Tuomey Healthcare found guilty of Stark violations, could be penalized up to $357 million


In April 2012, I wrote about a qui tam (whistleblower) lawsuit filed against Tuomey Healthcare System (THS) in 2005 by Dr. Michael Drakeford, a physician employed by THS.  At the time of the post, an appeals court had just ordered the case be re-tried because of the unusual manner in which the trial judge handled the case.  The retrial began on April 16, 2013, and a jury found THS guilty of violating both the Stark Law and the False Claims Act; THS is now on the hook for a maximum $357 million in penalties.

A little background on the case from my previous post:

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.

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 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.

In addition to the aforementioned referral requirement, the contract also had a clause that prevented the physicians from competing with THS for 12 years.

After the judge’s verdict, the case was appealed to the Fourth Circuit Court of Appeals, which threw out the judge’s $45 million penalty and ordered a new trial.  The full appeal is here.

Even though this was considered to be a complicated case and the retrial lasted a month, it took the jury less than five hours to find THS guilty.  Although THS could potentially have to pay up to $357 million in penalties as a result of the guilty verdict, it is likely it will have to pay much less.

Whether the hospital is able to remain open hinges on the size of the penalty.  According to Modern Healthcare, the “finding of False Claims Act liability could be financially catastrophic for the 242-bed community hospital.”

Indeed, THS’s own attorney stated during closing arguments that a verdict against THS would “annihilate” the hospital.

The outcome of this case is important in terms of how the government may approach future cases involving Stark violations.  It is somewhat unusual for cases like this to even go to trial, because the ramifications for the entity accused of violating the Stark Law can be incredibly severe if it is found guilty.  For that reason, these cases are usually settled out of court.

Now that the government has been able to secure a guilty verdict from a jury, it may be more willing to take complicated Stark cases to court and less willing to accept out-of-court settlements.  It could also mean health care entities accused of violating Stark will have less leverage than they did before in settlement negotiations if the government believes it has a good chance of being successful at trial.

The end effect of these dynamics may be (and should be) that health care entities will simply be extremely careful to avoid entering into a prohibited arrangement.  In other words, the outcome of this case may motivate people to actually follow the law.

As we have discussed before, whistleblowers stand to receive around 15-25% of the recovered damages in a False Claims Act suit.  If the maximum penalty of $357 million is levied against THS, and THS is able to pay it, Dr. Drakeford would personally stand to make between $54-89 million dollars.  That is a lot of money.

According to The Item, instead of keeping the money for himself, Dr. Drakeford has said “…any award he receives from the lawsuit will go toward charitable health care efforts in the Sumter [South Carolina] community.”

Sounds like a good guy.

One last thing.  A physician/attorney reader sent me an email with a couple of excellent points regarding this case:

I know you have seen the Tuomey trial verdict by now, WOW!  That hospital is pretty hard headed.  Two thoughts I found interesting: (1) one of the hospital’s defenses was that their attorneys okayed the contracts with the physicians, obviously that did not work, and I wonder what kind of legal malpractice claim will follow from the hospital towards those attorneys, and (2) interesting that the government tried them with Stark – False Claims and not anti-kickback – false claims.  Although it may be a technical issue, the Stark Law is a “strict liability” statute, so no one cares why you violated it, if you did, you did, and the anti-kickback statute is “intent based,” thus using Stark only, the government did not have to prove intent to violate the law, thus an easier burden of proof.

Many thanks to the reader, because I was not aware of the burden of proof distinction between Stark and Anti-Kickback False Claims actions.


  1. A says:

    Mr. Lee Dilworth, EVP and Chief Legal and Administrative Officer of American Pathology Partners, Inc., sent me this excellent comment via Email:

    Your reader is spot on about the difference in Stark and the AKS, and your physician readers should keep this in mind whenever they engage in transactions with entities to which they refer business. AKS requires that the gov’t must prove that one INTENDED to induce referrals by giving OR RECEIVING any direct or indirect compensation arrangement. There are “safe harbors” under the AKS in which one can sail freely, but no exceptions. In contrast, Stark is a strict liability statute: if one’s behavior doesn’t fall squarely within the four corners of an exception, the behavior is squarely illegal, period. There are a number of exceptions to Stark, but there is no exception for “I didn’t know it was against the law”, “I didn’t mean to”, “it’s such a small amount” or “it was only one time.” That’s one reason healthcare lawyers make such a big deal about Stark: lower burden of proof for the gov’t, easy for otherwise law-abiding providers to hit a tripwire, and a violation can turn otherwise valid reimbursement claims into violations of the False Claims Act.

Speak Your Mind


HTML tags are not allowed.