Health Care Law Blog

Tuomey Health Loses Appeal, Facing $237 Million in Fees and Damages

A very long legal battle may be nearing its final chapter after the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million judgment against Tuomey Healthcare System in South Carolina. The judgment is an enormous sum for the regional health system and hospital, with even one of the Court of Appeals judges calling it a "death sentence." A three-judge panel heard the case at the Court of Appeals, so Tuomey could still seek reconsideration from all the judges of that Court or take the case to the U.S. Supreme Court. It may also opt to find a new partnership to keep the hospital afloat.

As a brief sketch, in 2003 Tuomey entered into agreements with a number of doctors. The agreements required the doctors to perform outpatient procedures at the hospital and included a compensation formula. A whistleblower brought suit, claiming the compensation structure violated the Stark Law—a federal law prohibiting a physician from referring patients to an institution where he or she has a financial interest.

Tuomey partially prevailed at trial, but a retrial was granted. After losing at the second trial, Tuomey appealed the ruling on a number of grounds. Some of the issues on appeal revolved around federal evidence rules and the calculation of damages, but the heart of the case is of particular relevance to healthcare providers.

The Court held that even though Tuomey sought out and relied upon expert opinions regarding the legality of the contracts, a reasonable jury could and did conclude that Tuomey knew it was submitting false claims. One of the experts from whom Tuomey sought advice had warned that the contracts raised significant "red flags." Tuomey did not share that expert's conclusions with other experts it retained, even though having that information might have changed their conclusions. Moreover, some experts had given hedged opinions, conceding that they did not have enough information about the compensation at issue to fully endorse the contracts. Tuomey relied on the more favorable opinions and went ahead with the plans anyway.

The lesson here should be a familiar one for those in the healthcare industry: seeking a second opinion can make all the difference. Tuomey entered into the illegal contracts because it was in dire financial straits and looking for a sustainable new model. It sought out advice but may have been too quick to accept the favorable answers. If your organization is looking at making changes, a comprehensive and multidisciplinary legal opinion is critical. That means not only getting the law right, but being prepared to listen and ask hard questions. Those questions might not yield welcome answers, but could mean avoiding even bigger repercussions down the road.

Categories: Compliance, News & Events, Physicians, Providers

Posted by: Gordon J. Kangas (Summer Associate)