Frost St. Med. Associates v. San Diego Internal Med. Group CA4/1 (2014) · DecisionDepot
Frost St. Med. Associates v. San Diego Internal Med. Group CA4/1
California Court of Appeal Sep 18, 2014 No. D063621Unpublished
Filed 9/18/14 Frost St. Med. Associates v. San Diego Internal Med. Group CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
FROST STREET MEDICAL ASSOCIATES, D063621
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2010-00101456- CU-BT-CTL) SAN DIEGO INTERNAL MEDICAL GROUP, et al.,
Defendants and Respondents.
APPEAL from judgments of the Superior Court of San Diego County, Ronald L.
Styn, Judge. Affirmed.
Sullivan, Hill, Lewin, Rez & Engel, Jenny K. Goodman; Heisner Alvarez and
John R. Heisner for Plaintiff and Appellant.
Duane Morris and Keith Zakarin for Defendants and Respondents San Diego
Internal Medical Group and San Diego Hospitalists, Inc.
Higgs Fletcher & Mack, John Morris, Victoria E. Fuller, William M. Low and
Susan M. Hack for Defendants and Respondents Sharp HealthCare and Sharp Memorial
Hospital.
Plaintiff and appellant Frost Street Medical Associates (Frost), a group of licensed
California physicians who practice as hospitalists in the field of internal medicine, filed
this action for damages and other relief against a hospital where its members previously
practiced, defendants and respondents Sharp HealthCare and Sharp Memorial Hospital
(Sharp). Frost claims Sharp and two competing medical groups, defendants and
respondents San Diego Internal Medical Group (SDIMG) and its successor San Diego
Hospitalists, Inc. (SDHA), participated in various forms of unfair competition.1 Through
the challenged 2010 request for proposal process (RFP), Sharp had selected SDHA from
three applicant groups as the exclusive contract provider of hospitalist services for certain
of its patients who were admitted to the hospital after emergency room visits (i.e., those
who were otherwise "unassigned" to a designated internal medicine physician for
supervision of care).
To challenge their allegedly unfair exclusion from practice as hospitalists for such
"unassigned" patients at Sharp, Frost's causes of action claim that Respondents were in
violation of the Cartwright Act (Bus. & Prof. Code,2 § 16700 et seq.), and/or the Unfair
Competition Law (UCL; § 17200 et seq.). Frost also alleged that Respondents' tortious
acts injured it through their intentional interference with its prospective business
advantage (IIPEA).
1 Where appropriate, we refer to Sharp and the other respondents collectively as Respondents.
2 All further statutory references are to the Business and Professions Code unless noted. 2
The operative test for whether a managerial decision by a hospital, made in a
quasi-legislative capacity, must be set aside by a court is whether that decision was
"substantively irrational, unlawful, contrary to established public policy, or procedurally
unfair." (Centeno v. Roseville Community Hospital (1979) 107 Cal.App.3d 62, 73
(Centeno).) Claiming that Frost could not satisfy this test on any of its causes of action,
Sharp brought a motion for summary judgment or summary adjudication of issues, joined
by the other Respondents. (Code Civ. Proc., § 437c.) The trial court agreed, granting
summary adjudication of the above three causes of action in favor of Respondents. Later,
Frost dismissed without prejudice its surviving related breach of contract claim, and
judgments of dismissal were entered.3
On appeal, Frost argues that triable issues of material fact remain about whether
the RFP procedure followed in this case was substantively and procedurally flawed.
Frost contends the trial court erred in concluding on "undisputed" evidence that
Respondents had adequately shown (1) the Sharp decision to undertake the RFP process
was justified and not irrational, and (2) the process of awarding the exclusive services
contract to SDHA was a good faith exercise of managerial judgment. Instead, Frost
claims its opposition sufficiently showed or raised inferences that the Sharp decision was
3 Such a voluntary dismissal of a cause of action without prejudice prior to trial provides "sufficient finality as to that cause of action so as to allow appeal from a judgment disposing of the other counts." (Kurwa v. Kislinger (2013) 57 Cal.4th 1097, 1105-1106 [citing Code Civ. Proc., § 581, subds. (b)(1), (c)].) No issues are raised here about any agreement for future litigation that would qualify that dismissal, and the finality of the dismissal of other claims will control over this contract cause of action as well. 3
a sham proceeding, representing a biased and predetermined choice in favor of SDHA.
