Tuomey Healthcare Systems to pay almost $278 million for False Claims Act and Stark Law violations

On September 20, 2013, Judge Seymour for the District of South Carolina ordered Tuomey Healthcare Systems (“THS”) to pay almost $278 million as a penalty for entering into prohibited contractual relationships in contravention of Stark Law and the False Claims Act. The full text of the opinion can be found here.

This case, originally filed in 2005, originated as a qui tam (whistleblower) lawsuit filed by a THS physician, Dr. Michael Drakeford. Stark Law prohibits, among other things, 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.

Dr. Drakeford, and later the U.S. government, alleged in the complaint that THS unlawfully entered into compensation contracts with 19 specialist physicians on its medical staff that required the physicians to perform all of their outpatient surgeries at THS’ outpatient surgery center.

In its amended complaint, the government alleged that because THS performed the billing for the services provided at the outpatient surgery center, that each claim THS submitted to Medicare and Medicaid as a result of the prohibited contractual relationships which included both the professional fee and the facility fee or technical component, amounted to a false claim. The Government also alleged that THS made false statements on its certificates of cost reports by stating that it was entitled to payment of its claims for services that were provided in violation of Stark Law.

This case went before a jury twice. The first time, the jury found THS guilty of violating the Stark Law, but not the False Claims Act. In July 2010, on a post-trial motion, the District Court entered a $45 million judgment against THS based on the jury’s finding that THS violated the Stark Law. The District Court also set aside the FCA verdict and granted the government’s motion for a new trial on the issue of the FCA violation. THS appealed the District Court’s judgment to the Fourth Circuit Court of Appeals, who overturned the District Court’s judgment on procedural grounds on March 30, 2013. Specifically, the Fourth Circuit found that THS’ Seventh Amendment right to a jury trial had been violated, and thus vacated the District Court’s judgment and remanded the matter for further proceedings.

In April 2013, a new jury found THS violated both Stark Law and the FCA. The District Court subsequently entered judgment against THS in an amount just shy of $278 million. THS has since filed a notice of appeal. Unless overturned on appeal, THS must pay $237.5 million for the Stark and FCA violations, more than its total revenue last year.

If you would like more information, please contact Laura Tepich at ltepich@kdlegal.com.