On October 28, 2008, the California Supreme Court denied Selma Community Hospital’s petition for review in Smith v. Selma Community Hospital (2008) 162 Cal.App.4th 1478.  When the California Court of Appeal published Smith on July 21, 2008, peer reviewers initially feared medical staffs would be barred from relying on the findings and decisions of judicial review committees (JRC) at other hospitals. That concern, however, is hardly Smith’s worst threat to medical staff peer review hearings. Smith threatens to weaken the hospital medical staff peer review process in California in a wide variety of ways, because the decision:

• rewrites settled law regarding the role and authority of hospital governing bodies in peer review hearings – significantly diminishing a governing body’s ability to use its independent judgment to reverse or modify the holding of a judicial review committee with which it disagrees;  
• imposes on hospital governing boards an unreasonably high standard, by requiring that courts review the peer review determinations of those bodies as if the governing boards were courts, and not committees of lay volunteers; 
• severely discourages settlement discussions arising from peer review hearings, further drawing out an already lengthy and costly review process; and
• severely limits a hospital’s ability to rely on the findings of a judicial review committee of another hospital, even when both hospitals have the same governing board, which is familiar with (and may already have decided) the issues in question.

Medical staffs and hospital governing bodies can take steps to mitigate Smith’s damaging reach. The steps discussed below require careful review and revision of medical staff bylaw provisions that left unchanged might otherwise undermine medical staffs’ and hospital governing bodies’ ability to carry out their duties and obligations to ensure quality care through the peer review hearing processes.

I. Facts:

In Smith, Hanford Community Hospital and Central Valley General Hospital (the Hanford Hospitals), which are sister facilities in the Adventist Health System and have a consolidated medical staff, summarily suspended Dr. Brenton Smith, and then recommended denial of his application for reappointment to the medical staff. Smith appealed and a judicial review committee confirmed both the summary suspension and the recommended denial of his application, based on the judicial review committee’s specific findings of deficient clinical care, falsification of records and abusive behavior to patients and staff. Smith appealed to the single governing board for the two hospitals. The board rejected his appeal and affirmed the judicial review committee's decision. 

Smith was also on staff at Selma Community Hospital (Selma), another Adventist Health System facility. The Selma Medical Executive Committee (MEC) took action against Smith, summarily suspending him and recommending his summary termination at Selma based on his termination from the Hanford Hospitals. The MEC was so concerned by the events that led to his termination at the Hanford Hospitals that it relied solely on the decision of that judicial review committee as the basis for its action at Selma – even though Smith had not evidenced any problems at Selma. 

The MEC rescinded its action to suspend him and proceeded with its recommendation to terminate his membership and clinical privileges. When settlement negotiations between Selma and Smith failed, Smith had a full judicial review committee hearing on the recommendation to terminate him from the Selma Medical Staff. 

During the hearing, Smith was allowed to enter evidence of those settlement negotiations against the objections of the MEC and their concerns that such evidence would severely bias the hearing panel against them. The Selma judicial review committee disagreed with the MEC’s action and found there was not a preponderance of evidence to support a finding that the MEC’s recommendation to terminate Smith was reasonable and warranted. Instead, it found in favor of Smith, concluding that the MEC could not rely solely on the findings of a judicial review committee at another hospital absent any evidence of quality or behavioral concerns at Selma. 

The MEC appealed the decision to the Selma governing board. The governing board, already very familiar with Smith due to his appeal from the Hanford Hospitals judicial review committee decision, reversed the Selma judicial review committee’s decision and upheld the MEC’s recommendation to terminate Smith’s Selma medical staff membership and clinical privileges. Smith filed a writ of administrative mandamus. In June 2006, the superior court filed a judgment granting a peremptory writ of mandamus. The writ directed Selma to set aside the decision of the appeal board, and reinstate the decision of the Selma judicial review committee. Selma appealed.

The Court of Appeal affirmed the trial court’s holding that the judicial review committee in this particular case was not required to treat as conclusive the findings of another judicial review committee and rely solely on those findings to support the MEC’s actions, because Smith had no problems at Selma. The court further held that evidence of settlement negotiations is admissible in peer review hearings because the rules of evidence do not apply in these administrative hearings. Finally, the court held that a court’s review of a governing board’s appellate review and final decision in a peer review matter must satisfy technical legal requirements and can be reversed based on a finding that the governing board committed legal error during its review of a matter. The court’s holding set aside the high level of deference courts historically give to governing board decisions in these matters.

II. Steps to Mitigate Smith’s Reach

The decision in Smith further burdens California’s already strained peer review processes and will directly impact the way hospitals’ medical executive committees and governing boards conduct peer review hearings and appellate review. Below we discuss ways to mitigate the decision’s negative effects.

