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Out-of-court settlement for Tuomey may be in the works following ruling against the system

By Joe Carlson
Posted: October 1, 2013 - 6:30 pm ET

(Story updated with comment at 5:30 p.m. CT.)

A federal judge ordered South Carolina's Tuomey Healthcare System to pay $277 million for violating laws that bar hospitals from paying doctors to refer Medicare patients for treatments.

On Tuesday, U.S. District Judge Margaret Seymour ruled against Tuomey (PDF) on virtually every post-trial issue and granted the government's request to impose $39.3 million in Stark penalties and another $237.5 million in False Claims Act fines. Seymour also rejected Tuomey's attempts in legal filings to nullify the verdict, though experts say a post-verdict out-of-court settlement could still be in the works.

The damage amount is believed to be the largest of its kind against a community hospital in U.S. history, involving more than 21,000 Medicare claims that a jury said violated the Stark law and the False Claims Act. The claims were worth a total of $39.3 million.

Shortly after the judge announced the $276.8 million penalty, Tuomey filed a motion with the federal court in Columbia, S.C., announcing its intent to immediately appeal to the 4th U.S. Circuit Court of Appeals on several points, including Seymour's ruling on the damages and her refusal to grant a new trial.

“Patient care, safety and the health of the Sumter community remain Tuomey's number one focus,” said Tuomey board Chairman John Brabham in an e-mailed statement. “Our employees do an incredible job of taking care of our patients, and that will not change.”

Lawyers for Tuomey, a 242-bed hospital in Sumter, S.C., have bitterly disputed the allegations from local whistleblower-physician Dr. Michael Drakeford. In a 2005 federal lawsuit, Drakeford said a series of 19 deal contracts with specialty physicians in the area violated the federal ban on compensating doctors based on the volume and value of patient-business they refer, a financial conflict banned by federal laws.

However, the hospital has twice lost its case in U.S. district court. A 2010 jury came to a $45 million split verdict that was overturned on appeal, but in May, a second jury found the hospital liable for wider violations than in the first trial, ruling that the hospital violated both the Stark law and the False Claims Act.

Since May, government and hospital lawyers have been filing back-and-forth motions arguing over the damages that the judge should impose.

The U.S. attorney's office in Raleigh, N.C., which brought the case, floated a post-verdict settlement of the case in legal filings months ago, and Brabham said in the statement Tuesday that the board “is and will continue to be open to settlement.”

“The parties can always settle until a final judgment has been entered in the final court of appeal,” said Stephen Sozio, a partner in healthcare defense with Jones Day in Cleveland. “The parties can always come to a resolution.”

The sum ordered by the judge eclipses the hospitals' finances. For the fiscal year ended Sept. 30, 2011, Tuomey posted total revenue of just $202 million—a disparity that may help the hospital reach a post-verdict settlement, lawyers say.

Another factor that may lean in favor of a settlement is a change in leadership. Tuomey officials announced last week that longtime President and CEO Jay Cox would leave the hospital, along with Chief Operating Officer Gregg Martin.

Julie Kass, a principal with Ober Kaler in Baltimore and a former attorney with HHS' inspector general's office, said such changes in leadership can help demonstrate the hospital is serious about compliance.

“It's going to depend on whether the government is willing to settle, really,” Kass said. “It's likely that the hospital is thinking about settlement, but I don't know what the appetite is on the government side. Not to mention that most of the civil litigation division is now on furlough” because of the government shutdown that began the same day the ruling was handed down.

Follow Joe Carlson on Twitter: @MHJCarlson

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