While hospital medical staffs have traditionally handled most of California’s peer review activity, recent trends are forcing more and more medical groups to wrestle with reporting and fair hearing obligations when disciplining physicians—or else face costly litigation from doctors and six-figure fines from the Medical Board of California.

Broadly speaking, peer review is how healthcare entities—including medical groups—determine whether a physician is qualified to practice in a particular healthcare setting and perform ongoing assessments of that physician’s quality of care. California’s peer review scheme protects patients by requiring physician-affiliated entities to report substandard physicians to the Medical Board through what are called “805 reports.” It also protects competent practitioners from arbitrary or discriminatory actions by requiring fair hearing procedures before entities discipline physicians.

Peer review is now squarely within the province of medical groups. Hospitals and medical staffs, fearing litigation blowback from disciplined physicians, are increasingly calling on medical groups to discipline physicians internally, which in turn can trigger a medical group’s peer review obligations. As health systems become more motivated to play hot potato with problematic doctors, medical groups should be wary of imposing discipline on employed or contracted physicians without first assessing potential peer review obligations. Otherwise, even well-intentioned groups may unwittingly step into a peer review minefield.

That’s because the Medical Board, concerned that substandard physicians are falling through cracks in the reporting process, has increased enforcement against medical groups that do not file 805 reports after disciplining physicians. Not filing an 805 report can result in civil penalties of up to $100,000 levied against individuals within medical groups. And as the Medical Board faces increasing public criticism of lax enforcement, some commentators expect the agency will respond by doubling enforcement actions in the coming years.

Plaintiffs’ attorneys too are on the lookout for medical groups that don’t follow peer review procedures. These lawsuits can lead to multi-million dollar damages awards, even if there are good reasons for disciplining the physician. In this landscape, medical groups who ignore peer review risk getting bogged down in costly and drawn-out lawsuits and Medical Board enforcement actions.

Given these potential risks, it’s understandable that some medical groups look for ways to side-step peer review. But that’s no easy task. To close loopholes in the reporting process, California expanded the scope of peer review laws so that they apply to medical groups, a reality acknowledged by both the California Medical Association and American Medical Association. What’s more, fair hearing and reporting obligations can attach to any restriction of employment (no matter how slight) for any “medical disciplinary cause or reason” (a clunky term of art that boils down to anything that could reasonably be detrimental to patients). In clinical settings where just about any performance shortcoming or interpersonal rift can create theoretical risk for patients, the law’s sweeping scope means that even minor limitations on employment for reasons loosely related to patient care can trigger peer review obligations.

With the law’s broad scope, courts are skeptical of entities trying to short-circuit peer review through hyper-technical legal parsing. And medical groups can’t rely on medical staff processes to discharge their own obligations. Medical groups also can’t contract around their fair hearing obligations with otherwise-standard “no cause” termination provisions. Finally, even though medical groups under 25 physicians are not “peer review bodies” under the current law, the Medical Board recently asked the Legislature to change this by requiring all medical groups—regardless of size—to report any employment-related discipline due to a medical disciplinary cause or reason.

But it’s not all bad news. California and federal law both provide broad civil and criminal immunities for those involved in the peer review process. And courts are deferential to peer review decisions, making it difficult for many practitioners to succeed in lawsuits challenging discipline imposed through peer review. In most cases, potential plaintiffs must also exhaust administrative remedies—i.e., go through a full peer review hearing—before filing suit to seek relief from peer review discipline. These protections for defendants and hurdles for plaintiffs encourage medical groups to perform peer review and report physicians to the Medical Board by making it tougher for disciplined physicians to sue groups for doing so.

Understanding peer review obligations is crucial for medical groups in California, to both protect against risk and take advantage of immunities. Medical groups should work with counsel to (1) evaluate their peer review obligations, (2) adopt and implement appropriate peer review policies, (3) conduct case-by-case analyses for physician discipline, (4) ensure compliance with mandatory reporting statutes, (5) develop information sharing and common interest agreements with medical staffs, and (6) provide physicians a fair hearing when necessary.