Natarajan v. Dignity Health

IN THE SUPREME COURT OF
CALIFORNIA
SUNDAR NATARAJAN,
Plaintiff and Appellant,
v.
DIGNITY HEALTH,
Defendant and Respondent.
S259364
Third Appellate District
C085906
San Joaquin County Superior Court
STK-CV-UWM-2016-4821
August 12, 2021
Justice Kruger authored the opinion of the Court, in which Chief
Justice Cantil-Sakauye and Justices Corrigan, Liu, Cuéllar,
Groban, and Jenkins concurred.
NATARAJAN v. DIGNITY HEALTH
S259364
Opinion of the Court by Kruger, J.
Under California’s peer review statute, a hospital must
afford a physician a fair hearing before revoking the physician’s
staff privileges. (Bus. & Prof. Code, § 809 et seq.) A panel of the
physician’s peers generally serves as the trier of fact at these
proceedings. Proceedings before a peer review panel may be
conducted by a hearing officer who makes evidentiary and
procedural rulings, but who may not vote on the merits. To
ensure impartiality, the statute provides that neither panel
members nor hearing officers may gain a “direct financial
benefit from the outcome.” (Bus. & Prof. Code, § 809.2, subds.
(a) & (b).)
The question in this case is whether a person hired by a
hospital to serve as a hearing officer may be disqualified for
financial bias under Business and Professions Code section
809.2, subdivision (b), on grounds that the officer has an
incentive to favor the hospital in order to increase the chances
of receiving future appointments. The Court of Appeal in this
case answered no. We reach a different conclusion. While a
hearing officer’s interest in future employment is not
automatically disqualifying, neither is it categorically beyond
the reach of the statute. In some cases, depending on the
circumstances, the hearing officer’s financial interest in
currying favor with the hiring entity may create an intolerable
risk of bias requiring disqualification under the statute. But
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Opinion of the Court by Kruger, J.
because the record does not establish this is such a case, we
affirm the judgment of the Court of Appeal.
I.
A.
In California, hospitals are composed of an administrative
governing body that oversees hospital operations and a medical
staff that provides medical services and ensures its members
provide adequate medical care to patients. A physician who
wishes to practice at a hospital must maintain staff privileges.
The termination of staff privileges can significantly limit the
physician’s ability to practice medicine. For that reason, before
staff privileges can be terminated, the physician must be
afforded certain procedural protections, including the
opportunity for review of the termination decision. (El-Attar v.
Hollywood Presbyterian Medical Center (2013) 56 Cal.4th 976(El-Attar); Cal. Code Regs., tit. 22, § 70703, subd. (a).)
Hospital peer review originated as a purely voluntary
process for handling recommendations to suspend or terminate
physician staff privileges, but by now has become firmly
embedded in California law. For decades before the peer review
statute was enacted in 1989, California courts had held that
hospitals must provide certain protections to physicians facing
the denial of staff privileges. For private hospitals like
St. Joseph’s Medical Center of Stockton, the obligation was
rooted in the common law doctrine of fair procedure, which
applies to the membership decisions of certain private
organizations affecting the public interest. (El-Attar, supra, 56
Cal.4th at pp. 986–987, citing, inter alia, Anton v. San Antonio
Community Hosp. (1977) 19 Cal.3d 802; see, e.g., Kaiser
Foundation Hospitals v. Superior Court (2005) 128 Cal.App.4th
2NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
85, 102; Applebaum v. Board of Directors (1980) 104 Cal.App.3d
648, 657 (Applebaum).) Fair procedure required hospitals to
afford physicians certain fundamental procedural protections,
including adequate notice and an opportunity to be heard before
an impartial decision maker. (El-Attar, at pp. 986–987;
Applebaum, at p. 657.)
When the Legislature enacted the peer review statute in
1989, it both codified the peer review process and made peer
review “part of a comprehensive statutory scheme for the
licensure of California physicians.” (Mileikowsky v. West Hills
Hospital & Medical Center (2009) 45 Cal.4th 1259, 1267
(Mileikowsky); see Bus. & Prof. Code, § 809 et seq.) The two
primary goals of the peer review statute are “to protect the
health and welfare of the people of California by excluding
through the peer review mechanism ‘those healing arts
practitioners who provide substandard care or who engage in
professional misconduct’ ” and “to protect competent
practitioners from being barred from practice for arbitrary or
discriminatory reasons.” (Mileikowsky, at p. 1267.)
The bulk of the peer review statute’s requirements are
aimed at private hospitals, like the hospital at issue in this case.
(See Bus. & Prof. Code, § 809.7.) Under these provisions, when
the peer review body — often a hospital medical staff
committee — recommends denying, revoking, or otherwise
restricting a physician’s staff privileges for reasons of
professional performance, the physician may request a hearing.
(Id., § 809.1; see id., §§ 805, subd. (a)(1)(B)(i), 809, subd. (b)
[defining “peer review body”].) The hearing shall take place
before a trier of fact who is either (1) an arbitrator or arbitrators
selected through a mutually acceptable process, or (2) a panel of
fellow practitioners including, where feasible, a member who
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Opinion of the Court by Kruger, J.
practices the same specialty as the physician. (Id., § 809.2,
subd. (a) (section 809.2(a)).)
