College of Law > Academics > Centers, Institutes & Initiatives > Mary and Michael Jaharis Health Law Institute > e-Pulse Blog > us-ex-rel-drakeford-v-tuomey-healthcare-sys

United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc, 2013 WL 5503695 (D.S.C. Oct. 2, 2013)

In May 2013, Tuomey Hospital, a not-for-profit South Carolina hospital, was ordered to pay $237 million for submitting false Medicare claims as a result of compensation contracts with specialist physicians in violation of the Stark Law (“Stark”).[1]

The United States sought relief under the False Claims Act (“FCA”) because Stark does not create its own right of action. [2] The Stark Law is a federal statute that was enacted to address the overutilization of services by physicians who profited from a referral with a provider in which they had a financial relationship. [3]  In 2003, specialist physicians performing procedures at Tuomey informed the Hospital that they were considering relocating their outpatient surgical procedures. [4] In light of this serious financial concern, Tuomey began entering into agreements with specialist physicians to exclusively perform outpatient procedures at the hospital or other facilities in the same system. [5] By 2005, Tuomey had entered into 19 compensation contracts with specialist physicians. [6] Each contract stipulated that Tuomey had sole billing rights to benefits payable to the physician by third party payors including Medicare and Medicaid. [7] In exchange, Tuomey agreed to pay each physician an annual base salary that fluctuated based on Tuomey’s net cash collection for outpatient procedures. [8] In addition, each physician was eligible for a “productivity bonus” equal to 80 percent of the net collections and an “incentive bonus” that could total up to 7 percent  of the productivity bonus. [9] Each contract had a 10-year term with a non-compete clause during the term of the contract and two years thereafter. [10]

In October of 2005, Dr. Michael Drakeford, a specialist physician for whom negotiations were unsuccessful, filed a qui tam action under the FCA. [11] In September of 2007 the United States joined that action. [12] In the lawsuit, the government alleged that Tuomey knowingly presented, or caused to be presented, false and fraudulent claims for payment in violation of Stark Law. [13] The United States also alleged that Tuomey was not entitled to receive payment from the United States for services rendered by a physician who was in a prohibited financial relationship under the Stark Law and that Tuomey was compensated as a result of mistaken belief. [14] Finally, the United States alleged that Tuomey was unjustly enriched by obtaining government funds, to which it was not entitled. [15]

The case was tried before a jury. The jury found that the arrangements violated the Stark Law and that Tuomey was liable for $41 million in Medicare overpayments, but not accountable under the False Claims Act. [16] The District Court granted the government’s motion to vacate the jury verdict on the False Claims Act. [17] The Court of Appeals for the Fourth Circuit ruled that by vacating a portion of the jury verdict, the District Court violated the defendant’s Seventh Amendment right and vacated the entire verdict. [18] The Court remanded for a new trial. [19] In May of this year, a jury at the District Court found that Tuomey violated Stark Law and the FCA by submitting $39 million in improper claims. [20] As the government is entitled to treble damages, civil penalties alone amounted to nearly $120 million. [21] The jury found that the contracts took into account the volume or value of referrals and created a prohibited financial relationship between Tuomey and the physicians. [22] The district court reject Tuomey’s arguments that the government failed to prove the physician contracts were subject to Stark Law and that treble damages were excessive under the Eighth Amendment. [23] As of this writing, the matter has not yet reached its final conclusion. [24] As the costs of Stark violations can be so financially devastating, Stark cases that go to court are cautionary tales. [25]



[1] United State ex rel. Drakeford v. Tuomey, 2013 WL 5503695, at *15 (D.S.C. Oct. 2, 2013).

[2] 31 U.S.C. § 3729 et seq.

[3] 42 U.S.C. § 1395 et seq.

[4] Tuomey, 2013 WL 5503695, at *2.

[5] Id.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at *1.

[12] Id.

[13] Id. at *3.

[14] Id.

[15] Id.

[16] Id.

[17] Id.

[18] Id. at *4.

[19] Id.

[20] Id. at *5.

[21] Id.; See 31 U.S.C. §3729(a).

[22] Tuomey, 2013 WL 5503695, at *7.

[23] Id. at *18.

[24] Andrew M. Ballard, Court Orders Tuomey Healthcare System to Pay $227M for Stark, FCA Violations, Bloomberg BNA, (Oct. 2, 2013), (citing chairman of Tuomey’s board stating a notice of appeal is to be filed and a request for a stay of judgment, pending appeal).

[25] See United States ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., 2012 WL 921147 (M.D. Fla. Mar. 19, 2012); United States ex rel. Singh v. Bradford Reg’l Med. Ctr., 752 F. Supp. 2d 602 (W.D. Pa. 2010); United States ex rel. Villfane v. Solinger, 543 F. Supp. 2d 678 (W.D. Ky. 2008).