The California Supreme Court has issued a much-awaited decision in an important peer review case, Fahlen v. Sutter Central Valley Hospitals. In a decision that may well dramatically change the landscape of medical staff peer review, the Court unanimously held that if a physician claims an adverse peer review action was taken in retaliation against him or her for reporting quality of care issues, the physician may file a civil whistleblower lawsuit challenging the adverse action without first exhausting the available administrative and legal remedies. This is a significant departure from long-established law and raises a number of critical issues for hospitals and their medical staffs to consider in future peer review proceedings.

Background

The plaintiff in Fahlen was a physician who, after being denied reappointment by a final decision of a hospital’s board, filed a lawsuit challenging that adverse decision without first obtaining court review through a writ of mandate proceeding. The lawsuit included a number of statutory and common law claims that California courts have long held are precluded unless and until an adverse peer review action has been overturned through a writ proceeding. But the lawsuit also included a whistleblower claim under Health & Safety Code Section 1278.5, relying on a 2007 amendment to that statute that added physicians to the list of individuals authorized to bring a claim of alleged retaliation for reporting quality of care concerns.

After the trial court refused to dismiss these claims, the hospital appealed. While the Court of Appeal agreed with the hospital that the majority of the physician’s claims were barred by his failure to seek a writ of mandate, it held that the whistleblower claim under Section 1278.5 was not subject to the longstanding exhaustion of remedies requirement. The California Supreme Court accepted review to address this issue.

The Supreme Court’s Ruling

In a unanimous decision, the Supreme Court ruled that Section 1278.5 authorizes a physician to proceed with a statutory claim of retaliation without exhausting administrative remedies and, if the claim is based on a final adverse decision by the hospital’s board, without first overturning that adverse decision through a writ of mandamus. This creates a significant exception to existing law, as hospitals and their medical staffs now face the potential of an immediate civil lawsuit any time a peer review proceeding is initiated against a physician who has complained about any quality of care issues.

Indeed, as the Court emphasized in discussing the statute, a physician may bring such a lawsuit even before a peer review proceeding has been completed — thus leading to parallel peer review and civil litigation proceedings. Among other things, this means that at the same time that a medical staff peer review hearing is under way, there may also be civil litigation under way involving the same matters as the peer review hearing. Witnesses in the hearing, for example, may also find themselves subpoenaed for depositions or other discovery efforts in the litigation.

Significantly, however, although the Supreme Court confirmed any physician’s ability to bring a whistleblower claim, it also recognized a number of important factors that will affect the same physician’s ability ultimately to prevail on such a claim. These factors include: the existence of legitimate quality-of-care grounds for the adverse peer review action in addition to the alleged retaliatory motive; the immunities provided to members of a peer review committee under Civil Code Section 43.7; and the sweeping immunities provided under the federal Health Care Quality Improvement Act (HCQIA). Additionally, the Court noted that findings made and issues determined by the hospital board in a final peer review decision may have a “preclusive effect” in related whistleblower lawsuits. In other words, for example, if a hearing committee and hospital board finds that no retaliation took place, or that a physician truly is a danger to patients, that finding may prevent the physician from proving otherwise in the whistleblower case.

The Impact of Fahlen on Future Peer Review

The Fahlen decision alters the landscape of peer review any time the physician in question has complained about quality of care or patient safety issues. Because physicians subject to peer review discipline often make such complaints — typically in an attempt to shift the blame to others for their behavioral or competency issues — the threat of a retaliation lawsuit will now hang over nearly every peer review action.

Still, although hospitals may be unable to avoid being dragged into court to face meritless whistleblower claims, there are several steps they can take to increase the likelihood of gettingout of court quickly.  

  1. Investigate promptly and vigorously every complaint by a physician regarding quality of care issues — even if it is quickly apparent that the complaint is not valid. By conducting a thorough investigation confirming the complaint’s invalidity, the hospital will have a far better defense to a later claim of retaliation.  
  2. Carefully evaluate at the outset of any peer review proceeding the factors necessary to establish immunity under HCQIA and California Civil Code Section 43.7 — and be sure that those factors are being met. Because these statutory immunities will often provide the best defense to a whistleblower claim, it will be critical that the peer review is conducted in a such a way as to trigger those immunities.  
  3. Be sure the board’s final peer review decision addresses any quality of care complaints made by the physician. As the Supreme Court noted, it is possible that findings made, and issues determined, by a hospital board in a final peer review decision will be given preclusive effect in a subsequent whistleblower lawsuit. Thus, if there is a history of complaints by the physician, those complaints might be investigated and addressed during the peer review hearing, and the board’s final decision should include findings regarding (a) whether those complaints had any merit, and (b) whether the peer review proceeding was retaliatory in any way. Findings against the physician on these issues may then preclude a subsequent whistleblower claim.  

As the Supreme Court noted, the Fahlen decision leaves much to be determined by future court decisions regarding how this new whistleblower action will interact with longstanding legal principles governing peer review. It will thus be more important than ever for hospitals and their medical staffs to involve legal counsel as early as possible in any peer review proceeding.