Conspiracy Theories:

Transcription

1 Conspiracy Theories: Physician Transactions and Professional Responsibility after Tuomey Healthcare System William W. Horton Johnston Barton Proctor & Rose LLP Why We re Here Tuomey Healthcare System, rural South Carolina hospital system, hit with $45MM judgment for alleged Stark violations (new trial pending) Voluminous amounts of privileged material and work product in record 1

2 How We Got Here Tuomey s response to competition from an ASC Need to retain specialists outpatient procedures for continued financial performance Legal advice on permissible structures Physician negotiations Dr. Drakeford and the qui tam suit Why We Care Important issues concerning Stark Law substance and Stark Law process Key role of legal advice in government s case and (pretrial) defense Almost unprecedented volume of legal advice and analysis in public record allows us to see (a) how lawyers approach Stark issues in real life and (b) how DOJ prosecutes a Stark case Underlying theme of how lawyers fulfill professional responsibilities when advising clients on inherently uncertain issues (K. DeBruhl, NHLA 1995: Why would I contract with a doc if I didn t think he d send me referrals? 2

3 Important Legal Notices Everything discussed is in the public record no special information Important facts may be omitted from discussion No implication that any lawyer or law firm discussed did anything illegal, unethical, etc. Case is used as reallife hypothetical Case is still very much alive, and new/different facts may come to light Discussion of ethical rules is based on ABA Model Rules; YMMV Key Ethical Rules for Consideration Model Rule 1.2(a): a lawyer shall abide by a client's decisions concerning the objectives of representation and, as required by Rule 1.4, shall consult with the client as to the means by which they are to be pursued. Model Rule 1.2(d): A lawyer shall not counsel a client to engage, or assist a client, in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the legal consequences of any proposed course of conduct with a client and may counsel or assist a client to make a good faith effort to determine the validity, scope, meaning or application of the law. 3

4 Key Ethical Rules for Consideration Model Rule 1.2, cmt. [9]: [Rule 1.2(d)], however, does not preclude the lawyer from giving an honest opinion about the actual consequences that appear likely to result from a client's conduct. Nor does the fact that a client uses advice in a course of action that is criminal or fraudulent of itself make a lawyer a party to the course of action. There is a critical distinction between presenting an analysis of legal aspects of questionable conduct and recommending the means by which a crime or fraud might be committed with impunity. Model Rule 1.2, cmt. [12]: The last clause of [Rule 1.2(d) recognizes that determining the validity or interpretation of a statute or regulation may require a course of action involving disobedience of the statute or regulation or of the interpretation placed upon it by governmental authorities. Key Ethical Rules for Consideration Model Rule 2.1(d): In representing a client, a lawyer shall exercise independent professional judgment and render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social and political factors, that may be relevant to the client's situation. See comments to Rule 2.1(d) on next slide 4

5 Key Ethical Rules for Consideration [2] Advice couched in narrow legal terms may be of little value to a client. Purely technical legal advice, therefore, can sometimes be inadequate. It is proper for a lawyer to refer to relevant moral and ethical considerations in giving advice. Although a lawyer is not a moral advisor as such, moral and ethical considerations impinge upon most legal questions and may decisively influence how the law will be applied. [3] A client may expressly or impliedly ask the lawyer for purely technical advice. When such a request is made by a client experienced in legal matters, the lawyer may accept it at face value. When such a request is made by a client inexperienced in legal matters, however, the lawyer's responsibility as advisor may include indicating that more may be involved than strictly legal considerations. [5] In general, a lawyer is not expected to give advice until asked by the client. However, when a lawyer knows that a client proposes a course of action that is likely to result in substantial adverse legal consequences to the client, the lawyer's duty to the client under Rule 1.4 [relating to communications with the client] may require that the lawyer offer advice if the client's course of action is related to the representation. And now, back to South Carolina... 5

6 The Tuomey Employment Contracts Part-time employment covering only outpatient procedures Exclusive 10-year term (no cut), with a 3-year non-compete Base salary (based upon previous year s collections or, in early contract form, procedures) Productivity Bonus (80% of collections) Incentive Bonus (up to 7% of Productivity Bonus, depending on qualitative factors) The Tuomey Employment Contracts (cont.) Healthcare insurance Tuomey paid all malpractice premiums (including premiums covering the physicians for office services and inpatient procedures) CME reimbursement Cell phone reimbursement Periodical/journal reimbursement 6

7 The Lawyers and Advisors Tuomey s longtime regular outside counsel (Nexsen Pruet) Comp consultants from Cejka Special counsel at Hall Render Drakeford s counsel at Womble Carlyle [Offstage] counsel for other docs... and Special Guest Star Kevin McAnaney as The Decider or not Dr. Drakeford s Qui Tam Case Qui tam filed under seal in 2005 Government joined the action in 2007 by filing an amended complaint, claiming: Tuomey violated the Stark law Tuomey violated the False Claims Act ( FCA ) by knowingly submitting claims for services performed by physicians whose contracts violated Stark Common-law claims: unjust enrichment, payment by mistake, accounting and disgorgement 7

8 Alleged Stark Violations The Government s View A financial relationship clearly existed between Tuomey and 19 physicians (the relationship was indirect due to unbroken chain of intervening LLCs) But note depo testimony of Tuomey lawyer that, in structuring the deal, counsel had analyzed it as if direct comp applied The compensation arrangement did not meet an applicable exception Tuomey s Claimed Exceptions Indirect Compensation Arrangement Exception Compensation is fair market value for services provided and does not take into account the volume or value of referrals Compensation arrangement set out in writing, signed by the Parties, and specifies the services covered, except for bona fide employment arrangements which must be for (1) identifiable services, and (2) commercially reasonable, even if no referrals are made The arrangement does not violate the Anti-Kickback Statute or any other billing/claims submission laws 8

9 Tuomey s Claimed Exceptions Bona fide employment exception Employment is for identifiable services Compensation is fair market value and does not take into account the volume or value of referrals Compensation is commercially reasonable, even if no referrals are made Although exception is applicable to direct compensation arrangements, Tuomey argued that if it proved the bona fide employment exception, then the contracts were, by definition, not a compensation arrangement (42 U.S.C. 1395nn(e)) Alleged FCA Violations Because Tuomey s compensation arrangements violated Stark, all claims for reimbursement submitted to Medicare were objectively false Thus, the government argued that Tuomey presented to Medicare objectively false claims (submitted in violation of Stark), and Tuomey knew that the claims were false 9

10 The Government s Take This case is about a hospital that was so afraid of competition that it was willing to break the law to beat its competitors This case is about the corrupting influence of money on medical decision making Some Key Overt Issues in the Case Did Stark apply at all? If so, were the contracts FMV? Commercially reasonable? Did they vary with the volume or value of services? What did the Tuomey board know? Was it reasonable to rely on the legal opinions and valuation advice? 10

11 Thought Questions What are our professional obligations in advising clients on valuation issues? On the valuation process? On business risk? When your workday consists of drawing maps through grey areas in a complex world, where is the line between advising on enforcement risk and advising on how to bend or break the law? How do other lawyers opinions affect our own? When should you advise your client to get a second (or third, or fourth opinion)? What if they don t ask you first? When do you have to tank the deal, or at least withdraw from it? 11