Maglione v. Aegis Family Health Centers, No. COA03-1488.

Citation607 S.E.2d 286, 168 NC App. 49
Case DateJanuary 18, 2005
CourtCourt of Appeal of North Carolina (US)

Wilson, Lackey & Rohr, P.C., by David S. Lackey, Lenoir, for plaintiff-appellant.

Smith Moore L.L.P., by Julie C. Theall and Beth Mabe Gianopulos, Greensboro, for defendant appellee. McCULLOUGH, Judge.

Plaintiff appeals from a judgment by the trial court entered pursuant to a jury's verdict denying his claim for breach of contract. Issues arising in this appeal are based upon the following evidence presented at trial: Plaintiff, a board certified cardiologist licensed to practice medicine in the states of North Carolina, New York, and Georgia entered into an employment contract ("the contract") with Aegis Family Health Centers ("defendant"), a North Carolina nonprofit corporate organization. The contract became effective on 5 April 1999 and continued for a period of twelve (12) months. The base salary as provided in the contract was $200,000, along with a Provider Incentive Compensation Plan ("PICP") which governed bonuses awarded under the contract. The PICP was attached to and incorporated into the contract.

The PICP awarded bonuses annually based on a physician meeting six performance criteria: quality of care; patient satisfaction; cost/affordability of care; contributions to the community; contributions to the company; and provider productivity. During the 1999-2000 fiscal year, only provider productivity was being measured for purposes of the PICP. The productivity criteria required the physician to produce sufficient revenues to surpass a certain revenue "threshold." This threshold was determined on a physician-by-physician basis after considering the overhead of a physician's individual practice. If revenues surpassed this threshold, the physician then received a certain percentage, approximately 30%, of the revenue above this threshold. Defendant retained the remainder.

In determining a physician's productivity, the PICP incorporated one of two varying methods to calculate these revenues. The PICP stated:

Timing differences in the realization of revenue, i.e. cash in the door, and the date the service was delivered to a patient, may cause productivity numbers not to match up in exact quarters. Aegis recognizes the potential of these timing differences to affect quarterly productivity numbers. Therefore Aegis will consistently review reports and processes in order to determine a methodology that most accurately provides productivity information. Aegis will use one of two methods when determining physician/midlevel revenue:
1. Actual revenue collected on behalf of the physician/midlevel for the month, quarter, year, or
2. Gross Professional Charges multiplied by the collection rate of the practice site[.]

The first method ("actual revenue method") for determining productivity was what "cash [came] in the door" for the applicable measure of time, regardless of when the care was actually provided. The second method ("collection rate method") consisted of multiplying the physician's gross charges for each quarter by the historical collection rate for the practice where the physician worked.

Pursuant to the employment contract, plaintiff was hired by defendant to work at Thompson Medical Specialist Center ("Thompson"). At the time of plaintiff's employment, defendant had traditionally used the collection rate method for determining the quarterly revenue for the PICP. The collection rate at Thompson for the relevant time was approximately 60%. For the first two quarters of the fiscal year of 1999-2000, defendant calculated plaintiff's revenue using the collection rate method.

At the start of the third quarter, in January 2000, defendant's founder, president, and Chief Executive Officer (CEO), Dr. Edward Huntsinger ("Dr. Huntsinger"), expressed concern to plaintiff about his low collection rate because it was at about half the percentage of Thompson's historical average, or at about 25-30%. Thereafter, beginning with the third quarter of the 1 July 1999 fiscal year, defendant began measuring plaintiff's revenue, 4 for purposes of calculating the PICP bonus, using the actual revenue method. Plaintiff was never given notice that defendant was switching to the actual revenue calculation method.

