Lengthy Toumey Case Results in $237.5 Million Judgment for Stark and FCA Violations

On September 30, 2013, the U.S. District Court for the District of South Carolina handed down the latest order in the nearly one decade old U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc. False Claims Act litigation.  In her order, Senior U.S. District Judge Margaret B. Seymour directed Tuomey Healthcare System to pay over $237.5 million in False Claims Act (FCA) fines and Stark Law penalties.  Similar to many Medicaid and Medicare fraud cases, the Tuomey case was brought as a qui tam action by a physician Whistleblower, who in this case was a competitor of Tuomey who refused to accept the medical system’s offending contract for services. 

Although pending for approximately eight years now, the Tuomey case is an example of the Department of Justice’s recent focus on prosecuting health care providers for violations of the Stark Law and Anti-Kickback Statute (AKS).  These prosecutions are commonly brought, either by the DOJ or a qui tam Relator, pursuant to the FCA because health care providers must certify compliance with Stark Law and the AKS in order to receive Medicaid and Medicare payments.  Such FCA lawsuits carry significant weight since violations can result in the recoupment of reimbursement under Medicaid and Medicare, treble damages, and up to $11,000 in fines per violation, i.e. for every submission of reimbursement that certifies compliance.

The focus of the Tuomey FCA lawsuit was the system’s employment contracts with 19 specialists it employed as part-time employees.  These contracts arose out of Tuomey’s realization in 2003 that several local specialists were going to perform surgical procedures in their respective offices, rather than in Tuomey’s local hospital facilities.  In order to avoid a reduction in surgical case volume, Tuomey retained the 19 specialists under contracts that provided in part as follows:

  • The specialists were required to perform outpatient procedures at facilities owned by Tuomey;
  • Tuomey was responsible for billing and collections from Medicaid and Medicare;
  • The specialists’ annual salaries were based upon Tuomey’s net collections for outpatient procedures;
  • The specialists were provided a “productivity bonus” based upon their net collections, and an associated “incentive bonus”; and
  • The specialists were subject to a non-compete provision that restricted practice during the contract’s 10-year term and for an additional two years afterwards.

In May 2013 a jury found that these provisions violated Stark Law.  As the Fourth Circuit stated in an earlier appeal in the Tuomey case, Stark Law 

[P]rohibit[s] a physician who has a “financial relationship” with an entity—such as a hospital—from making a “referral” to that hospital for the furnishing of certain “designated health services” for which payment otherwise may be made by the United States under the Medicare program. 42 U.S.C. § 1395nn(a)(1); 42 C.F.R. § 411.353(a). A hospital may not submit for payment a Medicare claim for services rendered pursuant to a prohibited referral. 42 U.S.C. § 1395nn(a)(1)(B); 42 C.F.R. § 411.353(b). The United States may not make payments pursuant to such a claim, and hospitals must reimburse any payments that are mistakenly made by the United States. 42 U.S.C. § 1395nn(g)(1); 42 C.F.R. § 411.353(c), (d). However, when a physician initiates a service and personally performs it, that action does not constitute a referral under the Stark Law. 42 U.S.C. § 1395nn(h)(5); 42 C.F.R. § 411.351.

 The Stark Law and Stark Regulations define a “financial relationship” to include “a compensation arrangement” in which “remuneration” is paid by a hospital to a referring physician “directly or indirectly, overtly or covertly, in cash or in kind.” 42 U.S.C. §§ 1395nn(a)(2), (h)(1); 42 C.F.R. § 411.354. An indirect financial relationship exists if, inter alia, there is an indirect compensation arrangement between the referring physician and an entity that furnishes services. An indirect compensation arrangement exists if, inter alia, the referring physician receives aggregate compensation that “varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing” services. 42 C.F.R. § 411.354(c)(2)(ii). 

United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675 F.3d 394, 397-98 (4th Cir. 2012).

 Tuomey is reportedly in the process of filing a notice of appeal regarding Judge Seymour’s order, so we may get at least one more opinion in the Tuomey case before the qui tam Whistleblower or the U.S. government every receives a dollar.