The Department of Justice announced on October 16, 2015 a settlement agreement with Tuomey Healthcare System that resolves a $237 million judgment against the system involving claims submitted to the Medicare program in violation of the Stark Law and False Claims Act. The Tuomey settlement comes on the heels of two other major settlements announced in September 2015 involving two other health systems.

What Providers Need to Know

In light of recent cases and the modern enforcement environment, hospitals and health systems may wish to:

• Bolster practices to ensure physician compensation is consistent with fair market value and commercial reasonableness standards, in addition to other Stark Law requirements.
• Assess internal management decision-making practices and safeguards to avoid allegations that physician compensation takes into account physician referrals.
• Enhance training and education programs to promote compliance.
• Consider external initiatives directed at clarifying the Stark Law and rules.

The three cases below demonstrate how non-compliant or even suspect arrangements can potentially result in massive financial consequences when Stark Law liability is combined with the liability and penalty structure of the False Claims Act.

The Tuomey case is notable in that it involved two jury trials and a series of appeals over a span of ten years. In the case, the government took the position that the health system’s financial relationships with certain referring physicians were not fair market value and also took into account the volume or value of the physicians’ referrals to Tuomey hospital.

Tuomey agreed to pay the United States $72.4 million and will enter into a five-year Corporate Integrity Agreement. Under the CIA, Tuomey will be required to retain an independent review organization to monitor any arrangements it makes with physicians or other referral sources. The case was initiated in 2005 by Dr. Michael K. Drakeford, an orthopedic surgeon, who rejected an offer of employment from Tuomey. Dr. Drakeford will receive approximately $18.1 million under the settlement.

The case involved testimony from hospital executive leadership and experts relating to physicians who were employed under part-time employment agreements with ten-year terms. The government argued that the agreements provided compensation that was not aligned with the collections generated from each physician’s professional services, and imposed requirements related to where the physicians would perform their surgical services. The government prevailed in a jury trial on September 30, 2013, which, after applying treble damages and other statutory penalties, resulted in the $237 million judgment.

Similar Recent Cases

The Tuomey settlement follows other settlements recently announced by the DOJ in September 2015 on similar grounds. On September 15, 2015, the DOJ announced a $69.5 million settlement with hospital system in Fort Lauderdale, Florida, to resolve False Claims Act allegations based on violations of the Stark Law. This settlement involved alleged conduct by individuals at the facility who systematically tracked referrals and made decisions regarding physician compensation based on the reports. Then on September 21, the DOJ announced a $115 million settlement with large non-profit system that operates hospitals and other health care facilities in multiple states. Among the DOJ’s allegations in the case were claims that the system maintained improper compensation arrangements with referring physicians and miscoded claims.

The government’s position in these cases demonstrates an expansive interpretation of the Stark Law and its application to hospital and health system relationships with physicians. All three cases involved facts and circumstances that led whistleblowers to question conduct and practices in hospital-physician relationships. Each case involved unique facts that arguably made the matter an outlier in the industry, but the cases provide instructive insight regarding practices that can be viewed as suspect if not illegal through today’s evolving compliance lens.

The Stark Law has been characterized as involving “[a]n impenetrably complex set of laws and regulations,”¹ yet these and other recent cases show how close attention to the Stark Law’s complex requirements is critical to compliance. In total, the three cases have yielded settlements for the DOJ totaling in excess of a quarter of a billion dollars in less than a 45-day period.

About the Tuomey Settlement

Tuomey (Oct. 16, 2015), United States Resolves $237 Million False Claims Act Judgment against South Carolina Hospital that Made Illegal Payments to Referring Physicians.

 

¹See U.S. ex rel. Drakeford v. Tuomey, 792 F.3d 364, 390 (4th Cir. 2015).