Updated at 5:09 p.m. to clarify Tuomey Healthcare's relationship to Palmetto Health.
Tuomey Healthcare of Sumter has sued Nexsen Pruet for legal malpractice, accusing the firm of providing “misleading and reckless” advice that led to the hospital losing a multi-million-dollar “whistleblower” lawsuit over fraudulent Medicare claims.
The lawsuit, filed Tuesday in a state court in Sumter County, seeks $117 million in damages. Tuomey, a not-for-profit operator of a 301-bed hospital, was ordered in 2013 by a federal judge to pay the government $237.4 million in damages after the court found that the health care system’s doctors had collected $39.3 million in fraudulent Medicare claims between 2005 and 2009.
Two key executives resigned and Nexsen Pruet withdrew as the system’s legal representative following the court ruling.
The lawsuit was filed by three former board members of the Tuomey Healthcare System when it was a stand alone entity. Toumey Healthcare System is not affiliated with Palmetto Health, which later acquired the Sumter hospital in 2015.
“Like other supporters of the hospital, we were very disappointed with results of the almost decade-long dispute with the federal government,” said Nexsen Pruet chairman Leighton Lord, adding that the firm had represented Tuomey for more than 20 years. “We stood by Tuomey through that dispute and we are disappointed in, and disagree with, the recently filed lawsuit. Since that suit is pending, this is all we are able to say at this time.”
Around the year 2000, according to the suit, doctors in the Sumter area began to perform outpatient procedures in their offices or area surgery centers instead of at Tuomey, leading to declining revenues for the hospital. Tuomey then sought the advice of Nexsen Pruet attorneys “on how to address the growing challenges of recruiting and retaining physicians.”
The firm’s attorneys “researched, designed, drafted and recommended” Tuomey enter into part-time employment contracts with physicians offering financial incentives for them to perform all out-patient surgeries covered by Medicare at hospital facilities, the suit said.
The attorneys advised Tuomey that the contracts complied with federal law and that there was “minimal risk that a court or regulator would find that the contracts” would be illegal, the suit said. If the agreements were illegal “Tuomey would simply be required to unwind the contracts without suffering any financial penalty,” attorneys told hospital officials, according to the lawsuit.
The suit described the contracts as high-risk, “one of a kind,” “never been tested” physician financial arrangements.
Doctors who signed the contracts would receive total compensation that averaged 20% more than the hospital would collect from the physicians’ services, the suit said. The physicians’ compensation was based on the number of procedures performed, “which in turn directly correlated with the amount of fees the hospital could charge Medicare,” the suit said. The contracts also obligated doctors to use the hospital’s facilities for 10 years.
Between January 2005 to July 2007, 19 physicians signed the contracts with Tuomey.
However, one physician, Michael Drakeford, questioned the contracts, refused to sign one, contacted federal authorities and filed a “whistleblower” lawsuit against the hospital.
An expert in the field of the federal law governing the contracts was hired by Drakeford and Tuomey, the suit said.
The expert, Kevin McAnaney, told the hospital and Nexsen Pruet attorneys that the contracts were risky and that the federal government would conclude that Tuomey was paying the doctors a fee above fair market value for patient referrals, the suit said.
McAnaney, according to the suit, added that the government had successfully prosecuted similar cases where “physicians were being paid more than collections and this was very dangerous for Tuomey.”
Tuomey, which according to a recent Fitch Ratings report generates approximately $200 million in annual operating revenues, settled in October with the U.S. government for $72.4 million. Tuomey also agreed to pay $2.5 million to counsel for Drakeford as reimbursement of attorneys’ fees and expenses, the suit said.
Tuomey had previously posted $40 million in collateral for the judgement and paid the $32 million balance after selling most of its assets to Palmetto Health.
Tuomey also agreed in the settlement to enter into a five-year Corporate Integrity Agreement with the government that provides for a separate review of physician activity in the Sumter hospital. The agreement does not extend to the rest of Palmetto Health’s operations.
Columbia attorneys James Griffin and Margaret Fox are representing Tuomey in the lawsuit against Nexsen Pruet.