Florida Man Indicted In $1.4B Healthcare Scam

Jorge A. Perez | Screenshot: CBS News

“He just devastated so many people [in all the] places where he had hospitals. I went months without pay, without health insurance. He robbed the community.”

Hospital Executive Charged In $1.4B Rural Hospital Billing Scheme

Kaiser Health News – A Miami entrepreneur who led a rural hospital empire was charged in an indictment unsealed Monday in what federal prosecutors called a $1.4 billion fraudulent lab-billing scheme.

In the indictment, prosecutors said Jorge A. Perez, 60, and nine others exploited federal regulations that allow some rural hospitals to charge substantially higher rates for laboratory testing than other providers.

The indictment, filed in U.S. District Court in Jacksonville, Florida, alleges Perez and the other defendants sought out struggling rural hospitals and then contracted with outside labs, in far-off cities and states, to process blood and urine tests for people who never set foot in the hospitals.

Insurers were billed using the higher rates allowed for the rural hospitals.

Perez and the other defendants took in $400 million since 2015, according to the indictment.

Many of the hospitals run or managed by Perez’s Empower companies have since failed as they ran out of money when insurers refused to pay for the suspect billing.

Half of the nation’s rural hospital bankruptcies in 2019 were affiliated with his empire.

“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,” said Assistant Attorney General Brian Benczkowski of the Justice Department’s Criminal Division in a statement.

Attempts to reach Perez for comment Monday evening were unsuccessful. But last year when Perez spoke to KHN, he said he was losing sleep over the possibility he could go to jail after propping up struggling rural hospitals.

“I wanted to see if I could save these rural hospitals in America,” Perez said. “I’m that kind of person.”

Pam Green, a former night charge nurse at the now-shuttered Horton Community Hospital in Horton, Kansas (population under 1,700), said she hopes Perez and his colleagues receive long prison sentences.

“He just devastated so many people, not just in Kansas, but in Oklahoma and all the other places where he had hospitals,” said Green, 58, of nearby Muscotah, Kansas. “I went months and months without pay, without health insurance. He robbed the community.”

“How companies run by this Miami businessman and his associates were able to drive so many hospitals into the ground so quickly, devastating their communities, is a story about the fragility of health care in rural America and the types of money-making ventures that have flourished in legal gray areas of America’s complicated medical system.” – Kaiser Health News, August 20, 2019

Green recalled that money was so tight under Perez’s management of her former hospital that the electricity was shut off at least twice and staffers had to bring in their own supplies.

She said she is owed about $12,000 in back pay, as well as money for uncovered dental expenses and a workplace injury that would have been covered had employees’ insurance or workers’ compensation premiums been paid.

A KHN investigation published in August 2019 detailed the rise and fall of Perez’s rural hospitals. At the height of his operation, Perez and his Miami-based management company, EmpowerHMS, helped oversee a rural empire encompassing 18 hospitals across eight states.

Perez owned or co-owned 11 of those hospitals and was CEO of the companies that provided their management and billing services.

Perez styled himself a savior of rural hospitals, swooping into small towns with promises to save their struggling facilities using his “secret sauce” of financial ventures. Multiple employees told KHN they had no idea what happened to the money their hospitals earned after Perez and his associates took control, since the facilities seemed perpetually starved for cash.

Over the past two years, amid mounting legal challenges and concerns about the lab-billing operation, insurers cut off funding and his empire crumbled. Overall, 12 of the hospitals have entered bankruptcy and eight have closed.

The staggering collapse left hundreds of employees without jobs and small towns across the Midwest and South without lifesaving medical care.

The four rural hospitals named in the indictment are:

  • Campbellton-Graceville Hospital in Graceville, Florida;
  • Regional General Hospital of Williston, Florida;
  • Chestatee Regional Hospital in Dahlonega, Georgia;
  • and Putnam County Memorial Hospital in Unionville, Missouri.

The indictment marks the third major case federal prosecutors have filed alleging billing fraud at Perez-affiliated hospitals. In October, David Byrns pleaded guilty to a federal charge of conspiracy to commit health care fraud involving a Missouri hospital he managed with Perez.

A Missouri Auditor General report previously found that the 15-bed hospital, Putnam County Memorial in Unionville, had received about $90 million in questionable insurance payments in less than a year.

