Hospital Ordered to Pay Millions for Stark and False Claims Act Violations


A Senior U.S. District Judge recently ordered the Tuomey Healthcare System to pay more than $237.5 million in False Claims Act (FCA) fines and Stark Law penalties. If you haven’t been following this case, it was started by a physician whistleblower who refused to contract with the hospital on compensation terms similar to those in the physician agreements found problematic in the case. This order only reminds us again that the health care industry must remain vigilant on fraud and abuse issues.

After all that has been written and read about the Toumey case (and you should read about this case in great detail if you are involved in hospital/physician compensation transactions), it provides lessons for hospitals, health systems and physicians. Here is what I’ve learned:

1. Stark Law’s fair market value standard is not simply about a fair business deal. Stark has specific requirements that must be strictly followed. For example, physician compensation cannot take into account the volume or value of actual or anticipated referrals. Simply negotiating at arm’s-length will not provide protection if the DOJ or a whistleblower brings suit.

2. While hospitals and other health care providers can employ physicians, care must be taken to comply with all applicable state restrictions and also the Stark Law and the AKS. Stark and the AKS provide protection for arrangements that meet certain specific requirements. Failing to comply fully with the requirements of an applicable Stark exception or AKS safe harbor leaves health care providers open to potential claims and liability.

3. Since the AKS may be violated if even one purpose for entering into a deal is to induce or reward referrals, health care providers need to be careful not only in the structure of their deals but also regarding their reasons for considering financial arrangements. Tuomey entered the employment arrangements with physicians after Tuomey’s board discussed the potential lost revenue from such physicians’ referrals to other less costly facilities in the community. These board discussions were central to the DOJ’s allegations that Tuomey was considering potential referral volume in setting physician compensation.

4. Since anyone can bring a qui tam action, health care providers need to be aware that competitors as well as possible partners and current employees are potential plaintiffs in these cases. When a question is raised regarding whether a physician or other referral source arrangement complies with applicable law, it is important that the provider appropriately investigate such question and, where necessary, remedy any instances of noncompliance.

Have questions? I’m here to help.