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Henry R. Fenton, State Bar No. 45130 Dennis E. Lee, State Bar No. 164360 Benjamin J. Fenton, State Bar No. 243214 Nicholas D. Jurkowitz, State Bar No. 261283 FENTON NELSON, LLP 11835 W Olympic Blvd., 91

h Floor Los Angeles, CA 90064 Phone (31 0) 444-5244 Fax (31 0) 444-5280

ORIGINAL

FILED SUPERIOR COURT

COUNTY OF SAN BERNARDINO RANCHO CUCAMONGA DISTRICT

JAN 12 2012

6 . Attorneys for Defendants

SIVA ARUNASALAM, M.D. and

7 HIGH DESERT HEART INSTITUTE MEDICAL CORPORATION

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SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SAN BERNARDINO

12 ST. MARY MEDICAL CENTER, Case No. CIVVS 804324

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Plaintiff,

vs.

SIVA ARUNASALAM, M.D.; HIGH DESERT HEART INSTITUTE MEDICAL CORPORATION,

Defendants.

DEFENDANTS' TRIAL BRIEF

Trial Readiness Conf: January 12, 2012

Location: Dept. R-10 Judge: Hon. Joseph R. Brisco

Trial Date: January 17,2012

0 DEFENDANTS' TIUAL BRIEF

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I. INTRODUCTION

The present case involves a trumped up lawsuit by a hospital that views Defendants as bitter

rivals for the health care market in the high desert area. Judgment must be entered in favor of

Defendants and against Plaintiff St. Mary Medical Center ("Plaintiff' or "St. Mary") on all of the

causes of action in the Second Amended Complaint ("SAC") because Plaintiff cannot catTy its

burden of proving all of the elements of any of its causes of action, and because Defendants have

complete defenses to each and every cause of action.

II. FACTUAL BACKGROUND

Defendant Siva Arunasalam, M.D. ("Dr. Arunasalam") is a board certified Cardiologist in

the high desert area with medical staff privileges at St. Mary. Because he developed plans to build

a competing hospital in the high desert, St. Mary's administration has been detetmined to destroy

him economically. St. Mary's effot1s to ruin Dr. Arunasalam have been spearheaded by David

O'Brien, M.D. ("Dr. O'Brien"), a member of both the Medical Executive Committee ("MEC") and

of the hospital's administration.

St. Mary initiated two sequential audits of Dr. Arunasalam's performance of defibrillator

procedures, including the implantation of automated implantable cardioverter defibrillators

("AICDs") at St. Mary. The first audit only involved hospital employees. The second audit was

performed at the direction of St. Mary's counsel.

As part of the first audit, Dr. O'Brien retained Dr. Peter Chang Sing, an electrophysiologist,

to review Dr. Arunasalam's defibrillator procedures at St. Mary from May 2002 to April 2004. Dr.

Chang Sing prepared a report of his findings for St. Mary, dated August 16,2004. This report

contended that many of Dr. Arunasalam's AICD procedures performed at the hospital failed to meet

Medicare coverage guidelines. Subsequently, and also as part of the first audit, St. Mary retained

another physician, Dr. Warren Harthorne, for a second review. In a repott dated February 2005, Dr.

Harthorne also contended that Dr. Arunasalam's defibrillator procedures did not meet Medicare

DEFENDANTS' TRIAL BRIEF

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coverage guidelines and could even "cause a Medicare re':'iewer to levy a charge of deceptive

bi11ing."

On May 19, 2005, St. Mary's Medical Staff filed a Notice of Charges in an effort to

terminate Dr. Arunasalam' s staff privileges. One of the charges was that Dr. Arunasalam failed to

perform defibrillator threshold testing ("DFT testing") of AICD devices. The aiieged failure to

perform DFT testing of AICD devices is also the foundation of the present lawsuit, filed by St.

Mary on July 25, 2008.

