Frost St. Med. Associates v. San Diego Internal Med. Group CA4/1 ( 2014 )

Filed 9/18/14 Frost St. Med. Associates v. San Diego Internal Med. Group CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
FROST STREET MEDICAL ASSOCIATES, D063621
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2010-00101456-
CU-BT-CTL)
SAN DIEGO INTERNAL MEDICAL
GROUP, et al.,
Defendants and Respondents.
APPEAL from judgments of the Superior Court of San Diego County, Ronald L.
Styn, Judge. Affirmed.
Sullivan, Hill, Lewin, Rez & Engel, Jenny K. Goodman; Heisner Alvarez and
John R. Heisner for Plaintiff and Appellant.
Duane Morris and Keith Zakarin for Defendants and Respondents San Diego
Internal Medical Group and San Diego Hospitalists, Inc.
Higgs Fletcher & Mack, John Morris, Victoria E. Fuller, William M. Low and
Susan M. Hack for Defendants and Respondents Sharp HealthCare and Sharp Memorial
Hospital.
Plaintiff and appellant Frost Street Medical Associates (Frost), a group of licensed
California physicians who practice as hospitalists in the field of internal medicine, filed
this action for damages and other relief against a hospital where its members previously
practiced, defendants and respondents Sharp HealthCare and Sharp Memorial Hospital
(Sharp). Frost claims Sharp and two competing medical groups, defendants and
respondents San Diego Internal Medical Group (SDIMG) and its successor San Diego
Hospitalists, Inc. (SDHA), participated in various forms of unfair competition.1 Through
the challenged 2010 request for proposal process (RFP), Sharp had selected SDHA from
three applicant groups as the exclusive contract provider of hospitalist services for certain
of its patients who were admitted to the hospital after emergency room visits (i.e., those
who were otherwise "unassigned" to a designated internal medicine physician for
supervision of care).
To challenge their allegedly unfair exclusion from practice as hospitalists for such
"unassigned" patients at Sharp, Frost's causes of action claim that Respondents were in
violation of the Cartwright Act (Bus. & Prof. Code,2 § 16700 et seq.), and/or the Unfair
Competition Law (UCL; § 17200 et seq.). Frost also alleged that Respondents' tortious
acts injured it through their intentional interference with its prospective business
advantage (IIPEA).
1 Where appropriate, we refer to Sharp and the other respondents collectively as
Respondents.
2 All further statutory references are to the Business and Professions Code unless
noted.
2
The operative test for whether a managerial decision by a hospital, made in a
quasi-legislative capacity, must be set aside by a court is whether that decision was
"substantively irrational, unlawful, contrary to established public policy, or procedurally
unfair." (Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62, 73
(Centeno).) Claiming that Frost could not satisfy this test on any of its causes of action,
Sharp brought a motion for summary judgment or summary adjudication of issues, joined
by the other Respondents. (Code Civ. Proc., § 437c.) The trial court agreed, granting
summary adjudication of the above three causes of action in favor of Respondents. Later,
Frost dismissed without prejudice its surviving related breach of contract claim, and
judgments of dismissal were entered.3
On appeal, Frost argues that triable issues of material fact remain about whether
the RFP procedure followed in this case was substantively and procedurally flawed.
Frost contends the trial court erred in concluding on "undisputed" evidence that
Respondents had adequately shown (1) the Sharp decision to undertake the RFP process
was justified and not irrational, and (2) the process of awarding the exclusive services
contract to SDHA was a good faith exercise of managerial judgment. Instead, Frost
claims its opposition sufficiently showed or raised inferences that the Sharp decision was
3 Such a voluntary dismissal of a cause of action without prejudice prior to trial
provides "sufficient finality as to that cause of action so as to allow appeal from a
judgment disposing of the other counts." (Kurwa v. Kislinger (2013) 57 Cal.4th 1097,
1105-1106 [citing Code Civ. Proc., § 581, subds. (b)(1), (c)].) No issues are raised here
about any agreement for future litigation that would qualify that dismissal, and the
finality of the dismissal of other claims will control over this contract cause of action as
well.
3
a sham proceeding, representing a biased and predetermined choice in favor of SDHA.
