45Journal of Health Care Compliance — May – June 2014

SETTLEMENTSJOHN R. FEORE, III

California Supreme Court Permits Physician Whistleblower Lawsuit against Hospital Prior to Exhaustion of Administrative Remedies

Impact on Hospital/Physician Relations and Peer Review Unclear

A t fi rst glance, a February decision by the California Supreme Court appears to throw a wrench into hospital discipline, the peer review process, and

employer/employee relations.1 The California Supreme Court affi rmed an appellate court’s ruling that a physi-cian is not required to exhaust all available administrative remedies before fi ling a whistleblower lawsuit against a hospital that has terminated the physician’s admitting privileges.2 Medical staff generally are required to exhaust the hospital’s administrative peer review process or seek a writ of mandamus prior to fi ling a lawsuit against a hos-pital for discrimination or wrongful termination. In this case, however, the physician sought judicial relief under California’s whistleblower statute governing health care facilities, claiming that the hospital’s administrative peer review process was itself the source of the discrimination.

Does the California Supreme Court’s decision ulti-mately harm the peer review process and serve as a detriment to physician participation? Will the relation-ship between hospital-employers and medical staff- employees take an even more litigious nature as a result of the court’s actions? The answer to these questions may not be as clear cut once the California whistle-blower statute and the court’s decision are dissected.

BACKGROUND

The California legislature provides whistleblower pro-tection to members of the medical staff of a health care

John R. Feore, III, is a member of Dentons’ Health Care practice, focus-ing on assisting clients in navigating

the federal health care regulatory and legislative arenas. With a par-ticular expertise in the Affordable

Care Act and the Medicare program, John advises clients on the impact of legislative proposals, proposed and fi nal regulations, agency guidance

and implementation of the Affordable Care Act. His experience allows him to serve clients’ needs through advocacy

on Capitol Hill, policy development, and the vital regulatory process that

infl uences how widespread legislative changes are implemented. He can be

reached at 202/408-3272 or by email at john.feore@dentons.com.

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facility who report suspected unsafe patient care and conditions.3 The whistleblower law implements the public policy goal of encouraging clinicians to notify govern-ment entities of suspected unsafe patient care and conditions.4 Specifi cally, the law provides that no health care facility shall discriminate or retaliate in any manner against any patient, employee, member of the medical staff, or any other health care worker because that person has presented a grievance, complaint, or report to the facility.5 Discrimination includes discharge or any unfavorable changes in the terms or conditions of a contract, employment, or privileges of the member of the medical staff.6 The statute provides the following remedies for members of the medical staff who have been discriminated against in violation of this law: reinstatement; reim-bursement for lost income resulting from any change in the terms or conditions of his or her privileges; legal costs; and any other applicable provision of statutory or common law.7

The plaintiff in this case is a kidney specialist who was granted nonprovisional staff privileges at a hospital operated by the defendant. Over the course of several years, plaintiff had several clashes with hospital nurses regarding patient care. After several of these clashes, plaintiff reported to the hospital administration that nurses had been insubordinate and provided substandard care. An ad hoc investigative committee recommended to the hospital’s medical executive commit-tee (MEC) that plaintiff lose his privileges at the hospital. A judicial review com-mittee (JRC) conducted an extensive evi-dentiary hearing over the course of eight months and reversed the MEC’s decision; however, the fi nal decision whether to ter-minate a physician’s staff privileges rests with the board of trustees, who reversed the JRC’s decision and terminated the plaintiff.

The plaintiff chose to fi le suit against the defendant, alleging a violation of the

California whistleblower statute, rather than seek judicial review of the board’s decision by means of a writ of mandamus. The plaintiff alleged that his staff privileges were terminated because of his complaints about insubordination by nurses and sub-standard nursing care, in retaliation for his reports, a clear violation of the whistle-blower protections afforded to the plaintiff by the California legislature.

In August 2012, the California Court of Appeals, Fifth Appellate District, held that the plaintiff must not fi rst prevail in an administrative mandamus proceeding to set the hospital’s termination decision aside before fi ling a civil suit under the California whistleblower law alleging that the hospi-tal’s quasi-judicial decision was wrongfully retaliatory.8 The California Supreme Court agreed to review this decision.

