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Freed v. National Medical Enterprises Inc.

February 11, 1999


Before Schwelb and Ruiz, Associate Judges, and King, Senior Judge. *fn*

The opinion of the court was delivered by: King, Senior Judge

Notice: This opinion is subject to formal revision before publication in the Atlantic and Maryland Reporters. Users are requested to notify the Clerk of the Court of any formal errors so that corrections may be made before the bound volumes go to press.

Appeals from the Superior Court of the District of Columbia (Hon. Steffen W. Graae, Trial Judge)

Argued April 22, 199

In this consolidated appeal, appellants challenge the trial court's award of summary judgment to appellees on statute of limitations grounds. The litigation arose out of the allegedly negligent treatment appellants received at psychiatric hospitals affiliated with or subsidiary to National Medical Enterprises, Inc. (NME), between 1986 and 1991. Appellants' suits, which were filed in Superior Court on May 1, 1996, therefore are barred by the three-year statute of limitations for medical malpractice, D.C. Code § 12-301 (1995 Repl.), unless appellants have a separate cause of action for fraud that accrued on or after May 1, 1993. Concluding that appellants do not have a cause of action based on NME's fraudulent nationwide conspiracy that is independent of their medical malpractice claims and that the trial court properly granted summary judgment on statute of limitations grounds, we affirm.


On June 29, 1994, in the United States District Court for the District of Columbia, as a result of criminal investigations conducted by the United States Attorney, Psychiatric Institutes of America (PIA) *fn1 pleaded guilty to a limited information and agreed to a fine of $379 million in exchange for a promise by the government not to prosecute NME. Appellants here allege that the criminal investigation uncovered a nationwide fraudulent conspiracy to extract maximum insurance benefits from patients without regard for treatment needs.

According to the allegations set forth in the complaint, NME devised and engaged in a nationwide scheme which systematically and fraudulently induced individuals to be admitted to psychiatric hospitals where such admissions were not necessary. *fn2 As part of that scheme, NME promoted a corporate culture in which doctors and other hospital staff were rewarded for converting potential patients into actual patients without regard to those individuals' treatment needs. *fn3 Similarly, a network of outside health care providers in the community, *fn4 were rewarded for guiding patients to NME facilities, again without regard for actual treatment needs. All hospital staff members, as well as outside referral sources, were required to participate in NME's marketing plan, whose sole purpose was to generate claims against patients' health insurers.

The complaint also alleges that potential patients receiving an initial psychiatric evaluation, as well as those calling an NME facility, were immediately requested to give insurance coverage information. Patients with insurance were almost invariably admitted, assuming they consented, without regard for treatment needs. In addition, NME staff researched the terms of the patients' insurance coverage and generated a diagnosis matching the category with the most available benefits. *fn5 NME staff were often instructed to chart the diagnosis and to omit any notations that might indicate that a patient's hospitalization was unnecessary or inappropriate. NME then submitted the reimbursement claims, which contained knowingly false representations that the admission was medically necessary and appropriate, to the patient's insurer.

It was also contended that, once admitted, patients were typically kept for the maximum length of stay their insurance would cover, which was often twenty-eight days, regardless of their illness. Staff were ordered to keep patients in NME facilities over holidays and weekends to maximize benefits. If a patient asked to leave an NME facility before the expiration of insurance coverage, an AMA (Against Medical Advice) team made up of medical professionals was assigned to persuade that patient to stay until coverage ended.

After the negotiated plea bargain agreement was entered, more than 200 civil actions were filed in the Superior Court beginning in March 1995, on behalf of former patients, and in some cases their parents, against NME-owned psychiatric hospitals in the District of Columbia, Maryland, and Virginia. *fn6 A group of twenty of these plaintiffs, whose claims were facially barred by the three-year statute of limitations for medical malpractice suits, agreed to limited discovery with respect to the statute of limitations issue only and subsequently responded to defendants' interrogatories on that issue. *fn7 The responses of eleven of the plaintiffs in this group indicated some awareness of the facts underlying defendants' alleged misconduct, and of injuries resulting from that alleged misconduct, prior to May 1, 1993. *fn8 On the basis of the responses of these eleven plaintiffs to the interrogatories, the defendants moved for summary judgment, which the trial court granted on April 2, 1997.