(Centeno, supra, 107 Cal.App.3d 62, 72-73; Blank v. Palo Alto-Stanford Hospital Center
(1965) 234 Cal.App.2d 377, 392 (Blank).) Frost argues that in reaching the opposite
conclusions, the trial court improperly weighed the evidence.
On de novo review, we conclude that the trial court correctly analyzed the
undisputed facts on both sides and applied the appropriate test for evaluating such a
quasi-legislative policy decision. (Major v. Memorial Hospitals Assn. (1999)
71 Cal.App.4th 1380, 1398 (Major).) We affirm the judgments and orders granting the
dispositive motions in favor of Respondents.
FACTUAL AND PROCEDURAL BACKGROUND
A. Outline of Participants and the RFP
From 1991 to 2011, Sharp had an emergency room call policy applicable to all its
emergency patients who had to be admitted, but who lacked their own assigned primary
physician. This policy established an "ER Call List" to be used in assigning a hospitalist
who had medical staff privileges at Sharp to provide such unassigned patients with in-
hospital internal medicine care. The ER Call List consisted of hospitalists who were
either independent physicians or members of medical groups. In contrast, "assigned"
patients admitted to Sharp from emergency were not served by the ER Call List. Their
hospital care was arranged by their own primary physicians or groups. Some hospitalists
also maintain outpatient practices.
Historically, SDIMG physicians were on the ER Call List, as were the seven Frost
physicians. The SDIMG group was also called the Roth call group after its senior
4
physician and administrator, Dr. Kenneth Roth, one of Sharp's former chiefs of staff.
Around this time (2009-2010), the Roth call group evolved into SDHA, the group to
which Sharp awarded the exclusive contract.
During the latter part of the period when the ER call policy for Sharp's unassigned
patients was in effect, friction at the hospital was developing among various physicians
who were employed or formerly employed by SDIMG, concerning the making of
assignments for the delivery of hospitalist care to unassigned patients. At times, there
were logistical problems with assignments leading to delays in care. Confusion
sometimes developed about which doctors were supposed to provide hospitalist coverage
for those obstetrics patients who had been transferred from another Sharp facility.
Some members of Frost left the employment of SDIMG and criticized it for poor
patient care, and they communicated those concerns to Sharp's chief executive officer,
Tim Smith. He responded that he was considering the award of an exclusive hospitalist
contract. Around the same time, some members of SDIMG had criticized the patient care
provided by Frost members, making referrals about them for care review proceedings.
Frost doctors believed they were being unfairly targeted.
In September 2010, Smith and the Sharp board prepared and distributed an RFP
for an exclusive group hospitalist care contract. The RFP was developed in consultation
with various Sharp staff committees, and it set forth certain criteria that applicants had to
meet, including physician experience and leadership qualifications, and the exclusion of
doctors who continued to maintain a private practice.
5
Sharp received three applications, one of which was from a group that some Frost
members belonged to, Memorial Hospitalists Association (MHA). After committee
consideration, Sharp awarded the exclusive contract to SDHA, and amended its ER call
policy accordingly.
B. Causes of Action Affected by Motions
In October 2010, Frost brought this lawsuit seeking injunctive and monetary relief
on the basis that the RFP procedure for awarding the exclusive contract had unfairly
precluded Frost members from continuing to provide hospitalist services to Sharp's
unassigned patients. Frost's substantive causes of action alleged that the RFP process
was not justified by the circumstances, and that its design and procedural implementation
had violated provisions of the ER call policy and Sharp's bylaws. Frost alleged that the
exclusive contract would so align physician and hospital interests as to allow price
manipulation and prevent competitive rates for services. Frost relied on the Cartwright
Act for remedies against such alleged wrongful elimination or reduction of competition.
Frost further pled that under the UCL (§ 17200 et seq.), Respondents' actions
amounted to unfair competition and unfair business practices that should be enjoined,
such as Sharp's failure to enforce the ER call policy. Restitution was sought. Frost
sought tort damages for IIPEA, based on Respondents' "independently wrongful" acts
that interfered with Frost's economic relationships with third parties (i.e., Sharp's
unassigned patients who had been admitted under the previous ER call policy). Frost
claimed that Respondents knew of those relationships, but their intentional and wrongful
acts to proceed with the sham RFP, thereby violating the ER call policy, had unfairly
6
disrupted those relationships. Frost suffered economic harm from those acts, in the form
of lost business opportunities to participate in an ER call panel.