When the hearing is held before a peer review panel, a
hearing officer may be appointed to preside. (Bus. & Prof. Code,
§ 809.2, subd. (b) (section 809.2(b)).) Unlike the members of the
panel, the hearing officer need not be a medical practitioner;
often the hearing officer is a lawyer.1 If a hearing officer is
selected, the hearing officer is tasked with making procedural
and evidentiary decisions, including ruling on requests for
access to information, requests for continuances, and challenges
to the impartiality of the panel members or hearing officer. (Id.,
§ 809.2, subds. (c)–(h).) The hearing officer may not, however,
vote on the outcome; the ultimate decision is left exclusively to
the panel. (Id., §§ 809.2(b), 809.4, subd. (a)(1).)2
The statute provides that hearing officers and panel
members alike “shall gain no direct financial benefit from the
outcome.” (§ 809.2(a) & (b).) The physician may question the
panel members and hearing officer on voir dire, and has “the
right to challenge the impartiality of any member or hearing
officer.” (Bus. & Prof. Code, § 809.2, subd. (c).) The hearing
1
The California Medical Association model medical staff
bylaws in fact require the hearing officer to be a lawyer.
St. Joseph’s Medical Center of Stockton’s medical staff bylaws
do not contain this particular requirement, but the hearing
officer in this case was nonetheless a lawyer.
2
Additional protections may be required by individual
hospitals. Although the hearing at issue here was run pursuant
to the hospital’s medical staff bylaws, the bylaws’ hearing officer
requirements are similar to, and not inconsistent with, those of
the peer review statute. (See Bus. & Prof. Code, § 809.6, subd.
(a).)
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Opinion of the Court by Kruger, J.
officer, if one has been selected, is responsible for ruling on such
challenges. (Ibid.)
B.
St. Joseph’s Medical Center of Stockton is a private, self-
governing hospital owned by Dignity Health, a California-based
health care organization. In 2007, St. Joseph’s hired Sundar
Natarajan, M.D., as director of its hospitalist program. About
two years later, Natarajan left this position and started his own
hospitalist group that also operated out of St. Joseph’s.
Beginning in 2011, the St. Joseph’s medical staff raised
concerns about Natarajan’s hospitalist practice, including
deficient recordkeeping, excessive length of patient stay, and
misuse of consultants. The medical staff repeatedly
reprimanded and issued fines to Natarajan because of his
recordkeeping deficiencies. Although Natarajan acknowledged
the problem, the recordkeeping issues persisted. By August
2013, the chair of the medical department notified Natarajan
that a committee of physicians would launch an investigation
into these alleged administrative deficiencies. After the
investigation, the committee recommended revoking
Natarajan’s privileges. The medical executive committee then
reviewed the recommendation, considered Natarajan’s
responsive presentation, and adopted the recommendation to
terminate his medical staff membership and hospital privileges.
Natarajan requested a peer review hearing to review the
recommendation. In accordance with St. Joseph’s bylaws, the
chief of the medical staff selected physicians to serve on the
hearing panel, and the hospital president exercised authority
delegated by the medical staff to select A. Robert Singer, a
semiretired attorney, to serve as the hearing officer.
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Opinion of the Court by Kruger, J.
Invoking his statutory right to “challenge the impartiality
of any member or hearing officer” under Business and
Professions Code section 809.2, subdivision (c) (section 809.2(c)),
Natarajan challenged Singer’s appointment on grounds of
financial bias. Natarajan’s challenge relied primarily on this
court’s decision in Haas v. County of San Bernardino (2002) 27
Cal.4th 1017 (Haas). In Haas, this court found a due process
violation where a county appointed an attorney to serve as an
ad hoc temporary hearing officer to adjudicate a business
licensing dispute. Haas reasoned that the nature of the
relationship between the county and the attorney created an
impermissible temptation for the attorney to favor the county in
hopes she might be hired to adjudicate more cases in the future.
(Id. at p. 1020.) Natarajan argued that Singer had an analogous
temptation to favor Dignity Health. Natarajan emphasized that
St. Joseph’s hired Singer at the recommendation of Dignity
Health, which was paying Singer for his work on the matter; and
Singer had previously served as a hearing officer in eight peer
review hearings, one of which was still ongoing, at other Dignity
Health hospitals (in addition to conducting hearings at hospitals
affiliated with other networks). Natarajan acknowledged that
Singer’s contract contained a provision that would preclude St.
Joseph’s from hiring him for three years. Natarajan argued,
however, that this bar was insufficient because it did not extend
to the dozens of other Dignity Health facilities in the state.
Singer, exercising his section 809.2(c) authority to rule on
disqualification motions, denied Natarajan’s challenge. Later,
after several evidentiary hearings spanning nearly a year, the
peer review panel upheld the medical executive committee’s
recommendation to revoke Natarajan’s staff membership and
privileges.
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Opinion of the Court by Kruger, J.
Natarajan filed an administrative appeal. He did not
challenge the sufficiency of the evidence supporting the panel’s
decision; his primary argument was instead that he had not
received a fair hearing because of Singer’s purported financial
conflict. Rejecting the argument, the governing board’s
subcommittee affirmed the panel’s decision. Natarajan then
filed a petition for writ of administrative mandate in the
superior court. The superior court denied the petition,
concluding, as relevant here, that Natarajan had not established
that Singer stood to gain a “direct financial benefit from the
outcome” of the proceeding. (§ 809.2(b).)
