Law & Medicine

Question: A doctor decides to leave her new job. She had joined the medical group as a junior associate with a 2-year employment contract, but decided to go out on her own after a year. In reviewing her contract, she noted that all she had to do was to give 30 days’ notice, but then discovered there was a non-compete clause (NCC) which forbade her from setting up her practice within a mile of the group’s clinic in the next 3 years. Which of the following statements is best?

A. Non-compete clauses (NCCs) in a physician employment contract are contrary to public policy and legally unenforceable.

B. The American Medical Association believes all NCCs are unethical.

C. The majority of jurisdictions will honor NCCs if the terms are reasonable.

D. Any territorial restriction of the new practice, being against the patient’s interest, is unenforceable.

E. It is inadvisable for a hiring group to include an NCC in its employment contract.

Answer: C. Most employment contracts limit for some duration where the departing doctor-employee may set up his or her new practice. Such restrictive covenants are also known as non-compete clauses (NCCs). In the majority of jurisdictions, an NCC is legally binding so long as the restrictive terms are reasonable. Prior to 1977 (Opinion 4.63), the American Medical Association’s (AMA) position was that there was "no ethical proscription" against a restrictive covenant with reasonable terms, but this has since been modified. As stated in Opinion 9.02¹, the AMA now believes: "Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician."

As regards physicians-in-training, the AMA categorically considers it "unethical for a teaching institution to seek a noncompetition guarantee in return for fulfilling its educational obligations" (Opinion 9.021).

The main reason for incorporating an NCC into a doctor’s employment contract is financial. The employer has invested time, effort, and money in recruiting the new physician with the expectation that he or she will serve out the entire employment period so that those costs can be recouped. Furthermore, patients may leave to follow the exiting doctor, who may become a competitor provider. The counterargument is that patients should be free to choose from whom and where they wish to seek care and that any restriction is against public policy, being against the patient’s best interest.

Some jurisdictions have ruled all NCCs unenforceable unless there are statutory provisions to the contrary. A litigated case is Murfreesboro Medical Clinic v. Udom². Dr. Udom, an internist, had signed a non-compete agreement with his employer, the Murfreesboro Medical Clinic, a multispecialty physician group in Tennessee. The contract restricted, for 18 months, his setting up a new practice within 25 miles of the city. Dr. Udom argued that the restrictions were unreasonably broad and inimical to public policy. The clinic pointed to its legitimate business interest, having invested in the doctor’s relocation and training, and having incurred overhead and other expenses. Notwithstanding rulings from the lower courts siding with the Murfreesboro Medical Clinic, the Tennessee Supreme Court, upon appeal, held that such restrictive covenants for doctors, unless permitted by statute, are contrary to public policy and therefore unenforceable. This court victory for Dr. Udom put Tennessee among the minority of jurisdictions (for example, California, Colorado, Massachusetts, and Texas) that significantly disfavor or disallow NCCs altogether.

However, subsequent to this landmark decision, the Tennessee legislature enacted a law permitting NCCs under limited circumstances, and since 2008, the terms of the statute (Tenn. Code Ann. 63-1-148) have been revised on several occasions. One should therefore always consult current state statutes on point.

The majority of jurisdictions continue to honor NCCs as long as the terms are reasonable. A recent Kansas case is illustrative. Wichita Clinic v. Louis³ involved an action against a family practitioner for alleged violation of a restrictive covenant not to compete. In ruling for the clinic, the Court of Appeals of Kansas reversed a lower court decision that initially found in favor of Dr. Louis. The Court of Appeals held that NCCs are enforceable so long as four conditions are satisfied: 1) the agreement protects a legitimate business interest of the employer;, 2) there is no undue burden on the departing employee; 3) the terms are not injurious to the public welfare; and 4) the time and territorial limitations are reasonable.

It behooves the newly recruited physician to study the employment contract, preferably with the aid of an experienced attorney. Likewise, the employer should continue to use reasonable NCCs to protect its legitimate business interest. In general, employment contracts tend to be standardized or "boiler-plate," and are typically generated by the employer. So the prospective physician-employee should carefully note the terms, and clarify or negotiate, if necessary, any that are unfavorable, unfair, or ambiguous. A buyout option is sometimes incorporated into an employment contract, which allows the employee to pay "liquidated damages" of a predetermined sum as a way out of the restrictions. These buyout options have withstood judicial scrutiny if the damages, such as a year’s salary plus reimbursed moving and other expenses, are rationally based and deemed neither excessive nor punitive. Another option is a "nonsolicitation" clause that prohibits the departing doctor from encouraging former patients to relocate.

Citations

1. Opinion 9.02. "Restrictive Covenants and the Practice of Medicine." Code of Medical Ethics of the American Medical Association, 2012-2013 edition, p 325.

2. Murfreesboro Medical Clinic v. Udom, 166 S.W.3d 674 (Tenn. 2005).

3. Wichita Clinic v. Louis, 185 P 3d 946 (Kan. 2008).

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: A doctor decides to leave her new job. She had joined the medical group as a junior associate with a 2-year employment contract, but decided to go out on her own after a year. In reviewing her contract, she noted that all she had to do was to give 30 days’ notice, but then discovered there was a non-compete clause (NCC) which forbade her from setting up her practice within a mile of the group’s clinic in the next 3 years. Which of the following statements is best?

A. Non-compete clauses (NCCs) in a physician employment contract are contrary to public policy and legally unenforceable.

B. The American Medical Association believes all NCCs are unethical.

C. The majority of jurisdictions will honor NCCs if the terms are reasonable.

D. Any territorial restriction of the new practice, being against the patient’s interest, is unenforceable.

E. It is inadvisable for a hiring group to include an NCC in its employment contract.

Answer: C. Most employment contracts limit for some duration where the departing doctor-employee may set up his or her new practice. Such restrictive covenants are also known as non-compete clauses (NCCs). In the majority of jurisdictions, an NCC is legally binding so long as the restrictive terms are reasonable. Prior to 1977 (Opinion 4.63), the American Medical Association’s (AMA) position was that there was "no ethical proscription" against a restrictive covenant with reasonable terms, but this has since been modified. As stated in Opinion 9.02¹, the AMA now believes: "Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician."

As regards physicians-in-training, the AMA categorically considers it "unethical for a teaching institution to seek a noncompetition guarantee in return for fulfilling its educational obligations" (Opinion 9.021).

The main reason for incorporating an NCC into a doctor’s employment contract is financial. The employer has invested time, effort, and money in recruiting the new physician with the expectation that he or she will serve out the entire employment period so that those costs can be recouped. Furthermore, patients may leave to follow the exiting doctor, who may become a competitor provider. The counterargument is that patients should be free to choose from whom and where they wish to seek care and that any restriction is against public policy, being against the patient’s best interest.

Some jurisdictions have ruled all NCCs unenforceable unless there are statutory provisions to the contrary. A litigated case is Murfreesboro Medical Clinic v. Udom². Dr. Udom, an internist, had signed a non-compete agreement with his employer, the Murfreesboro Medical Clinic, a multispecialty physician group in Tennessee. The contract restricted, for 18 months, his setting up a new practice within 25 miles of the city. Dr. Udom argued that the restrictions were unreasonably broad and inimical to public policy. The clinic pointed to its legitimate business interest, having invested in the doctor’s relocation and training, and having incurred overhead and other expenses. Notwithstanding rulings from the lower courts siding with the Murfreesboro Medical Clinic, the Tennessee Supreme Court, upon appeal, held that such restrictive covenants for doctors, unless permitted by statute, are contrary to public policy and therefore unenforceable. This court victory for Dr. Udom put Tennessee among the minority of jurisdictions (for example, California, Colorado, Massachusetts, and Texas) that significantly disfavor or disallow NCCs altogether.

However, subsequent to this landmark decision, the Tennessee legislature enacted a law permitting NCCs under limited circumstances, and since 2008, the terms of the statute (Tenn. Code Ann. 63-1-148) have been revised on several occasions. One should therefore always consult current state statutes on point.

The majority of jurisdictions continue to honor NCCs as long as the terms are reasonable. A recent Kansas case is illustrative. Wichita Clinic v. Louis³ involved an action against a family practitioner for alleged violation of a restrictive covenant not to compete. In ruling for the clinic, the Court of Appeals of Kansas reversed a lower court decision that initially found in favor of Dr. Louis. The Court of Appeals held that NCCs are enforceable so long as four conditions are satisfied: 1) the agreement protects a legitimate business interest of the employer;, 2) there is no undue burden on the departing employee; 3) the terms are not injurious to the public welfare; and 4) the time and territorial limitations are reasonable.

It behooves the newly recruited physician to study the employment contract, preferably with the aid of an experienced attorney. Likewise, the employer should continue to use reasonable NCCs to protect its legitimate business interest. In general, employment contracts tend to be standardized or "boiler-plate," and are typically generated by the employer. So the prospective physician-employee should carefully note the terms, and clarify or negotiate, if necessary, any that are unfavorable, unfair, or ambiguous. A buyout option is sometimes incorporated into an employment contract, which allows the employee to pay "liquidated damages" of a predetermined sum as a way out of the restrictions. These buyout options have withstood judicial scrutiny if the damages, such as a year’s salary plus reimbursed moving and other expenses, are rationally based and deemed neither excessive nor punitive. Another option is a "nonsolicitation" clause that prohibits the departing doctor from encouraging former patients to relocate.

Citations

1. Opinion 9.02. "Restrictive Covenants and the Practice of Medicine." Code of Medical Ethics of the American Medical Association, 2012-2013 edition, p 325.

