By Thomas (T.J.) Ferrante
On July 2, the Fourth Circuit affirmed a $237,454,185 judgment against Tuomey Healthcare System, a small, nonprofit hospital in Sumter, S.C. United States ex rel.
Drakeford v. Tuomey Healthcare Sys., Inc., 2015 WL4036166 (4th Cir. July 2, 2015), available at www.ca4.uscourts.gov/Opinions/Published/132219.P.pdf. The Fourth Circuit’s opinion may be the final chapter in the decade-long legal drama that addresses a number of significant issues arising under the Physician Self-Referral Law (Stark law) and the False Claims Act (FCA).
Beginning in 2000, a number of local physicians were increasingly performing outpatient surgeries at their offices or at competing ambulatory surgery centers (ASCs), rather than as outpatient hospital surgeries. As a result, Tuomey was losing revenue it would otherwise receive from the facility fees generated by outpatient hospital services. To stem the loss of this revenue, Tuomey entered into part-time employment agreements with the 19 physicians.
After one of the physicians, Dr. Michael Drakeford, expressed compliance concerns about the structure of the proposed arrangements, Tuomey sought legal advice on the contracts from several attorneys ― one of whom, Kevin McAnaney, indicated that the contracts raised “red flags” under the Stark law. Despite McAnaney’s concerns, Tuomey continued with the 19 part-time employment agreements, having obtained legal advice from other counsel and an FMV opinion from a consulting firm. Dr. Drakeford subsequently filed an action under the qui tam provisions of the FCA.
Tuomey argued that it did not knowingly violate the FCA because it reasonably relied on the advice of legal counsel. The court rejected this assertion, finding the record to be “replete with evidence indicating that Tuomey shopped for legal opinions approving of the employment contracts, while ignoring negative assessments.” The court found it was reasonable for the jury to conclude that Tuomey did not rely on legal counsel’s advice in good faith because the hospital refused “to give full consideration to McAnaney’s negative assessment of the part-time employment contracts and terminated his representation.” With respect to the more favorable legal opinions obtained from other legal counsel, the court observed that they were issued without knowledge of the concerns raised by McAnaney.
A key takeaway from this case is that obtaining a second legal opinion or valuation opinion must be done cautiously (if at all) because it might later be used as evidence of improper intent. For example, it would be prudent to consider sharing the first expert’s opinion with any second expert who is hired and then asking the second expert to explain the basis for reaching a different conclusion, e.g., changes in facts since the first expert’s review, information overlooked by the first expert, or other reasons the second opinion should be given greater weight.
While it is interesting to note that the concurring opinion found the result in Tuomey “troubling,” writing that the Stark law has become a “booby trap” for health care providers, the high penalty imposed on the hospital in this case likely will encourage both whistleblowers and the government to scrutinize and challenge the nature of financial relationships with physicians.