Natarajan appealed. In a published decision, the Court of
Appeal rejected Natarajan’s challenge to Singer’s ruling on his
disqualification motion. The court reasoned that in the context
of private hospital peer review, disqualification standards are
not governed by constitutional due process, as in Haas, but by
statute; section 809.2(b) specifies that the hearing officer “shall
gain no direct financial benefit from the outcome.” (Bus. & Prof.
Code, §§ 809.2(b), 809.7; Natarajan v. Dignity Health (2019) 42
Cal.App.5th 383, 391 (Natarajan).) Concluding that potential
reappointment within the same private hospital network does
not qualify as a direct financial benefit, the Court of Appeal
affirmed the denial of Natarajan’s writ petition. (Natarajan, at
p. 392.)
In so holding, the Court of Appeal disagreed with Yaqub
v. Salinas Valley Memorial Healthcare System (2004) 122
Cal.App.4th 474 (Yaqub), which, relying on Haas, held that a
hospital peer review hearing officer should have been
disqualified because, among other things, the hearing officer
had been appointed on an ad hoc basis and there was a
possibility he would be reappointed in the future.
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Opinion of the Court by Kruger, J.
We granted review to address the disagreement between
the published decisions of the Courts of Appeal.
II.
The “peer review statute, like the common law fair
procedure doctrine that preceded it, ‘establishes minimum
protections for physicians subject to adverse action in the peer
review system.’ ” (El-Attar, supra, 56 Cal.4th at p. 988, quoting
Mileikowsky, supra, 45 Cal.4th at p. 1268; see Bus. & Prof. Code,
§ 809.2.) One of these protections is the right to a hearing before
an impartial body. To secure this right, the peer review statute
permits physicians to question panel members and hearing
officers and to challenge their impartiality. (§ 809.2(c).) Unlike
the codes that govern the disqualification of judges (Code Civ.
Proc., § 170.1) or neutral arbitrators (e.g., id., §§ 1281–1281.95),
the peer review statute does not contain comprehensive
standards to determine whether panel members or officers
should be disqualified. But it does contain an express standard
for disqualification on the basis of financial interest in the
proceeding: A hearing officer, like members of the peer review
panel, “shall gain no direct financial benefit from the outcome.”
(Compare § 809.2(b) with § 809.2(a).)
The parties agree that section 809.2(b)’s “direct financial
benefit” standard governs this case but disagree about how it
applies. Natarajan contends that the prospect of future work for
the same hospital or an affiliated hospital network is a direct
financial benefit that requires disqualification. Dignity Health,
for its part, maintains that an interest in possible future
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Opinion of the Court by Kruger, J.
employment is an insufficient ground for disqualifying a
nonvoting hearing officer from service.
A.
Before assessing the parties’ competing positions, we
begin by surveying the common ground between them. The
term “direct financial benefit” is undefined in the peer review
statute, but it is not an unfamiliar standard. As both sides
agree, the term parallels — and by all appearances, derives
from — the disqualification standard that courts had developed
as a matter of common law fair procedure before the peer review
statute was enacted. Drawing in turn on due process case law,
courts explained that fair procedure includes the right to an
impartial decision maker. (Applebaum, supra, 104 Cal.App.3d
at p. 657, citing, inter alia, Withrow v. Larkin (1975) 421 U.S.
35, 47; American Motors Sales Corp. v. New Motor Vehicle Bd.
(1977) 69 Cal.App.3d 983, 991 (American Motors Sales Corp.);
accord, Lasko v. Valley Presbyterian Hospital (1986) 180
Cal.App.3d 519, 529.) They explained that disqualification of
the decision maker “should occur if there is actual bias,” but that
“[d]isqualification may also be necessary if a situation exists
under which human experience teaches that the probability of
actual bias is too high to be constitutionally tolerable.”
(Hackethal v. California Medical Assn. (1982) 138 Cal.App.3d
435, 443 (Hackethal).) One example of a situation where “the
probability of actual bias is too high” is when the adjudicator
“has a direct pecuniary interest in the outcome.” (Ibid., italics
added; accord, Lasko, at p. 529.)
The parties agree that when the Legislature used the
nearly identical phrase “direct financial benefit from the
outcome” in setting out a financial conflicts standard in section
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Opinion of the Court by Kruger, J.
809.2(b), it meant to codify the common law rule. This stands to
reason, since, as we explained in El-Attar, the peer review
statute was, in general, designed to codify common law fair
procedure. (See El-Attar, supra, 56 Cal.4th at p. 988.)
Considering section 809.2(b) from that vantage point makes
certain points clear. First, as both sides agree, section
809.2(b) — like the parallel provision governing panel members
in section 809.2(a), and like the common law rule that preceded
them both — requires disqualification when financial conflicts
create an unacceptable risk of bias.3 (See Hackethal, supra, 138
Cal.App.3d at p. 443.) Most obviously, this means neither the
panel members nor the hearing officer may stand to realize
financial gain as a direct result of the outcome of the proceeding.
