Lawsuit says Duke trying to take over large multispecialty practice

A new lawsuit accuses Duke University of attempting to illegally take over a large independent multispecialty physician practice without paying for its fair value.

Anesthesiologist Dr. Eugene Moretti filed the derivative action Monday on behalf of the Durham, North Carolina-based practice where he works, Private Diagnostic Clinic. Duke and PDC have had a partnership agreement for 50 years that allows PDC to stay independent, but the lawsuit filed in North Carolina Superior Court, Durham County this week claims Duke is rolling out a takeover plan without input from PDC’s 1,850 physician members.

The complaint names Duke, Duke University Health System and Dr. Anthony Viera as defendants. Viera, who did not respond to a request for comment, chairs Duke’s family medicine and community health department, which recently moved from PDC to Duke. PDC also declined to comment on the case.

Moretti’s complaint details several ways Duke is allegedly working to hire PDC’s physicians as part of its own clinical staff. All of PDC’s physicians already teach at Duke and hundreds perform research there.

The lawsuit claims Duke notified PDC on Oct. 22 that it was terminating their partnership agreement effective at the end of 2021. The agreement had been in place since 1972 and ensures PDC’s independence, holding that Duke will not interfere in its operations.

On top of that, Duke has allegedly mandated that the PDC members who perform research at Duke must quit PDC and take positions at Duke’s School of Medicine by July 2022. The complaint says at least 400 PDC members—about 21% of its total membership—perform research at Duke. They’ll be forced to choose between staying with PDC and losing their research grants or continuing their Duke research but having to quit PDC to be exclusively employed by Duke, according to the complaint.

“Duke decided to further destroy the PDC by creating a new mandate that physicians who perform research at Duke must quit the PDC and join the (Duke Faculty Practice).”

Duke spokesperson Michael Schoenfeld declined to comment on the agreement termination or research mandate, but said in a statement that the lawsuit has no basis in fact or law. Duke and PDC have for months been engaged in a “productive dialogue” around aligning their respective patient care, teaching and research missions, he said.

“Duke has proposed that faculty physicians who are already employed by Duke for education and research become full-time Duke employees for their clinical practice as well,” Schoenfeld said. “We believe this will lead to greater operational efficiency, a better patient experience, the ability to recruit and retain top talent, and enhancements in community health.”

It’s unclear if the physicians’ practice locations would change if their departments shift from PDC to Duke, since almost all of the practice locations listed on PDC’s website are Duke affiliates.

The lawsuit also says that Duke has been pressuring PDC’s department chairs—who also head their respective academic departments at Duke—to move their clinical departments from PDC to Duke. It says that because each of the departments are within Duke’s School of Medicine, the chairs feel “beholden” to Dr. Mary Klotman, the school’s dean, who has allegedly been pressuring the chairs of five departments to make the transitions. The lawsuit says Klotman can hire, fire, demote and promote the department chairs and that “their careers are advanced by staying in the Dean’s good graces.”

“There’s a huge pressure flow for these individual PDC members whose careers are on the line if they make Duke unhappy,” said Erica Harris, a partner with Milberg Coleman Bryson Philips Grossman who is representing Moretti.

PDC’s relatively small family medicine and community health department already made the transition, but Klotman is allegedly working with the heads of five larger departments: medicine, neurology, psychiatry, behavioral sciences and orthopedic surgery. Others have said they’ll make the switch, too. If that happens, “PDC would be effectively destroyed,” Harris said.

Once a department chair decides to make the transition, Harris said the physicians within that department also become clinical employees at Duke. Whether the decision is voluntary depends on your definition of the word, she said.

“If your department head says, ‘We’re moving over and if you refuse to move, you’re not going to have a job next year,’ is that a choice?” Harris said.

Moretti’s complaint says after he explained his findings to PDC in a letter to leadership, it created a committee to investigate the claims. A status report on Nov. 29 said the committee unanimously believes the claims have merit, according to the complaint. The lawsuit also references a survey of PDC members to get feedback on Duke’s proposal. It said the results were “generally opposed to PDC’s dissolution,” but did not share the numeric results.

The committee appears to be still deciding how to move forward, but Moretti’s complaint said he didn’t want to wait any longer. Moretti “has decided to bring this suit now without further delay because of the expectation that Duke will increase its efforts to irreparably harm the PDC in the new year.”

In November, the PDC committee investigating Moretti’s claims shared a recent third-party valuation of PDC it had obtained from Focal Point Securities, which determined the practice is worth between $750 million and $1.1 billion, according to the complaint, which also said that PDC draws around $1 billion in annual revenue.

The complaint says PDC’s board hired two law firms to advise the organization on Duke’s takeover plan. An August memo from one of them, Epstein Becker & Green, allegedly described the plan as “surprising.” The specific attorney who wrote it was not identified.

“In my more than 35 years as a health law attorney, I have never seen a physician practice like PDC transferred to any acquirer at a $0 purchase price,” the complaint quotes the memo as saying. “The absence of any offer by Duke to actually purchase PDC for a fair market value purchase price that recognizes PDC’s going concern value is, in my opinion, the most surprising aspect of the Duke Employment Offers.”

In 2018, a former Duke radiologist accused Duke and the University of North Carolina in an antitrust lawsuit of illegally conspiring to avoid poaching each other’s professors.

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