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For years, National Medical Enterprises Inc. and its successor company, Tenet Healthcare Corp., have been caught in a litigation quagmire. In June 1994, National Medical (NME) and its subsidiary Psychiatric Institutes of America (PIA) pleaded guilty to violations of the federal anti-kickback statute and paid $30 million in criminal fines and $350 million in civil damages. The criminal plea set off an explosion of lawsuits by individual plaintiffs charging that the psychiatric institutions had hospitalized patients without medical need, just to gain insurance money. Insurance companies also sued to recover payments to the hospitals. By 1997, settlements by NME and Tenet, the new parent, totaled an extra several hundred million dollars. But the litigation would not die. Each settlement set off a new wave of lawsuits and, most disturbing to the defendants, a wave of advertising by plaintiffs’ lawyers seeking ex-patients. The company’s policy had been to settle the lawsuits as they arose, “just to get this behind us,” says Harry Anderson, Tenet Healthcare’s spokesman, “but the cases kept coming.” So in 1997, Tenet decided to take a stand: Thereafter it would take these cases to trial. In March 1999, this decision led to a slam-dunk defense verdict in the first patients’ case to be heard by a jury. The Dallas jury verdict clearing NME and PIA leads The National Law Journal’s 10th annual list of the biggest defense wins in civil cases nationally. MONSTROUS CHARGES No civil defendants in 1999 faced more monstrous charges than those in the lawsuit filed in Dallas against these two companies. The defendants were accused of making false statements to plaintiffs and their families in order to fill their psychiatric facilities. “They were just looking for the insurance money,” says plaintiffs’ attorney William C. Carmody, of Dallas’ Carmodys L.L.P. In their formal complaint, the plaintiffs charged that during hospitalizations they “were subjected to outrageous physical and mental abuse by defendants.” Patients were strapped “to beds or wheelchairs for days, weeks and even months at a time,” the plaintiffs charged, and were placed in “rage therapy, in which patients were held to the floor and simultaneously verbally taunted and beaten in the rib and chest areas.” In the Dallas lawsuit, the plaintiffs charged that the defendants committed fraud and conspiracy in connection with treatment at the Dallas-based PIA affiliate, Brookhaven Psychiatric Pavilion. There were 92 plaintiffs in this suit. Four bellwether cases — two selected by each side — were scheduled for the first trial. The defendants were NME, PIA, Tenet, Brookhaven and the plaintiffs’ treating physicians. Kelly A. v. National Medical Enterprises Inc., No. 99-04629-H (Dist. Ct., Dallas Co.). Of the four bellwether plaintiffs, one, Joy M., was considered by both sides to have the most compelling claim. (By agreement, the attorneys used initials for the plaintiffs’ last names.) Joy M. had gone to Brookhaven on Sept. 6, 1989, when she was 15, and did not leave until Oct. 22, 1990. During her 411-day stay, she spent much of the time strapped in restraints or kept under other restrictions, said Carmody. The diagnosis was borderline personality disorder and, he charged, “she could have been treated on an outpatient basis. She was insured, so they wanted to hold onto her.” The stay caused significant long-range emotional and psychological damage, he adds: “Her emotional stability was stolen at a very young age.” The defendants all denied the charges of conspiracy and fraud. The hospital and doctors contended that all decisions on patient care were made for the appropriate medical reasons. The corporate defendants, PIA, Tenet and NME, denied that there had been any fraud or conspiracy to induce the medical personnel to admit patients for insurance purposes. The defense team split responsibilities according to whom they were representing, says Barry F. McNeil, of Dallas’ Haynes and Boone L.L.P. For instance, Strasburger & Price L.L.P., the Dallas firm representing Brookhaven, led on the medical aspects of the case. Haynes and Boone, which was representing PIA, concentrated on the guilty plea to federal kickback statutes. COOPERATIVE LAWYERS Cooperation between the law firms was essential to winning, McNeil says. In many multiple-defendant cases, he explains, “you have to worry more about your co-defendants than you do about your adversary.” There were no such disputes here, he