For example, a hospital cannot pay the hearing officer more
depending on whether the peer review proceeding resulted in
the termination of staff privileges. (Cf. Tumey v. Ohio (1927)
273 U.S. 510, 535 [criminal defendant denied due process
because adjudicator had a “direct pecuniary interest in the
outcome” in the form of costs and fees awarded only if defendant
was convicted]; see id. at pp. 531–532.) Further, to take an
example that arises more commonly in the peer review setting,
section 809.2(a) and (b) also mean that neither a panel member
nor a hearing officer may serve if that person is a direct business
competitor and thus stands to profit if the physician were
ultimately to lose staff privileges. (Hackethal, at p. 443 [if
shown to be a business competitor of the petitioner, tribunal
3
This agreement makes it unnecessary for us to further
address the issue Natarajan had originally posed in his petition
for review, which asked whether section 809.2(b) requires
disqualification only in the event of actual bias or whether it also
reaches cases involving the appearance of bias.
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Opinion of the Court by Kruger, J.
member could be subject to disqualification for having “a direct
pecuniary interest in the outcome”]; cf. Gibson v. Berryhill
(1973) 411 U.S. 564, 579 [state board composed of optometrists
disqualified from adjudicating revocation of licenses of
competing optometrists on grounds of “substantial pecuniary
interest[s]”]; see id. at p. 578.) Courts had so held as a matter
of common law fair procedure (see Hackethal, at p. 443), and it
is undisputed that the same prohibition applies by virtue of
section 809.2’s codification of the common law standard. 4
There is, however, no similarly clear answer to the
question whether section 809.2(b) reaches financial conflicts
based on the hearing officer’s possibility of future employment.
No prestatutory fair procedure case ever addressed the question.
The Court of Appeal, in its opinion, suggested the answer was
clear from the Legislature’s choice of the term “ ‘direct financial
benefit,’ ” reasoning that if the Legislature had intended to
disqualify a hearing officer who has a “mere possible interest in
future employment,” it would have described the disqualifying
benefit as “ ‘potential’ or ‘possible,’ rather than ‘direct.’ ”
(Natarajan, supra, 42 Cal.App.5th at pp. 391–392.) We are,
however, unpersuaded that the plain language of the statute
categorically exempts financial conflicts based on the possibility
of future financial gain. In ordinary parlance, the word “direct”
4
The parties’ agreement on this point appears to reflect a
more general consensus about the disqualification of business
competitors in peer review. The problem arises enough that it
is explicitly mentioned in the federal peer review statute, which
is otherwise silent on questions of peer review participant
disqualification; the statute directs that neither panel members
nor hearing officers may serve if they are “in direct economic
competition with the physician involved.” (42 U.S.C.
§ 11112(b)(3)(A)(ii)–(iii).)
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Opinion of the Court by Kruger, J.
connotes immediacy: the “absence of an intervening agency . . .
or influence” or “stemming immediately from a source.”
(Webster’s 9th New Collegiate Dict. (1988) p. 358.) But much
like the word “immediate” itself, “direct” is a relative term. The
competitor cases illustrate the point. An adjudicator does not
gain an immediate financial benefit from disciplining a
competitor in the sense that money automatically lands in the
adjudicator’s hands upon ruling, as would a bribe or a kickback.
Still, no one disputes that business competitors can have a
disqualifying direct financial interest in a disciplinary
proceeding. The common law fair procedure cases explain why:
Even though the prospect of gaining a competitive advantage is
not as direct a benefit as money in hand, it is sufficiently direct
to create a “distinct possibility” the controversy “will not be
decided on its merits but on the potential pecuniary interest” of
the adjudicator. (American Motors Sales Corp., supra, 69
Cal.App.3d at p. 988; see id. at p. 987; see also Gibson v.
Berryhill, supra, 411 U.S. at p. 579 [adjudicator’s “financial
stake need not be as direct or positive as it appeared to be in
Tumey [v. Ohio, supra, 273 U.S. 510]” for it to be disqualifying
(italics added)].)
Reading section 809.2(b) against this backdrop, we agree
with both sides that the question before us is not simply whether
the hearing officer will receive a guaranteed payout depending
on the results of the peer review hearing. It is, rather, whether
the hearing officer stands to gain a financial benefit that creates
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Opinion of the Court by Kruger, J.
an unacceptable risk that the officer will make his decisions
with his mind on money, not on the merits.
B.
We now move from common ground to contested terrain.
Our jumping-off point is Haas, supra, 27 Cal.4th 1017. As noted
above, Haas was a due process challenge to a county business
licensing appeal based on the financial conflicts associated with
the way the county had appointed the administrative hearing
officer. The administrative hearing officer was not a county
official but was a practicing lawyer who had been hired by the
county on an ad hoc basis to adjudicate the proceedings. She
had not been hired by the county previously, but the county’s
counsel indicated that the county intended to use the officer
again “ ‘as the occasion suggests, in the future if she’s interested
in doing it and if the case should arise’ ” and that the county’s
contract with the officer was “ ‘open-ended.’ ” (Id. at p. 1022.)
This court held that, as a matter of due process, the officer
should have been disqualified.
We explained that due process requires quasi-judicial
decision makers, like judicial officers, to be fair and impartial.
And while adjudicators are ordinarily afforded a presumption of
impartiality, no such presumption applies where financial
interests are concerned; rather, due process requires the
disqualification of an adjudicator who has a financial interest
that “would offer a possible temptation to the average person as
judge not to hold the balance nice, clear and true.” (Haas, supra,
27 Cal.4th at p. 1026.) It was this basic principle, we explained,
that led courts to condemn so-called fee systems, in which
prosecutors and plaintiffs chose a judge who was paid a flat fee
for each case adjudicated. Although the judge was paid
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Opinion of the Court by Kruger, J.
regardless of outcome, more cases meant more compensation,
and so the selection process gave the judge “a pecuniary
incentive to favor frequent litigants.” (Id. at p. 1028, citing,
inter alia, Brown v. Vance (5th Cir. 1981) 637 F.2d 272, 274.)
