IN THE COURT OF APPEALS OF TENNESSEE

AT NASHVILLE

 February 19, 2002 Session

CITY OF COOKEVILLE, TENNESSEE, ET AL. 

v. WILLIAM M. HUMPHREY, M.D., ET AL.

 Appeal from the Chancery Court for Putnam County

No. 99-219 Billy Joe White, Chancellor

No. M2001-00695-COA-R3-CV - Filed November 20, 2002

This is a declaratory judgment action wherein a private act hospital authority, established pursuant

to Tennessee Code Annotated sections 7-57-601 to 604, seeks a declaration that it has the authority

to enter into an exclusive contract for professional radiology services, thus limiting the use of

imaging equipment and hospital support staff situated in the hospital to such exclusive providers of

radiology services. Defendants are four competent radiologists, presently on the medical staff of the

hospital, who have also established Premier Diagnostic Imaging Center, LLC to provide outpatient

radiology services independent of the hospital. The exclusive contract sought by the hospital would

effectively “close” use of the hospital imaging facilities and support staff to all radiologists except

the providers named in the exclusive contract. The trial court declared that the hospital was

authorized to enter into such an exclusive provider contract, and we affirm the judgment of the trial

court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

WILLIAM B. CAIN, J., delivered the opinion of the court, in which BEN H. CANTRELL, P.J., and

ROBERT L. JONES, SP. J., joined.

William H. West, Nashville, Tennessee and John Acuff, Cookeville, Tennessee, for the appellants,

William M. Humphrey, M.D., John P. Limbacher, M.D., Daniel F. Coonce, M.D., George O. Mead,

M.D., and Putnam Radiology, P.C.

Andree Sophia Blumstein, Nashville, Tennessee, for the appellees, City of Cookeville, Tennessee,

by and through Cookeville Regional Medical Center, and Cookeville Regional Medical Center

Authority.

William B. Hubbard, Nashville, Tennessee, for amicus curiae, Tennessee Hospital Association.

Andrew Yarnell Beatty, Nashville, Tennessee, for amicus curiae, Tennessee Medical Association.

David L. Steed, Nashville, Tennessee, for amicus curiae, Medical Staff of Cookeville Regional

Medical Center. 
-2-

OPINION

The facts necessary to a decision in this case were stipulated by the parties, and the case was

submitted to the trial court on cross motions for summary judgment. The trial court granted the

Motion for Summary Judgment filed by Plaintiff hospital, and Defendant radiologists appeal.

Cookeville Regional Medical Center (“CRMC”) is a private act public hospital operated by

the City of Cookeville, by and through Cookeville Regional Medical Center Authority (“CRMCA”).

This hospital is established under the provisions of Tennessee Code Annotated sections 7-57-601

to 604. Defendants, Drs. Humphrey, Limbacher, Coonce, and Mead form a professional corporation

known as Putnam Radiology, P.C. and are competent and qualified radiologists with staff

membership and clinical privileges at CRMC. They practice at CRMC Imaging Department, which

has historically operated as an open staff department without an exclusive provider contract. 

Defendant radiologists, in early 1999, also formed a limited liability company, Premier

Diagnostic Imaging Center, LCC, and applied for a Certificate of Need for an outpatient diagnostic

center in which they intended to provide outpatient imaging services in competition with CRMC.

The Certificate of Need was granted to Premier Diagnostic Imaging Center, LCC on April 28, 1999.

At a March 25, 1999 meeting, the CRMCA Board of Trustees decided to “close” the medical

staff of the Imaging Department at CRMC by seeking an exclusive provider contract for in hospital

imaging services. The result of such a contract would be that only radiologists employed by the

exclusive provider under the contract would have access to and use of the imaging facilities and

support staff at CRMC. 

