Court: New Jury Trial to Determine if Hospital Violated Stark Law

Is it a violation of the Stark Law if a hospital contracts with outside physicians to provide surgery exclusively in its facilities and pays them a bonus for productivity? Tuomey Healthcare System in Sumter, S.C., has been waiting 7 years for an answer to that question.

They may be a little closer to a final decision after a federal circuit court recently reversed a lower court's 2010 decision that said Tuomey violated the Stark Law but not the False Claims Act. In a decision issued March 30, the circuit court said the lower court's decision had denied Tuomey its 7th Amendment right to a jury trial.

A lot is riding on this recent action since the 2010 decision also ordered Tuomey Healthcare System to pay $44.9 million for violating the Stark Law.

The Stark Law, passed in 1989, governs physician self-referral for Medicare and Medicaid patients. The False Claims Act is a federal law that enables whistleblowers to file legal actions against federal contractors who they claim have defrauded the government.

The Tuomey case began in 2005 with a lawsuit alleging hospital misconduct brought by orthopedic surgeon Michael K. Drakeford, MD, after unsuccessful contract negotiations with the health system.

In 2003, when physicians at a gastroenterology firm told Tuomey they wanted to perform outpatient surgical procedures in their own offices rather than at the hospital, Tuomey offered them a deal. The 301-bed system persuaded them and 18 other specialist physicians to sign a 10-year contract to do surgeries only at its hospital facilities.

In the agreements, Tuomey would pay an annual base salary for each physician as well as a "productivity bonus equal to 80 percent of the net collections," according to the March 30 decision. "Moreover, each physician was eligible for an incentive bonus that could total up to 7 percent of the productivity bonus." Physicians were barred from competing with Tuomey for 2 years after the contract expired. According to court documents "Tuomey submitted claims requesting reimbursement for both the professional fee and the facility fee to third-party payors, including Medicare and Medicaid."

Sources close to the lawsuit explained the government's assertion that a hospital can hire a physician to do outpatient surgery but cannot pay that physician for referrals or calculate compensation based on referrals.

Tuomey's attorney, A. Camden Lewis, and hospital representatives did not respond to a request for comment. U.S. Attorney G. Norman Acker III, who represents the case's plaintiffs, could not comment in time for deadline.

Gail O. Guterl