California Governor Arnold Schwarzenegger signed Assembly Bill 632 into law on October 14, 2007, despite strong opposition from the California Hospital Association and the California Department of Health Care Services (formerly, the Department of Health Services). The legislation has the potential to burden medical staff peer review significantly, and in ways not seen since the enactment of Business and Professions Code section 809 et seq. in 1989.

AB 632 amends Health and Safety Code section 1278.5, a whistleblower protection originally intended for patients and healthcare facility employees. The legislation will make it easier for physicians who are subject to medical staff discipline to challenge that process without first exhausting administrative remedies. Among other consequences, it appears that in certain circumstances, physicians will be able to pursue a retaliation lawsuit while a peer review hearing is pending, something that until now was extraordinarily difficult for them to do.

By authorizing such lawsuits, AB 632 turns away from the result in Kibler v. Northern Inyo County Local Hosp. Dist., 39 Cal.4th 192 (2006). In Kibler, the Supreme Court of California held that because peer review proceedings are “official proceedings” and deserve special protections, physicians may not pursue Strategic Lawsuits Against Public Participation (also known as SLAPP suits) to combat matters born of a hospital’s peer review process. In Kibler, the court noted that “these meritless lawsuits seek to deplete ‘the defendant’s energy’ and ‘drain his or her resources.’ ” By preventing SLAPP suits in the early stages of litigation, the California Supreme Court highlighted the fact that defendants would be protected by a mechanism aimed at ending such frivolous law suits brought merely to obstruct the process of peer review early and without great cost to the defendant.

Making matters worse, AB 632 greatly undermines the well established rule that physicians must exhaust administrative remedies prior to bringing their claims to court. This rule has been repeatedly articulated in California medical staff case law over many years, including in Bollengier v. Doctors Medical Center, 222 Cal.App.3d 1115 (1990). There, the court explicitly held that a surgeon who sought a writ of mandamus to challenge the hospital’s suspension of his medical staff privileges, allegedly in violation of medical center's bylaws, was barred from seeking mandamus until after he first exhausted his administrative remedies.

AB 632 has the potential to weaken these peer review protections by giving physician plaintiffs a green light to pursue litigation at anytime during the peer review process over issues that would otherwise be controlled by the use of the anti-SLAPP motion or a motion based on the physician's failure to exhaust administrative remedies.

Below is a brief summary of the legislation:

What Is Prohibited?
AB 632 prohibits health facilities from discriminating or retaliating against a medical staff member because he/she has:

• “Presented a grievance, complaint, or report to the facility, to an entity or agency responsible for accrediting or evaluating the facility, or the medical staff of the facility, or to any other governmental entity.”
• “Initiated, participated, or cooperated in an investigation or administrative proceeding related to the quality of care, services, or conditions at the facility that is carried out by an entity or agency responsible for accrediting or evaluating the facility or its medical staff, or governmental entity.”

How Are The Law's Protections Triggered?
There is a rebuttable presumption that the action was taken to retaliate against the medical staff member if “responsible staff . . . had knowledge of the actions, participation, or cooperation of” the person responsible for the “discriminatory action” against the whistle-blowing physician, and that action occurs within 120 days of the physician's filing of his/her grievance or complaint or other activities described above.

“Discriminatory treatment” includes “suspension, or any unfavorable changes in, or breach of, the terms or conditions of a contract, employment, or privileges of the … member of the medical staff…, or the threat of any of these actions.”

Lawsuits During Peer Review Hearings
Physicians who are aggrieved under the new law can seek relief in court:

“A member of the medical staff who has been discriminated against pursuant to this section shall be entitled to reinstatement, reimbursement for lost income resulting from any change in the terms or conditions of his or her privileges caused by the acts of the facility or the entity that owns or operates a health facility or any other health facility that is owned or operated by that entity, and the legal costs associated with pursuing the case, or to any remedy deemed warranted by the court pursuant to this chapter or any other applicable provision of statutory or common law.”

As mentioned above, there is no assurance in the statute's language that the physician must wait until the peer review hearing is over before suing. In fact, the language contemplates that such a lawsuit would proceed parallel to a peer review hearing and includes a protection against the lawsuit's discovery process impeding the peer review process:

“The medical staff of the health facility may petition the court for an injunction to protect a peer review committee from being required to comply with evidentiary demands on a pending peer review hearing from the member of the medical staff who has filed an action pursuant to this section if the evidentiary demands from the complainant would impede the peer review process or endanger the health and safety of patients of the health facility during the peer review process.”

Among other things, this means that hospitals and their medical executive committees will be going to court in the middle of a peer review hearing to ask a judge to keep the hearing’s evidence out of the court litigation. More importantly, it also strongly suggests that the lawsuit can proceed while the hearing is under way.

The Arent Fox Health Law group will further analyze this legislation, its impact and possible ways in which to mitigate AB 632’s adverse impact on hospitals and medical staffs in an upcoming article posted on the Arent Fox website www.arentfox.com.

For more information, please contact:

Lowell Brown
brown.lowell@arentfox.com
213.443.7516

Sarah Benator
benator.sarah@arentfox.com
213.443.7518