After a four-week trial watched closely by many in the health care industry, on May 8, 2013, a jury concluded that Tuomey Healthcare System in Sumter, South Carolina had violated the False Claims Act by submitting 21,730 claims to the Medicare program that were “tainted” by arrangements with referring physicians that violated the Stark Law. The case, U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., has had the attention of the government, health care attorneys, consultants, and appraisers alike due to the issues at play in this case.

The underlying arrangements which the jury found violated the Stark Law were part-time employment arrangements with a number of surgeons that the government contended were not consistent with fair market value and were not commercially reasonable. Tuomey was paid $39,313,065 by Medicare for the “tainted” claims for services Tuomey provided to Medicare beneficiaries as a result of referrals from those surgeons during the time period when the alleged illegal arrangements existed, but with the penalties available under the False Claims Act, the court could impose penalties up to $357 million dollars in this case.

This case is interesting for a couple of reasons. First, this is a retrial — in 2010, a jury found that Tuomey violated the Stark Law, but not the False Claims Act. In that case, the judge imposed a $45 million penalty on Tuomey. But after the case was appealed on the issue of how that judge interpreted the split finding in the initial trial (i.e., that Tuomey had violated the Stark Law, which has no private right of action, but not the False Claims Act), the 4th U.S. Circuit Court of Appeals overturned that decision and ordered a retrial. (See Bricker & Eckler’s June 2010 bulletin on that turn of events in the Tuomey case.)

In addition, this case involved dueling fair market value opinions: Tuomey had obtained an opinion from a third party appraiser that its compensation arrangements with the physicians were consistent with fair market value, and the government had its own expert who disagreed.

While the verdict is in, the final judgment against Tuomey is not yet settled. The Stark Law requires repayment of the full amount of the “tainted” claims — here, $39,313,065. In addition, the False Claims Act permits the government to seek up to three times the amount of the damages (which would be almost $118 million) plus up to $11,000 per claim (up to another $239 million). Given that Tuomey is a community hospital that is unlikely to have the resources to pay a $357 million judgment, we would expect to see a reduced penalty as part of a settlement with the government on the basis of Tuomey’s demonstrated ability to pay.

As the days pass, additional information about the arrangements and the testimony and arguments from both sides may be made public. Bricker & Eckler will provide additional updates to this important case as developments warrant.