Addresses the licensing authority of the department of health with regard to state hospitals.

Requires a state hospital to maintain a coordinated quality improvement program for the improvement of the quality of health care services rendered to patients and the identification and prevention of medical malpractice.

Authorizes the medical quality assurance commission or the board of osteopathic medicine and surgery to review and audit the records of a quality improvement committee's decisions in which a physician's privileges are terminated or restricted.