Business Law

Economy v. Sutter East Bay Hospitals (Feb. 4, 2019, A150211, A150738, A150962) __ Cal.App.5th __ [2019 WL 422346]

Hospital liable for damages for inducing physician’s medical group not to schedule him for work without affording peer review rights.

Dr. Kenneth Economy was employed by East Bay Anesthesiology Medical Group, which had a contract to provide all anesthesia services at Sutter East Bay Hospital. At an unannounced inspection, the California Department of Public Heath found that Dr. Economy was responsible for numerous deficiencies regarding the use of the drug Droperidol, which placed patient safety at risk and jeopardized the hospital’s credentials. After completing a continuing education course mandated by the hospital’s anesthesiology peer review committee, Dr. Economy was reinstated with monitoring. A pharmacy manager then found that Dr. Economy repeatedly violated the hospital’s policy for administering medication. A hospital executive spoke to the medical group, which again took him off the anesthesia schedule. The medical group told Dr. Economy he could not return to the hospital and asked him to resign. When he refused to resign, the medical group terminated him.

Dr. Economy sued Sutter, contending it violated his right to notice and a peer review hearing under Business and Professions Code section 809 et seq. and his common law due process rights under Anton v. San Antonio Community Hospital (1977) 19 Cal.3d 802. Dr. Economy prevailed at a bench trial. The court found that Sutter was required to provide him with a formal notice of charges and peer review and appellate process before removing him from the anesthesia schedule. The court awarded Dr. Economy nearly $4 million in damages for lost past and future income. Sutter appealed the judgment and the Dr. Economy cross-appealed the denial of his motion for fees and costs.

The Court of Appeal affirmed the judgment for Dr. Economy, holding that Sutter violated his statutory and common law rights to notice and peer review by directing his employer to remove him from the schedule. The court rejected the hospital’s argument that no peer review was required because it never formally rescinded Dr. Economy’s privileges, and that the medical group rather than the hospital terminated Dr. Economy. The court explained that, if Sutter’s argument were accepted, Dr. Economy’s “right to practice medicine would be substantially restricted without due process and, despite the hospital’s concern that plaintiff was endangering patient safety, the state licensing board would never be notified.” Moreover, “the hospital’s decision not to accept any [anesthesiologist] schedule on which [Dr. Economy] was included effectively prevented [Dr. Economy] from exercising clinical privileges at the hospital and engaging in the practice of medicine,” and was therefore “the functional equivalent of a decision to suspend and later revoke [Dr. Economy’s] clinical privileges.”

The court affirmed the award of lost income, rejecting Sutter’s argument that Dr. Economy was required to prove that he would have prevailed at a peer-review hearing had one been held. The court stated that, at most, Sutter may have had an affirmative defense to Dr. Economy’s damages claim, but it failed to establish that Dr. Economy would not have prevailed at a properly noticed peer review proceeding. The court nevertheless rejected Dr. Economy’s cross-appeal for fees and costs, finding that Sutter’s defense was “not frivolous, unreasonable, without foundation, or in bad faith.”

The bulletin describing the Court of Appeal’s decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or

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