The California Supreme Court has agreed to hear a case to decide this issue (Fahlen v. Sutter Central Valley Hospitals, 208 Cal. App. 4th 557 (2012)).  The case pits the sometimes adverse interests of physicians against the interests of hospitals when employment and practice privilege issues collide.  Physicians who allege their privileges have been terminated in retaliation for blowing the whistle do not want to wait to file a whistleblower case until all administrative and judicial remedies concerning their clinical privileges are exhausted.  On the flip side, hospitals do not want to fight physicians on two fronts: in court and in the hospital’s own peer review process with the potential for judicial review.

The hospital in the case, Sutter Central Valley Hospitals, declined to renew the physician’s privileges after peer review proceedings, and that determination was upheld by the hospital’s board.  While the physician, Dr. Fahlen, might have been able to challenge that decision in court, he chose to file a lawsuit against the hospital with a number of claims, including claims under California’s whistleblower protection law (Cal. Health & Safety Code Section 1278.5, subd. (a)).  Dr. Fahlen claims that he lost his privileges as retaliation for blowing the whistle on dangerous nurses.

A California court of appeal reversed the district court’s decision and allowed the physician’s  litigation to proceed.  The court held that the physician could file suit against the hospital under the whistleblower law before exhausting all administrative proceedings concerning non-renewal of his clinical privileges.  In making that decision, the court cited recent California Supreme Court cases.

In two recent cases interpreting the California Whistleblower Protection Act (Gov. Code, § 8547 et seq.), the California Supreme Court held that a state employee sanctioned by an agency need not file a mandate petition against the agency before suing it under the whistleblower statute. The court recognized the Legislature’s intent to encourage employees to report threats to public health without fear of retribution. (Runyon v. Board of Trustees of California State University (2010) 48 Cal.4th 760, 763, 774; State Bd. of Chiropractic Examiners v. Superior Court (2009) 45 Cal.4th 963, 977- 978.) For the same reason, prior filing of writ proceedings also is not required here.

While the court allowed Dr. Fahlen’s whistleblower claims and one other claim for declaratory judgment to move forward, the court said the physician would have to exhaust administrative remedies on his other common law and statutory causes of action, which also involved issues related to the non-renewal of his medical staff membership.

Our Insight.  Your Advantage.  If the California Supreme Court sides with Dr. Fahlen, then we will likely see an increase in whistleblower claims by medical personnel, particularly physicians.  While allowing legitimate whistleblower claims to proceed may make sense, some physicians may use this as a litigation tactic against hospitals.  Physicians who are facing termination or non-renewal of privileges will be searching for any way to create a claim that can survive the peer review process and skip the administrative process by emphasizing that the hospital’s conduct (or its agent’s conduct) presents a public danger.  Further, in the current enforcement environment, help is unlikely to come in the form of legislation.  Both state and federal governments are increasingly reliant upon whistleblower actions to recover fraudulent healthcare funds, and recent legislation has authorized additional whistleblower claims.  The government views whistleblower activity as an appropriate mechanism to uncover and stop dangerous conduct that constitutes public harm.

Hospitals should be prepared for whistleblower cases with policies and practices that set out the appropriate response and process for such claims.  Hospitals should also review their peer review processes to ensure they employ best practices and comply with law in order to increase the chances that any decision made by the hospital and its peer review committee will be upheld.  Finally, providers should develop a response capability that will promptly evaluate and rebut allegations raised during  peer review proceedings that generate public safety issues.