2. Murfreesboro Medical Clinic v. Udom, 166 S.W.3d 674 (Tenn. 2005).

3. Wichita Clinic v. Louis, 185 P 3d 946 (Kan. 2008).

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: A doctor decides to leave her new job. She had joined the medical group as a junior associate with a 2-year employment contract, but decided to go out on her own after a year. In reviewing her contract, she noted that all she had to do was to give 30 days’ notice, but then discovered there was a non-compete clause (NCC) which forbade her from setting up her practice within a mile of the group’s clinic in the next 3 years. Which of the following statements is best?

A. Non-compete clauses (NCCs) in a physician employment contract are contrary to public policy and legally unenforceable.

B. The American Medical Association believes all NCCs are unethical.

C. The majority of jurisdictions will honor NCCs if the terms are reasonable.

D. Any territorial restriction of the new practice, being against the patient’s interest, is unenforceable.

E. It is inadvisable for a hiring group to include an NCC in its employment contract.

Answer: C. Most employment contracts limit for some duration where the departing doctor-employee may set up his or her new practice. Such restrictive covenants are also known as non-compete clauses (NCCs). In the majority of jurisdictions, an NCC is legally binding so long as the restrictive terms are reasonable. Prior to 1977 (Opinion 4.63), the American Medical Association’s (AMA) position was that there was "no ethical proscription" against a restrictive covenant with reasonable terms, but this has since been modified. As stated in Opinion 9.02¹, the AMA now believes: "Covenants-not-to-compete restrict competition, disrupt continuity of care, and potentially deprive the public of medical services. The Council on Ethical and Judicial Affairs discourages any agreement which restricts the right of a physician to practice medicine for a specified period of time or in a specified area upon termination of an employment, partnership, or corporate agreement. Restrictive covenants are unethical if they are excessive in geographic scope or duration in the circumstances presented, or if they fail to make reasonable accommodation of patients’ choice of physician."

As regards physicians-in-training, the AMA categorically considers it "unethical for a teaching institution to seek a noncompetition guarantee in return for fulfilling its educational obligations" (Opinion 9.021).

The main reason for incorporating an NCC into a doctor’s employment contract is financial. The employer has invested time, effort, and money in recruiting the new physician with the expectation that he or she will serve out the entire employment period so that those costs can be recouped. Furthermore, patients may leave to follow the exiting doctor, who may become a competitor provider. The counterargument is that patients should be free to choose from whom and where they wish to seek care and that any restriction is against public policy, being against the patient’s best interest.

Some jurisdictions have ruled all NCCs unenforceable unless there are statutory provisions to the contrary. A litigated case is Murfreesboro Medical Clinic v. Udom². Dr. Udom, an internist, had signed a non-compete agreement with his employer, the Murfreesboro Medical Clinic, a multispecialty physician group in Tennessee. The contract restricted, for 18 months, his setting up a new practice within 25 miles of the city. Dr. Udom argued that the restrictions were unreasonably broad and inimical to public policy. The clinic pointed to its legitimate business interest, having invested in the doctor’s relocation and training, and having incurred overhead and other expenses. Notwithstanding rulings from the lower courts siding with the Murfreesboro Medical Clinic, the Tennessee Supreme Court, upon appeal, held that such restrictive covenants for doctors, unless permitted by statute, are contrary to public policy and therefore unenforceable. This court victory for Dr. Udom put Tennessee among the minority of jurisdictions (for example, California, Colorado, Massachusetts, and Texas) that significantly disfavor or disallow NCCs altogether.

However, subsequent to this landmark decision, the Tennessee legislature enacted a law permitting NCCs under limited circumstances, and since 2008, the terms of the statute (Tenn. Code Ann. 63-1-148) have been revised on several occasions. One should therefore always consult current state statutes on point.

The majority of jurisdictions continue to honor NCCs as long as the terms are reasonable. A recent Kansas case is illustrative. Wichita Clinic v. Louis³ involved an action against a family practitioner for alleged violation of a restrictive covenant not to compete. In ruling for the clinic, the Court of Appeals of Kansas reversed a lower court decision that initially found in favor of Dr. Louis. The Court of Appeals held that NCCs are enforceable so long as four conditions are satisfied: 1) the agreement protects a legitimate business interest of the employer;, 2) there is no undue burden on the departing employee; 3) the terms are not injurious to the public welfare; and 4) the time and territorial limitations are reasonable.

It behooves the newly recruited physician to study the employment contract, preferably with the aid of an experienced attorney. Likewise, the employer should continue to use reasonable NCCs to protect its legitimate business interest. In general, employment contracts tend to be standardized or "boiler-plate," and are typically generated by the employer. So the prospective physician-employee should carefully note the terms, and clarify or negotiate, if necessary, any that are unfavorable, unfair, or ambiguous. A buyout option is sometimes incorporated into an employment contract, which allows the employee to pay "liquidated damages" of a predetermined sum as a way out of the restrictions. These buyout options have withstood judicial scrutiny if the damages, such as a year’s salary plus reimbursed moving and other expenses, are rationally based and deemed neither excessive nor punitive. Another option is a "nonsolicitation" clause that prohibits the departing doctor from encouraging former patients to relocate.

Citations

1. Opinion 9.02. "Restrictive Covenants and the Practice of Medicine." Code of Medical Ethics of the American Medical Association, 2012-2013 edition, p 325.

2. Murfreesboro Medical Clinic v. Udom, 166 S.W.3d 674 (Tenn. 2005).

3. Wichita Clinic v. Louis, 185 P 3d 946 (Kan. 2008).

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Regarding false claims, which of the following is best?

A. The False Claims Act (FCA) is the only federal antifraud statute of importance.

B. FCA covers principally health-related transactions.

C. Violations require an intention to defraud and acting negligently or knowingly.

D. A coworker may file a false-claims suit on behalf of the government and share in the proceeds.

E. FCA targets institutions and corporations, not individuals.

Answer: D. The False Claims Act, first enacted in 1863, imposes liability for submitting a payment demand to the federal government where there is actual or constructive knowledge that the claim is false. Intent to defraud is not a required element, but knowing or reckless disregard of the truth is. However, an error that is negligently committed is insufficient to constitute a violation.

Many states now have their own versions of FCA. The law applies to claims made by individuals or organizations to any governmental entity, including but not limited to Medicare/Medicaid. Although FCA is the most prominent health care antifraud statute, there are many others such as the anti-kickback statute; the Stark law; HIPAA (Health Insurance Portability and Accountability Act); and general criminal statutes covering theft, embezzlement, obstruction of criminal investigations, false statements, mail/wire fraud, and so on.

Private individuals including whistle-blowers, civic associations, or public interest groups can file a so-called qui tam action. Called relators, such plaintiffs may act alone or in concert with the government, and they stand to collect a substantial bounty, up to 30% of the proceeds. They do not have to show legal standing, and need not sustain any personal injury. The government can decide, upon diligent investigation, whether to intervene by taking or declining action, or may request the court to dismiss the case altogether.

In fiscal 2012, relators lodged 647 qui tam suits, which are now easier to file following amendments to FCA in 1986, together with the enactment of the Fraud Enforcement and Recovery Act of 2009 and the Affordable Care Act of 2010.

Health care fraud and abuse are believed to waste some 10% of federal health expenditures. Under federal law, it is illegal to submit fraudulent claims to Medicare or Medicaid. Penalties include treble damages, costs and attorney fees, and fines of $11,000 per false claim, as well as possible imprisonment and criminal fines. In fiscal 2012, the U.S. Treasury took in a record $4.9 billion in fines and penalties under FCA, largely in health care ($3 billion) and in housing and mortgages ($1.4 billion), with qui tam suits accounting for $3.3 billion.

Physician billing is susceptible to all sorts of errors; most are innocent, but some may arguably be fraudulent. Pitfalls include billing for noncovered services such as experimental treatments, double billing, quality of care issues and unnecessary services, improperly billing the government as the primary payer, or regularly waiving deductibles and copayments.

Other activities that constitute wrongdoing in this context include knowingly using another patient’s name for purposes of federal drug coverage, billing for no-shows, and misrepresenting the diagnosis to justify services. The electronic medical record enables easy check-offs on a preprinted form as documentation of actual work done. Fraud is implicated if the information is deliberately misleading for purposes of up-coding. Medicare is known to be currently looking into this aspect of physician practice.

Importantly, physicians are liable for the actions of their office staff, e.g., systematic up-coding of Medicare or CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) bills; so it is prudent to oversee and supervise all such activities. Naturally, one should document all claims that are sent, and know the rules for allowable and excluded services. Doing business with the government poses vulnerabilities that include qui tam actions, and a disgruntled employee or a nongovernmental payer can turn a case over to the government for prosecution.

A jarring example of fraud in action involved a doctor in Los Angeles who was recruited to sign off on medical charts without seeing any patients. The records were then used to fraudulently bill Medicare for durable medical equipment. Another case concerned a New York cardiologist who was arrested for intentionally misdiagnosing up to 80% of his patients in order to justify billing for enhanced external counterpulsation procedures. The scheme allegedly took in $19 million.

Even medical schools can become entangled. In 2008, two cardiologists pleaded guilty to federal fraud charges for referring patients to a medical school’s cardiac surgery program in exchange for do-nothing faculty positions. The federal Department of Justice is also currently suing a large Florida hospice outfit for alleged fraudulent referrals of patients for emergency services.

However, some doctors are exonerated. A Nevada doctor submitting disallowed bills for pulmonary function tests as part of pulmonary rehabilitation was held to have acted in good faith, and a Utah neurologist actually sued the state’s Medicaid fraud control unit for libel and malicious prosecution for years of harassment and threats.

According to a Wall Street Journal report, managed care fraudsters have recently been targeted by the government for acts such as withholding or reducing payments to doctors, impermissibly cutting costs after receiving preset fees, or refusing to enroll certain patients.

