California’s Supreme Court has ruled that a physician who reported concerns related to patient treatment and subsequently was fired did not have to first seek and obtain a mandamus judgment setting aside the hospital’s decision before suing the hospital in state court. Fahlen v. Sutter Central Valley Hospitals, Supreme Court of California, No. S205568, February 20, 2014.

Typically, a physician may not bring a legal action directed against a hospital’s internal decision to terminate staff privileges unless he or she exhausts all internal hospital procedures in place for review of that decision. In addition, under California state law, if the ultimate internal decision is unfavorable, the physician must prevail in a mandamus proceeding to have the termination decision set aside before filing a separate lawsuit against the hospital.

In 2004, physician Mark T. Fahlen, a kidney specialist with Gould Medical Group (Gould) in Modesto, California at the time, was granted staff privileges by a hospital owned by Sutter Central Valley Hospital (Sutter). During the course of his practice, Fahlen argued on a number of occasions with hospital nurses who, he alleged, failed to follow patient treatment instructions. Several times, he reported to nursing supervisors, and in writing to the hospital’s administrators, that the nurses had been insubordinate and had provided substandard care.

In 2008, the hospital’s chief operating officer contacted Gould’s medical director about Fahlen’s “disruptive interactions” with hospital staff, admittedly hoping Fahlen would be fired by Gould. Gould did, in fact, terminate Fahlen’s employment on May 14, 2008. As a result, Fahlen’s medical malpractice insurance was cancelled, which precluded him from treating patients at the hospital.

When Fahlen asked the hospital about the status of his privileges, he was told that he should resign and leave town, or the hospital would begin an investigation into his behavior that could result in a report to California’s Medical Board. When Fahlen failed to resign, the hospital convened an investigative committee. That committee presented a report to the medical executive committee (MEC) which, in turn, reviewed the issue and recommended against the renewal of Fahlen’s hospital privileges. Fahlen was notified of the decision and of his right to contest it.

In response to Fahlen’s request for further hearing, the MEC sent a letter to Fahlen with a statement of charges, including 17 incidents of “disruptive behavior” between 2004 and 2008, and one incident of “abusive and contentious” behavior in 2008 with the investigating committee. The letter also informed Fahlen that a judicial review committee (JRC) would conduct a review hearing under the hospital’s bylaws.

After a 13-session hearing between October 2009 and May 2010, the JRC reversed the MEC’s decision, finding that the evidence failed to show that Fahlen was professionally incompetent or that he had endangered patient care by his behavior. In addition, the JRC found that while several of Fahlen’s interactions with nurses had been inappropriate, the hospital should have intervened sooner. According to the JRC, the hospital also should have considered “intermediate steps” short of loss of privileges.
The JRC’s decision was conveyed to the hospital’s board of trustees (Board), the final decision-maker regarding staff privileges. The Board reversed the JRC.

Fahlen did not seek judicial review of the Board’s decision by petition for writ of mandamus to set aside the decision, as required by California law. Instead, he filed a lawsuit against Sutter and a number of individual decision-makers, alleging that the hospital’s action to terminate his privileges action had been taken in retaliation for his complaints about “substandard, insubordinate and unprofessional nursing care he had observed . . . [which had] endangered patient care and patient safety.” Fahlen sought reinstatement to the hospital’s medical staff, along with monetary compensation.

The defendants attempted to have the case dismissed based upon Fahlen’s failure to exhaust the internal procedure and the mandamus action, in accordance with California law. But the trial court determined that the case should go forward, finding that Fahlen’s suit was based upon “disciplinary activity,” and not on any activity on the part of the hospital that was protected by state law.

On appeal, an intermediate appellate court dismissed certain of the counts brought by Fahlen, but allowed the case to go forward to the state’s Supreme Court on the question of “whether, before a physician may commence a civil suit alleging that the hospital’s quasi-judicial decision to terminate the physician’s staff privileges was wrongfully retaliatory, the physician must first prevail in an administrative mandamus proceeding to set the decision aside.”

The Court determined that a successful mandamus attack on the hospital’s decision regarding Fahlen’s privileges is not a necessary condition to the filing of a civil suit under California’s whistleblower statute.
This decision is of concern to hospitals and healthcare system that rely on the state court protections accorded to internal procedures regarding peer review and credentialing decisions. What the decision means, in short, is that a physician viewed as disruptive by a hospital can circumvent certain steps of the legally mandated review process by claiming that the process itself was initiated in retaliation for actions or reports that fall within the parameters of those protected by the state’s whistleblower statute.

While this decision currently is limited to California-based entities, it is part of a continuing trend that has loosened the state court protection for hospital peer review and credentialing processes. Healthcare employers should insure that such processes are implemented for actions or behaviors related to patient care, and that any concerns or reports made by an individual under review should be investigated and acted upon aside and apart from the peer review process against that individual.