Appeals court overturns order for S.C. hospital to pay $45 million in Stark case

A federal appeals court overturned a district judge's unusual 2010 order for Tuomey Healthcare System to pay more than $45 million for alleged Stark law violations.

The 4th U.S. Circuit Court of Appeals concluded that the outcome denied the Sumter, S.C., hospital its constitutional right to a jury trial.

In False Claims Act complaints filed in U.S. District Court in Columbia, S.C., a whistle-blower and the U.S. Justice Department alleged that Tuomey entered contracts with specialists that illegally rewarded the physicians for the amount of money they generated for Tuomey.

After a trial in March 2010, a jury concluded that Tuomey did not violate the False Claims Act but did violate the Stark restrictions on physician self-referral.

The judge then set aside the verdict, ordered a new trial on the False Claims Act matter and, based on an interrogatory to the jury regarding the Stark allegations, ordered Tuomey to pay $44.9 million, plus interest, on the premise that the government was at least due the amount Medicare paid for services performed under the targeted contracts.

The contracts at issue, according to a description in the 4th Circuit opinion, called for the specialists to perform all of their outpatient procedures at Tuomey Hospital or its other facilities, and for Tuomey to pay the physicians salaries and bonuses based on the net collections from those procedures.

The opinion of the 4th Circuit's three-judge panel goes on to conclude that the facility fees generated by the physicians' services constitute referrals under the Stark law and that the law does prohibit compensation based on volume or value of anticipated referrals.

“Thus, it is for the jury to determine whether the contracts violated the fair market value standard by taking into account anticipated referrals in computing the physicians' compensation,” the opinion states.

Dan Mulholland, a senior partner in Horty, Springer & Mattern representing Tuomey in the case, said in an e-mail that the statements on the Stark issues “are in no way adverse to Tuomey's position.”

“We're very pleased with the 4th Circuit's decision. which set aside a judgment that should have never been entered in the first place,” Mulholland said.