In July 2019, Kyle Marcotte, owner of a Jacksonville Beach, Florida, addiction treatment center, pleaded guilty for his part in a $57 million lab-billing scheme involving two Perez-affiliated hospitals, Campbellton-Graceville and Regional General Hospital.

Marcotte admitted cooperating with unnamed hospital managers to provide urine samples from his patients for lab testing that was billed through the rural hospitals and, in exchange, getting a cut of the proceeds.

Perez, on his own and through Empower-affiliated companies, in 2016 and 2017 purchased South Florida properties that totaled more than $3.7 million, including three condos on Key Largo, according to property records.

He told KHN last year that the Florida properties were bought with earnings from unrelated software companies but declined to give details. He and his brother Ricardo Perez, if convicted, must forfeit over $46 million, according to the indictment, as well as two Key Largo condos and other properties.

Another defendant, Aaron Durall, if convicted, could lose $184.4 million and a six-bedroom, 6,500-square-foot home in the affluent Parkland district north of Fort Lauderdale, Florida.

Perez-affiliated hospitals also face ongoing lawsuits in Missouri and other states filed by dozens of insurers asking for hundreds of millions in restitution for allegedly fraudulent billings. In those court documents, Perez repeatedly has denied wrongdoing. He told KHN last year that his lab-billing setup was “done according to Medicare and state guidelines.”

For former employees of EmpowerHMS and members of the affected communities, the indictment represents vindication. As the company foundered, hundreds of employees worked without pay in vain efforts to keep their hospitals afloat.

They would discover later that, along with the missing paychecks, their insurance premiums had not been paid and their medical policies had been discontinued. In the June 2019 interview, Perez acknowledged that, as finances withered, he stopped paying employee payroll taxes.

“It’s nice to think he might be held accountable,” said Melva Price Lilley, a former X-ray technician at Washington County Hospital in Plymouth, North Carolina, which has reopened with new owners under a new name. “At least there’s a chance that he might have to suffer some consequences. That gives me some hope.”

Lilley, 56, said she and other employees could not retrieve their retirement savings from the bankrupt hospital until about three weeks ago. She has been trying to pay off about $68,000 in medical bills from a back surgery she needed for a workplace injury that wasn’t covered by workers’ compensation insurance premiums that went unpaid for hospital employees. She remains unable to work full time.

I-70 Community Hospital, an Empower facility in Sweet Springs, Missouri, has remained closed since February 2019.

Tara Brewer, head of the Sweet Springs Chamber of Commerce and the local health department, said she was almost shocked to hear that Perez had gotten indicted after months of wondering if anything would happen.

While she hopes these charges bring closure to her community, she said, the charges do little to fix the closed hospital doors for a county that has had one of the highest per capita rates of coronavirus cases in Missouri.

“What he did to us will linger on for a long time,” Brewer said.

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Department of Justice Press Release 

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Monday, June 29, 2020

Ten Defendants Charged in $1.4 Billion Rural Hospital Pass-Through Billing Scheme

Ten individuals, including hospital managers, laboratory owners, billers and recruiters, were charged in an indictment unsealed today for their participation in an elaborate pass-through billing scheme using rural hospitals in several states as billing shells to submit fraudulent claims for laboratory testing.  The indictment alleges that from approximately November 2015 through February 2018, the conspirators billed private insurance companies approximately $1.4 billion for laboratory testing claims as part of this fraudulent scheme, and were paid approximately $400 million.

Jorge Perez, 60, of Miami-Dade County, Florida; Seth Guterman, 54, of Chicago, Illinois; Ricardo Perez, 57, of Miami-Dade County, Florida; Aaron Durall, 48, and Neisha Zaffuto, 44, each 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, were charged in an indictment filed in the Middle District of Florida.

All defendants (except Sean Porter) were charged with one count of conspiracy to commit health care fraud and wire fraud.  In addition, Jorge Perez, Guterman, Ricardo Perez and Durall were each charged with five counts of substantive health care fraud; Durall and Zaffuto were charged with two counts of conspiracy to commit money laundering; Jorge Perez, Guterman, Ricardo Perez, Fletcher, James Porter and Sean Porter were charged with one count of conspiracy to commit money laundering and the following defendants were charged with substantive money laundering: Durall (three counts); Zaffuto (one count); Jorge Perez (seven counts); Guterman (one count); Ricardo Perez (five counts); Fletcher (two counts); James Porter (12 counts) and Sean Porter (two counts).

