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Tuomey Ordered to Pay $237 Million for Violations of the Stark Law

Email Alert
By Ken Briggs and Sarah Bogni*
On September 30, the District Court of South Carolina ordered Tuomey Healthcare System (Tuomey) to pay $277 million for violating the False Claims Act. On October 2, the court amended its order, reducing the judgment to $237 million.
The judgment follows a May 2013 jury verdict that found Tuomey violated the Stark Law and False Claims Act. The jury determined that by violating the Stark Law in 19 arrangements with physicians, Tuomey submitted 21,730 false claims. The jury assessed the value of the false claims at $39,313,065.
The May 2013 jury verdict is the second verdict in favor of the United States in the case. In 2010 a jury found Tuomey violated the Stark Law, but did not find a violation of the False Claims Act. The court set aside the jury's verdict and entered judgment for the United States on its equitable claims, awarding the United States relief in the amount of $44 million. Tuomey appealed and the Fourth Circuit Court of Appeals overturned the judgment on Seventh Amendment grounds, remanding for a new trial. The Fourth Circuit noted that on remand the jury needed to determine if the agreements took into account the volume or value of referrals and if the indirect compensation arrangement exception applied.
The case originated in 2005, with a whistleblower lawsuit filed by physician Michael Drakeford, MD. In 2007, the United States intervened in the lawsuit. The United States alleged that Tuomey violated the Stark Law when it entered into improper financial agreements with 19 specialist physicians to perform outpatient services. More specifically, the United States claimed that Tuomey entered into part-time employment contracts with the physicians in reaction to a freestanding ambulatory surgical center that the hospital determined would compete against it and lead to a decline in revenues.
The United States alleged a number of issues with the agreements, including that the physicians were paid in excess of fair market value as a result of fluctuating base salaries, productivity bonuses, and incentive bonuses that paid the physicians on average 31% more than their total net collections. The United States argued that these payments varied with, and took into account, the volume or value of the physicians' referrals. The jury agreed, finding that the Stark Law violations resulted in the submission of false claims to Medicare.
In post-trial motions, Tuomey argued the physician arrangements constituted acceptable indirect compensation arrangements, and argued the United States otherwise failed to introduce evidence of referrals by the physicians. Tuomey also claimed the United States failed to prove damages because the government received the medical services that it paid for. Tuomey raised issue with the jury's verdict of $39 million in single damages, arguing the amount violates the Eighth Amendment prohibition on excessive fines.
After rejecting Tuomey's arguments in total, the court entered judgment, trebling the jury verdict of $39 million and assessing civil penalties for each of the 21,730 claims, resulting in the $237 million judgment. Tuomey promptly filed notice that it intends to appeal the court's judgment.
*We would like to thank Fraud and Abuse Enforcement Committee members Kenneth S. Briggs (Milligan Lawless PC, Phoenix, AZ), and Sarah K. Bogni (Bass Berry & Sims PLC, Nashville, TN), for providing this email alert. We would also like to thank the Fraud and Abuse Practice Group leadership for sharing this alert with other Practice Groups.
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