Tuomey Healthcare System loses appeal, will pay $237 million over false claims

Photo of Tuomey Health System from Facebook.

A U.S. Court of Appeals in South Carolina has upheld charges under the government’s False Claim Act against Tuomey Healthcare System, forcing it to pay a $237 million fine from a lower court ruling.

The multimillion dollar fine is more than the hospital’s annual revenue and is believed to be the largest ever applied to a community hospital.

Sumter, South Carolina-based Tuomey has 45 days to request reconsideration from the court.

Officials said they would review the decision over the next few days and consider options with legal counsel. They will also continue settlement discussions with the government.

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“We are disappointed,” Tuomey CEO and President Michelle Logan-Owens stated on the health system’s website. “I am confident that we will find an appropriate resolution which will allow Tuomey to close this chapter and emerge strongly and successfully in our potential collaboration with Palmetto Health."

Tuomey is a nonprofit hospital located in a largely rural community that is a federally designated, medically underserved area.

Judge Albert Diaz, writing the majority opinion, called the case “troubling” even as he agreed the health system violated both the Stark Law that prevents physician referrals in which they earn money based the referrals, and the False Claims Act.

“Nevertheless, I am troubled by the picture this case paints: An impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically underserved area,” Diaz wrote.

“While the award is substantial, we cannot say that it is unconstitutional,” he said.

The case, decided July 2, 2015, upholds a jury’s decision in a second trial that found Tuomey knowingly submitted 21,730 false claims to Medicare for reimbursement. The district court awarded damages and civil penalties totaling $237,454,195.

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The whistleblower case, in which the U.S. Department of Justice intervened, was originally brought by Dr. Michael Drakeford in 2005.

Drakeford refused to go along with Tuomey’ s financial incentives proposed to make up for an estimated $8 to $12 million in lost revenue over a 13-year period from facility fees associated with gastrointestinal procedures, according to the court record.

Physicians who previously performed outpatient surgery at Tuomey began doing so in their own offices or at off-site surgery centers.

To stem this loss, Tuomey sought to negotiate part-time employment contracts in which the bulk of the physicians’ compensation was earned from a productivity bonus, which paid them 80 percent of the amount of their collections for that year. The physicians were also eligible for an incentive bonus of up to 7 percent of their earned productivity bonus.

In addition, Tuomey agreed to pay for the physicians’ medical malpractice liability insurance as well as their practice group’s share of employment taxes. The physicians were also allowed to participate in Tuomey’s health insurance plan.

Finally, Tuomey agreed to absorb each practice group’s billing and collections costs. The contracts had 10-year terms, during which physicians could maintain their private practices, but were required to perform outpatient surgical procedures exclusively at the hospital.

Other conditions were also imposed.

After getting advice from attorneys on physician referrals as it applied to the Stark Law, Tuomey ultimately entered into part-time employment contracts with 19 physicians.

Drakeford, an orthopedic surgeon, did not sign on.

In May 2005, Tuomey and Drakeford sought the advice of Attorney Kevin McAnaney, who advised the proposed employment contracts raised significant “red flags” under the Stark Law and separate concerns under the Anti-Kickback Statute.

McAnaney’s testimony was excluded at the first trial in District Court.

“In the first trial, the jury did not hear from McAnaney and found for Tuomey on the FCA claim. When the case was retried, McAnaney was allowed to testify and the jury found for the government. Coincidence? We think not. Rather, we believe that these results bespeak the importance of what the jury in the first trial was not allowed to consider,” Diaz wrote

Had Tuomey followed McAnaney’s advice, it likely would have faced no lawsuit in which to raise an advice of counsel, or any other, defense, according to Diaz.

Tuomey said there was no evidence the government did not get what it paid for, and therefore, there were no actual damages under the False Claims Act.

Drakeford was not called as a witness at either trial. He is entitled to receive 15 percent of the total recovery.

Twitter: @SusanMorseHFN