Frost twice applied for temporary restraining orders and sought a preliminary
injunction to prevent the revised ER call policy from going into effect in December 2010.
The court denied the applications, noting at one hearing that Sharp's decision seemed to
be based on the opinion that Dr. Roth's group had the advantage of his greater
administrative experience. As an unsuccessful bidder in the RFP process, the court said,
Frost lost "a beauty contest here. That's all. It happens all the time."
C. Motions for Summary Judgment or Adjudication
Respondents answered the complaint and Sharp brought a motion for summary
judgment or adjudication of each cause of action against it. The other respondents joined
in the motions (mainly claiming Frost's theories were actually attacking Sharp as the RFP
proponent, not the SDHA successful bidder).
In its motion, Sharp relied on authorities stating that an exclusive contract between
a hospital and a single medical provider is lawful as long as the decision to enter into the
contract was not "irrational, arbitrary, or capricious." (Major, supra, 71 Cal.App.4th
1380, 1400.) Sharp claimed as partial justification for its actions that it was required to
comply with ongoing changes in health law, which included the 2010 enactment of the
federal Patient Protection and Affordable Care Act (the "Affordable Care Act," 124 Stat.
119), as well as Medicare regulations. All of those regulations affected the manner in
which care should be delivered to Sharp's unassigned patients, and Sharp claimed that
many hospitals, including itself, were being required to adapt policies with the goals of
7
providing patients with higher quality and more efficient care. They were motivated to
do so in part by the goal of receiving adequate Medicare reimbursements and avoiding
administrative penalties, and the RFP would assist in implementing these goals.
In explanation for its decision to issue the RFP, Sharp mainly relied on the
declaration of Sharp's chief executive officer Smith. He stated the RFP was intended to
address problems such as excessive average lengths of hospital stays or excessive rates of
readmission for unassigned patients, under applicable Medicare guidelines for
reimbursement. The Medicare hospital compensation formula also included the criteria
of patient satisfaction with physicians, which was only 53 percent in 2010 with regard to
Sharp hospitalists. It was in Sharp's interest to increase patient satisfaction.
Sharp's separate statement set forth as undisputed facts that the RFP criteria would
require the successful group to provide 24-hour hospitalist availability, and to be
available to care for transferred obstetric patients. The RFP incentivized the contracting
hospitalists' group to meet or exceed benchmark levels of patient satisfaction for
physician services, as well as length of stay and quality of care, according to federal
standards. An eight-member advisory committee reviewed the three bids and selected
SDHA. The Sharp board accepted the choice. Frost did not submit a bid.
D. Opposition, Reply and Rulings
In its opposition, Frost dropped a theory from its complaint that the RFP process
had been violative of the ER call policy and Sharp's bylaws. Rather, Frost contended that
even though the RFP process could have been validly pursued, in this case, it was sham
and irrationally designed, as alleged in each of the three statutory and tort causes of
8
action. At deposition, one Frost doctor criticized the facts offered to justify the
preparation of the RFP, on the basis that the emergency admissions statistics Sharp used
had incorrectly compared different sets of patients, some of whom were healthy patients
of primary care physicians, while others were homeless or otherwise had no ongoing
health care. Also, Sharp used "faulty" data relating only to internal medicine physicians,
as justification for pursuing the exclusive contract, even though a fair sample would have
included other specialties as well.
Further, the RFP qualification criteria were said to be unfairly rigorous and could
not be satisfied by Frost physicians, who had relatively short lengths of practice
experience, and who had been unable to obtain desired appointments to Sharp
committees, due to Sharp's favoritism and rivalries with others. Frost argued the RFP
criteria unjustifiably disqualified some of its physicians, because they still had private
practices.
Frost further argued that the manner in which the RFP was initiated was suspect,
because some Frost physicians had recently left the employ of SDIMG and had
complained to Sharp about the professional practices of SDIMG, but they were ignored.
For a long time, Dr. Roth's doctors had been allowed to expedite their credentialing
processes and had been given preferential treatment at Sharp. When several Frost doctors
left SDIMG, they received unsupported care review letters, which they believed had
targeted them improperly. Frost thus argued the RFP process was carried out in bad
faith, and the outcome was preordained in favor of Dr. Roth's call group.
