ADVICE OF COUNSEL: A CASE STUDY Healthcare Enforcement Compliance Institute October 25, 2015 - October 28, 2015 Washington, DC Kevin McAnaney, Attorney, Law Office of Kevin G. McAnaney Matthew Tormey, Chief Compliance Officer, TeamHealth Overview 1. Basics of Advice of Counsel Defense & Related Concepts 2. Why Compliance Officers Should Understand Advice of Counsel 3. A Case Study of the Advise of Counsel Defense Used in Tuomey and the Impact on Enforcement Decisions 2 What is Advice of Counsel Advice of counsel is a legal defense to allegations of illegal conduct Basically, it says a party did not intentionally violate the law because they sought advice from counsel prior to acting and acted on that advice Advice of counsel only is a defense where the intent of the party is an element of the offense o Most unlawful actions require some level of intent o Stark violations are strict liability (overpayment) o Miscoding is strict liability (simple overpayment) o But false claims act (& trebles) requires knowing conduct 3 1
Elements of Advice of Counsel Defense 1. Counsel is knowledgeable 2. Counsel is aware of all relevant facts 3. Counsel is consulted before the action taken 4. Counsel s advice is clear 5. Counsel s advice is followed 4 Related Concept: Attorney Client Privilege Attorney client privilege o A/C privilege protects from all communications between counsel and client with respect to legal advice, including investigations. o Privilege extends to communications with in house counsel as well as outside counsel so long as the communications address legal matters The Advice of Counsel Defense Waives the Attorney Client Privilege for all legal communications on the subject matter 5 Related Concept: Attorney Work Product Privilege Attorney Work Product Privilege o Work product privilege is a conditional privilege. It is not absolute o It protects investigations and activities by counsel performed in anticipation of litigation o So unlike AC privilege, it is usually after the action is challenged and counsel is defending the activity Work Product is after the fact, while Advice of Counsel addresses advice before the fact 6 2
Advice of Counsel: Pluses and Minuses Benefits o If successful, it is a complete defense o No bad intent, no violation o But may still be overpayment Downsides o It rarely works o Party must waive attorney privilege for all related communications with any attorney o Can make things much worse depending on communications 7 Why Advice of Counsel Rarely Works Conflicting advice from counsel o Opinion shopping Advice given after the fact Counsel not given all relevant information Advice from counsel is equivocal Advice not strictly followed 8 Compliance Officer Priority - Getting it Right 9 3
1. Compliance Officer Interactions with Counsel Routine Day to Day Interactions Answering Legal Questions/Interpreting the Law Development of Compliance Policies Assistance with Complex Matters 10 2. Compliance Officer Use of Advice from Counsel Providing Guidance and Responding to Employee Questions Enforcing Policies Conducting Investigations Corrective Action, including Re- Payments and Self-Disclosures Board Reports 11 3. Handling of Post Advice Communications Verbal Communications Written Communications Policies Board Communications 12 4
4. Possible Impact Operational Impact Legal Impact 13 Are Compliance Officers Caught in the Middle? 5. Advice of Counsel Elements Counsel is knowledgeable Counsel is aware of all relevant facts Counsel is consulted before the action taken Counsel s advice is clear Counsel s advice is followed 14 Tuomey: A Case Study UNITED STATES ex rel. Michael K. DRAKEFORD, M.D. v. TUOMEY, d/b/a Tuomey Healthcare System, Inc. 15 5
Tuomey Timeline 2001- Tuomey only health care surgery provider in Sumter 2002-2004 o Wesmark ASC opens (limited to urology) Tuomey opposes CON Negotiated settlement Wesmark plans expansion to other specialties o Tuomey Outpatient Surgery Center opens 16 2003 2004 Tuomey asks outside counsel to review two arrangements: (i) an exclusive services contract; and (ii) a full-time employment contract Outside counsel concludes that exclusive services contract may violate Stark, but full-time employment is lawful Local physicians are not interested in full-time employment 17 2003 2004 Tuomey asks counsel to explore part-time employment arrangement Counsel prepares contracts and obtains FMV opinion from Cjeka Consulting After concerns raised by Tuomey compliance officer, Tuomey retains Dick Kuserow, the former Inspector General. Tuomey gets memo from Dick Kuserow that warns of sham arrangements 18 6
2003 2004 Tuomey begins entering into part-time employment arrangements with 19 local physicians. o Contracts and supporting legal and business memos are reviewed and approved by hospital board Contracts require physicians to perform surgery at either Tuomey or its OSC, 10 year terms, full time benefits, non-compete Pro forma indicates physicians should earn more than current income for same procedures 19 2005 Tuomey approaches Dr. Michael Drakeford and his partner, Dr. Ford about part-time contracts Drakeford consults with his counsel, who raises possible fraud and abuse concerns 5/05 -Tuomey s counsel and Drakeford s counsel agree to jointly hire third attorney to provide independent advice regarding contract 20 2005 6/05 - New attorney concludes the arrangement was very risky in light of the compensation and recent FCA cases brought by government, including in SC Post 6/05 -Tuomey obtains opinion letter from another attorney concluding the parttime arrangements are lawful 21 7
2005 2007 7/05 Drakeford asks to meet with Tuomey board; board adopts restrictive bylaws Tuomey hires Dr. Ford as part-time employee and begins recruiting other orthopedists 10/05 Drakeford files qui tam suit 2006 DOJ investigation December 2007 DOJ files amended complaint Tuomey continues employment contracts through first trial 22 Litigation March 2010 first trial o Jury finds Tuomey violated Stark Law but not FCA March 2012 4 th Cir. Decision o Remands for new trial o Finds outpatient technical fee associated with personally performed surgery is a referral o Says contract must take into account volume or value of referrals on its face. May 2013 retrial o Jury finds Tuomey violated both Stark and FCA July 2015 4 th Cir. Decision 23 Lessons Learned Assume there is no Advice of Counsel Defense Evaluate Attorney Advice Carefully Think Independently 24 8