Breaking News: South Carolina Hospital Found Guilty of Submitting More Than $39 Million in False Medicare Claims

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On the evening of May 8, 2013, a federal jury found Tuomey Healthcare System guilty of collecting millions of dollars in false Medicare claims.

It is a violation of the Stark Law if a hospital contracts with outside physicians to provide surgery exclusively in its facilities and pays them a bonus for productivity. Tuomey Healthcare System (Tuomey) in Sumter, South Carolina recently went to trial over this issue. After a four-week do-over trial, a jury concluded on the afternoon of May 8, 2013 that Tuomey violated the False Claims Act by submitting tens of thousands of illegal bills to Medicare worth $39 million. The jury found that Tuomey improperly compensated 19 specialty doctors whom hospital executives allegedly feared would divert lucrative patients to other hospitals or doctors’ offices. Jurors found that Tuomey submitted a total of 21,730 Medicare claims that were tainted by illegal compensation arrangements. The hospital’s ultimate financial penalty is not yet decided. Federal law requires repayment of all of the money paid under illegal Medicare claims, and the False Claims Act allows the government to try to reclaim up to triple the amount of total damages, plus as much as $11,000 per claim. The Court will now hear arguments and each side will submit motions interpreting what it thinks are the proper amount of damages. The Court will then rule on those motions and announce a specific penalty sometime in the future.

This was actually the second trial on the charges. In 2010, a jury that considered largely the same evidence found that the hospital violated the Stark law, but not the False Claims Act. The trial judge imposed a $45 million penalty on the hospital, but disputes over how the judge interpreted the split finding in the initial trial led the 4th Circuit Court of Appeals to invalidate the ruling and order the retrial that concluded May 8, 2013.

The Stark Law (42 U.S.C. sec. 1395nn), passed in 1989, governs physician self-referral for Medicare and Medicaid patients. The False Claims Act (31 U.S.C. secs. 3729 et seq.) is a federal law that enables whistleblowers to file legal actions against federal contractors who they claim defrauded the government. The Tuomey case began in 2005 with a lawsuit alleging hospital misconduct brought by orthopedic surgeon Michael K. Drakeford, MD, after unsuccessful contract negotiations with the health system.

In 2003, when physicians at a gastroenterology firm told Tuomey they wanted to perform outpatient surgical procedures in their own offices rather than at the hospital, Tuomey offered them a deal. The 301-bed system persuaded them and 18 other specialist physicians to sign a 10-year contract to do surgeries only at its hospital facilities. In return, Tuomey agreed to pay an annual base salary for each physician as well as “productivity equal to 80 percent of the net collections . . . Moreover, each physician was eligible for an incentive bonus that could total up to 7 percent of the productivity bonus.” Physicians were barred from competing with Tuomey for 2 years after the contract expired.

Richard P. Kusserow was the Department of Health and Human Services Inspector General for over eleven years. He is the author of nine books related to compliance. He is the founder and CEO of Strategic Management, a firm that has been providing specialized compliance advisory services since 1992 to 2,000 clients. Richard now contributes content to Wolters Kluwer health law blog to assist the industry in their understanding of compliance from the perspective of a former Inspector General. For more posts by Richards, please see Kusserow’s Corner.

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Copyright © 2013 Strategic Management Services, LLC.  Published with permission.