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From Health Law Daily, July 6, 2015

Decade-long Tuomey saga comes to a close

By Richard Kusserow, CEO of Strategic Management & Wolters Kluwer Outside Contributor

On July 2, 2015, the U.S. Court of Appeals for the 4th Circuit published a 67-page decision in the decade-long Tuomey Healthcare System case. Tuomey’s appeal resulted in the affirmance of the U.S. government’s position on all significant issues (U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., July 2, 2015, Diaz, A.).

Background. The original case arose from a qui tam complaint brought by Michael L. Drakeford, M.D., where it was alleged that the Toumey Healthcare System, Inc. (Tuomey) of Sumter, South Carolina violated the False Claims Act (FCA) (31 U.S.C. § 3729) by submitting tens of thousands of illegal bills to Medicare, arising from corrupt arrangements with 19 specialty doctors that were improperly compensated in violation of the Stark Laws. After losing in two jury trials, Tuomey appealed to the District of South Carolina, which The Itemruled against it in favor of the United States and ordered Tuomey to pay $39,313,065, as well as $237,454,195 on the FCA claims. The total was calculated as the minimum of treble of the $39 million plus the minimum of $5,500 per claim.

Physician agreements. Local physician specialty groups told Tuomey of their intention to perform surgical procedures in-office instead of at their hospital. In response, in an effort to avoid a reduction in surgical case volume, the hospital employed the 19 specialists as part-time employees. The contracts contained 18 parts and were complex. The basic terms included:

  • a 10-year agreement;

  • a requirement that the physicians perform outpatient procedures at Tuomey;

  • a provision stating that Tuomey would bill and collect from patients and other payers (e.g. Medicare/Medicaid);

  • a provision stating that physicians would be paid with base salaries related to net cash collections for procedures;

  • a provision stating that physicians would get productivity bonuses equal to 80 percent of the net collections;

  • an incentive bonus that could total up to 7 percent of the productivity bonus;

  • a prohibition from competing with Tuomey during the contract and two years after it expired

  • a provision that covered physician health care;

  • terms that confirmed malpractice premiums for the physicians were paid;

  • physician cell phone reimbursement;

  • periodicals and journal reimbursement; and

  • continuing medical education reimbursement.

Tuomey entered the employment arrangements after its board discussed the potential lost revenue from such physicians’ referrals to other less costly facilities in the community. Tuomey asserted that it relied upon legal counsel advice in developing the contracts and argued that no false claims were ever submitted because the patients received needed medical care; claims met Medicare standards, and there was no evidence of overbilling, up-coding, or billing of unnecessary services.

The record of the case during trial showed that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital, either in-office or at ambulatory surgery centers. The jury for the Tuomey case concluded that even though the health system relied upon legal and valuation expertise, when other factors were considered, the arrangements were in essence payment for referrals. The Tuomey third-party valuation consultant provided only a three-page opinion letter that included little supporting documentation or explanation of the methodology behind the valuation opinion. The government presented testimony and exhibits demonstrating that Tuomey also disregarded adverse legal and expert opinions when entering into the contracts.

Reliance on attorney advice. Tuomey’s argument that it only relied upon the advice of its attorneys in its physician compensation arrangements was not accepted by the court. The court noted that one of the lawyers in question, Kevin McAnaney, a recognized expert on Stark Laws, raised concerns about the proposed contracts without even having seen the compensation value determinations. This evidence was seen as critical to its ability to satisfy its burden to prove that Tuomey acted with the requisite intent under the FCA. The court found that the failure to have taken that opinion more seriously was reckless disregard and that a reasonable jury could indeed be troubled by Tuomey’s seeming inaction in the face of warnings about the questionable nature of the proposed agreements. The court observed that “the jury evidently rejected Tuomey’s advice of counsel defense” and found no cause to upset the jury’s reasoned verdict that Tuomey violated the FCA.

Damages and penalties. Tuomey made several challenges to the amount of judgment entered against it, including: (1) that the district court improperly calculated the civil penalty; (2) that the district court used the incorrect measure of actual damages; and (3) that the award was unconstitutional under the Fifth and Eighth Amendments.

The court noted that a defendant found liable under the FCA must pay the government a civil penalty of not less than $5,500 and not more than $11,000 “plus 3 times the amount of damages which the Government sustains because of that person.” In this case, the jury found that Tuomey had submitted 21,730 false claims, for which it awarded actual damages of $39,313,065, which the district court trebled. The district court then added a civil penalty of $119,515,000 to that sum, which it calculated by multiplying the number of false claims by the $5,500 statutory minimum penalty. The court rejected Tuomey’s arguments challenging the calculation and concluded that the jury had sufficient evidence to identify the prohibited referrals and, therefore, the amount of damages and penalties.

Tuomey argued the measure of actual damages and the true measure is not the sum total of all claims the government paid (as the court instructed the jury), but rather the difference (if any) paid, since “there was no evidence that the Government did not get what it paid for[,] . . . there were no actual damages under the FCA.” The court rejected those arguments noting that the Stark Law expresses Congress’s judgment that all services provided in violation of that law are medically unnecessary. By reimbursing Tuomey for services that it was legally prohibited from paying, the government has suffered injury equivalent to the full amount of the payments; and that in this case, the damage from the false statement came from the payment to an entity that was not entitled to any payment at all.

Further, the court disagreed that the damages and civil penalties were unconstitutional under the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth Amendment. It cited the Supreme Court position that the treble damages provision of the statute includes a compensatory aspect, in that it accounts for the fact that some amount of money beyond actual damages is “necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.”

For additional background information on the Tuomey case, see Department of Justice $237 million additional in fines and penalties from Tuomey Healthcare (May 28, 2013) and Hospital gains jury trial in physician compensation case (April 16, 2012) as well as our extensive coverage of this matter on the Kusserow on Compliance page of the Wolters Kluwer’s Law & Health blog.

The case is No. 13-2219.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.

Companies: Tuomey Healthcare System, Inc.

MainStory: TopStory AntikickbackNews FraudNews FCANews StarkNews QuiTamNews MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews

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