5 Key Thoughts on the Tuomey Healthcare Case
A federal judge has ordered Sumter, S.C.-based Tuomey Healthcare System to pay approximately $237 million in damages after a federal jury found the system violated Stark Law and the False Claims Act by submitting $39 million in false claims to Medicare from January 2005 through November 2006.
Here are five key takeaways from this case for other hospitals, health systems and physicians. For further reading, here is an overview of the Tuomey case, as well.
1. When a strategy doesn't smell correct, notwithstanding how many legal and valuation firms weigh in, leadership ought strongly consider not pursuing the strategy. If a system needs multiple legal and valuation firms to support or back up a program, that in and of itself may be reason for pause. Each of a hospitals' relationships with physicians does need legal and valuation support. But if you find yourself needing to seek multiple opinions for a relationship, that may be good reason for concern. The jury for the Tuomey case concluded that even though the health system relied upon an expert assessment of the fair market value of the employment agreement, when other factors were considered, the arrangements were in essence payment for referrals.
When it was entering into the part-time employment contracts with the 19 specialists, Tuomey had obtained a third-party valuation in the form of a three-page opinion letter. The valuation described the transactions and concluded the compensation was consistent with FMV, but included little supporting documentation or explanation of the methodology behind the valuation opinion. Furthermore, in both trials, the government presented testimony and exhibits demonstrating that Tuomey also disregarded adverse legal and expert opinions when entering into the contracts.
CMS recommends the use of multiple, objective, independent published surveys for evaluating the FMV of physician compensation. Commonly used surveys to determine the FMV of a physician's compensation are the (i) Medical Group Management Association compensation survey, (ii) the Group Practice Compensation Trends survey published by the American Medical Group Association and (iii) the Physician Marketplace Statistics survey published by the American Medical Association.
2. The Tuomey program appears to be very different than traditional physician employment arrangements. This verdict by no means should be read as condemning to true employment agreements between hospitals and physicians. But, if there is a sense that an entity is really buying cases per a very short-term, part-time employment arrangement, one ought be cautious.
To comply with Stark Law and the Anti-Kickback Statute, compensation paid to physicians by hospitals must be generally consistent with FMV and not take into consideration the value or volume of referrals an employed physician may bring to the hospital or the hospital's affiliates. Specifically, a hospital may not base any part of a physician's compensation on the expected value of business the physician will refer to the hospital.
3. These cases often settle due to the sheer magnitude of potential damages. In these cases, all individually submitted claims are counted, and there is per claim liability and trebling of damages. The False Claims Act permits the government to seek up to three times the amount of damages, plus up to $11,000 per claim. This would amount to roughly $117 million plus another $239 million, respectively, totaling a potential judgment of $357 million. The government requested $237 million, which Judge Seymour upheld when she issued the penalty this week.
Tuomey officials said the system is also continuing to pursue a post-judgment settlement with the government. It remains to be seen whether the judge in the Tuomey case will factor the effects such a substantial judgment would have on Tuomey patients and the community.
In Februrary, in a separate case, a judge approved Raleigh, N.C.-based WakeMed Health & Hospitals' deferred prosecution deal with federal prosecutors, reasoning that a conviction could harm patients. WakeMed had allegedly overbilled Medicare by millions of dollars, billing the program for overnight stays when patients had been released the same day.
Under the deferred prosecution deal deal, federal prosecutors will provide the court with all reports tracking WakeMed's compliance with an $8 million settlement. Prosecutors also agreed to defer prosecution against WakeMed for two years. If WakeMed had been convicted of a felony, it would have become ineligible for Medicare and Medicaid and would likely have shut down.
4. All systems should view this as a reminder to again review their physician contracts for legal compliance. They also ought to similarly review their compliance program as a whole. Organizations should ensure all compensation contracts with physicians are in writing, signed by all parties and do not take into consideration the volume or value of referrals. Internal documentation should be retained to support the FMV nature of the compensation, and the documentation should include the manner in which the compensation was determined, the surveys utilized and whether an opinion from a third party valuation firm was sought.
Furthermore, all physician compensation arrangements should include a clear job description outlining the specific duties and services to be performed. Hospitals should also maintain an analysis and record of why a physician position is reasonably needed by the hospital. It is also important that each compensation relationship is periodically reviewed on an on-going basis to ensure the compensation is still consistent with FMV and complies with applicable law.
5. These kinds of verdicts lead to the sale of the hospital and the inability for such institutions to remain independent. Tuomey is a community hospital system anchored by a 266-bed flagship hospital. Damages in the hundreds of millions of dollars will have significant financial repercussions for the hospital. This week, after the judge issued an order for $237 million in fines, Standard & Poor's Ratings Services downgraded Tuomey's credit rating by two notches — from "BB" to "CCC" connoting its view that Tuomey is currently vulnerable to nonpayment.
The case has already affected the professional careers of two of Tuomey's top executives, who stepped down last week. President and CEO Jay Cox and Executive Vice President and COO Gregg Martin negotiated a separation agreement with the board. Mr. Cox, who has served as president and CEO since 1990, held his role when the hospital negotiated the contracts with the 19 specialists.
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