The medical staff of CRMC voted to support the Defendant radiologists and their

professional corporation, Putnam Radiology, PC, in becoming the providers of radiology services

under such an exclusive contract if an agreement could be reached on such a contract. On April 19,

1999, CRMC issued a request for a proposal from qualified radiology groups to operate and

administer its Imaging Department under an exclusive contract. Putnam Radiology, PC objected to

several provisions in the proposed exclusive contract including the “reasonable non-compete

provisions” and a provision for termination of medical staff privileges immediately upon the

termination of the radiology services contract. In the words of Dr. Humphrey: “It is our position that

the medical staff bylaws of CRMC do not give the hospital the power to exclude radiologists on its

staff from access to the devices and staff of the hospital.”

An impasse having thus been reached as to any exclusive services contract between CRMC

and Putnam Radiology, PC, the exclusive provider contract proposal was put on hold, and the City

of Cookeville, by and through CRMC and CRMCA, on July 1, 1999, filed this action for declaratory

judgment seeking a declaration of the right to close the Imaging Department at CRMC by means of

an exclusive provider contract. On July 29, 1999, the Defendants answered the Complaint and filed

a Counterclaim asserting that the medical staff bylaws of CRMC had been violated by the actions

of Plaintiff and that the decision to close the CRMC Imaging Department was done in retribution
-3-

against Defendants for their actions in obtaining a Certificate of Need for the establishment of an

outpatient diagnostic imaging center in Cookeville.

The case was heard by Chancellor Billy Joe White on January 17, 2001 on cross motions for

summary judgment filed by the parties. The Chancellor granted Plaintiffs’ Motion for Summary

Judgment by Order of February 12, 2001 holding:

The Court finds that the Tennessee Private Act Hospital Authority Act of

1996, Tenn. Code Ann. § 7-57-601 et seq., gives the Plaintiff Cookeville Regional

Medical Center Authority (the “Hospital”) the authority to close a Hospital

department for competitive and economic reasons through an exclusive contracting

arrangement even though doing so will, in this case, incidentally affect the

Defendants’ staff privileges. The Hospital has the right to close the staff of its

Imaging Department and to seek an exclusive provider of radiology services, and the

Defendants’ loss of their staff privileges necessarily follows. The Court finds that

there is no issue concerning the competence of the Defendant radiologists and that,

therefore, it would be meaningless to require the Hospital to provide a hearing

regarding any adverse effect on privileges. The Court finds that the Plaintiffs’

decision to close the Hospital’s Imaging Department is a business decision.

The Court further finds that: the Hospital’s Medical Staff Bylaws, and

specifically Section 14.1.D of the Medical Staff Bylaws, do not give the Medical

Staff the right to veto a decision by the Hospital to close a previously open

department; Section 14.1.D gives the Medical Staff only the right to make

recommendations to the Hospital Board; there is no breach of the Medical Staff

Bylaws; and there are no due process problems in connection with the Hospital’s

actions. Thus, the Hospital may close its Imaging Department without violating the

Defendants’ contractual or due process rights.

The case was decided by the trial court with the Motion for Summary Judgment of Plaintiffs’

being granted and the Motion for Summary Judgment of Defendants’ being denied. The Defendants

filed a timely appeal.

An appeal from a grant of summary judgment brings the case before the appellate courts on

questions of law only, subject to de novo review accompanied by no presumption of correctness of

the disposition made by the trial court. Gonzales v. Alman Constr. Co., 857 S.W.2d 42 (Tenn. Ct.

App. 1993). The burden rests upon the party seeking summary judgment to persuade the court that

no genuine and material factual issues exist and that the movant is entitled to judgment as a matter

of law. Byrd v. Hall, 847 S.W.2d 208 (Tenn. 1993). In ruling on a motion for summary judgment,

both the trial court and the Court of Appeals must look to all of the evidence, take the strongest

legitimate view of the evidence in favor of the opponent of the motion and allow all reasonable

inferences in his favor, discarding all countervailing evidence. After having done so, if there is any

dispute as to any material determinative evidence or any doubt as to the conclusion to be drawn from
-4-

the whole evidence, the motion must be denied. Dooley v. Everett, 805 S.W.2d 380 (Tenn. Ct. App.

