Tuomey Healthcare System in Sumter, SC, will pay $72.4 million to settle a $237 million judgment following the Department of Justice allegations that it illegally billed the Medicare program for services referred by physicians with whom the hospital had improper financial relationships.
In addition to the $72.4 million payment, the settlement agreement requires that Tuomey Healthcare System be sold to Palmetto Health, a multi-hospital healthcare system based in Columbia, SC, according to an announcement by Principal Deputy Assistant Attorney General Benjamin C. Mizer, JD, head of the Justice Department’s Civil Division.
“Secret sweetheart deals between hospitals and physicians, like the ones in this case, undermine patient confidence and drive up healthcare costs for everybody, including the Medicare program and its beneficiaries,” Mizer said. “This case demonstrates the United States’ commitment to ensuring that doctors who refer Medicare beneficiaries to hospitals for procedures, tests, and other health services do so only because they believe the service is in the patient’s best interest, and not because the physician stands to gain financially from the referral. The Department of Justice is determined to prevent the kind of abuses uncovered in this case, and we are willing to take such cases to trial to protect the integrity of the Medicare program.”
Tuomey Healthcare System also will be required to retain an independent review organization to monitor any arrangements it makes with physicians or other sources of referrals for the duration of the five-year Corporate Integrity Agreement.
The judgment against Tuomey Healthcare System relates to violations of the Stark Law, which prohibits hospitals from billing Medicare for certain services (including inpatient and outpatient hospital care) that have been referred by physicians with whom the hospital has an improper financial relationship. The Stark Law includes exceptions for many common hospital-physician arrangements, but it generally requires that any payments that a hospital makes to a referring physician be at fair market value for the physician’s actual services and not take into account the volume or value of the physician’s referrals to the hospital.
The government argued in this case that Tuomey Healthcare leaders, fearing that the health system could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey Healthcare and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey Healthcare received from Medicare for the referred procedures. The government argued that Tuomey Healthcare ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags.”
On May 8, 2013, after a month-long trial, a South Carolina jury determined that the contracts violated the Stark Law. The jury also concluded that Tuomey had filed more than 21,000 false claims with Medicare. On Oct. 2, 2013, the trial court entered a judgment under the False Claims Act in favor of the United States for more than $237 million. The U.S. Court of Appeals for the Fourth Circuit affirmed the judgment on July 2, 2015.
The case arose from a lawsuit filed on Oct. 4, 2005, by Michael K. Drakeford, MD, an orthopedic surgeon who was offered, but refused to sign, one of the illegal contracts. The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The act allows the government to intervene and take over the action, as it did in this case. Drakeford will receive approximately $18.1 million under the settlement. (For more on the Tuomey case, see Healthcare Risk Management, December 2013.)