• Landmark False Claims Act Judgment Imposed For Stark Violations
  • October 7, 2013
  • Law Firm: Marshall Dennehey Warner Coleman Goggin P.C. - Philadelphia Office
  • Tuomey Healthcare System is facing the largest False Claims Act verdict ever issued against a not-for-profit hospital. This ruling came on September 29, 2013, when the court ordered that Tuomey pay the sum of $237,454,195 to the United States government and qui tam relator, Michael L. Drakeford, M.D. This long-standing saga arose when Tuomey Healthcare System contracted with urological surgeons to prevent the diversion of urological services to freestanding facilities, including one owned by the qui tam relator, Michael Drakeford, M.D. The complaint alleged that Tuomey paid specialists in excess of fair market value in violation of the Stark prohibition on referrals. The hospital contracted with the urological surgeons as independent contractors and based their salaries on actual collections received for services they performed. Tuomey argued that the agreements did not violate Stark because the compensation was not based upon the volume or value of referrals but, instead, upon work specifically performed by the individual physicians. A jury disagreed and found that Tuomey violated Stark and consequently violated the False Claims Act because the services would be deemed to be improper and, therefore, could not be reimbursed under Medicare. The government contended that Tuomey submitted 21,730 claims in violation of the False Claims Act. It sought civil damages in the amount of $5,500 per claim, plus treble damages.

    At trial, Tuomey raised the advice of counsel defense. Nevertheless, there was conflicting testimony in that one of the attorneys jointly retained by Tuomey and the relator to provide an opinion on whether the agreements complied with Stark raised some questions about Stark compliance. Tuomey contended that this attorney was influenced by the relators' counsel. In any event, another attorney provided a clean opinion to Tuomey. The jury, however, rejected this defense and, accordingly, found that Tuomey did act with requisite scienter to violate the False Claims Act. While Stark is a strict liability statute, there is still an intent requirement under the False Claims Act, in that the government was required to show that Tuomey intentionally submitted a claim it knew violated Stark.

    The judgment represents the largest to date against a community hospital. According to one report, the judgment far exceeds Tuomey's actual reimbursement for the entire year of 2011.

    This decision is a chilling reminder that physicians' contracts must be closely scrutinized and any agreement that does not set forth a specific physician's salary must be vetted to determine Stark compliance. The government has long targeted physician arrangements, including payments to medical directors for potential Stark violations. That the Tuomey complaint was initiated by a disgruntled physician is even more chilling. The joint retention by the relator and Tuomey also caused issues given that each side had different motives in the outcome. Reimbursement-based contracts are not uncommon among smaller providers, especially when the service is new and it is difficult to determine a set compensation.