Court Opinion

ID: 2814279
Source: CourtListenerOpinion
Date Created: 2015-07-02 19:01:32.854272+00
Date Added: 2024-06-11T11:30:31.201986
License: Public Domain

PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                              No. 13-2219

UNITED STATES ex rel. MICHAEL K. DRAKEFORD, M.D.,

                Plaintiff – Appellee,

           v.

TUOMEY, d/b/a Tuomey Healthcare System, Inc.,

                Defendant – Appellant.

−−−−−−−−−−−−−−−−−−−−−−−−−−−

AMERICAN HOSPITAL    ASSOCIATION;    SOUTH   CAROLINA    HOSPITAL
ASSOCIATION,

                Amici Supporting Appellant.

Appeal from the United States District Court for the District of
South Carolina, at Columbia.     Matthew J. Perry, Jr., Senior
District Judge; Margaret B. Seymour, Senior District Judge.
(3:05-cv-02858-MBS)

Argued:   October 31, 2014                    Decided:    July 2, 2015

Before DUNCAN, WYNN, and DIAZ, Circuit Judges.

Affirmed by published opinion.    Judge Diaz wrote the majority
opinion, in which Judge Duncan joined.       Judge Wynn wrote a
separate opinion concurring in the judgment.

ARGUED: Helgi C. Walker, GIBSON, DUNN & CRUTCHER, LLP,
Washington, D.C., for Appellant. Tracy Lyle Hilmer, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C., for Appellee.
ON BRIEF: James M. Griffin, Margaret N. Fox, A. Camden Lewis,
LEWIS, BABCOCK & GRIFFIN, LLP, Columbia, South Carolina; Daniel
M. Mulholland III, HORTY SPRINGER & MATTERN, Pittsburgh,
Pennsylvania; E. Bart Daniel, Charleston, South Carolina, for
Appellant.    Stuart F. Delery, Assistant Attorney General,
Michael D. Granston, Michael S. Raab, Civil Division, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C.; G. Norman Acker,
III, Assistant United States Attorney, OFFICE OF THE UNITED
STATES ATTORNEY, Raleigh, North Carolina, for Appellee. Melinda
R. Hatton, Maureen D. Mudron, AMERICAN HOSPITAL ASSOCIATION,
Washington, D.C.; Jessica L. Ellsworth, Amanda K. Rice, HOGAN
LOVELLS US LLP, Washington, D.C., for Amici Curiae.

                               2
DIAZ, Circuit Judge:

      In a qui tam action in which the government intervened, a

jury determined that Tuomey Healthcare System, Inc., did not

violate     the   False     Claims   Act       (“FCA”),    31    U.S.C.     §§ 3729-33

(2012). 1   The district court, however, vacated the jury’s verdict

and granted the government a new trial after concluding that it

had   erroneously      excluded      excerpts       of    a     Tuomey     executive’s

deposition testimony.          The jury in the second trial found that

Tuomey knowingly submitted 21,730 false claims to Medicare for

reimbursement.       The district court then entered final judgment

for   the   government      and   awarded       damages       and   civil    penalties

totaling $237,454,195.

      Tuomey contends that the district court erred in granting

the government’s motion for a new trial.                        Tuomey also lodges

numerous other challenges to the judgment entered against it

following the second trial.             It argues that it is entitled to

judgment as a matter of law (or, in the alternative, yet another

new   trial)      because    it   did   not      violate      the   FCA.      In   the

alternative, Tuomey asks for a new trial because the district

court failed to properly instruct the jury.                         Finally, Tuomey

      1Under the qui tam provisions of the FCA, a whistleblower
(known as the relator) can file an action on behalf of the
federal government for alleged fraud committed against the
government. If the action is successful, the relator shares in
the recovery.

                                           3
asks   us     to    strike     the    damages      and    civil    penalties         award     as

either improperly calculated or unconstitutional.

       We conclude that the district court correctly granted the

government’s         motion     for    a    new     trial,       albeit       for   a    reason

different than that relied upon by the district court.                                  We also

reject      Tuomey’s    claims        of   error     following         the    second     trial.

Accordingly, we affirm the district court’s judgment.

                                              I.

                                              A.

       Tuomey is a nonprofit hospital located in Sumter, South

Carolina, a small, largely rural community that is a federally-

designated         medically    underserved          area.        At    the    time     of     the

events leading up to this lawsuit, most of the physicians that

practiced at Tuomey were not directly employed by the hospital,

but instead were members of independent specialty practices.

       Beginning       around    2000,       doctors       who    previously        performed

outpatient surgery at Tuomey began doing so in their own offices

or at off-site surgery centers.                    The loss of this revenue stream

was a source of grave concern for Tuomey because it collected

substantial facility fees from patients who underwent surgery at

the    hospital’s      outpatient          center.        Tuomey       estimated        that   it

stood to lose $8 to $12 million over a thirteen-year period from

the    loss    of    fees    associated       with       gastrointestinal           procedures

                                              4
alone.    To stem this loss, Tuomey sought to negotiate part-time

employment contracts with a number of local physicians.

      In drafting the contracts, Tuomey was well aware of the

constraints imposed by the Stark Law.                           While we discuss the

provisions of that law in greater detail below, in broad terms,

the   statute,         42   U.S.C.    § 1395nn,       prohibits      physicians             from

making     referrals           to     entities        where        “[t]he            referring

physician . . .          receives     aggregate       compensation        .      .    .    that

varies    with,    or       takes   into       account,   the    volume     or       value   of

referrals or other business generated by the referring physician

for the entity furnishing” the designated health services.                                   42

C.F.R. § 411.354(c)(2)(ii) (2014).                    Pursuant to the Stark Law,

“[a] hospital may not submit for payment a Medicare claim for

services rendered pursuant to a prohibited referral.”                                     United

States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 675
F.3d 394, 397–98 (4th Cir. 2012).

      Beginning in 2003, Tuomey sought the advice of its longtime

counsel, Nexsen Pruet, on the Stark Law implications arising

from the proposed employment contracts.                         Nexsen Pruet in turn

engaged    Cejka        Consulting,        a     national   consulting           firm       that

specialized       in    physician     compensation,         to    provide     an       opinion

concerning the commercial reasonableness and fair market value

of the contracts.            Tuomey also conferred with Richard Kusserow,

a former Inspector General for the United States Department of

                                                5
Health    and     Human    Services,         and   later,   with     Steve     Pratt,   an

attorney at Hall Render, a prominent healthcare law firm.

     The       part-time         employment        contracts     had     substantially

similar terms.            Each physician was paid an annual guaranteed

base salary.           That salary was adjusted from year to year based

on the amount the physician collected from all services rendered

the previous year.             The bulk of the physicians’ compensation was

earned    in     the    form    of     a   productivity     bonus,     which    paid    the

physicians eighty percent of the amount of their collections for

that year.        The physicians were also eligible for an incentive

bonus of up to seven percent of their earned productivity bonus.

In addition, Tuomey agreed to pay for the physicians’ medical

malpractice       liability           insurance    as   well    as     their    practice

group’s share of employment taxes.                      The physicians were also

allowed     to    participate           in   Tuomey’s     health     insurance        plan.

Finally, Tuomey agreed to absorb each practice group’s billing

and collections costs.

     The contracts had ten-year terms, during which physicians

could maintain their private practices, but were required to

perform     outpatient          surgical      procedures       exclusively       at     the

hospital.        Physicians could not own any interest in a facility

located    in     Sumter       that    provided    ambulatory      surgery     services,

save for a less-than-two-percent interest in a publicly traded

company that provided such services.                    The physicians also agreed

                                              6
not to perform outpatient surgical procedures within a thirty-

mile radius of the hospital for two years after the expiration

or termination of the contracts.

        Tuomey     ultimately      entered       into     part-time        employment

contracts with nineteen physicians.               Tuomey, however, was unable

to reach an agreement with Dr. Michael Drakeford, an orthopedic

surgeon.          Drakeford     believed       that     the   proposed      contracts

violated the Stark Law because the physicians were being paid in

excess of their collections.          He contended that the compensation

package     did    not   reflect    fair       market     value,     and    thus    the

government would view it as an unlawful payment for the doctor’s

facility-fee-generating referrals.

        To address Drakeford’s concerns, Tuomey suggested a joint

venture as an alternative business arrangement, whereby “doctors

would become investors . . . in . . . a management company that

would provide day-to-day management of the outpatient surgery

center,” J.A. 3268, and both Tuomey and its co-investors would

“receive payments based on that management [structure].”                           J.A.

2036.    Drakeford, however, declined that option.

    Unable to break the stalemate in their negotiations, in May

2005, Tuomey and Drakeford sought the advice of Kevin McAnaney,

an attorney in private practice with expertise in the Stark Law.

McAnaney    had     formerly    served     as    the    Chief   of    the    Industry

Guidance Branch of the United States Department of Health and

                                           7
Human Services Office of Counsel to the Inspector General.                            In

that position, McAnaney wrote a “substantial portion” of the

regulations implementing the Stark Law.                  J.A. 2026.

       McAnaney advised the parties that the proposed employment

contracts raised significant “red flags” under the Stark Law. 2

J.A. 2054.         In particular, Tuomey would have serious difficulty

persuading the government that the contracts did not compensate

the     physicians     in   excess    of       fair    market     value.       Such   a

contention, said McAnaney, would not pass the “red face test.”

J.A.       2055.    McAnaney   also   warned          Tuomey    that   the    contracts

presented “an easy case to prosecute” for the government.                          J.A.

2078.

       Drakeford ultimately declined to enter into a contract with

Tuomey.       He later sued the hospital under the qui tam provisions

of    the    FCA,   alleging   that   because          the     part-time     employment

contracts violated the Stark Law, Tuomey had knowingly submitted

false claims for payment to Medicare.                     As was its right, the

government intervened in the action and filed additional claims

       2According to McAnaney, the joint venture                          alternative
raised separate concerns under the Anti-Kickback                         Statute, 42
U.S.C. § 1320a-7b(b), which bars “the payment of                        remuneration
for the purpose of inducing the purchase of health                      care covered
by any federal health care insurance program.”                            Michael K.
Loucks & Carol C. Lam, Prosecuting and Defending                         Health Care
Fraud Cases 233 (2d ed. 2010).

                                           8
seeking equitable relief for payments made under mistake of fact

and unjust enrichment theories.

                                           B.

       At the first trial, Tuomey argued that McAnaney’s testimony

and related opinions regarding the contracts should be excluded

as   an    offer    to   compromise    or       settle   under    Federal   Rule    of

Evidence 408 because McAnaney was mediating a dispute between

Tuomey     and     Drakeford.      Alternatively,        Tuomey     contended    that

because McAnaney was hired jointly by Tuomey and Drakeford, he

owed a duty of loyalty to both clients that precluded him from

testifying.         The district court sustained Tuomey’s objection,

although it did not articulate the ground for its ruling.

       Tuomey also objected to the government’s attempt to admit

excerpts from the deposition testimony of Gregg Martin, Tuomey’s

Senior     Vice     President    and   Chief      Operating      Officer.    Tuomey

argued that the deposition testimony should be excluded because

it contained Martin’s recollections of a discussion he had with

Tuomey’s     counsel     concerning    McAnaney’s        opinions    regarding     the

employment contracts.            According to Tuomey, the testimony was

merely a “back doorway to get in Mr. McAnaney’s opinions.”                       J.A.

