Sumter, South Carolina hospital to pay $72.4 million, be sold to satisfy government’s judgment in whistleblower case

by Ben Vernia | October 16th, 2015

On October 16, the Department of Justice announced that Tuomey Healthcare System, of Sumter, South Carolina, has agreed to pay $72.4 million to settle a $237 million judgment from 2013 – affirmed by the Fourth Circuit in July 2015 – that the hospital billed for claims tainted by its violations of the Stark law. According to DOJ’s press release:

The Department of Justice announced today that it has resolved a $237 million judgment against Tuomey Healthcare System for illegally billing the Medicare program for services referred by physicians with whom the hospital had improper financial relationships.  Under the terms of the settlement agreement, the United States will receive $72.4 million and Tuomey, based in Sumter, South Carolina, will be sold to Palmetto Health, a multi-hospital healthcare system based in Columbia, South Carolina.

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The judgment against Tuomey related to violations of the Stark Law, a statute that prohibits hospitals from billing Medicare for certain services (including inpatient and outpatient hospital care) that have been referred by physicians with whom the hospital has an improper financial relationship.  The Stark Law includes exceptions for many common hospital-physician arrangements, but generally requires that any payments that a hospital makes to a referring physician be at fair market value for the physician’s actual services, and not take into account the volume or value of the physician’s referrals to the hospital.

The government argued in this case that Tuomey, fearing that it could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures.  The government argued that Tuomey ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags.”

On May 8, 2013, after a month-long trial, a South Carolina jury determined that the contracts violated the Stark Law.  The jury also concluded that Tuomey had filed more than 21,000 false claims with Medicare.  On Oct. 2, 2013, the trial court entered a judgment under the False Claims Act in favor of the United States for more than $237 million.  The United States Court of Appeals for the Fourth Circuit affirmed the judgment on July 2, 2015.

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According to DOJ’s press release, the relator, “an orthopedic surgeon who was offered, but refused to sign, one of the illegal contracts,” will receive $18.1 million (a 25% relator’s share – the highest available under the False Claims Act for a suit in which the United States has intervened).

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