The managed care industry services nearly 40 million state and federal beneficiaries out of some 90 million Americans covered under Medicare and Medicaid. Nationwide, prosecution of managed care entities has targeted misleading claims, denial of patient care, and tardiness in physician payments in Pennsylvania; multimillion-dollar duplicative premiums in New York; and the siphoning of funds meant to pay physicians in California.

The government also took action against a plan in Florida for allegedly inflating spending of mental health premiums to circumvent a state law requiring a refund whenever expenditures dipped below 80% of premiums. And a jury reached a verdict of $330 million against a company in Virginia on 18,000 counts of fraud for expenses well below those of competitors – purportedly because of denial of care, as some patients were excluded and only healthier and nonpregnant patients were enrolled ("Medicare, Medicaid Managed Care Gets Scrutiny for Fraud," Wall Street Journal, March 19, 2008, p. B1).

The government’s most lucrative source of recovery in health care fraud is the pharmaceutical industry. In 2012, for example, one large pharmaceutical company paid $1.5 billion, part of a global $3 billion settlement, to settle FCA allegations by the U.S. Department of Justice regarding the off-label marketing of several drugs, including Paxil, Wellbutrin, and Zofran, as well as physician kickbacks for Imitrex, Flovent, and other drugs. Another company paid $441 million for promoting Vioxx for an off-label use in rheumatoid arthritis and for making misleading statements regarding the drug’s cardiovascular safety.

Marketing FDA-approved drugs for off-label use, illegal under the False Claims Act, has long been a scourge of pharmaceutical and device manufacturers. But in a recent rare victory for Big Pharma, the U.S. Court of Appeals for the Second Circuit held that it was against theFirst Amendment right of free speech to prohibit manufacturers from discussing such off-label use when physicians themselves can legally prescribe their products for off-label indications (United States v. Caronia [703 F.3d 149 (2d Cir. 2012)]). Interestingly, the FDA has decided not to appeal the case to the Supreme Court.

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Regarding false claims, which of the following is best?

A. The False Claims Act (FCA) is the only federal antifraud statute of importance.

B. FCA covers principally health-related transactions.

C. Violations require an intention to defraud and acting negligently or knowingly.

D. A coworker may file a false-claims suit on behalf of the government and share in the proceeds.

E. FCA targets institutions and corporations, not individuals.

Answer: D. The False Claims Act, first enacted in 1863, imposes liability for submitting a payment demand to the federal government where there is actual or constructive knowledge that the claim is false. Intent to defraud is not a required element, but knowing or reckless disregard of the truth is. However, an error that is negligently committed is insufficient to constitute a violation.

Many states now have their own versions of FCA. The law applies to claims made by individuals or organizations to any governmental entity, including but not limited to Medicare/Medicaid. Although FCA is the most prominent health care antifraud statute, there are many others such as the anti-kickback statute; the Stark law; HIPAA (Health Insurance Portability and Accountability Act); and general criminal statutes covering theft, embezzlement, obstruction of criminal investigations, false statements, mail/wire fraud, and so on.

Private individuals including whistle-blowers, civic associations, or public interest groups can file a so-called qui tam action. Called relators, such plaintiffs may act alone or in concert with the government, and they stand to collect a substantial bounty, up to 30% of the proceeds. They do not have to show legal standing, and need not sustain any personal injury. The government can decide, upon diligent investigation, whether to intervene by taking or declining action, or may request the court to dismiss the case altogether.

In fiscal 2012, relators lodged 647 qui tam suits, which are now easier to file following amendments to FCA in 1986, together with the enactment of the Fraud Enforcement and Recovery Act of 2009 and the Affordable Care Act of 2010.

Health care fraud and abuse are believed to waste some 10% of federal health expenditures. Under federal law, it is illegal to submit fraudulent claims to Medicare or Medicaid. Penalties include treble damages, costs and attorney fees, and fines of $11,000 per false claim, as well as possible imprisonment and criminal fines. In fiscal 2012, the U.S. Treasury took in a record $4.9 billion in fines and penalties under FCA, largely in health care ($3 billion) and in housing and mortgages ($1.4 billion), with qui tam suits accounting for $3.3 billion.

Physician billing is susceptible to all sorts of errors; most are innocent, but some may arguably be fraudulent. Pitfalls include billing for noncovered services such as experimental treatments, double billing, quality of care issues and unnecessary services, improperly billing the government as the primary payer, or regularly waiving deductibles and copayments.

Other activities that constitute wrongdoing in this context include knowingly using another patient’s name for purposes of federal drug coverage, billing for no-shows, and misrepresenting the diagnosis to justify services. The electronic medical record enables easy check-offs on a preprinted form as documentation of actual work done. Fraud is implicated if the information is deliberately misleading for purposes of up-coding. Medicare is known to be currently looking into this aspect of physician practice.

Importantly, physicians are liable for the actions of their office staff, e.g., systematic up-coding of Medicare or CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) bills; so it is prudent to oversee and supervise all such activities. Naturally, one should document all claims that are sent, and know the rules for allowable and excluded services. Doing business with the government poses vulnerabilities that include qui tam actions, and a disgruntled employee or a nongovernmental payer can turn a case over to the government for prosecution.

A jarring example of fraud in action involved a doctor in Los Angeles who was recruited to sign off on medical charts without seeing any patients. The records were then used to fraudulently bill Medicare for durable medical equipment. Another case concerned a New York cardiologist who was arrested for intentionally misdiagnosing up to 80% of his patients in order to justify billing for enhanced external counterpulsation procedures. The scheme allegedly took in $19 million.

Even medical schools can become entangled. In 2008, two cardiologists pleaded guilty to federal fraud charges for referring patients to a medical school’s cardiac surgery program in exchange for do-nothing faculty positions. The federal Department of Justice is also currently suing a large Florida hospice outfit for alleged fraudulent referrals of patients for emergency services.

However, some doctors are exonerated. A Nevada doctor submitting disallowed bills for pulmonary function tests as part of pulmonary rehabilitation was held to have acted in good faith, and a Utah neurologist actually sued the state’s Medicaid fraud control unit for libel and malicious prosecution for years of harassment and threats.

According to a Wall Street Journal report, managed care fraudsters have recently been targeted by the government for acts such as withholding or reducing payments to doctors, impermissibly cutting costs after receiving preset fees, or refusing to enroll certain patients.

The managed care industry services nearly 40 million state and federal beneficiaries out of some 90 million Americans covered under Medicare and Medicaid. Nationwide, prosecution of managed care entities has targeted misleading claims, denial of patient care, and tardiness in physician payments in Pennsylvania; multimillion-dollar duplicative premiums in New York; and the siphoning of funds meant to pay physicians in California.

The government also took action against a plan in Florida for allegedly inflating spending of mental health premiums to circumvent a state law requiring a refund whenever expenditures dipped below 80% of premiums. And a jury reached a verdict of $330 million against a company in Virginia on 18,000 counts of fraud for expenses well below those of competitors – purportedly because of denial of care, as some patients were excluded and only healthier and nonpregnant patients were enrolled ("Medicare, Medicaid Managed Care Gets Scrutiny for Fraud," Wall Street Journal, March 19, 2008, p. B1).

The government’s most lucrative source of recovery in health care fraud is the pharmaceutical industry. In 2012, for example, one large pharmaceutical company paid $1.5 billion, part of a global $3 billion settlement, to settle FCA allegations by the U.S. Department of Justice regarding the off-label marketing of several drugs, including Paxil, Wellbutrin, and Zofran, as well as physician kickbacks for Imitrex, Flovent, and other drugs. Another company paid $441 million for promoting Vioxx for an off-label use in rheumatoid arthritis and for making misleading statements regarding the drug’s cardiovascular safety.

Marketing FDA-approved drugs for off-label use, illegal under the False Claims Act, has long been a scourge of pharmaceutical and device manufacturers. But in a recent rare victory for Big Pharma, the U.S. Court of Appeals for the Second Circuit held that it was against theFirst Amendment right of free speech to prohibit manufacturers from discussing such off-label use when physicians themselves can legally prescribe their products for off-label indications (United States v. Caronia [703 F.3d 149 (2d Cir. 2012)]). Interestingly, the FDA has decided not to appeal the case to the Supreme Court.

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Regarding false claims, which of the following is best?

A. The False Claims Act (FCA) is the only federal antifraud statute of importance.

B. FCA covers principally health-related transactions.

C. Violations require an intention to defraud and acting negligently or knowingly.

D. A coworker may file a false-claims suit on behalf of the government and share in the proceeds.

E. FCA targets institutions and corporations, not individuals.

Answer: D. The False Claims Act, first enacted in 1863, imposes liability for submitting a payment demand to the federal government where there is actual or constructive knowledge that the claim is false. Intent to defraud is not a required element, but knowing or reckless disregard of the truth is. However, an error that is negligently committed is insufficient to constitute a violation.

Many states now have their own versions of FCA. The law applies to claims made by individuals or organizations to any governmental entity, including but not limited to Medicare/Medicaid. Although FCA is the most prominent health care antifraud statute, there are many others such as the anti-kickback statute; the Stark law; HIPAA (Health Insurance Portability and Accountability Act); and general criminal statutes covering theft, embezzlement, obstruction of criminal investigations, false statements, mail/wire fraud, and so on.

Private individuals including whistle-blowers, civic associations, or public interest groups can file a so-called qui tam action. Called relators, such plaintiffs may act alone or in concert with the government, and they stand to collect a substantial bounty, up to 30% of the proceeds. They do not have to show legal standing, and need not sustain any personal injury. The government can decide, upon diligent investigation, whether to intervene by taking or declining action, or may request the court to dismiss the case altogether.

