After eight years of fierce legal confrontation with the federal government, board members at Tuomey Healthcare System in Sumter, S.C., lack a permanent CEO, owe on junk-status bonds and face the highest penalties levied against a community hospital in a case involving overpayments to doctors.
Small wonder, then, that virtually no other hospital in the country has litigated a whistle-blower lawsuit to a jury verdict over alleged violations of the Stark law and False Claims Act.
“Trying one of these cases is akin to a 'Hail Mary' pass,” said Houston-based Duane Morris attorney Michael Clark, the chair-elect to the American Bar Association's Health Law Section.
The Tuomey litigation—formally captioned Drakeford v. Tuomey in U.S. District Court in Columbia, S.C.—has played out to widespread bafflement among experts in the healthcare legal community who noted how much the 100-year-old, not-for-profit institution stood to lose if didn't pan out in the hospital's favor. Tuomey is the only hospital in Sumter.
Last week, U.S. District Judge Margaret Seymour granted federal prosecutors' request to levy $238 million in civil penalties against the hospital after a jury concluded in May that Tuomey executives had signed 19 illegal doctor-compensation agreements that tainted 21,730 Medicare claims. The damages exceed the hospital's entire yearly revenue stream of about $200 million.
Attorneys for Tuomey immediately filed notice of intent to appeal Seymour's decision to the 4th U.S. Circuit Court of Appeals. Standard and Poor's Ratings Services, though, downgraded $75 million in bonds backed by Tuomey to a 'CCC' rating, commonly considered junk status, because of risk of nonpayment.
A note from the ratings service said Tuomey still has the possibility of a favorable “change in legal status”—a reference to a potential post-verdict settlement. Prosecutors have been saying since May that they are open to a settlement, and last week Tuomey board Chairman John Brabham said the board is open to resolving the matter out of court. Prosecutors have not commented since Seymour's ruling.
Brabham's statement came one week after Jay Cox, president and CEO of Tuomey for the past 23 years, announced he would leave the system no later than Nov. 1. Chief Operating Officer Gregg Martin also is leaving the organization by the end of the year.
At trial, prosecutors used statements from both men as evidence that they purportedly knew the illegal doctor-compensation deals would base payments on the volume or value of Medicare services referred to the hospital—which is considered an illegal inducement under the Stark law, triggering the triple-damages penalties available under the False Claims Act.
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