9
Frost provided deposition testimony from its physicians about the Sharp
committee presentation of the RFP and how it appeared to be a done deal when
presented. Other doctors confirmed that impression and said that they were afraid to
refer patients to Frost doctors, because of expected retaliation they would receive from
Dr. Roth.
Frost cited to other deposition testimony from its physicians about the relative
strictness of the RFP criteria, which excluded hospitalists who continued to have
outpatient practices, and which arbitrarily excluded newer doctors who did not have
sufficient tenure or connections to be appointed on Sharp committees. Finally, after the
RFP was implemented, some Frost doctors arranged with certain primary care physicians
to care for their patients in the hospital, but Sharp would not honor those arrangements.
In Sharp's reply papers, Sharp raised evidentiary objections (overruled) and argued
that Frost was changing the nature of its allegations, and the arguments that the RFP was
sham, slanted or conducted unfairly actually fell outside the scope of the complaint.
Even if those allegations were true, Sharp's bylaws had not required it to pursue the RFP
process. In any case, it had reached a fair decision, based on a perceived need to contract
with a single group of hospitalists.
The trial court heard arguments and confirmed the tentative ruling, stating that
Sharp sufficiently established a reasonable basis for its decision, "and it is not for this
court to substitute its judgment for that of Sharp." Even though the complaint could be
read as adequately alleging that the RFP was "sham," Frost had failed to provide
evidence that Sharp committed a "wrongful act" within the meaning of the Cartwright
10
Act. Frost also did not establish there was an "unlawful, unfair or fraudulent" business
practice, necessary for a violation of the UCL.
Likewise, the court ruled Frost's claim for interference with prospective business
advantage was not supported by any proof that Sharp had committed acts that were
independently wrongful by some legal measure.4 The court then commented that the
issues raised by the complaint did not include the newly raised theory that Frost had
recently obtained contracts with various health plans but they had been thwarted by the
exclusive contract arrangement, and it declined to address such a theory. Summary
adjudication of the first five causes of action was granted for Sharp and Respondents.5
DISCUSSION
I
APPLICABLE STANDARDS
We apply well-established rules of review to the rulings on the summary judgment
and adjudication motions. De novo analysis determines whether there is a triable issue as
4 Frost's cause of action for IIPEA was based on Respondents' "independently
wrongful" anti-competitive acts or business practices (e.g., those "proscribed by some
constitutional, statutory, regulatory, common law, or other determinable legal standard";
see Korea Supply v. Lockheed-Martin Corp. (2003) 29 Cal.4th 1134, 1159).
5 Frost also set forth a sixth cause of action for breach of contract against Sharp
alone, based on the previous ER Call List arrangement, in which individual Frost
physicians had served on the panel and thus formed a contractual relationship with Sharp.
On that cause of action, the court denied Sharp's and Respondents' motions, because Frost
had adequately alleged that its doctors previously had a contract arrangement with Sharp
under the old policy. However, Frost dismissed without prejudice that remaining contract
claim, pending this appellate review. (See fn. 3, ante.) It should also be noted that Frost
conceded at the trial court level that two other causes of action that sought injunctive
relief were not viable, and they too were dismissed.
11
to any material fact and whether the moving party is entitled to judgment as a matter of
law. (Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th
945, 972.) As the defendants moving for summary judgment or adjudication, Sharp and
Respondents had "an initial burden of production to make a prima facie showing of the
nonexistence of any triable issue of material fact." (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826, 850.) A defendant may meet this burden either by showing that
one or more elements of a cause of action cannot be established or by showing that there
is a complete defense. "[A]ll that the defendant need do is to show that the plaintiff
cannot establish at least one element of the cause of action[;] the defendant need not
himself conclusively negate any such element . . . ." (Id. at pp. 853-854.)
Once the defendant has demonstrated the plaintiff's evidence is deficient, the
plaintiff may successfully oppose the motion for summary judgment by showing the
evidence permits conflicting inferences as to the particular element of the cause of action
or by presenting additional evidence of its existence. (Code Civ. Proc., § 437c,
subds. (c), (p)(1); Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261 (Silva).)
On appeal, we evaluate the respective evidentiary showings de novo, to determine
if the evidence permits conflicting inferences as to a particular element of the plaintiff's
cause of action, or as to a defense to it. In this context, Sharp has claimed the defense of
entitlement to deference for its administrative, managerial decisionmaking. We
determine whether it, as moving party, negated the opponent's claims, and examine
whether the opposition demonstrated the existence of any triable material factual issues.