In fiscal 2012, relators lodged 647 qui tam suits, which are now easier to file following amendments to FCA in 1986, together with the enactment of the Fraud Enforcement and Recovery Act of 2009 and the Affordable Care Act of 2010.

Health care fraud and abuse are believed to waste some 10% of federal health expenditures. Under federal law, it is illegal to submit fraudulent claims to Medicare or Medicaid. Penalties include treble damages, costs and attorney fees, and fines of $11,000 per false claim, as well as possible imprisonment and criminal fines. In fiscal 2012, the U.S. Treasury took in a record $4.9 billion in fines and penalties under FCA, largely in health care ($3 billion) and in housing and mortgages ($1.4 billion), with qui tam suits accounting for $3.3 billion.

Physician billing is susceptible to all sorts of errors; most are innocent, but some may arguably be fraudulent. Pitfalls include billing for noncovered services such as experimental treatments, double billing, quality of care issues and unnecessary services, improperly billing the government as the primary payer, or regularly waiving deductibles and copayments.

Other activities that constitute wrongdoing in this context include knowingly using another patient’s name for purposes of federal drug coverage, billing for no-shows, and misrepresenting the diagnosis to justify services. The electronic medical record enables easy check-offs on a preprinted form as documentation of actual work done. Fraud is implicated if the information is deliberately misleading for purposes of up-coding. Medicare is known to be currently looking into this aspect of physician practice.

Importantly, physicians are liable for the actions of their office staff, e.g., systematic up-coding of Medicare or CHAMPUS (Civilian Health and Medical Program of the Uniformed Services) bills; so it is prudent to oversee and supervise all such activities. Naturally, one should document all claims that are sent, and know the rules for allowable and excluded services. Doing business with the government poses vulnerabilities that include qui tam actions, and a disgruntled employee or a nongovernmental payer can turn a case over to the government for prosecution.

A jarring example of fraud in action involved a doctor in Los Angeles who was recruited to sign off on medical charts without seeing any patients. The records were then used to fraudulently bill Medicare for durable medical equipment. Another case concerned a New York cardiologist who was arrested for intentionally misdiagnosing up to 80% of his patients in order to justify billing for enhanced external counterpulsation procedures. The scheme allegedly took in $19 million.

Even medical schools can become entangled. In 2008, two cardiologists pleaded guilty to federal fraud charges for referring patients to a medical school’s cardiac surgery program in exchange for do-nothing faculty positions. The federal Department of Justice is also currently suing a large Florida hospice outfit for alleged fraudulent referrals of patients for emergency services.

However, some doctors are exonerated. A Nevada doctor submitting disallowed bills for pulmonary function tests as part of pulmonary rehabilitation was held to have acted in good faith, and a Utah neurologist actually sued the state’s Medicaid fraud control unit for libel and malicious prosecution for years of harassment and threats.

According to a Wall Street Journal report, managed care fraudsters have recently been targeted by the government for acts such as withholding or reducing payments to doctors, impermissibly cutting costs after receiving preset fees, or refusing to enroll certain patients.

The managed care industry services nearly 40 million state and federal beneficiaries out of some 90 million Americans covered under Medicare and Medicaid. Nationwide, prosecution of managed care entities has targeted misleading claims, denial of patient care, and tardiness in physician payments in Pennsylvania; multimillion-dollar duplicative premiums in New York; and the siphoning of funds meant to pay physicians in California.

The government also took action against a plan in Florida for allegedly inflating spending of mental health premiums to circumvent a state law requiring a refund whenever expenditures dipped below 80% of premiums. And a jury reached a verdict of $330 million against a company in Virginia on 18,000 counts of fraud for expenses well below those of competitors – purportedly because of denial of care, as some patients were excluded and only healthier and nonpregnant patients were enrolled ("Medicare, Medicaid Managed Care Gets Scrutiny for Fraud," Wall Street Journal, March 19, 2008, p. B1).

The government’s most lucrative source of recovery in health care fraud is the pharmaceutical industry. In 2012, for example, one large pharmaceutical company paid $1.5 billion, part of a global $3 billion settlement, to settle FCA allegations by the U.S. Department of Justice regarding the off-label marketing of several drugs, including Paxil, Wellbutrin, and Zofran, as well as physician kickbacks for Imitrex, Flovent, and other drugs. Another company paid $441 million for promoting Vioxx for an off-label use in rheumatoid arthritis and for making misleading statements regarding the drug’s cardiovascular safety.

Marketing FDA-approved drugs for off-label use, illegal under the False Claims Act, has long been a scourge of pharmaceutical and device manufacturers. But in a recent rare victory for Big Pharma, the U.S. Court of Appeals for the Second Circuit held that it was against theFirst Amendment right of free speech to prohibit manufacturers from discussing such off-label use when physicians themselves can legally prescribe their products for off-label indications (United States v. Caronia [703 F.3d 149 (2d Cir. 2012)]). Interestingly, the FDA has decided not to appeal the case to the Supreme Court.

Dr. Tan is a former professor of medicine and adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: An 85-year-old woman with a hip fracture received a narcotic following open reduction and internal fixation. Over the first post-op hour, she received two intravenous doses of 0.5 mg Dilaudid (hydromorphone), followed by an additional 2 mg in divided doses over the next 4 hours. She sustained a cardiorespiratory arrest shortly thereafter. Which of the following statements is correct?

A. This is a likely case of opiate-induced respiratory arrest.

B. The dose of Dilaudid is relatively small and cannot be the cause of the arrest.

C. Monitoring of respiratory rate and pulse oximetry will always detect early opiate-induced respiratory depression.

D. This complication is unlikely to occur in previously healthy young adults.

E. Lawsuits over iatrogenic injuries are impossible to defend even if the doctor followed community standards regarding dosage, indication, and disclosure of risks.

Answer: A. Opiate-related complications typically occur in the first post-op day, and some physicians remain unaware of the updated guidelines regarding dosage reduction for Dilaudid.

For example, it has been recommended that the intravenous order for this drug be 0.2-0.6 mg every 2-3 hours for opiate-naive patients rather than the previous 1-2 mg every 2-4 hours. Respiratory depression is the feared complication; importantly, bradypnea and desaturation in those already on oxygen are late signs. Furthermore, seemingly healthy young adults may succumb, especially where there is the concurrent use of alcohol or other CNS-modifying drugs.

Preventable adverse injuries from medication errors are a common phenomenon, estimated by the Institute of Medicine to occur in at least 1.5 million cases in the United States each year. Not all medication-related adverse events are the result of an error, as some are unforeseen or unavoidable. An effective defense for the prescribing doctor is to always adhere to community standards and document all relevant patient discussions.

Under the law of negligence, medication-related claims against the doctor require the plaintiff to prove deviation from the standard ordinarily expected under the circumstances. In addition, the patient has to show proximate causation, that is, the medication at issue both factually and legally caused the injury.

Thus, in a lower-court case in which the plaintiff suffered a perforated bowel purportedly from the use of cholestyramine and codeine that resulted in severe constipation from huge fecaliths, the doctor defendant was able to escape liability because the patient failed to exclude a barium enema procedure as the cause of the perforation.

Remember that disclosure of material treatment risks is always necessary, as well as documentation that such a discussion took place and that the patient understood and accepted the risks. The required level of disclosure may vary from jurisdiction to jurisdiction, but it is best to use the patient-centered standard, that is, what a reasonable person would want to know under the circumstances, rather than the physician-centered standard, which stands for what a reasonable doctor would disclose.

One class of drugs – opiates – bears highlighting. The therapeutic window for these drugs is narrow. The doctor should always consider accidental or deliberate overdosing, especially in the elderly, drug abusers, or those using alcohol or other drugs – especially antidepressants. In 2010, nearly 40,000 deaths resulted from drug overdoses – three quarters of the overdoses being unintentional and 17% suicidal (JAMA 2013;309:657-9). Most were from prescription drugs.

The presence of comorbid states such as cardiorespiratory disease, hypothyroidism, and renal insufficiency can also predispose to opiate-related respiratory depression.

Doctors should take a detailed and careful drug history, especially in those patients exhibiting drug-seeking behavior. Another caveat is to avoid all online prescriptions, in particular for controlled substances. Both disciplinary actions as well as potential criminal sanctions may visit the professional who is prescribing over the Internet without an established doctor-patient relationship, or where the prescription is filled in a state where the doctor is unlicensed.

Finally, recall that under the learned intermediary doctrine, the doctor, not the drug manufacturer, is liable for injuries arising out of prescription drug use. This doctrine was recently endorsed by the Supreme Court of Texas in Centocor Inc. v. Hamilton (372 S.W.3d 140 [2012]), where a lupus-like syndrome resulted from the use of infliximab (Remicade) in a woman with Crohn’s disease. All states have adopted this doctrine except for West Virginia and New Jersey, which provide for manufacturer liability where there is direct marketing of a product to consumers.

On the other hand, so-called strict liability theories for "defective" products have been repeatedly held to be inapplicable to doctors who, unlike manufacturers, are not usually considered to be sellers of the product. Strict liability is the basis for most product liability lawsuits, and all the plaintiff has to show is that the product is defective, that is, unreasonably dangerous with foreseeable consequences. No proof of fault or negligence is necessary.

Still, doctors would do well to distance themselves from companies with negligent standards. In the recent steroid-preparation scandal that led to fatal fungal meningitis in some 45 patients nationwide, some of the prescribing doctors now face lawsuits, the compounding pharmacy at issue having declared bankruptcy in the interim.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: An 85-year-old woman with a hip fracture received a narcotic following open reduction and internal fixation. Over the first post-op hour, she received two intravenous doses of 0.5 mg Dilaudid (hydromorphone), followed by an additional 2 mg in divided doses over the next 4 hours. She sustained a cardiorespiratory arrest shortly thereafter. Which of the following statements is correct?

