In 2013, we covered a historic False Claims Act verdict entered by the U.S District Court for the District of South Carolina against Tuomey Healthcare System. In that case, a whistleblower-physician alleged that the company was requiring doctors to agree to referral schemes that violated both the False Claims Act and the Stark Law, as kickbacks are expressly prohibited under both statutes.
The allegations began in 2002 when a urologist was presented with a compensation agreement wherein he would receive a certain amount of extra payment in exchange for the number of referrals sent to the Tuomey Healthcare System. After refusing to accept the terms of the agreement, the physician commenced a lawsuit under the False Claims Act.
In 2013, after failing to settle the matter, Tuomey was slapped with a $276 million verdict, which was later adjusted to $237 million. Immediately thereafter, the company appealed the verdict in hopes for a reduction or dismissal of the imposition.
Court declines to overturn trial court’s verdict
In a decision entered by the U.S. Court of Appeals for the Fourth Circuit[1. UNITED STATES ex rel. MICHAEL K. DRAKEFORD, M.D., v. TUOMEY, d/b/a Tuomey Healthcare System, Inc., http://www.modernhealthcare.com/assets/pdf/CH10031772.PDF], the Court described the verdict as “troubling,” but nonetheless a constitutional imposition of fines, penalties, and damages under the False Claims Act. The Court reviewed several issues raised with regard to the compensation agreements, which were heavily reviewed by several layers of Stark Law “experts” prior to their utilization by the system – which was initially implemented to curtail the onset of major competition in the area.
One of the major issues raised on appeal was whether a reasonable jury could have actually concluded that Tuomey’s referral program amounted to a kickback.[2. Morse, Susan, “Tuomey Healthcare System loses appeal, will pay $237 million over false claims.” July 7, 2015. http://www.healthcarefinancenews.com/news/tuomey-healthcare-system-loses-appeal-will-pay-237-million-over-false-claims] According to the Court, “[a] reasonable jury could have found that Tuomey’s contracts in fact compensated the physicians in a manner that varied with the volume or value of referrals….the physicians received the bulk of their compensation in the form of a productivity bonus, pegged at eighty percent of the amount of their collections.”
Secondly, Tuomey asserts that it did not knowingly violate the law – an element required in a successful False Claims Act lawsuit (as opposed to mere negligence). Here, the Court pointed to significant evidence to show that Tuomey ignored warnings from several Stark Law experts with regard to the “red flags” raised by the referral program. The Court further highlighted evidence that Tuomey tried to procure a “favorable finding” with the consultants, and “Tuomey ignored [the consultant] because it simply did not like what he had to say.”
Tuomey made one last ditch effort to curtail the extremely high verdict imposed against it. It began by contending that the award was improperly calculated, and further suggested that the award violates the Fifth and Eighth Amendments prohibiting excessive fines. Nonetheless, the Court reminded Tuomey that it had submitted over 24,000 false invoices for reimbursement, which are punishable by up to $11,000 per violation. The Court further held that “while the penalty is certainly severe, it is meant to reflect the sheer breadth of the fraud Tuomey perpetrated upon the federal government.”
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If you are an employee in the healthcare industry and would like to speak to a reputable False Claims Act attorney about potential fraud, please do not hesitate to contact Berger & Montague, P.C. today.