The End at Last: Tuomey Settles for $72.4 Million

The Department of Justice recently announced that Tuomey Healthcare System has agreed to pay $72.4 million and enter into a five-year Corporate Integrity Agreement to finally resolve the long-running U.S. ex rel., Drakeford v. Tuomey Healthcare System, Inc. False Claims Act/Stark Law litigation, a case that has included two jury decisions and two appeals to the Fourth Circuit.

The settlement agreement resolves a $237 million judgment that was entered against the health system in 2013 and affirmed by the Fourth Circuit in July 2015. The final settlement amount was reduced from the $237 judgment to $72.4 million as a result of Tuomey’s acknowledged inability to pay the judgment in full, and the settlement agreement’s release of liability is expressly conditioned on the sale of substantially all of Tuomey’s assets to Palmetto Health, a multi-hospital system based in Columbia, South Carolina, before the end of the year.

The case against Tuomey was first filed by Michael K. Drakeford in 2005 and involved allegations that Tuomey had entered into part-time employment agreements with 19 specialist physicians that paid the physicians above fair market value compensation in exchange for the physicians agreeing to perform outpatient procedures only at Tuomey facilities. After a court-ordered judgment against Tuomey following a jury trial in 2010 was set aside by the Fourth Circuit, a second trial was held in 2013, ultimately resulting in the $237 judgment against Tuomey. Tuomey appealed the 2013 verdict and judgment arguing, in part, that the system had relied on advice of counsel when entering into its employment contracts with the 19 physicians. In its ruling upholding the verdict and judgment, the Fourth Circuit rejected Tuomey’s argument that it relied on advice of counsel, finding the record to be “replete with evidence indicating that Tuomey shopped for legal opinions approving the employment contracts, while ignoring negative assessments.”[1]   

This case provides an important reminder to hospitals and other providers about the need to properly structure financial relationships with physicians when they are first being implemented. Health care providers may want to consult with experienced counsel to ensure that their physician arrangements meet all of the requirements of the Stark law and other federal fraud and abuse laws. While obtaining a second opinion to help achieve this goal may be valid under certain circumstances, providers must be sure to avoid activities that give the appearance that they are forum-shopping for a positive opinion.

[1] United States ex rel. Drakeford v. Tuomey Healthcare Sys., 792 F.3d 364, 380 (4th. Cir. July 2, 2015).

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