808.      The government countered that the deposition testimony was

admissible to show Tuomey’s state of mind and intent to violate

the Stark        Law.    The    district    court    again    sustained     Tuomey’s

objection.

                                            9
     The jury returned a verdict finding that, while Tuomey had

violated    the    Stark       Law,    it    had     not    violated        the    FCA.       The

government    filed       a    post-verdict          motion       for      judgment      on   its

equitable claims.         It also moved for judgment as a matter of law

under Federal Rule of Civil Procedure 50 on the FCA claim, or

alternatively       for   a     new    trial      under     Rule      59    because      of   the

district court’s decision to exclude McAnaney’s testimony and

opinions, as well as the Martin deposition excerpts.

     The     district         court    denied      the      government’s          motion      for

judgment as a matter of law.                  But the court agreed that it had

committed     “a     substantial            error”     by        excluding        the     Martin

deposition    excerpts.              J.A.    1296.         It    therefore        granted     the

government’s       motion      for    a     new   trial.         Notably,      the      district

court’s decision was based solely on its error in excluding the

Martin deposition excerpts.

     While the government asked for a new trial only on the

knowledge element of the FCA claim, the district court granted a

new trial as to the entirety of the claim.                            Notwithstanding the

court’s decision to grant a new trial on the FCA claim, the

district    court     entered         judgment       for        the   government        on    its

equitable claims based on the jury’s finding of a Stark Law

violation, and ordered Tuomey to pay damages in the amount of

$44,888,651 plus pre- and post-judgment interest.

                                              10
        On appeal, we vacated the judgment, concluding that the

jury’s finding of a Stark Law violation was a common factual

issue necessary to the resolution of both the equitable claims

and the FCA claim. 3         Yet, because the district court rendered the

jury’s verdict finding a Stark Law violation a “legal nullity”

when it granted the government’s motion for a new trial, we held

that the court deprived Tuomey of its Seventh Amendment right to

a   jury    trial    by    entering    judgment    on   the   equitable   claims.

Drakeford, 675 F.3d at 405.               We remanded the case for a new

trial as to all claims.

      While the case was on appeal, the presiding judge passed

away.      At the second trial, the new presiding judge allowed the

government      to        introduce     the     previously    excluded      Martin

deposition testimony, and also allowed McAnaney to testify.                    The

jury found that Tuomey violated both the Stark Law and the FCA.

It further found that Tuomey had submitted 21,730 false claims

to Medicare with a total value of $39,313,065.                      The district

court     trebled    the    actual    damages     and   assessed   an   additional

civil penalty, both actions required by the FCA.                        31 U.S.C.

§ 3729(a)(1).         From    the     resulting    judgment   of   $237,454,195,

Tuomey appeals.

      3
      Tuomey also sought leave to pursue an interlocutory appeal
of the district court’s order granting a new trial on the FCA
claim. We denied that motion.

                                          11
                                            II.

                                            A.

       Tuomey’s       appeal    presents     these       issues:          First,      did     the

district court err in granting the government’s motion for a new

trial on the FCA claim?              If not, did the district court err in

(1) denying Tuomey’s motion for judgment as a matter of law (or,

in the alternative, for yet another new trial) following the

second trial; and (2) awarding damages and penalties against

Tuomey based on the jury’s finding of an FCA violation?                                        We

address each issue in turn, but first provide a general overview

of the Stark Law.

                                            B.

      The Stark Law is intended to prevent “overutilization of

services     by    physicians       who   [stand]       to       profit      from    referring

patients     to    facilities       or    entities          in    which      they    [have]     a

financial interest.”            Drakeford, 675 F.3d at 397.                        The statute

prohibits a physician from making a referral to an entity, such

as    a   hospital,          with   which     he       or        she   has     a     financial

relationship, for the furnishing of designated health services.

42    U.S.C.      § 1395nn(a)(1).           If    the       physician        makes     such    a

referral, the hospital may not submit a bill for reimbursement

to Medicare.          Id. § 1395nn(a)(1)(B).                Similarly, the government

may    not     make    any     payment    for      a    designated        health       service

provided in violation of the Stark Law.                          Id. § 1395nn(g)(1).           If

                                            12
a person collects any payment for a service billed in violation

of the Stark Law, “the person shall be liable to the individual

for, and shall refund on a timely basis to the individual, any

amounts so collected.”           Id. § 1395nn(g)(2). 4

       Inpatient and outpatient hospital services are considered

designated health services under the law.                   Id. § 1395nn(h)(6).

A referral includes “the request by a physician for the item or

service.”         Id. § 1395nn(h)(5)(A).        A referral does not include

“any designated health service personally performed or provided

by the referring physician.”              42 C.F.R. § 411.351.          However,

there is a referral when the hospital bills a “facility fee”

(also known as a “facility component” or “technical component”)

“in connection with the personally performed service.”                  Medicare

and    Medicaid      Programs;    Physicians’    Referrals     to   Health   Care

Entities With Which They Have Financial Relationships, 66 Fed.

Reg.       856,   941   (Jan.    4,   2001);   see   also    Medicare   Program;

Physicians’ Referrals to Health Care Entities With Which They

Have Financial Relationships (Phase II), 69 Fed. Reg. 16054,

16063 (Mar. 26, 2004).

       4
       Because the Stark Law does not create its own right of
action, the government in this case sought relief under the FCA,
which provides a right of action with respect to false claims
submitted for Medicare reimbursement.   See Drakeford, 675 F.3d
at 396 & n.2.

                                         13
      A financial relationship constitutes a prohibited “indirect

compensation           arrangement,”        if     (1)     “there       exists     an       unbroken

chain    of      any    number . . . of          persons          or    entities        that      have

financial            relationships . . .              between          them,”      (2)        “[t]he

referring physician . . . receives aggregate compensation . . .

that varies with, or takes into account, the volume or value of

referrals or other business generated by the referring physician

for the entity furnishing” the designated health services, and

(3) the entity has knowledge that the compensation so varies.

42 C.F.R. § 411.354(c)(2); see also Drakeford, 675 F.3d at 408

(“[C]ompensation arrangements that take into account anticipated

referrals . . . implicate the volume or value standard.”).                                        The

statute,         however,           does     not         bar      indirect         compensation

arrangements where: (1) the referring physician is compensated

at fair market value for “services and items actually provided”;

(2)   the     compensation           arrangement           is   “not     determined          in    any

manner      that       takes      into      account         the    volume         or    value       of

referrals”;          (3)    the   compensation           arrangement         is   “commercially

reasonable”; and (4) the compensation arrangement does not run

afoul    of       any       other     federal         or    state       law.           42    C.F.R.

§ 411.357(p); Drakeford, 675 F.3d at 398.

      Once       a     relator      or     the   government            has   established          the

elements of a Stark Law violation, it becomes the defendant’s

burden      to       show    that     the    indirect           compensation           arrangement

                                                 14
exception shields it from liability.               See United States ex rel.

Kosenske v. Carlisle HMA, Inc., 554 F.3d 88, 95 (3d Cir. 2009).

                                        C.

        We first address the district court’s decision to grant the

government a new trial on the FCA claim.                 The government pressed

two grounds in support of its motion.              First, it argued that the

district court erred by excluding McAnaney’s testimony, along

with    all    evidence   containing    the    views     he   expressed         to   the

parties on the potential Stark Law liability surrounding the

contracts.       Second,    the    government      argued     that    the   district

court     erroneously     excluded     the    Martin      deposition        excerpts.

While    the   district    court   granted     a   new    trial      on   the   latter

ground, we instead affirm the district court on the basis of its

more glaring error, the exclusion of McAnaney’s testimony and

related evidence.

                                        1.

        We review a district court’s decision to grant a new trial

for abuse of discretion.            Cline v. Wal-Mart Stores, Inc., 144
F.3d 294, 301 (4th Cir. 1998).               We apply the same standard to

the district court’s decision to exclude evidence.                        Buckley v.

Mukasey, 538 F.3d 306, 317 (4th Cir. 2008).                   “By definition, a

district court abuses its discretion when it makes an error of

law.”     RZS Holdings AVV v. PDVSA Petroleo S.A., 506 F.3d 350,

356 (4th Cir. 2007).         Even so, we may reverse a district court

                                        15
only    if   its    evidentiary          error       affects    a    party’s      substantial

rights.      Buckley, 538 F.3d at 317.                       And, of course, we may

affirm a district court’s ruling on any ground apparent in the

record.      Republican Party of N.C. v. Martin, 980 F.2d 943, 952

(4th Cir. 1992).

                                                2.

       We believe that the district court abused its discretion in

granting     a     new   trial      on    the    ground      that     it   had        improperly

excluded the Martin deposition excerpts.                            Even if the district

court    should      not     have    excluded         this     evidence      in       the    first

instance,     an    evidentiary          error       is   harmless    when       it    does      not

affect a party’s substantial rights--in this case, whether it

can be said with a high probability that the error did not

affect the judgment.             Taylor v. Va. Union Univ., 193 F.3d 219,

235 (4th Cir. 1999) (en banc), abrogated on other grounds by

Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003); Daskarolis v.

Firestone Tire & Rubber Co., 651 F.2d 937, 942 (4th Cir. 1981)

(noting that even if the district court believed that it had

excluded admissible evidence, the erroneous exclusion could not

be   grounds       for   a   new    trial       because      it     did    not    affect         the

substantial rights of the parties).                       The district court made no

effort to assess the alleged error under this stringent harmless

error    standard.           Furthermore,        because        the    exclusion            of   the

Martin deposition testimony was, in fact, a harmless error, the

                                                16
district court abused its discretion in granting a new trial on

this ground.

       In its motion for a new trial, the government argued that

Martin’s       testimony        was     necessary         evidence     supporting        the

scienter element of its FCA claim.                   Specifically, the government

contended       that       Martin,    Tuomey’s      agent,    received       and    ignored

McAnaney’s       warnings       that    the     part-time         employment      contracts

raised significant Stark Law compliance issues.                         Thus, says the

government,          the    evidence     would       have     demonstrated         Tuomey’s

reckless       disregard        of     the     legal      minefield     that       it    was

traversing.          We think, however, that the probative value of this

particular evidence is weak at best, and excluding it did not

negatively affect the government’s substantial rights.

       The    deposition       excerpts       predominantly         focus    on    Martin’s

recollection of a discussion he had with Tuomey’s lawyer, Tim

Hewson.       Hewson recounted to Martin the details of a conference

call       between    Hewson,    McAnaney,         and    Drakeford’s       lawyer,     Greg

Smith. 5     Specifically, Hewson told Martin that McAnaney had Stark

Law    compliance          concerns     with       both     the    proposed       part-time

       5
       Hewson was likely recounting the details of two separate
conference calls.   The first call was between McAnaney, Smith,
and Hewson and covered the part-time employment contracts. The
following day, Steve Pratt joined those three for a second call
focusing on the joint venture arrangement. When asked if he was
aware that there were two separate conference calls, Martin
responded that he did not “remember for sure.” J.A. 105.

                                              17
employment contracts as well as the joint venture arrangement

(which Martin referred to as the “under arrangement”).                                   However,

Martin was unable to remember specifics about the conversation,

and often confused McAnaney’s concerns with issues raised by

Steve Pratt.

