Duke University is in hot water, legally speaking, once again. 

Late last month, a longtime Duke physician and School of Medicine faculty member filed a complaint against his employer, accusing university officials of conspiring to take over a for-profit doctor- and faculty-owned clinic that generates revenues of about $1 billion each year.

At the center of the complaint is the continued existence of the Private Diagnostic Clinic (PDC), an independent company controlled by physicians and one of the first faculty private physician groups in the United States. The complaint claims that the university has conspired with “certain” PDC managers to dissolve the PDC, and is attempting to hire PDC members to work with the School of Medicine’s newly formed Duke Faculty Practice (DFP). 

The complaint was filed December 20 on behalf of the PDC by Eugene Moretti, an anesthesiologist and critical care specialist who has been a member of the private medical practice for over 20 years. 

With billions of dollars at stake, the complaint filed in Durham County Superior Court claims that Duke health administrators are attempting to take control of the lucrative medical practice for “zero dollars” if offer of employment with the DFP is “accepted by all or substantially all of PDC’s physicians.”  

“It seems clear that one of Duke’s overarching objectives here is to terminate PDC by taking over substantially all of PDC’s assets and operations,” stated Joseph Lynch, an attorney with the New York firm Epstein, Becker & Green, which was retained by the PDC’s board last summer to evaluate Duke’s plan to take over the PDC.

“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 [zero-dollar] purchase price,” Lynch also stated in a memo to the board.  

A Duke University official last week told the INDY that Moretti’s lawsuit “has no basis in fact or law,” and the university will offer a vigorous defense in response.

Michael Schoenfeld, a Duke spokesman, said that “for a number of months,” Duke and the PDC “have been engaged in productive dialogue around alignment of our respective patient care, teaching and research missions.”

“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,” he told the INDY in an email.

“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,” he added. “The lawsuit filed by Dr. Moretti, who is not a representative of PDC leadership, is an attempt to obstruct these discussions about alignment and impede Duke’s ability to provide the highest-quality health care services to our patients.”

In the complaint, Moretti claims that after having repeatedly failed to gain control and ultimately dissolve the PDC, Duke is now resorting to “unlawful, unfair, and improper tactics to destroy the company and take over its business and goodwill.” 

The PDC was founded in 1931 as an independent for-profit group practice “that has a long relationship with Duke Hospital and Duke University.” From the onset, the PDC “was self-governed and not subject to University direction,” according to the complaint.

All PDC members hold academic appointments to the faculty of Duke University, and its 1,850 member physicians treat nearly 2 million patients each year at nearly 150 clinics across North Carolina and Virginia. The private faculty member practice also “contributes over $60 million annually to Duke University for medical center research and academics,” which is money that supports “hiring faculty, running research programs, and contributing to the growth of the School of Medicine and DUHS,” according to the complaint. 

Duke and the PDC were months away from celebrating the anniversary of a 1972 partnership agreement that provided “a structure in which the members can engage in the private practice of medicine and dentistry for private gains, while retaining their academic relationship with Duke University,” according to the agreement. 

In October, however, Eugene Washington, Duke’s chancellor for health affairs and president/CEO of Duke University Health System, terminated the partnership agreement, the complaint says. 

Moretti states that Washington wrote in the termination letter that Duke nonetheless looked forward to continuing its work with the PDC “in a cooperative manner consistent with our shared goals.”

“As we move forward, I want to make it clear that we have no intention of taking steps to undermine the PDC or to compromise its continued existence,” the complaint claims Washington wrote. “We have no intention to disrupt, create economic disadvantages for, or otherwise adversely impact physicians who choose to remain members of the PDC and continue their practices in that structure.”

But Moretti said the words of Duke’s administrators are directly at odds with their actions.

Erica Harris, an attorney with the Houston-based firm Susman Godfrey, is among the lawyers representing Moretti. Harris told the INDY last week that Mary E. Klotman, dean of Duke medical school, is the “public face of the takeover.”

In the complaint, Moretti asserts that “Klotman has the power to hire, fire, demote, and promote the department chairs, and their careers are advanced by staying in the Dean’s good graces.”

That’s a problem, the veteran anesthesiologist alleges, because “some managers of the PDC, who are also [department chairs] have proved unable to make decisions that are in the best interest of the PDC.”

The 39-page complaint outlines a series of actions that began in August to dissolve the lucrative practice.

Moretti states that Duke administrators created a pretext to explain why the school decided “to interfere with and take over the PDC’s business” and issued a mandate stating that physicians who perform research at Duke must quit the PDC and join the university-controlled Duke Faculty Practice. 

The pretext Duke used to justify the mandate was “regulatory and compliance risks from the National Institutes of Health (NIH),” according to the complaint.

Harris, the attorney, told the INDY that Duke has not provided a satisfactory answer showing how the PDC is out of compliance with NIH’s regulations. 

“We have asked Duke to show us the regulations,” Harris says. “We don’t believe there [are] any such regulations.”

By the summer of 2021, Moretti stated that Duke revealed its “true goal” to force the PDC’s dissolution when Klotman, along with five department chairs with the School of Medicine, “began lobbying the physician members of the PDC to vote to dissolve the company.”

Moretti also accused the PDC’s own board of failing “to respond adequately to Duke’s efforts to destroy the PDC.” 

“In light of Duke’s and the PDC Board’s lack of transparency, certain PDC members created a message board to anonymously share information and opinions on Duke’s attempted takeover,” Moretti states. “The message board allowed the physicians to remain anonymous because … they feared retaliation for publicly opposing Duke’s takeover of the PDC.”

Moretti points to a February 2021 email from Klotman that announced the School of Medicine, with support from Duke Health and Duke University leadership, would create the DFP, which would take over the PDC’s business and operations. The email contained the unsettling caveat that all “faculty in clinical departments who perform research … must be fully employed by the School of Medicine in the DFP prior to July 2022.”

“The PDC could lose hundreds of physician members and hundreds of millions of dollars in revenue: if the departments of Medicine, Psychiatry, Neurology, Orthopedic Surgery, Surgery, Obstetrics & Gynecology exit the PDC to join a Duke-controlled entity,” Moretti states in the complaint.

More than 1,000 PDC physicians who participated in a survey opposed the takeover, according to the complaint. And in late November, a committee of 11 at-large members appointed by the PDC board issued a report that unanimously concluded that “the claims raised by Dr. Moretti are not baseless and have merit.” 

Moretti is demanding a jury trial in the complaint, which lists Duke University, Duke University Health System, and former PDC board member Anthony Joseph Viera, chair of the Department of Family Medicine and Community Health, as defendants. 

The PDC is listed on the complaint as a “nominal defendant,” particularly the company’s board members who, like Viera, chair departments at Duke University medical school and within PDC.

Harris says the PDC managers who are cooperating and conspiring with Duke to enforce the takeover are doing it out of “self-interest, not in the interest of the PDC.” 

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Follow Durham Staff Writer Thomasi McDonald on Twitter or send an email to tmcdonald@indyweek.com.