“We are pleased with the decision from the 4th Circuit appeals court, and at this point we are reviewing everything with our attorneys and deciding what are our best steps to take at this point,” Tuomey spokeswoman Brenda Chase said. “We are very pleased.”
However, a 2-1 majority of the 4th Circuit went on to interpret two specific aspects of the Stark regulations that legal experts say gives an edge to government lawyers in a future trial. (A third judge dissented from the interpretations, saying the two questions should be put to the new jury.)
At issue in the case is a set of 19 decade-long contracts Tuomey executives signed with physicians in 2005 and 2006 that paid the doctors a base salary based on the hospital's net cash collections from outpatient procedures they performed, plus a “productivity bonus” and an “incentive bonus” for outpatient work. Part of the hospital's facility fee from Medicare went to the doctors as payment, according to the 4th Circuit opinion.
A surgeon who failed to reach a contract with the hospital filed a whistle-blower lawsuit under the False Claims Act, which the government joined, accusing Tuomey of violating the section of the Stark law that prohibits hospitals from giving physicians improper financial incentives to refer patients for treatment.
Although many types of financial arrangements between hospitals and physicians are legal, the Stark law has technical rules for governing when potential liability is triggered and when exceptions to those rules apply.
Donald Romano, a lawyer with Foley & Lardner and a former director of CMS' Division of Technical Payment Policy, said the two-judge majority's interpretation essentially decides the first question of whether potential Stark liability had been triggered (it was, the opinion says) and directs the lower court to ask jurors to consider only whether the hospital qualified for an exemption to the liability.
Romano said hospital officials are going to have to ask whether the “writing is on the wall” given the 4th Circuit's framing of the question and the fact that the original jury in 2010 found the hospital did unintentionally violate the Stark law with its outpatient service payment contracts.
“The stakes are high, but much higher for the hospital than the government. If the government loses this case, it can write it off as a jury coming to a bad verdict. So far it has not gotten any bad law out of the court of appeals,” Romano said. “For the hospital, this is a bet-the-company type of deal. This is a life or death situation for the hospital.”
The $44 million judgment—an all-time high for a Stark jury award, said S. Craig Holden, a shareholder in Ober Kaler—was only a fraction of what the government sought from the hospital.
If a jury found that executives had intentionally violated physician-referral laws, it could award punitive damages under the False Claims Act, which could amount to $300 million or more.
Tuomey, a private not-for-profit corporation, generated a $7.2 million profit on $206 million in revenue for the year ended Sept. 30, 2010, according to its most recent tax forms.
“If I was representing Tuomey, what I would be saying is, ‘Let's come up with a reasonable settlement for the Stark violation,'” said Robert Wade, a Mishawaka, Ind.-based partner with Krieg DeVault. “My educated guess would be that the settlement is going to be somewhere south of $45 million. I don't think Tuomey is going to get out of this without paying something. The government is invested in this.”