Richard Feldman v. Board of Medical Examiners ( 2003 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
JULY 9, 2003 Session
RICHARD W. FELDMAN, M.D. v. TENNESSEE BOARD OF MEDICAL
EXAMINERS
Direct Appeal from the Chancery Court for Davidson County
No. 01-3680-1 Irvin H. Kilcrease, Jr., Chancellor
No. M2002-02784-COA-R3-CV - Filed November 12, 2003
This is an appeal from a Chancery Court’s review of an administrative hearing concerning violations
of the Tennessee General Rules and Regulations Governing the Practice of Medicine for advertising.
For the following reasons, we affirm the decision of the Tennessee Board of Medical Examiners.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed
ALAN E. HIGHERS, J., delivered the opinion of the court, in which DAVID R. FARMER , J., and HOLLY
M. KIRBY, J., joined.
Frank J. Scanlon, William R. O’Bryan, Jr., Richard C. Rose, Nashville, TN, Attorneys for Appellant
Paul G. Summers, Attorney General & Reporter, Sue A. Sheldon, Senior Counsel, Nashville, TN,
for Appellee
OPINION
Facts and Procedural History
Dr. Richard Feldman, M.D. ("Feldman" or "Appellant") is the president and an owner of the
corporation, Doctor's Diet Program, Inc. As a physician, Feldman testified he was the first in
Tennessee to advertise his services beginning in 1979. He has four offices located in Nashville,
Hendersonville, Clarksville, and Murfreesboro. A majority of Feldman's patients come with
concerns of obesity and he utilizes the diet suppressant, Phentermine, which is a Class IV controlled
substance.
In February 2000, Feldman mailed approximately eight thousand postcards on one occasion
to past and present patients of his practice offering a 50% discount on one session if the patient
brought with them a new patient for his program. The idea of offering such a discount originated
with Joe Cook, who was in charge of marketing for Feldman's corporation. Though Feldman is
unsure he ever actually gave the discount, he stated that he would have if a patient referred to him
a new patient for the month the discount was offered.
Upon instructions from the Department of Health, Jackie Henderson ("Henderson") visited
Feldman's Nashville office in July 2000 to pick up an original of the postcard that Feldman mailed
in February and to check if Feldman had a directory of licensed practitioners posted in a conspicuous
place. Upon inspection, Henderson noticed that no such directory was posted, but Feldman had his
license displayed in a conspicuous place on the wall. In addition, Feldman and his nurse practitioner,
Carolyn Drake, wore name tags.
In May 2001, the Tennessee Department of Health sent notice of charges to Feldman alleging
violations of two advertising regulations1 promulgated by the Board of Medical Examiners
("Board") and Tenn. Code Ann. § 63-6-214(b)(1) for "[u]nprofessional, dishonorable or unethical
conduct." At a hearing before Administrative Law Judge Marion P. Wall, the Board, after the parties
rested, found Feldman had violated Rule 0880-2-.13(4)(t) prohibiting the offering of consideration
in return for referrals but had not violated Rule 0880-2-.13(4)(p) requiring the posting of a directory
1
The regulations at issue, Gen eral Rules and Regulations Go verning the P ractice of M edicine Rule
0880-2-.13(4)(p) ("Rule 0880-2-.13(4)(p)" or the "directory regulation") and Rule 0880-2-.13(4)(t) ("Rule 0880-2-
.13(4)(t)" or the "referral regulation"), state the following:
The following acts or om issions in the context of advertisement by any licensee shall
constitute unethical and unprofessional conduct, and subject the licensee to disciplinary
action pursuant to T.C.A. § 63 -6-214(b)(9).
***
(p) Failure to include the corporation, partnership or individual licensee's
name, address, and telephone numb er in any advertisemen t. Any
corporation, partnership or association which advertises by use of a trade
name or otherwise fails to list all licensees practicing at a particular
locatio n shall:
1. Upon request provide a list of all licensees practicing
at that location; and
2. Maintain and conspicuously display at the licensee's
office, a directory listing all licensees practicing at that
location.
***
(t) Directly or indirectly offering, giving, receiving, or agreeing to receive
any fee or other consideration to or from a third party for the referral of a
patient in connec tion with the performa nce of pro fessional services.
