April, 2000 Newsletter
Vol.2 #3


In a surprise turn of events, the Department of Health (DHS) has begun to enforce Welfare and Institution Code Section 14087.28. In those hospitals with Medicaid contracts, this section limits the hospital’s ability to deny medical staff membership or clinical privileges due to exclusive contracts. The only exclusive contracts allowed are Radiology, Pathology, and Anesthesiology.  The Emergency room is deemed to be open since any member of the medical staff may see patients there.  There may not be exclusive contracts at these hospitals for any other services such as Cardiac Surgery or NICU.  The challenge came from a group of pediatricians that were excluded from a NICU and therefore from seeing their managed care patients by an exclusive contract.  They complained to the DHS and the agency agreed.  This seems to take precedence in Medicaid contracting institutions over past case law that allowed unfettered exclusive contracting.  A new law (SB817) has been proposed to add Cardiac Surgeons to the list of specialties that may have exclusive contracts.  This was defeated in committee.

Hospitals have tried to limit the scope of the exclusive contracts to only Medicaid patients.  This has not been successful.  The law does not limit the exclusive contracts to only the Medicaid patient but to all patients within those hospitals that contract with Medicaid.  Hospitals have some choices: (1) drop Medicaid contracts (2) drop all non-exempt exclusive contracts or (3) open up the non-exempt exclusive contracts to all who will fulfill the obligations of the contracts.  There also must be input and possible agreement of the Medical Staff or MEC to the use of exclusive contracts for presumed hospital efficiency.

Be prepared for significant challenges and expenditures of hospital funds that could be used for better medical uses if your hospital has a Medicaid contract, uses non-exempt exclusive contracts and wishes to fight.  The DHS in letters of January 3, and January 5, and January 21, 2000 reaffirmed its position.


There have been some new protections but also some erosions of the peer review process under Evidence Code 1157.  The California Supreme Court on March 16, 2000 in Fox  v. Kramer decided that peer review protection holds in a malpractice case when the State has reviewed the peer review files and makes recommendations based on that review. The reviewer can not be subpoenaed and neither can the peer review records or the draft recommendations he/she used to make the recommendations.  This continues to allow honest frank discussions in the peer review process without fear of being called to court to testify.  There is no peer review protection if a medical staff member voluntarily gives up the records or wishes to testify.

Since the Emergency Medical Treatment and Active Labor Act (EMTALA) is a Federal law, California Evidence Code 1157 does not apply.  All peer review records are subpoenable if the suit is filed in Federal Court under EMTALA.


At the time of this newsletter the California Supreme Court has heard oral argument and is considering the verdict in Potvin v. Metropolitan Life.  In that case an HMO deselected Dr. Potvin for at first no cause and was given no hearing.  When the HMO was pushed they stated it was due to his malpractice history. The malpractice cases were reviewed and found not to be more in number or severity from the norm for an obstetrical practice. He was deselected anyway.  The legal question is whether an HMO may deselect a physician without a hearing under the termination at will provision or does the physician have a right to a hearing due to the significant economic implications.  While this is being decided, the Sixth Appellate District in a 3-0 opinion ruled that an IPA may not deselect a provider without notice and a hearing for these same economic reasons.  In Castellanos v. Coastal Providers of San Luis Obispo, the court stated that Dr. Castellanos had approximately 1/3 of his income and patients via this IPA.  He had a significant economic interest that under public policy needed to be protected by fair procedure rights.  This decision relied on the same arguments and results in Delta Dental Plan v Banasky, an Appellate Court Decision and Ambrosino v. Metropolitan Life, a Federal District Court discrimination case.  Ambrosino had only approximately 15% of his patients via Metropolitan.  Even if the Supreme Court votes in favor of the insurance company the question will remain whether this also holds in an IPA or is an IPA to be distinguished from an HMO. All physicians that are deselected should demand a fair procedure hearing and at present it may be prudent for all IPAs to give notice and hearing rights to all physicians who they target for deselection.


It is becoming more important (OIG Special Advisory Bulletin September 28, 1999) to query the OIG excluded provider list on a monthly basis.  If one of your staff or ordering non-staff physicians comes on this list and you do not find out until their next reappointment (this should be on your questionnaire) no service for any Medicare or Medicaid patient will be paid if ordered either directly or indirectly by the excluded provider. Your HR department should also be checking for all employees and all those with which the hospital contracts for any service.

Also the Medical Board of California has ruled that Oral Surgeons that hold only DDS degrees can not legally perform cosmetic surgery. There is no problem with those with both a MD and DDS.


Please make sure your Ethics Committee is aware of this new state law.  The new law repeals the Durable Power of Attorney under the Power of Attorney Law, repeals the Natural Death Act and replaces them into this new law that goes into effect July 2000. The new Act does not affect those advance directives valid under prior law.  In respect to physicians it does not authorize a physician or institution to do anything contrary to accepted health care standards, no matter what the person or the designee desire.  Providers may decline to comply with wishes to terminate care for conscientious reasons and must continue to care for the patient while assisting in the transfer of care to another physician or institution that will comply with those wishes. As long as the physician or institution is acting in good faith there will be no liability.  On the other hand if a physician or institution intentionally violates this new law there is a provision for a $2500 fine or actual damages, whichever is greater, plus attorney’s fees. If one alters or forges a written directive or willfully conceals knowledge of an advance directive causing a withholding or withdrawing of life support contrary to the patient’s wishes is subject to prosecution for homicide. The new law also prioritizes those who may make health care decisions for the patient if there is no express designation or the express designee is not available.  The significant other, as defined as a competent adult who is now or has been recently in a long- term relationship with the patient, comes after a spouse but above anyone else.

I have been asked to write future articles on peer review, privileging and EMTALA.  These subjects will be addressed in the next several newsletters

Again, I hope this newsletter is helpful to you and your medical staff. If I may be of help to either please contact me. If you are no longer the Chief of Staff, please forward this newsletter to that individual.  I would appreciate if you would ask your Medical Staff Office to send me the correct name of the new Chief of Staff. It continues to be my desire to see all medical staffs have the opportunity to be represented by counsel independent from the hospital.

DISCLAIMER: Although this article is updated periodically, it reflects the author's point of view at the time of publication. Nothing in this article constitutes legal advice. Readers should consult with their own legal counsel before acting on any of the information presented.