Business Law

Natarajan v. Dignity Health (Oct. 22, 2019, C085906) __ Cal.App.5th __ [2019 WL 5387284], ordered published Nov. 20, 2019

Private hospitals may appoint peer review hearing officers for multiple matters if they lack a direct financial interest in the proceedings.

Dr. Sundar Natarajan, a hospitalist at St. Joseph’s Medical Center of Stockton (a Dignity facility), had difficulty completing timely medical records. When the problems persisted despite a warning by the medical executive committee, a committee was assigned to investigate. The investigatory committee confirmed Dr. Natarajan’s record keeping problems, identified additional problems regarding untimely responses while on call and the length of patients’ stays, and recommended that that the medical executive committee revoke Dr. Natarajan’s medical staff privileges. The executive committee adopted that recommendation and 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 seven peer review proceedings at other Dignity Health hospitals and was appointed to two more after Dr. Natarajan’s proceeding—however, none involved St. Joseph’s.  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, but his petition did not contest the sufficiency of the evidence. Dr. Natarajan argued only that he had been denied a fair proceeding 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, rejecting Dr. Natarajan’s contention that he was denied a fair procedure because Singer’s relationship with Dignity hospitals created an unacceptable risk of possible bias. The Court of Appeal explained that, while constitutional due process (which applies only to public entities) can be violated by the appearance of bias, fair procedure (which applies to private entities such as St. Joseph’s) only forbids a direct financial interest in the outcome of the proceeding.  (See Bus. & Proc. Code, § 809.2, subd. (b).) Because Dr. Natarajan failed to establish that Singer had a direct financial interest in the peer review proceeding, his fair procedure challenge failed. The Court further held that the hospital based its decision to revoke Dr. Natarajan’s privileges on sufficiently objective criteria that were uniformly applied. 

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 htwatson@horvitzlevy.com.

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