Whistleblowing and Peer Review

Last month, we discussed the fact that 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. We stated that two of California's intermediate appellate courts addressed doctors' ' 1278.5 whistleblower claims ' with diametrically opposed results. The court in Nesson v. N. Inyo Cnty. Local Hosp. Dist., 204 Cal. App. 4th 65 (2012), applied the Westlake Cmty. Hosp. v. Superior Court, 17 Cal. 3d 465 (1976) 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 Exhaustion Doctrine

If the Fahlen court were correct in concluding that ' 1278.5 displaces the exhaustion doctrine enunciated in Westlake, the next task would be to identify the scope of that displacement. Does the statute completely displace the Westlake doctrine in all cases (as Fahlen assumes)? Or does the statute only partially displace the doctrine, and if so, in what circumstances? One way to assess the proper scope of displacement is to analyze the remedy a doctor seeks in a ' 1278.5 claim and whether defendants would need to raise issues of medical competence to prepare their defense. If neither the remedies sought nor the defenses pursued would touch on matters of medical competence or other core concerns of the peer-review process, then the purposes underlying the Westlake exhaustion doctrine and the whistleblower statute may not conflict, and exhaustion may be unnecessary. But ' 1278.5 claims should not be allowed to proceed if they would usurp the proper role of peer-review proceedings to ferret out medical incompetence.

Considering Public Policy

The appropriate starting point for this analysis is the important public policies underlying the exhaustion doctrine and the whistleblower statute.

Westlake justified the exhaustion requirement on the grounds that it would: 1) enable doctors to be judged in the first instance by their medical peers, rather than by lay jurors; 2) allow hospitals to eliminate or mitigate damages if privileges had been erroneously terminated or restricted; and 3) promote judicial economy by marshaling relevant evidence into a coherent record for later review. Westlake, 17 Cal. 3d at 476. In addition, requiring a doctor to overturn the final peer-review decision in a mandamus action: 1) accords proper respect for the quasi-judicial procedure provided under a hospital's bylaws; 2) creates a simple and uniform practice for reviewing the hospital's quasi-judicial decisions; and 3) incentivizes doctors to participate in the often thankless task of reviewing their peers. Id. at 484.

Some of these justifications for the exhaustion doctrine apply equally to whistleblower statutes. Both serve to promote patient safety and well-being, for example. But there are differences too. Whistleblower laws place a primary emphasis on protecting the speaker. A legislature generally intends whistleblower statutes to encourage workers “'to report unlawful acts without fearing retaliation.'” Soukup v. Law Offices of Herbert Hafif, 39 Cal. 4th 260, 287 (2006). The Westlake exhaustion doctrine, in contrast, is not primarily designed to protect doctors who speak out; the doctrine's primary objective is to fairly and correctly identify incompetent doctors through peer-review proceedings. The protective aspects of a whistleblower statute thus have the potential to clash with the truth-seeking aim of peer-review proceedings when a doctor alleges that a hospital stripped his privileges in response to his whistleblowing activities.

Section 1278.5 “encourage[s] ' members of the medical staff ' to notify government entities of suspected unsafe patient care and conditions.” Cal. Health & Saf. Code ' 1278.5(a). A hospital may not “discriminate or retaliate ' against any ' member of the medical staff ' because that person has ' ['] ' [p]resented a grievance, complaint, or report to the facility ' .” Id. ' 1278.5(b)(1)(A). “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 ' , 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.” Id. ' 1278.5(g).

Dealing with the Conflict

A doctor seeking certain remedies ' for example, reinstatement of his or her privileges ' will necessarily have to disprove the allegations underlying the decision to deny privileges. Yet those allegations lie at the heart of peer-review proceedings and have always been resolved through peer review. This presents the most direct conflict with the exhaustion doctrine, which forbids a doctor from initiating an independent court action where medical competency is at issue until after peer-review proceedings and administrative mandamus proceedings have been completed.

This conflict could be relieved by construing narrowly the scope of ' 1278.5's displacement of the exhaustion requirement. California law presumes that statutes do not impliedly repeal the common law, that statutes should be construed to avoid conflict with common law rules, and that displacement occurs only where there is no rational way to harmonize the two. See, e.g., Cal. Ass'n of Health Facilities v. Dep't of Health Servs., 16 Cal. 4th 284, 297 (1997).