12
II
PUBLIC POLICY CONTEXT AND OUTLINE OF ISSUES
"Numerous cases recognize that the governing body of a hospital, private or
public, may make a rational policy decision or adopt a rule of general application to the
effect that a department under its jurisdiction shall be operated by the hospital itself
through a contractual arrangement with one or more doctors to the exclusion of all other
members of the medical staff except those who may be hired by the contracting doctor or
doctors." (Mateo-Woodburn v. Fresno Community Hospital & Medical Center (1990)
221 Cal.App.3d 1169, 1183 (Mateo-Woodburn).)
In general, a hospital has "the right . . . to make rational management decisions,
even when exercise of that right might prove adverse to the interests of specific
individual practitioners." (Redding v. St. Francis Medical Center (1989) 208 Cal.App.3d
98, 106 (Redding); see Wilson v. Hidden Valley Municipal Water Dist. (1967) 256
Cal.App.2d 271, 286 (Wilson) [a bias or prejudice in favor of an established public policy
does not invalidate a quasi-legislative, policy-based managerial decision].) "Judges are
untrained and courts ill-equipped for hospital administration, and it is neither possible nor
desirable for the courts to act as supervening boards of directors for every . . . hospital . . .
in the state." (Lewin v. St. Joseph Hospital of Orange (1978) 82 Cal.App.3d 368, 385;
Mateo-Woodburn, supra, 221 Cal.App.3d 1169, 1185.)
When challenges are brought to the quasi-legislative decision of a hospital
governing body, the trial court will employ a relatively deferential standard of review.
(Major, supra, 71 Cal.App.4th 1380, 1398-1399.) Even where a structural staffing
13
change may result in the exclusion of certain doctors from practice, "[i]f the justification
is sufficient, the doctor's vested rights must give way to public and patient interest in
improving the quality of medical services." (Mateo-Woodburn, supra, 221 Cal.App.3d at
p. 1185.)
Frost essentially concedes that Sharp's decision to enter into an exclusive
hospitalist contract was a quasi-legislative, management decision, not an adjudicatory one
about any individual property rights in pursuing a livelihood. (See Redding, supra,
208 Cal.App.3d 98, 106.) Although Frost makes some vague policy arguments in its
reply brief about the desirability of preserving property interests in medical staff
privileges, it does not dispute that the central issue in this appeal is whether the subject
managerial decision was rational and made in good faith. It contends Respondents had a
greater legal responsibility, in structuring hospital business, to take into account the
individualized interests of Frost, as another set of stakeholders. (See Major, supra, 71
Cal.App.4th at p. 1384 [the relevant interest groups include patients, physicians, and
hospital administration].)
It is incorrect for Frost to argue for the application of an abuse of discretion
standard to resolve the question of Sharp's good or bad faith. The courts are traditionally
reluctant to specify how hospital contracting and staffing policies may be applied to
individual practitioners or groups. (Mateo-Woodburn, supra, 221 Cal.App.3d 1169,
1184-1185; see Pitts v. Perluss (1962) 58 Cal.2d 824, 835, fn. 4 [if there appears to be
some reasonable basis for the classification, a court will not substitute its judgment for
that of the administrative body].) Although the three causes of action Frost is pursuing
14
have distinct elements, whether they should properly have survived this summary
adjudication motion depends on several common issues. The proper inquiries on appeal
are whether Frost brought forward sufficient opposing evidence in support of its
contentions that the Sharp decisions were irrational, (a) because no need for an exclusive
contract model of practice was ever demonstrated, or (b) the criteria in the RFP were
excessively stringent and inappropriately designed to selectively rule out Frost from
consideration. Frost also had the obligation to bring forward evidence showing there
were triable issues about whether the RFP process was procedurally unfair or sham,
based on its timing, design or execution. (Major, supra, 71 Cal.App.4th at p. 1415.)
III
RESPONDENTS' SHOWING IN MOTIONS
A. Demonstrated Need for Exclusive Contract; Criteria in RFP
Respondents, as moving parties, had the initial burden of showing that their
managerial decisions to set criteria for the RFP and to implement it were based on
rational factors. (Centeno, supra, 107 Cal.App.3d 62, 72-74.) Sharp provided the
declaration of its chief executive officer Smith, stating he had learned that in some cases,
on-call hospitalists did not arrive promptly or at all for assessment of unassigned patients.
