792 F.3d 364 (4th Cir. 2015), 13-2219, United States ex rel. Drakeford v. Tuomey

Docket Nº:13-2219
Citation:792 F.3d 364
Opinion Judge:DIAZ, Circuit Judge:
Party Name:UNITED STATES ex rel. MICHAEL K. DRAKEFORD, M.D., Plaintiff - Appellee, v. TUOMEY, d/b/a Tuomey Healthcare System, Inc., Defendant - Appellant. AMERICAN HOSPITAL ASSOCIATION; SOUTH CAROLINA HOSPITAL ASSOCIATION, Amici Supporting Appellant
Attorney:Helgi C. Walker, GIBSON, DUNN & CRUTCHER, LLP, Washington, D.C., for Appellant. Tracy Lyle Hilmer, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee. James M. Griffin, Margaret N. Fox, A. Camden Lewis, LEWIS, BABCOCK & GRIFFIN, LLP, Columbia, South Carolina; Daniel M. Mulholland...
Judge Panel:Before DUNCAN, WYNN, and DIAZ, Circuit Judges. Judge Diaz wrote the majority opinion, in which Judge Duncan joined. Judge Wynn wrote a separate opinion concurring in the judgment. WYNN, Circuit Judge, concurring:
Case Date:July 02, 2015
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
SUMMARY

Relator filed a qui tam action against Tuomey under the False Claims Act (FCA), 31 U.S.C. 3729-33, and the government intervened. The jury determined that Tuomey did not violate the FCA, but the district court vacated the verdict and granted the government's motion for a new trial after concluding that it had erroneously excluded excerpts of a Tuomey executive's deposition testimony. In this... (see full summary)

 
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Page 364

792 F.3d 364 (4th Cir. 2015)

UNITED STATES ex rel. MICHAEL K. DRAKEFORD, M.D., Plaintiff - Appellee,

v.

TUOMEY, d/b/a Tuomey Healthcare System, Inc., Defendant - Appellant. AMERICAN HOSPITAL ASSOCIATION; SOUTH CAROLINA HOSPITAL ASSOCIATION, Amici Supporting Appellant

No. 13-2219

United States Court of Appeals, Fourth Circuit

July 2, 2015

Argued October 31, 2014

Appeal from the United States District Court for the District of South Carolina, at Columbia. (3:05-cv-02858-MBS). Matthew J. Perry, Jr., Senior District Judge; Margaret B. Seymour, Senior District Judge.

ARGUED:

Helgi C. Walker, GIBSON, DUNN & CRUTCHER, LLP, Washington, D.C., for Appellant.

Tracy Lyle Hilmer, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.

ON BRIEF:

James M. Griffin, Margaret N. Fox, A. Camden Lewis, LEWIS, BABCOCK & GRIFFIN, LLP, Columbia, South Carolina; Daniel M. Mulholland III, HORTY SPRINGER & MATTERN, Pittsburgh, Pennsylvania; E. Bart Daniel, Charleston, South Carolina, for Appellant.

Stuart F. Delery, Assistant Attorney General, Michael D. Granston, Michael S. Raab, Civil Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.; G. Norman Acker, III, Assistant United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina, for Appellee.

Melinda R. Hatton, Maureen D. Mudron, AMERICAN HOSPITAL ASSOCIATION, Washington, D.C.; Jessica L. Ellsworth, Amanda K. Rice, HOGAN LOVELLS U.S. LLP, Washington, D.C., for Amici Curiae.

Before DUNCAN, WYNN, and DIAZ, Circuit Judges. Judge Diaz wrote the majority opinion, in which Judge Duncan joined. Judge Wynn wrote a separate opinion concurring in the judgment.

OPINION

DIAZ, Circuit Judge.

In a qui tam action in which the government intervened, a jury determined that Tuomey Healthcare System, Inc., did not violate the False Claims Act (" FCA" ), 31 U.S.C. § § 3729-33 (2012).1 The district court, however, vacated the jury's verdict and granted the government a new trial after concluding that it had erroneously excluded excerpts of a Tuomey executive's deposition testimony. The jury in the second trial found that Tuomey knowingly submitted 21,730 false claims to Medicare for reimbursement. The district court then entered final judgment for the government and awarded damages and civil penalties totaling $237,454,195.

Tuomey contends that the district court erred in granting the government's motion for a new trial. Tuomey also lodges numerous other challenges to the judgment entered against it following the second trial. It argues that it is entitled to judgment as a matter of law (or, in the alternative, yet another new trial) because it did not violate the FCA. In the alternative, Tuomey asks for a new trial because the district court failed to properly instruct the jury. Finally, Tuomey asks us to strike the damages and civil penalties award as either improperly calculated or unconstitutional.

We conclude that the district court correctly granted the government's motion for a new trial, albeit for a reason different than that relied upon by the district court. We also reject Tuomey's claims of error following the second trial. Accordingly, we affirm the district court's judgment.

I.

A.

Tuomey is a nonprofit hospital located in Sumter, South Carolina, a small, largely rural community that is a federally-designated medically underserved area. At the time of the events leading up to this lawsuit, most of the physicians that practiced at Tuomey were not directly employed by the hospital, but instead were members of independent specialty practices.