says. The primary obstacle for the corporate defendants was the 1994 settlement of the federal criminal charges, McNeil says. The defendants attempted to keep the criminal plea out of the trial, but the trial court rejected this. The defense attorneys were in agreement that this problem had to be met head-on. “We had to show that the criminal plea of PIA had nothing to do with the care and treatment of these people,” says Mr. McNeil. “We raised it ourselves in voir dire. We knew it would come out. We wanted to say it first.” This blunted its effect on the jury and allowed the defense to put its own spin on it. The plaintiffs charged that the defendants had “admitted that they paid bribes and kickbacks to secure referrals to treatment centers so that defendants could take advantage of insurance coverage of prospective patients.” The defense now countered that the guilty plea to these charges was not an admission of wrongdoing, says McNeil. “The plea was to a very technical medical statute. It had nothing to do with patient care.” But the defense lawyers realized this technical defense would be meaningless unless they could establish that “there was no connection between the doctors’ admission of these patients and the guilty pleas by the companies. “That was our biggest task,” says McNeil. “We had to demonstrate that these patients had been properly admitted and properly treated.” For the lawyers charged with the defense in the medical case, there were two hurdles. First, says John R. Tilly, of Strasburger & Price, there was likely to be considerable sympathy for the plaintiffs. “It would be a nightmare to be imprisoned against your own will,” says Tilly, and if the jury was convinced, the damages would be enormous. CREATING A HUMAN FACE “The only way to counter this was to bring in the doctors, the psychiatrists, the social workers, the nurses, who saw the patients on a daily basis,” Mr. Tilly says. The defense team put a human face on the corporations by calling as witnesses the individuals who made the decisions. “These were caring, empathetic professionals who believed these people were sick and got them the help they needed,” he says. “We had to explain, ‘This is not an insane asylum. These people were not thrown into a dark room forever because society couldn’t deal with them. They were in the hospital for medical reasons.’ “ The jury would comprise people “who don’t know how mental illness can be treated,” Tilly says. “We would have to teach as much as we could.” To do this, he said, the defense needed to focus on “what specific mental illnesses they had, what the treatment was and how they each got better.” They relied heavily on the patients’ records before and after their stays at Brookhaven. The plaintiffs contended that their Brookhaven stays caused lifelong problems. The defense countered, says Tilly, that treatment had helped. “Each had difficult times in their lives, but these problems were caused by events” such as lost jobs or lost loved ones, he says. “These cases have to be very fact-specific,” adds Tilly’s co-counsel Bryan J. Maedgen. The plaintiffs’ complaints of long stays or restraints were damning at first glance, he notes, so “you have to teach the jury how their first impressions can be illusions.” The defense spent much of its time on the diagnosis and treatment of Joy M. Before coming to Brookhaven, Tilly says, “she had a long history of childhood difficulties. It was hard for the doctors to overcome them. She was diagnosed with borderline personality disorder. This was a significant diagnosis, and it took a long time to get her functioning.” By the time of the trial, he says, “she was married, she had children. Her husband was at times abusive, but she was not unhappy.” The plaintiffs were seeking more than $100 million in actual and punitive damages. But on March 22, 1999, a Dallas jury found no fraud and thus did not get to the next question, of conspiracy. A second trial, in Conroe, Texas, involved five bellwether plaintiffs who had been patients at PIA’s Laurelwood hospital. In August, it, too, ended in a defense verdict. The finding of no liability was not applied to the remaining plaintiffs in the Conroe and Dallas cases, says Maedgen, “but the plaintiffs’ lawyers have withdrawn in both sets of cases.” There are several hundred cases remaining, but the defendants’ success before juries in Texas has led to a slowdown in filings, notes Anderson: “We believe it vindicates our decision.”

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