New Developments on Interplay between Whistleblower Actions & Other Attacks on Hospital Discipline

Nossaman LLP

Hospitals and their medical staffs may consider it time to dust off their bylaws, in consideration of a recent legal development in a peer review proceeding.

Last year, the California Supreme Court held that Mark T. Fahlen, M.D., could pursue a "whistleblower cause of action" against a hospital that had terminated his staff privileges, basing his claim on alleged violation of Health and Safety Code section 1278.5, which specifically allows such actions, without first exhausting the administrative remedies regarding that termination.  However, the Supreme Court upheld the lower court's dismissal of numerous other causes of action on the grounds he failed to, at least, judicially exhaust those remedies with regard to those other claims. (Fahlen v. Sutter Central Valley Hospitals (2014) 58 Cal.4th 655.)  Dr. Fahlen then filed a petition for writ of mandate to attack the hospital board's revocation of his privileges. Last week, the trial court issued its order granting Dr. Fahlen's writ of mandate. 

Dr. Fahlen is a nephrologist who alleges Sutter Central Valley Hospital administration retaliated against him for advocating for appropriate patient care by reporting numerous instances of substandard nursing practices.  He alleges Sutter Central Valley acted to have him fired from his medical group and caused peer review proceedings to be initiated to terminate his hospital membership and privileges. 

In 2010, a Judicial Review Committee (JRC), a panel of Dr. Fahlen's peers, gathered to review evidence and make factual/legal determinations, and unanimously rejected the recommendation of the Medical Executive Committee (MEC), the governing body of the hospital's medical staff, to deny Dr. Fahlen's application for renewal of his hospital membership and privileges.  Although neither the MEC nor Dr. Fahlen appealed the JRC decision, Sutter's governing body terminated Dr. Fahlen's membership and privileges in 2011.  It was this decision that was the subject of Fahlen's present writ petition (Code Civ. Proc., § 1094.5) and produced the new ruling.

Although the Supreme Court ruling in Fahlen confirmed that the Legislature had created an exception for the specific whistleblowing/retaliation statute, it left undisturbed the general rule that, before a physician may bring a common law tort action directed against a hospital's decision to terminate the physician's staff privileges, s/he must first exhaust all internal hospital procedures to reverse the decision, and if this fails, must prevail in court in a mandamus proceeding to have the decision set aside. (Westlake Community Hosp. v. Superior Court (1976) 17 Cal.3d 465.)

It is a bit unclear why Dr. Fahlen and his counsel decided to pursue the necessary precedent of the writ of mandate to assert the other causes of action.   Certainly, any of the issues raised in those charges might provide evidence to support the claims of retaliation.  Pursuant to Section 1278.5, "[a] member of the medical staff who has been discriminated against pursuant to this section shall be entitled to reinstatement, reimbursement for lost income resulting from any change in the terms or conditions of his or her privileges caused by the acts of the facility or the entity that owns or operates a health facility or any other health facility that is owned or operated by that entity, and the legal costs associated with pursuing the case, or to any remedy deemed warranted by the court pursuant to this chapter or any other applicable provision of statutory or common law."  Thus, the statute certainly includes a wide variety of potential damages.  Nevertheless, Dr. Fahlen may consider that his charges of whistleblower retaliation might not support a claim for sufficient, or perhaps for punitive or exemplary damages.  We do not know.

In granting the writ of mandate, the trial court held ". . . the bylaws of hospital medical staffs are controlling in judicial review of mandamus actions concerning physicians' privileges.  These bylaws vary considerably from hospital to hospital, which makes each mandamus action somewhat suis generis [sic]."  The court went on to note a continuum among bylaws, from those which grant hospital boards the authority to reverse peer review bodies' findings of fact and make new findings, to those which deny the board any power to alter a peer review decision. The trial court held the bylaws at issue did not permit Sutter Central Valley to make new findings of fact.  The JRC had made the specific finding that ". . . neither Dr. Fahlen's competence, nor his professional conduct is likely to be detrimental to patient safety or to the delivery of patient care."  The trial court thus concluded this fact, alone, merited reversal of the board's decision ".  . . because California law has required, for more than fifty years, that denial of a physician's privileges be supported by peer review findings that his care would be detrimental to patients." (citing Rosner v. Eden Township Hospital District (1962) 58 Cal.2d 592, 596-596; Miller v. Eisenhower Medical Center (1980) 23 Cal.3d 614, 619-620; and the Supreme Court's decision in Fahlen.)