Beginning around 2000, doctors who previously performed outpatient surgery at Tuomey began doing so in their own offices or at off-site surgery centers. The loss of this revenue stream was a source of grave concern for Tuomey because it collected substantial facility fees from patients who underwent surgery at the hospital's outpatient center. Tuomey estimated that it stood to lose $8 to $12 million over a thirteen-year period from the loss of fees associated with gastrointestinal procedures alone. To stem this loss, Tuomey sought to negotiate part-time employment contracts with a number of local physicians.

In drafting the contracts, Tuomey was well aware of the constraints imposed by the Stark Law. While we discuss the provisions of that law in greater detail below, in broad terms, the statute, 42 U.S.C. § 1395nn, prohibits physicians from making referrals to entities where " [t]he referring physician . . . receives aggregate compensation . . . that varies with, or takes into account, the volume or value of referrals or other business generated by the referring physician for the entity furnishing" the designated health services. 42 C.F.R. § 411.354(c)(2)(ii) (2014). Pursuant to the Stark Law, " [a] hospital may not submit for payment a Medicare claim for services rendered pursuant to a prohibited referral." United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675 F.3d 394, 397-98 (4th Cir. 2012).

Beginning in 2003, Tuomey sought the advice of its longtime counsel, Nexsen Pruet, on the Stark Law implications arising from the proposed employment contracts. Nexsen Pruet in turn engaged Cejka Consulting, a national consulting firm that specialized in physician compensation, to provide an opinion concerning the commercial reasonableness and fair market value of the contracts. Tuomey also conferred with Richard Kusserow, a former Inspector General for the United States Department of Health and Human Services, and later, with Steve Pratt, an attorney at Hall Render, a prominent healthcare law firm.

The part-time employment contracts had substantially similar terms. Each physician was paid an annual guaranteed base salary. That salary was adjusted from year to year based on the amount the physician collected from all services rendered the previous year. The bulk of the physicians' compensation was earned in the form of a productivity bonus, which paid the physicians eighty percent of the amount of their collections for that year. The physicians were also eligible for an incentive bonus of up to seven percent of their earned productivity bonus. In addition, Tuomey agreed to pay for the physicians' medical malpractice liability insurance as well as their practice group's share of employment taxes. The physicians were also allowed to participate in Tuomey's health insurance plan. Finally, Tuomey agreed to absorb each practice group's billing and collections costs.

The contracts had ten-year terms, during which physicians could maintain their private practices, but were required to perform outpatient surgical procedures exclusively at the hospital. Physicians could not own any interest in a facility located in Sumter that provided ambulatory surgery services, save for a less-than-two-percent interest in a publicly traded company that provided such services. The physicians also agreed not to perform outpatient surgical procedures within a thirty-mile radius of the hospital for two years after the expiration or termination of the contracts.

Tuomey ultimately entered into part-time employment contracts with nineteen physicians. Tuomey, however, was unable to reach an agreement with Dr. Michael Drakeford, an orthopedic surgeon. Drakeford believed that the proposed contracts violated the Stark Law because the physicians were being paid in excess of their collections. He contended that the compensation package did not reflect fair market value, and thus the government would view it as an unlawful payment for the doctor's facility-fee-generating referrals.

To address Drakeford's concerns, Tuomey suggested a joint venture as an alternative business arrangement, whereby " doctors would become investors . . . in . . . a management company that would provide day-to-day management of the outpatient surgery center," J.A. 3268, and both Tuomey and its co-investors would " receive payments based on that management [structure]." J.A. 2036. Drakeford, however, declined that option.

Unable to break the stalemate in their negotiations, in May 2005, Tuomey and Drakeford sought the advice of Kevin McAnaney, an attorney in private practice with expertise in the Stark Law. McAnaney had formerly served as the Chief of the Industry Guidance Branch of the United States Department of Health and Human Services Office of Counsel to the Inspector General. In that position, McAnaney wrote a " substantial portion" of the regulations implementing the Stark Law. J.A. 2026.

McAnaney advised the parties that the proposed employment contracts raised significant " red flags" under the Stark Law.2 J.A. 2054. In particular, Tuomey would have serious difficulty persuading the government that the contracts did not compensate the physicians in excess of fair market value. Such a contention, said McAnaney, would not pass the " red face test." J.A. 2055. McAnaney also warned Tuomey that the contracts presented " an easy case to prosecute" for the government. J.A. 2078.

Drakeford ultimately declined to enter into a contract with Tuomey. He later sued the hospital under the qui tam provisions of the FCA, alleging that because the part-time employment contracts violated the Stark Law, Tuomey had knowingly submitted false claims for payment to Medicare. As was its right, the government intervened in the action and filed additional claims seeking equitable relief for payments made under mistake of fact and unjust enrichment theories.

B.

At the first trial, Tuomey argued that McAnaney's testimony and related opinions regarding the contracts should be excluded as an offer to compromise or settle under Federal Rule of Evidence 408...

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