Back in 2004, Tuomey Healthcare System opened an ambulatory surgical center and hired 19 local physicians on a part time basis. The employment contract required the physicians to perform all of their outpatient surgeries at the facility and stated that the physician’s salaries and bonuses were based on the net collections from the procedures performed there.
In 2005, one of the employed physicians filed a qui tam complaint alleging violations of the Stark Law and False Claims Act. The False Claims Act imposes penalties against a government contractor that defrauds the government. Qui tam is a latin abbreviation for a provision in the False Claims Act that says that a person not affiliated with the government may file a complaint on behalf of the government and is entitled to a portion of the settlement (usually 15-25%). Qui tams are colloquially known as whistleblower lawsuits (LabCorp and Quest Diagnostics are in the middle of a multi-billion dollar qui tam as we speak). The Department of Justice took the case over in 2007.
The government claims that Tuomey had received just shy of $45 million from its Stark Law violations and the government is seeking “treble damages” under the False Claims Act, which means they are looking to impose a penalty equal to approximately triple the amount it was defrauded. Treble damages are used as punishment, as merely paying money back obtained via fraudulent means is not really considered a punishment.
Tuomey of course denied they did anything wrong and said they consulted with various outside law firms that told them they were doing nothing wrong when they signed the agreements with the physicians. The government, however, found that Tuomey may have actually received conflicting opinions from their legal consultants regarding the legality of Tuomey’s employment agreement with the physicians, ignored the contradictory opinions and continued with their plans.
The trial began in early 2010 and focused on the government’s claim that Tuomey paid their physicians more than fair market value, in addition to allegations of Stark Law violations. One of the things that is interesting about this case is that it actually went to trial. Usually organizations will just settle with the government so as to avoid the ramifications for losing, which can be very harsh. In addition to massive financial penalties, an organization can be kicked out of Medicare completely.
The original jury found that Tuomey had violated the Stark Law but not the False Claims Act. The judge in the case set aside (ignored) the jury verdict, ordered a new trial for the False Claims portion and ordered Tuomey to reimburse the government $45 million plus interest for the Stark Law violations. It is unusual for a jury verdict to be set aside.
The Fourth Circuit Court of Appeals overturned the judge’s order for Tuomey to pay $45 million for the Stark Law violation and ordered a new trial. The saga continues. Pay attention to the outcome of this one, as it is a very important case. If the government loses ultimately, it may affect future False Claims Act cases that involve Stark violations. If Tuomey loses, it will likely make other entities accused of False Claims Act violations settle out of court to avoid the massive penalties that befall False Claims Act violators that go to trial and lose.
The most recent story from Modern Healthcare:
A federal appeals court overturned a district judge’s unusual 2010 order for Tuomey Healthcare System to pay more than $45 million for alleged Stark law violations.
The 4th U.S. Circuit Court of Appeals concluded that the outcome denied the Sumter, S.C., hospital its constitutional right to a jury trial.
In False Claims Act complaints filed in U.S. District Court in Columbia, S.C., a whistle-blower and the U.S. Justice Department alleged that Tuomey entered contracts with specialists that illegally rewarded the physicians for the amount of money they generated for Tuomey.
After a trial in March 2010, a jury concluded that Tuomey did not violate the False Claims Act but did violate the Stark restrictions on physician self-referral.
The judge then set aside the verdict, ordered a new trial on the False Claims Act matter and, based on an interrogatory to the jury regarding the Stark allegations, ordered Tuomey to pay $44.9 million, plus interest, on the premise that the government was at least due the amount Medicare paid for services performed under the targeted contracts.
The contracts at issue, according to a description in the 4th Circuit opinion, called for the specialists to perform all of their outpatient procedures at Tuomey Hospital or its other facilities, and for Tuomey to pay the physicians salaries and bonuses based on the net collections from those procedures.
The opinion of the 4th Circuit’s three-judge panel goes on to conclude that the facility fees generated by the physicians’ services constitute referrals under the Stark law and that the law does prohibit compensation based on volume or value of anticipated referrals.
“Thus, it is for the jury to determine whether the contracts violated the fair market value standard by taking into account anticipated referrals in computing the physicians’ compensation,” the opinion states.
Dan Mulholland, a senior partner in Horty, Springer & Mattern representing Tuomey in the case, said in an e-mail that the statements on the Stark issues “are in no way adverse to Tuomey’s position.”
“We’re very pleased with the 4th Circuit’s decision. which set aside a judgment that should have never been entered in the first place,” Mulholland said.