       Martin did vaguely recall that Hewson had told him that

McAnaney said the proposed arrangements would raise “red flags”

with    the   government.           J.A.    104-05.         Yet,    Martin          could       not

remember      whether     McAnaney’s        warnings    were       particular             to    the

part-time employment contracts, the joint venture arrangement,

or   both.       Indeed,      in    Martin’s      recollection          it    was        hard    to

“separate the two.”           J.A. 107.         To the extent that Martin could

distinguish      the    two   proposed       arrangements,         he     recalled          being

warned of greater problems with the joint venture arrangement.

       With respect to McAnaney’s concerns about the employment

contracts,       Martin     had     a   vague     recollection          of        some    issues

related    to    fair     market    value,      but   was    unable          to    offer       more

detail.         Ultimately,        Martin    acknowledged          that       there       was    a

“difference of opinion” between McAnaney and Hewson, but decided

to trust Hewson’s opinion that the contracts posed no Stark Law

concerns.       J.A. 111.

       That Martin’s deposition testimony was hazy is not at all

surprising, given that he was being asked to recall--nearly four

years    after    the     fact--the        substance    of    a     conversation               with

                                             18
Tuomey’s lawyer, who himself was recalling an earlier conference

call with McAnaney.           Standing alone, we fail to see how the

government was substantially prejudiced by the district court’s

decision   to    exclude    this   evidence.    Thus,     we   hold    that    the

district court abused its discretion in relying on this ground

to grant the government’s motion for a new trial.

                                      3.

     Nonetheless, we affirm the district court’s order granting

a new trial on the alternative ground urged by the government--

that it was prejudiced by the exclusion of McAnaney’s testimony

and other related evidence of his warnings to Tuomey regarding

the legal peril that the employment contracts posed. 6                  To make

its case that Tuomey “knowingly” submitted false claims under

the FCA, the government needed to show that Tuomey knew that

there was a substantial risk that the contracts violated the

Stark    Law,   and   was   nonetheless    deliberately    ignorant      of,   or

recklessly      disregarded    that   risk.    In   our    view,      McAnaney’s

     6 Tuomey says that we may not affirm on this alternative
ground because the government’s brief never asked us to do so.
But this assertion splits the thinnest of hairs. While perhaps
the government could have been more direct in its brief, it
clearly alerted us (and Tuomey) that there was an alternate
ground for affirming the district court. See Appellee’s Br. at
82 (“[The] new trial ruling was correct not only because of the
exclusion of Martin’s testimony, but also because the exclusion
of McAnaney’s testimony and related evidence was clearly
erroneous   and  affected   the   substantial  rights   of  the
government.”).

                                      19
testimony was a relevant, and indeed essential, component of the

government’s evidence on that element, and Tuomey offered no

good reason why the jury should not hear it.

     The district court has now presided over two trials in this

case, with strikingly disparate results.                   In the first trial,

the jury did not hear from McAnaney and found for Tuomey on the

FCA claim.       When the case was retried, McAnaney was allowed to

testify and the jury found for the government.                    Coincidence?         We

think not.       Rather, we believe that these results bespeak the

importance of what the jury in the first trial was not allowed

to consider.

     And this is so even while acknowledging that McAnaney was a

looming presence throughout the first trial.                     For example, the

jury heard audio of a Tuomey board meeting, where a board member

mentioned that McAnaney had voiced concerns with the part-time

employment contracts.            Left unsaid, however, was the precise

nature   of    those     concerns     or   the   weight    and   seriousness          that

McAnaney      attached    to    them.      The   jury   also     knew    that    Hewson

(Tuomey’s      counsel     at    Nexson    Pruet)    was    generally         aware    of

McAnaney’s      views    on     the   employment    contracts,          but    that     he

dismissed them as not credible because, in his view, Drakeford

was deliberately seeking to cherry pick a legal opinion that

would undermine the entire deal.

                                           20
        The jury was also aware that Drakeford 7 wrote to Tuomey’s

board       summarizing        McAnaney’s       opinions.        The    district       court,

however, excluded Drakeford’s letter, although it did allow the

jury        to    consider     the   board’s     response      wherein      it    summarily

rejected Drakeford’s unspecified objections.                           Finally, the jury

heard that Tuomey refused to allow McAnaney to prepare a written

opinion          discussing    his   concerns        regarding    the    contracts,       and

subsequently           terminated       McAnaney’s       engagement       altogether       on

September 2, 2005.

        While certainly not insubstantial, the sum of the evidence

at the first trial regarding McAnaney was that Tuomey (1) was

aware        that      McAnaney      had    unspecified          concerns        about   the

employment contracts; (2) refused to allow McAnaney to relay his

concerns in writing; and (3) later terminated McAnaney’s joint

representation.            Yet, under the FCA, the government had to prove

that Tuomey knew of, was deliberately ignorant of, or recklessly

disregarded         the    falsity    of   its       claims   (i.e.     that     its   claims

violated         the   Stark    Law).      We    think    that    McAnaney’s       specific

warnings to Tuomey regarding the dangers posed by the contracts

were critical to making this showing.

       McAnaney           warned     Tuomey      that      procuring        fair       market

valuations, by itself, was not conclusive of the accuracy of the

        7   Drakeford was not called as a witness at either trial.

                                                21
valuation.        He emphasized that it would be very hard to convince

the     government         that     a        contract    that     paid      physicians

“substantially       above    even      their      collections,    much     less   their

collections minus expenses,” would constitute fair market value.

J.A.   2053.        According     to    McAnaney,       compensation      arrangements

under which the contracting physicians are paid in excess of

their collections were “basically a red flag to the government.”

Id.    He noted that similar cases had previously been prosecuted

before, although all of them ultimately settled.

       McAnaney also pointed out that the ten-year term of the

contracts,     combined      with      the    thirty-mile,      two-year    noncompete

provision would reinforce the government’s view that Tuomey was

“paying [the physicians] above fair market value for referrals.”

J.A. 2055.         He concluded that the contracts did not pass the

“red face test,” and warned that the government would find this

“an easy case to prosecute.”             J.A. 2055, 2078.

       We   think    the    importance        of    McAnaney’s    testimony    to   the

government’s case is self-evident.                    Indeed, it is difficult to

imagine     any    more    probative     and       compelling    evidence    regarding

Tuomey’s intent than the testimony of a lawyer hired by Tuomey,

who was an undisputed subject matter expert on the intricacies

of the Stark Law, and who warned Tuomey in graphic detail of the

                                              22
thin legal ice on which it was treading with respect to the

employment contracts. 8

                                          4.

     Tuomey urges, however, that McAnaney’s testimony and other

evidence    containing       his   views       were    properly       excluded      under

Federal Rule of Evidence 408.                 That rule, however, mandates the

exclusion of evidence relating to offers to compromise or settle

disputed    claims     if    the   evidence       is   being    offered       to   prove

liability   on   the    claim.        Bituminous       Constr.,       Inc.   v.    Rucker

Enters., Inc., 816 F.2d 965, 968 (4th Cir. 1987).                            We are not

persuaded   that     McAnaney      was    retained      to    help     Drakeford     and

Tuomey   compromise     or    settle      a    disputed      claim.      Rather,      the

record   unambiguously        shows      that    Drakeford      and     Tuomey      hired

McAnaney to advise them of the Stark Law risks posed by the

employment contracts.          As a result, Rule 408 does not support

the district court’s decision to exclude McAnaney’s testimony. 9

     8 We note that Tuomey waived the attorney-client privilege
with respect to its communications with McAnaney when it
asserted the advice-of-counsel defense. See Rhone-Poulenc Rorer
Inc. v. Home Indem. Co., 32 F.3d 851, 863 (3d Cir. 1994) (“A
defendant   may . . .  waive   [attorney-client]  privilege  by
asserting reliance on the advice of counsel as an affirmative
defense.”).
     9 In any event, as our concurring colleague ably explains,
even assuming that McAnaney’s testimony would ordinarily be
excludable under Rule 408, Tuomey nonetheless opened the door to
its admission by raising the advice-of-counsel defense.

                                          23
See ICAP, Inc. v. Global Digital Satellite Sys., Inc., 225 F.3d
654, 2000 WL 1049854, at *3 (4th Cir. 2000) (unpublished table

opinion)      (finding        Rule    408    inapplicable      where   the    parties’

communications           involved       contract     negotiations      rather     than

settlement negotiations).

     Nor      do    we    find       merit   in    Tuomey’s    objection     based   on

McAnaney’s supposed duty of loyalty to his clients.                          At trial,

Tuomey     never         suggested      which      evidentiary     rule      supported

exclusion on this ground, although it now characterizes this

argument as a claim for exclusion under Rule 403.                      That rule of

course allows a district court to exclude relevant evidence, but

only “if its probative value is substantially outweighed by a

danger   of    one       or   more     of    the   following:    unfair      prejudice,

confusing the issues, misleading the jury, undue delay, wasting

time, or needlessly presenting cumulative evidence.”                           Fed. R.

Evid. 403.         Left unsaid by Tuomey is precisely how the probative

value    of    McAnaney’s        compelling        testimony     was   substantially

outweighed by the countervailing factors set out in Rule 403.

     In sum, Tuomey has offered no good reason why the jury in

the first trial was not allowed to hear from McAnaney.                          And we

agree with the government that this evidence was critical to its

ability to satisfy its burden to prove that Tuomey acted with

the requisite intent under the FCA.                     We therefore affirm the

district court’s order granting a new trial on the FCA claim.

                                              24
                                       III.

       We turn now to Tuomey’s challenges to the judgment entered

following    the     second   trial.     Tuomey         asks    for     judgment      as    a

matter of law because a reasonable jury could not have found

that (1) the part-time employment contracts violated the Stark

Law,    or     (2)     Tuomey     knowingly         submitted         false      claims.

Alternatively,       Tuomey     asks   for    a    new    trial       because    of    the

district court’s refusal to tender certain jury instructions.

                                        A.

       We review the district court’s denial of Tuomey’s motion

for judgment as a matter of law de novo.                        Austin v. Paramount

Parks, Inc., 195 F.3d 715, 727 (4th Cir. 1999).                          We “view all

the evidence in the light most favorable to the prevailing party

and draw all reasonable inferences in [its] favor.”                           Konkel v.

Bob Evans Farms Inc., 165 F.3d 275, 279 (4th Cir. 1999).                                   We

will reverse the district court if a reasonable jury could rule

only in favor of the moving party.                 Dennis v. Columbia Colleton

Med.   Ctr.,   Inc.,    290 F.3d 639,       645    (4th    Cir.    2002)     (“[I]f

reasonable minds could differ, we must affirm.”).

                                        1.

       Tuomey argues that it is entitled to judgment as a matter

of law because the contracts between it and the physicians did

not run afoul of the Stark Law.                    As we explain, however, a

reasonable jury could find that Tuomey violated the Stark Law

                                        25
when it paid aggregate compensation to physicians that varied

with or took into account the volume or value of actual or

anticipated referrals to Tuomey.

       To begin with, we note that the Stark Law’s “volume or

value” standard can be implicated when aggregate compensation

varies with the volume or value of referrals, or otherwise takes

into   account   the       volume    or    value   of    referrals.        42     C.F.R.

