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U.S. ex rel. Emanuele v. Medicor Associates

United States District Court, W.D. Pennsylvania

March 21, 2017

U.S. ex rel. Tullio Emanuele, Plaintiff/Relator,
Medicor Associates, et al, Defendants.


          Joy Flowers Conti Chief United States District Judge.

         I. Background

         The Hamot Medical Center of the City of Erie (“Hamot”) filed a second motion to exclude the report and testimony of Kathy McNamara (“McNamara”). (ECF No. 298.) In the underlying matter, plaintiff/relator Tullio Emanuele (“plaintiff”) contends that Hamot and Medicor Associates, Inc. (“Medicor” and together with Hamot, the “defendants”) entered into a series of medical directorship arrangements that violated the Stark Act, 42 U.S.C. § 1395nn, and the Anti-Kickback Act, 42 U.S.C. § 1320a-7b. Both the Stark Act and the Anti-Kickback Act prohibit a health care entity from submitting claims to Medicare based upon referrals from physicians who have a “financial relationship” with the health care entity, unless a statutory or regulatory exception or safe harbor applies. 42 U.S.C. §§ 1395nn(a)(1); 1320a-7b(b). One of the critical issues to be determined at trial is whether the arrangements fall within the scope of the fair market value exception, 42 C.F.R. §411.357(1), or the personal service arrangements exception, 42 C.F.R. § 411.357(d)(1).

         The parties conducted extensive discovery concerning the applicability of those statutory exceptions. In McNamara's report, she examined the financial relationship between Hamot and Medicor and concluded that each of the medical directorship arrangements at issue was not commercially reasonable within the meaning of the fair market value and personal service arrangements exceptions because: (1) the parties failed to maintain adequate records to insure that they were receiving fair value for their services; (2) Hamot frequently pre-paid for services without obtaining adequate recourse protections; and (3) the agreements describing the arrangements were not in writing or were allowed to expire or lapse. (McNamara Report (ECF No. 235-1) at 6-7.) McNamara based her conclusions on her “29 years of experience in healthcare consulting” and her review of “hundreds of healthcare valuations including those of physician practices, ambulatory surgery centers, dialysis clinics, medical director arrangements, professional service agreements, physician employment agreements, on-call agreements, management service agreements, medical billing services, pharmacy services, mobile radiology services and medical leasing arrangements.” (Id. at 2-3.)

         During McNamara's deposition, defense counsel attempted to probe her prior consulting work to determine whether any of those consultations involved medical directorship arrangements that were similar to those between Hamot and Medicor. (McNamara First Depo. (ECF No. 235-2) at 43-45.) McNamara refused to disclose any facts about her prior work, explaining that she had spent the bulk of the past ten years consulting for the Department of Justice (“DOJ”) and that she was subject to binding confidentiality agreements with the government that prevented her from revealing the names of any other hospitals that she had recently examined. (Id. at 44-45.) Nevertheless, she continued to rely on those consultations, as well as her broad experience in the industry, as the basis for her expert opinion. (Id. at 126, 148.)

         Hamot filed a motion to exclude McNamara's expert report and testimony, arguing that McNamara's refusal to answer questions about her prior consultations precluded Hamot from being able to effectively challenge and explore the foundation of her expert opinion. (ECF No. 234.) Hamot also asserted that McNamara's report contained impermissible legal opinion and was not based on a valid and testable methodology. (Id.) Following a Daubert hearing, the court granted Hamot's motion in part and denied it in part, as follows:

McNamara will not be permitted to provide factual testimony concerning factual matters not otherwise entered into the record, corroborate evidence, or opine as to the credibility or veracity of other witnesses. McNamara will also not be permitted to offer legal argument, attempt to explain legal provisions of the Stark Law or Anti-Kickback Statute, or offer an opinion as to how the law should be interpreted. Finally, McNamara cannot offer an ultimate opinion as to whether a particular agreement is commercially reasonable or complies with the Stark Law and Anti-Kickback Statute.
McNamara may testify about common practices and industry standards within the health care industry, her own experiences within that industry, and the steps that hospitals and health care institutions typically take when entering into similar financial relationships. She may also testify about what kinds of guidance are available to hospitals seeking compliance with federal regulations.

(Order (ECF No. 254) at 1-2.) The court ordered the parties to provide supplemental briefing on McNamara's failure to answer questions concerning her background and experience. (Id. at 2.)

         At a second Daubert hearing held on May 3, 2016, defense counsel explained the type of information that defendants sought from McNamara:

Now, in her deposition we sought to find out how it is she has experience in these types of relationships, establishing a cardiac center of excellence, the number of medical directorship agreements in place, the kind of medical director agreements, the record keeping requirements for these kinds of medical director agreements.
We asked her, how is it that you know whether or not this type of an arrangement is appropriate? What is it in your experience as an accountant - remember, she didn't work as an administrator at hospitals - as an expert accountant, what is it in your experience that lets you opine about these specific kinds of relationships? And it was on all of those questions that we were stopped.
So we don't know, for example, in those consulting cases whether she looked at cases involving a small hospital in a rural area, a large hospital in an urban area, a liver center, a cardiac center, a cancer center; whether those situations involved one medical director agreement or 20. And all of those things are relevant to knowing whether she knows whether these particular types of arrangements at a cardiac center of excellence at a place like Erie are industry standard.

(Daubert Hearing Transcript (ECF No. 270) at 11-12.) The court agreed that McNamara's inability to answer these ...

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