1990); Evco Corp. v. Ross, 528 S.W.2d 20 (Tenn. 1975). In this case, the facts are essentially

stipulated such that only questions of law are before the Court, and these questions were correctly

determined on summary judgment motion. Allstate Ins. Co. v. Jordan, 16 S.W.3d 777 (Tenn. Ct.

App. 1999). 

Two issues control the case on appeal: 

1. DoPlaintiffs/Appellees have the right to “close” the Imaging Department atCRMCbymeans

of an exclusive provider contract and thereby preclude Defendants/Appellants’ use of CRMC

imaging facilities and support staff?

2. If such closing is authorized, does the resulting non-access to CRMC imaging facilities and

support staff violate the medical staff bylaws of CRMC and constitute breach of contract with

Appellants?

As to the first issue, CRMC is a public hospital, as opposed to a private hospital, and

Appellants rely upon the long standing rule in Tennessee that a licensed physician who complies

with hospital rules and regulations has a right to practice medicine in the public hospitals of the

State. See Henderson v. City of Knoxville, 9 S.W.2d 697, 698 (Tenn. 1928). The decisive question

on this issue is whether or not the rule in Henderson and its progeny survived the enactment of

Chapter 778 of the Public Acts of 1996, now codified as Tennessee Code Annotated sections 7-57-

601 to 604. On November 25, 1998, the Attorney General provided the following opinion:

QUESTION:

Does Tennessee Code Annotated § 7-57-601, et seq., authorize a public hospital to

close its medical staff to licensed Tennessee physicians in good standing, thus

overruling by legislation previous case law?

OPINION:

Yes. Tenn. Code Ann. § 7-57-603 extends the powers and rights of private act

metropolitan hospitals to private act hospital authorities, otherwise known as public

hospitals. Tenn. Code Ann. § 7-57-502 provides metropolitan hospitals with the

authority to contract exclusively with physicians. Previous case law restricting the

public hospitals’ right to close a medical staff, therefore, has been nullified by this

statutory extension of authority. 

OPINION BY:

JOHN KNOX WALKUP, Attorney General and Reporter; MICHAEL E. MOORE,

Solicitor General; VICKIE P. HALL, Assistant Attorney General.

OPINION ANALYSIS:

The Private Act Hospital Authority Act (the “Act”), Tenn. Code Ann. § 7-57-601, et

seq., was adopted in 1996 to extend the powers of the metropolitan hospital
-5-

authorities to the private act hospitals. Tenn. Code Ann. § 7-57-603 states in part

that:

“A private act hospital authority, . . . has as supplemental and

additional rights and powers, all powers granted to private act

metropolitan hospital authorities in title 7, chapter 57, part 5. . . .” 

Tenn. Code Ann. § 7-57-502(c) states in part that a hospital authority, in the exercise

of its powers, may:

“. . . contract for or otherwise participate solely or with others in the

ownership or operation of a hospital, medical or health program

properties and facilities and properties, facilities, and programs

supporting or relating thereto of any kind and nature whatsoever and

in any form of ownership whenever the board of trustees in its

discretion shall determine it is consistent with the purposes and

policies of this part or any private act applicable to it, and may

exercise such powers regardless of the competitive consequences

thereof.” 

Based on the language of that statute, a public hospital may contract with others in

furtherance of the hospital’s operation regardless of the competitive consequences

of that contract. Certainly physicians and surgeons are an integral part of the

operation of any hospital. It, therefore, follows that hospitals may contract with a

particular physician or physician group exclusively even if it is to the disadvantage

of other similarly qualified physicians or groups.

The purpose and policy for the enactment of Tenn. Code Ann. § 7-57-501, et seq.,

is stated in part as follows:

“The general assembly hereby finds that the demand for hospital,

medical and health care services is rapidly changing as is the way and

manner in which such services are purchased and delivered; that the

market for hospital and health care services is becoming increasingly

competitive; and that the hospital and other health care providers

need flexibility to be able to respond to changing conditions by

having the power to develop efficient and cost-effective methods to

provide for hospital, medical and health care needs. The general

assembly finds that public hospitals in metropolitan areas are

presently at a competitive disadvantage, and that significant

investments in the public assets of private act metropolitan hospital

authorities could be jeopardized by inability to compete with private

hospitals because of legal constraints upon the scope of their
-6-

operations and limitations upon the power granted to public hospitals

under existing law.”

