Filing Whistleblower Actions to Avoid Peer Review

Peer review is the process by which a hospital ' through committees of medical personnel and a board of trustees ' evaluates doctors applying for staff privileges, and assesses the performance of doctors on staff. Peer-review actions can include denying, modifying, or terminating staff privileges.

California's Legislature has endorsed peer review as a means of protecting the public from “those healing arts practitioners who provide substandard care or who engage in professional misconduct.” Cal. Bus. & Prof. Code ' 809(a)(6)-(7). “Hospital peer review, in the words of the Legislature, 'is essential to preserving the highest standards of medical practice' throughout California.” Kibler v. N. Inyo Cnty. Local Hosp. Dist., 39 Cal. 4th 192, 199 (2006).

California's peer-review statutes were enacted in response to the federal Health Care Quality Improvement Act of 1986, 42 U.S.C. ' 11111 et seq. (HCQIA), in which Congress mandated “effective professional peer review.” The Act sought to “restrict the ability of incompetent physicians to move from State to State without disclosure or discovery of the physician's previous damaging or incompetent performance” by establishing a national database of adverse information about individual doctors, and requiring hospitals to check the database before granting medical staff privileges. Adverse credentialing decisions by hospitals are reported to the Medical Board of California, the agency responsible for licensing and disciplining doctors, which forwards such reports to the national database. See Cal. Bus. & Prof. Code ' 805(a)(7), (b)-(c) & (e).

Exhaustion of Remedies

The California Supreme Court has taken a keen interest in the peer-review process in recent years. The court has addressed numerous peer-review issues, including the statutory discovery immunity for peer-review materials (Arnett v. Dal Cielo, 14 Cal. 4th 4 (1996)), the admissibility of peer review evidence at trial (Fox v. Kramer, 22 Cal. 4th 531 (2000)), a hearing officer's authority to control the peer-review process (Mileikowsky v. West Hills Hosp. & Med. Ctr., 45 Cal. 4th 1259 (2009)), and the protected status of peer-review proceedings under the anti-SLAPP statute (Kibler, 39 Cal. 4th 192).

One long-settled aspect of the California Supreme Court's peer-review jurisprudence is the exhaustion-of-remedies doctrine, which holds that a doctor aggrieved by a privileging decision must exhaust all available peer-review remedies before initiating a tort action. Westlake Cmty. Hosp. v. Superior Court, 17 Cal. 3d 465 (1976). In Westlake Cmty. Hosp., a doctor sought damages or reinstatement after a hospital terminated his staff privileges following peer-review proceedings. The court held that the doctor could not initiate an independent tort action until he first exhausted all internal remedies provided by hospital bylaws and, second, succeeded in setting aside the hospital's adverse decision in court in an administrative mandamus proceeding.

Whistleblower Claims and Peer Review

Recent litigation over a relatively new statute may cause California's Supreme Court to revisit the Westlake exhaustion rule and to examine whether an exception should be recognized. In 2007, the California Legislature added doctors to the list of persons in Health and Safety Code ' 1278.5 who may file whistleblower suits if they have been retaliated against for complaining to authorities about “suspected unsafe patient care and conditions.” Cal. Health & Saf. Code ' 1278.5(a). Some doctors have filed actions under this statute, claiming that hospitals have denied or terminated privileges in retaliation for their complaints on behalf of patients. Although these credentialing decisions are at the heart of the peer-review process, some doctors have pursued these whistleblower claims without first exhausting their peer-review remedies.

The doctors in these cases argue that being subjected to unwarranted peer-review proceedings is itself retaliatory conduct, so it makes no sense to require exhaustion of peer-review remedies. But hospitals and other defendants contend that Westlake mandates complete exhaustion and makes no exception for cases where whistleblowing allegations have been made.

Two of California's intermediate appellate courts have addressed doctors' ' 1278.5 whistleblower claims ' and have reached diametrically opposed results. The court in Nesson v. N. Inyo Cnty. Local Hosp. Dist., 204 Cal. App. 4th 65 (2012), applied the Westlake exhaustion rule and held (without much explanation) that a doctor's whistleblower claim was barred because he did not exhaust administrative remedies. But on materially similar facts, the court in Fahlen v. Sutter Cent. Valley Hosps., 208 Cal. App. 4th 557 (2012), held that exhaustion of
' 1278.5 claims is not required because the statute displaced Westlake's common-law exhaustion requirement.

Although they reached opposing results, both the Nesson and the Fahlen courts embraced all-or-nothing approaches. The courts either required exhaustion for all ' 1278.5 whistleblower claims or for none of them. Neither court appeared to consider the possibility that different species of ' 1278.5 claims could be treated differently. The conflict in the lower court opinions may convince the California Supreme Court to review the issue and to chart a middle course between the lower courts' all-or-nothing approaches. (The hospital in Fahlen filed a petition for review in the California Supreme Court. As this article was going to press, the court granted review and set the case for full briefing on the merits.)

Next month, we will consider one such middle course.

David M. Axelrad, Peder K. Batalden and H. Thomas Watson are all partners at Horvitz & Levy LLP, in Encino, CA.