In its lawsuit, St. Mary contends that the defibrillator procedures were improper under

Medicare guidelines. However, St. Mary has acknowledged that Medicare never requested

repayment or made any determination that the procedures were improper. In fact, Dr. Arunasalam's

offices, which were subject to a pre-payment audit by Medicare, performed numerous defibrillator

procedures, all of which were approved and paid for by Medicare. In December 2008, St. Mary

voluntarily paid $1.4 million to Medicare. Medicare accepted the money but expressly noted that

its acceptance reflected no judgment, one way or the other, whether the payment was appropriate.

II. LEGAL ARGUMENT

A. All of the medical procedures at issue were medical necessary and performed within the standard of care

Throughout this lawsuit, St. Mary has attempted to mislead the court by falsely conflating

the issue of"coverage" by Medicare with "medical necessity". However, Medicare does not set

forth some soli of"national standard of care" that binds all physicians, with respect to either

Medicare or non-Medicare patients. Rather, Medicare merely sets forth guidelines that determine

whether the procedure is covered by Medicare, i.e. whether Medicare will pay for performance of

the service. A physician, however, is legally required to adhere to the standard of care with respect

to a patient's needs, regardless of whether Medicare- or any other payor-will or will not pay for

the service in question.

Ill 2

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1. Coverage Determinations do not establish medical necessity

Plaintiff relies almost entirely on the Medicare National Coverage Detenninations (NCDs)

for their contention that Defendants somehow did something improper in performing various

defibrillator procedures. But a simple perusal of the NCO at issue reveals that not once in the

document does the language "medical necessity", or any synonym thereof, occur. Rather, the

document merely refers repeatedly to "coverage".

However, physicians, and not health-care payors, whether private or governmental payors,

have ultimate responsibility for determining the course of treatment medically necessary to treat

patients, and any decisions relating to medical treatment are the final responsibility of the physician

and not the payor, nor may the payor validly override the physician's judgment. Wickline v. Stale of

California (1986) 192 Cai.App.3d 1630, 1644-1645.

2. The standard of care is established by local community standards, not by Medicare

The notion that Medicare somehow acts as a "super-regulatory body" setting f011h national

standards of"medical necessity" is ludicrous. The standard of care in most jurisdictions, including

California, is set forth by reference to local community standards. A physician who fails to act in

compliance with those local community standards is subject to discipline of license-including

possible revocation-for acting negligently and is also subject to potential criminal liability. See

Glover v. Board of Nfedica/ Quality Assurance (1991) 231 Cal.App.3d 203, 207; Pasha v. Board of

Medical Quality Assurance (1985) 174 Cai.App.3d 439, 447; Cal. Bus·. & Prof. Code sections

2234,2314.

3. All of the procedures at issue were performed within the standard of care and were medically warranted and necessary

All of those AICD procedures at issue were medically warranted and necessary. Defendants

have met the standards of the local community as well as standards accepted by the American

College of Cardiology (ACC) and the American Heart Association (AHA) as well as the Centers for

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Medicare and Medicare Services (CMS). Each of the deijbrillator procedures is medically

appropriate.

B. All of Plaintiff's claims are barred by the applicable Statutes of limitations

Each cause of action in Plaintiffs complaint is barred by the applicable statute of limitations

as all ofthe alleged harm occurred in or before 2004, whereas the present lawsuit was filed on July

25, 2008. Plaintiff became aware of the injury no later than August 16, 2004; and again on

February 2005 and May 19, 2005. The longest applicable statute of limitations period is three

years. Accordingly, all claims are barred.

i. Specific limitations pet·iods for each cause of action

Plaintiff alleges seven causes of action. Each of these causes of action has a statute of

limitations that is either two or three years. See C.C.P. sections 338(d), 339(1); Wiz Technology,

Inc. v. Coopers & Lybrand (2003) 106 Cal.App.4th 1, 14; C.C.P. § 338(d); Krieger v. Nick