If there is any question as to the specific language in Tenn. Code Ann. § 7-57-502(c),

clearly, the legislative intent for the enactment of the statute, and the subsequent

enactment of the Act, is to enable public hospitals to compete in the health care

market. “It is generally held that private hospitals have the right to exclude licensed

physicians and surgeons from the use of the hospital for any cause deemed sufficient

by its managing authorities.” Nashville Memorial Hospital, Inc., et al. v. Binkley,

534 S.W.2d 318 (Tenn. 1976). It follows then that the power to “contact for or

otherwise participate solely or with others in the . . . operation of a hospital . . .” is

intended to give public hospitals the same right to exclusively contract with

physicians or surgeons, regardless of the affect on the excluded physicians. Tenn.

Code Ann. § 7-57-502. 

The result of the Act, therefore, is to nullify court decisions under prior law which

held that a licensed physician who complies with hospital rules and regulations has

a right to practice medicine in the state’s public hospitals. Henderson v. City of

Knoxville, et al., 9 S.W.2d 697 (Tenn. 1928).

Although the statute in question does not prohibit the specific action by a public

hospital set out in this opinion request, this Opinion does not address, and should not

be construed to address, other provisions of federal and state law governing

competitive activity. Specifically, this Office has not reviewed and takes no position

on the activity in question under applicable provisions of the Sherman Act, 15 U.S.C.

§ 1 et seq., the Clayton Act, 15 U.S.C. § 12 et seq., or any other federal law. Finally,

this opinion is not intended to analyze any other actions by private act or

metropolitan hospital authorities that might conflict with Article I, Section 22 of the

Tennessee Constitution or with Tenn. Code Ann. § 47-25-101, et seq.

Op. Att’y Gen. 98-223 (1998).

After careful consideration, we find that we cannot improve on the reasoning of the Attorney

General, and we, therefore, adopt the opinion of the Attorney General as the opinion of the Court.

The Plaintiffs are empowered to close the Imaging Department of CRMC by means of an exclusive

provider contract and Henderson v. City of Knoxville and its progeny have been legislatively

overruled by sections 7-57-601 to 604 of the Code.

 Turning now to the second issue, Appellants assert that “closing” the Imaging Department

of CRMC to qualified radiologists who are members of the medical staff of the hospital constitutes

a breach of the contract between the hospital and the affected radiologists. Relying on the near

universal rule in Lewisburg Community Hospital v. Alfredson, 805 S.W.2d 756 (Tenn. 1991), that
-7-

hospital bylaws and medical staff bylaws are an integral part of the contract between the hospital and

its medical staff members, Appellants point to certain provisions of these bylaws.

ARTICLE III: STAFF MEMBERSHIP

3.1 NATURE OF STAFF MEMBERSHIP

Membership on the medical staff of Cookeville General Hospital is a privilege which

shall be extended only to professionally competent physicians, dentists and

podiatrists who continuously meet the qualifications, standards and requirements set

forth in these bylaws. Appointment to and membership on the staff shall confer on

the staff member only such clinical privileges and prerogatives as have been granted

by the board in accordance with these bylaws, and shall include staff category, and

department assignments.

. . . .

3.2-3 Nondiscrimination

Staff membership or particular clinical privileges shall not be denied

on the basis of any criterion unrelated to the efficient delivery of

patient care at the generally recognized professional level of quality

in the hospital, including, but not limited to, sex, race, creed, religious

beliefs and national origin or to an otherwise qualified handicapped

practitioner.

. . . .

ARTICLE XIV: GENERAL PROVISIONS

14.1 MEDICAL STAFF RULES & REGULATIONS

. . . .

D. Medical Staff Role in Exclusive Contracting: The Medical

Staff, through the Medical Executive Committee, with

medical staff approval, shall review and make

recommendations to the Board regarding issues related to the

exclusive arrangements for physician and/or professional

services, prior to any decision being made, in the following

situations:

1. the decision to execute an exclusive contract in a

 previously open department or service;
-8-

2. the decision to renew or modify an exclusive 

 contract in a particular department or service;

3. the decision to terminate an exclusive contract in

 a particular department or service.