Peer review is the process by which a hospital ' through committees of medical personnel and a board of trustees ' evaluates doctors applying for staff privileges, and assesses the performance of doctors on staff. Peer-review actions can include denying, modifying, or terminating staff privileges.

California's Legislature has endorsed peer review as a means of protecting the public from “those healing arts practitioners who provide substandard care or who engage in professional misconduct.” Cal. Bus. & Prof. Code ' 809(a)(6)-(7). “Hospital peer review, in the words of the Legislature, 'is essential to preserving the highest standards of medical practice' throughout California.” Kibler v. N. Inyo Cnty. Local Hosp. Dist. , 39 Cal. 4th 192, 199 (2006).

California's peer-review statutes were enacted in response to the federal Health Care Quality Improvement Act of 1986, 42 U.S.C. ' 11111 et seq. (HCQIA), in which Congress mandated “effective professional peer review.” The Act sought to “restrict the ability of incompetent physicians to move from State to State without disclosure or discovery of the physician's previous damaging or incompetent performance” by establishing a national database of adverse information about individual doctors, and requiring hospitals to check the database before granting medical staff privileges. Adverse credentialing decisions by hospitals are reported to the Medical Board of California, the agency responsible for licensing and disciplining doctors, which forwards such reports to the national database. See Cal. Bus. & Prof. Code ' 805(a)(7), (b)-(c) & (e).

Exhaustion of Remedies

The California Supreme Court has taken a keen interest in the peer-review process in recent years. The court has addressed numerous peer-review issues, including the statutory discovery immunity for peer-review materials ( Arnett v. Dal Cielo , 14 Cal. 4th 4 (1996)), the admissibility of peer review evidence at trial ( Fox v. Kramer , 22 Cal. 4th 531 (2000)), a hearing officer's authority to control the peer-review process ( Mileikowsky v. West Hills Hosp. & Med. Ctr. , 45 Cal. 4th 1259 (2009)), and the protected status of peer-review proceedings under the anti-SLAPP statute ( Kibler , 39 Cal. 4th 192).

One long-settled aspect of the California Supreme Court's peer-review jurisprudence is the exhaustion-of-remedies doctrine, which holds that a doctor aggrieved by a privileging decision must exhaust all available peer-review remedies before initiating a tort action. Westlake Cmty. Hosp. v. Superior Court , 17 Cal. 3d 465 (1976). In Westlake Cmty. Hosp., a doctor sought damages or reinstatement after a hospital terminated his staff privileges following peer-review proceedings. The court held that the doctor could not initiate an independent tort action until he first exhausted all internal remedies provided by hospital bylaws and, second, succeeded in setting aside the hospital's adverse decision in court in an administrative mandamus proceeding.

Whistleblower Claims and Peer Review

Recent litigation over a relatively new statute may cause California's Supreme Court to revisit the Westlake exhaustion rule and to examine whether an exception should be recognized. In 2007, the California Legislature added doctors to the list of persons in Health and Safety Code ' 1278.5 who may file whistleblower suits if they have been retaliated against for complaining to authorities about “suspected unsafe patient care and conditions.” Cal. Health & Saf. Code ' 1278.5(a). Some doctors have filed actions under this statute, claiming that hospitals have denied or terminated privileges in retaliation for their complaints on behalf of patients. Although these credentialing decisions are at the heart of the peer-review process, some doctors have pursued these whistleblower claims without first exhausting their peer-review remedies.

The doctors in these cases argue that being subjected to unwarranted peer-review proceedings is itself retaliatory conduct, so it makes no sense to require exhaustion of peer-review remedies. But hospitals and other defendants contend that Westlake mandates complete exhaustion and makes no exception for cases where whistleblowing allegations have been made.

Two of California's intermediate appellate courts have addressed doctors' ' 1278.5 whistleblower claims ' and have reached diametrically opposed results. The court in Nesson v. N. Inyo Cnty. Local Hosp. Dist. , 204 Cal. App. 4th 65 (2012), applied the Westlake exhaustion rule and held (without much explanation) that a doctor's whistleblower claim was barred because he did not exhaust administrative remedies. But on materially similar facts, the court in Fahlen v. Sutter Cent. Valley Hosps. , 208 Cal. App. 4th 557 (2012), held that exhaustion of ' 1278.5 claims is not required because the statute displaced Westlake's common-law exhaustion requirement.

Although they reached opposing results, both the Nesson and the Fahlen courts embraced all-or-nothing approaches. The courts either required exhaustion for all ' 1278.5 whistleblower claims or for none of them. Neither court appeared to consider the possibility that different species of ' 1278.5 claims could be treated differently. The conflict in the lower court opinions may convince the California Supreme Court to review the issue and to chart a middle course between the lower courts' all-or-nothing approaches. (The hospital in Fahlen filed a petition for review in the California Supreme Court. As this article was going to press, the court granted review and set the case for full briefing on the merits.)

Next month, we will consider one such middle course.

David M. Axelrad, Peder K. Batalden and H. Thomas Watson are all partners at Horvitz & Levy LLP, in Encino, CA.