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

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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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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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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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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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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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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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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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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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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.

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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

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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.

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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.

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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.

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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,

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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 383

Review 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