Justice Department slashes Tuomey fine, opens sale to Palmetto Health

Tuomey Healthcare System in Sumter will pay a reduced settlement of $72.4 million to the United States government for illegally billing the Medicare program, the Justice Department announced Friday.

The settlement is well shy of a $237 million judgment against the hospital system, and will allow Tuomey to be sold to Palmetto Health, a multi-hospital healthcare system based in Columbia, 45 miles away.

Tuomey officials said in a news release that, although there are a few remaining steps between now and the anticipated closing date of Jan. 1, “today’s accomplishment is a monumental milestone. Together with Palmetto Health, Tuomey will be able to enhance and expand the service capability of the local organization, which will allow it to better meet the healthcare needs of those it serves.”

Tuomey CEO and President Michelle Logan-Owens said, “We are elated to share this news. And while this partnership is incredible news for our community, I am moved beyond words with joy as I report that today, we also signed a settlement with the Department of Justice.”

Palmetto Health officials said the sale would make it the largest health care system in South Carolina.

“Our goal for our partnership is to become operational on Friday, Jan. 1,” the company said in a news release. “We look forward to welcoming Tuomey team members, physicians and volunteers to the Palmetto Health family.”

The settlement will bring to a close Tuomey’s decade-long journey to resolve outstanding issues with the Justice Department.

The judgment against Tuomey related to violations of the Stark Law, a statute that prohibits hospitals from billing Medicare for certain services, including inpatient and outpatient hospital care, that have been referred by physicians with whom the hospital has an improper financial relationship.

The Stark Law includes exceptions for many common hospital-physician arrangements but generally requires that any payments that a hospital makes to a referring physician be at fair market value for the physician’s actual services, and not take into account the volume or value of the physician’s referrals to the hospital.

“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.

The government argued in the case that Tuomey, fearing that it could lose lucrative outpatient procedure referrals to a new freestanding surgery center, entered into contracts with 19 specialist physicians that required the physicians to refer their outpatient procedures to Tuomey and, in exchange, paid them compensation that far exceeded fair market value and included part of the money Tuomey received from Medicare for the referred procedures.

The government also argued that Tuomey ignored and suppressed warnings from one of its attorneys that the physician contracts were “risky” and raised “red flags.”

On May 8, 2013, after a month-long trial, a South Carolina jury determined that the contracts violated the Stark Law. The jury also concluded that Tuomey had filed more than 21,000 false claims with Medicare.

On Oct. 2, 2013, the trial court entered a judgment under the False Claims Act in favor of the United States for more than $237 million.

The 4th Circuit U.S. Court of Appeals in Virginia affirmed the judgment on July 2.

“This case reinforces the need for hospitals to abide by the requirements of the Stark Law,” said U.S. Attorney Thomas G. Walker of the Eastern District of North Carolina.

Tuomey officials said in a news release that Palmetto Health has pledged to make Tuomey a better health provider through major capital improvements and increased services in this area.

“We are now able to close this chapter and look to the future,” Logan-Owens said.

This story was originally published October 16, 2015 at 5:32 PM.