Kusserow on Compliance: Breaking News: Decade long saga of the Tuomey Case comes to a close

On July 2, 2015, the U.S. Court of Appeals for the 4th Circuit published a 67-page decision in the decade-long Tuomey Healthcare System case. The original case arose from a qui tam (whistleblower suit) brought by Michael L. Drakeford, M.D., where it was alleged that the Sumter, South Carolina hospital violated the False Claims Act (FCA) (31 U.S.C. § 3729) by submitting tens of thousands of illegal bills to Medicare, arising from corrupt arrangements with 19 specialty doctors that were improperly compensated in violation of the Stark Laws. After losing in two jury trials, Tuomey appealed to the District of South Carolina, which ruled against it in favor of the United States and ordered Tuomey to pay $39,313,065, as well as $237,454,195 on the False Claims Act claims. The total was calculated as the minimum of treble of the $39 million plus the minimum of $5,500 per claim. Tuomey’s appeal to the Court of Appeals resulted in its affirming the U.S. government’s position on all significant issues.

Tuomey’s argument that it only relied upon the advice of its attorneys in its physician compensation arrangements was not accepted by the court. The court noted that one of the lawyers in question, Kevin McAnaney, a recognized expert on Stark Laws, raised concerns about the proposed contracts without even having seen the compensation value determinations. This evidence was seen as critical to its ability to satisfy its burden to prove that Tuomey acted with the requisite intent under the FCA. The court found that the failure to have taken that opinion more seriously was reckless disregard and that a reasonable jury could indeed be troubled by Tuomey’s seeming inaction in the face of warnings about the questionable nature of the proposed agreements. The court observed that “the jury evidently rejected Tuomey’s advice of counsel defense” and found no cause to upset the jury’s reasoned verdict that Tuomey violated the FCA.

Tuomey made several challenges to the amount of judgment entered against it, including: (1) that the district court improperly calculated the civil penalty; (2) that the district court used the incorrect measure of actual damages; and (3) that the award was unconstitutional under the Fifth and Eighth Amendments.

The court noted that a defendant found liable under the FCA must pay the government a civil penalty of not less than $5,500 and not more than $11,000 “plus 3 times the amount of damages which the government sustains because of that person.” In this case, the jury found that Tuomey had submitted 21,730 false claims, for which it awarded actual damages of $39,313,065, which the district court trebled. The district court then added a civil penalty of $119,515,000 to that sum, which it calculated by multiplying the number of false claims by the $5,500 statutory minimum penalty. The court rejected Tuomey’s arguments challenging the calculation and concluded that the jury had sufficient evidence to identify the prohibited referrals and, therefore, the amount of damages and penalties.

Tuomey argued the measure of actual damages and the true measure is not the sum total of all claims the government paid (as the court instructed the jury), but rather the difference (if any) between the true value of the services provided by Tuomey and what the government actually paid, since “there was no evidence that the government did not get what it paid for[,] . . . there were no actual damages under the FCA.” The court rejected those arguments noting that the Stark Law expresses Congress’s judgment that all services provided in violation of that law are medically unnecessary. By reimbursing Tuomey for services that it was legally prohibited from paying, the government has suffered injury equivalent to the full amount of the payments; and that in this case, the damage from the false statement came from the payment to an entity that was not entitled to any payment at all. 

The court disagreed that the damages and civil penalties were unconstitutional under the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth Amendment, citing the Supreme Court position that the treble damages provision of the statute includes a compensatory aspect, in that it accounts for the fact that some amount of money beyond actual damages is “necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.”

The American Hospital Association and the South Carolina Hospital Association had filed briefs as Amici Supporting Appellant (Tuomey). For more information regarding the details, background, issues, and lessons learned from this case can be found in past blog articles on this case.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

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Copyright © 2015 Strategic Management Services, LLC. Published with permission.