May 24, 2010

Pinnacle Anesthesia Consultants of Dallas, TX terminated shareholder Neal Fisher, MD in a manner that cost the group more than $10 million by the time the state court appeal was over.  There are lessons to be learned from the circumstances of Dr. Fisher’s termination, the employment contract that governed his relationship with the group, and the litigation strategy.

Dr. Fisher contended that he had repeatedly questioned the group’s billing practices after surgeons and patients complained to him that Pinnacle was improperly billing its anesthesia services as out-of-network. He alleged at trial that the group had a business plan of intentionally being out-of-network while advertising that it was in-network for the major health plans in which the hospital participated.

The Termination Meeting

According to the facts presented in the litigation, when Dr. Fisher spoke up, he was given twelve days’ notice of a meeting of all the shareholders to which he could bring his attorney – but the subject of the meeting was not revealed.  Dr. Fisher was permitted, however, to tape record the proceedings.  The tape was later admitted into evidence in court.  During the meeting there were allegations of six clinical incidents and several charges of substance abuse and administrative violations concerning Dr. Fisher. Dr. Fisher defended himself, stating that the incidents had been reviewed by the hospital, were untrue, or were just allegations with no documentation.

The group leadership asked Dr. Fisher to agree to submit to Pinnacle's peer review process, which would have included, among other things, a psychiatric evaluation and a blood test for drugs.  Dr. Fisher volunteered to take any type of drug test (“a hair sample, urine, blood, everything . . .”), but refused to submit voluntarily to Pinnacle's peer review process, stating that he believed such a peer review would be a “kangaroo court.”

At the end of the meeting Dr. Fisher was told he had to agree to five conditions to remain in Pinnacle: (1) submit to Pinnacle's peer review process for clinical incidents; (2) agree to a two-year probation for administrative matters; (3) sign a three-year non-compete agreement (there was no non-compete in his employment contract); (4) withdraw from another physician group; and (5) agree to pay Pinnacle's attorney's fees and expenses in connection with the termination meeting. Pinnacle gave him until the following day to respond, but Dr. Fisher stated immediately that he would not agree to the conditions. After the next day's deadline, on January 24, 2004, Pinnacle wrote Dr. Fisher that it was proceeding to terminate him for cause under the employment agreement. It also withheld fees due to Fisher in order to reimburse itself for its attorney's fees incurred in connection with the meeting.

Dr. Fisher then submitted himself to the hospital's impaired physician program, where he was drug tested, peer reviewed on his case history, and cleared.

The Lawsuit

Soon afterward, Dr. Fisher filed his lawsuit against Pinnacle alleging breach of contract (for terminating without cause), slander (for statements made about him during and after the meeting), conversion (for withholding his fees to pay their attorney’s charges), and other causes of action.

Pinnacle apparently conceded from the start that it could only terminate the plaintiff’s employment “for cause” under the agreement.  The alleged cause was Dr. Fisher’s breach of contract in refusing to submit to the group’s peer review process.  Pinnacle relied on the 16 causes for immediate dismissal enumerated in the employment contract. The judge granted “summary judgment” on 13 of those causes, meaning that Dr. Fisher won as a matter of law and that there were no facts in contention for the jury to decide. The other three causes for termination went to the jury.

In April 2007, the jury gave a unanimous verdict, finding that Pinnacle's actions breached Dr. Fisher’s employment agreement by firing him without a valid reason, defamed him, and improperly withheld $36,000 on the “conversion” charge for their attorneys' fees.  Jurors originally awarded Dr. Fisher $6.3 million. The trial judge within a week added $3.5 in attorney's fees and interest.

From Dr. Fisher’s perspective, the litigation was about protecting doctors’ right to advocate for patients without fear of retaliation. As stated in the court record, when Dr. Fisher continued questioning the alleged improper out-of-network billing, Pinnacle developed a scheme to "trump up a series of charges of medical incompetence, administrative incompetence and allegedly rude behavior into a bitter layer cake of allegations topped with an icing of completely false accusations of alcohol and drug abuse while practicing medicine." Pinnacle, on the other hand, saw the outcome as limiting their ability to maintain a high quality of care through their peer review process.