A. This is a likely case of opiate-induced respiratory arrest.

B. The dose of Dilaudid is relatively small and cannot be the cause of the arrest.

C. Monitoring of respiratory rate and pulse oximetry will always detect early opiate-induced respiratory depression.

D. This complication is unlikely to occur in previously healthy young adults.

E. Lawsuits over iatrogenic injuries are impossible to defend even if the doctor followed community standards regarding dosage, indication, and disclosure of risks.

Answer: A. Opiate-related complications typically occur in the first post-op day, and some physicians remain unaware of the updated guidelines regarding dosage reduction for Dilaudid.

For example, it has been recommended that the intravenous order for this drug be 0.2-0.6 mg every 2-3 hours for opiate-naive patients rather than the previous 1-2 mg every 2-4 hours. Respiratory depression is the feared complication; importantly, bradypnea and desaturation in those already on oxygen are late signs. Furthermore, seemingly healthy young adults may succumb, especially where there is the concurrent use of alcohol or other CNS-modifying drugs.

Preventable adverse injuries from medication errors are a common phenomenon, estimated by the Institute of Medicine to occur in at least 1.5 million cases in the United States each year. Not all medication-related adverse events are the result of an error, as some are unforeseen or unavoidable. An effective defense for the prescribing doctor is to always adhere to community standards and document all relevant patient discussions.

Under the law of negligence, medication-related claims against the doctor require the plaintiff to prove deviation from the standard ordinarily expected under the circumstances. In addition, the patient has to show proximate causation, that is, the medication at issue both factually and legally caused the injury.

Thus, in a lower-court case in which the plaintiff suffered a perforated bowel purportedly from the use of cholestyramine and codeine that resulted in severe constipation from huge fecaliths, the doctor defendant was able to escape liability because the patient failed to exclude a barium enema procedure as the cause of the perforation.

Remember that disclosure of material treatment risks is always necessary, as well as documentation that such a discussion took place and that the patient understood and accepted the risks. The required level of disclosure may vary from jurisdiction to jurisdiction, but it is best to use the patient-centered standard, that is, what a reasonable person would want to know under the circumstances, rather than the physician-centered standard, which stands for what a reasonable doctor would disclose.

One class of drugs – opiates – bears highlighting. The therapeutic window for these drugs is narrow. The doctor should always consider accidental or deliberate overdosing, especially in the elderly, drug abusers, or those using alcohol or other drugs – especially antidepressants. In 2010, nearly 40,000 deaths resulted from drug overdoses – three quarters of the overdoses being unintentional and 17% suicidal (JAMA 2013;309:657-9). Most were from prescription drugs.

The presence of comorbid states such as cardiorespiratory disease, hypothyroidism, and renal insufficiency can also predispose to opiate-related respiratory depression.

Doctors should take a detailed and careful drug history, especially in those patients exhibiting drug-seeking behavior. Another caveat is to avoid all online prescriptions, in particular for controlled substances. Both disciplinary actions as well as potential criminal sanctions may visit the professional who is prescribing over the Internet without an established doctor-patient relationship, or where the prescription is filled in a state where the doctor is unlicensed.

Finally, recall that under the learned intermediary doctrine, the doctor, not the drug manufacturer, is liable for injuries arising out of prescription drug use. This doctrine was recently endorsed by the Supreme Court of Texas in Centocor Inc. v. Hamilton (372 S.W.3d 140 [2012]), where a lupus-like syndrome resulted from the use of infliximab (Remicade) in a woman with Crohn’s disease. All states have adopted this doctrine except for West Virginia and New Jersey, which provide for manufacturer liability where there is direct marketing of a product to consumers.

On the other hand, so-called strict liability theories for "defective" products have been repeatedly held to be inapplicable to doctors who, unlike manufacturers, are not usually considered to be sellers of the product. Strict liability is the basis for most product liability lawsuits, and all the plaintiff has to show is that the product is defective, that is, unreasonably dangerous with foreseeable consequences. No proof of fault or negligence is necessary.

Still, doctors would do well to distance themselves from companies with negligent standards. In the recent steroid-preparation scandal that led to fatal fungal meningitis in some 45 patients nationwide, some of the prescribing doctors now face lawsuits, the compounding pharmacy at issue having declared bankruptcy in the interim.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: An 85-year-old woman with a hip fracture received a narcotic following open reduction and internal fixation. Over the first post-op hour, she received two intravenous doses of 0.5 mg Dilaudid (hydromorphone), followed by an additional 2 mg in divided doses over the next 4 hours. She sustained a cardiorespiratory arrest shortly thereafter. Which of the following statements is correct?

A. This is a likely case of opiate-induced respiratory arrest.

B. The dose of Dilaudid is relatively small and cannot be the cause of the arrest.

C. Monitoring of respiratory rate and pulse oximetry will always detect early opiate-induced respiratory depression.

D. This complication is unlikely to occur in previously healthy young adults.

E. Lawsuits over iatrogenic injuries are impossible to defend even if the doctor followed community standards regarding dosage, indication, and disclosure of risks.

Answer: A. Opiate-related complications typically occur in the first post-op day, and some physicians remain unaware of the updated guidelines regarding dosage reduction for Dilaudid.

For example, it has been recommended that the intravenous order for this drug be 0.2-0.6 mg every 2-3 hours for opiate-naive patients rather than the previous 1-2 mg every 2-4 hours. Respiratory depression is the feared complication; importantly, bradypnea and desaturation in those already on oxygen are late signs. Furthermore, seemingly healthy young adults may succumb, especially where there is the concurrent use of alcohol or other CNS-modifying drugs.

Preventable adverse injuries from medication errors are a common phenomenon, estimated by the Institute of Medicine to occur in at least 1.5 million cases in the United States each year. Not all medication-related adverse events are the result of an error, as some are unforeseen or unavoidable. An effective defense for the prescribing doctor is to always adhere to community standards and document all relevant patient discussions.

Under the law of negligence, medication-related claims against the doctor require the plaintiff to prove deviation from the standard ordinarily expected under the circumstances. In addition, the patient has to show proximate causation, that is, the medication at issue both factually and legally caused the injury.

Thus, in a lower-court case in which the plaintiff suffered a perforated bowel purportedly from the use of cholestyramine and codeine that resulted in severe constipation from huge fecaliths, the doctor defendant was able to escape liability because the patient failed to exclude a barium enema procedure as the cause of the perforation.

Remember that disclosure of material treatment risks is always necessary, as well as documentation that such a discussion took place and that the patient understood and accepted the risks. The required level of disclosure may vary from jurisdiction to jurisdiction, but it is best to use the patient-centered standard, that is, what a reasonable person would want to know under the circumstances, rather than the physician-centered standard, which stands for what a reasonable doctor would disclose.

One class of drugs – opiates – bears highlighting. The therapeutic window for these drugs is narrow. The doctor should always consider accidental or deliberate overdosing, especially in the elderly, drug abusers, or those using alcohol or other drugs – especially antidepressants. In 2010, nearly 40,000 deaths resulted from drug overdoses – three quarters of the overdoses being unintentional and 17% suicidal (JAMA 2013;309:657-9). Most were from prescription drugs.

The presence of comorbid states such as cardiorespiratory disease, hypothyroidism, and renal insufficiency can also predispose to opiate-related respiratory depression.

Doctors should take a detailed and careful drug history, especially in those patients exhibiting drug-seeking behavior. Another caveat is to avoid all online prescriptions, in particular for controlled substances. Both disciplinary actions as well as potential criminal sanctions may visit the professional who is prescribing over the Internet without an established doctor-patient relationship, or where the prescription is filled in a state where the doctor is unlicensed.

Finally, recall that under the learned intermediary doctrine, the doctor, not the drug manufacturer, is liable for injuries arising out of prescription drug use. This doctrine was recently endorsed by the Supreme Court of Texas in Centocor Inc. v. Hamilton (372 S.W.3d 140 [2012]), where a lupus-like syndrome resulted from the use of infliximab (Remicade) in a woman with Crohn’s disease. All states have adopted this doctrine except for West Virginia and New Jersey, which provide for manufacturer liability where there is direct marketing of a product to consumers.

On the other hand, so-called strict liability theories for "defective" products have been repeatedly held to be inapplicable to doctors who, unlike manufacturers, are not usually considered to be sellers of the product. Strict liability is the basis for most product liability lawsuits, and all the plaintiff has to show is that the product is defective, that is, unreasonably dangerous with foreseeable consequences. No proof of fault or negligence is necessary.

Still, doctors would do well to distance themselves from companies with negligent standards. In the recent steroid-preparation scandal that led to fatal fungal meningitis in some 45 patients nationwide, some of the prescribing doctors now face lawsuits, the compounding pharmacy at issue having declared bankruptcy in the interim.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: You are about to retire, and it was one of those hectic and unbelievable final days. Your clinic assistant broke a hypodermic needle, which lodged in the patient’s deltoid. Another patient tripped and fell in your waiting room and sustained a fracture. And, in a heated and angry meeting, you voted with others on the peer-review committee of your hospital to suspend a "rotten apple" doctor. All three victims file suit against you 6 months into your retirement. Which of the following best describes the likely outcome?

A. Your professional malpractice insurance will indemnify you against all liabilities.

B. Only the first incident will be covered, because it’s the only one that involves malpractice.

C. Even the first incident is excluded, because your policy protects you but not your employees.

D. You face financial ruin, because you are now retired and no longer insured.

E. It all depends on your insurance policy.

Answer: E. Most professional liability policies should cover negligence on the part of the doctor and employees, as well as peer-review risks, although the hospital may also provide this latter coverage.