§ 411.354(c)(2)(ii).          That is precisely what the district court

directed   the      jury    in     the    second   trial    to   assess.          Tuomey

insists,     however,       that     our    earlier      opinion     in    this     case

foreclosed    the    jury’s      consideration      of     whether   the    contracts

varied with the volume or value of referrals.                        Instead, says

Tuomey, the only question that should have been put to the jury

was “whether the contracts, on their face, took into account the

value or volume of anticipated referrals.”                   Drakeford, 675 F.3d

at 409.

       We disagree.        The district court properly understood that

the jury was entitled to pass on the contracts as they were

actually implemented by the parties.                    We said as much in our

earlier opinion, where

       we emphasize[d] that our holding . . . [was] limited
       to the issues we specifically address[ed]. On remand,
       a jury must determine, in light of our holding,
       whether the aggregate compensation received by the
       physicians under the contracts varied with, or took
       into account, the volume or value of the facility
       component referrals.

                                            26
Id. at 409 n.26 (emphasis added).

      A reasonable jury could have found that Tuomey’s contracts

in fact compensated the physicians in a manner that varied with

the   volume    or      value    of    referrals.         There     are    two     different

components of the physicians’ compensation that we believe so

varied.      First,       each    year,       the   physicians      were        paid    a    base

salary that was adjusted upward or downward depending on their

collections from the prior year.                      In addition, the physicians

received    the      bulk   of        their    compensation        in    the     form        of    a

productivity bonus, pegged at eighty percent of the amount of

their collections.

      As Tuomey concedes, “the aggregate compensation received by

the    physicians        under        the     Contracts     was     based         solely          on

collections       for    personally           performed    professional           services.”

Appellant’s Br. at 42.                And as we noted in our earlier opinion,

there are referrals here, “consisting of the facility component

of    the   physicians’          personally         performed      services,           and    the

resulting      facility         fee     billed      by    Tuomey        based     upon       that

component.”        Drakeford, 675 F.3d at 407.                      In sum, the more

procedures the physicians performed at the hospital, the more

facility fees Tuomey collected, and the more compensation the

physicians received in the form of increased base salaries and

productivity bonuses.

                                               27
     The nature of this arrangement was confirmed by Tuomey’s

former    Chief   Financial    Officer,     William    Paul      Johnson,      who

admitted “that every time one of the 19 physicians . . . did a

legitimate    procedure   on   a   Medicare      patient   at    the   hospital

pursuant to the part-time agreement[,] the doctor [got] more

money,” and “the hospital also got more money.”                 J.A. 2012.     We

thus think it plain that a reasonable jury could find that the

physicians’   compensation     varied     with   the   volume    or    value   of

actual referrals.      The district court did not err in denying

Tuomey’s motion for judgment as a matter of law on this ground. 10

     10 We are not persuaded by Tuomey’s reliance on commentary
promulgated by the Centers for Medicare & Medicaid Services as
it developed implementing regulations for the Stark Law. Tuomey
points to a portion of the commentary wherein the agency states
that the “fact that corresponding hospital services are billed
would   not  invalidate   an   employed   physician’s   personally
performed work, for which the physician may be paid a
productivity   bonus   (subject   to   the   fair   market   value
requirement).” 69 Fed. Reg. at 16089. But this statement deals
only with a productivity bonus based on the fair market value of
the work personally performed by a physician--it says nothing
about the propriety of varying a physician’s base salary based
on the volume or value of referrals.

     In any case, the commentary regarding productivity bonuses
appears under a section of the regulations that specifically
addresses comments related to the exception for bona fide
employment relationships.    This exception covers circumstances
where there is a meaningful administrative relationship between
the physician and the hospital. The jury was instructed on this
exception at trial, and rejected it.     Tuomey does not quarrel
with that aspect of the jury’s verdict; rather it contends that
the commentary applies irrespective of whether a bona fide
employment relationship actually exists. Nothing in the statute
or the regulations, however, supports this notion.

                                     28
                                             2.

      Tuomey next argues that the district court erred in not

granting its motion for judgment as a matter of law because it

did not knowingly violate the FCA.                      Specifically, Tuomey claims

that because it reasonably relied on the advice of counsel, no

reasonable jury could find that Tuomey possessed the requisite

intent to violate the FCA.               Because the record here is replete

with evidence indicating that Tuomey shopped for legal opinions

approving of the employment contracts, while ignoring negative

assessments, we disagree.

      The    FCA    imposes          civil     liability         on    any        person       who

“knowingly    presents,         or    causes      to    be     presented,         a   false     or

fraudulent    claim       for   payment      or    approval”          to    an     officer      or

employee     of     the       United     States         Government.                31       U.S.C.

§ 3729(a)(1)(A),          (b)(2)(A)(i).                Under     the       Act,       the     term

“knowingly” means that a person, with respect to information

contained    in     a     claim,       (1)   “has        actual       knowledge         of     the

information;” (2) “acts in deliberate ignorance of the truth or

falsity of the information;” or (3) “acts in reckless disregard

of the truth or falsity of the information.”                           Id. § 3729(b)(1).

The   purpose      of   the     FCA’s    scienter         requirement         is      to     avoid

punishing “honest mistakes or incorrect claims submitted through

mere negligence.”          United States ex rel. Owens v. First Kuwaiti

                                             29
Gen. Trading & Contracting Co., 612 F.3d 724, 728 (4th Cir.

2010) (internal quotation marks omitted).

      The record evidence provides ample support for the jury’s

verdict as to Tuomey’s intent.            Indeed, McAnaney’s testimony,

summarized above, is alone sufficient to sweep aside Tuomey’s

claim of error. 11      We agree with the district court’s conclusion

that “a reasonable jury could have found that Tuomey possessed

the   requisite      scienter     once    it    determined    to     disregard

McAnaney’s remarks.”        J.A. 4055-56.        A reasonable jury could

indeed be troubled by Tuomey’s seeming inaction in the face of

McAnaney’s      warnings,   particularly       given   Tuomey’s     aggressive

efforts    to   avoid   hearing   precisely    what    McAnaney    had   to   say

regarding the contracts.

      Nonetheless, a defendant may avoid liability under the FCA

if it can show that it acted in good faith on the advice of

counsel.     Cf. United States v. Painter, 314 F.2d 939, 943 (4th

Cir. 1963) (holding, in a case involving fraud, that “[i]f in

good faith reliance upon legal advice given him by a lawyer to

whom he has made full disclosure of the facts, one engages in a

      11
       We note also that the jury at the second trial considered
the deposition testimony of Tuomey executive Gregg Martin.
While this evidence is (for reasons we have explained) not
overly compelling in isolation, it is not without some value in
showing that Tuomey was aware that its proposed contracts raised
Stark Law concerns.

                                     30
course of conduct later found to be illegal, the trier of fact

may   in    appropriate       circumstances          conclude    the    conduct     was

innocent    because    ‘the     guilty       mind’    was     absent”).      However,

“consultation with a lawyer confers no automatic immunity from

the   legal      consequences    of     conscious       fraud.”        Id.   at    943.

Rather,     to     establish     the      advice-of-counsel            defense,    the

defendant must show the “(a) full disclosure of all pertinent

facts to [counsel], and (b) good faith reliance on [counsel’s]

advice.”      United States v. Butler, 211 F.3d 826, 833 (4th Cir.

2000) (internal quotation marks omitted).

      Tuomey      contends     that     it     provided       full     and   accurate

information       regarding     the     proposed       employment      contracts    to

Hewson, who in turn advised Tuomey that the contracts did not

run afoul of the Stark Law.             But as the government aptly notes,

“[i]n determining whether Tuomey reasonably relied on the advice

of its counsel, the jury was entitled to consider all the advice

given to it by any source.”            Appellee’s Br. at 53.

      In denying Tuomey’s post-trial motions, the district court

noted--and we agree--that a reasonable jury could have concluded

that Tuomey was, after September 2005, no longer acting in good

faith reliance on the advice of its counsel when it refused to

give full consideration to McAnaney’s negative assessment of the

part-time         employment          contracts         and      terminated        his

                                          31
representation. 12        Tuomey defends           its dismissal       of McAnaney’s

warnings       by   claiming    that   his      opinion   was   tainted    by    undue

influence exerted by Drakeford and his counsel.                        But there was

evidence before the jury suggesting that Tuomey also tried to

procure a favorable opinion from McAnaney.                       Indeed, Tuomey’s

counsel admitted that he was trying “to steer McAnaney towards

[Tuomey’s] desired outcome” and that Tuomey needed to “continue

playing along and influence the outcome of the game as best we

can.”        J.A. 4482.      Thus, a reasonable jury could conclude that

Tuomey ignored McAnaney because it simply did not like what he

had to say.

      Tuomey points to the fact that it retained Steve Pratt, a

prominent       healthcare       lawyer,     and     Richard     Kusserow,      former

Inspector General at the United States Department of Health and

Human Services, as further evidence that it acted in good faith

and   did     not   ignore     McAnaney’s    warnings.         Pratt   rendered   two

        12
        The government contended that Tuomey submitted 25,973
total claims for payment to Medicare between fiscal years 2005
and 2009. The government’s evidence on this point consisted of
a summary chart detailing the number of claims filed by Tuomey
in each fiscal year.       It appears, however, that the jury
subtracted the 4,243 claims that Tuomey submitted in fiscal year
2005 (running from October 1, 2004 to September 30, 2005) from
the government’s number. From this, the district court surmised
that the jury resolved to hold Tuomey responsible for those
claims filed beginning in fiscal year 2006 (that is, on or after
October 1, 2005) given that they were filed after Tuomey
terminated McAnaney’s joint representation on September 2, 2005.
We think this is an entirely reasonable view of the evidence.

                                           32
opinions that generally approved of the employment contracts.

But    he    did    so    without       being    told       of    McAnaney’s           unfavorable

assessment, even though Tuomey had that information available to

it at the time.            In addition, Pratt reviewed and relied on the

view        of     Tuomey’s       fair-market-value               consultant            that     the

employment         contracts      would     compensate           the   physicians         at   fair

market value, but he did not consider how the consultant arrived

at its opinion.             Nor did he know how much the doctors earned

prior to entering into the contracts, or that the hospital stood

to lose $1.5-2 million a year, not taking into account facility

fees, by compensating the physicians above their collections.

We    thus       think    it     entirely       reasonable         for   a     jury      to    look

skeptically on Pratt’s favorable advice regarding the contracts.

       The same can be said of the Kusserow’s advice.                                  Kusserow--

who was called by the government to rebut Tuomey’s advice-of-

counsel          defense--advised          Tuomey       regarding            the       employment

contracts         about    eighteen       months      before       the   parties         retained

McAnaney.           As     was    the     case       with    Pratt,       he       received      no

information regarding the fair market value of the employment

contracts,         information      that     Kusserow        considered        vital       “to    be

able to do a full Stark analysis of [the proposed contracts].”

J.A.    1676.        And       although     Kusserow        did    say   in        a    letter   to

Tuomey’s counsel that he did not believe the contracts presented

“significant Stark issues,” J.A. 1675, he hedged considerably on

                                                33
that view because of “potentially troubling issues related to

the       productivity          and    [incentive            bonus    provisions         in    the

contracts] that have not been fully addressed.”                              J.A. 1677.

          As     the     district      court     observed,           “the    jury       evidently

rejected Tuomey’s advice of counsel defense” as of the date that

Tuomey received McAnaney’s warnings, “grounded on the fact that

the       jury    excluded       damages       from      [before      the     termination      of

McAnaney’s engagement] in making its determination” of the civil

penalty and damages.                 J.A. 4055.          Thus, while Kusserow’s advice

was certainly relevant to Tuomey’s advice-of-counsel defense, a

reasonable jury could have determined that McAnaney’s warnings

(and Tuomey’s subsequent inaction) were far more probative on

the issue.