. . . .

ARTICLE XVI: FAIR HEARING PLAN

. . . .

16.1-1 INITIATION OF HEARING

16.1-1 Recommendations or Actions

The following recommendations or actions shall, if deemed adverse

pursuant to Section 16.1-2, entitle the practitioner affected thereby to

a hearing:

A. Denial of initial staff appointment,

B. Denial of reappointment,

C. Suspension of staff appointment,

D. Revocation of staff appointment,

E. Denial of requested modification of staff category,

F. Reduction in staff category,

G. Limitation of admitting prerogatives,

H. Denial of requested department assignment,

I. Denial of requested clinical privileges,

J. Reduction in clinical privileges,

K. Suspension of clinical privileges,

L. Revocation of clinical privileges,

M. Terms of probation,

N. Requirement of consultation,

AND/OR

O. Letter of admonition or letter of reprimand.

The pivotal and decisive question involves the holding of the Supreme Court in Alfredson.

While it is not open to legitimate dispute that the medical staff bylaws are an integral part of the

contract between Appellants and Appellees, as Alfredson correctly holds, it is the effect of closure

of the hospital Imaging Department on the contractual rights of Appellants that puts Alfredson at

odds with every other jurisdiction that has addressed the issue. In Alfredson, the Supreme Court

held:
-9-

After the foregoing analysis, the Court of Appeals observed, and we agree, It is fair

to conclude that the hospital granted Dr. Alfredson specific, delineated clinical

privileges enabling him to practice radiology at the hospital. His contract required

them. The bylaws themselves required that he seek them and likewise required the

hospital to grant them. With such hospital-based specialties such as radiology, the

inability to use the hospital facilities and staff would have rendered the clinical

privileges meaningless. Thus, necessarily included with Dr. Alfredson’s privileges

was the right to use hospital facilities and staff.

. . . .

We, therefore, hold that the Hospital’s refusal to give Dr. Alfredson access

to its radiological equipment and staff after January 2, 1986, significantly reduced his

privileges. It follows that Dr. Alfredson was entitled to a hearing under the medical

staff bylaws, and that the Hospital breached its contract by failing to provide him a

hearing. As a result, we affirm the Court of Appeals’ holding that the Hospital was

not entitled to a summary dismissal of Dr. Alfredson’s claims arising from the

Hospital’s failure to follow its bylaws, and affirm its action vacating the Hospital’s

summary judgment in part. We reverse the Court of Appeals’ decision that genuine

factual issues exist concerning whether the Hospital significantly curtailed Dr.

Alfredson’s clinical privileges by denying him access to its radiological equipment

and staff, and its resulting remand to the trial court.

Having determined that Dr. Alfredson’s clinical privileges are sufficiently set

out in the record for this purpose, we hold, as a matter of law, that his privileges were

significantly reduced when the Hospital denied him access to its equipment and its

staff. It follows that the medical staff bylaws required the Hospital to grant him a

hearing when his clinical privileges were significantly reduced, and that by not doing

so, the Hospital breached its contract.

Alfredson, 805 S.W.2d at 761-62.

Without mentioning Alfredson, the trial court held: “Thus, the Hospital may close its

Imaging Department without violating the Defendant’s contractual or due process rights.” In so

holding, the trial court followed the apparently universal rule applied in other jurisdictions, which

rule is contra to Alfredson. See Adler v. Montefiore Hosp. Ass’n of W.Pa., 311 A.2d 634 (Pa. 1973);

Anne Arundel Gen. Hosp. v. O’Brien, 432 A.2d 483 (Md. 1981); Engelstad v. Virginia Mun. Hosp.,

718 F.2d 262 (8th Cir. 1983); Collins v. Associated Pathologists, Ltd, 844 F.2d 473 (7th Cir. 1988);

Holt v. Good Samaritan Hosp. & Health Ctr., 590 N.E.2d 1318 (Ohio 1990); Bartley v. Eastern

Maine Med. Ctr., 617 A.2d 1020 (Me.1992); Dutta v. St. Francis Reg. Med. Ctr., 867 P.2d 1057

(Kan. 1994); Gonzalez v. San Jacinto Methodist Hosp., 880 S.W.2d 436 (Tex. 1994); Bryant v. Glen

Oaks Med. Ctr., 650 N.E.2d 622 (Ill. App. Ct. 1995); Garibaldi v. Applebaum, 742 N.E.2d 279 (Ill.

