In fall 2016, the Department of Justice (DOJ) reached a settlement agreement with Ralph J. Cox, III, the former CEO for Tuomey Health System, Inc (Tuomey). The settlement resolved allegations that Cox was personally involved in the notable Tuomey Stark Law case.
The government then alleged that Cox, in hopes of addressing competition from a new freestanding surgery center, caused Tuomey to enter into illegal compensation agreements with nineteen physician specialists. The contracts 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 litigation of the Tuomey case, the government argued that Cox both ignored and suppressed warnings from one of Tuomey’s attorneys that the physician contracts were “risky” and “raised red flags.”
On May 8, 2013, a South Carolina jury determined that the contracts did violated the Stark Law, also conclusing that Tuomey had filed more than 21,000 false claims with Medicare. In the fall of 2013, Cox was terminated as Tuomey’s CEO. On October 2, 2013, the 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 July 2, 2015. However, to avoid the judgment, Tuomey entered into a settlement agreement with the federal government in October 2015 for $72.4 million, and agreed to be sold to Columbia, South Carolina-based Palmetto Health.
According to Principal Deputy Assistant Attorney General Benjamin C. Mizer, “Sweetheart deals between hospitals and referring physicians distort medical decision making and drive up the cost of healthcare for patients and insurers alike. 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.”
The settlement with Cox personally is significant given the high level positions Cox held as CEO and board member, highlighting the fact that the DOJ “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 settlement agreement includes a four-year exclusion from participation in the federal healthcare programs and a $1 million penalty that Cox will personally pay to resolve his involvement in the case. Cox also agreed to release Tuomey from any indemnification claims or reimbursement of the settlement payment amount.
In coming to the personal payment amount of $1 million, it seems as though the DOJ relied on sworn financial statements provided by Cox. However, if the DOJ learns that Cox failed to disclose more than $150,000 of his assets, it may rescind the settlement agreement, or collect the full settlement amount plus the entire value of Cox’ undisclosed net worth.
In perhaps a signal of what is to come, Cox agreed to fully cooperate with the DOJ’s ongoing investigation of other individuals and entities associated with the Tuomey case.