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Court of Appeal Rejects Bias Challenge to Peer Review Hearing Officer

In a decision very favorable to California hospitals and medical staffs, the Court of Appeal rejected a physician’s argument that he was denied due process during his peer review hearing because of hearing officer alleged bias.

The case, Natarajan v. Dignity Health, attracted keen interest as the physician’s arguments, if adopted, would likely have disqualified numerous experienced hearing officers from service in California medical staff peer review hearings.

In its holding, the Natarajan court reaffirmed that the flexible standards of “fair procedure” – not the stricter standards of “constitutional due process” – apply to peer review hearings at private hospitals. The court also confirmed that a hearing officer’s experience in a hospital system, and the possibility that the hearing officer might be reappointed for future peer review hearings in the same system, generally do not disqualify the hearing officer from service.

Arent Fox served as counsel for amicus curiae the California Hospital Association, which advocated the positions ultimately adopted by the Court of Appeal. The Natarajan decision, released on Tuesday, October 22nd, is not certified for publication, which means it may not yet be cited as precedent. This is not unusual, and an effort to secure publication of the decision is underway. 

The Facts: The case was brought by Dr. Sundar Natarajan, who was a hospitalist at St. Joseph’s Medical Center of Stockton (“St. Joseph’s”), which is part of Dignity Health. For years, Dr. Natarajan failed to complete hundreds of medical records in a timely fashion, despite regular interventions. In 2013, the Medical Staff of St. Joseph’s ultimately recommended to revoke Dr. Natarajan’s privileges.

After Dr. Natarajan requested a hearing, he sought to disqualify the hearing officer, Robert Singer, for bias. Dr. Natarajan argued that because Mr. Singer previously served as a hearing officer for Dignity Health medical staffs, and might serve as a hearing officer again within the Dignity Health system sometime in the future, he was impermissibly biased in favor of the hospital and medical staff.

Mr. Singer remained the hearing officer. On appeal, Dr. Natarajan argued that once a particular medical staff appoints a hearing officer, that hearing officer must promise to never again serve as a hearing officer for any medical staff within the same hospital system.

The Yaqub Decision. To support his disqualification challenge, Dr. Natarajan relied on a controversial peer review case, Yaqub v. Salinas Valley Memorial Healthcare System. In Yaqub, the Court of Appeal applied constitutional due process standards and held that the hearing officer should have been disqualified due to the “appearance of impartiality.” The Yaqub court reasoned that because the hearing officer had not foreclosed the “potential for further appointments in the future,” he had a “‘possible temptation’ to favor the hospital” and should have been disqualified.

The Natarajan Decision. The court in Natarajan, however, repudiated not only the Yaqub decision, but also Dr. Natarajan’s far-reaching disqualification standard. The Court of Appeal explained that while state actors may be held to the “constitutional due process” standard for peer review proceedings, private hospitals are held to the more flexible “fair procedure” standard. The Legislature codified this fair procedure standard as Business and Professions Code section 809. Thus, when considering whether a hearing officer should be disqualified, the appropriate standard is whether the hearing officer shall gain any “direct financial benefit from the outcome.” (Bus. & Prof. Code, § 809.2(b).) The mere possibility of future service within the same health system does not meet this standard.

In its analysis, the Natarajan court explicitly disagreed with Yaqub’s reasoning. The court observed that the Yaqub decision contained no “analysis of the distinction between constitutional due process and fair procedure or citation to the controlling statute (§ 809.2).” The Natarajan court thus pointedly dismissed Yaqub as “‘a derelict on the waters of the law’ that we have not found to be followed on this point in any published decision.” 

What the Decision Means. The Natarajan decision is a win not only for hospitals and medical staffs, but also for disciplined physicians, because the decision supports the quality of peer review hearings as a whole. As the California Hospital Association argued as amicus curiae, experienced hearing officers, who specialize in peer review and are familiar with its unique body of law, are essential to retaining the fairness and efficiency of peer review hearings. All those involved in such hearings benefit from preserving the availability of high-quality hearing officers.

If your organization is interested in joining the effort to win publication of the Natarajan decision, please contact Arent Fox LLP.

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