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From Health Law Daily, May 28, 2013

Department of Justice seeks $237 million additional in fines and penalties from Tuomey Healthcare

By Richard Kusserow

On May 22, 2013, the Department of Justice (DOJ) filed a motion with the U.S. District Court of South Carolina Court requesting $237 million in additional fines and penalties from Toumey Healthcare System in Sumter, S.C., on top of the $39 million in illegal payments determined by a jury trial on May 8. Tuomey went to trial over whether it violated the Stark Law in its contracts with outside physicians to provide surgery exclusively in its facilities and pay the physicians a bonus for productivity. This case is sending shock waves to the hospital sector.

The $237 million in fines and penalties on top of the $39 million already leveled was calculated as the minimum of treble of the $39 million plus the minimum of $5,500 per claim, for the more than 21,000 claims the jury determined were tainted. The hospital has two weeks to respond to this motion. The DOJ opened the door to mitigating its request by saying it would consider discussions to settle at a lower rate upon other concessions by the hospital, which likely would mean a change in its leadership.

The background on this case is that Tuomey entered into exclusive part-time employment negotiations with affiliated specialist physicians to prevent these physicians from moving their outpatient business out of Tuomey’s ambulatory surgery center and into lower cost competing locations, some of which would be owned by the physicians themselves. The physicians agreed to enter into exclusive part-time employment agreements with Tuomey, thus keeping all of their outpatient business at Tuomey, in exchange for very favorable compensation arrangements.

A key issue in this case was that, under exclusive part-time employment agreements, Tuomey agreed to pay the physicians 131 percent of their net revenues collected (or 31 percent over the amount that the physicians actually generated in revenues) in return for their services and a noncompetition agreement. In developing the arrangement, Tuomey, through its legal counsel, obtained and relied upon the fair market value (FMV) opinion of an “expert” that agreed the rates being offered were at FMV and the compensation was unlikely to violate the Stark Law. One physician, an orthopedic surgeon, became the relator (i.e. “whistleblower”) in the federal government’s case against Tuomey. He concluded, and the government agreed, that the Tuomey employment agreements exceeded FMV, were commercially unreasonable, and took into account the volume or value of referrals all in contravention of the Stark Law. Ultimately, the jury agreed, as well.

There are a number of lessons to be learned from this case:

  1. This case was built on the Stark Law, not Anti-Kickback Statute (AKS). This case was not coupled with the AKS and underscores the government’s continuing interest in Stark Law enforcement. This is significant in that the OIG recently downplayed its involvement with the AKS, stating its interests would be aroused only if it was coupled with the AKS. Also, the Tuomey case precedent will open doors to other prosecutions following the same legal arguments.
  2. Many view the Stark Law as a checklist that has to be followed in the relation of agreements. This case dramatically makes it clear that the government does not view only the “four corners” of the document, but encompasses all the surrounding facts and evidence. The evidence at the trial focused on those surrounding factors.
  3. Compensation for a referring physician for the services that he or she provides must be at FMV and the arrangement must be commercially reasonable. Both these standards must be supportable in the record. This includes any and all arrangements and understandings with the physician, written or verbal. It will be the total record that determines whether these standards were properly met, not just the written agreement.
  4. Another key issue of note is that just finding someone who claims to be a FMV expert who will give the hospital whatever it wants in an arrangement is not sufficient to guard against violation of the law. You cannot buy a self-proclaimed expert and expect to have somehow have blocked the government on this issue. The government may have given wide latitude to hospitals developing a FMV determination, but any such efforts by recognized experts still need to be supported in a reasonable fashion along with the data they rely upon in generating their opinion.
  5. This case underscores the importance of ongoing monitoring and auditing of all existing arrangement with referring physicians to ensure they comply with both the AKS and Stark Law standards, most particularly FMV and commercial reasonableness. The review should extend beyond the written agreement to the facts and circumstance surrounding its development, including the selection of, and methodology employed by, FMV experts.
  6. Richard P. Kusserow was the DHHS Inspector General for over eleven years. He is the author of nine books related to compliance. He is the founder and CEO of Strategic Management, a firm that has been providing specialized compliance advisory services since 1992 to 2,000 clients. For more information, contact him at rkusserow@strategicm.com.

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