Plaintiff attributed his low collection rate to two factors. The first factor related to the 1 July 1999 fiscal year, where patients at Thompson were being charged for a number of the cardiology services greatly in excess of the prevailing market rate. The charges had been increased without consulting the cardiologists at Thompson. The second factor related to a coding modifier used to identify and separate the professional service charges provided by the physician and the technical service charges owed to Thompson. The coding modifier was not being entered correctly and it therefore appeared to third-party providers — insurance companies, Medicare, and Medicaid — that plaintiff was overcharging patients for his professional services in addition to already assessing charges well above the market rate. Generally, third-party providers, no matter the itemized charge, will only pay out at the usual, customary, and reasonable amounts for any particular service. The result of these two factors was that plaintiff's itemized charges for a number of procedures were exceptionally high in the first two quarters of his employment. The third-party providers were paying out only reasonable, lesser amounts. This caused plaintiff's collection rate to appear much lower than it would had charges been accurately assessed.

Plaintiff brought these factors of overcharging to the attention of defendant's director of financial management, Sterling Wooten ("Mr. Wooten"). Mr. Wooten was the developer of the PICP and managed the plan during the relevant time period. In August of 1999, Mr. Wooten testified that:

I told [plaintiff] that, well he had sent me a fax through Laura Caruso, the practice manager, and then I got in touch with him and told him that I would research those, and check them out. He was concerned about the prices being to [sic] high and effecting [sic] patients, or either have us look bad in the community, by being way out of line with our charges.

Pursuant to Mr. Wooten's research into the matter, he sent plaintiff a memo (the "cardiology fee memo") dated 22 November 1999 comparing the overcharges with the appropriate charges. This showed a great disparity in what should have been charged and what was actually being charged. In the memo, Mr. Wooten stated the following:

This pricing issue also has an effect [sic] on your bonus calculations. Since the pricing was substantially higher than the actual collected. Ultimately it has lowered your collection rate to below 25%. This collection rate does not reflect a true picture of what your rates should be, nor does it reflect a true threshold for each of you when it is incorporated into the PICP formula. Therefore, I have gone back for the quarter July through September and "repriced" your charges.... This change more appropriately reflects your actual performance, and it allows the PICP to keep your collection rate at 60%, which is consistent with your peers at the practice.

In another memo (the "PICP bonus report memo") from Mr. Wooten to plaintiff, also dated 22 November 1999, the PICP bonus report was issued. The report included changes that had been effective 1 July 1999 which increased the maximum bonus a provider could earn for productivity from 30% to 40% above each physician's threshold, depending on how much above the threshold they earned. Also included in the PICP bonus report memo was the following language:

We continue to modify and adjust the compensation plan to reflect the strategy changes of Aegis and the market changes in health care. We anticipate more changes in the plan next fiscal year, which may include but are not limited to: changes in scoring on the checklist, scoring for quality of care, and using actual dollars collected instead of collection percentages.

(Emphasis in original.)

Sometime in January of 2000, plaintiff negotiated a second employment contract with defendant, becoming effective 5 April 2000 at the expiration of the first contract. This employment contract provided a base salary of $300,000, and an added provision stating:

3.7 Coding and Documentation. Physician will accept responsibility for the proper diagnoses and procedures which are supported with timely and accurate documentation according to standards set forth and approved by [defendant]. Physician will maintain a level of accuracy in the aforementioned documentation as set forth by the [defendant]. Physician acknowledges that failure to maintain these standards may impact physician's base salary, bonus and continued employment. Physician further acknowledges that Medicare, Medicaid, other governmental agencies and private payors require Physician's [sic] to document properly as a prerequisite to reimbursement for patient care services.

At trial, defendant asserted that this was added due to plaintiff's difficulties in providing the required documentation for billing and collection purposes required for defendant's reimbursement. This second contract was later terminated due to the same collection difficulties, along with both plaintiff's large base salary which was straining the financially struggling defendant and some interpersonal issues plaintiff had with a number of people. Plaintiff filed suit on 21 March 2002 against defendant seeking to recover additional PICP bonus monies which he claimed were owed to him under the first employment contract for the fiscal year of 1 July 1999. Plaintiff's claims were for breach of contract and for defendant's violations of North Carolina's Wage and Hour Act, N.C. Gen.Stat. § 95-24, et seq. (2003). The case...

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