Tuomey, a nonprofit hospital in rural South Carolina, began losing revenue due to physician’s transfer of their outpatient surgeries, from the hospital, to private offices or ambulatory surgery centers. To stop this bleeding, Tuomey negotiated part-time employment contracts with nineteen physicians. Under the part-time employment contract, each physician agreed to perform outpatient services exclusively at the hospital assigning their right to bill third-party payers for their professional service to the hospital. Each physician was paid a guaranteed base salary adjusted annually based on the amount the physician collected from the services rendered during the previous year. However, the bulk of the physician’s compensation was a productivity bonus in the amount of 80 percent of his collections for that year. Physicians were also eligible for an incentive bonus of up to 7 percent of their earned productivity bonus.
Drakeford, an orthopedic surgeon, claimed that the arrangements were inconsistent with fair market value (FMV). Drakeford argued that the physicians were being paid more than total collections for their services which violated Stark.
To address Drakeford’s allegations, Tuomey hired Kevin McAnaney, former Chief of the Industry Guidance Branch of the U.S. Department of Health and Human Services Office of Counsel to the Inspector General, who was the author of a “’substantial portion’ of the regulations implementing Stark.” The case turns on McAnaney’s advice and Tuomey’s desire to forget it. McAnaney opined that the employment contract raised red flags under Stark and in opposition to the role he had been hired for, McAnaney affirmed Drakeford’s position by concluding that Tuomey would have ”serious difficulty convincing the government that the contracts did not compensate the physicians in excess of FMV.” Drakeford declined to enter into the contract and later, sued the hospital in a qui tam action creating this suit.
Stark prohibits a physician from making a referral to a hospital which he has a financial relationship for furnishing health services. The Court specifically found that the more procedures the physicians performed at Tuomey, the more facility fees Tuomey collected and the more compensation the physicians received in the form of increased base salaries and productivity bonuses. The CFO of Tuomey specifically avowed “that every time one of the nineteen physicians did a legitimate procedure on a Medicare patient at the hospital pursuant to the agreement the doctor got more money and the hospital got more money.” The Court rejected Tuomey’s argument finding that Tuomey could provide a productivity bonus for work personally performed by the physician, but could not vary the physician’s base salary based on the volume or value of referrals which was understood to be the policy by many due to commentary promulgated by Center for Medicare & Medicaid Service.
Second, the opinion laid precedent for the measure and constitutionality of damages in an FCA case premised on Stark by finding that the measure of damages is the total amount that Medicare paid for the designated health services performed pursuant to a prohibited referral.
Finally, the opinion sets limits on a client‘s ability to rely on advice of counsel as a defense to FCA claims. The findings with regard to Tuomey’s actions are the crux of the case. The Court determined that Tuomey hired an undisputed expert of intricacies of Stark, who advised “Tuomey in graphic detail of the thin legal ice on which it was treading.” The opinion discussed the plethora of evidence presented at the second trial demonstrating the culpability of Tuomey with regard to McAnaney’s unheeded advice including a board member’s concerns over McAnaney’s opinions, Drakeford’s letter to the Board summarizing McAnaney’s opinion and, Tuomey’s refusal to allow McAnaney’s preparation of a written opinion regarding the contracts and his subsequent termination. As a result, the judgment against Tuomey was not found to be in violation of the Excessive Fines Clause of the Eighth Amendment in light of the degree of Tuomey’s reprehensible conduct. Tuomey was found to have knowingly violated FCA, even though other counsel advised Tuomey that its contract satisfied Stark.
What is implicit in the determination of the Tuomey case is that if an acknowledged expert is hired, his advice must be heeded. The jury and the Court determined Tuomey’s attempt to ignore and distance itself of the advice of its undisputed expert created its culpability.
Jennifer Nicaud is a member of the Litigation and Health Law Practice Groups at the Gulfport, Mississippi office of Balch & Bingham LLP. Ms. Nicaud has over 25 years of litigation experience and is licensed in Louisiana, Florida and Mississippi.
