In This Issue:

- Background

- Tuomey’s Second Appeal to the Fourth Circuit

- The Trial Court’s Grant of a New Trial

- Tuomey’s Request for Judgement as a Matter of Law on the Stark Law and FCA Issues

- Tuomey’s Requests for a New Trial Based on Jury Instruction Error

- Other Implications of the Tuomey Decision for Hospitals and Stark Law Reform

- Excerpt from Background:

Unless an exception applies, the Stark Law prohibits referrals by a physician to an entity for the furnishing of designated health care services (DHS) (including hospital services) if the physician or an immediate family member has a financial relationship with the entity. In addition, the Stark Law prohibits Medicare claims and the payment of Medicare claims for DHS furnished pursuant to referrals prohibited by the Stark Law. The federal civil False Claims Act (FCA) creates liability for the submission of false or fraudulent claims to the United States, and provides for treble damages and penalties of $5,500 to $11,000 per claim. Individuals (referred to as relators) can bring lawsuits under the FCA on behalf of the United States, and are eligible for 15 percent to 25 percent of the judgment if the United States intervenes, and up to 30 percent if the United States does not.

Based on public filings, in response to a competitive threat from an ambulatory surgery center in 2005 and 2006, Tuomey, through subsidiaries, entered into 19 part-time employment contracts with surgeons and proceduralists in reliance on the advice and counsel of its local lawyer, Tim Hewson of Nexsen Pruet. The contracts were unusual because the physicians continued to maintain their private practices and only worked as part-time employees of Tuomey when performing outpatient surgeries at Tuomey. The physicians’ part-time contracts obligated the physicians to perform all of their outpatient cases at Tuomey; had terms of 10 years; and included a two-year, 30- mile non-compete upon termination of the contract. The contracts provided for Tuomey to bill and collect for the surgeries, and to pay the physicians a guaranteed base salary that was modified year-to-year based on professional collections from the prior year. The bulk of the compensation, however, was a productivity bonus equal to 80 percent of the collections from Tuomey’s charges for the professional component of the surgeries. The physicians were also eligible for an incentive bonus of up to 7 percent of their earned productivity bonus. Tuomey also assumed certain of the physicians’ private practice costs, including professional liability insurance, employment taxes, and billing and collections.