A US District judge in South Carolina has ordered Tuomey Healthcare System (THS) to pay $238 million for violations of the Stark Law and False Claims Act (FCA). The judge originally ordered Tuomey to pay $277 million, but one of the government attorneys pointed out the judge had awarded $39 million more than the government had asked for, and the penalties were immediately reduced.
This case began in 2005 when Dr. Michael Drakeford filed a lawsuit against THS. Dr. Drakeford (and later the federal government) alleged THS violated the Stark Law and the FCA by entering into prohibited contractual relationships with 19 physicians that required the physicians to perform all their outpatient surgeries at THS’ outpatient surgery center (OSC).
Tuomey agreed to pay each physician an annual base salary that fluctuated based on Tuomey’s net cash collections for the outpatient procedures. Tuomey further agreed to pay each physician a “productivity bonus” equal to 80 percent of the net collections. Moreover, each physician was eligible for an incentive bonus that could total up to 7 percent of the productivity bonus. Each contract had a ten year term and provided that the physicians would not compete with Tuomey during the term of the contract and for two years thereafter.
Because THS performed the billing for the services provided at the OSC, the government alleged the claims THS submitted to Medicare and Medicaid as a result of the prohibited contractual relationships amounted to false claims. The government also alleged THS made false statements in its certificates of cost reports.
As I said in a previous post, THS denied any wrongdoing and, among other things, stated it consulted with outside law firms who advised THS its physician agreements were legal.
The case then went to trial.
In March 2010, a jury found THS guilty of violating the Stark Law, but not the FCA. Then the judge in the case did something highly unusual — he threw the jury verdict out and ordered THS to pay $45 million for the Stark Law violations.
THS appealed the judge’s decision to the Fourth Circuit Court of Appeals, and in March 2012, the Fourth Circuit threw out the $45 million penalty and ordered a new trial. That new trial began in April 2013.
After a month-long trial and less than five hours of deliberations, the new jury found THS guilty of violating both the Stark Law and the FCA. At that point, THS was potentially on the hook for up to $357 million in penalties.
A flurry of motions from both THS and the government followed, and are the basis for the most recent ruling in which the judge denied all of THS’ motions and levied the $238 million penalty.
THS has already announced its attorneys filed a notice of appeal on October 1.
The judge’s full opinion and order is here.
People knowledgeable about health care fraud have been watching this case for some time because of its potential ramifications on future health care fraud prosecutions.
Until this case, entities the federal government accused of health care fraud of this magnitude usually chose to settle rather than go to court, because the penalties at trial can be much higher than if a pre-trial settlement is reached.
THS, however, rolled the dice, went to trial and lost badly.
This may result in a very interesting dynamic for future cases whereby defendants facing a federal health care fraud trial may now do all they can to settle before trial, while the federal government may be less inclined to accept a pre-trial settlement now that it knows it can be successful at trying complicated Stark Law/FCA cases.
I wonder what the attorneys for Halifax Medical Center, which was recently offered a $1.1 billion settlement for alleged health care fraud in a separate suit, think about their chances at trial now.
My pathologist/attorney reader who has been following this case sent me an email with some important additional thoughts:
It will be interesting to see if the government goes after the CEO and CFO (who just recently resigned). Recently Congress, and many federal judges, have been annoyed that hospital executives can be at the center of health fraud, have the institution fined, then they can go on to another gem of a job with a different healthcare corporation. To this end, over the past few years, the government has been using the “Responsible Corporate Officer” doctrine to bring these executives to court on misdemeanor criminal charges, then use such a plea or conviction to exclude them from Medicare (See attached seminar handout discussion).Additionally, you will see from the Tuomey opinion attached that the excuse of “I had a lawyer review this deal and they said it was ok” did not fly with the judge or jury.
Many thanks to the reader, who was also kind enough to provide me with the judge’s opinion and order.
It will indeed be interesting to see if the government goes after the hospital executives who were integral to this plan. I think it should.
In addition, I also believe the government should go after the physicians who were more than happy to enter into this lucrative but prohibited agreement. This would send a powerful message to other physicians, in my opinion.
According to Modern Healthcare, THS had just over $200 million in total revenue in 2011, which means this $238 million judgement may be more than THS can afford. The same article notes THS’s Chairman of the Board has said he is open to a post-trial settlement, but prosecutors apparently declined to comment on the matter.
One last thing. As we have discussed before, Dr. Drakeford, the whistleblower, is eligible to receive 15-25% of the penalties, which we now know equals $35,700,000-$59,500,000.
That would be more than enough to retire on, except Dr. Drakeford has already stated he plans to donate all of his proceeds to charity.
“The Pathology Blawg” is a pathologist who blogs at his self-titled site, The Pathology Blawg.