DOJ Sharpens Focus on Individual Wrongdoing with $1 Million Settlement and Four-Year Exclusion against Former CEO

DOJ Sharpens Focus on Individual Wrongdoing with $1 Million Settlement and Four-Year Exclusion against Former CEO


On September 27, the DOJ, in conjunction with HHS-OIG, entered into a settlement agreement with former Tuomey Healthcare System CEO Ralph J. Cox III for alleged violations of the Stark Law. Pursuant to this agreement, Cox will pay the government $1 million and will not participate in federal healthcare programs, nor provide management or administrative services involving federal healthcare programs, for four years.

This settlement stems from conduct beginning in early 2003, when, in order to combat increased competition from a newly built surgery center, Tuomey entered into contracts with 19 specialist physicians. Under these contracts, the physicians received compensation that was determined to be far in excess of fair market value in exchange for referring outpatient procedures to the hospital. Furthermore, the physicians also received part of the money paid to Tuomey by Medicare. The government sued Tuomey, and, after a month-long jury trial, obtained a $237.4 million judgment against the health system. After the Fourth Circuit affirmed the judgment in July 2015, Tuomey settled with the government for $72.4 million, and agreed to sell the hospital to Palmetto Health.

Cox’s involvement in these arrangements went far beyond just encouraging the formation of the contracts. During the 2013 trial, the government also accused Cox of disregarding and suppressing a Tuomey attorney’s warnings that the physician contracts were potentially unlawful. Tuomey terminated Cox in the fall of 2013, just a few months after the trial ended.

This settlement evidences the DOJ’s shift towards holding individuals accountable for their role in corporate wrongdoing that increased dramatically in September 2015 when the “Yates Memorandum” was released and began to be incorporated into the United States Attorney’s Manual. We discussed this memo at length when it was issued and noted that it specifically instructs prosecutors to focus on individual wrongdoers “from the inception of the investigation.” The memo stated that the rationale behind this approach was to determine “the full extent of corporate misconduct,” encourage the cooperation of individuals who have knowledge of the wrongdoing, and to “maximize the chances that the final resolution of an investigation. . . will include civil or criminal charges against not just the corporation but against culpable individuals as well.”

The head of the DOJ’s Civil Division confirmed that this settlement was not an anomaly, stating: “[t]oday'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.” With this settlement on the books, healthcare executives and administrators have been put on notice that not only may their organizations be subject to liability for illegal conduct, they might also find themselves personally liable for their roles in the illegal conduct.   

Thank you to Justin Hickerson, Belmont University College of Law, for his assistance in preparing this article.

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