There had been problems with supplying hospitalists on the ER Call List who would
provide internal medicine care for obstetric patients who were hospitalized. The RFP for
an exclusive contract addressed this problem for obstetrics patients.
Next, Sharp provided evidence that its recent length of stay figures for patients
were higher than the national benchmark figures provided by Medicare. Hospitals that
15
have patients staying too long are financially disadvantaged in obtaining reimbursement
from the government.
To address problems with its recent low patient satisfaction ratings, the RFP
required the physicians in the contracting medical group to meet certain standards for
attendance at the hospital site, for communication of discharge plans, for participation in
meetings, and for record keeping of patient progress notes.
According to Smith, the Affordable Care Act will impose financial penalties on
hospitals that have unduly high readmission rates. The RFP process was intended to
make a single medical group responsible for readmissions, to promote consistency and
certainty.
The criteria set forth in the RFP were established after discussions with Sharp
medical staff, regarding appropriate standards for qualifying hospitalists, such as their
history of leadership positions at Sharp. Qualifying hospitalists would not be allowed to
maintain active outpatient practices, in order to increase their availability to the hospital.
(See Mateo-Woodburn, supra, 221 Cal.App.3d at p. 1184 [decision is quasi-legislative in
nature when it is "undertaken as a general effort to address an administrative problem . . .
affecting other functions within the hospital and the overall quality of medical
services"].)
Respondents set forth sufficient evidence, as above, that the decision to pursue the
RFP was not wrongful or irrational, based on the recent history about conflicts in
coverage and problems with compliance with standards. Further, the RFP criteria for the
successful bidder was not entirely unrelated to the future performance expected of the
16
chosen group, with regard to availability and professional standing. In these respects,
Respondents adequately showed the decision was rationally based on valid considerations
of hospital management, thus shifting the burden to Frost to demonstrate otherwise.
B. Procedural Fairness
Respondents sought to meet their initial burden on summary adjudication to show
the procedural fairness aspect of their defense, by outlining the method in which the RFP
was developed and implemented. Smith's declaration said it was his idea to issue an RFP
seeking bids for a contract with a single group of hospitalists. His administration
solicited input about the contents of the RFP from different members and committees of
the hospital's medical staff. Smith discussed the issues at a meeting of the emergency
and acute care steering committees. He also met with a Sharp supervisory committee for
its internal medicine department, and Sharp's medical staff's executive committee. An
"open forum" was held on the subject for interested members of the medical staff.
After deciding to proceed, Sharp circulated the final RFP to all members of the ER
call panel, including Frost's physicians. Three bids were received and evaluated by an
eight-person "Advisory Committee." Its members represented Sharp's board of trustees,
Sharp's medical staff, Sharp's administration, and a vice president of Sharp HealthCare.
The committee interviewed and ranked the three bidders, on promised quality of care and
customer service, as well as leadership and organizational status. SDHA was rated
highest.
Having presented evidence of the development and use of the above criteria, Sharp
set forth enough of a justification and explanation of the RFP procedure to make a prima
17
facie showing that it was entitled to summary adjudication on the three related unfair
competition claims. (Centeno, supra, 107 Cal.App.3d 62, 72-74; see Silva, supra,
65 Cal.App.4th at p. 261.)
IV
FROST OPPOSITION; ANALYSIS
A. Rationality of Criteria for RFP
Frost's response sought to raise material factual disputes about the wrongfulness of
the substantive criteria used to justify the preparation of the RFP, and about the
excessively strict, biased or irrational nature of the qualifications set forth in the RFP for
the successful bidder. Frost contends the process was controlled by favoritism and
disputed facts should be resolved at a court or jury trial.
First, Frost objects that Sharp used faulty data that related only to internal
medicine physicians, when it decided to pursue a contract with a single hospitalist group.
One of the Frost physicians testified at deposition that the admissions data used to show
that Sharp had had problems with Medicare reimbursement criteria, and that there would
likely be similar problems with the Affordable Care Act, incorrectly compared the types
of emergency patients who had to be admitted or readmitted. Some such patients were
especially vulnerable (homeless and/or lacking in regular medical care), while others
were healthy and had primary physician care. Further, the admissions data used were
arguably misleading because they compared different types of physician practices and
track records, and limited them to internal medicine only, but without justification.
