## Facts

- Avera St. Luke’s (ASL) is a private, nonprofit community hospital in Aberdeen, South Dakota, governed by a board of trustees under its corporate bylaws.
- Orthopedic Surgery Specialists, Ltd. (OSS) was a partnership of orthopedic surgeons on ASL’s medical staff that operated in the same market.
- After ASL’s only neurosurgeon left, ASL’s board pursued a recruitment strategy to restore neurosurgical/spine coverage and assessed local market conditions affecting recruitment.
- OSS opened an ambulatory/day surgery center that directly competed with ASL’s operating rooms, and ASL experienced a substantial reduction in operating-room usage.
- The board concluded unrestricted addition of new orthopedic/spine surgeons would threaten ASL’s financial stability and its ability to continue full-service hospital operations for the community.
- The board adopted motions “closing” the medical staff to new applicants seeking orthopedic surgery privileges and to new applicants requesting spine surgery privileges; existing physicians retained their privileges.
- OSS recruited Dr. John Mahan, a spine-fellowship-trained orthopedic surgeon, and he applied for staff privileges at ASL.
- ASL declined to process/approve Mahan’s application based on the board’s staff-closure policy.
- OSS and the physicians sued for breach of contract, alleging the medical staff bylaws required ASL to process Mahan’s application and limited the board’s ability to close the staff.
- The trial court granted summary judgment for the physicians and OSS and issued a mandatory permanent injunction ordering ASL to consider Mahan’s application.

## Issues

1. Whether medical staff bylaws contractually limited the hospital board’s authority under the corporate bylaws to make administrative and business decisions, including closing the staff to new orthopedic/spine applicants.
2. Whether the board breached a contractual obligation in the bylaws by refusing to process Mahan’s application without following medical staff bylaw procedures.
3. Whether the dispute turned on credentialing/competence determinations within medical staff authority or on administrative/economic decisions within board authority.

## Decision

- The Supreme Court of South Dakota reversed the summary judgment for the physicians and OSS.
- The court vacated the mandatory permanent injunction requiring ASL to consider Mahan’s application.
- The court held the board’s staff-closure action was an administrative/economic decision within the board’s authority under the corporate bylaws.
- Because the closure did not involve an assessment of any particular physician’s competence and applied only to new applicants, it was not a credentialing decision controlled by medical staff bylaws.
- The court concluded ASL did not breach the bylaws by implementing the closure and declining to process Mahan’s application during the closure.

## Legal Principles

- Hospital medical staff bylaws may have contractual effect, but they do not displace powers assigned to the governing board by the hospital’s corporate bylaws.
- Courts distinguish between (a) credentialing and privileging decisions based on professional competence, where medical staff processes are central, and (b) administrative/business decisions about hospital operations and service availability, which fall within board authority.
- A governing board may adopt policies limiting new appointments or privileges for economic and operational reasons when those policies are consistent with the board’s corporate governance authority and are not competence-based disciplinary actions against specific physicians.
- Medical staff governance cannot be used to override board decisions that are primarily business judgments, even if those decisions materially affect physicians’ economic interests.

## Conclusion

The court treated the hospital’s closure to new orthopedic/spine applicants as a board-level administrative response to economic and community-service concerns, not a medical-competence privileging decision; therefore, the board acted within its authority and was not required by medical staff bylaws to process the physician’s application during the closure.


Mahan v. Avera St. Luke’s, 621 N.W.2d 150 (S.D. 2001)