• Tuomey False Claims Act Case Headed for Re-trial
  • July 16, 2010 | Authors: Robert M. Keenan; Ranse Murphy Partin
  • Law Firm: King & Spalding LLP - Atlanta Office
  • False Claims Act cases against healthcare systems rarely go to trial, given the risk of treble damages often involving thousands of Medicare claims.  In March of this year, Tuomey Healthcare System in South Carolina prevailed at trial on FCA claims, while losing related Stark claims.  Tuomey now faces a re-trial of the FCA claims, with roughly $275 million in damages and fines at stake.  The case raises significant Stark issues as the underlying basis for alleged false claims. 

    U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., Civ. No. 3:05-2858 (D.S.C.) is a qui tam action brought under the federal False Claims Act (FCA), 31 U.S.C. § 3729-2733, in federal district court in South Carolina.  The government alleged violations of the Stark Law arising out of part-time employment arrangements between Tuomey and a number of physicians.  According to the allegations, a number of urologists and gastroenterologists that performed significant volumes of surgical procedures at Tuomey’s hospital were considering plans to move their procedures elsewhere.  To address this, a limited liability company owned by Tuomey entered into a number of part-time employment arrangements with the urologists, gastroenterologists and a number of other specialists, including general surgeons, ophthalmologists, and obstetrician/gynecologists.  The employment arrangements did not call for the physicians to work any particular number of hours, but instead paid the physicians to perform the professional services associated with procedures they ordered and performed at Tuomey’s hospital, and to perform those services exclusively at the hospital.  Aside from this, the physicians remained in their own private practices of medicine.

    According to the government, although there was no direct financial relationship between the hospital and the physicians, the aggregate compensation paid to each physician varied with and took into account the volume or value of referrals and other business generated between the physicians and the hospital, thereby creating an indirect compensation arrangement that triggered the referral prohibition in Stark.  The government’s position included an assertion that employed physician compensation that varies with physician productivity in providing personal services will automatically take into account the volume or value of referrals if some of the personally performed physician services are inherently linked to facility services, such as surgeries or endoscopies.  The government argued further that the employment arrangements could not meet the only Stark exception they contended was available in these circumstances—the indirect compensation arrangements exception—because the compensation paid to the physicians was in excess of fair market value and was not commercially reasonable in the absence of Medicare “designated health services” referrals to the hospital by the physicians.  Tuomey, on the other hand, argued that they relied on the advice of legal counsel from two law firms and could not have had an intent to file false claims.  Tuomey also argued that the arrangements created financial arrangements that were neither direct nor indirect financial relationships as defined in the Stark regulations and that therefore the compensation arrangements were not subject to the Stark Law at all.

    Both parties moved for summary judgment on the issue of whether the physician employment agreements created indirect compensation arrangements and other issues.  The court denied both motions on the grounds that material facts remained in dispute.  The case was tried before a jury in March 2010, which found that Tuomey was liable under the Stark Law but that Tuomey had no liability for violation of the False Claims Act. 

    The court ordered Tuomey to repay the government approximately $45 million, plus interest, for Medicare payments paid as a result of the prohibited referrals by the physicians.  According to press accounts, the government moved for a new trial, citing certain deposition testimony of Tuomey officials and certain tape recorded conversations of Tuomey officials and outside legal counsel that were surreptitiously obtained during the investigation of the sealed qui tam case.  The court later granted the government’s motion  due to the court’s error in not allowing certain deposition testimony of Tuomey’s Chief Financial Officer.  The government contends that the deposition testimony would have supported its claims that Tuomey was aware that its physician contracts might be illegal, giving it the requisite intent to violate the False Claims Act.  The government sought, and presumably will seek on re-trial, up to $275 million in damages and fines for the FCA claim.