Earlier this month, the Fourth Circuit upheld the $237 million False Claims Act verdict against Tuomey Healthcare System based on Tuomey’s failure to comply with the Stark Law  This sum, believed to be the largest ever levied against a community hospital, exceeds the hospital's annual revenue.

As many who have followed this case know, Tuomey started with a qui tam action alleging that the system had violated provisions of the Stark law.  Those violations were found to have effected more than 21,000 claims.  Tuomey strongly contested these allegations and refused to settle the case.  While the first trial ended in Toumey’s favor, the trial judge threw out the verdict and ordered a new trial.  The second trial resulted in a stunning $237 million verdict against Tuomey.  Tuomey appealed, arguing that the trial judge had erred in admitting the testimony of Kevin McAnaney, a former government attorney, now in private practice, who wrote a “substantial portion” of the regulations implementing the Stark Law while serving with HHS-OIG.  McAnaney provided an opinion to Tuomey that the contracts at issue, particularly the compensation provisions of those contracts, raised potential “red flags” with regard to Stark.

The Fourth Circuit rejected these arguments, finding that McAnaney’s advice went to the heart of Tuomey’s knowledge, a required element of the Government’s False Claims Act case.  The Fourth Circuit held that McAnaney’s opinion became fair game once Tuomey asserted the advice of counsel defense, even if Toumey ultimately chose to rely on the advice of other counsel who did not see the same “red flags” with the contracts at issue. 

The Fourth Circuit also rejected Tuomey’s challenges to the verdict based on both the constitutionality of the verdict and the damages calculation and endorsed the Government’s view that the entire amount of the claims tainted by the alleged violation of the Stark Law.  The Court stated, “Compliance with the Stark Law is a condition precedent to reimbursement of claims submitted to Medicare” and that the proper calculation of damages was the full amount of the claims at issue.

Although concurring with the majority opinion, Judge Wynn did express concerns with the Stark law and the harsh result it wrought , stating:  “It seems as if, even for well-intentioned health care providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure - especially when coupled with the False Claims Act.”  While the majority didn’t disagree with Judge Wynn’s concerns they stated that if charges are to come to the Stark law they need to come from Congress.   

This ruling has significant implications.  First and foremost, it is clear that providers who receive Stark opinions they don’t agree with seek new opinions at their peril.  If the arrangement is challenged and the advice of counsel defense is asserted, both opinions will be fair game for the Jury to consider.  In addition, the government will take a dim view of such opinion shopping and is much more likely to press forward with those cases.

Second, failure to comply with Stark can be devastating to providers.  Because the measure of damages is every claim submitted as part of the improper arrangement, damages can be significant.  Providers that attempt to defend these cases on their merit need to carefully consider the potential results and providers who discovery potentially improper arrangements should consider availing themselves of the CMS Stark self-disclosure protocol. 

Finally, Stark is clearly a double edge sword for the government.  While the Fourth Circuit felt compelled to uphold what it viewed as the clear letter of the law, it was not ignorant of the onerous effects of the Stark law.  Decisions like this will only increases calls for Congress to readdress Stark as well as efforts by CMS to address and, potentially soften, some of its impact.