Diagnosis: Fraud

For once, it’s the hospital that’s getting stuck with an outrageous bill.

A Texas hospital-development company and several co-defendants have agreed to pay more than $15.3 million to settle federal allegations that they fraudulently obtained Federal Housing Administration loans and misused loan funds.

Lakeway Regional Medical Center LLC (LRMC) will pay more than $13.58 million. Meanwhile, Surgical Development Partners LLC, Surgical Development Partners of Austin LLC, G. Edward Alexander, Frank Sossi and John Prater collectively agreed to pay $1.8 million.

The penalties are to resolve allegations that the co-defendants violated the false claims act in connection with the development of Lakeway Regional Medical Center, a hospital in Lakeway, Texas. LRMC was formed to develop and operate the hospital, while the other defendants assisted in the development of the hospital and the management and operations of LRMC.

According to the Justice Department, the group applied for an FHA-insured mortgage to fund construction of the hospital. While applying for the loan, they allegedly made numerous false statements and “material omissions.” For instance, the defendants allegedly overstated physician support for the new hospital, while understating key credit risks. Specifically, the defendants allegedly delayed refunds to investors who had canceled their investments in order to make it seem as if the project satisfied mortgage covenants regarding cash on hand required to close the loan. The defendants also allegedly violated FHA requirements regarding the distribution of loan funds.

The Department of Housing and Urban Development purchased the mortgage – and suffered a loss – when LRMC defaulted.

“This case demonstrates HUD’s commitment to holding accountable FHA participants that commit fraud against HUD’s healthcare programs,” said HUD Federal Housing Commissioner Dana Wade.

“Misconduct in FHA’s hospital loan insurance program ultimately harms underserved communities and vulnerable populations who need access to critical medical services,” said Rae Olcer Davis, HUD inspector general. “Today’s settlement is the latest example and should serve as a stark reminder that HUD OIG, in conjunction with our law enforcement partners, will vigorously pursue any attempt to undermine the integrity of FHA insurance programs.”