A.        Problem
Smith Subjects Hospital Governing Boards To Unreasonably High Standards Of Review By Requiring Them To Act As If They Are Courts

The Smith court announced that it was “slightly expanding” the long settled standard for judicial review of a governing board’s appellate review. Instead, the court totally transformed the standard into a searching review of every aspect of the governing body’s decision, as if that body – a committee of laypersons – were a court. In other words, abandoning any limited role in determining whether or not the Selma Governing Board used and properly applied the correct standard of review, the Smith decision improperly requires the governing body to select and apply technical legal standards to its review of judicial review committee decisions. The holding in Smith will subject appellate decisions by hospital governing board to these same high standards, increasing those bodies’ need for legal counsel to guide them through such reviews and exposing decisions to reversal by reviewing courts that find legal error in hospital boards’ final decisions. 

Possible Resolution

Governing Boards Need to Remove the Substantial Evidence Standard of Review To Mitigate This Threat Of Reversal

In Smith the medical staff bylaws authorized the hospital board to use the substantial evidence standard in its review of the JRC decision. This standard requires the governing board to affirm the decision of a JRC if there is any evidence in the record to substantiate the decision – even if the governing board does not agree with a JRC’s interpretation of such evidence. 

Instead, medical staffs and governing bodies should review and revise their medical staff bylaws to ensure that the governing board may exercise its independent judgment when reviewing the findings and decision of a JRC. This way, the governing board can make its own judgments with respect to what the evidentiary record shows and base its decision on its independent interpretation of such evidence. Of course, any interpretation of evidence must be reasonable in order to avoid later reversal by a court. 

B.         Problem

Hospitals’ Medical Executive Committees Will Be Discouraged from Seeking to Negotiate Settlements With Physicians In Order To Avoid Costly Peer Review Hearings 

The Smith court’s holding that evidence of settlement negotiations is admissible in peer review hearings will discourage the parties from finding workable solutions to their disagreements. Without taking special precautions, hospitals would be ill-advised to run the risks associated with engaging in discussions about how to resolve their differences amicably with a physician. Based on the Smith court’s holding, either party to the proceeding may use those statements against the other to gain an advantage in the hearing. The parties will not engage in settlement discussions knowing that offers to compromise may be used against them in the hearing. That is why excluding evidence of settlement negotiations from peer review hearings has always been an essential tool for parties to use in an attempt to avoid drawn out, lengthy and expensive hearing processes. The holding in Smith may have gravely damaged this important tool.

Possible Resolution

Medical staffs and hospital governing bodies have two options for resolving this problem. First, medical staff bylaws can be revised to include a provision that states explicitly that information revealed in settlement negotiations by either party is inadmissible in the peer review hearing or any subsequent judicial action taken by either party. Second, prior to engaging in any settlement negotiations, both parties should agree in writing to such inadmissibility. Until such time as medical staff bylaws can be revised to include this provision, medical executive committees and hospital governing bodies are wise to require such written agreements.

C.        Problem:

Medical Executive Committees May Not Be Able to Rely on the Findings of Judicial Review Committees at Other Hospitals – Even Hospitals In Their Own Health System

The Smith court partially limited its decision regarding the extent to which a medical executive committee may rely solely on the facts and decisions of another judicial review committee as a conclusive basis on which to take action against a physician.  This problem is especially pertinent to large hospital systems that have sister facilities where physicians are frequently on several different medical staffs in the same system. Like the Adventist Health System board governing its hospitals in Smith, even when a governing board has upheld as conclusive the findings of a judicial review committee against a physician at one of the hospitals it oversees, the board cannot necessarily require future judicial review committees at any of its other hospitals to treat those same exact findings as conclusive and as a sufficient basis to take adverse action against a physician. This will severely undermine the governing board’s ability to ensure that safe, qualitative and effective care is provided at each of the facilities it governs.

Possible Resolution

Smith’s partial limitation of its holding in this regard is instructive for how other hospitals can avoid being snared in this trap. In Smith, the physician evidenced no deficiencies during his tenure at Selma Community Hospital – his problems were exclusively at the Hanford Hospitals. The Court of Appeal said that in Smith’s case these problems, by themselves, were not a sufficient basis on which Selma could base action against him.  The court also acknowledged that there may be cases in the future on which deficiencies at other hospitals would be a sufficient basis for action. If a medical executive committee and governing body, therefore, find themselves in similar circumstances—dealing with a physician who is the subject of an adverse JRC decision at another hospital, but who has no problems at the current facility, the medical executive committee and governing body should thoroughly assess the risks posed by the physician to patients at their own facility. Retrospective and concurrent case reviews, notification requirements and observation of the physician are reasonable and appropriate steps the facility can take to address the concerns raised by an adverse decision at another facility and ensure that patient care at their facility is not compromised. If problems are revealed during this process then the facility has a stronger basis on which to rely on the findings and decisions of another JRC.

If you have questions about the California Supreme Court’s decision in Smith, please contact Lowell C. Brown or Patricia M. Kosich, or the Arent Fox attorney who normally handles your legal affairs.

Patricia M. Kosich
kosich.patricia@arentfox.com
213.443.7521

Lowell C. Brown
brown.lowell@arentfox.com
213.443.7516