the NPDB. A hospital is required to query the NPDB whenever a physician requests privileges and every two years thereafter. 19 Failure to query the NPDB gives rise to a presumption that the hospital has knowledge of all information concerning the physician in the NPDB. 20 Currently, the proposed rule does not allow the Originating Site Hospital to rely on the Distant Site Hospital’s query of the NPDB.

Furthermore, the proposed rule is not clear on whether the exchange of information relating to the physician’s performance at the Originating Site Hospital or the privileges held at the Distant Site Hospital is an ongoing obligation. The language of the proposed rule requires that the Originating Site Hospital provide the information “for use in the periodic appraisal of the [Distant Site Hospital] physician or practitioner.” 20 This seems to indicate that it is not an ongoing obligation, but rather only required every year or two when the physician undergoes the re-credentialing process. However, the Originating Site Hospital and Distant Site Hospital would likely require that the exchange of information be an ongoing requirement in an agreement for delegated credentialing.

Another issue is that the Originating Site Hospital has to be certain that the credentialing process takes into account whether the telemedicine physician and its own staff have the ability to use telemedicine equipment. Incorrectly operated telemedicine equipment, on either the transmission or reception of data, can lead to negative outcomes. In Estate of Fout-Iser v. Hahn, 20 a nurse had difficulty using a sonogram and transmitting readable images via teleradiology. The West Virginia Supreme Court held that an expert’s testimony regarding the inability to receive quality sonogram images and the teleradiologist’s failure to provide additional guidance or direction to obtain readable images was adequate evidence of a violation of the standard of care. 20 Fout-Iser highlights the need to ensure that staff at both the Originating Site Hospital and Distant Site Hospital can use the telemedicine equipment and communicate well.  


CMS’s proposed rule providing for delegated credentialing for telemedicine services is an important step to providing patient access to needed specialists in rural areas where they would otherwise be unavailable. However, hospitals that delegate credentialing functions must be diligent in fulfilling the obligation to report on the performance of the telemedicine physician. The parties can meet this by outlining their expectations for exchanging information in a formal agreement and having practical policies in place.

Furthermore, a hospital must recognize other factors such as continuing to query the NPDB for physicians providing telemedicine services and credentialing their own staff on ability to appropriately use and maintain telemedicine technology.

1 Credentialing and Privileging of Telemedicine Physicians and Practitioners, 75 Fed. Reg. 29,479 (May 26, 2010) (to be codified at 42 C.F.R. 482.12, 482.22, 485.616, and 485.641).
2 One limitation of the proposed rule is it only allows credentialing delegation to a hospital. This eliminates delegating credentialing to another critical access hospital that may have a needed specialist available and some of the most common providers of telemedicine services.
3 75 Fed. Reg. 29,479.
4 Although the proposed rule requires Joint Commission accredited hospitals to implement the delegated credentialing requirements by July 15, 2010, CMS gave the Joint Commission an extension and hospitals are not required to be in compliance until March 2011.
5 It is unclear when the final rule will be issued at this point.
6 75 Fed. Reg. 29,480.
7 Id.
8 Id. at 29,481.
9 Id.
10 No. A-4948-04T3 (N.J. Super. Ct. App. Div. July 26, 2007).


12 527 F.3d 412 (5 th Cir. 2008).
13 Id. at 416.
14 Id.
15 Id. at 417.
16 Id. at 415.
17 Id. at 421-3.
18 Id. at 427.
19 45 C.F.R. § 60.12.
20 Id .
21 Id .
22 649 S.E.2d 246 (W. Va. 2007).
23 Id. at 677-8.

The ABA Health eSource is distributed automatically to members of the ABA Health Law Section . Please feel free to forward it! Non-members may also sign up to receive the ABA Health eSource.