2000); Van Valkenburg v. Paracelsus Healthcare Corp., 606 N.W.2d 908 (N.D. 2000). 
-10-

In addressing the effect on the constitutional and contractual rights of medical staff

physicians effected by exclusive contract closure of the hospital emergency department, the Supreme

Court of North Dakota held:

Relying on Lewisburg Community Hosp. v. Alfredson, 805 S.W.2d 756

(Tenn. 1991), the plaintiffs argue the defendants breached the medical staff bylaws

by not adhering to the due process and hearing provisions. In Alfredson, 805 S.W.2d

at 761, the court held a hospital’s termination of a radiologist’s exclusive contract

and denial of access to hospital equipment and staff “significantly reduced” the

radiologist’s privileges. The court held the hospital breached its contract by failing

to provide the radiologist a hearing under the medical staff bylaws. Id.

The majority of courts, however, have rejected the rational of Alfredson and

have held hearing and due process provisions in similar medical staff bylaws are not

implicated unless there are allegations against a physician bearing on professional

competency and conduct. We agree with the majority of courts, and we hold the

hearing and due process provisions of the Hospital’s medical staff bylaws are not

implicated unless there are allegations bearing on professional competency, conduct,

or character.

Here, the plaintiffs’ medical privileges were not revoked or suspended, and

there were no allegations bearing on professional competency, conduct, or character.

Rather, the plaintiffs were not assigned staff coverage in the Hospital’s emergency

department. The right to exercise medical privileges is separate from the granting or

revoking of those privileges, and a physician with privileges is not guaranteed

employment or the free and unfettered right to use a facility to exercise those

privileges. We conclude, as a matter of law, the hearing and due process provisions

of the Hospital’s medical staff bylaws were not implicated in this case.

Van Valkenburg, 606 N.W.2d at 917-18 (citations omitted).

Addressing the contractual and due process rights of a radiologist excluded by exclusive

contract closure of a hospital radiology department, the Supreme Court of Kansas held:

We believe the bylaws, when considered as a whole, support the conclusion

of the Court of Appeals that Dutta was not entitled to a hearing because the hospital’s

managerial decision was based on business considerations. The Court of Appeals

distinguished a case relied on by Dutta, Lewisburg Community Hosp. v. Alfredson,

805 S.W.2d 756 (Tenn. 1991), on the basis that St. Francis’ bylaws limit a

physician’s right to a hearing to those matters bearing on professional competency

and conduct. 18 Kan.App.2d at 253. We agree. The threshold issue in Lewisburg

was whether the bylaws formed a contract with the plaintiff radiologist as a member

of the medical staff. 805 S.W.2d at 759. St. Francis, in the case at bar, has admitted

the contractual relationship. We find no reference in Lewisburg to a bylaws

provision limiting hearings to matters of professional competency. The hospital
-11-

bylaws in Lewisburg were construed to require the hospital to permit the use of

certain facilities by physicians granted clinical privileges in a particular specialty.