The Fahlen trial court went to some length to distinguish the bylaws at issue from those previously considered by the Court of Appeal in Ellison v. Sequoia Health Services (2010) 183 Cal.App.4th 1486, where the court upheld a decision of the hospital's board to terminate the physician's privileges although a JRC had determined that lesser restrictions should be imposed. In Ellison, the Court noted Business and Professions Code section 809.05, subdivision (a), has been interpreted to mean that a hospital's governing body may exercise its own independent judgment about evidence presented to a peer review committee composed of medical staff members, provided that it gives due weight to the findings of that committee and provided the bylaws do not require the governing body to apply a more deferential standard of review.   (Id. at pp. 1496-1497.)

The Ellison court held the bylaws before it provided that the proceeding should be "in the nature of an appellate hearing," which has been interpreted to invoke a substantial evidence standard of review.  However, those bylaws also gave the board the ultimate responsibility of determining whether the action taken or recommended by the JRC is "reasonable and warranted under the circumstances."  The Ellison court held this phrase gives the board the power to make a factual determination based on the evidence, and it affirmed the termination of Dr. Ellison's privileges. (Ibid.)

In contrast, the Fahlen trial court noted the bylaws before it had no "reasonable and warranted" provision and therefore concluded that Sutter Central Valley's review was limited solely to determining whether "substantial evidence" existed to uphold the decision. 

It can be argued that the phrase "reasonable and warranted under the circumstances" is not significantly different from "substantial evidence." Overruling a JRC decision because it is not "reasonable and warranted under the circumstances" might only be allowed where the JRC decision is "not supported by substantial evidence."

The recent Fahlen decision is likely to be appealed.  In addition, based on the trial court order, which set a Case Management Conference, it appears Dr. Fahlen's action for damages based on Section 1278.5 is proceeding in this same trial court.  While we do not know this first hand, it seems apparent that Dr. Fahlen is managing his whistleblower retaliation claim and his claim for otherwise improper termination of his hospital privileges in a manner which, if successful, would allow all his claims to go forward in a single trial.  This is of interest because, in this case, the Supreme Court had specifically declined to address the lower court's ruling that he could pursue the whistleblower retaliation claim separately from his claims for wrongful termination of his privileges on different grounds.  Nothing in the new developments in this part of Fahlen's case alters that division, which remains good California law.

This trial court decision is still highly relevant for consideration by all hospitals throughout California.  The acknowledgment that bylaws vary greatly from hospital to hospital, along with the conclusion that the specific language of a specific set of bylaws will likely be determinative as to the governing board's authority, should be sufficient to cause hospitals to revisit their own sets of bylaws to consider whether they provide the intended authority and structure in the peer review process.This decision also serves as a reminder that physicians hold a property interest in their hospital staff membership and privileges that may not be denied without due process of law and is not terminable on an "at will" basis like many employment arrangements.  Ultimately, a physician who has been granted active staff membership and privileges may only have those rights curtailed or terminated if the peer review action is intended and applied to protect patients and improve the quality of care and treatment provided at the hospital.

All in all, it is clear that the last word is not in (and will not be for some time) about the interplay between hospitals' authority to discipline and even to terminate physicians who run afoul of the standards established under the bylaws for physicians' staff privileges under the law, on the one hand, and the whistleblower protections enacted by the Legislature on the other hand. Since both sets of "rights" are of the greatest magnitude, and since they run on parallel tracks but in opposite directions, we can expect many more fireworks.

Shelley Carder is an attorney at Nossaman affiliate DiCaro, Coppo & Popcke. Ms. Carder has extensive experience in healthcare and commercial litigation defense. She has participated in numerous trials, arbitrations and mediations. She has argued two cases before the Ninth Circuit Court of Appeal.

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