The Department of Justice and Tuomey Healthcare have announced a $72.4 million settlement in a lawsuit that the DOJ touts as “another achievement for the [DOJ and DHS] Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative.” The settlement follows a 2013 trial in which a jury found Tuomey had violated the False Claims Act and Stark Law by filing more than 21,000 false claims with Medicare. That $237 million judgment was affirmed in July by the U.S. Court of Appeals for the Fourth Circuit. The lower settlement figure, which also includes a five-year corporate integrity agreement between Tuomey and the Department of Health and Human Services, reflects the government’s acknowledgment that Tuomey is unable to pay the full judgment against it. The settlement allows Tuomey, a not-for-profit operator of the only hospital in Sumter, South Carolina, to be sold to Palmetto Health, a not-for-profit operator of three hospitals in the Columbia, South Carolina region, after which the combined entity will be the largest health care system in South Carolina.

The case, United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., No. 3:05-cv-02858 (MBS) (D.S.C.), began in 2005 as a qui tam action brought by orthopedic surgeon Michael K. Drakeford. Dr. Drakeford had been offered and had refused a contract that violated provisions of the Stark Law, 42 U.S.C. § 1395nn, which regulates physician referrals of patients to hospitals in which the physician has a financial interest, and which bars hospitals from billing Medicare for certain services when patients are referred by a doctor with a financial interest in the hospital. DOJ argued that Tuomey entered into agreements with 19 specialist physicians under which they were required to refer their outpatient procedures to Tuomey. In exchange, the physicians received compensation, which was far in excess of the services’ fair market value and included money that Tuomey received from Medicare for the referred procedures. Dr. Drakeford will receive $18.1 million under the settlement.

In the settlement, Tuomey admitted that the financial arrangements violated the Stark Law, and that it received nearly $53 million in Medicare reimbursements for services referred by those doctors in violation of the Stark Law between January 1, 2005 and March 28, 2010. Tuomey also admitted that it was paid over $39 million by Medicare for 21,730 false claims submitted between October 1, 2005 and June 30, 2009.

The Department of Justice is citing this case as a demonstration of the False Claims Act’s effectiveness to fight Medicare and Medicaid fraud. As Inspector General Dan Levinson of the Department of Health and Human Services-Office of the Inspector General stated, “[p]atients need and deserve to know that the hospital services they receive are the product of sound medical judgment, rather than motivated by the physician’s financial interests. The extensive litigation and settlement in this case should send a signal to the hospital industry that these tainted financial relationships simply will not be tolerated.”