Massive Stark Law Penalties Lead to Credit Downgrade for Tuomey

Standard & Poor's Ratings Services has downgraded the credit rating of Tuomey Healthcare System in Sumter, S.C., by two notches — from "BB" to "CCC" — due to the major fines associated with the system's false claims lawsuit.

Earlier this week, a federal judge ordered Tuomey to pay $267.7 million in penalties after a jury said the health system and its physicians participated in a kickback scheme, submitting tens of thousands of false Medicare claims. However, that total was recently lowered to $237.4 million, more in line with what the government had requested under the False Claims Act, after officials corrected a clerical error.

S&P downgraded Tuomey's credit profile, and also revised the system's outlook to "developing" from "negative," because it appears likely the system will have to pay massive fines, even if there is an appeal or post-judgment settlement.

"Given the increasing likelihood that Tuomey may have to pay a sizable settlement and the related uncertainty surrounding the subsequent effects on Tuomey's financial profile, we believe a lower rating is warranted," Margaret McNamara, S&P credit analyst, said in a news release. "The 'CCC' rating connotes our view that Tuomey is currently vulnerable to nonpayment."

S&P analysts went on to say Tuomey's credit could be hit further if it files for bankruptcy or posts large financial losses. Tuomey could raise its credit rating if the legal judgment changed significantly or if system officials offered a sound resolution.

More Articles on Hospital Credit:
5 Hospitals Receive Credit Downgrades in Past Month
S&P: Tuomey Healthcare's False Claims Suit Could Decimate Finances
Moody's: Value-Based Care Paramount for Hospitals' Future Credit, Finances

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