(Centeno, supra, 107 Cal.App.3d 62, 72-73; Blank v. Palo Alto-Stanford Hospital Center
(1965) 234 Cal.App.2d 377, 392 (Blank).) Frost argues that in reaching the opposite
conclusions, the trial court improperly weighed the evidence.
On de novo review, we conclude that the trial court correctly analyzed the
undisputed facts on both sides and applied the appropriate test for evaluating such a
quasi-legislative policy decision. (Major v. Memorial Hospitals Assn. (1999)
71 Cal.App.4th 1380, 1398 (Major).) We affirm the judgments and orders granting the
dispositive motions in favor of Respondents.
FACTUAL AND PROCEDURAL BACKGROUND
A. Outline of Participants and the RFP
From 1991 to 2011, Sharp had an emergency room call policy applicable to all its
emergency patients who had to be admitted, but who lacked their own assigned primary
physician. This policy established an "ER Call List" to be used in assigning a hospitalist
who had medical staff privileges at Sharp to provide such unassigned patients with in-
hospital internal medicine care. The ER Call List consisted of hospitalists who were
either independent physicians or members of medical groups. In contrast, "assigned"
patients admitted to Sharp from emergency were not served by the ER Call List. Their
hospital care was arranged by their own primary physicians or groups. Some hospitalists
also maintain outpatient practices.
Historically, SDIMG physicians were on the ER Call List, as were the seven Frost
physicians. The SDIMG group was also called the Roth call group after its senior
4
physician and administrator, Dr. Kenneth Roth, one of Sharp's former chiefs of staff.
Around this time (2009-2010), the Roth call group evolved into SDHA, the group to
which Sharp awarded the exclusive contract.
During the latter part of the period when the ER call policy for Sharp's unassigned
patients was in effect, friction at the hospital was developing among various physicians
who were employed or formerly employed by SDIMG, concerning the making of
assignments for the delivery of hospitalist care to unassigned patients. At times, there
were logistical problems with assignments leading to delays in care. Confusion
sometimes developed about which doctors were supposed to provide hospitalist coverage
for those obstetrics patients who had been transferred from another Sharp facility.
Some members of Frost left the employment of SDIMG and criticized it for poor
patient care, and they communicated those concerns to Sharp's chief executive officer,
Tim Smith. He responded that he was considering the award of an exclusive hospitalist
contract. Around the same time, some members of SDIMG had criticized the patient care
provided by Frost members, making referrals about them for care review proceedings.
Frost doctors believed they were being unfairly targeted.
In September 2010, Smith and the Sharp board prepared and distributed an RFP
for an exclusive group hospitalist care contract. The RFP was developed in consultation
with various Sharp staff committees, and it set forth certain criteria that applicants had to
meet, including physician experience and leadership qualifications, and the exclusion of
doctors who continued to maintain a private practice.
5
Sharp received three applications, one of which was from a group that some Frost
members belonged to, Memorial Hospitalists Association (MHA). After committee
consideration, Sharp awarded the exclusive contract to SDHA, and amended its ER call
policy accordingly.
B. Causes of Action Affected by Motions
In October 2010, Frost brought this lawsuit seeking injunctive and monetary relief
on the basis that the RFP procedure for awarding the exclusive contract had unfairly
precluded Frost members from continuing to provide hospitalist services to Sharp's
unassigned patients. Frost's substantive causes of action alleged that the RFP process
was not justified by the circumstances, and that its design and procedural implementation
had violated provisions of the ER call policy and Sharp's bylaws. Frost alleged that the
exclusive contract would so align physician and hospital interests as to allow price
manipulation and prevent competitive rates for services. Frost relied on the Cartwright
Act for remedies against such alleged wrongful elimination or reduction of competition.