From the fee system cases we derived this general lesson: “A
procedure holding out to the adjudicator, even implicitly, the
possibility of future employment in exchange for favorable
decisions creates such a temptation and, thus, an objective,
constitutionally impermissible appearance and risk of bias.”
(Haas, at p. 1034.)
Natarajan contends that Haas applies here and requires
the disqualification of hearing officers who are appointed on an
ad hoc basis, because the possibility of future hearing officer
employment creates an unacceptable risk of bias. Dignity
Health disagrees. It contends Haas is distinguishable, and that
the practical consequences of importing its due process standard
to the peer review context would be to require the
disqualification of virtually all experienced hearing officers, the
vast majority of whom are lawyers appointed by hospitals on an
ad hoc basis.
As an initial matter, we agree with Dignity Health that
Haas does not directly control this case. The question before us
concerns the meaning of the peer review statute’s
disqualification standard for hearing officers in section 809.2(b);
Haas was not a peer review case and did not interpret or address
section 809.2(b). And Haas was not decided until 13 years after
the peer review statute was enacted, so the Legislature could
not possibly have written section 809.2(b) with Haas in mind.
Nonetheless, we consider Haas helpful to our analysis
inasmuch as it explains why a decision maker’s interest in
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future employment can sometimes affect the decision maker’s
impartiality, though it may not operate as directly as an
outright bribe or kickback. As Haas explains, when an
adjudicator’s prospect for similar work in the future is entirely
dependent on the goodwill of the hiring entity that is free to
select its adjudicators, adjudicators may face financial
temptations not to hold the balance “ ‘nice, clear and true.’ ”
(Haas, supra, 27 Cal.4th at p. 1029.) For hospital peer review
hearing officers, the financial benefits at stake may be
sufficiently “direct” to require disqualification under section
809.2(b).
But while we conclude that the possibility of future
employment may give rise to a disqualifying conflict, we do not
hold that the possibility of future employment always (or nearly
always) gives rise to a disqualifying conflict when a hearing
officer has been appointed on an ad hoc basis. Potential future
employment, on its own, is not automatically disqualifying. If it
were, then every hospital would presumably be required to
locate and train a new hearing officer for every peer review
hearing it holds. This rule would come at considerable cost to
the efficiency and the integrity of the peer review process, and
with minimal benefit in terms of assurance of hearing officer
impartiality. The law imposes no such requirement.
Nor do we hold that disqualification is required whenever
a hospital expresses interest in employing a hearing officer
again in the future if the circumstances arise, regardless of the
extent of the hearing officer’s financial interest in future
employment with that particular hospital. When we found a
disqualifying bias in Haas, we explained that the county’s ad hoc
appointment of the hearing officer deviated from the recognized
norm in quasi-judicial governmental adjudications, which is to
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use hearing officers who are full- or part-time employees of the
local or state government. Where the county had expressed
interest in employing that particular individual on future
occasions, the ad hoc hiring process created a risk that she
would be rewarded with future remunerative employment
should she render decisions favorable to the county. We
considered that risk unacceptable under the circumstances.
(See Haas, supra, 27 Cal.4th at p. 1037, citing Gov. Code,
§§ 27720, 27727.)
Significant differences between the relevant settings
counsel against a presumption that the circumstances that
created an intolerable risk of bias for the ad hoc administrative
judge in Haas would necessarily also create an intolerable risk
for a hearing officer conducting hospital peer review. While the
recognized norm is to use employee adjudicators in the county
quasi-judicial administrative proceedings context, the same
norm does not hold in the peer review context. California’s
hundreds of health care facilities generally select hearing
officers to serve only as the need arises, and hearing officers,
like Singer in this case, frequently find themselves performing
similar work for various entities. And by design, it is ultimately
the peer reviewers — not the hearing officers — who possess the
specialized knowledge required to evaluate the medical
qualifications of other practitioners and who are granted
decisionmaking authority as the “trier[s] of fact.” (Mileikowsky,
supra, 45 Cal.4th at p. 1269; § 809.2(b); § 809.2(a).) A hearing
officer — if one is selected at all — plays a comparatively limited
role in peer review proceedings.
We do not suggest, of course, that the comparatively
limited role of hearing officers makes their impartiality
irrelevant. Peer review hearing officers are not entirely walled
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off from the decisional process and can make procedural and
evidentiary rulings that can affect what evidence the triers of
fact can use as a basis for making their decision.5 It is
presumably for these reasons that the statute secures the right
to an impartial hearing officer, as well as impartial panel
members. (§ 809.2(c).) But Haas did not consider the different
circumstances that might be present in the context of peer
review proceedings, where, among other things, hearing officers
preside over and make significant rulings that affect the
proceedings but ultimately have no vote on the ultimate issue,
which is reserved for the judgment of an expert panel of the
physician’s peers.
Natarajan suggests that the difference in contexts in some
ways might require more demanding disqualification standards
than ordinary judicial or quasi-judicial adjudication, as
substantive errors by biased individuals might go unremedied
because of the deferential standard of review applicable to peer
review proceedings. (Code Civ. Proc., § 1094.5, subd. (b) [abuse
of discretion].) Whatever merit this argument may have in
other contexts, it has limited force here. Whether a hearing
5
As the Court of Appeal noted, the statute permits a
hearing officer to “participate[] in the committee’s deliberations
as a legal advisor, without a vote in the committee’s decision.”
