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U.S. slashes fine, settles false Medicare claims lawsuit with Tuomey

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Staff Report
colanews@scbiznews.com
Published Oct. 19, 2015

The Justice Department said it has resolved a $237 million judgment against Sumter-based Tuomey Healthcare System for illegally billing the Medicare program for services referred by physicians with whom the hospital had improper financial relationships.

Under the terms of the agreement, the United States will receive $72.4 million — including $40 million previously placed in escrow with the court by Tuomey. The settlement also clears the way for Tuomey to be acquired by Palmetto Health, a multi-hospital health care system based in Columbia.

The Justice Department said it has resolved a $237 million judgment against Sumter-based Tuomey Healthcare System for illegally billing the Medicare program for services referred by physicians with whom the hospital had improper financial relationships. (Photo/Provided) The Justice Department said it has resolved a $237 million judgment against Sumter-based Tuomey Healthcare System for illegally billing the Medicare program. (Photo/Provided) 
Palmetto Health “has agreed (subject to certain terms and conditions) to purchase said assets and to assume certain liabilities of Tuomey,” according to court documents. The deal is expected to close by Jan. 1.

The Palmetto Health-Tuomey affiliation will create the largest health care system in the state with more that 1,400 beds at four hospitals.

“We are elated to share this news,” Tuomey CEO and President Michelle Logan-Owens said Friday. “And while this partnership is incredible news for our community, I am moved beyond words with joy as I report that today we also signed a settlement with the Department of Justice. We are now able to close this chapter and look to the future.”

Palmetto Health has pledged to make Tuomey a better health provider through major capital improvements and increased services in this area, the government said.

The judgment against Tuomey stemmed from violations of the Stark Law, a statute that prohibits hospitals from billing Medicare for certain services, including inpatient and outpatient hospital care, that have been referred by physicians with whom the hospital has an improper financial relationship, the Justice Department said.

The Stark Law includes exceptions for many common hospital-physician arrangements, but generally requires that any payments that a hospital makes to a referring physician be at fair market value for the physician’s actual services, and not take into account the volume or value of the physician’s referrals to the hospital.

The government argued that Tuomey, fearing that it could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures. The government argued that Tuomey ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags.”

On May 8, 2013, after a month-long trial, a South Carolina jury determined that the contracts violated the Stark Law. The jury also concluded that between 2005 and 2009 Tuomey had submitted 21,730 false claims to Medicare with a total value of $39,313,065.

On Oct. 2, 2013, the district court trebled the actual damages and assessed an additional civil penalty under the False Claims Act in favor of the United States for a total of $237 million. The United States Court of Appeals for the Fourth Circuit affirmed the judgment on July 2.

Having to pay the $237 million fine would force it to file for bankruptcy, Tuomey officials said.

The case arose from a lawsuit filed on Oct. 4, 2005, by Michael K. Drakeford, an orthopedic surgeon who was offered, but refused to sign, one of the illegal contracts. The lawsuit was filed under whistleblower provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The act allows the government to intervene and take over the action, as it did in this case. Drakeford will receive approximately $18.1 million under the settlement.

“Secret sweetheart deals between hospitals and physicians, like the ones in this case, undermine patient confidence and drive up health care costs for everybody, including the Medicare program and its beneficiaries,” said Benjamin Mizer, principal deputy assistant attorney general, head of the Justice Department’s Civil Division. “This case demonstrates the United States’ commitment to ensuring that doctors who refer Medicare beneficiaries to hospitals for procedures, tests and other health services do so only because they believe the service is in the patient’s best interest, and not because the physician stands to gain financially from the referral.”

As part of the settlement, Tuomey will be required to retain an independent review organization to monitor any arrangements it makes with physicians or other sources of referrals for the duration of the five-year Corporate Integrity Agreement.

Tuomey announced in February that its board had voted to enter into exclusive negotiations with Palmetto Health.

The decision to find a partner in Palmetto Health was made after the Sumter health care system’s board and administrators “completed an exhaustive process to determine the best course of action for the future of Tuomey and health care in the Sumter area. Through this evaluation, Tuomey’s leadership decided partnering with another health system was the best decision for the community,” according to a Tuomey news release.

In September, Palmetto Health and Tuomey announced that they were proceeding to tie the knot and expected to close by Jan. 1.

Tuomey is a not-for-profit operator of a 301-bed hospital in the Sumter area. Palmetto Health is a not-for-profit operator of a 1,138-bed system at three hospitals in the Columbia area. It provides care for 70% of Richland County residents and more than 55% of the health care for the combined Richland/Lexington county area.

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