Frost further pled that under the UCL (§ 17200 et seq.), Respondents' actions
amounted to unfair competition and unfair business practices that should be enjoined,
such as Sharp's failure to enforce the ER call policy. Restitution was sought. Frost
sought tort damages for IIPEA, based on Respondents' "independently wrongful" acts
that interfered with Frost's economic relationships with third parties (i.e., Sharp's
unassigned patients who had been admitted under the previous ER call policy). Frost
claimed that Respondents knew of those relationships, but their intentional and wrongful
acts to proceed with the sham RFP, thereby violating the ER call policy, had unfairly
6
disrupted those relationships. Frost suffered economic harm from those acts, in the form
of lost business opportunities to participate in an ER call panel.
Frost twice applied for temporary restraining orders and sought a preliminary
injunction to prevent the revised ER call policy from going into effect in December 2010.
The court denied the applications, noting at one hearing that Sharp's decision seemed to
be based on the opinion that Dr. Roth's group had the advantage of his greater
administrative experience. As an unsuccessful bidder in the RFP process, the court said,
Frost lost "a beauty contest here. That's all. It happens all the time."
C. Motions for Summary Judgment or Adjudication
Respondents answered the complaint and Sharp brought a motion for summary
judgment or adjudication of each cause of action against it. The other respondents joined
in the motions (mainly claiming Frost's theories were actually attacking Sharp as the RFP
proponent, not the SDHA successful bidder).
In its motion, Sharp relied on authorities stating that an exclusive contract between
a hospital and a single medical provider is lawful as long as the decision to enter into the
contract was not "irrational, arbitrary, or capricious." (Major, supra, 71 Cal.App.4th
1380, 1400.) Sharp claimed as partial justification for its actions that it was required to
comply with ongoing changes in health law, which included the 2010 enactment of the
federal Patient Protection and Affordable Care Act (the "Affordable Care Act," 124 Stat.
119), as well as Medicare regulations. All of those regulations affected the manner in
which care should be delivered to Sharp's unassigned patients, and Sharp claimed that
many hospitals, including itself, were being required to adapt policies with the goals of
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providing patients with higher quality and more efficient care. They were motivated to
do so in part by the goal of receiving adequate Medicare reimbursements and avoiding
administrative penalties, and the RFP would assist in implementing these goals.
In explanation for its decision to issue the RFP, Sharp mainly relied on the
declaration of Sharp's chief executive officer Smith. He stated the RFP was intended to
address problems such as excessive average lengths of hospital stays or excessive rates of
readmission for unassigned patients, under applicable Medicare guidelines for
reimbursement. The Medicare hospital compensation formula also included the criteria
of patient satisfaction with physicians, which was only 53 percent in 2010 with regard to
Sharp hospitalists. It was in Sharp's interest to increase patient satisfaction.
Sharp's separate statement set forth as undisputed facts that the RFP criteria would
require the successful group to provide 24-hour hospitalist availability, and to be
available to care for transferred obstetric patients. The RFP incentivized the contracting
hospitalists' group to meet or exceed benchmark levels of patient satisfaction for
physician services, as well as length of stay and quality of care, according to federal
standards. An eight-member advisory committee reviewed the three bids and selected
SDHA. The Sharp board accepted the choice. Frost did not submit a bid.
D. Opposition, Reply and Rulings
In its opposition, Frost dropped a theory from its complaint that the RFP process
had been violative of the ER call policy and Sharp's bylaws. Rather, Frost contended that
even though the RFP process could have been validly pursued, in this case, it was sham
and irrationally designed, as alleged in each of the three statutory and tort causes of
8
action. At deposition, one Frost doctor criticized the facts offered to justify the
preparation of the RFP, on the basis that the emergency admissions statistics Sharp used
had incorrectly compared different sets of patients, some of whom were healthy patients
of primary care physicians, while others were homeless or otherwise had no ongoing
health care. Also, Sharp used "faulty" data relating only to internal medicine physicians,
as justification for pursuing the exclusive contract, even though a fair sample would have
included other specialties as well.
Further, the RFP qualification criteria were said to be unfairly rigorous and could
not be satisfied by Frost physicians, who had relatively short lengths of practice
experience, and who had been unable to obtain desired appointments to Sharp
committees, due to Sharp's favoritism and rivalries with others. Frost argued the RFP
criteria unjustifiably disqualified some of its physicians, because they still had private
practices.
