Conspiracy Theories:
Physician Transactions and
Professional Responsibility after
Tuomey Healthcare System
William W. Horton
Johnston Barton Proctor & Rose LLPWhy 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
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?”
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 “real-life 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.”
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.”
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.”
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
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
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
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
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?
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?
