Federal Court Rejects Tuomey Appeal: $234 Million Judgment Stands

The U.S. Court of Appeals for the 4th Circuit issued its decision in the decade long Tuomey Healthcare System fraud case. This case began with a qui tam action filed with the Civil Division of the Department of Justice by “whistleblower” Dr. Michael L. Drakeford. Dr. Drakeford alleged that Tuomey violated the Stark Laws and False Claims Act (FCA) by submitting 21,730 Medicare claims that had been tainted by illegal compensation arrangements with specialty doctors. After an initial vacated jury verdict and a loss at a second jury trial, Tuomey appealed to the District Court of South Carolina. The District Court of South Carolina ruled against Tuomey and ordered them to pay $237,454,195 constituting the minimum in treble damages of $39 million, plus $5,500 per claim. Tuomey then appealed the decision to the U.S. Court of Appeals for the 4^th Circuit, raising a variety of issues. However, the U.S. Court of Appeals for the 4^th Circuit found for the government on all significant issues.

The Court did not accept Tuomey’s argument that it was merely relying on the advice of its lawyers in its physician compensation arrangements. The Court noted that Tuomey should have paid more attention to one of their attorneys, Kevin McAnaney, a recognized expert on Stark Laws. McAnaney had raised serious concerns about the proposed contracts at issue without even knowing the full valuation of the payments proposed under the agreements. McAnaney’s evidence at trial was seen as critical in satisfying the burden of proof necessary to demonstrate that Tuomey acted with the requisite intent under the FCA. The Court found ample evidence of seeming inaction despite warnings of the questionable nature of the proposed agreements. The Court concluded that the “the jury evidently rejected Tuomey’s advice of counsel defense” and that Tuomey violated the FCA.

Tuomey made the three arguments below regarding the award of damages entered against them by the District Court. The U.S. Court of Appeals rejected all three arguments.

1. Tuomey asserted that the court improperly calculated the civil penalty. However, the Court stated it was clear under the law that a defendant found liable under the FCA must pay the government a civil penalty of not less than $5,500 and not more than $11,000 “plus 3 times the amount of damages which the Government sustains because of that person.” The jury found that Tuomey had submitted 21,730 false claims, for which it awarded actual damages of $39,313,065. This amount was trebled and then added to a civil penalty of $119,515,000, which was calculated by multiplying the number of false claims by the $5,500 statutory minimum penalty. The court also found that the jury had sufficient evidence to identify the prohibited referrals and therefore the amount of damages and penalties.
2. Tuomey argued that the true measure of damages is not the sum total of all claims the government paid (as the court instructed the jury), but rather the difference (if any) between the true value of the services provided by Tuomey and what the government actually paid. Tuomey asserted that since “there was no evidence that the Government did not get what it paid for[,] there were no actual damages under the FCA.” The Court rejected those arguments noting that the Stark Law expresses Congress’s judgment that all services provided in violation of that law are medically unnecessary.
3. Tuomey argued that the amount of the damages awarded and the civil penalty was unconstitutional under the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth The Court disagreed on both counts and stated that the Supreme Court has noted that the treble damages provision of the statute has a compensatory aspect, in that these kind of damages account for the fact that some amount of money beyond actual damages is “necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.”

The American Hospital Association and the South Carolina Hospital Association had filed briefs as amici curiae, supporting Appellant (Tuomey).