The California First District Court of Appeal has addressed an issue often dealt with by hospitals with exclusive contracts for certain services i.e., whether the exclusive contract can be used to avoid a fair hearing. The court found that the exclusive contract could not be used in such a manner and that a physician terminated by his medical group for quality of care concerns, at the request of the hospital, is entitled to notice and a fair hearing.  
 

The Exclusive Contract & Quality of Care

Dr. Kenneth Economy was employed by East Bay Anesthesiology Medical Group (“Group”), which held an exclusive contract to provide anesthesia services at Sutter East Bay Hospital (“Sutter”). During a surprise inspection, the California Department of Public Heath (“CDPH”) found that Dr. Economy was responsible for numerous deficiencies in the use of the drug Droperidol. According to CDPH, these deficiencies “placed patients at risk for undue adverse medical consequences,” and CDPH declared that Sutter was in immediate jeopardy until a written action plan was prepared and accepted. Sutter immediately formed a response team and the vice president of medical affairs requested that the president of the anesthesia group holding the exclusive contract remove Dr. Economy from the hospital’s anesthesia schedule pending further investigation. Dr. Economy was told that he was being taken off the schedule due to his use of Droperidol. Sutter submitted a written action plan to CDPH stating, in part, that the physician responsible for the Droperidol use had not followed hospital policy, was referred to peer review and immediately suspended by his medical group. The state surveyor approved the plan and lifted the immediate jeopardy.  

 

Peer Review and the Anesthesia Group

Peer review concluded that further education was needed and recommended that Dr. Economy attend the Physician Assessment and Clinical Education (“PACE”) course at the University California San Diego. Dr. Economy’s return to practice at Sutter was dependent on successful completion of the course. The recommendation was forwarded to the president of the anesthesia group to implement. When Dr. Economy learned of the requirement he requested an opportunity to appear before the peer review committee to discuss the decision. His request was denied on the basis that the Medical Executive Committee was aware of his situation and his only option was to complete the PACE program.

 

Dr. Economy’s Reinstatement and Termination

Dr. Economy completed the PACE program and returned to work at Sutter. Following his reinstatement, a pharmacy manager found that Dr. Economy continued to violate the hospital’s policy for administering Droperidol. As a result, Sutter’s vice president of medical affairs told the Group that due to ongoing quality of care concerns, the anesthesia schedules with Dr. Economy would not be approved. Once again the Group removed Dr. Economy from the anesthesia schedule. The Group informed Dr. Economy he would not be allowed to return to Sutter and asked for his resignation. Dr. Economy refused and the Group terminated him.

 

The Lawsuit

Dr. Economy sued Sutter, alleging Sutter violated his right to both notice of charges and a peer review hearing under California Business and Professions Code section 809 et seq. He also alleged that his common law due process rights were violated, relying upon Anton v. San Antonio Community Hospital (1977) 19 Cal.3d 802. Dr. Economy prevailed and the trial court found the hospital had violated Dr. Economy’s due process rights under both California Business and Professions Code section 809 et seq. and Anton v. San Antonio Community Hospital (1977) 19 Cal.3d 802. The trial court concluded Sutter was required to provide Dr. Economy with a formal notice of charges and peer review hearing before removing him from the schedule which effectively terminated his privileges. The Court awarded Dr. Economy nearly $4 million in damages for lost and future income. Sutter appealed the judgment. 

 

The Appeal

The Court of Appeal affirmed the judgment and award of lost income for Dr. Economy, holding that Sutter violated his rights to notice and a fair hearing by directing his employer to remove him from the schedule. The court rejected Sutter’s argument that no fair hearing was required because it never formally rescinded Dr. Economy’s privileges; it was the Group that removed him. The court explained, if it were to accept Sutter’s argument, Dr. Economy’s “right to practice medicine would be substantially restricted without due process” and, “the hospital’s decision not to accept any  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.” Therefore, the decision not to approve the anesthesia schedules that included Dr. Economy was “the functional equivalent of a decision to suspend and later revoke [Dr. Economy’s] clinical privileges.”

 

The Lesson