South Carolina hospital on trial in False Claims Act suit

April 29, 2010  |  Class Actions, Whistleblower/Qui Tam

At the end of March, a jury returned a split verdict against Tuomey Healthcare System, of Sumter, South Carolina in a federal False Claims Act suit by the Justice Department.  The jury’s verdict—that the hospital violated the Stark Law but not the False Claims Act—has left both sides asking the judge for relief this week.

The lawsuit alleged that the hospital acted to inflate its profits in violation of the False Claims Act and that the defendants violated the Stark Law.  The Stark Law prohibits doctors from referring patients to medical facilities in which they have any interest.  The government has alleged that the facility created a near-monopoly by stifling competition among local doctors, forming employment contracts with doctors who then referred patients to the facility, and then obtaining illegal higher payments for certain medical procedures.

The government is asking the judge to grant a new trial on False Claims Act or to simply enter judgment that the hospital did violate the False Claims Act.  It appears that the jury may have found that the hospital did not violate the False Claims Act because they were not convinced that it violated the law knowingly.  But the government argued that the judge excluded evidence that would have shown the hospital acted knowingly, and that evidence should have been admitted.

The hospital, on the other hand, says that because the jury did not find that it violated the False Claims Act, it should not be forced to pay any fine at all.  The government counters that, during the time at issue in the trial, the hospital received $44,888,651 in Medicare reimbursements under the same contracts found to violate the Stark Law.  But a finding that the hospital violated the False Claims Act as well would result in much higher penalties and a far greater recovery for the government.

The hospital’s alleged misconduct was first disclosed to the government by Sumter surgeon Michael Drakeford.  The surgeon filed a whistleblower suit against the hospital in 2005, in which the federal government decided to intervene in 2008.  Drakeford alleged that Tuomey illegally hired more than a dozen local physicians for the hospital’s outpatient clinic on a part-time basis as part of a scheme to keep a cut of the doctors’ business and maximize hospital profits, the same actions found by the jury to have violated the Stark Law.

The federal False Claims Act contains certain Qui Tam provisions meant to encourage private individuals with knowledge of fraudulent schemes against the government to come forward.  Individuals who file whistleblower complaints under the False Claims Act—called Relators—are entitled to participate in the government’s share of any recovery.  The government is given the option to intervene in a False Claims Act suit, as it did in the suit against Tuomey.  When the government does take over prosecution of a whistleblower suit, the Relator receives a smaller portion of the government’s damages.

To learn more about this story, go to The Item and  The State.

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