805 S.W.2d at 761. No such requirement appears in the St. Francis bylaws. The

weight of authority supports the conclusion of the Court of Appeals. Lewisburg

appears to be the only contrary authority. We are unpersuaded by the reasoning in

Lewisburg. A parallel medical employment issue was recently reviewed in Bartley

v. Eastern Maine Medical Center, 617 A.2d 1020 (Me. 1992). Bartley held that

because the staff privileges of the plaintiff emergency department physicians had not

been revoked or reduced, the physicians were not entitled to notice and hearing under

the hospital bylaws. The physicians in Bartley were notified that they could no

longer work in the emergency room unless they negotiated new employment

contracts with the hospital. The physicians’ staff privileges were not terminated

when the hospital made different arrangements for staffing the emergency

department. The Bartley court noted that there is a distinction between a grant of

privileges and the right to exercise privileges. Bartley found that the hospital bylaws

did not apply to the emergency room physicians’ terminations because there had been

no allegation of unprofessional conduct or privilege reduction. 617 A.2d at 1021.

SeeCollins v. Associated Pathologists, Ltd., 844 F.2d 473, 481 (7th Cir.), cert. denied

488 U.S. 852, 109 S.Ct. 137, 102 L.Ed.2d 110 (1988); Engelstad v. Virginia Mun.

Hosp., 718 F.2d 262, 268 (8th Cir. 1983); Lewin v. St. Joseph Hospital of Orange, 82

Cal.App.3d 368, 391, 146 Cal.Rptr. 892 (1978); Anne Arundel Gen. Hosp. v.

O’Brien, 49 Md.App. 362, 371-73, 432 A.2d 483 (1981); Holt v. Good Samaritan

Hosp. & Health Ctr., 69 Ohio App.3d 439, 445-46, 590 N.E.2d 1318 (1990); and

Adler v. Montefiore Hosp. of W.Pa., 453 Pa. 60, 80-81, 311 A.2d 634 (1973), cert.

denied 414 U.S. 1131, 94 S.Ct. 870, 38 L.Ed.2d 755 (1974).

Dutta, 867 P.2d at 1062-63.

As an intermediate appellate court, we are bound by Alfredson, and unless the case has been

legislatively overruled by Chapter 778 of the Public Acts of 1996 (sections 7-57-601 to 604 of the

Code), we are bound to follow it. Thus, this case would have to be reversed and remanded as

Appellees must grant a hearing to the Appellants pursuant to the medical staff bylaws.

However, Alfredson was decided by the Tennessee Supreme Court on March 4, 1991.

Chapter 119 of the Public Acts of 1995 (codified as Tennessee Code Annotated sections 7-57-501

to 504) was effective April 19, 1995, and chapter 778 of the Public Acts of 1996 (codified as

Tennessee Code Annotated sections 7-57-601 to 604) was effective April 17, 1996. The contract

between CRMC and Dr. Mead was renewed for a two year term in February of 1998. The contracts

between CRMC and Drs. Humphrey, Limbacher and Coonce were renewed in 1999 for a period of

two years. Thus, both Tennessee Code Annotated sections 7-57-501 to 504 and Tennessee Code

Annotated sections 7-57-601 to 604 post-dated the Alfredson decision and pre-dated each of the four

contracts in issue in this case. As the contracts in issue post-date the legislative enactments involved,
-12-

there can be no impairment of the obligation of contract. Munday v. Wisconsin Trust Co., 252 U.S.

499 (1920).

Certain settled rules must be considered in determining the effect of legislative acts

intervening between the decision in Alfredson and the contracts between CRMC and the Appellants.

1. The General Assembly is presumed to know the existing state of the law on the subject under

consideration when it enacts legislation. Holder v. Tennessee Judicial Selection Comm’n, 937

S.W.2d 877 (Tenn. 1996); SunTrust Bank of Nashville v. Johnson, 46 S.W.3d 216 (Tenn. Ct. App.

2000).

2. A statute is to be construed with reference to pre-existing law and does not change such law

further than it expressly declares or necessarily implies. In re: Deskins’ Estates, 381 S.W.2d 921

(Tenn. 1964); Winter v. Smith, 914 S.W.2d 527 (Tenn. Ct. App. 1995).

3. The court should consider the existing state of the law, the circumstances contemporaneous

to the enactment of a new law, the facts which induced the new law, and the evils sought to be

remedied. First National Bank v. Howard, 253 S.W.2d 961 (Tenn. 1923); Still v. First Tenn. Bank,

N.A., 900 S.W.2d 282 (Tenn. 1995); Wachovia Bank of N. C. v. Johnson, 26 S.W.3d 621 (Tenn. Ct.

