Tuomey penalty falls to $238 million after error is discovered

A clerical error means Tuomey Healthcare System in South Carolina owes $39 million less than a federal judge ordered Tuesday. But the system still is on the hook for $238 million in damages for violating the federal False Claims Act. A settlement to resolve the case, meanwhile, may still be in the works.

Demonstrating the complexity of litigation involving the Stark law and False Claims Act, U.S. District Judge Margaret Seymour accidentally awarded government prosecutors higher damages than they had sought against the 242-bed hospital in Sumter, S.C. A court filing Tuesday morning from Assistant Attorney General Stuart Delery noted the error and asked Seymour to lower to amount, which she promptly did.

Tuomey was twice found liable by juries for paying doctors to refer patients for treatments at the hospital. The practice of setting doctor compensation based on the volume or value or Medicare services is considered an illegal financial inducement under the Stark law. Violating Stark opens up much larger liabilities under the False Claims Act, which makes it illegal to overbill federal programs including Medicare.

Prosecutors asked Seymour to award a total of $238 million for violations of the False Claims Act, including penalties that are triple the value of the 21,730 Medicare services that were provided through illegal doctor contracts.

However, prosecutors said they did not intend to ask for $39 million in additional penalties for violations of the Stark law that involved the same 21,730 services, Delery's motion (PDF) said.

Duane Morris attorney Michael Clark said the error in the damages award probably reflected the fact that few judges in the nation have any experience presiding over Stark-based False Claims Act trials. Although the filing of such cases is not uncommon, virtually all are resolved through settlements.

Healthcare lawyers said the tendency to settle and avoid the risk of trial will be even greater after seeing the massive damages leveled against Tuomey—a hospital that posted just over $200 million in total revenue in 2011, the most recent fiscal year for which public information was available.

On Monday, Tuomey board Chairman John Brabham said in an e-mailed statement that the hospital is still open to finding a post-verdict settlement in the case. Prosecutors wrote previously in court filings that they were open to settling, but that was before Seymour ruled on the damages. Government lawyers declined to comment on the matter this week.

It's not clear whether recent leadership changes at the hospital would augur in favor of a settlement. Tuomey officials announced last week that longtime President and CEO Jay Cox would leave the hospital, along with Chief Operating Officer Gregg Martin.

At trial, prosecutors presented evidence that both men made statements indicating that the 19 doctor-compensation contracts at issue were intended to pay the doctors based on the volume or value of Medicare patient services referred to Tuomey, Seymour's ruling said.

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