Tuomey case finally comes to a close

The federal False Claims Act (FCA) case against Tuomey Healthcare System, which is generally viewed as the landmark case with regard to the Stark law, has finally come to a close. On October 16, 2015, the Department of Justice (DOJ) announced that Tuomey, a system based in Sumter, North Carolina, agreed to resolve the $237 million judgment against it by paying $72.4 million to the federal government. The health care system also agreed to be sold to Palmetto Health, which was described by the DOJ as a multi-hospital health care system in Columbia, South Carolina.

Background

The judgment against Tuomey was based on the submission of false claims under the FCA (31 U.S.C. § 3729) related to violations of the Stark Law (42 U.S.C. § 1395nn), a statute that prohibits hospitals from billing Medicare for certain services that have been referred by physicians with whom the hospital has an improper financial relationship. The laws includes exceptions for many common hospital-physician arrangements, but generally requires that any payments that a hospital makes to a referring physician be at fair market value (FMV) for the physician’s actual services and not take into account the volume or value of the physician’s referrals to the hospital. After a jury found that Tuomey had filed more than 21,000 false claims in violation of the Stark Law and awarded the government the $237 million judgment, the Fourth Circuit confirmed the verdict and judgment. In short, Tuomey was found to have financially rewarded doctors for referring thousands of patients.

In its appeal, Tuomey argued that it relied upon legal advice of attorneys in the development of the compensation packages, but the court rejected the argument by noting that other advice that was obtained by the health care system raised concerns over the proposed arrangements but that advice was disregarded. The court noted evidence that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital in office or at ambulatory surgery centers. The case also included the arrangements that exceeded FMV by a significant amount. As a result, physician income dramatically increased under the agreement. The compensation took into account the physicians’ actual or anticipated referrals to Tuomey.

Lessons learned

• Immediately investigate any questions raised about an arrangement.
• Commercial reasonableness analysis must be thorough and supportable.
• Productivity bonuses should not begin until after work is performed.
• Independent FMV determination is needed as a safeguard, but it must be defensible.
• A provider should avoid arrangements if it is afraid to keep accurate records of deliberations of such arrangements.
• Avoid any deals that do not feel right, no matter what advisors say.
• No consideration can be made of the value or volume of referrals a physician may bring.
• Do not go opinion shopping or disregard legal and expert advice about an arrangement.
• If relying on advice of counsel defense be prepared to open those files.
• Ensure agreements clearly define specific duties and services to be performed.
• Never take into consideration the volume or value of referrals in any agreement.
• Once agreements are in force, verify performance before making payments.
• Use outside experts to review arrangements and do not rely upon the attorneys who created the arrangements.
• Settle cases as quickly as possible to avoid the sheer magnitude of potential damages.

For more on the Tuomey case, visit the Tuomey section of the Kusserow on Compliance page.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.