          In sum, viewing the evidence in the light most favorable to

the government, we have no cause to upset the jury’s reasoned

verdict that Tuomey violated the FCA.

                                                B.

          Next,       Tuomey    raises    several        challenges         to    the    district

court’s          jury    instructions.              We    review      a     district      court’s

“decision         to     give   (or    not    give)      a    jury    instruction        and   the

content          of     an   instruction . . .            for    abuse       of   discretion.”

United States v. Russell, 971 F.2d 1098, 1107 (4th Cir. 1992).

Our task is to determine “whether the instructions[,] construed

as    a    whole,        and    in    light    of     the     whole       record,   adequately

                                                34
informed the jury of the controlling legal principles without

misleading       or     confusing      the   jury   to    the     prejudice      of    the

objecting party.”             Spell v. McDaniel, 824 F.2d 1380, 1395 (4th

Cir. 1987).           We will reverse the district court’s decision not

to give a party’s proposed instruction “only when the requested

instruction (1) was correct; (2) was not substantially covered

by the court’s charge to the jury; and (3) dealt with some point

in the trial so important, that failure to give the requested

instruction seriously impaired that party’s ability to make its

case.”         Noel    v.    Artson,   641 F.3d 580,    586       (4th   Cir.     2011)

(internal quotation marks omitted). 13

                                             1.

       First, Tuomey urges us to grant it a new trial because the

district court failed to give jury instructions consistent with

our analysis in the first appeal.                   Specifically, Tuomey claims

that     the    district       court    ignored     our    admonition         that    “the

question, which should properly be put to a jury, is whether the

contracts, on their face, took into account the value or volume

of     anticipated          referrals.”       Drakeford, 675 F.3d    at     409.

According to Tuomey, the district court’s failure to so instruct

the jury erroneously permitted the jury to consider extrinsic

       13
        Because two of Tuomey’s challenges to the instructions
address the proper calculation of damages, we address them
separately infra at Sections IV.A.1, and IV.B.

                                             35
evidence     of    intent     in    determining        whether      the    physicians’

compensation took into account the volume or value of referrals.

     As the district court correctly determined, however, we did

not mean to limit the government’s ability to present evidence

as to Tuomey’s intent to violate the FCA.                     Rather, we sought to

emphasize that the government could not rely on such evidence

alone to show a violation.               See id. at 409 n.25 (“We agree with

[United States ex rel. Villafane v. Solinger, 543 F. Supp. 2d
678, 693 (W.D. Ky. 2008)] that intent alone does not create a

violation.        However,    that       does   not    aid    Tuomey      if   the   jury

determines that the contracts took into account the volume or

value of anticipated referrals.”).               Thus, the district court did

not err in declining to give this instruction.

                                           2.

     Tuomey next argues that the district court erred in not

separately instructing the jury on the knowledge element in the

Stark Law regulations’ definition of an indirect compensation

arrangement.       As Tuomey correctly notes, the Stark Law requires

that “[t]he entity furnishing [designated health services must]

ha[ve] actual knowledge of, or act[] in reckless disregard or

deliberate        ignorance        of,    the    fact        that    the       referring

physician . . .       receives       aggregate        compensation        that   varies

with, or takes into account, the volume or value of referrals.”

42 C.F.R. § 411.354(c)(2)(iii).

                                           36
       Here, however, the district court instructed the jury that

Tuomey would have acted knowingly under the FCA if it “realized

what it was doing and was aware of the nature of its conduct and

did not act through ignorance, mistake or accident.”                    J.A. 3942–

43.     Given that a jury found Tuomey possessed the requisite

scienter under the FCA, it necessarily also found Tuomey knew

that its contracts varied with or took into account referrals.

Therefore, the district court’s error (if any) in not separately

instructing the jury as to the knowledge component of the Stark

Law was harmless.

                                         3.

       Third,   Tuomey    argues   that       the   district    court    erred   by

refusing to charge the jury that claims based upon differences

of    interpretation     of   disputed    legal     questions    are    not   false

under the FCA.      For this proposition, it cites to our decision

in United States ex rel. Wilson v. Kellogg Brown & Root, Inc.,

525 F.3d 370, 377 (4th Cir. 2008), in which we said as much.

However, we also held there that for a claim to be “false” under

the FCA, “the statement or conduct alleged must represent an

objective falsehood.”         Id. at 376.

       When submitting its claims to the government, Tuomey was

required to certify its compliance with the Stark Law.                           See

United States ex rel. Thompson v. Columbia/HCA Healthcare Corp.,

125 F.3d 899, 902 (5th Cir. 1997) (“[W]here the government has

                                         37
conditioned payment of a claim upon a claimant’s certification

of compliance with . . . a statute or regulation, a claimant

submits    a    false    or    fraudulent     claim     when    he   or   she   falsely

certifies compliance with that statute or regulation.”); United

States ex rel. Pogue v. Diabetes Treatment Ctrs. of Am., 565 F.

Supp.     2d   153,     158–59      (D.D.C.    2008).      Here,      Tuomey    either

complied with the Stark Law or it didn’t.                      This is an objective

inquiry.       And the jury found that Tuomey, in fact, violated the

Stark Law.      As a result, Tuomey’s certification that it complied

with the Stark Law was false.                 The subjective inquiry--whether

Tuomey knew that its claims were in violation of the Stark Law--

is   covered     under        the   knowledge    element. 14         Therefore,     the

district court did not err in refusing to give this instruction.

                                          4.

        For their last jury instruction challenge, Tuomey contends

that the district court erred by failing to instruct the jury

that Tuomey was entitled to rely on legal advice even if it

turned out to be wrong.              However, the district court instructed

     14In Wilson, there was no either/or proposition of the kind
present here. Rather, in that case, the relators contended that
the disputed statement was false because the defendant “agreed
to [certain conditions] in the contract even though it knew it
would not, and later did not, abide by those terms.”     Wilson,
525 F.3d at 377.   As we explained, the relators’ assertion did
not rest on an objective falsehood, “but rather on Relators’
subjective interpretation of [the defendant’s] contractual
duties.” Id.

                                          38
the jury that knowledge does not include actions taken “through

ignorance,         mistake       or    accident.”             J.A.    3943.         It       later

emphasized         that    the   jury       could    not     conclude      that    Tuomey       had

knowledge “from proof of mistake, negligence, carelessness or a

belief in an inaccurate proposition.”                           Id. (emphasis added).

Because the import of Tuomey’s proposed charge was covered by

the district court’s instructions, we reject Tuomey’s claim of

error.

                                               IV.

        Finally,          Tuomey       makes        several        challenges           to      the

$237,454,195 judgment entered against it.                          First, it argues that

the   district        court      improperly         calculated       the    civil       penalty.

Next,        it   claims    that      the    district      court     used    the    incorrect

measure of actual damages.                     Finally, it brings constitutional

challenges to the award under the Fifth and Eighth Amendments.

      A       defendant     found      liable        under    the    FCA     must       pay    the

government “a civil penalty of” not less than $5,500 and not

more than $11,000 “plus 3 times the amount of damages which the

Government         sustains        because      of     that     person.”           31        U.S.C.

§ 3729(a)(1); 28 C.F.R. § 85.3(a)(9). 15                       In this case, the jury

        15
        The FCA sets the civil penalty range at $5,000 to
$10,000, but includes a provision that adjusts the range for
inflation.

                                               39
found that Tuomey had submitted 21,730 false claims, for which

it awarded actual damages of $39,313,065, which the district

court trebled.    The district court then added a civil penalty of

$119,515,000 to that sum, which it calculated by multiplying the

number of false claims by the $5,500 statutory minimum penalty.

     Ordinary, we review a court’s calculation of damages for

clear   error.    Universal     Furniture      Int’l,       Inc.   v.   Collezione

Europa USA, Inc., 618 F.3d 417, 427 (4th Cir. 2010).                      However,

to the extent the claim is that the calculations are influenced

by legal error, our review is de novo.                      Id.    Likewise, the

constitutionality of a damages award is a legal question that we

review de novo.         See Cooper Indus., Inc. v. Leatherman Tool

Grp., Inc., 532 U.S. 424, 436 (2001).

                                        A.

                                        1.

     According    to     Tuomey,   the       civil    penalty      assessed   was

improperly inflated because the jury was permitted to take into

account both inpatient and outpatient procedures performed by

the contracting physicians.             Instead, relying on our earlier

opinion   in   this    case,   Tuomey    claims      that    the   only   relevant

claims “were those Tuomey ‘presented, or caused to be presented,

to Medicare and Medicaid for payment of facility fees generated

as a result of outpatient procedures performed pursuant to the

                                        40
contracts.’”       Appellant’s         Br.      at    54   (alterations     omitted)

(quoting Drakeford, 675 F.3d at 399).                  Tuomey is incorrect.

      It is true that the contracts solely addressed compensation

for outpatient procedures.            That is, the physicians’ collections

(which form the basis for both their base salaries and their

productivity bonuses) do not account for the volume or value of

inpatient procedures performed.                 Tuomey, however, takes out of

context language from our earlier opinion recognizing this fact

to suggest that we commanded that the relevant claims be limited

to those seeking payment for outpatient procedures.                         We said

nothing of the sort.

      If    a   physician      has     a   financial       relationship     with    a

hospital, then the Stark Law prohibits the physician from making

any referral to that hospital for the furnishing of designated

health     services.        E.g.,    United     States     ex   rel.   Bartlett     v.

Ashcroft, 39 F. Supp. 3d 656, 669 (W.D. Pa. 2014) (“Because a

‘compensation arrangement’ existed between Physician Defendants

and   [the]     Hospital,      the     Stark     [Law]     prohibited     Physician

Defendants from making any patient referrals to [the] Hospital

for designated health services.” (emphasis added)).                       Inpatient

hospital services are designated health services.                      42 U.S.C. §

1395nn(h)(6).          And    a     referral         includes   “the   request     or

establishment of a plan of care by a physician which includes

the   provision        of    the     designated        health   service.”          Id.

                                           41
§ 1395nn(h)(5).         Plainly, then, inpatient services constitute a

prohibited       referral    for     the   furnishing     of    designated      health

services, and the district court properly instructed the jury to

factor them into the damages calculation.

                                           2.

     Tuomey also asserts that the jury’s damage award is flawed

because the government failed to present sufficient evidence of

referrals.        Specifically, Tuomey contends that the government

did not identify the “referring physician,” and thus failed to

prove     that    the   alleged      false      claims   came   about    through     a

prohibited referral.

     The government’s proof on this point came in the form of

summary evidence and testimony detailing the claims submitted by

Tuomey.     We agree with the district court that the government’s

evidence was sufficient to support the jury’s verdict.                         We note

also, as did the district court, that “Tuomey was entitled to

offer its own expert and its own alternate damages calculations,

but elected not to do so.”            J.A. 4061.