(Natarajan, supra, 42 Cal.App.5th at p. 387; see id. at p. 386.)
Here, Singer served as advisor to the panel, but did not vote on
the outcome; he also evidently assisted the panel in drafting its
written report. Contrary to Natarajan’s arguments, however,
the record contains no indication that Singer substantively
influenced the panel’s decisions or otherwise overstepped the
bounds of the role assigned to him by statute or by hospital
bylaws.
17
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
officer’s procedural rulings give rise to prejudicial error is a
question of law reviewed independently on the administrative
record (Pomona Valley Hospital Medical Center v. Superior
Court (1997) 55 Cal.App.4th 93, 101), and a finding of prejudicial
error would entitle the licentiate to a new hearing. Judicial
review cannot, of course, stand in for a fair proceeding in the
first instance. (Haas, supra, 27 Cal.4th at p. 1034.) But the
scope of judicial review in peer review proceedings does not
persuade us that we must apply a heightened standard for the
disqualification of hearing officers on the basis of financial
conflicts.
Ultimately the question concerns when the risk of
financial bias becomes intolerable under the circumstances.
This is an inherently context-sensitive inquiry, and it should be
undertaken with appropriate regard for the unique features of
the hospital peer review context.
C.
Our conclusions about the governing law mean we must
part company with the Court of Appeal in this case, which
considered the prospect of future employment to be categorically
beyond the reach of section 809.2(b). But we also part ways with
Yaqub, supra, 122 Cal.App.4th 474, whose analysis diverges
from ours in several respects. The court in that case considered,
solely as a matter of general principles of fair procedure,
whether a peer review hearing officer should be disqualified for
bias for several reasons: that he had presided over the same
physician’s prior hearing; that he had once served on the board
of governors for the hospital’s foundation, which raised funds for
the hospital; and that he had been hired on an ad hoc basis to
preside over a number of peer review hearings for the same
18
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
hospital in the past and “there was the potential for further
appointments in the future.” (Id. at p. 485; see id. at p. 481.)
The Court of Appeal in Yaqub concluded that, although there
was “no evidence of actual prejudice or of a direct financial
interest in the outcome of the case,” the circumstances
surrounding the ad hoc hiring of the hearing officer were
sufficient to create a “ ‘possible temptation’ ” to favor the
hospital that led to a disqualifying “appearance of bias” under
Haas. (Id. at pp. 485, 484.)
As the Court of Appeal in this case explained, Yaqub never
considered the import of section 809.2(b), the provision that
governs in this case. But this was not Yaqub’s most significant
error.6 As we have explained above, the parties agree that
section 809.2(b) was designed to embody principles of fair
procedure, which is what Yaqub purported to apply in that case.
The more significant difficulty comes from Yaqub’s suggestion
that disqualification was required because of an “appearance of
bias,” even in the absence of evidence “of a direct financial
interest in the outcome of the case.” (Yaqub, supra, 122
Cal.App.4th at pp. 484, 485; see id. at p. 481.) Contrary to
6
If indeed it was error at all; the opinion does not mention
whether the hospital at issue was private or public, and thus
whether Business and Professions Code section 809.2 applied.
The Court of Appeal in this case also declined to follow
Yaqub because it failed to appreciate that Haas was based on
due process principles applicable to public entities, whereas due
process principles do not apply to private hospitals. (Natarajan,
supra, 42 Cal.App.5th at pp. 389–390, 392.) We express no view
on whether, or to what extent, due process may impose different
requirements from common law fair procedure in various
contexts; for purposes of our analysis here, it makes no
difference.
19
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
Yaqub, we conclude that disqualification is required only when
there exists a direct pecuniary interest — in the words of section
809.2(b), a “direct financial benefit” — that creates an
intolerable risk of actual bias. Such a risk does not arise in every
case simply because a hearing officer has been hired by a
hospital on an ad hoc basis and may be hired again by the same
hospital at some indefinite point in the future. To the extent
Yaqub v. Salinas Valley Memorial Healthcare System, supra,
122 Cal.App.4th 474 can be understood as holding otherwise, we
disapprove it.
D.
We now consider whether, on the facts of this case,
Natarajan showed that the prospect of future employment
created an intolerable risk of bias that should have disqualified
Singer from serving as a hearing officer. Two central factors
guide our inquiry in this case: whether a particular entity
exercises control over the hearing officer selection process, and
the extent and likelihood of future financial opportunities that
the hearing officer may receive from the same entity.7
Here, Singer was formally appointed by St. Joseph’s.
Since retiring from his law firm, Singer received most of his
income from hearing officer work at various health facilities,
7
As part of the disqualification inquiry, a reviewing court
may need to consider whether the hearing officer has offered the
physician an adequate opportunity to establish a record on the
factors relevant to disqualification and, if necessary, permit
additional discovery to augment the record, as the trial court did
here.
