How Albany fax case landed in Supreme Court

Eight years ago, accountant Charles Rehberg and a local physician started sending anonymous faxes to business and political leaders in Albany, criticizing the financial practices of a local hospital.

This week, a case that began with that flurry of faxes landed in the U.S. Supreme Court.

As a legal matter, Rehberg v. Paulk concerns the extent of government investigators’ immunity in a civil lawsuit.

But it’s also the latest episode in a bizarre saga that has featured a famed trial attorney, a powerful hospital, threats from ex-FBI agents, national media attention and a documentary film.

The Albany story has been compared to a John Grisham novel (by NPR’s Nina Totenberg, in an article this week).

The issue before the justices, in a case that was argued on Tuesday, is whether prosecutorial investigators have total immunity from being sued for giving false testimony before a grand jury.

Rehberg alleges that an investigator for the Dougherty County district attorney’s office, James Paulk, lied before a grand jury that eventually indicted Rehberg.

The suit was tossed out by the 11th U.S. Circuit Court of Appeals in Atlanta. Tuesday’s Supreme Court argument was an appeal of that decision.

In 2003, Rehberg, who managed a surgical practice in Albany, and a leading surgeon, John Bagnato, were upset that Phoebe Putney Memorial Hospital had successfully opposed their bid for a license to open an outpatient surgery center.

Rehberg and Bagnato looked for a way to strike back. The two eventually sent a series of anonymous faxes to local leaders, alleging questionable financial and ethical practices by Phoebe leaders:

Expensive trips by hospital officials to the Cayman Islands, where Phoebe had a malpractice insurance company. A CEO’s salary and compensation that neared the $1 million level, in a region that has wide swaths of poverty. A network of hospital political connections.

Confronted in a parking lot

The faxes, often humorous in tone, became the talk of the town.

But not everyone was laughing. In the aftermath of the fax blitz, Rehberg described a parking lot confrontation when former FBI agents, saying they had been investigating him and were working for Phoebe Putney, threatened him and his family.

“This sort of thing doesn’t usually happen to a CPA,’’ Rehberg told the AJC at the time.

The dispute then moved to a wider topic: the plight of millions of Americans who have no health insurance, and nonprofit hospitals’ obligation to provide free or discounted care to them.

Rehberg and Bagnato, in their fact-gathering against Phoebe, had found the nonprofit hospital had charged uninsured patients much higher rates for services than it charged for patients with insurance. And when the uninsured couldn’t pay their bills, the hospital – while holding millions of dollars in cash – would aggressively seek payment, including garnishing wages and putting liens on patients’ homes, the two men said.

Phoebe wasn’t the only hospital to treat the uninsured in this manner, they said. Nonprofit hospitals across the country, while amassing billions of dollars in cash, were charging people without health insurance their highest rates, the two men said.

They took this information to America’s most famous trial attorney, Richard Scruggs of Mississippi, who in the 1990s had defeated the U.S. tobacco industry in a landmark lawsuit.

Scruggs, using the Albany men’s information, and a team of attorneys soon filed lawsuits nationwide on behalf of the uninsured.

The suits alleged that nonprofit hospitals ignored their charitable obligations as non-taxpaying institutions, and gave away too little free care. Instead, the hospitals overcharged the uninsured and, when they didn’t pay, took them to court, the suits alleged.

The Scruggs-led litigation had limited effect in the courtroom. Phoebe Putney won its case, as did most other hospitals. But the lawsuits helped change hospital billing practices across the country, hospital industry officials said at the time to the AJC.

The Phoebe controversy received national media attention. Time magazine and ABC each reported segments on Rehberg and Bagnato and their battle.

But meanwhile, the two were indicted by local prosecutors on charges of telephone harassment, aggravated assault and burglary.

The charges against Rehberg and Bagnato were eventually thrown out. Phoebe Putney filed a lawsuit against the faxers, later dropping it. And Rehberg settled a lawsuit against Phoebe in 2006 for an undisclosed amount.

The story of Phoebe vs. Rehberg and Bagnato was later made into a documentary, “Do No Harm,’’ released in 2009.

(Among other figures in the saga, attorney Scruggs is in prison for bribing a judge in an unrelated case, and former Dougherty County DA Ken Hodges was defeated in his bid for Georgia attorney general in 2010.)

A  long fight for vindication

Rehberg has continued to pursue his lawsuit over the prosecutors’ tactics. The federal appeals court in Atlanta threw out claims against the prosecutors, former DA Hodges and Kelly Burke, along with Paulk.

Rehberg argues that he was placed under investigation because of the hospital’s political connections and that false testimony by Paulk to a grand jury led to the indictments. Paulk, through his attorney, says that he did not investigate an assault or a burglary, and that he ‘‘was following the instructions of the district attorney.’’

Paulk’s lawyer, John Jones, contends that testimony in a grand jury proceeding is like testimony at a regular trial. Jones said Friday to GHN that while government officials can face other punishments or sanctions for lying, “you can’t be sued for damages.’’

But Rehberg, in an interview with GHN, said, “I’m hoping to force some accountability on prosecutors and their investigators, so they’re not able to lie to grand juries.’’

“Most people don’t know that prosecutors and investigators operate with the type of immunity they have.’’

An attorney for Rehberg, Bryan Vroon of Atlanta, said, “It has been an eight-year battle. It has been a long, difficult process for an innocent man to go through. Charles [Rehberg] is being vindicated.’’

Phoebe Putney Health System, meanwhile, says media accounts of the Supreme Court case have been one-sided and unfair to its position.

An attorney for Phoebe, Thomas Chambless, said in a statement that ‘‘the hospital categorically did not cause Rehberg to be indicted.’’

“The district attorney, Ken Hodges, stepped aside and a special prosecutor, Kelly Burke, was appointed by the attorney general from another county to handle the investigation and make prosecutorial decisions specifically to avoid any suggestion of political or inside influence by anyone,’’ Chambless said in the statement. “That DA from another circuit made those decisions independently and was solely responsible for the decision to prosecute the case.”

Battle over a big purchase

Ironically, Phoebe Putney is currently involved with another matter before a federal court.

The Federal Trade Commission is fighting the Albany-Dougherty County Hospital Authority’s proposed purchase of Palmyra Medical Center from HCA. The case was heard recently by the 11th Circuit Court of Appeals in Atlanta.

The FTC argues that while the hospital authority is technically buying Palmyra, it’s really the Phoebe Putney Health System that will run the facility once it’s bought. The deal, if consummated, would be anti-competitive and would raise health costs in the Albany area, the FTC says.

But Frank Lowrey, an Atlanta lawyer representing the hospital authority, countered in a hearing that the hospital authority is a government entity and therefore immune from antitrust law.

And Phoebe CEO Joel Wernick called the proposed acquisition “the right thing for citizens,’’ saying that hospital consolidation is a necessary strategy to deliver cost-effective, high-quality medical care.

The decision on the Palmyra deal may be rendered soon. The Supreme Court, meanwhile, is expected to hand down the Rehberg v. Paulk decision early next year.