Kusserow on Compliance: Lessons learned from the Tuomey case

Now that the dust is settling on the decision in the Tuomey case, it is worth reflecting on what can be learned from it. It is rare for a hospital system to go to trial based on government charges relating to the Stark Law or Anti-Kickback Statute (AKS). Most health care providers reach a settlement with the Department of Justice (DOJ), rather than expend the resources to challenge the government in a trial and risk greater penalties in the case of a loss. The Tuomey Health Care System of Sumter, South Carolina was an exception. Its case went to trial twice and after being ruled against in both trials, made multiple appeals on the verdicts. Now, after a decade of fighting the government, the 4th Circuit Court of Appeals affirmed the verdicts of the lower court in favor of the government. The health care system is now saddled with over $230 million in False Claims Act (FCA) penalties. The many arguments raised by Tuomey in its appeal and answered by the court in its 67-page opinion provide a vast commentary and will likely prove to be a landmark case. Moreover, the decision provides a number of lessons that can be used by others who intend to or have entered into physician arrangements.

Tuomey physician agreements

Local physician specialty groups told Tuomey of their intention to perform surgical procedures in-office instead of at their hospital. In response, in an effort to avoid a reduction in surgical case volume, the hospital employed the 19 specialists as part-time employees. The contracts contained 18 parts and were complex. The basic terms included:

  • a 10-year agreement;
  • a requirement that the physicians perform outpatient procedures at Tuomey;
  • a provision stating that Tuomey would bill and collect from patients and other payers (e.g. Medicare/Medicaid);
  • a provision stating that physicians would be paid with base salaries related to net cash collections for procedures;
  • a provision stating that physicians would get productivity bonuses equal to 80 percent of the net collections;
  • an incentive bonus that could total up to 7 percent of the productivity bonus;
  • a prohibition from competing with Tuomey during the contract and two years after it expired;
  • a provision that covered physician health care;
  • terms that confirmed malpractice premiums for the physicians were paid;
  • physician cell phone reimbursement;
  • periodicals and journal reimbursement; and
  • Continuing Medical Education reimbursement.

Tuomey entered the employment arrangements after its board discussed the potential lost revenue from such physicians’ referrals to other less costly facilities in the community. Tuomey asserted it relied upon legal counsel advice in developing the contracts and argued that no false claims were ever submitted because the patients got needed care; claims met Medicare standards; and there was no evidence of overbilling, up-coding, or billing of unnecessary services. The record of the case during trial showed that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital, either in-office or at ambulatory surgery centers. The jury for the Tuomey case concluded that even though the health system relied upon legal and valuation expertise, when other factors were considered, the arrangements were in essence payment for referrals. The Tuomey third-party valuation consultant provided only a three-page opinion letter that included little supporting documentation or explanation of the methodology behind the valuation opinion. The government presented testimony and exhibits demonstrating that Tuomey also disregarded adverse legal and expert opinions when entering into the contracts.

Lessons learned

  • If you need multiple legal and consultants to support an agreement, reconsider the idea.
  • Relying upon advice of attorneys in physician arrangements is not an absolute protection.
  • If raising the “advice of counsel defense,” disclose all material facts to the attorneys.
  • All hospitals’ relationships with physicians need legal and expert consultant support.
  • Physician contracts should be subjected to periodic outside independent review.
  • Use independent outsider experts to periodically review the compliance program as a whole.
  • Fair market value (FMV) is not just a fair business deal, it also must meet specific requirements.
  • Physician compensation should not take into account volume/value of anticipated referrals.
  • The more complex the agreement, the more questions will be raised about it.
  • Negotiating at arm’s length will not provide protection from DOJ or whistleblower suits.
  • Not complying with a Stark exception or AKS safe harbor risks potential claims and liability.
  • Reasons for considering a financial arrangement are important.
  • Qui tam actions come from physicians, competitors, possible partners, and/or employees.
  • Taping meetings where sensitive information is discussed is not a good idea.
  • Contracts taking into account anticipated referrals implicate Stark’s volume/value standard.
  • Keep records/minutes related to arrangements; if concerns about arrangements remain, reconsider the deal.

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.