The Department of Justice announced last week that it has resolved a $237 million judgement against Tuomey Healthcare System to 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 will be sold to Palmetto Health, a multi-hospital healthcare system.

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.

“This case reinforces the need for hospitals to abide by the requirements of the Stark Law,” said U.S. Attorney Thomas Walker of the Eastern District of North Carolina.

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. Tuomey also ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags,” according to the government.

In 2013, 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 U.S. Court of Appeals for the Fourth Circuit affirmed the judgment on July 2, 2015. 

The case, United States ex rel. Drakeford v. Tuomey Healthcare System, arose from a lawsuit filed in 2005 by Michael Drakeford, an orthopedic surgeon who was offered, but refused to sign, one of the illegal contracts. The lawsuit was filed under the whistleblower provision of the False Claims Act, which permit individuals who discover fraud to file claims on behalf of the government and to share in any recovery. The act allows the government to intervene and take over the action, as it did in this case. Drakeford will receive approximately $18.1 million under the settlement.

As part of the settlement, Tuomey will be required to retain an independent review organization to monitor any arrangements it makes with physicians or other sources of referrals for the duration of the five-year corporate integrity agreement.

Since 2009, the Justice Department has recovered a total of more than $25.3 billion through False Claims Act cases, with more than $16.1 billion of that amount recovered in cases involving fraud against federal health care programs.

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