However, some policies are less expansive, so it behooves the doctor to carefully review the scope of coverage to include the above eventualities and others, such as premise liability (for example, tripping on the carpet or falling off a chair in the waiting-room) or educational liability (as when supervising a resident). Note that coverage is usually excluded for intentional torts, for example, assault and battery; or criminal activities, for example, Medicare fraud. Punitive damages are also typically excluded from coverage.

Virtually all policies nowadays are "claims made," which means coverage ends once you are no longer insured with the company, irrespective of when the alleged negligent act occurred. In order to maintain indemnification, you will have to buy "tail coverage" to protect you from a lawsuit arising from a past event but filed after your policy has lapsed, for example, in retirement or following relocation. The lag period between the expiration of the insurance policy and the bringing of suit is termed the "tail."

The term "nose coverage" is used instead to describe prior-acts coverage when a doctor applies to another insurer for a new policy. By definition, claims-made policies cover claims that are filed for incidents that both occur and are reported while the insurance policy is in force. In contrast, an "occurrence" policy is one in which the doctor is covered for all malpractice allegations, irrespective of when the lawsuit is brought. In a group practice, contractual terms regarding professional liability should specifically mention tail coverage.

Malpractice premiums vary greatly from state to state, and even among locales within a given state. Premiums are specialty-dependant, with the highest in risky specialties such as obstetrics and neurosurgery.

Primary care physicians are considered a relatively low-risk group. For example, the Medical Insurance Exchange of California, commonly known as MIEC, classifies family practitioners and general internists as class 4 physicians (out of 14 classes – the highest number signifying the riskiest). Discounts are generally available to the doctor who is new in practice, as well as for part-timers who practice less than 20 hours a week. On the average, internists in metropolitan areas pay an annual premium of $12,000 for a $1 million/$3 million claims-made policy – although an average figure is largely meaningless, because premiums are heavily influenced by the practice locality.

Insurance rates vary widely, and figures tend to be skewed to the high side whenever metropolitan data are used to define the state average. In addition, the numbers do not always represent annual premiums for a $1 million/$3 million claims-made policy. In some states, the limits may be lower, for example, $200,000/$600,000, and doctors pay a surcharge for excess coverage. Indiana, Kansas, Louisiana, Nebraska, New Mexico, Pennsylvania, South Carolina, and Wisconsin are examples of such states.

In 2012, the highest annual premiums for internists were in Florida ($47,000), Illinois ($40,000), Michigan ($35,000), Connecticut ($35,000), and New York ($34,000). The lowest rates were seen in Nebraska, Minnesota, South Dakota, Wisconsin, and California (all less than $4,000 per year). States with effective tort reforms, such as California, generally have lower rates.

Happily, premiums have been falling in the last 5 years, according to Medical Liability Monitor, a trade periodical. The Doctors Company and other carriers have reported that claims have halved over the past decade. The severity of claims, however, has continued to climb, with the occasional multimillion-dollar loss.

Overall, some 42% of surveyed physicians in 2007-2008 have had a malpractice claim filed against them, although most claims are dropped or decided in the doctor’s favor. Claims were reported by about 35% of family practitioners and general internists, while surgeons and obstetricians-gynecologists have higher rates, at 70%. Pediatricians and psychiatrist score the lowest, at around 20%.

Doctors typically purchase their insurance from a commercial carrier that specializes in malpractice liability, or subscribe to a physician mutual, also called "bedpan" mutual, which is a "risk-retention" group authorized under federal law in 1986 to underwrite malpractice liability. Not all risk-retention groups are successful. For example, the Tennessee-based Doctor’s Insurance Reciprocal went into bankruptcy in 2003, leaving some 3,000 doctors scrambling for coverage.

Malpractice insurance policies typically pay for all legal fees, including attorney and expert fees, as well as discovery and court costs. They pay damages up to the limit of the policy; a $1 million/$3 million claims-made policy means the limit for each claim is $1 million, and the limit for all claims in a given policy year is $3 million. If the judgment exceeds the policy limits, the doctor is personally liable for the remainder.

This has caused fear among some doctors, because their personal assets may then be at risk. A reassuring article in "Medical Economics" put it this way: "In theory, yes. But in reality, doctors rarely lose their personal assets."

Reasons why both sides usually settle for the policy limit or less, notwithstanding a higher amount decided by the jury, include:

• Until and unless there is a post-trial agreement between the parties, the plaintiff may experience undue payment delay, receiving nothing for any and all expenses in the meantime.

• The plaintiff lawyer’s contingency fee is likewise held up.

• The defense may appeal the decision to a higher court, especially where damages are large – and this can delay payment by years, or even wipe out the judgment entirely if there is a reversal of the verdict.

• Fear of backlash against the trial lawyers in the community for publicity surrounding any attack on a doctor’s personal assets.

• Usually, there are other deep pockets, for example, the hospital, to go after in the same case to jointly reach or approach the award amount.

Although most policies allow the doctor to make the final decision regarding whether to settle and for how much, it is the insurer that recommends and hires the defense counsel, who then directs any settlement negotiations and/or trial strategy.

However, the defense lawyer’s primary duty is to the doctor, not to the insurer who pays his/her fees, and this can raise a conflict of interest. Doctors have been known to sue an insurer and its retained attorney for bad faith and negligent representation, as evidenced in a recent Florida stroke case over a $217 million jury award.

Thus, it’s important to look for the language in the "consent to settle" clause of the policy. In a recent case, the Rhode Island Supreme Court ruled that the insurer was within its right to settle – against the doctor’s wishes – in the middle of a trial. The policy contract had stipulated that the company could settle any claim or suit "as it deems expedient," a phrase the court interpreted as giving the insurer full authority and discretion.

Occasionally, a doctor refuses to settle for an amount within the insurance limits, preferring instead to proceed to trial. Should the doctor lose at trial, and the judgment is in excess of the earlier settlement amount, he or she may be personally liable for the difference, even if the amount is still within the policy limit. Some policies protect the insurer against this situation by containing such a provision, popularly termed "the hammer," as a way of persuading the physician to settle.

On the other hand, courts have held insurers financially responsible for trial awards that exceed policy limits if they had rejected an earlier settlement amount that was within those limits.

References

• AMA Policy Research Perspectives, "Medical Liability Claim Frequency: A 2007-2008 Snapshot of Physicians," August 2010.

• Rice, B. "Could a malpractice mega-verdict wipe you out?" (Med. Econ. 2003;80:89-91).

• Mohan Papudesu v. Medical Malpractice Joint Underwriting Assn. of Rhode Island, 18 A.3d 495 (R.I. 2011).

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Which one of the following is false?

A. A physician countersuit is frequently successful when a lawyer has filed – and lost – a frivolous malpractice lawsuit.

B. Countersuits are usually premised on two legal theories: malicious prosecution or abuse of process.

C. The key elements of malicious prosecution include lack of probable cause and presence of malice.

D. Abuse of process speaks to using the legal system with an ulterior motive and for an illegitimate purpose.

E. Rule 11 is a federal rule that imposes sanctions in which the attorney has failed to conduct a "reasonable inquiry" before filing a lawsuit.

Answer: A. Many doctors believe that eager attorneys readily file malpractice lawsuits in the hope of intimidating the defendant doctor into settling. Some in the medical profession have therefore considered countersuits against the attorney, and sometimes the patient as well, when they perceive the original lawsuit to be frivolous.

However, the countersuit process is tedious, expensive, and usually unsuccessful. Courts are generally hostile to such lawsuits, because public policy encourages a litigant’s unfettered resort to the law.

The usual legal theory that a countersuit is premised upon is malicious prosecution, which has to satisfy the following elements: 1) original lawsuit terminated in favor of the doctor, that is, no malpractice liability found; 2) lack of probable cause; 3) malice; and 4) special injuries.

The issue of probable cause is the major stumbling block to a successful countersuit. In Williams v. Coombs (224 Cal. Rptr. 865 [Cal. App. 1986]), a doctor was sued for wrongful death after his patient hanged herself following hospital admission for suicidal gestures. She was admitted to a private room instead of a special locked room. At trial, the jury found in favor of the physician. Thereafter, the physician sued the plaintiff attorney for malicious prosecution and intentional infliction of emotional distress.

The court agreed that the plaintiff attorney lacked probable cause in filing the malpractice claim in the first place. It advanced a two-point test: First, the attorney must entertain a subjective belief that the claim merits litigation; and second, that belief must satisfy an objective standard, because the attorney must not prosecute a claim that a reasonable lawyer would not consider tenable.

Finding that the attorney failed to meet the second prong of the test, the court stated that, although probable cause is not the same as making a legal case (winning), an attorney must nonetheless refrain from an unsound and untenable claim. The attorney had relied exclusively on the allegations of his client, and he had not done much in the way of background research, found no cases on point, and sought advice from only one physician during a social encounter.

The court reasoned that a "litigant cannot be permitted to file suit based merely on a wing and a prayer, and then be retroactively justified by some serendipitous discovery so as not to be liable for malicious prosecution." The claim for intentional infliction of emotional distress was dismissed, because otherwise defamatory statements made in a judicial proceeding constituted a privileged publication.

In Gentzler v. Atlee (443 Pa. Super. 128 [1995]), a cardiologist recommended that the patient go to a certain hospital for tests, and in a subsequent CABG procedure, the patient received contaminated blood products. Although the cardiologist did not recommend or participate in the surgery, he was a named codefendant in the subsequent lawsuit. After the trial court dismissed the action, he filed a countersuit against the attorney under Pennsylvania’s statutory section for the wrongful use of civil proceedings.

The court noted that the standard for probable cause is whether an attorney reasonably believes that a claim may be valid under existing or developing law, and that this determination is a matter of law, that is, up to the judge rather than a jury to decide.