     In    any    case,     Tuomey    offers     no   authority   to    support    its

argument that the claims must explicitly identify the referring

provider.        Conversely, several courts have accepted that the

“‘attending/operating’          physician         identified      in    Form     UB-92

                                           42
qualifies as a referring physician.” 16            United States v. Rogan,

459 F. Supp. 2d 692, 713 (N.D. Ill. 2006); see also United

States v. Halifax Hosp. Med. Ctr., No. 6:09-cv-1002-Orl-31TBS,

2013 WL 6017329, at *10-11 (M.D. Fla. Nov. 13, 2013) (finding

that the fact that one of the physicians with whom the hospital

has a financial relationship is identified as an “operating” or

“attending” physician is sufficient evidence that the physician

was   also     the   “referring    physician”     absent   evidence    to   the

contrary).      Given the lack of support for Tuomey’s position, we

conclude that the jury had sufficient evidence to identify the

prohibited referrals.

                                         3.

      Tuomey    next    argues    that    the   district   court   erroneously

assessed the penalty based on the 21,730 UB-92/04 forms Tuomey

submitted      to    Medicare    for     reimbursement.     Instead,    Tuomey

asserts that the number of false claims should be limited to

four Medicare cost reports that it submitted. 17

      16Form UB-92 (later replaced by Form UB-04) is used by
hospitals to submit a claim for reimbursement to Medicare.
      17Cost reports (CMS-2552) “are the final claim that a
provider submits to the fiscal intermediary for items and
services rendered to Medicare beneficiaries. . . . Medicare
relies upon the hospital cost report to determine whether the
provider is entitled to more reimbursement than already received
through interim payments, or whether the provider has been
overpaid and must reimburse Medicare.”     J.A. 68-69 (citing 42
C.F.R. §§ 405.1803, 413.60, 413.64(f)(1)).

                                         43
      Tuomey provides no Stark Law case to support its argument.

Rather,      it    cites     to    FCA     cases    where     the       UB-92/04     forms

themselves were not fraudulent, but were submitted as part of an

ongoing     fraudulent       scheme.        In     those    cases,       the    fraud    was

consummated only when the cost report was submitted.                            See United

States ex rel. Hockett v. Columbia/HCA Healthcare Corp., 498 F.

Supp.   2d    25,    70-71    (D.D.C.       2007);    Visiting          Nurse    Ass’n   of

Brooklyn v. Thompson, 378 F. Supp. 2d 75, 99 (E.D.N.Y. 2004).

      But    even    those    cases       suggest    that    a    UB-92/04       form    can

constitute a discrete fraudulent claim under the FCA when the

government        proves   that     the    forms     were,       in   fact,      false   or

fraudulent.         See Hockett, 498 F. Supp. 2d at 70-71; Visiting

Nurse Ass’n, 378 F. Supp. 2d at 99.                         This occurs when “the

provider knowingly asks the Government to pay amounts it does

not owe.”         United States ex rel. Clausen v. Lab. Corp. of Am.,

Inc., 290 F.3d 1301, 1311 (11th Cir. 2002).

      Here, each time Tuomey submitted to Medicare a UB-92/04

form asking for reimbursement for a prohibited referral, it was

knowingly asking the government to pay an amount that, by law,

it could not pay.          Consequently, we find the district court did

not   err    in     finding       that    each   UB-92/04        form    constituted       a

separate claim.

                                            44
                                             B.

     Tuomey    also     challenges          the      district      court’s       measure    of

actual damages.        It argues that the true measure is not the sum

total of all claims the government paid (as the court instructed

the jury), but rather the difference (if any) between the true

value of the services provided by Tuomey and what the government

actually     paid.       According          to    Tuomey,        since    “there     was     no

evidence     that     the     Government          did      not     get     what    it      paid

for[,] . . .     there       were      no    actual        damages      under     the    FCA.”

Appellant’s Br. at 87.              Here again, Tuomey’s view of the law is

incorrect.

     The    Stark     Law    prohibits         the    government         from    paying    any

amount of money for claims submitted in violation of the law.

42 U.S.C. § 1395nn(g)(1).                Compliance with the Stark Law is a

condition    precedent        to    reimbursement           of    claims    submitted       to

Medicare.      When Tuomey failed to satisfy that condition, the

government owed it nothing.                  United States v. Rogan, 517 F.3d
449, 453 (7th Cir. 2008).

     The     Stark     Law       expresses        Congress’s       judgment       that      all

services     provided       in     violation         of    that    law     are    medically

unnecessary.         By reimbursing Tuomey for services that it was

legally    prohibited        from      paying,       the    government      has     suffered

injury    equivalent     to      the    full     amount      of   the     payments.        Cf.

United States v. Mackby (Mackby II), 339 F.3d 1013, 1018-19 (9th

                                             45
Cir. 2003) (finding that the fact that the defendant actually

rendered        the        service   billed     did       not    negate       the     government’s

injury,         as     “[d]amages       under       the     FCA       flow     from    the    false

statement”).               In this case, the damage from the false statement

came from the payment to an entity that was not entitled to any

payment         at    all.       Accordingly,         we    reject          Tuomey’s     claim     of

error. 18

                                                C.

      Finally, Tuomey argues that the district court’s award of

$237,454,195,              consisting     of   damages          and    a    civil     penalty,     is

unconstitutional under the Excessive Fines Clause of the Eighth

Amendment and the Due Process Clause of the Fifth Amendment.

While      the       award     is    substantial,          we    cannot       say     that    it   is

unconstitutional.

      “The           Excessive       Fines     Clause       of        the     Eighth    Amendment

prohibits            the     government      from     imposing          excessive       fines      as

punishment.”               Korangy v. FDA, 498 F.3d 272, 277 (4th Cir. 2007).

“Civil fines serving remedial purposes do not fall within the

reach      of    the        Eighth   Amendment.”            Id.         But    where     “a   civil

sanction ‘can only be explained as serving in part to punish,"

      18For the same reason, we also reject Tuomey’s contention
that the district court erred in failing to instruct the jury
that the government had to prove that the services received were
worth less than what the government paid.

                                                46
then the fine is subject to the Eighth Amendment.”                        Id. (quoting

Austin v. United States, 509 U.S. 602, 610 (1993)).                         In such a

case, the fine “will be found constitutionally excessive only if

it   is    ‘grossly      disproportional         to     the    gravity      of    [the]

offense.’”    Id. (alteration in original) (quoting United States

v.   Bajakajian,   524 U.S. 321,    334,       (1998)).       We    have   said,

however, that instances in which the penalty prescribed under

the FCA is unconstitutionally excessive will be “infrequent.”

United States ex rel. Bunk v. Gosselin World Wide Moving, N.V.,

741 F.3d 390, 408 (4th Cir. 2013).

      By contrast, the Due Process Clause “imposes substantive

limits beyond which penalties may not go.”                     TXO Prod. Corp. v.

Alliance    Res.   Corp.,    509 U.S. 443,     453-54    (1993)     (internal

quotation marks omitted) (Fourteenth Amendment case); Morgan v.

Woessner, 997 F.2d 1244, 1255 (9th Cir. 1993) (finding that the

Supreme Court’s analysis under the Due Process Clause of the

Fourteenth Amendment applies equally under the Fifth Amendment),

cited with approval in EEOC v. Fed. Express Corp., 513 F.3d 360,

376 (4th Cir. 2008).        Like the Eighth Amendment, the Due Process

Clause does not apply to compensatory damage awards.                          This is

because    compensatory     damages       “redress       the     concrete    loss    the

plaintiff has suffered by reason of the defendant’s wrongful

conduct,”    and   the    assessment       of     the    plaintiff’s        injury    is

“essentially a factual determination.”                   Cooper Indus., 532 U.S.
47
at 432.      On the other hand, punitive damages are “essentially

‘private fines’ intended to punish the defendant and to deter

future      wrongdoing.”          Id.          Consequently,        there   must     be

“procedural and substantive constitutional limitations on these

awards.”      See State Farm Mut. Auto Ins. Co. v. Campbell, 538
U.S. 408, 416 (2003).              Thus, the Due Process Clause imposes

limits on “grossly excessive” monetary penalties that go beyond

what   is    necessary     to    vindicate      the    government’s     “legitimate

interests in punishment and deterrence.”                   BMW of N. Am., Inc. v.

Gore, 517 U.S. 559, 562 (1996).

       The “FCA imposes damages that are essentially punitive in

nature.”      Vt. Agency of Natural Res. v. United States ex rel.

Stevens, 529 U.S. 765, 784 (2000).                    But the Supreme Court has

also noted that the treble damages provision of the statute has

a compensatory aspect, in that they account for the fact that

some   amount   of    money      beyond    actual     damages   is    “necessary     to

compensate the Government completely for the costs, delays, and

inconveniences occasioned by fraudulent claims.”                        Cook Cnty.,

Ill.   v.    United   States      ex    rel.    Chandler,     538 U.S. 119,    130

(2003).      Additionally, the provision allows the government to

recover some measure of the amount it must pay to compensate

relators in qui tam actions.               Id.; see also 31 U.S.C. § 3730(d)

(“If   the    Government        proceeds    with      an   action    brought   by    [a

relator, the relator] shall . . . receive at least 15 percent

                                           48
but not more than 25 percent of the proceeds of the action or

settlement of the claim . . . .”).                    On the other hand, the civil

penalty is completely punitive.                    United States v. Mackby (Mackby

I), 261 F.3d 821, 830 (9th Cir. 2001).

         The Supreme Court has instructed courts to consider three

guideposts when reviewing punitive damages awards under the Due

Process       Clause:    “(1)     the    degree       of     reprehensibility       of   the

defendant’s misconduct; (2) the disparity between the actual or

potential       harm     suffered       by    the    plaintiff      and    the     punitive

damages       award;    and    (3)    the     difference        between    the     punitive

damages awarded by the jury and the civil penalties authorized

or imposed in comparable cases.”                19    State Farm, 538 U.S. at 418.

There is no reason to believe that the Court’s “approach to

punitive       damages        under     the    Fifth         Amendment     would     differ

dramatically from analysis under the Excessive Fines Clause.”

Rogan, 517 F.3d at 454.

         The degree of reprehensibility of the defendant’s conduct

is “[p]erhaps the most important indicium of the reasonableness

of   a    punitive      damages      award.”         Gore, 517 U.S.   at    575.    Of

         19
        Because the FCA’s civil penalty and treble damages
provisions are Congressional mandates, we believe this final
factor is not instructive here. Indeed, to the extent that the
district court exercised any discretion at all, it did so by
imposing the statutory minimum civil penalty for each fraudulent
claim.

                                              49
course, in this case the damages and penalties assessed against

Tuomey are congressionally prescribed.                   31 U.S.C. § 3729(a)(1).

As we have previously stated, the Stark Law expresses Congress’s

judgment    of     the   reprehensibility        of    the    conduct       at    issue    by

deeming services provided in violation of the law worthless.

And “[t]he fact . . . that Congress provided for treble damages

and an automatic civil monetary penalty per false claim shows

that    Congress       believed      that    making     a     false    claim       to     the

government is a serious offense.”                Mackby II, 339 F.3d at 1018;

cf.    Rogan,    517 F.3d 454    (“[O]ne        would    think    that       a    fine

expressly authorized by statute could be higher than a penalty

selected ad hoc by a jury.”).

       In   addition,     the     Supreme     Court     has    directed          courts    to

evaluate     the    degree      of    reprehensibility         of     the    defendant’s

conduct by considering whether:

       the harm caused was physical as opposed to economic;
       the tortious conduct evinced an indifference or a
       reckless disregard of the health or safety of others;
       the target of the conduct had financial vulnerability;
       the conduct involved repeated actions or was an
       isolated incident; and the harm was the result of
       intentional malice, trickery, or deceit, or mere
       accident.

