Two for Me; Many Times More for the Government in the Largest Whistleblower Award Against a Community Hospital

A U.S. district judge in South Carolina approved the government's request for a civil penalty award and ordered Tuomey Healthcare System, Inc. (Tuomey) to pay more than $237 million in damages and fines in a whistleblower case that accused Tuomey of paying doctors pursuant to compensation arrangements that violated the Stark Law.

The penalty was imposed following a jury's determination in May that Tuomey had violated the Stark Law because the compensation paid to several specialty physicians under part-time employment agreements varied with or took into account the volume or value of referrals to the hospital. The jury also determined that Tuomey violated the False Claims Act (FCA) when it submitted over 21,000 claims to Medicare in the amount of $39 million that were related to the improper physician relationships. The judge awarded the government trebled damages of nearly $118 million, based upon the $39 million value of the false claims, and imposed the minimum FCA fine of $5,500 per claim, for a total in penalties and damages of over $237 million.

The judge also denied all of Tuomey's post-verdict motions regarding substantive issues in the case, including Tuomey's assertion that the scienter requirement for an FCA violation was not established in light of Tuomey's reliance on the advice of counsel with respect to the physician relationships. You may review our previous coverage of the case in the May 16, 2013, and April 12, 2012, issues of the Health Law Update. Tuomey indicated that it would file a notice of appeal and would ask for a stay of the judgment, pending appeal. Another potential issue that may arise given the verdict and judgment is whether the trustees and officers of Tuomey may be indemnified in subsequent litigation in light of a recent legal opinion issued by the South Carolina attorney general. BakerHostetler will provide a more thorough briefing on this topic in a future issue.

This case highlights the risk associated with the multiplicative impact of penalties under the FCA, even when the government does not assess the civil penalties available under the Stark Law.