18
In the appellant's reply brief, Frost focuses on some of the policies set forth in the
Affordable Care Act and argues, for the first time on appeal, that in preparing the RFP,
Sharp should not have focused upon such factors as readmission rates or patient
satisfaction ratings, but instead, Sharp should have avoided a closed staff system, to
promote wider access to medical care in accordance with the principles of that Act.
However, Frost cannot show that such abstract policy issues were properly brought
before the trial court in this context, and we need not address them here.
Frost also submitted evidence in an effort to prove that Sharp must not have
actually relied upon a valuable data set about admissions or patient satisfaction. One
Frost doctor told Sharp officials that he left SDIMG because he questioned its ethics,
billing, communications, and compensation. Since Sharp did not investigate those
allegations, Frost contends that inferences can be drawn that Sharp was not very
interested in quality of care, but rather mainly interested in promoting the interests of
SDIMG.
Next, Frost argued that the qualifications set forth in the RFP were specifically
designed to favor the Roth call group, which had collectively more seniority and more
committee assignments than the Frost doctors had. Frost claimed its evidence was
sufficient to create an inference that Sharp was "biased" in favor of SDHA. For example,
Sharp gave preferential treatment to physicians who were members of the Roth call
group, by expediting their qualification procedures. When some Frost doctors left the
employ of SDIMG, they received warnings from Dr. Roth that they would not be allowed
to take any calls on the ER Call List. Dr. Roth was heard by colleagues to brag or boast
19
that his group was going to get the contract, and other doctors agreed that was going to
happen.
Frost contends its evidence definitively showed that Sharp took intentional actions
"directed specifically toward the exclusion of a particular physician or groups of
physicians." (Redding, supra, 208 Cal.App.3d at p. 104.) It points to incidents of
personal animosity between Dr. Roth's group and its own members. In a similar factual
context in Major, supra, 71 Cal.App.4th 1380, 1415, the court observed: "There is no
question the selection process was not a model of consistency and could have been done
better or differently. However, it is not the role of a reviewing court to question the
wisdom of an employment decision." Here too, it is not enough for Frost to claim that a
different decision would have been justified or should have been made, based on
alternative viewpoints. Different rational conclusions could be reached on the same set
of facts, which included known logistical and financial problems with the previous ER
call system, and the good reputation of SDHA physicians, who apparently amounted to a
known quantity in which the Sharp administration had confidence. (See Mateo-
Woodburn, supra, 221 Cal.App.3d 1169, 1185 [when hospital considers various
alternatives and selects a method to solve a problem, the courts are not in a position to
disagree].)
The trial court had an adequate basis in the record to find that the Sharp decision
on the RFP was not predominantly based on consideration of unlawful criteria, and that it
was undertaken "for less personally directed reasons." (Redding, supra, 208 Cal.App.3d
98, 104.) There were rational reasons put forth for the decision to pursue the RFP
20
process, and for establishing the qualifications to be met. (Mateo-Woodburn, supra, 221
Cal.App.3d 1169, 1183-1184; Major, supra, 71 Cal.App.4th 1380, 1398-1399.) Some
reasonable basis for the classification or administrative decision has been demonstrated,
and regarding this factor, we refrain from substituting our judgment for that of the
administrative entity. (Pitts v. Perluss, supra, 58 Cal.2d 824, 835, fn. 4; Major, supra, at
p. 1398.)
B. Procedural Fairness, "Bad Faith" Claims
Frost next contends that the Sharp action in issuing and deciding on the RFP
should not qualify as a protected quasi-legislative decision, because it was not actually
"one of general application intended to address an administrative problem as a whole and
not directed at specific individuals." (Major, supra, 71 Cal.App.4th at p. 1398.) Frost
again claims the RFP procedures were unfair and entirely directed by favoritism for the
Roth call group.
As support, Frost points to evidence that when several of its doctors left SDIMG
and made criticisms about it to Sharp, the RFP process followed. Frost would have this
court draw inferences that the leading RFP motivation was to protect the Roth interests.
