ABA Health eSource
July 2010 Volume 6 Number 11

Stay Tuned: Tuomey Healthcare System Ordered To Repay $45 million In Connection With Stark Law Violation; Judge Allows Government’s False Claims Act Re-Trial To Proceed

By Gary Keilty, Managing Director, RESOLVE advisory partners, LLC , Tampa, FL
and William Mathias, Principal, Ober | Kaler, Baltimore, MD

AuthorAuthor

The saga of Tuomey Healthcare System’s (“Tuomey”) battle with the Department of Justice (DOJ) over allegations of Stark and False Claims Act violations continues with potentially far reaching implications for the healthcare industry. On June 3, 2010, Senior U.S. District Judge Matthew Perry, Jr. granted the DOJ’s motion for a new trial on the False Claims Act violations. At the same time, Judge Perry let stand the part of a jury verdict that found Tuomey had violated the Stark law. Though the Court has yet to issue an order, the finding of the Stark law violation could result in Tuomey having to repay nearly $45 million in Medicare reimbursement. Depending on the results of the new trial, Tuomey could be subjected to treble damages and potential exclusion from Medicare and other federal healthcare programs.

Brief Case Background

In early 2004, Tuomey opened an outpatient surgery center. It approached a number of local specialist physicians and eventually entered into part-time employment agreements with 19 of them. In the fall of 2005, one of the physicians who had been approached by Tuomey filed a qui tam complaint alleging that the employment agreements violated the Stark Law and the False Claims Act. The Government ultimately intervened in the complaint, which was unsealed in the fall of 2007.

The Government alleged that Tuomey violated the Stark Law by “paying physicians (who referred designated health services) under contracts that exceeded fair market value, were not commercially reasonable and which took into account the volume or value of the referrals or other business generated between the physician and Tuomey”. The employment agreements reportedly had 10-year terms and required the physicians to perform all of their outpatient procedures at Tuomey. The Government alleged that Tuomey had collected $44,888,651 from the Medicare program for services based on referrals from the employed physicians. Consistent with the False Claims Act, the Government sought treble damages.

For its part, Tuomey claimed that it had acted in good faith and sought/relied on advice from various outside law firms and consultants in connection with the employment agreements. Tuomey indicated that it believed the employment agreements were commercially reasonable and not in excess of fair market value given a shortage of physicians in the community. However, the Government discovered additional consultant reports suggesting potentially conflicting opinions as to the regulatory risk of the employment agreements.

Despite widely differing views of the facts and the law, virtually all health care False Claims Act cases are resolved through settlement agreements rather than actually going to trial. In most instances, the hospital is simply unwilling to risk the potential ramifications of losing a False Claims Act case, which include treble damages, plus $5,500 to $11,000 per claim as well as the potential to be excluded from Medicare and all other federal healthcare programs . Thus, one of the reasons the Tuomey case is so important is that for whatever reason, Tuomey and the DOJ were unable to reach a settlement and the case actually went to trial.

The trial focused on the appropriateness of how fair market value of the physician employment agreements were determined and whether or not Tuomey was aware that the employment agreements might violate the Stark Law but proceeded with them anyway to maintain or increase future referrals. After a four-week trial, a federal jury returned a split verdict on March 29, 2010. On the one hand, the jury found that the employment agreements violated to Stark law. On the other hand, the jury found that Tuomey had not violated the False Claims Act. The Government moved for a new trial on the False Claims Act allegations. As mentioned above, the Court granted the motion and ordered a new trial on those allegations. The Judge also acknowledged a mistake in excluding certain testimony during the original trial.

Conclusion

Both Tuomey and the Government have a lot riding on the outcome of the re-trial. Tuomey is a major provider of healthcare in its region and a potential penalty of over $200 million could be financially crippling. For the Government, a loss under the False Claims Act when the jury has found a Stark violation could complicate future False Claims Act cases involving Stark violations. So far, this case highlights the dangers to both sides of litigating qui tam False Claims Act cases. If Tuomey is ultimately required to pay $45 million or even more to resolve this matter, then in the future hospitals will certainly think twice about bypassing settlement and going to trial. Obviously, it goes without saying that this re-trial is worth following.

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