Alexander Imports, Inc. (1991) 234 Cai.App.3d 205, 219; Ventura County Nat. Bank v. J\tfacker

(1996) 49 Cai.App.4th 1528, 1531 ; Edwards v. Fresno Community Hasp. (1974) 38 Cai.App.3d

702, 707; Augusta v. United Service Automobile Assn. (1993) 13 Cal.App.4th 4, 10.

ii. All of Plaintiff's claims are time barred because Plaintiff discovered Defendants' alleged conduct more than 3 years before filing this action

The causes of action accrued when Plaintiff had, or reasonably should have had, a suspicion

of wrongdoing. Jolly v. Eli Lilly & Co. (1988) 44 Cal. 3d 1103, 1111; Norgart v. Upjohn Co. (1999)

21 Ca1.4111 383, 397-398; Rose v. Fife (1989) 207 Cai.App.3d 760, 771; Snapp & Associates Ins.

Services, Inc. v. J\1/alcolm Bruce Burlingame Robertson (2002) 96 Cai.App.4111 884, 890-891. Such

suspicion arose upon issuance of the Chang-Sing report; and again on issuance of the Harthorne

report; and yet again upon the initiation of the peer review procedure against Dr. Arunasalam.

The Chang-Sing report was requested by Dr. O'Brien, a member of both the MEC and of the

hospital administration. A hospital, not a medical staff, is ultimately responsible the credentialing

of physicians on its medical staff, and any decision by a medical staff to take adverse action against 4

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a physician must ultimately be approved, or denie~, by the hospital. Elam v. College Park Hospital

(1982) 132 Cal.App.3d 332, 346-347; Weinberg v. Cedars-Sinai lvfedical Center (2004) 119

Cal.App.4111 1098, 1109-1110.

Plaintiff suffered "injury", sufficient for accrual of the causes of action, as soon as it

expended resources to investigate Defendants, which occurred no later than the time Plaintiff

engaged the services of Dr. Chang-Sing and Dr. Hatthorne. Apple Valley Unified School District v.

Vavrinkek, Trine, Day & Co. (2002) 98 Cal.App.4111 934, 937.

C. The cause of action for breach of implied contract fails as a matter of law as there was no consideration and because of the ban on the corporate practice of medicine

St. Mary's first cause of action alleges breach of an "implied contract" with Dr. Arunasalam.

St. Mary alleges that St. Mary "permitted Defendants to order and perform certain Defibrillator

procedures at St. Mary," and that, in exchange, Dr. Arunasalam impliedly warranted that the

procedures done were "medically necessary and justified under Medicare's coverage guidelines,

such that St. Mary would be entitled to payment for such procedures from Medicare." This cause

of action fail s as a matter of law for two separate reasons. First, there was no implied contract

because there was no consideration provided by St. Mary. A second reason the cause of action for

breach of implied contract fails is that St. Mary is barred, by the ban on the corporate practice of

medicine, from controlling the manner in which Dr. Arunasalam practices his profession. This ban

prohibits the sort of contractual obligations that St. Mary alleges it entered into with Defendants.

1. Dr. Arunasalam has a vested legal right to exercise his staff privileges; hence, St. Mary provided no consideration in purportedly "allowing" him to practice

a. Dr. Anmasalam's vested legal rights

Dr. Arunasalam had vested legal rights, both common law and statutory, to exercise hi s staff

privileges at St. Mary, which could not be "conditioned" via contractual terms. Potvin v.

Metropolitan Life Insurance Co. (2000) 22 Cal. 4th 1060, 1 066; lvfi/ler v. Eisenhower ivfedical

Center (1980) 27 Cal.3d 614,634, Ezekial v. Winkley (1977) 20 Cal.3d 267, 272; Nicholson v.

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Lucas (1994) 21 Cai.App.4th 1657, 1666.

