In re King's Daughters Health Sys., Inc.

31 F.4th 520

IN RE: KING'S DAUGHTERS HEALTH SYSTEM, INC., a corporation dba King's Daughters Medical Center, Petitioner.

No. 22-5071

United States Court of Appeals, Sixth Circuit.

Decided and Filed: April 15, 2022

ON PETITION FOR WRIT OF MANDAMUS: Ashley M. Ward, STITES & HARBISON, PLLC, Lexington, Kentucky, Michael D. Risley, STITES & HARBISON, PLLC, Louisville, Kentucky, for Petitioner.

Before: BATCHELDER, McKEAGUE, and GRIFFIN, Circuit Judges.

ORDER

King's Daughters Health System, Inc., doing business as King's Daughters Medical Center ("KDMC"), petitions for a writ of mandamus, asking that we compel the district court to vacate its order granting a motion to compel and, further, that we compel the court to deny the motion to compel. For the following reasons, we deny KDMC's petition for a writ of mandamus.

I.

This petition for a writ of mandamus is another chapter in the federal government's prosecution of Dr. Richard Paulus for healthcare fraud. We have recounted the background of this case in three opinions. See United States v. Paulus , 894 F.3d 267 (6th Cir. 2018) ( Paulus I ); United States v. Paulus , 952 F.3d 717 (6th Cir. 2020) ( Paulus II ); United States v. Paulus , No. 20-6017, 2021 WL 3620445 (6th Cir. Aug. 16, 2021) ( Paulus III ).

Our opinion in Paulus II recounts the background relevant to this mandamus petition:

A.

For years Paulus was a successful cardiologist at King's Daughters Medical Center (KDMC). He performed an incredible number of angiograms and was "first in the nation for the total amount billed to Medicare for these procedures." But not all was well. Complaints emerged that Paulus was performing medically unnecessary procedures. And several audits indicated that in multiple cases Paulus had reported a higher degree of blockage in his patients’ arteries than their angiograms reflected. Meaning, in some cases, the patient's angiogram showed a low degree of blockage and thus that the patient didn't need a stent inserted. Yet Paulus reported a much more severe blockage, inserted a stent, and then billed patients and their insurance companies for the stent procedure.

Eventually, these allegations reached the federal government. At first, the government considered entering into a civil settlement with Paulus. In a letter setting forth its demands, the government stated that its consultants had reviewed 496 of Paulus's procedures and concluded that 146 of them (or about 30%) were unnecessary because the patients’ angiograms showed minimal arterial blockage. The government further noted that its experts weren't the only ones who found Paulus's procedures to be problematic: the letter explained that KDMC's "consultants [had] also reviewed a random selection of Dr. Paulus’ procedures, and found 75 angiographic films with [minimal blockage] in the artery he stented." But after some back-and-forth, the attempts at a civil settlement fell through, and the government obtained an indictment.

B.

At trial the government called three expert witnesses, Drs. Ragosta, Morrison, and Moliterno, who showed angiograms from 72 different patient files to the jury. While displaying each angiogram, the doctors diagnosed the amount of blockage in the patient's artery and contrasted their diagnosis with that stated in Paulus's report. Based on the differences between what the government's experts saw in the angiograms and what Paulus reported, the experts concluded that Paulus overstated his patients’ arterial blockage and inserted medically unnecessary stents. They also emphasized that this was not "an isolated case[.]" Instead, Ragosta presented evidence of overstatements in 62 out of the 250–300 cases he reviewed, and he called the 62 cases a "representative sample"; Morrison noted that over half of the 11 randomly selected procedures he reviewed were unnecessary; and Moliterno asserted that all of the stent procedures he reviewed were unnecessary. Based on this testimony, the government argued that Paulus "saw one thing on the angiogram and consciously wrote down another." And he didn't just do it occasionally. According to the government's closing argument, Paulus did it "frequently, repetitive[ly], daily."

After 23 days of trial, four days of jury deliberations, one judicial pep talk, and one Allen charge, the jury convicted Paulus of one count of healthcare fraud and ten counts of making false statements relating to healthcare. But the case didn't proceed to sentencing. The district court vacated the convictions, finding that there was insufficient evidence both that Paulus made false statements and that he had fraudulent intent. But that didn't stand. We disagreed with the district court's reasoning and reversed its order.