State Farm, 538 U.S. at 419.                 While Tuomey’s conduct in this

case does not implicate the first three factors, we think the

last two are relevant here.                 See Saunders v. Branch Banking &

Trust Co. of Va., 526 F.3d 142, 153 (4th Cir. 2008) (finding

                                            50
that    even     the    presence      of    a     single       State        Farm    factor     “can

provide    justification            for    a     substantial            award       of     punitive

damages”).

       Clearly,        Tuomey’s      conduct         “involved          repeated         actions,”

State    Farm, 538 U.S.      at    419,       as   it   submitted           21,730     false

claims.        Thus, while the penalty is certainly severe, it is

meant     to     reflect      the    sheer        breadth         of        the    fraud     Tuomey

perpetrated upon the federal government.                          Bunk, 741 F.3d at 407-

08 (explaining that the court was comfortable assessing high

civil    penalties       in   FCA    actions          involving         a    large       number   of

claims).          As     we   have        said,       “[w]hen          an     enormous       public

undertaking        spawns      a     fraud        of      comparable              breadth     [high

penalties] help[] to ensure what we reiterate is the primary

purpose of the FCA: making the government completely whole.”

Id.     Substantial penalties also serve as a powerful mechanism to

dissuade such a massive course of fraudulent conduct.                                       See id.

at 408.        And the government has “a strong interest in preventing

fraud” because “[f]raudulent claims make the administration of

Medicare more difficult, and widespread fraud would undermine

public confidence in the system.”                     Mackby II, 339 F.3d at 1019.

       Nor were Tuomey’s actions in this case the result of a

“mere accident.”          State Farm, 538 U.S. at 419.                        Rather, the jury

determined       that     Tuomey     submitted            false    claims          for     Medicare

reimbursement “knowingly,” that is, with actual knowledge, in

                                                51
deliberate ignorance, or with reckless disregard that the claims

violated the Stark Law.                Under the circumstances, we agree with

the government that “strong medicine is required to cure the

defendant’s disrespect for the law.”                          Gore, 517 U.S. at 577.

      Next, we consider the disparity between actual harm and the

punitive damages award.                     Specifically, we compare the actual

damages assessed against Tuomey to the civil penalty and the

portion    of       treble      damages          that       can   be     considered      punitive.

Here,     we    can        properly         regard          the    entire       civil     penalty,

$119,515,000,         as     punitive.             On       the   other       hand,    the   actual

damages of $39,313,065 are entirely compensatory.                                     As discussed

above,    the       additional        sum    of       $78,626,130         resulting      from    the

trebling       of    actual     damages          is     a    hybrid      of    compensatory      and

punitive damages.

      Although the Supreme Court has not told us where to draw

the line, see Chandler, 538 U.S. at 131, we may safely assume

that the portion of the trebled award allocated to the relator

is   compensatory.              See   id.          Assuming        further       that    Drakeford

receives the minimum amount allotted by the statute--that is

fifteen    percent         of   the    total          recovery--the           relator    would    be

entitled       to        $11,793,920         of         the       trebled       award,       leaving

$66,832,210         to     be   allocated          to       punitive      damages.        By    this

calculation,         the    portion         of    damages         that    is    compensatory      is

$51,106,985 and the $186,347,210 balance is punitive.

                                                   52
     While the Court has been reluctant to fix a bright-line

ratio that punitive damages cannot exceed for purposes of the

Due Process Clause, it has suggested that “an award of more than

four times the amount of compensatory damages might be close to

the line of constitutional impropriety.”               State Farm, 538 U.S.

at 425.    Here, the ratio of punitive damages to compensatory

damages is approximately 3.6-to-1, which falls just under the

ratio the Court deems constitutionally suspect. 20               We therefore

conclude   that   the   damages     award    is    constitutional   under     the

Fifth and Eighth Amendments.

                                      V.

     Finally,     we   do   not   discount   the    concerns   raised    by   our

concurring colleague regarding the result in this case.                       But

having no found no cause to upset the jury’s verdict in this

case and no constitutional error, it is for Congress to consider

whether changes to the Stark Law’s reach are in order.

                                                                        AFFIRMED

     20 The government contends that the ratio between the
penalty awarded and the actual damages (after accounting for the
relator’s recovery) may be as low as 2-to-1 or even 1-to-1.
This calculation, however, ignores the treble damages award, a
portion of which we consider to be punitive.

                                      53
WYNN, Circuit Judge, concurring:

       Because Tuomey opened the door to the admission of Kevin

McAnaney’s testimony by asserting an advice of counsel defense,

and because I cannot say, based on the record before me, that no

rational jury could have determined that Tuomey violated both

the Stark Law and the False Claims Act, I concur in the outcome

today.

       But I write separately to emphasize the troubling picture

this   case   paints:     An   impenetrably   complex   set   of   laws   and

regulations that will result in a likely death sentence for a

community hospital in an already medically underserved area.

                                     I.

       Regarding the issue of whether the district court correctly

granted a new trial, we review such a decision for abuse of

discretion.     Cline v. Wal-Mart Stores, Inc., 144 F.3d 294, 301

(4th Cir. 1998).        Similarly, we “review a trial court’s rulings

on the admissibility of evidence for abuse of discretion,” and

we will overturn such a ruling only if it is “arbitrary and

irrational.”    United States v. Cole, 631 F.3d 146, 153 (4th Cir.

2011) (quotation marks and citation omitted).

                                     A.

       Judge Perry, who presided over the first trial, excluded

McAnaney’s testimony pursuant to Evidence Rule 408, which can be
used to exclude evidence of settlement negotiations.                   Under Rule

408, “conduct or a statement made during compromise negotiations

about [a disputed] claim” is generally inadmissible when used to

“prove or disprove the validity or amount of a disputed claim.”

Fed. R. Evid. 408(a).

       It is unclear to me that the district court abused its

discretion    in   determining    that       McAnaney’s   testimony     could    be

excluded under Rule 408.         In his deposition testimony, McAnaney

described himself as “a tie breaker” who was jointly hired by

Drakeford and Tuomey when they could not agree about whether the

contracts    violated   the     Stark    Law—arguably     a   disputed     claim.

J.A.     139-41.     Tuomey’s    and     Drakeford’s      dispute      about    the

legality of the contracts reached impasse and ended in Drakeford

acting as a relator of this qui tam action only three months

later.       Had   Drakeford    and     Tuomey    been    able    to    reach    an

agreement, Drakeford presumably would not have filed this suit,

in   which   the   government,     having       intervened,      now   stands    in

Drakeford’s shoes.

       Rule 408’s exclusionary provision applies where a “dispute

or a difference of opinion exists,” not just “when discussions

crystallize to the point of threatened litigation.”                    Affiliated

Mfrs., Inc. v. Aluminum Co. of Am., 56 F.3d 521, 527 (3d Cir.

1995).     When viewed thusly, it is hard to say that Judge Perry

                                        55
acted either arbitrarily or irrationally in deeming McAnaney’s

testimony excludable.

       Crucially,       however,      evidence     subject       to   exclusion       under

Rule 408 is so excludable “only if the evidence is offered to

prove    either       liability    for    or    invalidity       of   a   claim   or    its

amount;” otherwise, it may come in.                     Bituminous Const., Inc. v.

Rucker    Enterprises,        Inc.,    816 F.2d 965,    968   (4th    Cir.    1987)

(emphasis added); Fed. R. Evid. 408(b) (“The court may admit

this    evidence       for    another     purpose.”).            Stated      differently,

“[s]ince the rule excludes only when the purpose is proving the

validity or invalidity of the claim or its amount, an offer for

another purpose is not within the rule.”                       2-408 Weinstein’s Fed.

Evid.     §     408.08       (quotation        marks     and     citation       omitted).

Therefore, if the McAnaney evidence was admissible for a purpose

beyond the validity or amount of a disputed claim, Rule 408

would provide no basis for barring it wholesale from the first

trial.

                                             B.

        The     government     argues,         among     other    things,      that    the

McAnaney evidence went to the heart of an issue wholly beyond

the     scope    of    Rule    408’s     limited        exclusionary      ambit—namely,

Tuomey’s advice of counsel defense.                    With this, I must agree.

        As explained by a district court in this Circuit in the

context of a False Claims Act fraud claim, “good faith reliance

                                             56
on the advice of counsel may contradict any suggestion that a

[defendant] ‘knowingly’ submitted a false claim.”           United States

v. Newport News Shipbuilding, Inc., 276 F. Supp. 2d 539, 565

(E.D.    Va.   2003).   “[I]f   a   [defendant]   seeks   the   advice    of

counsel in good faith, provides full and accurate information,

receives advice which can be reasonably relied upon, and, in

turn, faithfully follows that advice, it cannot be said that the

defendant ‘knowingly’ submitted false information or acted with

deliberate ignorance or reckless disregard of its falsity, even

if that advice turns out in fact to be false.”            Id.    See also,

e.g., United States v. Butler, 211 F.3d 826, 833 (4th Cir. 2000)

(identifying the elements of the advice of counsel defense as

“(a) full disclosure of all pertinent facts to [a lawyer], and

(b) good faith reliance on the [lawyer]’s advice”).

       When a party raises an advice of counsel defense, however,

all advice on the pertinent topic becomes fair game.             “It has .

. . become established that if a party interjects the ‘advice of

counsel’ as an essential element of a claim or defense,” then

“all    advice   received   concerning   the   same   subject   matter”   is

discoverable, not subject to protection by the attorney-client

privilege, and, by logical extension, admissible at trial.                 1

McCormick On Evid. § 93 (7th ed. 2013).           See also, e.g., In re

EchoStar Commc’ns Corp., 448 F.3d 1294, 1299 (Fed. Cir. 2006)

(“Once a party announces that it will rely on advice of counsel

                                    57
.    .    .    the    attorney-client      privilege          is    waived.           The   widely

applied standard for determining the scope . . . is that the

waiver applies to all other communications relating to the same

subject matter. . . . Thus, when EchoStar chose to rely on the

advice         of    in-house     counsel,       it        waived       the    attorney-client

privilege           with   regard   to     any    attorney-client                  communications

relating to the same subject matter, including communications

with counsel other than in-house counsel, which would include”

the advice of outside counsel.) (quotation marks and citation

omitted).

          Here, there can be no doubt that Tuomey pressed an advice

of       counsel      defense.      Tuomey      argued        to    the       first    jury,     for

example, that “[t]he lawyers were the ones running the show . .

. . All Tuomey did was accept their recommendations and vote on

them if they thought that it was something that would be good

for      the    hospital.        Advice    of    counsel           is    a    very,    very      good

defense.            It is one that the law recognizes, and it is one that

. . . fits perfectly in this situation.”                                Trial I, Transcript

for Mar. 25, 2010, at 1986.

