Healthcare Business News

Second Tuomey trial may decide hospital's future

By Joe Carlson
Posted: April 15, 2013 - 3:00 pm ET

South Carolina jurors may render a verdict that would put a nearby hospital out of business, but they won't know about that risk beforehand.

Jurors in Columbia, S.C., are scheduled to hear opening arguments Tuesday in a nationally watched lawsuit filed by a whistleblower-physician who accused Tuomey Healthcare System in Sumter of illegally paying doctors to refer lucrative specialty patients.

The trial will be the second go-around on the same facts in U.S. District Court for Tuomey, and experts say the stakes could not be higher for the 242-bed hospital.

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That's because in the first trial, in 2010, the district judge interpreted the jury's decision to be a $45 million penalty against the hospital—more than three times Tuomey's total profit for fiscal 2010-11.

But last May, the 4th U.S. Circuit Court of Appeals threw out that result (PDF), ruling that the judge misinterpreted what the jury decided and ordered a new trial. Tuomey officials have maintained all along that they did nothing wrong because they relied on direct CMS guidance when they wrote the part-time employment contracts at issue in the case.

Healthcare fraud and compliance attorney David Glaser, with Fredrikson & Byron in Minneapolis, said Tuomey's decision to go trial at all—let alone twice on the same allegations—makes the case rare.

“Very unusual. It's mostly the dollar amount,” he said. “If you lose this, you're betting the entity. And that is one of the problems with this. If the government is taking a position, and you disagree, you have to have absolute courage in your convictions. … You have to decide whether you are willing to bet your existence to prove them wrong.”

U.S. Senior Judge Margaret Seymour, who will preside over the trial, ruled that Tuomey will not be allowed to tell jurors that a verdict in favor of the government could financially harm the hospital or limit future healthcare choices in Sumter.

Tuomey allegedly paid 19 specialty physicians to continue referring patients to the hospital and treating them in the hospital, rather than siphoning well-paying cases to physicians' offices or doctor-owned hospitals, between 2003 and 2009. Dr. Michael Drakeford originally sued the hospital for Stark law and False Claims Act violations in 2005, and the Justice Department stepped in a plaintiff in 2007.

In the first trial, a government analyst concluded that the 19 doctors generated $44,888,651 in “improper” Medicare inpatient and outpatient reimbursements for Tuomey through a total of 25,973 claims for payment. Tuomey attorneys dispute those figures, saying both the dollar amount and number of claims ought to be much lower.

In the second trial, which is expected to last about three weeks, Tuomey will continue to maintain that it did nothing wrong. Tuomey did not respond to a request for comment Monday.

Hospital attorneys say audio recordings and meeting minutes from a decade ago show hospital executives and attorneys worked diligently to craft legal part-time employment contracts that obeyed the Stark law's 200-plus pages of regulations and preambles. But the Justice Department says the recordings (PDF) show hospital officials tried to subtly compensate the doctors in ways that both sides knew could be illegal.

Tuomey CEO Jay Cox—who remains the standalone hospital's top executive today—counseled a roomful of doctors about one of the part-time employment agreements during a Dec. 15, 2003, meeting: “I've got to keep saying, read between the lines. None of you all ever want to be sitting on the stand, and all we're trying to do is help everybody through this.”

If the hospital officials were wrong, and the agreements are judged illegal by a jury, the hospital could face at least $11,000 in fines for each Medicare claim connected to the doctors for which the hospital was paid. Potentially the hospital would not only have to repay any Medicare money it received for those claims, but also triple that cost as punishment and to compensate the government for investigative costs.

The American Hospital Association, an interest group representing about 5,000 hospitals, has argued that it's unfair to impose such “draconian” penalties when the exact calculations for Stark and False Claims Act cases are open to interpretation.

Further, the AHA wrote in a friend-of-the-court brief last year to the 4th Circuit judges that the case presented an important question that had never been resolved: whether hospitals can legally rely on the detailed CMS guidance for murky regulations like Stark.

“It is of particular concern to AHA and its members that the Department of Justice, in litigating this case, attempted to 'trump' the interpretation of the statute published by the agency charged with its implementation,” the AHA said in the brief (PDF). “The Department of Justice asserted that CMS's guidance was irrelevant because the meaning of the Stark Law statute and regulations are 'perfectly clear' and 'plain on their face.'”

James Griffin of Lewis Babcock and Griffin in Columbia, S.C., one of the law firms representing Tuomey, said the case is not expected to settle out of court. “I do not expect it to settle before tomorrow,” he said Monday afternoon. “I fully expect it to go to verdict.”

Follow Joe Carlson on Twitter: @MHJCarlson

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