A recent decision by the U.S. Court of Appeals for the Fourth Circuit sends a strong message to health care providers regarding compliance with the Stark Law. On July 2, 2015, after a decade of litigation, the Court upheld a $237 million False Claims Act decision against Tuomey Healthcare System in Sumter, S.C. See United States ex rel. Drakeford v. Tuomey, No. 13-2219 (4th Cir. July 2, 2015). It has been reported that the judgment amount, which exceeds the hospital's annual revenue, is the largest ever levied against a community hospital.
The case started when a physician/whistleblower asserted that Tuomey violated the False Claims Act by submitting over twenty thousand illegal claims to Medicare arising from financial arrangements with doctors that compensated the doctors for referring patients to the hospital in violation of the Stark Law. Tuomey denied any wrongdoing and vigorously defended the case. A jury ruled in Tuomey's favor but the trial judge set aside the verdict and ordered a new trial. The second trial ended with a jury verdict against Tuomey and awarded damages of $237 million. Tuomey argued on appeal that it had relied upon the advice of its counsel in entering into the physician compensation arrangements at issue. Tuomey had received advice initially from multiple sources regarding the contracts that led it to believe that it was not running afoul of the Stark Law. However, in 2005, Tuomey received additional advice from another attorney in private practice with expertise in the Stark Law that, among other things, the compensation contracts raised significant "red flags" under the Stark Law.
The government relied on that second legal opinion as evidence to prove that Tuomey "knowingly" submitted false claims under the FCA because it knew that there was a substantial risk that the contracts violated the Stark Law, and Tuomey was nonetheless deliberately ignorant of, or recklessly disregarded that risk. The Court concluded that "it is difficult to imagine any more probative and compelling evidence regarding Tuomey's intent than the testimony of a lawyer hired by Tuomey, who was an undisputed subject matter expert on the intricacies of the Stark Law, and who warned Tuomey in graphic detail of the thin legal ice on which it was treading with respect to the employment contracts." The Court found the record "replete with evidence indicating that Tuomey shopped for legal opinions approving of the employment contracts, while ignoring negative assessments . . . ." And the Court agreed with the District Court that a reasonable jury could have concluded that Tuomey was, after September 2005, no longer acting in good faith reliance on the advice of its attorneys when it rejected the negative assessment of its contracts from an attorney with expertise in the Stark Law. Judge Diaz, in a concurring opinion, called the Stark Law a "booby trap" for health care providers.
The Tuomey decision is sending shockwaves through the industry both in terms of the large size of the judgment and the role that legal opinions played in the case. Seeking multiple legal opinions on a fraud and abuse question must be done very carefully, if at all. If the provider receives an opinion raising concerns about certain activity, the provider must weigh that negative opinion carefully before making a decision on how to proceed.
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