With many hospitals turning to exclusive contracts to manage clinical services, understanding when statutory protections may be violated or when contracting decisions run opposed to medical staff bylaws is crucial. In a closely-watched lawsuit filed by Central California Hospital Medicine Group (CCHMG) and community physicians against Saint Agnes Medical Center (St. Agnes) in Fresno County, (No. 24CECG05453, filed December 23, 2024), the Superior Court issued a minute order on July 2, 2025, with significant implications for hospital-physician relations.
Thus far, the Superior Court has found that the prohibition on exclusive contracts for Medi-Cal contracting hospitals, with the exception of radiology, anesthesiology and pathology services (RAP services), still carries the force of law and serves an important anti-discrimination function.1 Initially tied to the defunct Selective Provider Contracting Program, this prohibition severely limits the ability of hospitals to enter into exclusive contracts and close departments. No other Medi-Cal laws proscribe exclusive contracting by hospitals. The Court has also let breach of contract claims continue despite the relevant medical staff bylaws not explicitly stating they create a binding contract.
While the case is still ongoing, it may ultimately reedify the balance between operational decision-making and medical staff involvement when it comes to exclusive contracts. The matter has received press coverage from the Fresno Bee, including an opinion piece from an impacted physician, as well as Becker's Hospital Review.
The Dispute
CCHMG filed suit to halt what they felt was an abrupt, unfair and unlawful takeover of hospitalist services by a national medical group, excluding all nonaffiliated physicians. When announcing its intent to enter an exclusive hospitalist contract, the Board of Trustees at St. Agnes pointed to longstanding patient safety concerns. CCHMG contended an exclusive contract would, conversely, disrupt continuity of care as well as displace local physicians, violate unfair competition laws and Medi-Cal requirements and defy the procedural requirements for exclusive contracting under St. Agnes' own medical staff bylaws.
To stop the exclusive hospitalist services from commencing, CCHMG sought a temporary restraining order and preliminary injunction preventing St. Agnes from enforcing the contract. CCHMG posited a rushed approval process, lack of engagement between the medical staff and hospital management and an alleged conflict due to ties between the exclusive medical group and the CEO of St. Agnes. The Superior Court allowed the exclusive contract to go into effect and has reached a decision on St. Agnes' demurrer—allowing CCHMG's claims to continue on the merits.
The physician plaintiffs contend that California law prohibits exclusive contracting for hospitalist services and provides for a private right of action to enforce the prohibition. Further, they argue that the medical staff bylaws create an enforceable contract that the hospital has breached via the exclusive hospitalist contract.
Legal Landscape
Patients and the public have an interest in physicians making clinical decisions independently of hospital business pressures, including when it comes to quality of care. This interest underpins California's prohibition on the corporate and unlicensed practice of medicine. Within this framework, hospitals must abide by medical staff bylaws and entrust the medical staff with clinical decision-making. When medical staff bylaws create obligations for both the hospital and members of the medical staff, they may be viewed by courts as a contract.2
Hospitals, however, hold the ultimate responsibility for the safety and wellbeing of the patients they serve.3 Given this ultimate authority, California courts have upheld exclusive contracting decisions by hospitals when the decision is procedurally fair, reasonable and balances the hospital's interest in providing quality care with the negative impacts on physicians who would otherwise be able to practice at the hospital.4
Exclusive contracting decisions do not go entirely unchecked, and California courts will thwart attempts by hospitals to sidestep the peer review process and bylaws requirements via exclusive arrangements.5 Additionally, the Welfare & Institutions Code prohibits exclusive contracting for non-RAP services in Medi-Cal contracting hospitals.6
The Court's Order on the Demurrer
In the complaint, CCHMG pointed to the prohibition on exclusive contracting for most physician services, including hospitalist services. The provision CCHMG relied on, Section 14087.28 of the Welfare & Institutions Code, is tied to the now defunct Selective Provider Contracting Program. The California Medical Association takes the position that, because the contracting program no longer exists and there are no facilities with this type of contract, the prohibition has no effect. St. Agnes argued that the provision had been impliedly repealed when the Legislature dismantled the Selective Provider Contracting Program.
Because of this, St. Agnes did not deny that the hospitalist contract directly violated the letter of the statute. Rather, St. Agnes posited that the Legislature's replacement of the Selective Provider Contracting Program makes the statute irreconcilable with current Medi-Cal law.
The Superior Court, however, found that the statutory prohibition on exclusive contracts for non-RAP services remains in effect as it has never been expressly repealed and still provides a valuable anti-discrimination function. While the Superior Court held that there is no private right of action to enforce the prohibition, CCHMG's claims were allowed to proceed under California's Unfair Competition Law.7
The Superior Court also allowed CCHMG's contractual claims to proceed, determining that in the absence of an express provision of the medical staff bylaws creating a contractual relationship, it is for the trier of fact to determine whether a contract exists.
Key Takeaways
With hospitals facing economic and regulatory pressures, this ongoing case serves as a reminder that compliance, governance and fairness must remain at the core of decision-making. Operational decisions, especially those impacting patient care, are not immune from judicial review. While hospitals have some discretion for exclusive contracting to improve care and efficiency, courts will scrutinize decisions that potentially violate the law and hospital procedures.
Further, both physicians and hospitals must follow the relevant bylaws, making them a key place for provisions related to exclusive contracts and services. When hospitals fail to abide by the bylaws, it can be a basis for legal challenge.
What's Next?
Although there is more to be decided, this case may lead to crucial precedent for how California hospitals and medical staffs navigate provider networks, exclusive contracting and decisions to close clinical departments. Regardless of the final outcome of this case, medical staffs must stay organized, engaged and informed whenever patient care and patient safety may be implicated.
Footnotes
1 See Wel. & Inst. Code, § 14087.28.
2 See e.g., Smith v. Adventist Health System/West (2010) 182 Cal.App.4th 729, 753; Janda v. Madera Community Hospital
3 El-Attar v. Hollywood Presbyterian Medical Center (2013) 56 Cal.4th 976, 993.
4 See e.g., Mateo-Woodburn v. Fresno Community Hospital (1990) 221 Cal.App.3d 1169, 1185.
5 See e.g., Economy v. Sutter East Bay Hospitals (2019) 31 Cal.App.5th 1147, 1159.
6 Wel. & Inst. Code, § 14087.28.
7 Bus. & Prof. Code, § 17200 et seq.
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