United States Ex Rel. Drakeford v. Tuomey
2015 U.S. App. LEXIS 11460
| 4th Cir. | 2015Background
- Tuomey Healthcare, a nonprofit rural hospital, entered ten‑year part‑time employment contracts with 19 physicians that required outpatient surgeries to be performed at the hospital and tied physician pay (base salary adjustments and an 80% productivity bonus) to their collections.
- Dr. Michael Drakeford, who declined to sign, became a qui tam relator under the False Claims Act (FCA), alleging Tuomey’s contracts violated the Stark Law and thus generated false Medicare claims; the government intervened.
- At the first trial the district court excluded testimony from Kevin McAnaney (an expert/attorney engaged jointly by the parties) and excerpts of Tuomey executive Gregg Martin’s deposition; the jury found a Stark Law violation but rejected the FCA claim.
- The district court granted the government a new trial, citing erroneous exclusion of evidence (it relied on the Martin exclusion); this Court affirmed the grant of a new trial but on the alternate ground that excluding McAnaney’s testimony prejudiced the government.
- At the second trial McAnaney testified, the jury found Tuomey knowingly submitted 21,730 false Medicare claims, and the district court entered judgment totaling $237,454,195 (trebled damages plus civil penalties).
- Tuomey appealed challenging (a) the new‑trial grant, (b) the sufficiency of the evidence and jury instructions, and (c) the damages and constitutionality of the award; the Fourth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Drakeford/Gov’t) | Defendant's Argument (Tuomey) | Held |
|---|---|---|---|
| Whether district court erred in granting a new trial after excluding evidence | Exclusion of McAnaney and Martin prejudiced government’s ability to prove Tuomey’s scienter; new trial warranted | Exclusions were proper (Rule 408/privilege/403) and any error harmless | affirmed new trial; Court finds exclusion of McAnaney was prejudicial and justifies new trial |
| Whether evidence was sufficient to sustain Stark Law violation | Contracts and implementation tied physician pay to collections (facility fees), so compensation varied with volume/value of referrals | Contracts did not, on their face, take into account referrals; alternative interpretations and reliance on counsel negate knowing violation | Jury verdict sustained: reasonable jury could find compensation varied with referrals and thus violated Stark Law |
| Whether Tuomey knowingly submitted false claims (FCA scienter) | Government: McAnaney’s warnings and Tuomey’s conduct support deliberate ignorance/reckless disregard | Tuomey: reasonably relied on counsel and procured favorable opinions; advice‑of‑counsel defense bars FCA liability | Rejected Tuomey’s counsel defense; jury reasonably could find Tuomey knowingly submitted false claims |
| Proper measure and constitutionality of damages/penalties | Each UB‑92/04 claim for prohibited facility fees is a separate false claim; Stark violation makes payments unlawful so the government’s loss equals payments made; statutory treble damages and per‑claim penalties apply and are not unconstitutional here | Damages should be limited (e.g., cost reports only) or reduced because services had value; award violates Due Process/Eighth Amendment as excessive | Damages/civil penalties upheld: each UB form can be a distinct claim, actual damages equal amounts paid, trebling and statutory penalties applied; award not grossly disproportionate |
Key Cases Cited
- United States ex rel. Drakeford v. Tuomey Healthcare Sys., 675 F.3d 394 (4th Cir. 2012) (prior appeal addressing Stark Law issues and remand scope)
- United States v. Butler, 211 F.3d 826 (4th Cir. 2000) (elements of advice‑of‑counsel defense)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (U.S. 2003) (guideposts for reviewing punitive damages under Due Process)
- United States v. Mackby, 339 F.3d 1013 (9th Cir. 2003) (treble damages and punitive/compensatory distinctions in FCA context)
- United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., 741 F.3d 390 (4th Cir. 2013) (FCA penalties in large‑scale claim contexts)