976 F. Supp. 2d 776
D.S.C.2013Background
- Tuomey (hospital) recruited 19 specialist physicians into ten-year employment contracts that required outpatient procedures at Tuomey and reassigned third-party payor benefits; compensation included base salary plus an 80% "productivity" bonus and possible incentive, tied to net collections.
- Government alleged these contracts created prohibited financial relationships under the Stark Law, causing Tuomey to submit 21,730 Medicare/Medicaid claims for facility fees that were non-payable and thus false under the False Claims Act (FCA).
- First trial: jury found Stark violation but not FCA; judge granted new trial on FCA and entered judgment on state equitable claims; Fourth Circuit vacated that judgment and remanded for jury determination on the common Stark fact issues.
- Second trial (2013) jury found Tuomey violated the Stark Law and the FCA, identifying 21,730 false claims totaling $39,313,065 in improper payments.
- District court denied Tuomey’s post-trial Rule 50(b)/59 motions (challenging Stark applicability, proof of referrals/claims, scienter/advice-of-counsel, and damages) and entered FCA judgment: civil penalties ($5,500 per claim) plus treble damages, for a total of $237,454,195 plus interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether physician contracts created a Stark financial relationship (varied with volume/value of referrals) | Contracts paid aggregate compensation that increased with procedures/referrals; therefore they took into account volume/value and were prohibited | Compensation merely reflected collections for personally performed professional services and historical data; thus did not take into account referrals and fell within the indirect compensation exception | Jury could reasonably find compensation varied with referrals; court denied JMOL and new trial on this issue |
| Whether Government proved referrals/false claims (proof of referring physician vs. attending on claim forms) | Evidence supported that attending/operating physicians could be referring physicians under Stark and expert calculations reasonably identified 21,730 payable facility claims submitted in violation | Hospital billing data did not identify referring physicians; expert calculations speculative and unreliable | Court found it was a jury question; jury verdict on number/value of false claims sustained |
| Whether Government proved scienter given Tuomey’s reliance on counsel | Government showed Tuomey disregarded warnings from expert McAnaney and proceeded; evidence permitted finding Tuomey knowingly caused false claims | Tuomey reasonably relied on multiple counsel opinions (advice-of-counsel) and lacked requisite scienter | Jury could reject advice-of-counsel defense after McAnaney’s critical opinion; court denied JMOL/new trial on scienter |
| Damages and penalties: appropriate measure and Eighth/Fifth Amendment challenges | FCA requires treble damages and statutory civil penalties per false claim; Stark bars payment so full refunds/trebling appropriate; penalties not grossly disproportionate | Tuomey argued government got the medical benefit (so no damages) and that penalties are excessive under Eighth and Due Process limits | Court held Stark prohibits payment so value of services does not mitigate damages; treble damages and penalties available and not grossly disproportionate; judgment entered |
Key Cases Cited
- United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675 F.3d 394 (4th Cir. 2012) (discussing Stark Law, remand for jury to decide common factual predicate)
- United States v. Rogan, 517 F.3d 449 (7th Cir. 2008) (requiring restitution of full amounts received on claims submitted in violation of law)
- United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F.3d 908 (4th Cir. 2003) (elements of an FCA claim)
- United States ex rel. Ketroser v. Mayo Foundation, 729 F.3d 825 (8th Cir. 2013) (reasonable interpretation of ambiguous Medicare regulation can negate scienter)
- Vermont Agency of Nat’l Res. v. United States ex rel. Stevens, 529 U.S. 765 (2000) (discussion of treble damages and punitive/compensatory purposes under FCA)
- Cook County v. United States ex rel. Chandler, 538 U.S. 119 (2003) (treble damages can serve remedial purposes and affect interpretation of "person")
- United States v. Bornstein, 423 U.S. 303 (1976) (treble damages may compensate government beyond direct fraud recovery)
- United States v. Bajakajian, 524 U.S. 321 (1998) (Eighth Amendment excessive fines analysis)
- State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003) (due process limits on punitive damages)