Court Orders Tuomey to Pay $237 Million for Violations of Stark and False Claims Act

by King & Spalding
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On October 2, 2013, the United States District Court for the District of South Carolina issued an Amended Order and Opinion directing the entry of a civil judgment against Tuomey Health Care System (Tuomey) in the amount of $237,454,195 for violations of the Federal False Claims Act (FCA), which liability arose from violations of the Stark law.  The judgment comes after a lengthy qui tam litigation addressing the legality under the Stark law and FCA of 19 part-time employment arrangements with gastroenterologists to perform outpatient services. 

Under the arrangements at issue, Tuomey agreed, for a ten year period, to pay each physician an annual base salary that was based on Tuomey’s net cash collections for outpatient procedures, a productivity bonus equal to 80 percent of the net collections, and an incentive bonus that could equal up to 7 percent of the productivity bonus.  Key litigation issues were whether the base compensation and bonuses were in excess of fair market value and varied with the volume and value of the physicians’ referrals to Tuomey.

After two trials and an appeal to the Fourth Circuit, a jury ultimately returned a verdict finding that Tuomey’s financial arrangements with the gastroenterologists violated the Stark law and that, as a result, the 21,730 claims that Tuomey submitted for the physicians’ services violated the FCA.  It further found that the FCA violations equaled $39,313,065 in penalties.  The Amended Order and Opinion is the result of various post-trial motions filed by both parties, including a request for damages and penalties under the FCA by the Government, and a motion for judgment as a matter of law, or in the alternative, a new trial by Tuomey. 

Tuomey’s arguments presented post-trial were, among other things, that:

  • the physician contracts were not subject to the Stark law because, as a matter of law, there was no proof that physician salaries varied with the volume or value of referrals;
  • there was no evidence that the compensation under the physicians’ contracts took into account the volume or value of referrals.
  • even assuming the physician contracts were subject to the Stark law, there was no evidence introduced of referrals.
  • the Government failed to meet its burden of proving intent because Tuomey relied in good faith on advice of counsel in structuring the arrangement.
  • the Government failed to prove damages.

The court denied Tuomey’s motion finding that its arguments lacked merit based on what reasonable jury could have found from the evidence presented and that the jury verdict was not contrary to the clear weight of the evidence. 

The court granted the Government’s motion to treble the damages determined in the jury verdict (three times $39,313,065) for a total civil penalty of $237,454,195, plus interest.  The Amended Order and Opinion revised an initial order issued on September 30, 2013, in which the court ordered Tuomey to pay $277 million (calculated based on the amount of the jury verdict $39 million plus the treble damages ($237 million). 

A copy of the Amended Order and Opinion can be found here; a copy of the initial Order and Opinion can be found here

Reporter, Tracy Weir, Washington, D.C., +1 202 626 2923, tweir@kslaw.com.

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