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of licensed individuals because he had not acted willfully. Feldman appealed the Board's decision
to the Chancery Court of Davidson County, which affirmed the decision of the Board, and then to
this Court for review of the following issues as we perceive them:
I. Whether Feldman's advertisement constituted commercial speech under the First
Amendment of the United States and Tennessee Constitutions, which is entitled to
intermediate scrutiny;
II. Whether the Board erred when it interpreted the words "third party" in Rule 0880-2-
.13(4)(t) to include Feldman's past and present patients;
III. Whether the Board must find that Feldman acted dishonorably, unprofessionally, or
unethically to be in violation of Rule 0880-2-.13(4)(t); and
IV. Whether the Board erred when it found that Feldman had willfully violated Rule
0880-2-.13(4)(t).
For the following reasons, we affirm the decision of the Board of Medical Examiners.
Standard of Review
For review of an administrative hearing, we do not follow a de novo standard. Instead,
we are directed by the Uniform Administrative Procedures Act which states:
The court may reverse or modify the decision if the rights of the petitioner have been
prejudiced because the administrative findings, inferences, conclusions or decisions
are:
(1) In violation of constitutional or statutory provisions;
(2) In excess of the statutory authority of the agency;
(3) Made upon unlawful procedure;
(4) Arbitrary or capricious or characterized by abuse of discretion or
clearly unwarranted exercise of discretion; or
(5) Unsupported by evidence which is both substantial and material
in the light of the entire record.
In determining the substantiality of the evidence, the court shall take into account
whatever in the record fairly detracts from its weight, but the court shall not
substitute its judgment for that of the agency as to the weight of the evidence on
questions of fact.
Tenn. Code Ann. § 4-5-322(h) (2003). Substantial and material evidence has been defined as "such
relevant evidence as a reasonable mind might accept as adequate to support a rational conclusion and
such as to furnish a reasonably sound basis for the action under consideration." Pace v. Garbage
Disposal Dist. of Washington County, 390 S.W.2d 461, 463 (Tenn. Ct. App. 1965). Generally,
substantial and material evidence is more than a mere scintilla or glimmer but less than a
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preponderance. Wayne County v. Tenn. Solid Water Disposal Control Bd., 756 S.W.2d 274, 280
(Tenn. Ct. App. 1988). In addition, an agency's decision is not arbitrary or capricious if there is any
rational basis for its conclusions. MobileComm of Tenn. v. Tenn. Pub. Serv. Comm’n, 876 S.W.2d
101, 104 (Tenn. Ct. App. 1993) (citing Pace Co., Div. of AMBAC I., Inc. v. Dep’t of Army, 344 F.
Supp. 787, 790 (W.D. Tenn. 1971)).
Commercial Speech and Constitutional Protection
In a pretrial motion hearing, Feldman argued that, because his postcards constituted
commercial speech, the State should have the burden of proving the basis of the rule regulating that
speech. However, the Administrative Law Judge declined to instruct the Board that the State held
such a burden. Feldman asserts that the rule should be subjected to the four part test articulated in
Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n, 447 U.S. 557 (1980). In that case, the
United States Supreme Court presented the test as follows:
At the outset, we must determine whether the expression is protected by the First
Amendment. For commercial speech to come within that provision, it at least must
concern lawful activity and not be misleading. Next, we ask whether the asserted
governmental interest is substantial. If both inquiries yield positive answers, we must
determine whether the regulation directly advances the governmental interest
asserted, and whether it is not more extensive than is necessary to serve that interest.
Cent. Hudson, 447 U.S. at 566. The State argues, at the outset, that because the content of the
commercial speech concerns illegal activity it should be afforded no protection under the Central
Hudson test. Specifically, the State cites Tenn. Code Ann. § 63-6-225(b) (1997) which states that
"[p]ayments by physicians in return for referrals are prohibited" and gives such conduct the status
of a Class B misdemeanor. Even though there is no evidence that Feldman actually gave the
discount to a current or former patient in return for a referral, it is inconsequential in applying the
Central Hudson test. To receive protection, the commercial speech must concern lawful activity.
The postcard mailing at issue in this case is offering consideration in the form of a discount in return
for a referral which, this Court holds, concerns illegal activity and, therefore, warrants no protection
under the rigors of the Central Hudson test. For this reason, we affirm this decision by the
Administrative Law Judge.
