‘High-stakes’ de­ci­sion

Tuomey’s ad­verse ver­dict may have lin­ger­ing ef­fects

Modern Healthcare - - THE WEEK IN HEALTHCARE - Joe Carl­son

The next time whis­tle-blower at­tor­ney Joel An­drophy sits down for a set­tle­ment con­fer­ence with hos­pi­tal lawyers, he’ll have a po­tent new tool in his arse­nal: last week’s $39 mil­lion Stark law jury ver­dict against Tuomey Health­care Sys­tem in Sumter, S.C.

“I’d use this case in a heart­beat,” An­drophy said. “I’d send this law­suit to the de­fen­dant’s lawyers and say, you need to pay us, oth­er­wise you could be re­spon­si­ble for this amount of dam­ages. They then send that to the board of di­rec­tors. … It could go a long way to­ward en­cour­ag­ing peo­ple to set­tle.”

Tuomey, a stand-alone com­mu­nity hos­pi­tal with an­nual rev­enue of about $200 mil­lion, faces an eye­pop­ping max­i­mum penalty un­der the False Claims Act of up to $357 mil­lion be­cause of dam­age-mul­ti­pli­ers and per-claim fines un­der the fed­eral anti-fraud law.

Af­ter a four-week trial in U.S. Dis­trict Court in Columbia, S.C., a jury took half a day to rule that tens of thou­sands of Tuomey’s Medi­care claims for physi­cian ser­vices vi­o­lated the Stark law, which re­stricts fi­nan­cial ar­range­ments with re­fer­ring physi­cians, be­cause 19 physi­cians were re­ceiv­ing above­mar­ket com­pen­sa­tion. Based on the Stark vi­o­la­tion, the jury also found that the Medi­care bills vi­o­lated the False Claims Act, trig­ger­ing puni­tive math that could triple ac­tual dam­ages and im­pose as much as $11,000 in fines for each of the 21,730 false claims.

The po­ten­tial dam­ages are so se­vere the hos­pi­tal may be forced to rely on the Con­sti­tu­tion’s Eighth Amend­ment ban on ex­ces­sive fines to try to es­cape the full wrath of the U.S. Jus­tice Depart­ment in the long-run­ning case, sev­eral at­tor­neys said. U.S. Dis­trict Judge Mar­garet Sey­mour gave each side 14 days to sub­mit briefs be­fore she will de­cide Tuomey’s fi­nan­cial pun­ish­ment.

The sky-high po­ten­tial dam­ages help ex­plain why Tuomey may be the only hos­pi­tal to go all the way to a jury ver­dict on a case that al­leged only vi­o­la­tions of physi­cian-re­fer­ral laws. That nov­elty means the case is des­tined to be parsed by at­tor­neys across the coun­try for clues about how to han­dle fu­ture Stark and re­lated False Claims cases.

E. Bart Daniel, the for­mer South Carolina U.S. at­tor­ney who served as Tuomey’s lead de­fense coun­sel, said he be­lieves Tuomey is the only hos­pi­tal ever to take a case of its kind to ver­dict. And in fact, Tuomey did it twice: In 2010, the hos­pi­tal re­ceived a split ver­dict that was over­turned by the 4th U.S. Cir­cuit Court of Ap­peals and led to the re­trial that be­gan last month and con­cluded May 8.

Daniel said the ef­fect of this month’s ver­dict could be “dev­as­tat­ing,” de­spite the fact that no one ever dis­puted that the physi­cian ser­vices at is­sue were nec­es­sary and prop­erly pro­vided to pa­tients. “The govern­ment didn’t lose any­thing,” he said. “They got ev­ery ser­vice they paid for.”

An­drophy, who rep­re­sents the in­ter­ests of whis­tle-blow­ers who sue cor­po­ra­tions, said such rea­son­ing misses the point.

“They fraud­u­lently in­duced the govern­ment into do­ing some­thing,” he said of Tuomey’s pay­ments that were used to en­cour­age pa­tient re­fer­rals. “If you let them get away with min­i­mal dam­ages, you’re not go­ing to stop any­body be­cause ev­ery­one is go­ing to as­sume they can get away with it.”

It’s not clear whether hos­pi­tal of­fi­cials will wait un­til af­ter Sey­mour an­nounces the fi­nal penalty amount be­fore de­cid­ing whether to ap­peal the jury ver­dict.

Craig Holden, pres­i­dent and chief op­er­at­ing of­fi­cer of Bal­ti­more’s Ober Kaler law firm and a for­mer trial at­tor­ney with HHS, said he wasn’t sur­prised by the jury’s ver­dict.

Tuomey’s physi­cian-com­pen­sa­tion con­tracts, Holden said, were con­sid­ered “fairly ag­gres­sive” in the in­dus­try, and the jury’s first ver­dict—which re­sulted in a $45 mil­lion penalty against Tuomey, later over­turned—pre­saged what the sec­ond jury would de­cide.

“Ob­vi­ously, try­ing a case like this is very high-stakes poker, as this case in­di­cates,” he said. “And any­one de­fend­ing one of th­ese cases has to look at the to­tal po­ten­tial li­a­bil­ity that could re­sult when de­ter­min­ing whether a set­tle­ment is ap­pro­pri­ate.”

The law­suit started with a whis­tle-blower com­plaint filed in 2005 by Dr. Michael Drake­ford. Drake­ford, a sur­geon, de­clined one of the con­tracts at is­sue in the case af­ter get­ting le­gal ad­vice against it. Record­ings of hos­pi­tal meet­ings played at the trial il­lus­trated that hos­pi­tal of­fi­cials wanted to find ways to dis­cour­age physi­cians from re­fer­ring pa­tients to other hos­pi­tals or physi­cians’ of­fices— though they in­sisted their ar­range­ments were le­gal and ex­ten­sively vet­ted.

Sev­eral at­tor­neys said the Jus­tice Depart­ment took some risk try­ing the case, too, be­cause a loss would have had a chill­ing ef­fect on its Stark and False Claims Act en­force­ment. The re­sult, though, may have the op­po­site ef­fect.

“This case may em­bolden DOJ to take com­pli­cated Stark cases be­fore a jury,” said Don­ald Ro­mano, a lawyer with Fo­ley & Lard­ner and a for­mer at­tor­ney over­see­ing Stark law pol­icy at the CMS. “I think the ef­fect is that hos­pi­tals are go­ing to have to be more care­ful about fair­mar­ket value, and that non­com­pete agree­ments with re­fer­ring physi­cians af­ter Tuomey … are go­ing to be very risky.”

BRADEN BUNCH, THE ITEM

Tuomey Pres­i­dent and CEO Jay Cox, cen­ter, leaves the court­house with the hos­pi­tal’s le­gal team dur­ing a four-week trial in Columbia, S.C.

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