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Tuomey Case Puts Sharp Emphasis on Fair Market Value in Physician Transactions

Posted in Fraud and Abuse

Earlier this month the closely watched case of U.S. ex rel Drakeford v Tuomey Healthcare System Inc. (675 F.3d 394 (4th Cir. 2012) concluded with a jury finding that the compensation paid to physicians under certain part-time employment agreements by Tuomey Healthcare System resulted in violations of both the federal False Claims Act and the federal Stark law.

The Stark law prohibits a physician from referring to an entity for Stark "designated health services" (including outpatient and inpatient hospital services) if the physician has an ownership or compensation relationship with that entity.  While there is an exception to the Stark law prohibition for bona fide employment arrangements, one requirement of that exception is that the compensation paid must be consistent with fair market value.

Although Tuomey relied upon an expert assessment of the fair market value, the government’s expert disagreed and the jury obviously found the government’s case to be compelling.

Under the False Claims Act, Tuomey’s penalties could exceed $350 million. Although the Tuomey case is interesting for a number of reasons, perhaps the primary lesson to be learned is that a proper, defensible assessment of fair market value In hospital-physician arrangements–even W2 employment arrangements–is critical.