The statutory scheme in California Business and Professions Code sections 809 et seq. is

independent from, but to some extent a codification, of the common law fair procedure doctrine.

Sahlolbei v. Providence Healthcare, Inc. (2003) 112 Cai.App.4th 1137, 1147. The provisions of

B&P Code sections 809 et seq. are mandatory and binding on all hospitals. Unnamed Physician v.

Board ofTrustees ofSaint Agnes Medical Center (2001) 93 Cai.App.4th 607,621-622. Like the

conunon law right to fair procedure, the statutory scheme set forth by Cal. Bus. & Prof. Code

sections 809 et seq. provides that a hospital may not arbitrarily exclude, or expel, a physician from

its medical staff. B&P Code section 809.3.

Both the conm1on law right of fair procedure and the statutory scheme in California

Business and Professions Code sections 809 et seq. establish that a physician may be excluded or

expelled from a hospital medical staff only for reasons that relate to the quality of patient care

provided. In the present case, St. Mary did not "permit" Dr. Arunasalam to perform medical

procedures "in exchange" for cetiain obligations on his part. Rather, Dr. Arunasalam had a vested

right to continue practicing his profession at St. Mary, absent evidence of some detriment to patient

care-- no evidence of which exists in the present case.

b. Consideration cannot be provided by performance of a legally required act

Because St. Mary had a legal obligation to admit Dr. Arunasalam to its medical staff, and to

permit him to continue to exercise his staff privileges there, unimpaired, absent good cause for

termination related to the quality of patient care, St. Mary provided no contractual legal

consideration for any reciprocal obligation on his part to impliedly warrant that the procedures done

were "medically necessary and justified under Medicare's coverage guidelines, such that St. Mary

would be entitled to payment for such procedures from Medicare;" nor to "provide accurate patient

information to St. Mary including information sufficient to identify that the procedures were

medically necessary and justified under Medicare's billing guidelines, such that St. Mary would be

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entitled to payment for such procedures from Medicare. 11 Consideration for a contract cannot be

provided by the performance of an action that the law already compels. O'Byrne v. Santa .Monica

UCLA Medical Center (2001) 94 Cal.App.4th 797, 808.

ii. St. Mary cannot "employ" Dr. Arunasalam because of the ban on the corporate practice of medicine

..- In addition, the ban on the corporate practice of medicine prohibits St. Mmy from entering

into the sort of " implied contract" that it alleges that it had with Dr. Arunasalam. A hospital may

not contract with a physician for the rendering of professional health services-- either as an

employee, or as an independent contractor, unless some special exception applies (none of which is

applicable here). People v. Pacific Health C01p. (1938) 12 Cal.2d 156, 158; Conradv. Medical

Board ofCalifomia (1996) 48 Cal.App.4th 1038, 1049; 54 Ops.Cal.Atty.Gen. 126 (1971); 55 Ops.

Cal.Atty.Gen. 103 (1972); Steinsmith v. Medical Board (2000) 85 Cal.App.4th 458.

The principal evils of the corporate practice of medicine are "the conflict between the

professional standards and obligations of the doctors and the profit motive of the corporation

employer. 11 People v. Pacific Health Cmp., supra, 12 Cal.2d at 158 [emphasis added]. The sort of

contractual relationship that St. ·Mary alleges cannot exist as a matter of law. If it did, St. Mary

would be infringing on Dr. Arunasalam's freedom of action in conducting his medical practice-

based on the hospital 's profit motivations-- which is expressly proscribed by the ban on the

corporate practice of medicine. Conrad, supra, 48 Cal.App.4th at 1043-1044.