App. 2000).

4. When the court can gather the paramount intention of the legislative action, such intention

must be given effect although there may exist some apparent obstacles. Rawlins v. Braswell, 231

S.W.2d 1021 (Tenn. 1950); Still, 900 S.W.2d 282.

Applying such rules we must now determine the legislative intent in the enactment of sections 7-57-

501 to 504 and sections 7-57-601 to 604 of the Code.

It is sections 7-57-601 to 604, entitled “Private Act Hospital Authority of 1996,” that governs

the issues in this case, but we are legislatively commanded by Tennessee Code Annotated section

7-57-603 (1998) that “[a] private act hospital authority, as defined in this part, in addition to the

rights and powers granted to such authority by any private act of the general assembly or its charter

of incorporation, has as supplemental and additional rights and powers, all powers granted to private

act metropolitan hospital authorities in title 7, chapter 57, part 5.” Turning then to Title 7, Chapter

57, part 5 of Tennessee Code Annotated, the declared intent of the legislature is expressed in section

7-57-501.

The general assembly hereby finds that the demand for hospital, medical and

health care services is rapidly changing as is the way and manner in which such

services are purchased and delivered; that the market for hospital and health care

services is becoming increasingly competitive; and that the hospital and other health

care providers need flexibility to be able to respond to changing conditions by having

the power to develop efficient and cost-effective methods to provide for hospital,
-13-

medical and health care needs. The general assembly also finds that the increasing

competition and changing conditions force hospitals and other health care providers

to develop market strategies and strategic plans to effectively compete. The general

assembly further finds that public hospitals in metropolitan areas are presently at a

competitive disadvantage, and that significant investments in the public assets of

private act metropolitan hospital authorities could be jeopardized by inability to

compete with private hospitals because of legal constraints upon the scope of their

operations and limitations upon the power granted to public hospitals under existing

law.

Tenn. Code Ann. §7-57-501(b)(1998).

In furtherance of the general purposes set forth in section 7-57-501(b) of the Code, the

General Assembly granted specific powers that are set forth in section 7-57-502 and concluded such

designation of specific powers with a declaration of legislative intent that is too clear to leave

substantial doubt.

(c) In the exercise of its powers, including, without limitation, the powers in this

section, any other provision of this part and of any other law a private act

metropolitan hospital authority may acquire, manage, lease, purchase, sell, contract

for or otherwise participate solely or with others in the ownership or operation of

hospital, medical or health program properties and facilities and properties, facilities,

and programs supporting or relating thereto of any kind and nature whatsoever and

in any form of ownership whenever the board of trustees in its discretion shall

determine it is consistent with the purposes and policies of this part or any private act

applicable to it, and may exercise such powers regardless of the competitive

consequences thereof. 

Tenn. Code Ann. § 7-57-502(c) (1998) (emphasis added). Among the “competitive consequences”

necessarily envisioned by such enactment are the significant reductions in clinical privileges of

competing staff physicians displaced by an administrative business decision to “close” a department

of a hospital by means of an exclusive contract.

There being no impairment in the obligation of existing contracts in this case, it would appear

that CRMC acted within the scope of its powers under Tennessee Code Annotated sections 7-57-601

to 604 when it made the business decision to “close” its radiology department by exclusive contract.

The “competitive consequences” to staff radiologists not employed by the exclusive provider are

legislatively mandated.

CONCLUSION

Lewisburg Community Hospital v. Alfredson is a pronouncement by the Supreme Court of

Tennessee that this intermediate appellate court is mandated to follow in the absence of legislative
-14-

action so clear as to leave no room for doubt. Such, in our judgment, is the effect of Code sections

7-57-601 to 604. The judgment of the trial court is in all respects affirmed. However, the last word

still rests with the Supreme Court of Tennessee.

The case is remanded to the trial court for such further proceedings as may be necessary and

proper.

Costs of the cause are assessed against the Appellants. 

___________________________________ 

WILLIAM B. CAIN, JUDGE