The Fourth Circuit recently affirmed a $237 million jury verdict against Tuomey Healthcare System under the False Claims Act (FCA) for claims stemming from Stark Law violations. The Stark Law violations stemmed from part-time employment contracts Tuomey had entered into with physicians to perform outpatient surgeries exclusively at the health system. Tuomey defended in part on the ground that it had relied on legal advice from several experienced attorneys when entering into the contracts. But the evidence at a second trial showed that the panel of experts Tuomey had consulted did not have material information about the FMV of the compensation. The evidence also showed that another attorney retained later advised Tuomey not to proceed. The Fourth Circuit affirmed the jury’s verdict on the ground that the evidence supported its rejection of Tuomey’s good faith reliance on counsel defense.
The business effort that led to this verdict began when Tuomey embarked on an effort to contract with local physicians in the early 2000s to stop the flow of outpatient surgeries to private practice facilities. Tuomey eventually contracted with 19 surgeons in its service area. One physician, Dr. Michael Drakeford, however, rejected Tuomey’s contract offer. He thought the contract violated Stark Law because it offered to pay him and other physicians in excess of their collections.
To advance discussions past this disagreement, Tuomey and Dr. Drakeford jointly retained an attorney named Kevin McAnaney, who specialized in Stark Law matters. McAnaney reviewed FMV information not available to the other lawyers and opined that the proposed arrangement violated Stark Law because the remuneration exceeded the professional service fees the doctors generated.
Dr. Drakeford declined to enter into the arrangement due to that advice. Instead, he brought an action against the healthcare system under the False Claims Act. The government intervened and assumed responsibility for litigating the claim, but a first trial ended in a defense verdict after the trial judge refused to permit the government to offer evidence of the opinion McAnaney provided to Tuomey and Drakeford. The trial judge, however, granted a new trial on separate grounds, and then died. At the second trial, the new judge permitted the government to introduce McAnaney’s testimony, and the jury returned a verdict for the government, from which Tuomey appealed.
The Fourth Circuit held that the district court had not erred when it admitted McAnaney’s testimony because the hospital had asserted a good faith defense and had offered evidence of its reliance on the other attorneys. The Court ruled that a jury may reasonably consider the advice of all counsel retained when assessing whether a party acted in good faith. “[A] reasonable jury could have concluded that Tuomey was, after September 2005, no longer acting in good faith reliance on the advice of its counsel when it refused to give full consideration to McAnaney's negative assessment of the part-time employment contracts and terminated his representation.” The lesson from United States ex rel. Michael K. Drakeford, M.D. v. Tuomey, d/b/a Tuomey Healthcare System, Inc. is that health care providers (and indeed all parties which contract with the government) should not “cherry-pick” legal advice after seeking counsel from a variety of lawyers. Parties must instead reasonably consider all advice they receive and ensure that the attorneys who provide favorable advice have all available material information.