Frost further argued that the manner in which the RFP was initiated was suspect,
because some Frost physicians had recently left the employ of SDIMG and had
complained to Sharp about the professional practices of SDIMG, but they were ignored.
For a long time, Dr. Roth's doctors had been allowed to expedite their credentialing
processes and had been given preferential treatment at Sharp. When several Frost doctors
left SDIMG, they received unsupported care review letters, which they believed had
targeted them improperly. Frost thus argued the RFP process was carried out in bad
faith, and the outcome was preordained in favor of Dr. Roth's call group.
9
Frost provided deposition testimony from its physicians about the Sharp
committee presentation of the RFP and how it appeared to be a done deal when
presented. Other doctors confirmed that impression and said that they were afraid to
refer patients to Frost doctors, because of expected retaliation they would receive from
Dr. Roth.
Frost cited to other deposition testimony from its physicians about the relative
strictness of the RFP criteria, which excluded hospitalists who continued to have
outpatient practices, and which arbitrarily excluded newer doctors who did not have
sufficient tenure or connections to be appointed on Sharp committees. Finally, after the
RFP was implemented, some Frost doctors arranged with certain primary care physicians
to care for their patients in the hospital, but Sharp would not honor those arrangements.
In Sharp's reply papers, Sharp raised evidentiary objections (overruled) and argued
that Frost was changing the nature of its allegations, and the arguments that the RFP was
sham, slanted or conducted unfairly actually fell outside the scope of the complaint.
Even if those allegations were true, Sharp's bylaws had not required it to pursue the RFP
process. In any case, it had reached a fair decision, based on a perceived need to contract
with a single group of hospitalists.
The trial court heard arguments and confirmed the tentative ruling, stating that
Sharp sufficiently established a reasonable basis for its decision, "and it is not for this
court to substitute its judgment for that of Sharp." Even though the complaint could be
read as adequately alleging that the RFP was "sham," Frost had failed to provide
evidence that Sharp committed a "wrongful act" within the meaning of the Cartwright
10
Act. Frost also did not establish there was an "unlawful, unfair or fraudulent" business
practice, necessary for a violation of the UCL.
Likewise, the court ruled Frost's claim for interference with prospective business
advantage was not supported by any proof that Sharp had committed acts that were
independently wrongful by some legal measure.4 The court then commented that the
issues raised by the complaint did not include the newly raised theory that Frost had
recently obtained contracts with various health plans but they had been thwarted by the
exclusive contract arrangement, and it declined to address such a theory. Summary
adjudication of the first five causes of action was granted for Sharp and Respondents.5
DISCUSSION
I
APPLICABLE STANDARDS
We apply well-established rules of review to the rulings on the summary judgment
and adjudication motions. De novo analysis determines whether there is a triable issue as
4 Frost's cause of action for IIPEA was based on Respondents' "independently wrongful" anti-competitive acts or business practices (e.g., those "proscribed by some constitutional, statutory, regulatory, common law, or other determinable legal standard"; see Korea Supply v. Lockheed-Martin Corp. (2003) 29 Cal.4th 1134, 1159).
5 Frost also set forth a sixth cause of action for breach of contract against Sharp alone, based on the previous ER Call List arrangement, in which individual Frost physicians had served on the panel and thus formed a contractual relationship with Sharp. On that cause of action, the court denied Sharp's and Respondents' motions, because Frost had adequately alleged that its doctors previously had a contract arrangement with Sharp under the old policy. However, Frost dismissed without prejudice that remaining contract claim, pending this appellate review. (See fn. 3, ante.) It should also be noted that Frost conceded at the trial court level that two other causes of action that sought injunctive relief were not viable, and they too were dismissed. 11
to any material fact and whether the moving party is entitled to judgment as a matter of
law. (Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th
945, 972.) As the defendants moving for summary judgment or adjudication, Sharp and
Respondents had "an initial burden of production to make a prima facie showing of the
nonexistence of any triable issue of material fact." (Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826, 850.) A defendant may meet this burden either by showing that
one or more elements of a cause of action cannot be established or by showing that there
is a complete defense. "[A]ll that the defendant need do is to show that the plaintiff
cannot establish at least one element of the cause of action[;] the defendant need not
himself conclusively negate any such element . . . ." (Id. at pp. 853-854.)
