Guarding Your Client's Valuation from Attack--Dos and Don'ts for Requesting, Reviewing, Using, and Discarding FMV Opinions

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RULES, TOOLS AND FOOLS:“HOT BUTTONS” IN PHYSICIAN COMPENSATION

PLANNING

WEBINAR SERIES, PART V

REQUESTING, REVIEWING, USING AND DISCARDING

FMV OPINIONSApril 10, 2015 | Time2:00 -3:30 Eastern; 1:00-2:30 Central; 12:00-1:30 Mountain; 11:00 a.m.-12:30 Pacific

This webinar is sponsored by:Fair Market Value Affinity GroupHospital and Health Systems Practice Group

Faculty :

Jeffrey S. BrommeCarol CardenDavid E. MatyasRobert S. Salcido

David B. Pursell (moderator)

1

INTRODUCTION: SPEAKERS

Jeffrey S. BrommeChief Legal Officer and

Senior Vice President

Adventist Health System

David E. MatyasMember:

Epstein Becker & Green PC

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Carol CardenPrincipal:

PYA

Robert S. SalcidoPartner: Akin Gump Strauss

Hauer & Feld LLP

Moderator:

David B. PursellPartner: Husch Blackwell LLP

GOALS

• Understanding the risks your valuation

faces from government enforcement and

opposing counsel

• Understanding how these risks should

inform the valuation process

• Applying these concepts to legal

counsel/valuator interaction

• How this process informs your

communication with your client

3

AVENUES FOR ATTACK

What to Keep in Mind as You Proceed

Through the Valuation Process

4

INTENT STANDARD

• Anti-Kickback Statute (“AKS”) –

Knowing and Willful

• False Claims Act (“FCA”) – Reckless

Disregard or Deliberate Ignorance

• Stark Law – Strict Liability

5

AN FMV OPINION IMPORTANT AS A LEGAL

DEFENSE

IN AN AKS, FCA OR STARK LAW LAWSUIT

AKS – No Liability Where Business Negotiations are Fair,Responsible, and Warranted Under the Facts of the Case andAlleged Wrongful Payment was at Fair Market Value. See, e.g.,United States ex rel. Jamison v. McKesson Corp., 900 F. Supp. 2d683, 699 (N.D. Miss. 2012) (finding where the government alleged inFCA action that defendants violated the AKS because one defendantprovided a below fair market bid allegedly to win a future contract thatthe government did not meet its burden of proof because “theGovernment did not define fair market value or show that [defendant’s]bid was below fair market value, prove the actual costs were above[defendant’s] bid, or establish that the bids were discounted, [and thus]the Government has failed to identify a reliable benchmark againstwhich the Court [can] determine whether the contracts satisfy thestatutory definition of remuneration”) (citation and internal quotationomitted).

6

LEGAL DEFENSES FMV OPINION PRESENTS

(CONT’D)

FCA – No Liability if Defendant Reasonably

Relied Upon Consultant. United States ex

rel. Folliard v. Govplace, 930 F. Supp. 2d

123, 137 (D.D.C. 2013) (finding that the

relator’s proof cannot support a finding that

defendant acted knowingly when it reasonably

relied upon a consultant it retained to

determine whether the product complied with

the relevant legal standard), aff’d, 764 F.3d 19

(D.C. Cir. 2014).

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IF DEFENDANT RELIES UPON AN FMV

DEFENSE, THE GOVERNMENT OR

WHISTLEBLOWER MAY ATTACK THE FMV

ANALYSIS IN THE FOLLOWING FASHION

Relied Upon Flawed Data or Inherently Suspect Data. See,e.g., United States ex rel. Singh v. Bradford Reg’l Med. Ctr.,752 F. Supp. 2d 602, 632-33 (W.D. Pa. 2010) (finding that a Starklaw violation can result in an FCA violation if the FCA intentstandard is satisfied and ruling that the defendants breached theStark law because the compensation amount the hospital wouldpay physician group was calculated to be roughly equal to thevalue of the amount of business that the doctors would refer to thehospital and thus “the compensation arrangement between [thehospital] and the doctors is ‘inflated to compensate for the [doctors]ability to generate other revenues.’ 66 Fed. Reg. at 877.Specifically we find that the amount of the compensationarrangement was arrived at by taking into account the anticipatedreferrals from the doctors. We therefore conclude that thecompensation arrangement between [the hospital] and the doctorsis not ‘fair market value’ under the Stark Act”).

8

IF DEFENDANT RELIES UPON AN FMV DEFENSE,

THE GOVERNMENT OR WHISTLEBLOWER MAY

ATTACK THE FMV ANALYSIS IN THE FOLLOWING

FASHION (CONT’D)

United States ex rel. Schaengold v. Mem’l Health, Inc., No.

4:11-cv-58, 2014 U. S. Dist. LEXIS 174977 (S.D. Ga. Dec. 18,

2014) (finding that where the relator pled that objective

benchmarks of compensation were exceeded–-compensation

that exceeded the 75th percentile and the 90th percentile of

MGMA—sufficient facts were pled to state a cause of action in

light of other allegations, such as the relator contending that “the

Board demanded the downstream income and patient referrals

… be calculated and included in the … budget process,” and

Board members also allegedly “insisted that downstream income

and patient referrals be considered in negotiating a new

compensation model for the Community-based physicians”).