Interpretation of Rule 0880-2-.13(4)(t)
Next, Feldman argues the Board erred when it found that his current or former patients could
constitute a "third party" under Rule 0880-2-.13(4)(t). In general, "courts must give great deference
and controlling weight to an agency's interpretation of its own rules." Jackson Express, Inc. v. Tenn.
Pub. Serv. Comm’n, 679 S.W.2d 942, 945 (Tenn. 1984) (citing Envtl. Def. Fund, Inc. v. Tenn. Water
Quality Control Bd., 660 S.W.2d 776, 781 (Tenn. App. 1983); Puerto Rico Mar. Shipping Auth. v.
Fed. Mar. Comm’n, 678 F.2d 327 (D.C. Cir. 1982)). The administrative interpretation controls
unless it is plainly erroneous or inconsistent with the regulation itself. Bowles v. Seminole Rock &
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Sand Co., 325 U.S. 410, 414 (1945); Udall v. Tallman, 380 U.S. 1, 16-17 (1965); Jackson Express,
Inc., 679 S.W.2d at 945.
Appellant argues that, because Rule 0880-2-.13(4)(t) uses the word "patient" later in the same
section, "third party" cannot be construed to include a patient. Therefore, as Appellant asserts, the
Board erred by applying the regulation to him since he sent the discount postcards only to current
and former patients. We find Appellant's argument is without merit.
In its findings of fact, the Board found that Feldman's corporation advertised a discount of
"fifty percent (50%) off to those who bring a 'diet buddy' on their next visit" and concluded that
Feldman had violated Rule 0880-2-.13(4)(t) quoting that section in its entirety (emphasis added).
Clearly, the Board interpreted the phrase "third party" to include past and present patients of
Feldman. Because the Board interpreted "third party" this way, that interpretation controls unless
it is plainly erroneous or inconsistent with Rule 0880-2-.13(4)(t). Upon review, there appears no
such plain error or inconsistency in the Board’s interpretation.
First, there is no plain error given the traditional definition of "third party" and the fact that
the regulation does not define what persons are included in or excluded from this term's scope.
Generally, a third party is one who is not a party to the agreement but may have some rights in that
agreement. Black’s Law Dictionary, 1327 (5th ed. 1979). Rule 0880-2-.13(4)(t) prohibits a
physician from offering any fee or other consideration to a third party for the referral of a patient.
In this instance, the current or former patient is being offered a discount for the referral of a new
patient to Feldman. Therefore, there is no plain error in the Board's interpretation that a current or
former patient of Feldman falls within meaning of "third party" for the rule.
Next, the Board's interpretation that a current or former patient can be "third party" is not
inconsistent with Rule 0880-2-.13(4)(t) and its purpose. In the policy statement for the Rule, it sets
forth that, in order to avoid misleading the public, given the lack of sophistication of many in the
public concerning medical services and the importance of the interests affected by the choice of a
physician, a physician is prohibited from offering some form of payment or consideration to a third
party in exchange for a referral. Rule 0880-2-.13(1). Unlike a referral earned by merit, such paid
referrals can only mislead the public as to the quality of medical care it will receive. Whether such
paid referrals come from other physicians, those outside the field of medicine, or current or former
patients is irrelevant. A current or former patient who is paid to refer his or her physician can be just
as misleading as any other person who is paid to refer such physician. Therefore, the Board's
interpretation of the term "third party" in the rule is not inconsistent with the rule's purpose. This
Court affirms the Board's interpretation of Rule 0880-2-.13(4)(t).
Unprofessional, Dishonorable, or Unethical Conduct
Next, Appellant argues that, because the Board found he was not "unprofessional,
dishonorable, and unethical," it was error for the Board to find him in violation of Rule 0880-2-
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.13(4)(t). Appellant mistakenly interprets the requirements of the rule and fails to consider the
context in which the Board set forth this conclusion of law.
