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Passing on Healthcare Liability Claims Against Passive Investors in Tennessee

Tennessee recently enacted a law that limits who may be named as a defendant in a healthcare liability action.  For causes arising on or after April 24, 2015, a healthcare liability action may only be brought “against the licensee, the licensee’s management company, the licensee’s managing employees, or an individual caregiver who provided direct health care services.”  Tenn. Code Ann. § 29-26-102(a). A “licensee” is defined as a “health care provider licensed, authorized, certified, registered or regulated under title 33, 63, or 68 that is legally responsible for all health care services provided.”  Tenn. Code Ann. § 29-26-101(a)(3).

Importantly, a “passive investor,” which is defined as “an individual or entity that as an ownership interest in a licensee but does not directly participate in the day-to-day decision making or operations of the licensee,” is specifically excluded from the list of permissible defendants in a healthcare action under this new law.  Tenn. Code Ann. § 29-26-101(a)(5) and Tenn. Code Ann. § 29-26-102(a). A healthcare liability action, however, may be brought against a passive investor or other entity/person not listed in Tenn. Code Ann. § 29-26-102(a) if, “after a hearing on a motion for leave to amend,” a court or arbitrator determines that a moving party has provided sufficient evidence “to establish a reasonable showing that” the potential defendant owed and breached a duty of reasonable care and such breach was a legal cause of the claimant’s alleged damages.  Tenn. Code Ann. § 29-26-102(b).

Ultimately, this law should cause healthcare liability actions to be brought only against those persons and entities responsible for providing and controlling patient care and treatment.  This law should also reduce the legal defense costs of the individuals and entities choosing to invest in Tennessee healthcare providers and may, therefore, promote future investment.

C.E. Hunter Brush

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