20
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
often earning substantial sums from these appointments.8 We
can therefore assume that Singer had more than a trivial
incentive to do what he could to put himself in a good position
for future hearing officer appointments at St. Joseph’s. But
Singer’s contract prohibited further appointments at
St. Joseph’s for a period of three years, meaning that Singer’s
only immediate employment prospects lay with facilities not
involved in the particular proceeding at issue. Whatever
financial interest Singer may have had in the outcome of the
proceedings at St. Joseph’s, it was not sufficient to raise a
meaningful risk of bias.
The three-year bar offers an additional reason why this
case differs from Haas, beyond the differences associated with
the hospital peer review setting (see pp. 14–18, ante). In Haas,
the county’s counsel had affirmatively expressed interest in
hiring the hearing officer again “ ‘in the future if she’s interested
in doing it and if the case should arise’ ”; the county’s contract
with the hearing officer was “ ‘open-ended’ ”; and the county and
the hearing officer both anticipated the possibility of her being
hired for future hearings. (Haas, supra, 27 Cal.4th at p. 1022.)
Haas suggested a temporary bar on future employment was one
way to “eliminate the risk of bias.” (Id. at p. 1037, fn. 22.) We
do not hold that such a temporary bar is invariably required for
hospital peer review hearing officers; again, the inquiry will
8
In addition to his eight hearing officer appointments at
different facilities in the Dignity Health network before the
St. Joseph’s hearings began in 2014, Singer reported that he had
also served as a hearing officer at a similar number of hearings
for entities affiliated with Sutter Health, as well as at a few
hearings at facilities under other hospital network umbrellas,
including Kaiser and Banner Health.
21
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
depend on the circumstances. But we agree with the superior
court in this particular case that the three-year bar on serving
as a hearing officer at St. Joseph’s was sufficient to eliminate
any significant financial temptation Singer might otherwise
have had to favor St. Joseph’s or its medical staff.
Natarajan argues the bar was insufficient because it did
not extend to other hospitals across the Dignity Health network.
This argument depends on the factual premise that Dignity
Health, rather than the hospital medical staff, controlled the
selection process of hearing officers at least at St. Joseph’s, if not
also at other affiliate hospitals. If Dignity Health did not have
control over the process at St. Joseph’s, let alone at its other
affiliate hospitals, Singer would have no reason to believe that
the outcome of this proceeding would affect his prospect of
future employment at another Dignity Health facility.
To evaluate this argument requires us to take a closer look
at what the relevant statutes and record show about Dignity
Health’s role in Singer’s selection to conduct the hearing at
St. Joseph’s. By law, the choice was not Dignity Health’s to
make. The peer review statute authorizes an individual
hospital’s medical staff to grant or revoke hospital privileges,
and to decide how peer review should be structured within the
bounds prescribed by statute, including whether and how the
peer review panel and hearing officer are selected. (Bus. & Prof.
Code, §§ 809, subd. (a)(8), 2282.5 [medical staff self-
governance].) The medical staff is a separate legal entity from
the hospital itself. (Hongsathavij v. Queen of Angels etc. Medical
Center (1998) 62 Cal.App.4th 1123, 1130, fn. 2.) This structure
carries with it certain baseline assurances. Since a hospital’s
medical staff is made up of doctors and other licentiates who
could one day themselves be subject to a peer review hearing,
22
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
each medical staff has an incentive to ensure fairness in the
process for conducting peer review, including how hearing
officers are selected.
Here, St. Joseph’s medical staff, through its bylaws,
delegated the authority to appoint hearing officers to the
St. Joseph’s president. This delegation, in itself, is of no
moment; we have already held that a hospital’s unilateral
selection, even when made via delegation to a hospital official,
ordinarily comports with the peer review statute and basic
principles of fair procedure. (El-Attar, supra, 56 Cal.4th at
pp. 989–991, 993.) After all, the statute provides that “a review
hearing shall be held ‘as determined by the peer review
body’ ” — which can include “ ‘any designee of the peer review
body’ ” (id. at p. 989; Bus. & Prof. Code, §§ 809, subd. (b),
809.2(a)) — and we do not presume that any hearing officer
appointed by a medical staff’s designee is likely to be biased.
(El-Attar, at p. 995.) But Natarajan argues that the practical
effect of the delegation in this case was to permit the hearing
officer selection to be made at the direction of Dignity Health
officials — rather than by officials at St. Joseph’s — which
raises concerns about Singer’s incentives to please Dignity
Health.
When Natarajan raised a similar argument in the trial
court, that court found no evidence that Dignity Health was
responsible for Singer’s appointment. Natarajan contests some
of the trial court’s underlying findings, but our review of the
record accords with the trial court’s conclusion on this
overarching point. Although a Dignity Health attorney initially
contacted Singer to inquire about his availability to serve as a
peer review hearing officer at St. Joseph’s, the decision
ultimately resided with St. Joseph’s officials: The St. Joseph’s
23
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
medical staff delegated the authority to choose a hearing officer
to the president of St. Joseph’s, and it was the president who
contacted and formally appointed Singer a few weeks later.
Nothing in the record shows that the Dignity Health attorney
directed or pressured the St. Joseph’s president to select Singer.
In the absence of evidence to show that Dignity Health
actually controlled the decision to hire Singer, Natarajan argues
that, by virtue of corporate structure, Dignity Health effectively
controls the president of St. Joseph’s and any decision he makes.
Under Dignity Health’s bylaws, the hospital president is
appointed by the hospital’s community board (the governing
body of the hospital), which is, in turn, established by Dignity
Health. But the record contains no information about how the
members of the community board are appointed (or removed) or
how that board appoints (or removes) the hospital president.