Rule 0880-2-.13(4)(t) states that the act of offering consideration to a third party in return for
a referral constitutes "unethical and unprofessional conduct." By its plain language, the rule does
not require a finding that Feldman was unprofessional and unethical in order to find a violation, but
rather, it is merely characterizing such behavior as unprofessional and unethical. When the Board
deliberated over whether Feldman's conduct was unprofessional, dishonorable or unethical, it had
already found Feldman in violation of Rule 0880-2-.13(4)(t) and moved on to discuss Tenn. Code
Ann. § 63-6-214(b)(1) (2003) which lists these three terms as grounds for disciplinary action. This
section was deliberated upon because it was one of the charges filed against Feldman by the
Department of Health. It was this statute, not Rule 0880-2-.13(4)(t), that Feldman had not violated.
Therefore, upon examination of the language in Rule 0880-2-.13(4)(t) and the transcript of the
administrative hearing, we hold the Board committed no error when it found Feldman was in
violation of the Board's rule.
Willfulness of the Violation
Finally, Feldman makes two arguments concerning the Board's conclusion that he willfully
violated Rule 0880-2-.13(4)(t). Specifically, Feldman argues the Board's application of the
definition of willful was arbitrary and capricious, and the evidence of willfulness was insufficient
to meet the substantial and material evidence standard. Both of Appellant's arguments are
unsupported.
As noted above, an administrative agency's decision is not arbitrary and capricious as long
as there is any rational basis for its conclusions. MobileComm of Tenn., 876 S.W.2d at 104. In
addition, a Board's findings of fact and conclusions of law must be supported by substantial and
material evidence, which has been defined as more than a scintilla but less than a preponderance.
Tenn. Code Ann. § 4-5-322(h) (2003); Tenn. Solid Water Disposal Control Bd., 756 S.W.2d at 280.
In this case, the Administrative Law Judge instructed the Board members that they must find
Dr. Feldman acted willfully to be in violation of the regulations and defined "willful" to mean not
accidental or inadvertent but voluntary and intentional. Appellant argues that, since he defended
against both the directory regulation and the referral regulation by stating he was unaware of both
regulations and the Board found he had only violated the referral regulation, the Board must have
applied a specific intent standard for the directory regulation and a general intent standard for the
referral regulation. Therefore, Feldman argues, the conclusion of the Board that he was in violation
of Rule 0880-2-.13(4)(t) is arbitrary and capricious. Upon our review of the record, we find no
support for this argument. The evidence for the directory violation under Rule 0880-2-.13(4)(p)
supports the Board's conclusion that the violation was accidental rather than willful. While Feldman
did not have a directory posted, he did have his license posted in a conspicuous place. In addition,
Feldman and his personnel wore name tags to identify themselves. On the other hand, for the referral
regulation, the Board's conclusion that Feldman's actions were willful is supported by a different set
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of evidence. Feldman testified that he did, in fact, send the postcards at issue, that he sent
approximately eight thousand postcards, that he had access to the regulations but only looked at them
when he questioned a competitor's advertisement, and that he was the first physician to advertise in
Tennessee in 1979. The evidence presented affords the Board a rational basis for concluding that,
while Feldman did not willfully violate Rule 0880-2-.13(4)(p) requiring the posting of a directory,
he willfully violated Rule 0880-2-.13(4)(t) prohibiting the offering of consideration in return for a
referral. Therefore, we hold the Board did not act arbitrarily or capriciously in reaching its decision
on the question of willfulness.
In addition, Appellant argues that this Court should reverse the decision of the Board because
there is no substantial and material evidence to support the conclusion that he willfully violated Rule
0880-2-.13(4)(t). After reviewing the record of the administrative hearing below, this argument also
fails. In this case, Feldman testified that he offered a discount in return for bringing in a new patient,
that, even though he does not remember giving the discount, he would have if one of his patients
brought in a new patient, that he decided to consult the advertising regulations only after he
questioned a competitor's ad but not before sending approximately eight thousand postcards of his
own, and that he had been advertising as a physician since 1979. We hold there is more than a mere
scintilla of evidence to support the Board’s conclusion that Feldman willfully violated Rule 0880-2-
.13(4)(t). Therefore, we affirm the Board's conclusions of law with regard to willfulness.
Conclusion
For the foregoing reasons, we affirm the decision of the Tennessee Board of Medical
Examiners. Costs are judged against Appellant, Dr. Richard Feldman, and his surety, for which
execution may issue if necessary.
___________________________________
ALAN E. HIGHERS, JUDGE
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