Beginning with the statutory text, the legislature gave no indication in ' 1278.5 that it sought to displace the Westlake exhaustion doctrine entirely. For this reason, a court should not hold that whistleblower claimants need never exhaust administrative remedies. A rule entirely relieving a whistleblower claimant from exhausting remedies would carry the potential for undesirable collateral estoppel effects in any event. A jury could return a verdict for a doctor in a ' 1278.5 action seeking reinstatement of privileges before peer-review proceedings are complete, causing the latter to be collaterally estopped. See generally Runyon v. Bd. of Trs. of Cal. State Univ., 48 Cal. 4th 760, 773-74 (2010) (explaining the collateral estoppel relationship between quasi-judicial administrative decisions and related whistleblower actions). Thwarting peer review proceedings in this fashion would deviate from the deeply-rooted policy that decisions about a doctor's medical competence should be made by medical peers. See, e.g., Cal. Bus. & Prof. Code ' 805; Mileikowsky, 45 Cal. 4th at 1271 (“The purpose of providing a physician with a review of the peer review committee's recommendation is to secure for the physician an independent review of that recommendation by a qualified person or entity, here the reviewing panel.”). It would also appear to violate the legislature's intention that ' 1278.5 whistleblower actions not disrupt peer review: “Nothing in this section shall be construed to limit the ability of the medical staff to carry out its legitimate peer review activities.” Cal. Health & Saf. Code ' 1278.5(l).

That is hardly the end of the matter. There are hints that the legislature intended to displace the exhaustion doctrine in some instances. For example, one statutory subsection authorizes a hospital to seek “an injunction” of a whistleblower's discovery requests “if the evidentiary demands from the complainant would impede the peer review process or endanger the health and safety of patients of the health facility during the peer review process.” Id. ' 1278.5(h). In effect, this provision enables a court to prevent one pending proceeding from interfering with another. The very fact that the legislature saw fit to enact a provision “refereeing” between competing peer-review and whistleblower proceedings tends to suggest that the two may proceed simultaneously in at least some circumstances. What might those circumstances be?

The proper dividing line between whistleblower claims that do and do not require exhaustion is whether pursuing the claim could interfere with proper peer-review proceedings. The remedies available to a doctor-whistleblower are broad (Id.
' 1278.5(g) & (m)), and some remedies would require a fact-finder to pass upon allegations relating to the doctor's medical competence. Those are core concerns of peer-review activity, so ' 1278.5 claims of this type should await exhaustion; those allegations can be addressed more efficiently and expertly through the peer-review process. Claims of this type would include those seeking reinstatement of privileges, or money damages resulting from the denial of privileges. In addition, some ' 1278.5 claims will elicit causation defenses by hospitals mirroring their peer-review positions. For example, a hospital may intend to defend itself on the ground that it denied privileges because of a doctor's medical incompetence, not because the doctor had made a whistleblower report. Resolving that defense would embroil the fact-finder in issues concerning medical competence that should be reserved for peer review.

Conversely, if no aspect of a doctor's ' 1278.5 claim requires an assessment of medical competence issues, the claim could proceed without exhaustion of peer-review proceedings. Claims of this type might include suits seeking only the $25,000 civil penalty that constitutes a reward for whistleblowers who report unsafe patient care. Id. ' 1278.5(b)(3). If, for example, a hospital retaliated against a doctor who made a whistleblower report by withholding his fees, revoking his parking pass, or taking other actions unrelated to the doctor's medical competence, the doctor could seek the civil penalty without either side having to address competence issues in resolving the ' 1278.5 claim. The purposes undergirding the Westlake doctrine would not be impinged by excusing exhaustion of a claim having nothing to do with medical competence. In this fashion, a court could accommodate the legislature's arguable intent to displace the exhaustion doctrine without construing the scope of displacement so broadly that it would undermine the proper role of peer-review proceedings.

Avoiding a broad construction of ' 1278.5 would also limit the instances in which it might be preempted by the federal Healthcare Quality Improvement Act of 1986 (HCQIA). See Viva! Int'l Voice for Animals v. Adidas Promotional Retail Operations, Inc., 41 Cal. 4th 929, 936 (2007) (holding that a state law that “stands as an obstacle to the accomplishment and execution of the full purpose and objectives” of a federal law is preempted). To encourage effective peer review, HCQIA entitles peer reviewers to assert a qualified immunity from damages. 42 U.S.C. ' 11111(a). If a doctor sued for damages under ' 1278.5 alleging a retaliatory loss of privileges ' without exhausting peer review remedies ' a defendant peer reviewer might assert HCQIA immunity. To preserve as much of ' 1278.5 from federal preemption as possible, courts should narrowly construe the statute to allow a whistleblower claim to proceed independent of peer review only when that claim does not concern issues of medical competence.

Conclusion

Whether doctors' ' 1278.5 claims constitute an exception to the Westlake exhaustion doctrine is an important issue. California's intermediate appellate courts are divided, and the Supreme Court may review the issue before long. If the Supreme Court were to accept that ' 1278.5 displaces the common-law Westlake doctrine, the court should construe the scope of that displacement as narrowly as possible and harmonize, where possible, the various policies underlying the exhaustion doctrine, HCQIA, and the whistleblower statute.

