Word of caution for healthcare valuators in new court ruling

When valuing a business arrangement or transaction between a healthcare entity and physicians, the valuation must not include a consideration of anticipated referrals. If it does, the hospital or healthcare system making payments under the arrangement could face huge penalties for making illegal kickbacks to physicians, as a recent appellate court ruling illustrates.

New ruling: BVWire reports that in a new ruling, a three-judge panel of the 4th U.S. Circuit Court of Appeals unanimously upheld a $237 million judgment against the Tuomey Healthcare System in South Carolina in a false Medicare claims case. Prosecutors said the fraudulent claims totaled $39 million. The government was awarded additional damages and civil penalties bringing the total to $237 million.

A jury had found the hospital guilty under the Stark Law and False Claims Act of providing illegal kickbacks to a group of local doctors under part-time employment contracts that the government said paid well above fair market value. Although the deals made no mention of referral fees, the government argued that the excess amount was paid to ensure that they would continue to get those fees for clinical procedures. The hospital argued that it had both legal and fair market value opinions that backed up the appropriateness of the employment agreements. However, the jury disagreed, and an appellate court has upheld the ruling.

The case is U.S. ex rel. Drakeford v. Tuomey, No. 13-2219 (4th Cir. 2015).