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Ninth Circuit Affirms Judgment For Physician On Claim He Was Terminated In Retaliation For Criticizing Billing Practices


HLD, v. 31, n. 7 (July 2003)

Ninth Circuit Affirms Judgment For Physician On Claim He Was Terminated In Retaliation For Criticizing Billing Practices

Dr. David Ostad began a one-year residency at Oregon Health Sciences University (OHSU) in the Plastic and Reconstructive Surgery Division on July 1, 1996. In January 1997, Dr. Alan Seyfer, chief of the division, gave Ostad a letter in which Seyfer criticized Ostad's performance. During the same time, Ostad was raising questions about Seyfer's billing practices. Medicare and Medicaid cannot be billed for procedures performed by residents unless a teaching staff physician was present during the critical part of the procedure, and Ostad claimed Seyfer directed him to list him as the attending physician whether or not he was present when Ostad performed a procedure. Seyfer gave Ostad a series of letters over the next few months detailing his complaints with Ostad's performance and alleging other physicians and patients were making complaints about Ostad's performance. On March 4, 1997, Seyfer placed Ostad on administrative leave through the end of his residency.

Ostad requested a hearing, and OHSC convened a panel of doctors, none of whom were plastic surgery specialists. Ostad was accorded some due process, but was not allowed to subpoena witnesses, including physicians who supervised Ostad and reviewed him favorably. The panel recommended that Ostad be terminated, and OHSU's chief administrative officer (CAO) terminated Ostad's residency. Ostad sued OHSU and Seyfer for violating his First Amendment right to free speech. The jury returned a special verdict that Ostad had proved Seyfer and OHSU had retaliated against him for his statements about Seyfer's billing practices. The jury found OHSU failed to prove Ostad was terminated for other reasons, and recommended an award to Ostad of $32,000 in past economic damages, and $150,000 in noneconomic damages. The jury also determined Seyfer should pay Ostad $200,000 in punitive damages, and the court issued an order granting Ostad $90,000 for future economic loss. OHSU and Seyfer moved for judgment as a matter of law or alternatively for a new trial. The trial court denied the motion and OHSU and Seyfer appealed.

The Ninth Circuit affirmed the trial court's judgment. Seyfer and OHSU argued the CAO had decided to terminate Ostad based on the hearing committee's recommendation, and since the CAO knew nothing about Ostad's claims against Seyfer, the CAO could not have been retaliating against Ostad when the CAO terminated him. The appeals court explained that in Mount Healthy City Bd. of Educ. v. Doyle, 429 U.S. 274 (1977), the Supreme Court specified the burden-shifting test for analyzing claims of illegal retaliation for protected speech. First, the plaintiff must show his conduct was constitutionally protected, and second, that the protected conduct was a motivating factor in the decision to take adverse action against him. If the plaintiff meets his burden, the burden shifts to the defendant to show by a preponderance of the evidence that the adverse action would still have been taken absent the protected conduct. On the first Mount Healthy factor, the appeals court found on the record that Seyfer and OHSU had conceded that Ostad's statements about Seyfer's billing practices were protected under the First Amendment. On the second factor, the appeals court said there was ample evidence of Seyfer's bias because of testimony that Seyfer threatened Ostad when his billing practices were challenged, that Seyfer laid the groundwork for terminating Ostad, that the hearing board was without experience in plastic surgery and had to rely substantially on Seyfer's expertise, and that Ostad was prevented from presenting evidence to rebut Seyfer's conclusions about his performance. Concluding that the two Mount Healthy factors were met, the appeals court found that the jury had specifically concluded Seyfer and OHSU had failed to prove that Ostad would have been terminated absent his protected speech. Because OHSU had waived any right to have its liability considered separately, said the appeals court, a finding against Seyfer and OHSU was appropriate.

Seyfer and OHSU also argued that the district court had given an improper jury instruction on the meaning of "substantial or motivating" under Mount Healthy, which requires that a plaintiff prove that the protected speech was a "substantial or motivating" factor in the decision to terminate. During deliberations, the jury had asked the trial judge to clarify the definitions of "substantial or motivating." The trial judge informed the jury "a substantial or motivating factor is a significant factor." The appeals court found that "even if the district court's clarification to the jury was less than illuminating, the requirement that the jurors agree that the improper motive was a 'significant' factor does not misstate the law." The appeals court also rejected OHSU's and Seyfer's argument that the jury instruction on causation was incorrect, and held that the instruction did not misstate the law.

OHSU and Seyfer contended the trial court erred in admitting the testimony of Dr. Wheatley, one of Ostad's witnesses, because Wheatley's statements were hearsay. The appeals court concluded the statements at issue were Wheatley's personally held beliefs and were not out of court statements. The appeals court held the trial court properly admitted the testimony. Accordingly, the appeals court affirmed the trial court's judgment. An opinion concurring in part and dissenting in part agreed with the majority on most of its decision, but disagreed on the jury instruction. The dissenting part of the opinion said the jury instruction was incorrect because the trial court did not give the proper response to the jury question about the "significant factor" issue.

Ostad v. Oregon Health Sciences Univ., No. 00-36060 (9th Cir. Apr. 28, 2003) (5 pages). i41

Health Lawyers thanks Michael D. Roth, of the Law Offices of Michael Dundon Roth, in Los Angeles, California for sending us a copy of this opinion.

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