Month: October 2014

Physician-Owned Ambulatory Surgery Centers Likely Face Heightened Scrutiny After Multi-Million Dollar Qui Tam Settlement

In recent years, it has become increasingly popular for physicians to obtain investment and ownership interests in ambulatory surgery centers (ASC’s).  The business motivations behind physician involvement in ASC’s are clear: those facilities are often very profitable and physician-investors have a fair amount of industry knowledge to support informed investment decisions.  A recent lawsuit in Tennessee, however, could call into question the appropriateness of some ASC investments.

Under the False Claims Act, a private citizen can bring a “qui tam” lawsuit on behalf of the U.S. government against a violator of the Act and receive a portion of any settlements or judgments against the violator.  When a citizen brings a qui tam action, they are referred to as a “relator,” and the United States government has the ability to intervene in the suit against the violator, or simply allow the relator to proceed against the violator and collect the balance of any judgment or settlement, less the relator’s share.

In September, Meridian Surgical Partners, a Tennessee-based operator of ambulatory surgery centers, agreed to pay $3.3 million to settle a qui tam lawsuit brought by a former manager of one of Meridian’s ASC facilities, the Treasure Coast Center (TCC). The former TCC manager, Mr. Thomas Simmons, alleged in his lawsuit that Meridian had engaged in a kick-back scheme by paying investor physicians inflated returns based upon their respective referral volumes, and by rewarding high-referral physicians with minority ownership interests in the ASC at reduced costs.   In support of his allegations, Mr. Simmons alleged that Meridian’s initial purchase of the ASC was based upon a valuation of the facility’s earnings, rather than assets, and was therefore above market value, which in turn led to excessive distributions and benefit to the investor-physicians.

Though the government ultimately declined to intervene in the Meridian case, and though Meridian maintains that the allegations in Mr. Simmons’ lawsuit were baseless, the $3.3 million settlement has caused many people to take a second look at the compensation and investment-distribution structures of physician-owned ambulatory surgery centers.  It is important, then, for physicians and facility-owners alike to take extensive efforts to analyze and verify the formalized valuation methodology for pricing ASC acquisition and physician investment, typically through the use of an independent, third-party valuation.  Not only will appropriate valuation ensure that an ASC investment is sound, it can also help to protect the facility and physician-investors from the risk of government action and qui tam litigation.



Not surprisingly, health care liability claims can be notoriously complex.  While these claims may take several months or years to fully resolve, as a defendant, many of your initial actions in a malpractice lawsuit can significantly impact the progression of the case.  The following post outlines the first few basic phases of a health care liability claim to assist you in avoiding pitfalls before you consult an attorney or notify your insurance company.

Notice of Claim

Before a patient ever files a health care liability claim, the patient should provide written notice to each physician or health care provider (including hospitals and other institutions) that will be a defendant in the suit at least sixty days prior to filing.[1]  In addition to other technical requirements, an authorization permitting the retrieval of the patient’s medical records must accompany the notice.[2]

While there is no explicit penalty for failure to provide notice, the rules afford plaintiffs who do comply with the notice requirement an additional seventy-five days to the statute of limitations.  Conversely, if the plaintiff fails to provide notice, they are not entitled to the seventy-five day extension.

At that point, many insurance policies require you to notify your insurer as soon as reasonably possible after you become aware of a claim covered by your particular policy.  The sixty day “waiting period” between receiving notice of a claim and the filing of a lawsuit is generally utilized by you and your insurer to assess and investigate the patient’s claim.

Original Petition – Filing and Service

Assuming the patient provides notice, upon the expiration of the sixty days, a patient (now a “plaintiff”) may then file their lawsuit.  This is done by submitting a petition to the correct court and serving you with a copy of that petition, along with a citation (collectively referred to as “process”), which indicates when your answer is due.  There are several ways to serve a petition,[3] but the plaintiff will typically employ the use of a process server to deliver the petition to you in person.  The purpose of the petition is to supply the defendants with fair and adequate notice of the underlying claims, allowing the defendants to establish a defense.  To that end, there are several requirements for what a petition must contain.  The evaluation of whether a petition is sufficient and complies with Texas law is best left to your attorney.

Occasionally, a plaintiff can make critical mistakes when serving a petition.  Therefore, it is advisable to retain the original envelope containing the petition, and make a note of where, when, and how you received it.

This is another event which you should report to your insurer, if applicable, as quickly as possible.  Notification is made even more critical in light of the fact that many plaintiffs fail to provide the pre-suit notice to defendants.  Depending upon the terms of your policy, your insurer may retain counsel to defend you in the lawsuit.  Virtually all insurance policies place the burden upon you, as the insured, to notify your insurance company about a lawsuit.  Once you receive service of process, you or your insurer will have a limited time in which to find an attorney to file an answer on your behalf.

Responding to the Petition

As noted above, the citation will tell you when you must file your answer with the court and serve a copy of it to the plaintiff.  This deadline is set forth in the Texas Rules of Civil Procedure as follows: “by 10:00 a.m. on the Monday next following the expiration of twenty days after the date of service.”[4]

By filing an answer, you are making an appearance before the court, confirming receipt of the lawsuit, and setting forth your response to the plaintiff’s claims.  In Texas, the Rules of Civil Procedure permit you to file a general denial (i.e. a broad denial to all of the plaintiff’s claims); however, there are certain defenses that must be specifically included in your answer in order to raise them later.  An answer should also include a jury demand, in the event you wish a jury to hear the case.

If you fail to file an answer before the deadline, the plaintiff can ask the court to render a default judgment in the plaintiff’s favor.  While you can generally request that the court vacate or set aside the default judgment by filing a motion showing you had an appropriate excuse, this step is easily avoided by timely filing an answer.

Expert Report

Within 120 days after you file your answer, a plaintiff must serve you with one or more expert reports explaining in detail how you were negligent and how your alleged negligence caused the plaintiff’s damages.[5]  The plaintiff is also required to include the expert’s curriculum vitae with his/her report.[6]  There are several other requirements pertaining to the contents of the expert report and the qualifications of the expert, which are beyond the scope of this particular post.  In general, be aware that a plaintiff must serve each defendant with these reports within the statutorily mandated deadline.  Failure to do so compels the court to dismiss the case.


In sum, being aware of the aforementioned steps can help you understand the basic process of how a lawsuit begins and how to avoid legal issues in the early stages of defending yourself against a healthcare liability claim.

[1] Tex. Civ. Prac. & Rem. Code § 74.051(a) (2013).

[2] Id.; see also § 74.052

[3] Tex. R. Civ. P. 21a.

[4] Tex. R. Civ. P. 99(c).

[5] Tex. Civ. Prac. & Rem. Code § 74.351(a).

[6] Id.