In ruling for the doctor, the court reasoned that under the facts of this case, there was no probable cause, as there was no informed consent issue, and the cardiologist did not himself order the administration of the blood products.

However, most malicious prosecution actions fail.

In Wong v. Tabor (422 N.E. 2d 1279 [Ind. 1981]), the Indiana Court of Appeals held that the probable cause standard is an objective one, but the relevant question was "whether the claim merits litigation ... on the basis of the facts known to the attorney when the suit was commenced." The standard apparently did not require the attorney to investigate, but simply to accept the facts as told by the client.

In Dutt v. Kremp (111 Nev. 567 [1995]), the plaintiff attorney promptly withdrew his lawsuit after receiving an unfavorable report from his own expert witness. A countersuit followed. The court held that as regards the malicious prosecution action, the attorney had probable cause to file the malpractice action. The court concluded that, under the facts, a reasonable attorney would have believed that the malpractice action was tenable. The patient’s condition had initially deteriorated under the care of the physician, and improved only after other doctors became involved in the case. The medical records corroborated the patient’s story. The court stated that there was no absolute requirement to obtain an expert opinion before filing the lawsuit.

It is even harder to meet the malice requirement. Definitions are elusive, and allegations of willful and wanton misconduct are not always synonymous with malice, particularly where no improper motive is suggested.

In the view of one court, the action of an attorney who signed and amended a complaint without first reading the complaint did not constitute malice sufficient to support a malicious prosecution action. A contingent-fee arrangement, even of large magnitude, cannot be used as evidence of improper motive or malice.

Neither is attorney negligence or incompetence, which one court gratuitously editorialized: "If that constitutes malice, the courtrooms are full of malicious attorneys." In that case, a surgeon was alleged to have damaged a child’s testicle – although at trial, all expert witnesses, including two of the plaintiff’s own experts, testified that there was no evidence of damage. Apparently, the attorney had not spoken to his own witnesses.

Note that for a malicious prosecution lawsuit to prevail, the plaintiff doctor may have to satisfy the "special injury" requirement in some jurisdictions. It is not always clear what this entails, but the injury has to be beyond "anxiety, loss of time, attorney’s fees and the necessity to defend one’s reputation" (Stopka v. Lesser, 82 Ill. App.3d 323 [1st Dist. 1980]). In one case, the court ruled that a plaintiff in a malicious prosecution action may recover for "humiliation, mortification and loss of reputation" (Raine v. Drasin, 621 S.W.2d 895 [Ky. 1981]). Jurisdictions such as Illinois do not require the special injury element.

Another legal theory for a malpractice countersuit is abuse of process. Here, too, the doctor’s victory is rare. However, in Bull v. McCuskey (96 Nev. 706 [1980]), a physician successfully used this approach. He asserted that the attorney had filed a malpractice suit with the motive of coercing a nuisance settlement (attorney offered to settle for $750). The case involved an elderly woman who sustained fractures following an auto accident, then went on to develop bedsores after refusing to follow staff instructions. The attorney did not examine the medical records, conferred with no physician, retained no expert, and took no depositions.

At trial, which was won by the physician, the attorney called the physician incompetent, a liar, and a scoundrel. In the abuse of process action that followed, the physician won a jury verdict of $35,000 in compensatory damages and $50,000 in punitive damages, which was upheld on appeal.

Other legal theories, mostly unsuccessfully pleaded, include infliction of emotional distress, negligence, defamation, invasion of privacy, and the tort of outrage.

However, courts have erected various rules to prevent the filing of frivolous suits. The best known, Federal Rule 11 (and its state counterparts), requires the lawsuit to be filed only after reasonable inquiry, be well grounded in fact, and not be interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

An example of a Rule 11 sanction involved a lawsuit filed by two chiropractors in Colorado that alleged antitrust violation by a medical facility that denied them hospital admitting privileges. The facts revealed that the chiropractors had in fact never applied for those privileges. The judge imposed sanctions of $38,500 (Colorado Chiropractic Council v. Porter Memorial Hospital, 650 F. Supp. 231 [Co. 1986]).

In summary, one cannot readily recommend filing a physician countersuit, unless it is to make a point. Even if the doctor wins, which is rare, the proceedings will be stressful, the costs are not borne by the malpractice carrier, and any recovered damages are likely to be small.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii, Honolulu. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Which one of the following is false?

A. A physician countersuit is frequently successful when a lawyer has filed – and lost – a frivolous malpractice lawsuit.

B. Countersuits are usually premised on two legal theories: malicious prosecution or abuse of process.

C. The key elements of malicious prosecution include lack of probable cause and presence of malice.

D. Abuse of process speaks to using the legal system with an ulterior motive and for an illegitimate purpose.

E. Rule 11 is a federal rule that imposes sanctions in which the attorney has failed to conduct a "reasonable inquiry" before filing a lawsuit.

Answer: A. Many doctors believe that eager attorneys readily file malpractice lawsuits in the hope of intimidating the defendant doctor into settling. Some in the medical profession have therefore considered countersuits against the attorney, and sometimes the patient as well, when they perceive the original lawsuit to be frivolous.

However, the countersuit process is tedious, expensive, and usually unsuccessful. Courts are generally hostile to such lawsuits, because public policy encourages a litigant’s unfettered resort to the law.

The usual legal theory that a countersuit is premised upon is malicious prosecution, which has to satisfy the following elements: 1) original lawsuit terminated in favor of the doctor, that is, no malpractice liability found; 2) lack of probable cause; 3) malice; and 4) special injuries.

The issue of probable cause is the major stumbling block to a successful countersuit. In Williams v. Coombs (224 Cal. Rptr. 865 [Cal. App. 1986]), a doctor was sued for wrongful death after his patient hanged herself following hospital admission for suicidal gestures. She was admitted to a private room instead of a special locked room. At trial, the jury found in favor of the physician. Thereafter, the physician sued the plaintiff attorney for malicious prosecution and intentional infliction of emotional distress.

The court agreed that the plaintiff attorney lacked probable cause in filing the malpractice claim in the first place. It advanced a two-point test: First, the attorney must entertain a subjective belief that the claim merits litigation; and second, that belief must satisfy an objective standard, because the attorney must not prosecute a claim that a reasonable lawyer would not consider tenable.

Finding that the attorney failed to meet the second prong of the test, the court stated that, although probable cause is not the same as making a legal case (winning), an attorney must nonetheless refrain from an unsound and untenable claim. The attorney had relied exclusively on the allegations of his client, and he had not done much in the way of background research, found no cases on point, and sought advice from only one physician during a social encounter.

The court reasoned that a "litigant cannot be permitted to file suit based merely on a wing and a prayer, and then be retroactively justified by some serendipitous discovery so as not to be liable for malicious prosecution." The claim for intentional infliction of emotional distress was dismissed, because otherwise defamatory statements made in a judicial proceeding constituted a privileged publication.

In Gentzler v. Atlee (443 Pa. Super. 128 [1995]), a cardiologist recommended that the patient go to a certain hospital for tests, and in a subsequent CABG procedure, the patient received contaminated blood products. Although the cardiologist did not recommend or participate in the surgery, he was a named codefendant in the subsequent lawsuit. After the trial court dismissed the action, he filed a countersuit against the attorney under Pennsylvania’s statutory section for the wrongful use of civil proceedings.

The court noted that the standard for probable cause is whether an attorney reasonably believes that a claim may be valid under existing or developing law, and that this determination is a matter of law, that is, up to the judge rather than a jury to decide.

In ruling for the doctor, the court reasoned that under the facts of this case, there was no probable cause, as there was no informed consent issue, and the cardiologist did not himself order the administration of the blood products.

However, most malicious prosecution actions fail.

In Wong v. Tabor (422 N.E. 2d 1279 [Ind. 1981]), the Indiana Court of Appeals held that the probable cause standard is an objective one, but the relevant question was "whether the claim merits litigation ... on the basis of the facts known to the attorney when the suit was commenced." The standard apparently did not require the attorney to investigate, but simply to accept the facts as told by the client.

In Dutt v. Kremp (111 Nev. 567 [1995]), the plaintiff attorney promptly withdrew his lawsuit after receiving an unfavorable report from his own expert witness. A countersuit followed. The court held that as regards the malicious prosecution action, the attorney had probable cause to file the malpractice action. The court concluded that, under the facts, a reasonable attorney would have believed that the malpractice action was tenable. The patient’s condition had initially deteriorated under the care of the physician, and improved only after other doctors became involved in the case. The medical records corroborated the patient’s story. The court stated that there was no absolute requirement to obtain an expert opinion before filing the lawsuit.

It is even harder to meet the malice requirement. Definitions are elusive, and allegations of willful and wanton misconduct are not always synonymous with malice, particularly where no improper motive is suggested.

In the view of one court, the action of an attorney who signed and amended a complaint without first reading the complaint did not constitute malice sufficient to support a malicious prosecution action. A contingent-fee arrangement, even of large magnitude, cannot be used as evidence of improper motive or malice.

Neither is attorney negligence or incompetence, which one court gratuitously editorialized: "If that constitutes malice, the courtrooms are full of malicious attorneys." In that case, a surgeon was alleged to have damaged a child’s testicle – although at trial, all expert witnesses, including two of the plaintiff’s own experts, testified that there was no evidence of damage. Apparently, the attorney had not spoken to his own witnesses.

Note that for a malicious prosecution lawsuit to prevail, the plaintiff doctor may have to satisfy the "special injury" requirement in some jurisdictions. It is not always clear what this entails, but the injury has to be beyond "anxiety, loss of time, attorney’s fees and the necessity to defend one’s reputation" (Stopka v. Lesser, 82 Ill. App.3d 323 [1st Dist. 1980]). In one case, the court ruled that a plaintiff in a malicious prosecution action may recover for "humiliation, mortification and loss of reputation" (Raine v. Drasin, 621 S.W.2d 895 [Ky. 1981]). Jurisdictions such as Illinois do not require the special injury element.