C.

The plot twisted once more. After remand and before sentencing, the government disclosed to Paulus for the first time the "Shields Letter." According to the letter, when KDMC was facing its own legal trouble, it hired a team of independent experts to review Paulus's work ("KDMC Review"). KDMC's consultants reviewed 1,049 of Paulus's cases and flagged 75 of his procedures as unnecessary. In the Shields Letter, KDMC's attorneys explained to the government their consultants’ findings and offered to refund Medicare for the payments the hospital had collected for the 75 flagged procedures.

While Paulus already knew that KDMC had identified 75 of his procedures as problematic, he did not know that KDMC consultants had reviewed 974 other procedures that they apparently found non-problematic. The defense viewed this evidence as exculpatory because it meant that the KDMC Review found that the rate of unnecessary surgeries, 75 out of 1,049, or about 7%, was far lower than what the government experts had testified at trial; this lower percentage was less consistent with systemic and purposeful fraud and more consistent with occasional mistakes or diagnostic differences of opinion between cardiologists. Seeking more information, Paulus moved to compel the government to produce all information related to the letter.

It was only then that the defense got the full picture. The government disclosed to Paulus a series of events that had taken place before his trial. Long before Paulus was indicted, KDMC sent the government the Shields Letter. And when the government later elected to charge Paulus, it planned to use the Shields Letter in its case-in-chief and to disclose the letter to Paulus. But KDMC objected, arguing that the letter was both privileged and inadmissible. So, about a month before trial, the government brought the dispute to the district court, and the court scheduled an ex parte hearing, so as to protect KDMC's asserted privilege.

But even though privilege was ostensibly the reason for holding the hearing ex parte, the district court made no decision regarding the privilege issue. The court opened the hearing by saying it would put privilege aside and decide instead whether the information was inadmissible under Federal Rule of Evidence 408. The government argued that the letter was admissible. And to its credit, the government also argued that even if the letter wasn't admissible, the government was obligated to disclose it to Paulus under Brady . Although the government wished to introduce evidence of the KDMC Review at trial for its inculpatory value, it also recognized that the review had exculpatory value to Paulus. But the district court was unconvinced. It held that the information was inadmissible—a ruling that both parties now agree was wrong—and that the government wasn't obligated to turn it over to Paulus. And even though it made no ruling on privilege, the district court concluded the hearing by inexplicably ordering that the parties "[we]re not to disclose" any more information about the KDMC Review to Paulus.

Having discovered this information after his trial, conviction, and remand from this court, Paulus moved for a new trial. The district court rejected Paulus's arguments and proceeded to sentencing.

Paulus II , 952 F.3d at 720–22 (internal citations omitted).

On appeal, we vacated Paulus's convictions and remanded for a new trial on grounds that the Shields Letter was material to Paulus's defense and that the government's failure to disclose the letter therefore violated Paulus's Fifth Amendment due process rights under Brady v. Maryland , 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). Id. at 728.

KDMC's counsel, William Shields, sent the Shields Letter in 2013 during settlement negotiations with the government regarding the hospital's potential violations of the False Claims Act and Stark Law. The letter disclosed to the government only that KDMC's experts reviewed a random sample of 1049 stent procedures performed by Paulus and that its experts preliminarily assessed that in "75 of those 1049 procedures the percentage of occlusion"—or blockage—"was 30% or less." The letter also disclosed the names of those 75 patients. Important here, Shields wrote: "As A.U.S.A. Andrew Sparks and I have agreed, the disclosure of this information does not waive any attorney-client privilege or attorney work product protection." KDMC does not contend that a written agreement exists. The government maintains that it did not reach an oral or written agreement regarding KDMC's waiver of privileges by disclosing information about the study in the Shields Letter.

On remand after Paulus II , in preparation for Paulus's re-trial, the government subpoenaed KDMC for the following additional information regarding the study referenced in the Shields Letter:

• Documents identifying the 1,049 procedures reviewed, with patient name and date of procedure;

• All opinions or conclusions reached by the experts regarding the percentage of occlusion in the stented arteries;

• All opinions or conclusions reached by the experts regarding the medical necessity of the procedures;

• All records describing or identifying the sampling methodology and the manner in which the medical review was conducted;

• All records

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