Jorge Perez, Ricardo Perez, and Durall appeared this afternoon before U.S. Magistrate Judge Joel B. Toomey of the Middle District of Florida.  Initial appearances for Zaffuto, Fletcher, James Porter Jr., Sean Porter, Aaron Alonzo, and Nestor Rojas are scheduled before Magistrate Judge Toomey on June 30 and July 1.

“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,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division.  “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.”

“Trust and integrity undergird the confidence and reliability in our healthcare system,” said U.S. Attorney Maria Chapa Lopez for the Middle District of Florida. “Fraudulent and deceptive business practices undermine those values and erode the public’s trust in that system. We will continue to pursue those who set these tenets aside and compromise the care and safety of our citizens for profit.”

“The FBI views health care fraud as a severe crime problem that impacts every American,” said Special Agent in Charge Rachel L. Rojas of the FBI’s Jacksonville Field Office. “Fraud and abuse take critical resources out of our health care system, and contribute to the rising cost of health care for everyone. The FBI and our law enforcement partners will continue to investigate these crimes and prosecute all those who are intent in defrauding the American public.”

“OPM OIG remains committed to investigating those who seek to defraud the federal health care system for their own personal gain,” said Deputy Assistant Inspector General Thomas W. South of the U.S. Office of Personnel Management Office of Inspector General (OPM OIG).  “Schemes that exploit rural hospitals are particularly egregious as they can undermine access to care in underserved communities.  We are extremely proud of our criminal investigators and law enforcement partners for their hard work uncovering this complex criminal fraud scheme.”

“An important mission of the Office of Inspector General is to investigate allegations of health care fraud in union benefit plans,” said Special Agent in Charge Rafiq Ahmad of the U.S. Department of Labor Office of Inspector General (DOL OIG) Atlanta Region.  “We will continue to work with our law enforcement partners to protect the integrity of labor unions and their benefit plans.”

“Our office, in partnership with our fellow investigative agencies, will continue to comprehensively investigate and bring to justice the people who perpetrate health care fraud,” said Kevin Winters, Amtrak’s Inspector General.  “Preventing health care fraud is particularly important to Amtrak because, as a self-insured company, the fraud adversely impacts its operating budget, which is dedicated to multiple critical requirements such as passenger safety.”

The indictment alleges that the conspirators would take over small, rural hospitals, often in financial trouble, using management companies they owned and operated.  The conspirators would then bill private insurance companies through those rural hospitals for millions of dollars of expensive urinalysis drug tests and blood tests, conducted mostly at outside laboratories they often controlled or were affiliated with, using billing companies that they also controlled.  While outside laboratories did most of these laboratory tests, the conspirators allegedly billed private insurance companies as if these laboratory tests were done at the rural hospitals.

According to the indictment, these rural hospitals had negotiated contractual rates with private insurers that provided for higher reimbursement than if the tests were billed through an outside laboratory.  Accordingly, the scheme used the hospitals as a shell to fraudulently bill for such tests.  Further, the indictment alleges that the lab tests were often not even medically necessary.  The conspirators allegedly would obtain urine specimens and other samples for testing through kickbacks paid to recruiters and health care providers, often sober homes and substance abuse treatment centers.  The indictment also alleges that the conspirators engaged in sophisticated money laundering to promote the scheme and to distribute the fraudulent proceeds.

The rural hospitals involved in this case are: Campbellton-Graceville Hospital (CGH), 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.

An indictment is merely an allegation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

This case was investigated by the FBI’s Jacksonville Field Office, OPM OIG, DOL OIG and Amtrak OIG.  Trial Attorneys Gary A. Winters and James V. Hayes of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Tysen Duva of the Middle District of Florida are prosecuting the case.

The Fraud Section leads the Medicare Fraud Strike Force.  Since its inception in March 2007, the Medicare Fraud Strike Force, which maintains 15 strike forces operating in 24 districts, has charged more than 4,200 defendants who have collectively billed the Medicare program for nearly $19 billion.  In addition, the HHS Centers for Medicare & Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.