Court rules a patient list is a protected trade secret

A column analyzing the impact of recent court decisions on physicians

By Tanya Albert amednews correspondent— Posted Nov. 8, 2004.

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Doctors are continuously reminded to think of their practices as businesses, and a recent court case in Pennsylvania underscores the importance of that logic when it comes to patient lists.

The physician-patient relationship is sacrosanct in some parts of the law: Courts have ruled that what physicians and patients talk about behind closed doors is confidential, and some have ruled that doctors can't be forced to testify against their patients.

So it might seem logical that employed or contracted physicians should be able to take the names and contact information of the patients they've been treating and building relationships with if they decide to leave a practice.

But physicians need to check their contracts and state laws before making that move.

More likely than not, that list is a trade secret, and employed or contracting physicians can get in legal trouble for just taking it.

It's proprietary information, and courts in most cases wouldn't treat the situation any differently from someone in a sales position taking the customer list from his or her company and using it to start his or her own company.

That was the ruling in one doctor vs. doctor lawsuit that a Philadelphia trial court ruled on in October.

"The lesson for physicians is that just because you treated patients at a practice, you don't own the list of the practice," said David Landau, one of the attorneys who represented a dermatologist who sued two contracting physicians for taking patient lists and copies of the appointment book when they left. "A confidential patient list is a core asset of a medical practice."

A not-so-uncommon situation

Practice breakups are not that uncommon, and the Philadelphia case, Pollack v. Skinsmart Dermatology and Aesthetic Center, et. al, is an example of how a practice breakup can land doctors in court.

Flourtown, Pa., dermatologist Andrew Pollack, MD, was the sole owner of the Philadelphia Institute of Dermatology, and in late 2001 he talked to two physicians who contracted with his business about selling the majority of the practice locations to them.

Both sides hired attorneys, and negotiations continued through the following summer, according to court records.

Dr. Pollack reached a tentative agreement with dermatologist Toby Shawe, MD, and general surgeon Samy Badawy, MD, in June 2002, according to court records.

But on Aug. 5, 2002, Drs. Shawe and Badawy resigned.

Before they handed in their resignation letters, court records show that the two physicians had staff members at the Philadelphia Institute of Dermatology make copies of the appointment books assigned to each of them and print out certain parts of a patient database that contained information about the patients they had treated.

Drs. Shawe and Badawy opened their own practice called Skinsmart and used the patient list to call patients they were scheduled to see at Philadelphia Institute of Dermatology and rebook the appointments at Skinsmart. The doctors also called and sent out a letter to patients and referring physicians to tell them about the new practice, court records show.

The patient list resulted in about $700,000 in profit to Skinsmart, according to the court documents.

Dr. Pollack sued.

In a 13-page opinion issued Oct. 5, Philadelphia Common Pleas Court Judge Gene D. Cohen held Drs. Shawe and Badawy liable for misappropriating the patient lists of a medical practice.

"Against this backdrop, it is clear the patient list is a trade secret, worthy of protection," Cohen wrote. "The patient list was compiled over numerous years and contained 20,000 names with related information. Philadelphia Institute of Dermatology spent money for computers, software and employees to keep and maintain the patient list. Within the offices of the Philadelphia Institute of Dermatology, the information was not universally known or accessible. Not every staff member, including the practicing physicians, could pull the records."

At press time, it was unclear whether Drs. Shawe and Badawy would appeal the decision. Several calls to their office were not returned. The lawyer who represented the physicians in the trial court is no longer representing them and was unable to comment on the case.

But in court records, the judge said the doctors argued that the patient list was not a trade secret because certain names on the patient list might not have exclusively belonged to the Philadelphia Institute of Dermatology.

The judge disagreed. But he did say that argument would impact the damages that Drs. Shawe and Badawy would have to pay. Those are scheduled to be decided in January 2005.

What is a trade secret?

In Pennsylvania, there is no precise test for what is considered a trade secret, but there are guidelines.

To what extent is the information known outside the owner's business?

To what extent is the information known to employees and others involved in the owner's business?

What measures does the business owner take to guard the secrecy of the information?

What is the value of the information to the owner and his competitors?

How much effort or money has the owner expended in developing the information?

How easy or difficult is it for others to acquire or duplicate the information?

Cohen ruled that Dr. Pollack showed that information in his patient list was worthy of protection because he invested time and money into it, he tried to protect it, and it was valuable to the business.

Cohen also ruled that, although there were no contracts between the physicians, it was clear that Drs. Shawe and Badawy had a "confidential relationship" while working at the Philadelphia Institute of Dermatology.

"They treated patients on behalf of PID and accessed the patients' confidential medical records in order to provide treatment," Cohen wrote in his opinion.

How to avoid the courtroom

Health lawyers say there are things that doctors can do to avoid situations like the one in Pennsylvania.

For starters, detailed contracts signed when a doctor is taking a job can help stave off problems with patient lists down the road.

"If doctors are in the position of hiring physicians, they need to make sure the corporate agreement covers those things," said health lawyer Valerie Larcombe, who heads the Healthcare Practice Group for the Akerman Senterfitt law firm in West Palm Beach, Fla. "If you are an employed physician, you want to make sure you can get copies of records in case you are sued."

Physicians who are leaving or whose colleague is leaving the practice should first refer to the employment agreement and to any contracts they signed.

Doctors also should see what their state laws or state medical board rules require.

"From a legal perspective, it's probably never a good idea to just take a patient list," said health lawyer Rob Portman, a partner in Jenner & Block's Washington, D.C., office and chair of the firm's health care law practice. "More often than not, the practice will keep the patient list."

Jim Wall, a health care lawyer at Kilpatrick Stockton's Winston-Salem, N.C., office said patients are best served when physicians in the practice jointly craft a letter that lets them know that a physician is leaving and informs them that they will need to sign a release if they want their records to go with the departing physician.

The American Medical Association's medical ethics can be a guideline for physicians, as well, said Mark Coel, a health lawyer with Michaud Buschmann Mittelmark Millian Blitz Warren & Coel in Boca Raton, Fla.

"Doctors need to ask what their obligations are to the patients they are leaving," he said.

The AMA Code of Medical Ethics says patients should be told that their physician is leaving the group and that they should be told what the physician's new address is and be offered an opportunity to have their medical records forwarded to the new office. The opinion says it is "unethical" to withhold the information if a patient requests it.

Health lawyer Andrew T. Hahn, a partner in Seyfarth Shaw LLP's New York office, said courts have established quite a bit of case law in recent years. These types of cases don't seem to be ending anytime soon.

"As the profession gets more specialized and competitive," Hahn said, "The stakes get greater."

Tanya Albert amednews correspondent—

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