In the ongoing saga of U.S. ex. rel. Drakeford v. Tuomey Healthcare System, Inc., on May 8, 2013, a South Carolina jury found that Tuomey violated the Stark Law and the False Claims Act. The jury determined that Tuomey submitted over 21,000 improper claims, totaling $39 million. When penalties and treble damages of up to $11,000 per claim are included, Tuomey could be facing a maximum judgment of $357 million. The verdict was issued in a retrial ordered by the United States Court of Appeal for the Fourth Circuit in U.S. ex. rel. Drakeford v. Tuomey Healthcare System, Inc., 675 F.3d 394 (4th Cir. 2012). In 2005 and 2006, Tuomey entered into compensation agreements with specialists on its medical staff to prevent them from performing outpatient services at facilities not owned by Tuomey Hospital. The agreements required the specialists to perform outpatient procedures at Tuomey Hospital. Tuomey was responsible for billing and collecting both the professional and technical components of the procedures performed. Tuomey paid the physicians a base salary that fluctuated with Tuomey’s net cash collections for the outpatient procedures. In addition, the physicians received a productivity bonus equal to a percentage of net collections and were eligible for an incentive bonus that was based on a percentage of the productivity bonus. The jury found that the compensation structure violated the Stark Law because the compensation took into account the anticipated referrals from the specialists to the Tuomey outpatient facilities by basing physician pay on not only the professional component of the services, but also the technical component. In its 2012 opinion, the Fourth Circuit held that if a hospital provides fixed compensation to a physician that is not based solely on the value of the services the physician is to perform, but also takes into account additional revenue the hospital anticipates will flow from the physician’s referrals, that compensation takes into account the volume or value of such referrals. Post-trial motions and hearings will occur over the next months, with a major issue being the total amount that Tuomey must pay to the government. If the government seeks the maximum penalty of $357 million, the future of the hospital could be in jeopardy. In the meantime, hospitals should review their compensation arrangements to be sure the amounts paid to physicians represent only the professional services provided by the physicians and do not include anticipated referrals to the hospital. For more information on the case, please see the Akerman Practice Update, The High Cost of Paying Physicians for Referrals: Tuomey Healthcare System Faces Penalties of up to $357 Million.