D. The claims for misrepresentation must also fail

1. No representations were made about Medicare coverage; only about diagnoses and procedures performed-all of which were completely accurate

There is no evidence to support Plaintiff's allegations of intentional or negligent

misrepresentation. Plaintiff asserts that Defendants somehow misrepresented that the procedures

performed were covered by Medicare. But the only "evidence" cited by Plaintiff is an attestation

statement signed by Dr. Arunasalam. The attestation form says nothing about coverage under

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Medicare; rather, it merely states that the physician attest~ to the diagnoses and procedures

performed. Because the diagnoses are accurate and the procedures were performed, there simply

was no fraud. Nor does the signature of Dr. Arunasalam in the patient charts attest to anything

more than that the procedures were actually performed-not that they fit the Medicare coverage

criteria, which are never mentioned anywhere in those charts.

2. Further, there can be no misrepresentation based on implied representations; a positive assertion is necessary, which did not occur here

Fm1hermore, there is no liability for " implied" representations. The tm1 of

misrepresentation requires a positive asse11ion of fact . Apollo Cap. Fund, LLC v. Roth Cap. Pad,

LLC (2007) 158 Cal. App. 4th 226,243. Because none of Defendants' representations said

anything about Medicare coverage, Defendants cannot be held to have committed some sort of

"implied" misrepresentation regarding coverage. Diediker v. Peel/e Financial Corp. (1997) 60 Cal.

App. 4th 288, 298; OCM Principal Opportunities Fund v. CIBC World A1arkets Corp. (2007) 157

Cal. App. 4th 835, 854.

Nor was there any actual and justifiable reliance to support a claim for misrepresentation.

Conrad v. Bank of America (1996) 45 Cal.App.4th 133, 157; lvfirkin v. Wasserman (1993) 5 Cal. 4th

1082, 1096-1097. St. Mary was not justified in relying on Dr. Arunasalam's medical records and

the so-called attestation forms as somehow warranting technical compliance with Medicare billing

guidelines. Those forms merely stated, truthfully, the diagnoses made and the procedures

performed. Whether or not the procedures fell within Medicare coverage guidelines was a billing

decision whose sole responsibility lay in the hands of the hospital.

E. The claims for intentional interference also fail

The fourth and fifth causes for intentional interference with contract and prospective

business advantage must also fail. The elements of a claim for interference with contract are " 1) a

valid contract between plaintiff and a third party; 2) defendant's knowledge of this contract; 3)

defendant's intentional acts designed to induce a breach or disruption of the contractual

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relationship; 4) actual breach or disruption of the contract~ml relationship; and 5) resulting damage."

A1intz v. Blue Cross of California (2009) 172 Cal. App. 4th 1594, 1603. Necessary to a cause of

action for intentional interference with contract is that the defendant actually intended to disrupt the

contract between the plaintiff and a third pa11y. Pacific Gas & Elec. Co. v. Bear Sterns & Co.

(1990) 50 Cal.3d 1118, 1126.

The specific contract that St. Mary alleges was disrupted was a "provider agreement" with

Medicare. However, there was no evidence of any intent by Defendants to induce a breach of any

such contract. Indeed, Dr. Arunasalam is not even aware of any such "provider agreement"

between St. Mary and Medicare. Nor did St. Mary ever produce such a document. Davis v.

Nadrich (2009) 174 Cal.App.4th 1, 10-12.

Further, a cause of action for prospective economic advantage cannot be premised on

"speculative" future economic relations. Roth v. Rhodes (1994) 25 Cal.App.4th 530, 545-546. In

addition, both t011s require wrongful conduct other than just the interference itself. Della Penna v.

Toyota Motor Sales, USA, Inc. (1995) 11 Cal.4th 376, 392-393. Here, there is no evidence for such

wrongful conduct, in that Defendants accurately disclosed the defibrillator procedures they

performed and the underlying diagnoses for these procedures, as discussed.

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Because all of Plaintiffs causes of action fail, judgment must be entered in favor of

Plaintiff.

Dated: January 11, 2012

By:

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FENTON NELSON, LLP

DENNIS E. LEE Attorneys for Defendants Siva Arunasalam, MD and High Desert Heart Institute

DEFENDANTS' TRIAL BRIEF