July 10, 2015

Have We Reached the Final Round In the Government’s Tuomey Kickback Case?

By Molly Knobler and Tim McCormack

The United States won another round in its now almost eight year battle to hold South Carolina-based Tuomey Healthcare System liable for paying doctors illegal kickbacks.  The litigation has been long and procedurally complex, but at bottom, the Government has alleged, and the jury has found, that Tuomey gave a group of doctors unreasonably lucrative employment arrangements to get them to send their patients to Tuomey.  These sweetheart deals also served to keep these doctors from competing with the hospital, ultimately having the serious potential of reducing patient choice and raising prices.

It all started in early 2003 when a group of local gastroenterologists told Tuomey that they were planning to perform surgeries in their offices rather than at Tuomey’s outpatient facilities.  Office-based procedures are generally cheaper for patients and for insurers, such as Medicare, so this would have benefitted both the patients and the Government.  It would not have benefitted Tuomey, which receives significant “facility fees” when these procedures are performed at its facilities.  Concerned about this loss of revenue, which Tuomey calculated at $8 to $12 million over 13 years, the healthcare system jumped into action.

Between January 2005 and November 2006, Tuomey apparently signed 19 of the targeted doctors to part-time employment contracts.  These deals gave the doctors a variety of incentives and benefits, including a guaranteed base salary and productivity bonuses that varied with Tuomey’s cash collections associated with their work.  In exchange, the doctors promised to perform all of their outpatient procedures at Tuomey and not to hold an investment interest in a competing outpatient surgery center.

A jury has now found that not only did these deals violate federal law, but also that Tuomey knew they did.  The Stark Law prohibits hospitals from paying kickbacks to doctors in exchange for the doctors sending certain of their patients to the hospital.  The law recognizes that kickbacks take a wide variety of forms, not merely the proverbial envelope of cash passed under the table.  When a hospital employs a physician in a position to refer patients to the hospital, the Stark Law requires the terms of the contract to be fair market value, commercially reasonable and insists that the contract not take into account the volume or value of the referrals the doctor makes to the hospital.

When Tuomey tried to sign up the doctors poised to compete with it, at least one of those doctors protested.  Dr. Michael Drakeford, an orthopedic surgeon with privileges at Tuomey, refused to sign the contract.  He believed that the proposed contracts violated the Stark Law because Tuomey promised to pay the physicians more than the total amount the hospital would receive for the physicians’ services.  In response, Tuomey sought the opinion of Kevin McAnaney, an attorney with expertise in the Stark Law.  Mr. McAnaney advised Tuomey and Dr. Drakeford that the proposed contracts raised “significant ‘red flags’” under the Stark Law and would make for an easy target for government prosecution.  Nevertheless, Tuomey proceeded to enter such contracts with the other physicians.

In October 2005, Dr. Drakeford filed a qui tam action against Tuomey alleging that the health system improperly submitted claims for payment to Medicare for services it knew were obtained based on physician relationships that violated the Stark Law.  The False Claims Act (FCA) permits private citizens with knowledge of government fraud to bring suit on behalf of the government.  These suits are known as “qui tam” actions and the “relator” (the individual bringing suit) may receive up to 30% of any recovery the government obtains as a result of the action.

The government intervened, or joined, in Dr. Drakeford’s case in September 2007 and the first jury trial was held in March 2010 (Round 1).  In that trial, the judge prevented the Government from telling the jury that Tuomey had sought out and then ignored Mr. McAnaney’s advice.  The jury found that Tuomey had violated the Stark Law but not the FCA because while the claims to Medicare were presented in violation of the Stark Law, the jury found that Tuomey did not have the requisite knowledge to be held liable for “knowingly” presenting these claims.  Based on the jury’s findings, the judge ordered Tuomey to pay about $45 million.  On the government’s motion, the judge also found that he had improperly excluded evidence at the trial, and thus ordered a new trial to be held on the government’s FCA claims.  Tuomey, unhappy with the $45 million judgment, appealed to the 4th Circuit (Round 2).

While the case was on appeal, the judge who had presided over the first trial passed away.  Once the case was remanded and ready for the second jury trial (Round 3), the new judge allowed Mr. McAnaney to tell the jury what he told Tuomey.  This time the jury found that Tuomey violated both the Stark Law and the False Claims Act and that Tuomey had submitted 21,703 false claims to Medicare with a total value of $39 million.  After statutory trebling and the assessment of per claim civil penalties, the court found that Tuomey owed the United States $237 million.

Faced with such a massive obligation, Tuomey tried its hand before the 4th Circuit again (Round 4).  Tuomey argued, among other things, that no reasonable jury could have found it knowingly violated the False Claims Act.  The court disagreed, finding “the record . . . replete with evidence indicating that Tuomey shopped for legal opinions approving of the employment contracts, while ignoring negative assessments.”

While it is likely that Tuomey will appeal again, the hospital appears to be running out of options.  After two trials and two trips to the court of appeals, it seems increasingly likely that Tuomey’s story will end with it making a big payment to the United States.  And as a reward for his courage and integrity in challenging Tuomey’s misconduct, and reporting it to the United States, Dr. Drakeford will likely be entitled to a 15-25% share of this payment.  Moreover, he can know that he acted with integrity and honor in upholding the ethics of his profession even when asked, cajoled, pressured, and financially incentivized to do otherwise.  As this tale comes to a close (hopefully), let us remember that there is no Tuomey without Drakeford.

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