Natarajan v. Dignity Health (Aug. 12, 2021, S259364) __ Cal.5th __ [2021 WL 3557299]

Peer review hearing officer is not automatically disqualified by the prospect of future engagements at the same hospital.

Following an investigation, the medical staff’s executive committee revoked the privileges of Dr. Sundar Natarajan, a hospitalist at St. Joseph’s Medical Center of Stockton (a Dignity facility), due to record keeping problems, untimely responses while on call, and the length of his patients’ hospitalizations. Dr. Natarajan appealed to the hospital’s peer review committee. The medical staff delegated the authority to appoint a peer review hearing officer to the hospital’s president, who appointed Robert Singer—a semiretired attorney who worked exclusively as a medical peer review hearing officer at various hospitals. Singer required that his contract bar St. Joseph’s from appointing him in another peer review proceeding for three years. Singer had served as the hearing officer in eight peer review proceedings at other Dignity Health hospitals and was appointed to two more after Dr. Natarajan’s proceeding, none involving St. Joseph’s. Singer served as the hearing officer for a similar number of hearings at entities affiliated with Sutter Health, and worked as a hearing officer for other health facilities as well. Singer denied Dr. Natarajan’s request that he recuse himself. After a year of evidentiary hearings, the review committee adopted the executive committee’s decision to revoke Dr. Natarajan’s privileges. Dr. Natarajan appealed that decision to St. Joseph’s governing board, which affirmed.

Dr. Natarajan filed a petition for a writ of administrative mandate, arguing he was denied due process because (1) Singer’s relationship with Dignity created an unacceptable risk of bias based on his pecuniary interest in future employment, and (2) the decision to revoke his privileges was not based on objective standards. The trial court denied the petition and Dr. Natarajan appealed. The Court of Appeal affirmed. Expressly disagreeing with Yaqub v. Salinas Valley Mem. Healthcare Sys. (2004) 122 Cal.App.4th 474, the Court of Appeal rejected Dr. Natarajan’s contention that Singer’s relationship with Dignity hospitals created an unacceptable and disqualifying risk of possible bias. The Court of Appeal affirmed the trial court’s judgment because there was no evidence that Singer had a direct financial interest in the peer review proceeding, and the hospital had based its disciplinary decision on sufficiently objective criteria that were uniformly applied. The Supreme Court granted review.

The Supreme Court disapproved Yaqub and affirmed the result (but not the reasoning) of the Court of Appeal’s decision. The Court explained that the prospect of future employment was not categorically non-disqualifying; instead, a peer review hearing officer may be disqualified based on a direct financial benefit that creates an intolerable risk of actual bias under the circumstances—a context-sensitive inquiry. But such a risk does not arise simply because a hearing officer has been hired by a hospital on an ad hoc basis and may be hired again by the same hospital at some point in the future.

In determining whether a hearing officer is disqualified, courts must consider two factors: (1) which entity exercises control over the hearing officer selection process, and (2) the extent and likelihood of future financial opportunities the hearing officer may receive from the same entity. Here, the 3-year ban on serving as a hearing officer for the same hospital eliminated any significant risk of Singer harboring a financial temptation to favor the hospital during the proceedings. Moreover, Dignity Health did not control the hearing officer selection process at any of its hospitals; rather, hearing officers are selected by the medical staff or their designees. Thus, lower courts had properly ruled that the circumstances of Singer’s appointment did not create an intolerable risk of bias in favor of the hospital.

The bulletin describing this appellate 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 htwatson@horvitzlevy.com.