Doctors Linked to NME Sue Ex-Patients : Courts: Dallas psychiatrists who worked at National Medical’s most notorious hospital are charging defamation, slander and libel.

Largely absent from the hundreds of lawsuits and government investigations initiated against National Medical Enterprises--accused of orchestrating the nation’s biggest health care fraud ever--are the doctors and other health care professionals who oversaw care at the firm’s hospitals.

Now, in a highly unusual action, some of those doctors are suing former patients whose complaints of kidnapings and billion-dollar insurance rip-offs were key to the legal actions taken against Santa Monica-based National Medical over the past four years.

A prominent group of Dallas doctors that worked at National Medical’s most notorious psychiatric hospital has sued former patients Banning Lyon and Mark Rotella and their lawyer for defamation, slander and libel. In a Texas state court lawsuit, the psychiatrists claim the defendants’ disturbing stories of false imprisonment, abuse and fraud are not true.

Said William A. Smith, a Dallas lawyer representing Dallas Psychiatric Associates: “These lies are harmful and injurious to these doctors who provided what we believe to be very fine medical care.”

The psychiatrists’ lawsuit is extraordinary, legal experts said. Physicians occasionally sue their patients for defamation, but such actions are rare. Doctors and lawyers who represent them generally conclude that they stand to lose more than they gain when they challenge patients’ accusations in medical malpractice cases, experts said.

“Rarely do we have professionals suing their patients,” said Marc Franklin, a Stanford University law professor who specializes in tort law. “That’s partly because patients rarely go public with such extreme levels of dissatisfaction.”

But the 10 physicians who make up Dallas Psychiatric Associates are in a legal pressure cooker of their own. The Justice Department has targeted them in an ongoing probe of possible wrongdoing in the National Medical case, according to knowledgeable legal sources. No federal charges have been filed against Dallas Psychiatric, however.

The doctors’ suit is also problematic for National Medical, which during the past year has moved quickly to settle legal claims. In its most significant move, the Santa Monica firm four months ago resolved all federal criminal fraud charges against the company by agreeing to pay $379 million in fines and pleading guilty to six counts of paying illegal kickbacks for patient referrals.

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At the time, federal prosecutors said their investigation would continue into possible criminal activities by individuals--doctors, former or current National Medical employees and others--for their role in the scandal.

“We are pursuing a number of cases related to NME,” said U.S. Atty. Paul Coggins in Dallas. Coggins declined to comment on whether Dallas Psychiatric Associates is a target of the federal criminal probe.

The reason the Dallas group has become a government target, sources say, lies in the case of Peter Alexis. Alexis, a former regional vice president for National Medical’s psychiatric hospital division who pleaded guilty in June to federal criminal charges and admitted paying more than $20 million in bribes to psychiatrists, psychologists and others for patient referrals to National Medical facilities in Texas.

Alexis, who is cooperating with federal prosecutors, admitted to entering into a contract in March, 1990, “with a professional association of psychiatrists” in which the doctors would be paid a yearly sum for referring patients to Brookhaven Psychiatric Pavilion. The Alexis plea does not name Dallas Psychiatric Associates, but the doctors’ attorney said the psychiatrists did have a contract with Brookhaven in early 1990.

“Although we weren’t identified by name (in the Alexis plea agreement), to the extent that Alexis was making reference to (Dallas Psychiatric), the allegations are categorically untrue,” Smith said.

But Robert F. Andrews, a Ft. Worth attorney who is named in the psychiatrists’ suit, likens the doctors to “a bunch of deer that are caught in the headlights. They have struck out at the only people who they perceive to be weaker than them, which is their former patients.”

Andrews represented 66 former psychiatric patients, including Lyon, who settled fraud claims against National Medical for more than $15 million a year ago.

Andrews said the Dallas Psychiatric Associates suit “calls into question the entire settlement we had with NME last November.” He claims the doctors’ suit breaches a key condition of the out-of-court settlement he struck with National Medical, which prohibited the company, hospital or doctors from suing any of the former patients for actions that took place prior to the agreement.

Although National Medical is not named in the psychiatrists’ suit, legal observers said indictments of doctors and other medical professionals could prompt a new spate of patient lawsuits against the hospital chain.

Lawyers and investigators familiar with various lawsuits against National Medical said many patients were children or adolescents when they were hospitalized and may be waiting until they are no longer minors to sue. Also, one lawyer said some patients who have been “holding on to some trust” for doctors who treated them during a difficult period of their lives may be prompted to sue once they learn that those doctors have been charged with criminal wrongdoing. “They will come out in droves,” the lawyer said.

The timing of the new suits is inopportune for National Medical, which is trying to complete a $3.3-billion merger with American Medical Holdings, a Dallas-based hospital chain, as well as mend its reputation with investors, insurers and the medical community.

Thomas J. Sabatino, American Medical’s general counsel, said, “We are aware of these cases, but we don’t feel they’ll have any impact on the transaction.”

Even so, the new lawsuits threaten to drag National Medical back into a sticky legal quagmire and the kind of public relations problems it has been trying to avoid.

National Medical spokeswoman Diana Takvim said the firm believes most major litigation is behind it and has put aside funds to handle any future claims. The abuses took place under the company’s former management, she said, and the firm has sold or closed most of its psychiatric hospitals, including all of its Texas facilities.

The Dallas Psychiatric suit, which seeks unspecified monetary damages, claims that Lyon defamed and libeled the psychiatrists in statements published in Business Week magazine in October, 1993, and in a personal essay by Lyon that appeared the same month in the New York Times.

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In the Business Week article, Lyon described how, as a teen-ager, he spent 345 days at Brookhaven and was held against his will until his parents’ insurance policy ran dry. Lyon said he was subjected to seven months of “chair therapy”--a treatment in which he was forced to sit in a hard chair facing a wall for up to 12 hours a day.

The psychiatrists’ charges against Andrews involve his role in arranging for another former Brookhaven patient, John Deaton, to testify in July before a congressional subcommittee on crime and criminal justice.

Rotella is accused in the suit of slandering the doctors when he allegedly told an acquaintance that the “doctors which treated him received a $10,000 bonus for each bed filled over the Christmas holiday.”