Last month, we discussed the fact that 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. We stated that two of California's intermediate appellate courts addressed doctors' ' 1278.5 whistleblower claims ' with diametrically opposed results. The court in Nesson v. N. Inyo Cnty. Local Hosp. Dist. , 204 Cal. App. 4th 65 (2012), applied the Westlake Cmty. Hosp. v. Superior Court , 17 Cal. 3d 465 (1976) 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 Exhaustion Doctrine

If the Fahlen court were correct in concluding that ' 1278.5 displaces the exhaustion doctrine enunciated in Westlake, the next task would be to identify the scope of that displacement. Does the statute completely displace the Westlake doctrine in all cases (as Fahlen assumes)? Or does the statute only partially displace the doctrine, and if so, in what circumstances? One way to assess the proper scope of displacement is to analyze the remedy a doctor seeks in a ' 1278.5 claim and whether defendants would need to raise issues of medical competence to prepare their defense. If neither the remedies sought nor the defenses pursued would touch on matters of medical competence or other core concerns of the peer-review process, then the purposes underlying the Westlake exhaustion doctrine and the whistleblower statute may not conflict, and exhaustion may be unnecessary. But ' 1278.5 claims should not be allowed to proceed if they would usurp the proper role of peer-review proceedings to ferret out medical incompetence.

Considering Public Policy

The appropriate starting point for this analysis is the important public policies underlying the exhaustion doctrine and the whistleblower statute.

Westlake justified the exhaustion requirement on the grounds that it would: 1) enable doctors to be judged in the first instance by their medical peers, rather than by lay jurors; 2) allow hospitals to eliminate or mitigate damages if privileges had been erroneously terminated or restricted; and 3) promote judicial economy by marshaling relevant evidence into a coherent record for later review. Westlake, 17 Cal. 3d at 476. In addition, requiring a doctor to overturn the final peer-review decision in a mandamus action: 1) accords proper respect for the quasi-judicial procedure provided under a hospital's bylaws; 2) creates a simple and uniform practice for reviewing the hospital's quasi-judicial decisions; and 3) incentivizes doctors to participate in the often thankless task of reviewing their peers. Id. at 484.

Some of these justifications for the exhaustion doctrine apply equally to whistleblower statutes. Both serve to promote patient safety and well-being, for example. But there are differences too. Whistleblower laws place a primary emphasis on protecting the speaker. A legislature generally intends whistleblower statutes to encourage workers “'to report unlawful acts without fearing retaliation.'” Soukup v. Law Offices of Herbert Hafif , 39 Cal. 4th 260, 287 (2006). The Westlake exhaustion doctrine, in contrast, is not primarily designed to protect doctors who speak out; the doctrine's primary objective is to fairly and correctly identify incompetent doctors through peer-review proceedings. The protective aspects of a whistleblower statute thus have the potential to clash with the truth-seeking aim of peer-review proceedings when a doctor alleges that a hospital stripped his privileges in response to his whistleblowing activities.

Section 1278.5 “encourage[s] ' members of the medical staff ' to notify government entities of suspected unsafe patient care and conditions.” Cal. Health & Saf. Code ' 1278.5(a). A hospital may not “discriminate or retaliate ' against any ' member of the medical staff ' because that person has ' ['] ' [p]resented a grievance, complaint, or report to the facility ' .” Id. ' 1278.5(b)(1)(A). “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 ' , 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.” Id. ' 1278.5(g).

Dealing with the Conflict

A doctor seeking certain remedies ' for example, reinstatement of his or her privileges ' will necessarily have to disprove the allegations underlying the decision to deny privileges. Yet those allegations lie at the heart of peer-review proceedings and have always been resolved through peer review. This presents the most direct conflict with the exhaustion doctrine, which forbids a doctor from initiating an independent court action where medical competency is at issue until after peer-review proceedings and administrative mandamus proceedings have been completed.

This conflict could be relieved by construing narrowly the scope of ' 1278.5's displacement of the exhaustion requirement. California law presumes that statutes do not impliedly repeal the common law, that statutes should be construed to avoid conflict with common law rules, and that displacement occurs only where there is no rational way to harmonize the two. See, e.g., Cal. Ass'n of Health Facilities v. Dep't of Health Servs. , 16 Cal. 4th 284, 297 (1997).

