California Supreme Court Rules in Favor of Dignity Health’s St. Joseph’s Medical Center

Manatt secured an important win for its client Dignity Health on August 12 when the California Supreme Court unanimously held that a hearing officer in a hospital physician peer review hearing is not presumptively biased in favor of the hospital simply because he or she might be hired again for future work at the same or other affiliated hospitals.

The court’s decision in Natarajan v. Dignity Health ends administrative and court litigation that began in 2014 when the medical staff of St. Joseph’s Medical Center, a Dignity Health-owned hospital in Stockton, California, recommended termination of plaintiff Dr. Natarajan’s medical staff membership and privileges due to his pervasive substandard patient care management and documentation. The physician requested an administrative hearing before a panel of peer physicians on the hospital’s medical staff, which was presided over by a nondecision-making hearing officer appointed to make procedural and evidentiary rulings.

Dr. Natarajan lost the hearing, and the hospital board of directors affirmed the termination recommendation. Dr. Natarajan then unsuccessfully petitioned the trial court to overturn the decision, claiming that the hearing officer had an impermissible financial bias in favor of the hospital because he was working as a peer review hearing officer at other Dignity Health hospitals. The hearing officer’s contract with St. Joseph’s for Dr. Natarajan’s hearing contained a restriction preventing him from serving at that particular hospital for three years.

Manatt successfully defeated Dr. Natarajan’s writ of mandamus challenge in the trial court and again in the Court of Appeal, 3rd District. The California Supreme Court granted review based on a direct conflict with another appellate decision that had found hearing officer bias based on that hearing officer’s repeated engagements at the same hospital.

In the August 12 decision, the Supreme Court found no evidence that the hearing officer was biased against Dr. Natarajan. The Supreme Court refused to presume that the hearing officer’s repeated engagements at other Dignity Health hospitals, and his hope for more such engagements, created a probability that the hearing officer was biased toward Dr. Natarajan. The court recognized that peer review hearing officers play a limited role in overseeing such proceedings and cannot vote or decide the matters. The Supreme Court further repudiated the conflicting appellate decision that had caused the court to grant review. While the Supreme Court also disagreed with the court of appeal’s conclusion in this case that the possibility of future hearing officer work could never be, in the language of the bias statute, a “direct financial benefit from the outcome,” the court held that such a record did not exist in this case, primarily because the hearing officer had a three-year restriction from such work at the hospital at issue, and there was no evidence that the Dignity Health corporation was involved in his appointment.

Manatt’s litigation team included Barry Landsberg, who argued the case, Joanna McCallum, Doreen Shenfeld and Craig Rutenberg.

Read Bloomberg Law’s coverage of the case here.

Read the court’s ruling here.

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