Jury Rules Tuomey Violated Stark Law and the FCA through Physician Employment Agreements

On May 8, 2013, in a retrial of a 2010 case, a federal jury found that Tuomey Healthcare System (Tuomey) in Sumter, SC violated both the Stark Law and the False Claims Act (FCA). The jury found that Tuomey violated the FCA by submitting 21,730 claims to the Medicare program that were tainted by illegal compensation arrangements which induced physicians to refer patients to the hospital in violation of the Stark Law.

The underlying employment arrangements were made for 19 surgeons who each received base pay, significant benefits, and potentially two bonuses. The jury agreed with the government’s contentions that the pay was not consistent with fair market value and was not commercially reasonable. The government argued that the excess compensation was evidence that the employment agreements took into account the volume or value of the physicians’ referrals to Tuomey.

The jury assessed damages against Tuomey in the amount of $39,313,065, which is the full amount of the Medicare claims at issue. In addition, under the FCA, the government may seek up to three times the amount of damages plus $11,000 per claim, meaning Tuomey could potentially face up to $357 million in liabilities under the FCA. However, since Tuomey is a community hospital, they are likely to receive a penalty less than that amount. Each side will now submit motions interpreting what they think are the appropriate amount of damages, with a final damage amount coming sometime in the future.

This case should encourage providers to further evaluate potential business arrangements, or reevaluate current business arrangements, to ensure the arrangement does not run afoul of the Stark Law, Anti-Kickback Statute, False Claims Act or other fraud and abuse laws. Although the majority of penalties assessed for violating the FCA are reached through settlements, the jury’s findings in Tuomey may result in a greater number of these cases reaching a jury verdict, which would likely result in substantially larger penalties. If you have any questions relating to the Anti-Kickback Statute, Stark Law or other federal or state fraud and abuse regulations, please contact an experienced Wachler & Associates healthcare attorney at 248-544-0888.