On June 25, 2009, the Dallas Court of Appeals affirmed the lower court’s decision in full.

The Moral of the Story

We note at the outset that our information comes solely from the published decision of the Court of Appeals and from published news reports and commentaries. Material facts may be missing from our analysis, so readers should focus on the general lessons and not on the parties. With that caveat, lessons from the Fisher v. Pinnacle litigation include the following:

1. Recognize the risks of springing a termination on an employee. Progressive disciplinary steps in the employment agreement protect both parties. The employee receives fair warning that s/he is in trouble, and the employer avoids the immediate anger that may turn a defense into an offensive response. Assuming that the facts in the Fisher case were as reported by the appellate court, Pinnacle took an even more dangerous course by giving the plaintiff 12 days’ notice of a major meeting without identifying the agenda but suggesting that he bring his lawyer. The anxiety alone would tend to prepare an employee – physician, nurse or administrator -- to do battle.
    
2. Provide for termination without cause in the employment agreement. (In the Pinnacle case the employer did not dispute the employee anesthesiologist’s claim that he could only be terminated for cause.) There should also be a fair notice-and-hearing process, and an “opportunity to cure.” If there is a without-cause termination right in the agreement – and it is hard to imagine any employment contract that doesn’t include one – do not rely solely on the for-cause provisions. You do not want to create a factual dispute for a potential jury to evaluate. If the employee needs to be removed from the OR or office immediately, consider adopting and using a paid administrative leave option that will let you comply with the notice terms.
    
3. Carefully document the reasons for which you are considering firing the employee. Tie them to the employment contract’s causes or to specific group policies if possible. For example, the group might write up the incident with a statement “A1 Anesthesia PC considers the repeated failure to submit complete case records on time, as described in this [notice/letter], a ‘failure or refusal to comply with the policies, standards and regulations of A1 Anesthesia PC’ within the meaning of [employee’s] employment agreement.” 
    
4. Don’t agree to let the employee tape record a disciplinary meeting unless all of the people who may be talking understand in advance what they should not say. At least try to keep any recording out of the evidentiary record, if there is anything on it that could hurt your position. Admittedly exercising advance control over what is said could be very difficult to achieve at an all-shareholders meeting. It would be wise, though, not to make any unsupported allegations of serious misconduct on a tape recording. Incidentally, even if a true peer review meeting is privileged, that privilege can be waived.
    
5. Make sure you are comfortable with your litigator’s strategy. The court’s opinion in the Pinnacle case gives the impression that some of the group’s arguments were raised for the first time on appeal. If the trial court did not have an opportunity to consider or decide a given factual issue, appellate courts are not going to overturn a judgment based on that issue. For instance, when Dr. Fisher asked the trial court to rule that Pinnacle had not had the necessary cause to terminate him, Pinnacle’s response to the motion for summary judgment said nothing about having terminated him for failing to comply with group policies “such as being on time for cases and filling out charts.” The group made this claim for the first time in its appeal – too late. 

   The time to start being imaginative in one’s claims and theories is at the trial level. Physicians and practice administrators are generally not practicing lawyers and we are not suggesting that they make a habit of second-guessing their counsel. If the litigators are going to leave out something that seems truly important, the group should satisfy itself as to the reasons.

   Another part of courtroom strategy that defendant anesthesiology groups should consider is the importance of their CEO’s appearance and testimony. According to Martin Rose, Esq., the highly experienced and successful eponymous partner of the law firm that represented Dr. Fisher, Pinnacle’s CEO first acknowledged that the firing had not been done “right. But then, they made the mistake of bringing him back the next day and having him recant all of that.” (Browning J., The Advocates,Dmagazine.com, DCEO May 2008).

   Also according to Mr. Rose, a CEO’s testimony can made or break a case. Medical group leadership should remember that “half the jury is prepared to respect you, and half is prepared to loathe you. Be humble, be approachable and don’t try to take on the lawyer. … Be there – and care. Stay in the courtroom.”

There are many more lessons that could be gleaned from the Pinnacle litigation. We will be interested in your comments, as always.

With best wishes,

Tony Mira
President and CEO