For example, Sharp did not investigate Frost's complaints about SDIMG, the Roth call
group. Some of the Frost doctors testified about their beliefs that Dr. Roth and his group
were working to prevent them from being eligible for the ER call panel. Some of the
Frost doctors received unsubstantiated care review letters, which they attributed to the
adverse influence of Dr. Roth.
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Frost contends that the trial court incorrectly relied on Wilson, supra,
256 Cal.App.2d 271, 286 for the concept that an administrative body's "bias or prejudice"
in favor of its own established policy does not invalidate a quasi-legislative managerial
decision on a related matter, that is otherwise supported. Frost argues that Wilson should
be distinguishable, because "Sharp's prejudice and bias in favor of Dr. Roth's group goes
to the heart of the issue: whether Sharp acted in good faith in implementing an entirely
new policy at the hospital. [¶] The evidence of bias and prejudice Frost . . . set forth in its
opposition papers was not bias and prejudice Sharp exhibited in favor of a specific
policy, but rather bias and prejudice which Sharp exhibited towards a favored former
Chief of Staff to the exclusion of the Frost . . . doctors which [led] to the implementation
of a sham RFP. That is a significant difference which makes Wilson very distinguishable
from the instant case."
Respectfully, we think that Frost misses the point. Although there was conflict at
the hospital, not all of it was entirely personal. The Sharp management could justifiably
develop such a new policy as a response to recent reported problems with coverage for
different types of emergency patients, and in response to financial constraints imposed by
government programs such as Medicare, regarding admission rates and patient
satisfaction reports. Once the RFP process began, the methods used to develop its criteria
and for review of the proposals were based on hospital professional committee work,
justifying inferences that appropriate decisionmaking processes were followed. The
factor that different outcomes could have been decided on the same evidence does not
22
prove that the Sharp decisions were wrong or sham. (Major, supra, 71 Cal.App.4th at
p. 1415.)
Specifically, the evidence produced by Frost does not support its Cartwright Act
cause of action that claimed the RFP's exclusive contract constituted predatory economic
behavior that would wrongfully align physician and hospital interests, thus allowing
illegal price manipulation. (See Korea Supply, supra, 29 Cal.4th 1134, 1160-1161.)
Frost did not demonstrate the existence of triable issues about whether the RFP procedure
constituted unfair competition, because Respondents were able to set forth evidence of
rationally based criteria for pursuing it, in the form it took. Moreover, the execution of
the RFP process allowed interested stakeholders a chance to respond, and the process was
not demonstrably sham or procedurally unfair. (Mateo-Woodburn, supra, 221
Cal.App.3d at p. 1186.) Similarly, the disputed care review referrals were found to be
unsubstantiated concerning Frost doctors, suggesting that the process was not corrupted.
With respect to Frost's UCL and tort claims, the managerial activities of Sharp
were shown to be defensible as falling within the sphere of lawful administrative
behavior, in this legal context. (Korea Supply, supra, 29 Cal.4th 1134, 1159-1160.) In
Frost's IIPEA cause of action, it claims that Sharp and Respondents acted wrongfully.
"An act is not independently wrongful merely because defendant acted with an improper
motive." (Id. at p. 1158.) An act is independently wrongful if unlawful, "that is, if it is
proscribed by some constitutional, statutory, regulatory, common law, or other
determinable legal standard." (Id. at p. 1159.) But here, Respondents showed that
because of the nature of the hospitalist practice and the structure of the business in which
23
it operated, they are entitled to assert the defense of entitlement to judicial deference for
managerial, administrative decisions. Frost did not sufficiently rebut their showing with
demonstrations that it suffered legal wrongs, through the acts of any of the Respondents.
(Mateo-Woodburn, supra, 221 Cal.App.3d 1169, 1188-1189.)
In conclusion, it would not be appropriate to reverse the judgments to allow a trier
of fact effectively to second-guess rationally based hospital managerial, quasi-legislative
decisions. Legitimate public policies underlie judicial recognition of and deference to
special expertise in the field of hospital administration. (Redding, supra, 208 Cal.App.3d
at p. 106.) These rulings are legally correct and we affirm the judgments of dismissal of
the remaining claims.
DISPOSITION
Judgments affirmed. Costs are awarded to Respondents.
HUFFMAN, J.
WE CONCUR:
McCONNELL, P. J.
NARES, J.
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