Hospital Exec, Others Charged in $1.4B Rural Hospital Fraud Scheme

The Justice Department has charged ten individuals, including a hospital executive, for their participation in a rural hospital fraud scheme that cheated $1.4 billion out of private insurance companies over three years.

In an indictment unsealed on June 29th, the Justice Department named the individuals allegedly involved in “an elaborate pass-through billing scheme” that used rural hospitals in several states in the South as billing shells to submit fraudulent laboratory testing claims.

Among the individuals charged was hospital administrator Jorge Perez of Miami-Dade County, Florida, who at various times managed and controlled three of the rural hospitals involved in the fraud scheme, as well as Empower H.I.S., LLC, a medical billing and software company. Others indicted alongside Perez included hospital managers, laboratory owners, billers, and recruiters.

“This was allegedly a massive, multi-state scheme to use small, rural hospitals as a hub for millions of dollars in fraudulent billings of private insurers,” Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, said in a press release. “The charges announced today make clear that the department is committed to dismantling fraud schemes that target our health care system, however complex or elaborate.”

The indictment alleges that the Perez and co-conspirators would identify and take over small, rural hospitals, that were oftentimes in financial distress, via management companies they owned and operated. They would then bill private insurance companies through the rural hospitals for expensive urinalysis drug tests and blood tests that were conducted mostly at outside laboratories that the conspirators often were affiliated with or controlled, using billing companies that they also controlled.

Outside laboratories did conduct most of the laboratory tests, however, the indictment alleges that the defendants billed private insurance companies as if the tests were done within the rural hospitals.

The rural hospitals involved in the fraud scheme had negotiated reimbursement rates with the private payers that were higher than if the tests were billed through an outside laboratory, federal investigators explained.

The hospitals never had the equipment of laboratory capacity to conduct large-scale confirmatory urinalysis tests or blood tests, the indictment stated.

Furthermore, they claimed that many of the laboratory tests were also medically unnecessary, and the conspirators obtained urine specimens and other samples for testing by paying illegal kickbacks to recruiters and healthcare providers, mostly at sober homes and substance abuse treatment centers.

Additionally, the indictment charged the conspirators for engaging in “sophisticated money laundering to promote the scheme and to distribute the fraudulent proceeds.”

The rural hospitals involved in the healthcare fraud scheme included Cambellton-Graceville Hospital, a 25-bed rural hospital located in Graceville, Florida; Regional General Hospital of Williston, a 40-bed facility located in Williston, Florida; Chestatee Regional Hospital, a 49-bed rural hospital located in Dahlonega, Georgia; and Putnam County Memorial Hospital, a 25-bed rural hospital located in Unionville, Missouri. 

Cambellton-Graceville Hospital and Putnam County Memorial Hospital are considered critical access hospitals, a designation under the Balanced Budget Act of 1997 to improve the financial viability of rural hospitals while increasing access to rural healthcare. Hospitals with the designation receive more favorable Medicare reimbursement rates.

Most of the rural hospitals used in the fraud scheme closed between 2016 and 2019.

Perez was charged with one count of conspiracy to commit healthcare fraud and wire fraud, five counts of substantive healthcare fraud, one count of conspiracy to commit money laundering, and seven counts of substantive money laundering.

Other individuals indicted include Seth Guterman, 54, of Chicago, Illinois; Ricardo Perez, 57, of Miami-Dade County, Florida; Aaron Durall, 48, and Neisha Zaffuto, 44, both of Broward County, Florida; Christian Fletcher, 34, of Atlanta, Georgia; James Porter Jr., 49, of Marion County, Florida; Sean Porter, 52, of Citrus County, Florida; Aaron Alonzo, 44, and Nestor Rojas, 45, each of Miami-Dade County, Florida.