Following a month-long retrial, a South Carolina jury has
concluded that Tuomey Healthcare System, Inc. (Tuomey) violated the
Stark Law and the False Claims Act by illegally paying referring
physicians. The jury found that Tuomey's compensation
arrangements with referring physicians were impermissible under the
Stark Law, resulting in almost 22,000 false claims and more than
$39 million in overpayments. As a result, Tuomey is facing up
to $357 million in potential liabilities.
Tuomey, a 242-bed hospital located in Sumter, South Carolina,
through a subsidiary, previously entered into part-time employment
agreements with 19 referring specialists in which the
physicians' salaries and bonuses took into account the
hospital's collections (technical component) for outpatient
procedures performed by the employed physicians. Dr. Michael
Drakeford refused to accept a similar arrangement from Tuomey and,
subsequently, filed a qui tam lawsuit against Tuomey in 2005
alleging Stark Law violations.
In 2007, the U.S. Department of Justice intervened and brought a
False Claims Act lawsuit against Tuomey. The DOJ alleged that the
physicians' compensation took into account the volume or value
of referrals that the physicians generated for Tuomey because it
included a portion of the technical component for the outpatient
procedures performed. As a result, the DOJ continued, the
related reimbursement claims submitted to Medicare violated the
Stark Law and the False Claims Act.
The initial trial took place in the District Court of South
Carolina in 2010. At trial, the jury found that Tuomey
violated the Stark Law, but not the False Claims Act. As such, the
District Court set aside the jury's verdict and ordered a new
trial on the False Claims Act allegations. Additionally, the
District Court entered a judgment against Tuomey for more than $44
million based on the DOJ's estimated value of the false claims
submitted by Tuomey to Medicare.
On appeal, however, the Fourth Circuit vacated the District
Court's $44 million judgment against Tuomey. The Fourth Circuit
concluded that when the District Court set aside the jury's
guilty verdict concerning the Stark Law in favor of granting the
DOJ a new trial on the False Claims Act violations, the jury's
verdict regarding the Stark Law issue was a legal nullity.
Therefore, the penalties imposed by the District Court violated
Tuomey's Seventh Amendment right to a jury trial. The Fourth
Circuit then remanded the case to the District Court to determine
if Tuomey violated either the Stark Law or the False Claims Act. On
remand, it took the jury less than five hours to find that Tuomey
violated both the Stark Law and the False Claims Act.
Defense counsel for the hospital stated that Tuomey will be
evaluating its options in light of the jury's verdict. The DOJ
was granted two weeks to petition the court for additional fines
and penalties in the case.
Legal counsel needs to carefully structure hospital-physician
arrangements, in light of the Tuomey opinion and the
government's positions. When establishing physician
compensation, anticipated referrals of DHS cannot be considered.
Physicians should be compensated only for the professional services
they personally perform and such compensation should be fair market
value.
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