In late March, a federal jury found Tuomey Hospital in Sumter, South Carolina, guilty of violating the Stark Law for providing kickbacks to physicians in return for referrals to the hospital.  

Federal prosecutors alleged that, beginning in 2004, the hospital offered sham, part-time employment contracts to staff surgeons as a way to funnel kickbacks to reward referrals to the hospital and to curb competition from a local physician-owned ambulatory surgery center. The compensation under the contracts far exceeded the fair market value of any services performed by the physicians, as the compensation was instead based on the value of the referrals made by the surgeons to the hospital. The prosecutors likened the contracts to the provision of “phantom stock” in the hospital’s outpatient surgery center.  

Prosecutors also alleged that the hospital violated the federal False Claims Act by submitting claims for services referred by those surgeons. However, the jury dismissed this claim, clearing the hospital of Medicare fraud charges. After the trial concluded, a juror indicated in an interview that the Stark Law violations were found because the Stark Law is a “strict liability” law, while the False Claims Act requires intent. The hospital had provided evidence that it was acting in accordance with advice from counsel that stated that the contracts were legal, which negated a finding of intent in the jurors’ eyes.  

The case stemmed from a qui tam suit filed by a local surgeon who was offered a sham contract but refused the hospital’s offer. That surgeon was an owner of the competitor ambulatory surgery center.  

The government is seeking nearly $45 million in damages for the hospital’s Stark violations. This amount is significantly less than the approximately $277 million that the hospital may have been liable for had it been found guilty of the False Claims Act. The final amount to be paid by the hospital will be determined by the judge in the case, and sentencing is expected by the end of April.