Published on:

Payment of Part-Time Doctors Based on Referrals Found Against the Law in Case Scheduled for Retrial

A qui tam action under the False Claims Act brought in South Carolina would not be particularly interesting except for one small fact: the case is actually going to trial.  In fact, the case is going to trial for the second time, after a jury found that Tuomey Healthcare System violated the Stark Law, but did not violate the False Claims Act.  The judge later decided that deposition testimony of Tuomey’s CFO should have been allowed into evidence and the case is scheduled for a retrial.

In the first trial, the government accused Tuomey of violating the Stark Law by entering into illegal “part-time employment” relationships with certain doctors who performed services at its hospital.  When a number of urologists and gastrointerologists threatened to start performing their services somewhere other than Tuomey’s hospital, a limited liability company owned by Tuomey hired the doctors for part time employment where their compensation was based on the value and volume of referral they provided to the hospital.  According to the government, this kind of indirect financial relationship between a hospital and doctors violated the Stark Law.  Consequently, the government argued, Tuomey also violated the False Claims Act by submitting reimbursement claims to Medicare while not being in compliance with the Stark Law.  Tuomey responded that it consulted with two different law firms about the relationships with the doctors and thus could not have had the required intent under the FCA which mandates an intent to defraud the government or a reckless disregard to the truth of a claim.  The jury agreed with Tuomey and found it not guilty of FCA violations.

The overwhelming majority of cases under the False Claims Act are settled due to the expense, time, and risk associated with letting a jury decide the fate of cases that often seek damages in the hundreds of millions of dollars.  The second trial is not only important for its impact on the relationship between Stark Law violations and the FCA, but also because of the impact it will have on future settlements.  The government seeks $275 million in damages, and if the jury agrees with the government, hospitals in the future may be much more inclined to reach a settlement.  On the other hand, if Tuomey again defeats the FCA charges, it may inspire more FCA defendants to take their case to a jury.