14 October 2013

Court Enters Judgment Against Healthcare System Following Jury Verdict

In recent decisions, a federal court entered judgment under the FCA against a healthcare system that a jury had found violated the Stark Law and submitted claims for prohibited patient referrals. Among relatively few FCA cases that have proceeded to a jury verdict, this case illustrates the significant penalties defendants face.

As we previously reported, U.S. ex rel. Drakeford v. Tuomey Healthcare System involved claims that the defendant healthcare system entered into compensation arrangements with physicians that violated the Stark Law and resulted in the submission of false claims for patients who were referred in violation of Stark. In 2010, a jury concluded that the defendant violated the Stark Law but not the FCA. The district court subsequently set aside the verdict and ordered a new trial on the FCA claim, but entered a judgment on equitable claims based on the jury’s finding of a Stark Law violation. The Fourth Circuit reversed the judgment and remanded the case for a new trial.

In May 2013, the retrial concluded with the jury finding the defendant violated the Stark Law and caused the submission of 21,730 false claims, in violation of the FCA. The jury calculated the total value of false claims filed by Tuomey as $39,313,065. The court calculated the award under the FCA as including treble damages plus the statutory minimum per-claim penalty of $5,500, for a total judgment under the FCA of $237,454,195. On September 30, the court ordered the defendant to pay $276 million. The government moved to amend the judgment, noting that the court’s award appeared to include $39,313,065 above the treble damages and statutory penalties to which it was entitled under the FCA. The government noted this appeared to be a “clerical error.” The court agreed, entering an amended judgment for $237 million.

In its order entering the amended judgment, the court also disposed of the defendant’s post-trial motions. Among the arguments for setting aside the jury verdict the court rejected, it denied Tuomey’s request for judgment as a matter of law because the government “failed to prove damages.” The Court noted that although the government “received the medical services it paid for, and it paid the same amount it would have paid had the services been performed by another hospital,” the government was entitled to damages under the FCA because the Stark Law prohibits “any payment” for a claim for prohibited referrals. In addition, the court denied Tuomey’s motion to set aside the $237 million award based on the excessive fines provision of the Eighth Amendment, finding the award of treble damages plus statutory per-claim penalties not to be “grossly disproportional to the gravity of Tuomey’s offense.”

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