9

IF DEFENDANT RELIES UPON AN FMV DEFENSE, THE GOVERNMENT OR WHISTLEBLOWER MAY

ATTACK THE FMV ANALYSIS IN THE FOLLOWING

FASHION (CON’T)

United States ex rel. Parikh v. Citizens Med. Ctr., 6:10-CV-64,2013 U.S. Dist. LEXIS 134693, at *35 (S.D. Tex. Sept. 20, 2013)(finding that even if the cardiologists were making less than thenational median salary for their profession, given the Relator’sallegations that the cardiologists’ income more than doubled afterthey joined the defendant hospital even while their own practiceswere costing the hospital between $400,000 and $1,000,000 peryear in net losses and the allegation that the physicians beganmaking substantially more money once they were employed by thehospital is sufficient to allow an inference that they were receivingimproper remuneration. The court noted that this inference isparticularly strong given that it would make “little apparenteconomic sense for the hospital to employ the cardiologists at aloss unless it were doing so for some ulterior motive—a motiveRelators identify as a desire to … induce referrals.”)

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IF DEFENDANT RELIES UPON AN FMV DEFENSE, THE GOVERNMENT OR WHISTLEBLOWER MAY

ATTACK THE FMV ANALYSIS IN THE FOLLOWING

FASHION (CON’T)

Caveats – See, e.g., United States ex rel. Poguev. Diabetes Treatment Ctrs. of Am., Inc., 565 F.Supp. 2d 153, 167 (D.D.C. 2008) (rejectingdefendant’s advice of counsel defense because, farfrom relying on counsel’s advice, it found that, onmany occasions, counsel actually warned DTCAregarding potential non-compliance, such as, “wehave an increasing concern about your ability tosuccessfully defend all of the arrangements whichare now in place and many of the arrangements forwhich our opinion has been sought … .”)

11

IF DEFENDANT RELIES UPON AN FMV DEFENSE,

THE GOVERNMENT OR WHISTLEBLOWER MAY

ATTACK THE FMV ANALYSIS IN THE FOLLOWING

FASHION (CON’T)

Multiple Opinions - See, e.g., United States ex rel.Drakeford v. Tuomey Healthcare Sys., Inc., 976 F.Supp. 2d 776, 789 (D.S.C. 2013) (finding that thejury’s rejection of the defendant’s advice of counseldefense was not against the clear weight of evidencewhere the defendant allegedly rejected the concernsof one lawyer and instead relied upon the advice ofanother lawyer who believed that the Stark law did notapply to the physician contracts at issue; that thephysician compensation did not vary with or take intoaccount the volume or value of referrals or thehospital’s technical fees; and that the fair market valueanalysis was reliable).

12

DISCOVERY RELATED TO FMV

• Qualifications and Experience of Analyst

• Criteria Used to Reach Conclusion

• All Communications Underlying Opinion

• Cost

13

ROUNDTABLE DISCUSSION:

A STRATEGIC APPROACH TO THE

VALUATION PROCESS

The Perspectives:

• In-House Counsel

• Outside Counsel

• Valuation Expert

• Defense Counsel

14

REQUESTING THE VALUATION

• Importance of established process/procedure– The first line of defense

• Assessing when to obtain an outside valuation– Complexity of transaction

– Standardized procedures

• Does the selection of the valuator matter?– Local/National?

– Credentials?• Compensation analysis

• Equipment valuation

• Real estate valuation

– Experience?

15

REQUESTING THE VALUATION

• Who Requests the Valuation?– Attorney/Client Privilege considerations

• Is “Independence” Required or Necessary?– What does “independence” mean?

• Technical meanings

• Strategic importance

• What Issues Should be Covered in the Engagement?– Scope of Engagement

• FMV/Commercial Reasonableness or Both?

– Initiating a transaction vs. Defending a transaction?

– Responding to opposing valuation?

• Request for Information

16

REVIEWING THE VALUATION

• Who should review the valuation?– In-house Counsel?

– Outside Counsel?

– Management?

• What should be reviewed?– Methodology?

• Legal Compliance vs. Valuation Methodology

– Facts?• What is scope of factual review?

– Transaction vs. Defense

• Who reviews?– Management

– In-House Counsel

17

REVIEWING THE VALUATION

• Can or Should the Management/Counsel

Question the Conclusions?

• How Should Input From the Review be

Documented?

• How Does Input Affect Defensibility?

18

USING THE VALUATION

• Parties permitted to review valuation

– Privilege Concerns• Disclosure to opposing transaction party

• Disclosure to government

• Understanding the scope and limitations of valuation

– Ability to explain the valuations implications to client

• Documenting the discussion with client

• Impact of additional financial analysis performed by client

19

DISCARDING THE VALUATION

• Can you safely discard a valuation you do not like?

– Appropriate circumstances• Faulty analysis?

• Faulty Conclusions?

• What should be documented?

• What are considerations to be explained to your client?

• When is it appropriate to request a second opinion?

20

QUESTIONS

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