CALIFORNIA SUPREME COURT’S DECISION

In an earlier decision, Westlake Community Hosp. v. Superior Court, the California Supreme Court held that before a physi-cian may bring a common law tort action directed against a hospital’s allegedly mali-cious and wrongful quasi-judicial adminis-trative decision to terminate the physician’s staff privileges, he or she must fi rst exhaust all internal hospital procedures to reverse the decision and then prevail in court in a mandamus proceeding to have the deci-sion set aside.9

In the case at hand, the California Supreme Court had to determine whether a different rule applied to a statutory cause of action for whistleblower retaliation under the California Health and Safety Code. The court notes that “we have on several occasions found a clear legisla-tive intent, whether express or implicit, to permit a statutory whistleblower action without prior exhaustion of administrative and judicial remedies. We have done so even where the quasi-judicial administra-tive procedural issue was not, as here, an alleged instrument of retaliation, but was instead itself a forum specifi cally provided

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to address claims of retaliation accom-plished by other means.”10

The California Supreme Court states that section 1278.5 does not include an express or implied proviso that a protected individual who alleges retaliatory discrimi-nation cannot sue unless the claim is fi rst presented to an administrative body.11

The failure of the whistleblower statute to mention resorting to such an admin-istrative forum as a condition to suit is a signifi cant indicator that the California legislature did not contemplate such a precondition in this instance.12 In this particular case, the hospital’s peer review proceeding was not a potential admin-istrative remedy for the alleged retalia-tory treatment. In fact, it was the alleged instrument of the hospital’s discriminatory treatment.13

The court holds that the legislative his-tory supports the clear implications of the statutory language. Namely, a physician who claims a peer review committee’s fi nal disciplinary decision was an act in retali-ation for whistleblowing activity is not required to succeed in setting the decision aside by mandamus before bringing an action under section 1278.5.14

KEY THEMES AND TAKEAWAYS — THE “MIDDLE GROUND”The California Supreme Court was keenly aware of the potential implications of its decision. Opponents of the plaintiff’s stance argued that the peer review pro-cess would be less effective. Would peer review decisions simply be challenged in the courts as a retaliatory action against a physician whistleblower? How would this impact the effectiveness of peer review or the relationship between hospital employ-ers and physician employees?

Ultimately, the California Supreme Court discussed the ramifi cations of this case and the specifi c whistleblower statute, holding that the public policy implications of section 1278.5 outweighed the poten-tial negative consequences of the court’s

holding. It is important to serve the com-mon aim of both the statutory medical peer review process and the whistleblower protections provided by section 1278.5, that is, the safe and competent care of hos-pital patients.15 In this regard, the court’s decision is narrowly focused on whether a “physician who claims a hospital decision to restrict or terminate his staff privileges was an act in retaliation for his whistle-blowing in furtherance of patient care and safety need not seek and obtain a man-damus petition to overturn the decision before fi ling a civil action under section 1278.5.”16

In reality, there always exists a deli-cate balance between the care and safety of a health care facility’s patients versus employer/employee relations and the statutory provisions governing such rela-tionship. The California Supreme Court noted that “the balance of competing inter-ests is altered when the wrongful motive at issue is one specifi cally prohibited by statute, in the public interest, under a legislative policy that also seeks to safe-guard the health and safety of hospital patients.”17 The California whistleblower statute simply protects whistleblowers as a public policy goal espoused by the California legislature. The necessity and thoroughness of the peer review and quasi-judicial processes is not damaged. In fact, the California legislature acknowl-edged this concern, stating that the whis-tleblower protections “are not intended to confl ict with existing provisions in state and federal law relating to employee and employer relations.”18

Endnotes:1. Fahlen v. Sutter Central Valley Hospitals, --- P.3d --- (Cal.

2014) (NO. S205568).2. Id. 3. Cal. Health & Safety Code § 1278.5.4. Id. § 1278.5(a).5. Id. § 1278.5(b)(1).6. Id. § 1278.5(d)(2).7. Id. § 1278.5(g).8. Fahlen v. Sutter Cent. Valley Hospitals, 145 Cal.Rptr.3d

491 (Cal.App. 5 Dist. 2012) (NO. S205568).

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9. Westlake Community Hosp. v. Superior Court, 17 Cal.3d 465 (1976).

10. Sutter Central Valley Hospitals, --- P.3d ---. See Runyon v. Board of Trustees of California State University, 48 Cal.4th 760 (2010) and State Bd. Of Chiropractic Examiners v. Superior Court 45 Cal.4th 963 (2009).

11. Sutter Central Valley Hospitals, --- P.3d ---.

12. Id.13. Id.14. Id.15. Id.16. Id.17. Id.18. Cal. Health & Safety Code § 1278.5(a).

Reprinted from Journal of Health Care Compliance, Volume 16, Number 3, May-June 2014, pages 45–48, with permission from CCH and Aspen Publishers, Wolters Kluwer businesses.

For permission to reprint, e-mail permissions@cch.com.