Liabilities of Sharing Space

Staff Report

John Miller II and Rush Smith, Jr., JD, wrote an article in November 2011 about potential liabilities when sharing office space. They report that the terms “apparent agency” or “vicarious liability” are more than just vague legal jargon.

While there is no question that physicians are legally responsible for their own office staff and those directly employed by their practice, many do not realize they are vulnerable to lawsuits for the actions of those they do not employ but share common space.

Miller and Smith describe “apparent agency” as a relationship where a principal leads a patient to believe that the principal employs an independent contractor, who then injures that client, leading to legal redress. By “vicarious liability”, they describe liability that is imposed on a principal who did not actually act negligently, but who has implied legal ties to (thus, an “apparent agency” with) the independent party that did cause an injury.

When two physicians share space and expenses for receptionist, assistants, bookkeeper and rent, a patient who visits one of the physicians could reasonably perceive that this is a group practice. Errors by an employee paid an equal share by the two physicians, could place both of the physicians (the perceived group practice) and all fellow employees at risk for medical malpractice.

The following aspects for the space-sharing relationship can help convince the court to dismiss the non-participating physician from a malpractice suit or avoid involvement altogether.

  1. 1.) Advertising needs to specifically point out that there are two different practices in this space, rather than misleading anyone to believe it is a group practice.
  2. 2.) Phones cannot identify the office as Drs. X and Y’s office or the X and Y Clinic. Whenever possible use separate phone and fax lines for each legal entity.
  3. 3.) Signage in the building cannot imply that this is a group practice. Separate signs should be posted, one for Dr. X and another for Dr. Y.
  4. 4.) Forms and Stationery are separate for the two legal entities, not implying that this is a group practice.
  5. 5.) Billing must reflect two different legal entities
  6. 6.) Shared Employees should be paid by a “master employer” rather than split payments by two separate employers. This would render only the “master employer” liable for any actions by the shared employee(s) whose actions lead to malpractice liability.

Sometimes potential liability by a shared employee would need to be covered by specific insurance for “employee actions.” This is sometimes titled a “leased employee” policy and is an endorsement to each doctor’s professional liability policy. In addition, office procedures need to be in place to prevent errors when handling lab results, radiography or other test results.

When multiple legal entities sign an office lease, each entity shares liability. It would be better for one physician to sign the lease and, with the approval of the landlord, have a sublease for the second physician.

Finally, as in most business affairs, be sure to look into the other physician(s)’ credentials, credit rating, references and reputation before entering into any kind of legal agreement with them.