And standing alone, the manner in which the president is
appointed is insufficient to establish that the hearing officer
appointment here was made by Dignity Health, rather than by
the president, acting independently on behalf of the medical
staff.
In short, based on the record Natarajan assembled, we
cannot conclude that Dignity Health controlled the appointment
of Singer as a hearing officer at St. Joseph’s; nor can we draw
the further conclusion that Dignity Health controls hearing
officer appointments at its other affiliate hospitals. And if
Dignity Health did not control Singer’s selection, there is no
reason to believe that Singer had a possible temptation to skew
the results in favor of St. Joseph’s in the hopes of obtaining
future work from another of Dignity Health’s entities. We
therefore reject Natarajan’s argument that we should discount
the effect of the three-year bar in this case because it applied
24
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
only to St. Joseph’s and not to every other health facility
affiliated with Dignity Health.
It is true, of course, that Singer and hearing officers may,
in general, face some incentive to court future work at other
hospitals by developing a prohospital reputation. An employer-
specific temporary bar will not completely eliminate that sort of
incentive. But to eliminate such incentives entirely would
require ad hoc hearing officers to forswear future employment
at any hospital. The ban on receiving a “direct financial benefit
from the outcome” (§ 809.2(b)) does not reach so far. The point
of this type of precaution is not to bar a hearing officer from any
future work, nor is it to eliminate ad hoc engagements
altogether. It is, rather, to secure the basic preconditions for a
fair hearing on a physician’s qualifications.
As this case demonstrates, hospitals and their medical
staffs can choose from a variety of tools to ensure the basic
statutory preconditions are satisfied, including the use of
temporary bars on reappointment. They are also free to take
other measures not inconsistent with the statute, as appropriate
given the circumstances of each particular case. (See
Mileikowsky, supra, 45 Cal.4th at p. 1274 [medical staff bylaws
can provide additional peer review protections beyond statutory
requirements].)9 Once again, what measures are necessary will
9
For instance, Natarajan takes issue with the fact that the
statute permits hospitals to choose hearing officers unilaterally;
arbitrators, by contrast, are to be “selected by a process
mutually acceptable to the licentiate and the peer review body.”
(§ 809.2(a).) The argument suggests that giving physicians a
role in recommending or selecting hearing officers could help to
attenuate any connection between an outcome in one hearing
25
NATARAJAN v. DIGNITY HEALTH
Opinion of the Court by Kruger, J.
depend on a careful, context-specific judgment about the risk of
bias presented on the facts. Here, based on the record before us
in this particular case, we conclude the circumstances
surrounding Singer’s appointment did not create an intolerable
risk of bias that would require disqualification under section
809.2(b).
III.
We affirm the judgment of the Court of Appeal.
KRUGER, J.
We Concur:
CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
LIU, J.
CUÉLLAR, J.
GROBAN, J.
JENKINS, J.
and a hospital’s hiring decision in the next. To Natarajan’s
point, nothing in the statute requires medical staffs to permit
the physician to play a role in the selection process, but neither
does the statute forbid medical staffs from allowing the
physician some role if they so choose.
26
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion Natarajan v. Dignity Health
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding
Review Granted (published) XX 42 Cal.App.5th 383Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S259364
Date Filed: August 12, 2021
__________________________________________________________
Court: Superior
County: San Joaquin
Judge: Barbara A. Kronlund
__________________________________________________________
Counsel:
Law Offices of Stephen D. Schear, Stephen D. Schear; Justice First,
Jenny Chi-Chin Huang; and Tara Natarajan for Plaintiff and
Appellant.
Manatt, Phelps & Phillips, Barry S. Landsberg, Doreen Wener
Shenfeld, Joanna S. McCallum and Craig S. Rutenberg for Defendant
and Respondent.
Davis Wright Tremaine and Terri D. Keville for John Muir Health,
Adventist Health, Kaiser Foundation Hospitals, MemorialCare Health
System, Providence St. Joseph Health, Sharp Healthcare and Sutter
Health as Amici Curiae on behalf of Defendant and Respondent.
Arent Fox, Lowell C. Brown, Sarah Benator and Diane Roldán for
California Hospital Association as Amicus Curiae on behalf of
Defendant and Respondent.
Nossaman, Rosenberg, Shpall & Zeigen, Carlo Coppo; Patrick K. Moore
Law Corporation, Patrick K. Moore; Hanson Bridgett, Glenda M.
Zarbock; James R. Lahana; and John D. Harwell as Amici Curiae on
behalf of Defendant and Respondent.
Horvitz & Levy, H. Thomas Watson, Peder K. Batalden and Joshua C.
McDaniel for Scripps Health and Regents of the University of
California as Amici Curiae on behalf of Defendant and Respondent.
Francisco J. Silva, Long X. Do and Joseph M. Cachuela for California
Medical Association as Amicus Curiae.
Freeman Mathis & Gary, Marc J. Shrake; and Joseph P. Wood for
American Academy of Emergency Medicine as Amicus Curiae.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Stephen D. Schear
Law Offices of Stephen D. Schear
2831 Telegraph Avenue
Oakland, CA 94609
(510) 708-9636
Barry S. Landsberg
Manatt, Phelps & Phillips, LLP
2049 Century Park East, Suite 1700
Los Angeles, CA 90067
(310) 312-4259