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Press Release

Former Chief Executive of South Carolina Hospital Pays $1 Million and Agrees to Exclusion to Settle Claims Related to Illegal Payments to Referring Physicians

For Immediate Release
Office of Public Affairs

The Department of Justice announced today that it has reached a $1 million settlement with Ralph J. Cox III, the former chief executive officer of Sumter, South Carolina-based Tuomey Healthcare System, for his involvement in the hospital’s illegal Medicare and Medicaid billings for services referred by physicians with whom the hospital had improper financial relationships. 

Under the terms of the settlement agreement, Cox will also be excluded for four years from participating in federal health care programs, including providing management or administrative services paid for by federal health care programs.  The illegal physician arrangements resulted in a $237.4 million judgment against Tuomey following a jury verdict.  On Oct.16, 2015, the United States resolved its judgment against Tuomey for payments totaling $72.4 million, and the hospital was sold to Palmetto Health, a multi-hospital healthcare system based in Columbia, South Carolina.

“Sweetheart deals between hospitals and referring physicians distort medical decision making and drive up the cost of healthcare for patients and insurers alike,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Patients have a right to be confident that a physician who orders a procedure or test does so because that service is in the patient’s best interest, and not because the physician stands to gain financially from the referral.  Today’s settlement demonstrates that the Justice Department and its law enforcement partners will hold individual decision makers accountable for their involvement in causing the companies and facilities they run to engage in unlawful activities.”

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.  The government alleged that Cox, fearing that Tuomey could lose lucrative outpatient procedure referrals to a new freestanding surgery center, caused Tuomey to enter 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.  During the trial against the hospital, the government argued that Cox ignored and suppressed warnings from one of Tuomey’s 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 $237.4 million.  The United States Court of Appeals for the Fourth Circuit affirmed the judgment on July 2, 2015.  Cox was terminated as Tuomey’s chief executive officer in the fall of 2013.

“Our office was pleased to partner with the Justice Department’s Civil Division and the Department of Health and Human Services, Office of the Inspector General (HHS-OIG) in this important case,” said U.S. Attorney John Stuart Bruce for the Eastern District of North Carolina.  “The lengthy legal process has vindicated the government’s position that the financial arrangement between this hospital corporation and certain physicians was improper and not in the interest of patients.”

“Individuals and entities that defraud Federal health care programs face exclusion from those programs by the Department of Health and Human Services Office of Inspector General (OIG),” said Gregory E. Demske, chief counsel to the HHS Inspector General.  “OIG is committed to protecting the programs and patients from health care executives who, like Mr. Cox, lead or participate in schemes to defraud Medicare or Medicaid. Entities engage in fraud because of actions by individuals and OIG will continue to identify and take administrative enforcement actions against such individuals.”

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $30.7 billion through False Claims Act cases, with more than $18.5 billion of that amount recovered in cases involving fraud against federal health care programs.”  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

The judgment against Tuomey and this settlement were the result of a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of North Carolina and HHS and its OIG.     

The case against the hospital is captioned United States ex rel. Drakeford v. Tuomey Healthcare System, Inc., Case No. 3:05-cv-02858 (MBS) (D.S.C.).  The claims resolved by the settlement with Cox are allegations only, and there has been no determination of his individual liability.   

Updated April 27, 2017

False Claims Act
Health Care Fraud
Press Release Number: 16-1111