In granting the defendants' motion for summary judgment on statute of limitations grounds, the trial Judge rejected the plaintiffs' argument that they had reasonably relied on defendants' assurances that their hospitalizations were appropriate, concluding that "such reliances were unreasonable" given "the extreme nature of [the] allegations." The trial Judge also rejected plaintiffs' contention that they could not be charged with knowledge of their cause of action for fraud prior to February 1, 1995, when their counsel informed them of defendants' involvement in a "'nationwide fraudulent conspiracy,'" concluding that all of their causes of action accrued at the time when they learned or should have learned of their medical malpractice claims. Judge Graae explained:

This court sees the medical malpractice claims as the central allegation in these cases. Generally, without a finding of medical malpractice, Plaintiffs do not have a claim for fraud, conspiracy and other related causes of action. Therefore, since the statute of limitations has run as to Plaintiffs medical malpractice claims, Defendants' motion should be granted.

Appellants in this case are five of those eleven plaintiffs whose suits were found to be barred by the statute of limitations by Judge Graae. All five are former patients of the Psychiatric Institute of Washington (PIW), a subsidiary of PIA. In their responses to appellees' interrogatories, each states that he or she suspected, at or around the time of their hospitalizations, that the treatment received at PIW was inappropriate, inadequate, and abusive, and that it caused them injury.

Bernard Freed, who was referred to PIW for anxiety, *fn9 claims he was not seen by his treating physician until five or six days after admission; his brother, a physician, told him he should have been seen within twenty-four hours. *fn10 Although "he expected a retreat atmosphere to relieve his anxiety . . . he was placed with patients experiencing psychosis, alcoholism, [and] drug withdrawal, all of which heightened his anxiety." *fn11 Freed claims that he never received individual therapy sessions and that the group sessions, involving only about twenty minutes of "therapy," were dominated by "psychotic patients who [would] ramble incoherently, or scream or yell," and were a "sham." Freed suffered severe withdrawal symptoms during his first three days at PIW, *fn12 after his medication was taken from him upon admittance. Intending to switch him to a new medication, PIW staff allegedly failed to manage the switchover properly and neglected to provide Freed with any support for his severe withdrawal symptoms or information concerning the switchover.

Russell Cappello alleges that PIW failed to do even a rudimentary screening of roommates and that, as a result, he was improperly placed "in a room with a homosexual/bisexual roommate" who "attempte[d] to force Cappello to have oral sex," which "greatly traumatized him." He claims the hospital failed to provide appropriate treatment, including family therapy and counseling. Cappello also alleges that "medication was withheld from him until the day before discharge, allowing [him] to linger in psychic pain and to suffer . . . unnecessarily."

Paris Morton was taken to PIW by his mother due to displays of uncontrollable anger. According to Morton, *fn13 despite the fact that he had never used drugs and despite his subsequent complaints, he, too, was improperly "housed with addicts and others with drug and alcohol problems." Further, PIW staff "never discussed his anger and how to control it." PIW "failed to send [Morton] to an appropriate program for the developmentally disabled," or, instead, to provide appropriate outpatient and family therapy. Morton further claims that "[t]here was a lack of medical attention, a lack of substantial therapies, and a complete inattention to Paris' borderline intellectual abilities (IQ of 70)." Morton alleges he was overmedicated and given the wrong medication for his condition. According to his mother, he "acted 'like a zombe' [sic] and had slurred speech." Despite his mother's requests for outpatient therapy, he was admitted for a second stay as an inpatient. Finally, Morton ...

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