A lawsuit alleging that legal malpractice by Nexsen Pruet law firm caused the destruction of one of the state’s most prominent locally owned hospitals, Tuomey Healthcare of Sumter, was filed Tuesday in state court in Sumter County.
The lawsuit seeks $117 million in damages for legal havoc allegedly wreaked by “misleading and reckless” advice from Columbia-headquartered Nexsen Pruet, one of the state’s largest law firms, according to legal papers.
Relying on Nexsen Pruet’s advice caused the hospital in 2013 to lose a federal whistleblower lawsuit that resulted in a jury finding that the hospital had defrauded the federal government over false Medicare and other claims and owed $237.4 million in fines and damages, the lawsuit said.
In response, Nexsen Pruet board chairman Leighton Lord on Tuesday released this statement: “We have not yet seen the lawsuit filed today, but Nexsen Pruet is proud to have represented Tuomey for more than 20 years.
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“Like other supporters of the hospital, we were very disappointed with results of the almost decade-long dispute with the federal government. We stood by Tuomey through that dispute and we are disappointed in, and disagree with, the recently filed lawsuit. Since that suit is pending, this is all we are able to say at this time,” Lord said.
The lawsuit offers a rare glimpse into the big money world of South Carolina’s doctors and hospitals, where hospitals advised by lawyers are increasingly entering into agreements with doctors’ practices.
The lawsuit is also unusual in that lawyers are the ones who file lawsuits against doctors and hospitals for medical malpractice. But in this case, a hospital is suing a law firm for legal malpractice.
After the U.S. 4th Circuit Court of Appeals in Virginia upheld the jury verdict and $237.4 million judgment against Tuomey last year, Tuomey hospital – for decades the pride of the Sumter community – was forced to sell its assets. Although it still operates, it has lost its independent identity and has been folded into the Columbia hospital giant, Palmetto Health, one of the state’s largest private employers.
“Before all this started, we had more than $100 million in the bank,” said physician Cynthia Reese, chairwoman of the Toumey Healthcare System board that is winding down the affairs of the old, locally owned Tuomey and is not affiliated with Palmetto Health. As one of its last duties, her old board of volunteer members is suing Nexsen Pruet, Reese said.
But in the past 10 years, the hospital spent huge amounts on litigation, settling the multi-million dollar judgment with the Justice Department, fighting with bond holders, staving off bankruptcy and transferring remaining assets to Palmetto Health, she said.
“Any money that is obtained from this lawsuit will go directly to the Tuomey Foundation, a non-profit foundation supported by community funds, and will go to improve health care in the community,” said Reese, who runs her own family medicine practice in Sumter.
Tuomey’s legal woes started 16 years ago, when it began to realize some local doctors might become competitors, according to the lawsuit. The lawsuit sought advice from Nexsen Pruet, their outside counsel at the time.
Around 2000, Sumter area doctors who had previously performed surgery at Tuomey were starting to do more outpatient surgeries in their offices or off-site surgery centers, the lawsuit said. The hospital’s revenue dropped.
“Tuomey sought the advice of its long time legal counsel Nexsen Pruet on how to address the growing challenges of recruiting and retaining physicians,” the lawsuit said.
Nexsen Pruet came up with the idea that Tuomey should enter into contracts with local doctors whereby doctors would be paid to do out-patient surgeries exclusively at a new out-patient surgery center built by Tuomey, the lawsuit said.
“Tuomey faithfully relied upon Nexsen Pruet’s legal advice and from January 2005 to July 2007 entered into 19 contracts with physicians,” the lawsuit said.
“Despite assurances made by Nexsen Pruet ..., the contracts were very high risk, ‘one of a kind,’ ‘never before tested’ physician financial arrangements,” the lawsuit said.
Although Nexsen Pruet lawyers told Tuomey the contracts were legal and could withstand a government challenge, the contracts were later found by a jury to have violated basic federal laws that specifically prohibit doctor-hospital financial arrangements whereby doctors make money by referring patients to certain hospitals.
“Tuomey’s reliance on Nexsen Pruet’s advice proved very costly,” the lawsuit said.
In 2005, Tuomey was faced with a sudden challenge to its new way of doing business when local Sumter doctor Michael Drakeford refused to sign one of the contracts, the lawsuit said.
At that time, Drakeford got his own lawyer, who found a top national expert in hospital law who advised him that Tuomey’s contracts violated clear federal law on hospital-physician contracts.
But, the lawsuit said, Nexsen Pruet “did not accurately convey” the expert’s opinions to the then Tuomey board of trustees and blocked the board’s efforts to learn more about the downside of the contracts. Nexsen Pruet lawyers repeatedly blocked Drakeford’s efforts to give another legal point of view to the board, the lawsuit said.
Frustrated, Drakeford filed a “whistleblower” lawsuit against Tuomey, asking the government to enter his lawsuit against Tuomey.
After an investigation, the government determined that Drakeford’s charges were correct and that Tuomey was in the wrong. The government asked Tuomey to “unwind the contracts,” the lawsuit said.
But Tuomey, acting on the advice of Nexsen Pruet, refused to roll back the contracts. The government then sued, demanding Tuomey repay $52.7 million plus interest.
Over the years, Nexsen Pruet kept representing Tuomey, all the while insisting that the government would lose, the lawsuit said. But in 2013, after the jury trial, a judgment of $237.4 million was entered against Tuomey.
In a 2013 press release following the judgment, a top U.S. Justice official scolded Tuomey.
“Secret, sweetheart deals between hospitals and physicians, like the ones in this case, undermine patient confidence and drive up healthcare costs for everybody, including the Medicare program and its beneficiaries,” principal deputy assistant attorney general Benjamin C. Mizer, head of the Justice Department’s Civil Division, said in a news release.
In 2015, the 4th Circuit upheld the $237.4 million judgment. Since then, Tuomey has sold “substantially all of its assets to Palmetto Health and (used) the proceeds to pay $72.4 million to the federal government,” the lawsuit said.
“Tuomey would have never agreed to the contracts and knowingly accepted the degree of risk to which Tuomey was being exposed but for Nexsen Pruet’s negligent failure to properly advise Tuomey,” the lawsuit said.
The lawsuit identified three Nexsen Pruet lawyers upon whom Tuomey relied for advice: Al Pollard, who is no longer a partner, Tim Hewson, and Matthew Roberts.
As the years went by, and Tuomey fought the government lawsuit because of alleged bad legal advice from Nexsen Pruet, the lawsuit said, the amount the Tuomey owed ballooned from $5.5 million in 2005 to $52.7 million in 2010, when the hospital finally canceled the contracts.
Nexsen Pruet represented Tuomey until 2013, when federal prosecutors – who said Nexsen Pruet lawyers had acted questionably – “insisted that Tuomey replace Nexsen Pruet as Tuomey’s outside general counsel,” the lawsuit said.
Tuomey alleged that over the years, it paid Nexsen Pruet some $15 million for its bad advice and needless litigation-related expenses, the lawsuit said.
Drakeford, the doctor who filed the “whistleblower” lawsuit claiming that Tuomey was acting illegally, was paid more than $15 million as a reward for notifying the government.
Nexsen Pruet’s internet site says, “We have more than 190 lawyers committed to serving clients throughout the region, nation and world.” The firm’s stable of well-known lawyers includes former Columbia mayor Bob Coble and former S.C. Department of Revenue chief Burnie Maybank.
Tuomey is represented by attorneys Jim Griffin and Margaret Fox of Columbia.