          Further,      the    district    court       instructed            the     jury   on   the

advice         of    counsel    defense,    making          clear       that    it    provided     a

vehicle for absolving Tuomey of False Claims Act liability.                                      The

court instructed, among other things, that “the defendant has

asserted        an    affirmative    defense          of    advice       of    counsel      to   the

                                             58
United    States’         allegation      that           it   acted    in     violation         of     the

False Claims Act.               An affirmative defense is an argument that,

if     true,      will     defeat       the     government’s               claim.”         Trial        I,

Transcript for Mar. 26, 2010, at 2098-99.                              Regarding what Tuomey

needed       to    show    to     succeed       with          that    defense,        Judge          Perry

instructed that “in order for the defendant to prevail on its

affirmative defense of advice of counsel, Tuomey must prove the

following: One, that the advice was sought in good faith; two,

that    Tuomey       provided       full       and        accurate         information          to     the

attorney; three, the advice could be reasonably relied upon;

and, four, Tuomey faithfully followed the attorney’s advice.”

Id.

       Having put the advice it got from its lawyers squarely at

issue,    Tuomey         should    not    have           been   permitted       to     cherry-pick

which     advice      of     counsel          the        jury   was        permitted       to        hear.

Instead, the jury should have been allowed to consider all the

advice of all Tuomey’s counsel—including McAnaney.

       The     record      makes       clear        that,       whatever       else     McAnaney’s

assessment         was,    it    was    also        advice      of    counsel.          McAnaney’s

engagement letter to Tuomey and Drakeford, who had hired him

jointly, stated that McAnaney, a lawyer, had been “retained” to

“review      and    advise”       the    parties          “with      respect     to    a    proposed

business relationship.”                 J.A. 145.             McAnaney committed to being

guided       by    the     parties’       “instructions               in     carrying      out        the

                                                    59
representation” and reporting to the parties his “conclusions”

and “any potential compliance issues.”                  Id.     In other words,

McAnaney was Tuomey’s counsel, and he advised Tuomey about the

contracts at the heart of this case.

     The record makes similarly clear that Tuomey did not follow

McAnaney’s advice.        McAnaney advised Tuomey that the proposed

contracts raised significant “red flags” under the Stark Law.

J.A. 2054.      McAnaney advised that Tuomey would have difficulty

persuading the government that the contracts did not compensate

the physicians in excess of fair market value.                         And McAnaney

warned   Tuomey    that   the    contracts      presented     “an   easy      case   to

prosecute” for the government.                J.A. 2078.       Rather than heed

this advice and back away from the contracts, however, Tuomey

told McAnaney not to put his conclusions in writing and ended

his engagement.

     Allowing      McAnaney’s    testimony      into    evidence       to    show    the

advice he gave in light of Tuomey’s advice of counsel defense

would    have   been   outside     of    Rule   408’s    limited       exclusionary

ambit.     In     other   words,    by    pressing      an    advice    of    counsel

defense, Tuomey itself opened the door for McAnaney’s testimony

to come in, even if it otherwise might have been excludable

under Rule 408.        See Fed. R. Evid. 408(b).               Despite this, the

district court barred McAnaney’s testimony wholesale.

                                         60
      In keeping McAnaney out of the first trial, the district

court prevented the jury from getting the full picture of what

advice Tuomey had gotten from counsel.                  Tuomey told the jury

that “[t]he lawyers were the ones running the show . . . All

Tuomey   did     was      accept    their      recommendations.”      Trial    I,

Transcript for Mar. 25, 2010, at 1986.               But the government was

effectively      prevented    from    showing     that    Tuomey    had    gotten

conflicting recommendations from its different counsel, picked

its preferred advice, and discarded the rest.                    It is hard to

imagine that this constituted anything other than a prejudicial

abuse of discretion.          Cf. Rodriguez-Garcia v. Municipality of

Caguas, 495 F.3d 1 (1st Cir. 2007) (reversing because erroneous

Rule 408 ruling hamstrung plaintiff’s ability to show elements

of claim).

      In sum, in allowing Tuomey to press its advice of counsel

defense and giving the jury an advice of counsel instruction yet

preventing the jury from hearing all the advice that Tuomey got,

the   district    court    abused    its     discretion   and    prejudiced   the

government.      This error alone was grave enough to warrant a new

trial.       Accordingly,     I,     too,    conclude     that   Judge    Perry’s

decision to grant a new trial must be upheld.

                                        61
                                         II.

     Moving beyond the district court’s decision to grant a new

trial, I agree with the majority that the jury’s determination

that Tuomey violated both the Stark Law and the False Claims Act

must stand.   Our standard of review at this juncture is a highly

deferential   one,       “accord[ing]          the        utmost    respect    to    jury

verdicts” and “constraining” us to affirm so long as the record

contains “sufficient evidence for a reasonable jury” to have

returned the verdict it did.             Lack v. Wal-Mart Stores, Inc., 240
F.3d 255, 259 (4th Cir. 2001).                  After careful review of the

record, I cannot conclude that no reasonable jury could have

reached the verdict before us.

     Nevertheless,       I    am    troubled         by    the     picture    this   case

paints:    An impenetrably complex set of laws and regulations

that will result in a likely death sentence for a community

hospital in an already medically underserved area.

                                          A.

     The   Stark   Law       is,   at   its    core,       a   prohibition     on    self-

referrals, barring doctors from referring patients for certain

services to entities in which the doctors (or their immediate

family members) have a financial interest, unless an exception

applies.    Patrick A. Sutton, The Stark Law in Retrospect, 20

Annals Health L. 15, 25-26 (2011).                   Further, entities providing

                                          62
the pertinent services are prohibited from billing Medicare or

Medicaid pursuant to such a prohibited referral.                    Id.

       “The    Stark   Law   is    a    strict    liability    statute     so   it   is

immaterial       whether     one       intended    to   violate      the    law;     an

inadvertent violation can trigger liability.”                   Paula Tironi, The

“Stark” Reality: Is the Federal Physician Self-Referral Law Bad

for the Health Care Industry?, 19 Annals Health L. 235, 237-38

(2010).       Individuals and entities that violate the Stark Law can

be    subject    to    severe     monetary      penalties     and   exclusion      from

federal health care programs.              Id.    These “steep civil sanctions

and program exclusions may be ruinous.                   Health care providers

are    open     to    extensive     liability,      their     financial     security

resting uneasily upon a combination of their attorneys’ wits

[and] prosecutorial discretion.”                  Jo-Ellyn Sakowitz Klein, The

Stark Laws: Conquering Physician Conflicts of Interest?, 87 Geo.

L.J. 499, 503-04 (1998).

       Despite attempts to establish “bright line” rules so that

physicians and healthcare entities could “ensure compliance and

minimize . . . costs,” 66 Fed. Reg. 856, 860 (Jan. 4, 2001), the

Stark Law has proved challenging to understand and comply with.

Indeed, “[t]he Stark law is infamous among health care lawyers

and their clients for being complicated, confusing and counter-

intuitive; for producing results that defy common sense, and

sometimes elevating form over substance.                    Ironically, the Stark

                                           63
law was actually intended to simplify life by creating ‘bright

lines’    between        what    would      be    permitted         and    what        would       be

disallowed, and creating certainty by removing intent from the

equation.”     Charles B. Oppenheim, The Stark Law: Comprehensive

Analysis + Practical Guide 1 (AHLA 5th ed. 2014).                                Some of the

invective     used       to     describe     the       Stark    law       even    borders          on

lyrical: “ambiguous[,] arcane[,] and very vague;” and “heaps of

words in barely decipherable bureaucratese.”                              Steven D. Wales,

The   Stark    Law:        Boon      or     Boondoggle?         An    Analysis          of     the

Prohibition on Physician Self-Referrals, 27 Law & Psychol. Rev.

1, 22-23 (2003) (quotation marks and citations omitted).

      Given this complexity and the strict liability nature of

the   statute,       a    Stark      Law    “compliance          program         can    help        a

physician or [] entity prove good faith and obtain leniency in

the event of a violation; however, the Stark Law’s complexity

and   frequent     revisions         make    it    difficult         for    physicians         and

entities to develop and implement such programs.”                             Tironi, supra

at 238.     Against this problematic backdrop, the availability of

an advice of counsel defense should perhaps be especially robust

in Stark Law cases prosecuted under the False Claims Act.

                                             B.

      The False Claims Act discourages fraud against the federal

government    by     imposing        liability         on    “any    person      who     .     .    .

knowingly     presents,         or   causes       to    be     presented,        a     false       or

                                             64
fraudulent    claim   for    payment    or        approval.”       31   U.S.C.     §

3729(a)(1)(A) (emphasis added).             The False Claims Act is meant

“to indemnify the government . . . against losses caused by a

defendant’s fraud,” Mikes v. Straus, 274 F.3d 687, 696 (2d Cir.

2001) (citing United States. ex rel. Marcus v. Hess, 317 U.S.
537, 549, 551–52 (1943)), as opposed to a defendant’s mistake.

     Accordingly,     a     defendant       may    skirt   False      Claims     Act

liability    by   showing    good   faith     reliance     on   the     advice    of

counsel.     As the majority opinion recognizes, in fraud cases,

“‘[i]f in good faith reliance upon legal advice given him by a

lawyer to whom he has made full disclosure of the facts, one

engages in a course of conduct later found to be illegal,” the

trier of fact may conclude that the conduct was innocent because

“‘the guilty mind’ was absent.”             Ante at 30-31 (quoting United

States v. Painter, 314 F.2d 939, 943 (4th Cir. 1963)).

     In the context of the Stark Law, it is easy to see how even

diligent counsel could wind up giving clients incorrect advice.

Between the law’s being amended to have a broader scope but then

narrowed with various exceptions, along with the promulgation

and amendment of copious associated rules and regulations, “the

Stark Law bec[ame] a classic example of a moving target.                         For

lawyers, who must depend on the predictability of the law when

they give counsel to their clients, such unpredictability [i]s

an unusually heavy burden.”         Wales, supra at 21.

                                       65
     In this case, there can be no doubt that Tuomey sought and

followed    the     advice    of    its     long-time     counsel,       Nexsen      Pruet.

Nexsen Pruet drafted and approved the contracts at the heart of

this litigation.          Tuomey and Nexsen Pruet consulted with others,

including    the      nation’s       largest      healthcare       law     firm      and    a

national         consulting        firm     with     expertise           in     physician

compensation.             Those     experts,       too,        signed    off      on       the

arrangements       (though    the     parties      dispute       whether       Tuomey      had

shared     all     pertinent        information       for       purposes        of     these

additional assessments).

     Nevertheless, as the majority opinion notes, “a reasonable

jury could have concluded that Tuomey was . . . no longer acting

in good faith reliance on the advice of its counsel when it

refused     to     give    full     consideration         to    McAnaney’s        negative

assessment of the” contracts.               Id. at 32.         As already explained,

McAnaney, the former Chief of the Industry Guidance Branch at

the Department of Health and Human Services’ Office of Counsel

to the Inspector General, also served as Tuomey’s counsel.                                 And

he   advised       Tuomey     that        the    proposed       arrangements         raised

significant red flags and may well be unlawful.                                Had Tuomey

followed    McAnaney’s        advice,       it   likely        would    have    faced       no

lawsuit in which to raise an advice of counsel, or any other,

defense.

                                            66
                                III.

     This case is troubling.      It seems as if, even for well-

intentioned health care providers, the Stark Law has become a

booby trap rigged with strict liability and potentially ruinous

exposure—especially   when   coupled   with   the   False   Claims   Act.

Yet, the district court did not abuse its discretion when it

granted a new trial and the jury did not act irrationally when

it determined that Tuomey violated both the Stark Law and the

False Claims Act.     Accordingly, I must concur in the outcome

reached by the majority.

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