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Tuomey Pays $237 Million for FCA Violation of Creation of New Employment Agreements Producing Illegal Payments to Physicians

This weeYellow-and-Red-Pills-150x150k the US Court of Appeals for the Fourth Circuit affirmed a South Carolina District Court judgment against Tuomey Healthcare System. The damages and penalties against Tuomey totaled $237,454,195 as decided in United States ex rel. Drakeford v. Tuomey Health Care System, Inc. A jury had found the defendant liable under the False Claims Act for their reporting of false claims to Medicare. The decision ends a case which has been under litigation for nearly ten years.

Tuomey Health Care System, Inc. owns and operates the hospital in which the fraud took place. Tuomey is a hospital located in Sumter, South Carolina with 266 beds. It functions as the flagship hospital for the corporation. Tuomey is located in a principally rural region of South Carolina and operates as a nonprofit for the federally designated medically underserved area. The whistleblower in this suit, whose information convinced the U.S. Department of Justice to intervene in the case, was a former employee of the Tuomey Hospital.

The fraud scheme centers on Tuomey’s creation of new employment agreements that produced illegal payments to physicians for patient referrals. Starting in 2003, Tuomey began facing competition from small scale specialty groups. These specialty groups were able to perform certain surgical operations within their own offices and no longer needed to use and pay for the facilities provided by Tuomey at their larger hospital. To stem the losses, Tuomey created new part-time employment agreements with 19 specialist physicians who worked in the small specialty groups. The newly structured hospital-physician agreements were inadvertently structured in a way that created kickback payments from Tuomey to the physicians, in violation of the Stark Law.

The new hospital-physician agreements violated the Stark Law because the physician’s total earnings were contingent in part on the total payments received from patients for the outpatient procedures. All of the 19 employment agreements had the same structure and covered a contract period of ten years. Under the agreement, Tuomey was to handle all of the payment collections from patients through their individual health insurers including Medicaid and Medicare. The physicians’ salaries and bonuses were increased as the payments from the health insurers increased, creating an incentive for the physicians to select the most costly operations for their patients. The employment contracts also made bonuses available to the physicians based on their productivity. These bonuses entitled the physicians to as much as 80 percent of the total payment collections from the insurers and an additional bonus of up to 7 percent on top of the productivity bonuses. These employment agreements caused 21,730 Medicare and Medicaid claims to be submitted improperly, resulting in over $39 million in overpayments from the government to Tuomey.

Dr. Drakeford filed the lawsuit against Tuomey after the contract negotiations with the hospital failed in 2005; the Department of Justice intervened in 2007 and brought forward the suit against Tuomey. At the first trial, the jury found that Tuomey had violated the Stark Law but not the False Claims Act. The initial decision was appealed and a new trial ordered because of procedural errors. On retrial the jury found Tuomey guilty of violating the Stark Law and the False Claims Act. The U.S Court of Appeals in South Carolina upheld both charges against Tuomey and the civil penalties of $237 million.

When creating new physician reimbursement contracts, even hospitals acting in good faith can face liability under the False Claims Act. The false claims act is an important tool for the government in combating fraud in health care. Tuomey’s legal counsel likely had reviewed the employment agreements and believed them to be in compliance with federal law. Reimbursement contracts can inadvertently reward physicians for increases in patient volume. The illegality of these contracts is often only brought to the government’s attention through the efforts of whistleblowers like Dr. Michael Drakeford. Whistleblowers that suspect a hospital may be paying providers for increased patient volume, referred to as a kickback, should not hesitate to bring that information to legal counsel. Under the False Claims Act whistleblowers are entitled to as much as 30% percent of the total damages.