Authorities accuse Lakeway hospital of obtaining loans through bribes – News – Austin American-Statesman

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In a case that has been under investigation for years, federal prosecutors filed a lawsuit Wednesday accusing a Lakeway hospital and its former managers of obtaining federally insured loans under a bribe program.

Earlier this year, the government reached an agreement with seven legal persons and officers. Wednesday’s filings in federal civil court expose the case against Surgical Development Partners, which prosecutors say violated the False Claims Act, the primary tool used to recover federal funds lost to fraud.

The Tennessee-based company, which previously developed and managed the operations of what was then Lakeway Regional Medical Center, applied for a mortgage insured by the US Department of Housing and Urban Development. Court documents say that as developers prepared to build the hospital, physician support for the facility began to erode, resulting in a shortfall of around $ 5 million to secure the loan.

RELATED: $ 7.9 Million Verdict Slashes Lakeway Regional Medical Center

“The failure or success of any new hospital largely depends on the support of local doctors who will practice and refer patients to the hospital,” according to court documents. “Unbeknownst to (federal officials), the accused made and conspired to make numerous material misrepresentations and omissions during the application process in order to exaggerate the support of doctors at the hospital.”

Prosecutors said that, rather than informing the federal government of the funding shortfall, Surgical Development Partners asked investors to cover a significant portion of the deficit. As part of the deal, the money would later be repaid through fees that investors could charge the hospital.

The hospital’s board of directors agreed that board members Brad Daniel and Jeff Rush would loan the hospital $ 1.5 million in exchange for $ 1.4 million in hospital fees. for unspecified work to be performed.

In 2010, Lakeway Regional received the largest mortgage guarantee ever granted by HUD to a for-profit hospital – $ 164 million. The hospital defaulted on the loan in August 2013.

Baylor Scott & White Health acquired the hospital in 2016 and is not mentioned as part of the investigation.

In addition to the medical center and Surgical Development Partners, the US government is suing G. Edward Alexander, CEO of Surgical Development Partners; Frank Sossi, lawyer and consultant for the hospital; and John Prater, Chief Financial Officer of Surgical Development Partner. Prosecutors are asking for a jury trial.

Prosecutors accused Sossi of negotiating, with the agreement of Alexander and the Prater, side agreements with members of the hospital’s board in the days leading up to the shutdown.

“As you know, HUD was nervous about this deal and would not respond well to a change in the deal documents at this point that increases fees for insiders,” Sossi wrote in an email to Daniel, explaining why they did not report the transaction in documents from Surgical Development Partners that would be sent to the Department of Housing and Urban Development.

Rush and Daniel were among those who agreed to settle their case with the government in June. They and several other companies agreed to pay the United States $ 1.1 million to receive the project funds, prosecutors said.

“We will continue to hold accountable those who knowingly violate these requirements and waste essential program funds,” then Deputy United States Attorney General Jody Hunt said.

RELATED: HUD Secures $ 50 Million for $ 164 Million Lakeway Hospital Loan

In a statement sent to the US statesman on Thursday, Sossi said he and others named in the complaint strongly disagreed with the allegations.

“We believe the allegations are false and will demonstrate their falsehood when the time comes,” Sossi said. “Because the case is ongoing, we cannot comment specifically, other than that we will vigorously defend the case and look forward to refuting the (Department of Justice) allegations.”

Alexander and Prater did not return emails asking for comment, and court documents do not mention the names of the lawyers representing them.

After the hospital defaulted on the loan, its management attributed the failure to lower than expected hospital admissions. However, doctors began to withdraw from the hospital in 2010, which federal authorities would have found alarming had the hospital reported, prosecutors said.

“The defendants knew that (the hospital) did not have enough cash to close and took active steps to hide this fact from HUD,” prosecutors wrote. The Lakeway Regional Medical Center “was built at a significant cost but was a failure from the start.”

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