A California Court of Appeal has held that physicians whose staff privileges have been terminated can sue the hospital without first seeking judicial review of a termination decision when the physician claims that the decision was in retaliation for his complaints of “suspected unsafe patient care and conditions.” The court’s holding makes it easier for physicians to bring whistleblower retaliation lawsuits and creates a new wrinkle for hospitals relying on the deference generally given to credentialing decisions by a peer review committee.

Fahlen v. Sutter Central Valley Hospitals involved a physician who complained to nursing supervisors and hospital administration about substandard or insubordinate nursing care after having several negative interactions and arguments with hospital nursing staff. Concerned about the physician’s interactions with the nurses, the hospital appointed an investigative committee to look into the matter. The investigative committee reported its findings to the hospital’s medical executive committee (MEC), which recommended termination of the physician’s privileges due to “disruptive” or “abusive” behavior towards staff and the investigative committee. The MEC informed the physician that he had a right to contest the decision, which he did. As a result, an evidentiary hearing, with an attorney as hearing officer, was conducted before a Judicial Review Committee (JRC) consisting of six physicians with staff privileges at the hospital. Although the JRC found the plaintiff’s conduct with nursing staff to be inappropriate and unacceptable, it did not find the physician professionally incompetent, and reversed the MEC’s decision. The JRC’s decision was then reversed by the hospital’s Board of Trustees, pursuant to the hospital’s bylaws which vest the final decision on the termination of medical staff privileges with the Board. The Board’s decision was sent to the Medical Board of California.

Under California law, a physician may seek reinstatement of privileges by filing a court petition for judicial review of a decision by an administrative body, such as a peer review committee or, as in this case, a hospital’s governing board. The physician in this case did not do so and instead filed suit against the hospital, seeking damages and reinstatement for alleged whistleblower retaliation and other violations. The hospital sought to dismiss the suit on the grounds that, among other things, the physician had failed to seek judicial review of the hospital’s decision to terminate his privileges. The trial court denied the motion and the hospital appealed.

The Court of Appeal acknowledged that the California Supreme Court had previously held, in a tort suit, that “a doctor must exhaust all available administrative remedies and successfully set aside the hospital’s final administrative determination through mandamus review before the doctor may pursue tort claims against the hospital.” The Court of Appeal distinguished Fahlen from the earlier California Supreme Court decision because, the court stated, that decision did not consider the exhaustion requirement in the context of medical peer review proceedings in which the physician is challenging the peer review proceeding itself as retaliatory.

Ultimately, however, the court’s decision seems to have been determined by public policy considerations. In this regard, the court stated that “[t]he Legislature’s intent in enacting section 1278.5 [the California whistleblower protection statute for medical staff members, nurses, and other healthcare workers] is clear: Medical personnel must be protected from retaliation when they report conditions that endanger patients. This policy of putting patients first would be undermined if retaliation victims had to pursue writ review before seeking the statute’s protection.” Thus the court held, “there is no requirement that a section 1278.5 plaintiff seek judicial review of administrative action taken in peer review proceedings as a precondition to a civil action under section 1278.5.”

As a result of Fahlen, California hospitals should be aware of the increased potential that physicians who lose staff privileges will assert whistleblower retaliation claims against the hospital.