Tuomey Healthcare guilty in $39 million false claims case

A federal jury in South Carolina has found that Tuomey Healthcare System, based in Sumter, violated the Stark Law and the False Claims Act (FCA) by submitting false claims for reimbursement to the United States to the tune of $39 million in damages.1

Interestingly, there was no allegation of overbilling. Instead, the violations concerned fair market value and non-compete provisions when contracting with physicians.

The case began in 2003 when several specialty physician groups in South Carolina informed Tuomey that they no longer would perform surgery at Tuomey’s hospital and would instead conduct the surgical procedures in-office. To counter that potential loss in revenue, Tuomey made an agreement for the physicians to be part-time employees and required them to perform outpatient procedures at a Tuomey hospital. Each physician received an annual base salary, the amount determined by Tuomey’s net cash collections for the outpatient procedures, as well as potential bonuses based on Tuomey’s collections.

In addition, the agreements prohibited the physicians from competing with Tuomey during the term of the contract and for two years thereafter. One physician, however, did not agree to the terms and sued Tuomey as a whistleblower under the FCA, alleging that Tuomey paid doctors on average 31% above fees collected.

A 2010 jury found that Tuomey violated the Stark Law but not the FCA. On appeal, the Fourth Circuit found various errors and remanded the case back to the trial court. It noted that “if a hospital provides fixed compensation to a physician that is not based solely on the value of the services the physician is expected to perform, but also takes into account additional revenue the hospital anticipates will result from the physician’s referrals, that such compensation by necessity takes into account the volume or value of such referrals.”

On retrial, the jury found that Tuomey violated the Stark Law and the FCA because Tuomey’s contracts figured in anticipated referrals and the contracts were not consistent with fair market value. Even though there were no overbilling allegations, prosecutors said Tuomey violated the FCA by knowingly submitting Medicare claims for services that were rendered pursuant to a prohibited referral. Also, Tuomey knew that these arrangements resulted in false claims to the government, the jury said. Tuomey must pay $39 million in damages, and a court will determine later if the company must pay a penalty of up $357 million.

Reference

1. United States ex rel. Drakeford v. Tuomey Healthcare Sys., No. 3:05-2858-MBS (D.S.C. May 8, 2013).