Beginning with the statutory text, the legislature gave no indication in ' 1278.5 that it sought to displace the Westlake exhaustion doctrine entirely. For this reason, a court should not hold that whistleblower claimants need never exhaust administrative remedies. A rule entirely relieving a whistleblower claimant from exhausting remedies would carry the potential for undesirable collateral estoppel effects in any event. A jury could return a verdict for a doctor in a ' 1278.5 action seeking reinstatement of privileges before peer-review proceedings are complete, causing the latter to be collaterally estopped. See generally Runyon v. Bd. of Trs. of Cal. State Univ. , 48 Cal. 4th 760, 773-74 (2010) (explaining the collateral estoppel relationship between quasi-judicial administrative decisions and related whistleblower actions). Thwarting peer review proceedings in this fashion would deviate from the deeply-rooted policy that decisions about a doctor's medical competence should be made by medical peers. See, e.g., Cal. Bus. & Prof. Code ' 805; Mileikowsky, 45 Cal. 4th at 1271 (“The purpose of providing a physician with a review of the peer review committee's recommendation is to secure for the physician an independent review of that recommendation by a qualified person or entity, here the reviewing panel.”). It would also appear to violate the legislature's intention that ' 1278.5 whistleblower actions not disrupt peer review: “Nothing in this section shall be construed to limit the ability of the medical staff to carry out its legitimate peer review activities.” Cal. Health & Saf. Code ' 1278.5(l).

That is hardly the end of the matter. There are hints that the legislature intended to displace the exhaustion doctrine in some instances. For example, one statutory subsection authorizes a hospital to seek “an injunction” of a whistleblower's discovery requests “if the evidentiary demands from the complainant would impede the peer review process or endanger the health and safety of patients of the health facility during the peer review process.” Id. ' 1278.5(h). In effect, this provision enables a court to prevent one pending proceeding from interfering with another. The very fact that the legislature saw fit to enact a provision “refereeing” between competing peer-review and whistleblower proceedings tends to suggest that the two may proceed simultaneously in at least some circumstances. What might those circumstances be?

The proper dividing line between whistleblower claims that do and do not require exhaustion is whether pursuing the claim could interfere with proper peer-review proceedings. The remedies available to a doctor-whistleblower are broad (Id.
' 1278.5(g) & (m)), and some remedies would require a fact-finder to pass upon allegations relating to the doctor's medical competence. Those are core concerns of peer-review activity, so ' 1278.5 claims of this type should await exhaustion; those allegations can be addressed more efficiently and expertly through the peer-review process. Claims of this type would include those seeking reinstatement of privileges, or money damages resulting from the denial of privileges. In addition, some ' 1278.5 claims will elicit causation defenses by hospitals mirroring their peer-review positions. For example, a hospital may intend to defend itself on the ground that it denied privileges because of a doctor's medical incompetence, not because the doctor had made a whistleblower report. Resolving that defense would embroil the fact-finder in issues concerning medical competence that should be reserved for peer review.

Conversely, if no aspect of a doctor's ' 1278.5 claim requires an assessment of medical competence issues, the claim could proceed without exhaustion of peer-review proceedings. Claims of this type might include suits seeking only the $25,000 civil penalty that constitutes a reward for whistleblowers who report unsafe patient care. Id. ' 1278.5(b)(3). If, for example, a hospital retaliated against a doctor who made a whistleblower report by withholding his fees, revoking his parking pass, or taking other actions unrelated to the doctor's medical competence, the doctor could seek the civil penalty without either side having to address competence issues in resolving the ' 1278.5 claim. The purposes undergirding the Westlake doctrine would not be impinged by excusing exhaustion of a claim having nothing to do with medical competence. In this fashion, a court could accommodate the legislature's arguable intent to displace the exhaustion doctrine without construing the scope of displacement so broadly that it would undermine the proper role of peer-review proceedings.

Avoiding a broad construction of ' 1278.5 would also limit the instances in which it might be preempted by the federal Healthcare Quality Improvement Act of 1986 (HCQIA). See Viva! Int'l Voice for Animals v. Adidas Promotional Retail Operations, Inc. , 41 Cal. 4th 929, 936 (2007) (holding that a state law that “stands as an obstacle to the accomplishment and execution of the full purpose and objectives” of a federal law is preempted). To encourage effective peer review, HCQIA entitles peer reviewers to assert a qualified immunity from damages. 42 U.S.C. ' 11111(a). If a doctor sued for damages under ' 1278.5 alleging a retaliatory loss of privileges ' without exhausting peer review remedies ' a defendant peer reviewer might assert HCQIA immunity. To preserve as much of ' 1278.5 from federal preemption as possible, courts should narrowly construe the statute to allow a whistleblower claim to proceed independent of peer review only when that claim does not concern issues of medical competence.

Conclusion

Whether doctors' ' 1278.5 claims constitute an exception to the Westlake exhaustion doctrine is an important issue. California's intermediate appellate courts are divided, and the Supreme Court may review the issue before long. If the Supreme Court were to accept that ' 1278.5 displaces the common-law Westlake doctrine, the court should construe the scope of that displacement as narrowly as possible and harmonize, where possible, the various policies underlying the exhaustion doctrine, HCQIA, and the whistleblower statute.