Once the defendant has demonstrated the plaintiff's evidence is deficient, the
plaintiff may successfully oppose the motion for summary judgment by showing the
evidence permits conflicting inferences as to the particular element of the cause of action
or by presenting additional evidence of its existence. (Code Civ. Proc., § 437c,
subds. (c), (p)(1); Silva v. Lucky Stores, Inc. (1998) 65 Cal.App.4th 256, 261 (Silva).)
On appeal, we evaluate the respective evidentiary showings de novo, to determine
if the evidence permits conflicting inferences as to a particular element of the plaintiff's
cause of action, or as to a defense to it. In this context, Sharp has claimed the defense of
entitlement to deference for its administrative, managerial decisionmaking. We
determine whether it, as moving party, negated the opponent's claims, and examine
whether the opposition demonstrated the existence of any triable material factual issues.
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II
PUBLIC POLICY CONTEXT AND OUTLINE OF ISSUES
"Numerous cases recognize that the governing body of a hospital, private or
public, may make a rational policy decision or adopt a rule of general application to the
effect that a department under its jurisdiction shall be operated by the hospital itself
through a contractual arrangement with one or more doctors to the exclusion of all other
members of the medical staff except those who may be hired by the contracting doctor or
doctors." (Mateo-Woodburn v. Fresno Community Hospital & Medical Center (1990)
221 Cal.App.3d 1169, 1183 (Mateo-Woodburn).)
In general, a hospital has "the right . . . to make rational management decisions,
even when exercise of that right might prove adverse to the interests of specific
individual practitioners." (Redding v. St. Francis Medical Center (1989) 208 Cal.App.3d
98, 106 (Redding); see Wilson v. Hidden Valley Municipal Water Dist. (1967) 256
Cal.App.2d 271, 286 (Wilson) [a bias or prejudice in favor of an established public policy
does not invalidate a quasi-legislative, policy-based managerial decision].) "Judges are
untrained and courts ill-equipped for hospital administration, and it is neither possible nor
desirable for the courts to act as supervening boards of directors for every . . . hospital . . .
in the state." (Lewin v. St. Joseph Hospital of Orange (1978) 82 Cal.App.3d 368, 385;
In conclusion, it would not be appropriate to reverse the judgments to allow a trier
of fact effectively to second-guess rationally based hospital managerial, quasi-legislative
decisions. Legitimate public policies underlie judicial recognition of and deference to
special expertise in the field of hospital administration. (Redding, supra, 208 Cal.App.3d
at p. 106.) These rulings are legally correct and we affirm the judgments of dismissal of
the remaining claims.
DISPOSITION
Judgments affirmed. Costs are awarded to Respondents.
HUFFMAN, J.
WE CONCUR:
McCONNELL, P. J.
NARES, J.
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AI Brief
AI-generated · verify before citing
Holding. The court held that the hospital's decision to implement an exclusive hospitalist contract via a request for proposal (RFP) process was a rational, quasi-legislative managerial decision that did not violate the Cartwright Act, the Unfair Competition Law, or constitute intentional interference with prospective economic advantage. The court concluded that the hospital provided sufficient evidence of a rational basis for the policy change, and the plaintiff failed to raise a triable issue of material fact regarding whether the process was a sham or procedurally unfair.
Issues
Whether a hospital's decision to implement an exclusive hospitalist contract through an RFP process was substantively irrational, unlawful, or contrary to public policy.
Whether the hospital's RFP process was procedurally unfair or a 'sham' proceeding.
Whether the trial court erred in granting summary adjudication on the plaintiff's claims under the Cartwright Act, the Unfair Competition Law, and for intentional interference with prospective economic advantage.
Disposition. Affirmed
Quotations verified verbatim against the opinion
“We conclude that the trial court correctly analyzed the undisputed facts on both sides and applied the appropriate test for evaluating such a quasi-legislative policy decision.”