Another legal theory for a malpractice countersuit is abuse of process. Here, too, the doctor’s victory is rare. However, in Bull v. McCuskey (96 Nev. 706 [1980]), a physician successfully used this approach. He asserted that the attorney had filed a malpractice suit with the motive of coercing a nuisance settlement (attorney offered to settle for $750). The case involved an elderly woman who sustained fractures following an auto accident, then went on to develop bedsores after refusing to follow staff instructions. The attorney did not examine the medical records, conferred with no physician, retained no expert, and took no depositions.

At trial, which was won by the physician, the attorney called the physician incompetent, a liar, and a scoundrel. In the abuse of process action that followed, the physician won a jury verdict of $35,000 in compensatory damages and $50,000 in punitive damages, which was upheld on appeal.

Other legal theories, mostly unsuccessfully pleaded, include infliction of emotional distress, negligence, defamation, invasion of privacy, and the tort of outrage.

However, courts have erected various rules to prevent the filing of frivolous suits. The best known, Federal Rule 11 (and its state counterparts), requires the lawsuit to be filed only after reasonable inquiry, be well grounded in fact, and not be interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

An example of a Rule 11 sanction involved a lawsuit filed by two chiropractors in Colorado that alleged antitrust violation by a medical facility that denied them hospital admitting privileges. The facts revealed that the chiropractors had in fact never applied for those privileges. The judge imposed sanctions of $38,500 (Colorado Chiropractic Council v. Porter Memorial Hospital, 650 F. Supp. 231 [Co. 1986]).

In summary, one cannot readily recommend filing a physician countersuit, unless it is to make a point. Even if the doctor wins, which is rare, the proceedings will be stressful, the costs are not borne by the malpractice carrier, and any recovered damages are likely to be small.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii, Honolulu. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].

Question: Which one of the following is false?

A. A physician countersuit is frequently successful when a lawyer has filed – and lost – a frivolous malpractice lawsuit.

B. Countersuits are usually premised on two legal theories: malicious prosecution or abuse of process.

C. The key elements of malicious prosecution include lack of probable cause and presence of malice.

D. Abuse of process speaks to using the legal system with an ulterior motive and for an illegitimate purpose.

E. Rule 11 is a federal rule that imposes sanctions in which the attorney has failed to conduct a "reasonable inquiry" before filing a lawsuit.

Answer: A. Many doctors believe that eager attorneys readily file malpractice lawsuits in the hope of intimidating the defendant doctor into settling. Some in the medical profession have therefore considered countersuits against the attorney, and sometimes the patient as well, when they perceive the original lawsuit to be frivolous.

However, the countersuit process is tedious, expensive, and usually unsuccessful. Courts are generally hostile to such lawsuits, because public policy encourages a litigant’s unfettered resort to the law.

The usual legal theory that a countersuit is premised upon is malicious prosecution, which has to satisfy the following elements: 1) original lawsuit terminated in favor of the doctor, that is, no malpractice liability found; 2) lack of probable cause; 3) malice; and 4) special injuries.

The issue of probable cause is the major stumbling block to a successful countersuit. In Williams v. Coombs (224 Cal. Rptr. 865 [Cal. App. 1986]), a doctor was sued for wrongful death after his patient hanged herself following hospital admission for suicidal gestures. She was admitted to a private room instead of a special locked room. At trial, the jury found in favor of the physician. Thereafter, the physician sued the plaintiff attorney for malicious prosecution and intentional infliction of emotional distress.

The court agreed that the plaintiff attorney lacked probable cause in filing the malpractice claim in the first place. It advanced a two-point test: First, the attorney must entertain a subjective belief that the claim merits litigation; and second, that belief must satisfy an objective standard, because the attorney must not prosecute a claim that a reasonable lawyer would not consider tenable.

Finding that the attorney failed to meet the second prong of the test, the court stated that, although probable cause is not the same as making a legal case (winning), an attorney must nonetheless refrain from an unsound and untenable claim. The attorney had relied exclusively on the allegations of his client, and he had not done much in the way of background research, found no cases on point, and sought advice from only one physician during a social encounter.

The court reasoned that a "litigant cannot be permitted to file suit based merely on a wing and a prayer, and then be retroactively justified by some serendipitous discovery so as not to be liable for malicious prosecution." The claim for intentional infliction of emotional distress was dismissed, because otherwise defamatory statements made in a judicial proceeding constituted a privileged publication.

In Gentzler v. Atlee (443 Pa. Super. 128 [1995]), a cardiologist recommended that the patient go to a certain hospital for tests, and in a subsequent CABG procedure, the patient received contaminated blood products. Although the cardiologist did not recommend or participate in the surgery, he was a named codefendant in the subsequent lawsuit. After the trial court dismissed the action, he filed a countersuit against the attorney under Pennsylvania’s statutory section for the wrongful use of civil proceedings.

The court noted that the standard for probable cause is whether an attorney reasonably believes that a claim may be valid under existing or developing law, and that this determination is a matter of law, that is, up to the judge rather than a jury to decide.

In ruling for the doctor, the court reasoned that under the facts of this case, there was no probable cause, as there was no informed consent issue, and the cardiologist did not himself order the administration of the blood products.

However, most malicious prosecution actions fail.

In Wong v. Tabor (422 N.E. 2d 1279 [Ind. 1981]), the Indiana Court of Appeals held that the probable cause standard is an objective one, but the relevant question was "whether the claim merits litigation ... on the basis of the facts known to the attorney when the suit was commenced." The standard apparently did not require the attorney to investigate, but simply to accept the facts as told by the client.

In Dutt v. Kremp (111 Nev. 567 [1995]), the plaintiff attorney promptly withdrew his lawsuit after receiving an unfavorable report from his own expert witness. A countersuit followed. The court held that as regards the malicious prosecution action, the attorney had probable cause to file the malpractice action. The court concluded that, under the facts, a reasonable attorney would have believed that the malpractice action was tenable. The patient’s condition had initially deteriorated under the care of the physician, and improved only after other doctors became involved in the case. The medical records corroborated the patient’s story. The court stated that there was no absolute requirement to obtain an expert opinion before filing the lawsuit.

It is even harder to meet the malice requirement. Definitions are elusive, and allegations of willful and wanton misconduct are not always synonymous with malice, particularly where no improper motive is suggested.

In the view of one court, the action of an attorney who signed and amended a complaint without first reading the complaint did not constitute malice sufficient to support a malicious prosecution action. A contingent-fee arrangement, even of large magnitude, cannot be used as evidence of improper motive or malice.

Neither is attorney negligence or incompetence, which one court gratuitously editorialized: "If that constitutes malice, the courtrooms are full of malicious attorneys." In that case, a surgeon was alleged to have damaged a child’s testicle – although at trial, all expert witnesses, including two of the plaintiff’s own experts, testified that there was no evidence of damage. Apparently, the attorney had not spoken to his own witnesses.

Note that for a malicious prosecution lawsuit to prevail, the plaintiff doctor may have to satisfy the "special injury" requirement in some jurisdictions. It is not always clear what this entails, but the injury has to be beyond "anxiety, loss of time, attorney’s fees and the necessity to defend one’s reputation" (Stopka v. Lesser, 82 Ill. App.3d 323 [1st Dist. 1980]). In one case, the court ruled that a plaintiff in a malicious prosecution action may recover for "humiliation, mortification and loss of reputation" (Raine v. Drasin, 621 S.W.2d 895 [Ky. 1981]). Jurisdictions such as Illinois do not require the special injury element.

Another legal theory for a malpractice countersuit is abuse of process. Here, too, the doctor’s victory is rare. However, in Bull v. McCuskey (96 Nev. 706 [1980]), a physician successfully used this approach. He asserted that the attorney had filed a malpractice suit with the motive of coercing a nuisance settlement (attorney offered to settle for $750). The case involved an elderly woman who sustained fractures following an auto accident, then went on to develop bedsores after refusing to follow staff instructions. The attorney did not examine the medical records, conferred with no physician, retained no expert, and took no depositions.

At trial, which was won by the physician, the attorney called the physician incompetent, a liar, and a scoundrel. In the abuse of process action that followed, the physician won a jury verdict of $35,000 in compensatory damages and $50,000 in punitive damages, which was upheld on appeal.

Other legal theories, mostly unsuccessfully pleaded, include infliction of emotional distress, negligence, defamation, invasion of privacy, and the tort of outrage.

However, courts have erected various rules to prevent the filing of frivolous suits. The best known, Federal Rule 11 (and its state counterparts), requires the lawsuit to be filed only after reasonable inquiry, be well grounded in fact, and not be interposed for any improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.

An example of a Rule 11 sanction involved a lawsuit filed by two chiropractors in Colorado that alleged antitrust violation by a medical facility that denied them hospital admitting privileges. The facts revealed that the chiropractors had in fact never applied for those privileges. The judge imposed sanctions of $38,500 (Colorado Chiropractic Council v. Porter Memorial Hospital, 650 F. Supp. 231 [Co. 1986]).

In summary, one cannot readily recommend filing a physician countersuit, unless it is to make a point. Even if the doctor wins, which is rare, the proceedings will be stressful, the costs are not borne by the malpractice carrier, and any recovered damages are likely to be small.

Dr. Tan is emeritus professor of medicine and a former adjunct professor of law at the University of Hawaii, Honolulu. This article is meant to be educational and does not constitute medical, ethical, or legal advice. It is adapted from the author’s book, "Medical Malpractice: Understanding the Law, Managing the Risk" (2006). For additional information, readers may contact the author at [email protected].