Hospital Owner, Executive, and Four Doctors, from Chicago’s Sacred Heart, Arrested in Alleged Medicare Referral Kickback Conspiracy

The owner and another senior executive of Sacred Heart Hospital and four physicians affiliated with the west side facility were arrested today for allegedly conspiring to pay and receive illegal kickbacks, including more than $225,000 in cash, along with other forms of payment, in exchange for the referral of patients insured by Medicare and Medicaid to the hospital, announced U.S. Attorney for the Northern District of Illinois Gary S. Shapiro.

Agents from the FBI and the U.S. Department of Health and Human Services Office of Inspector General today also began executing search and seizure warrants in connection with an ongoing investigation of alleged Medicare and Medicaid fraud schemes at the hospital involving emergency room evaluation, testing, and observation services that were not medically necessary, as well as medically unnecessary sedation, intubation, and tracheotomy procedures performed on patients. Approximately $2 million in Medicare reimbursement payments was seized today from various bank accounts.

Arrested were Edward J. Novak, 58, of Park Ridge, Sacred Heart’s owner and chief executive officer since the late 1990s; Roy M. Payawal, 64, of Burr Ridge, executive vice president and chief financial officer since the early 2000s; and Drs. Venkateswara R. “V.R.” Kuchipudi, 66, of Oak Brook, Percy Conrad May, Jr., 75, of Chicago, Subir Maitra, 73, of Chicago, and Shanin Moshiri, 57, of Chicago.

Sacred Heart Hospital is a 119-bed acute care facility located at 3240 West Franklin Blvd. in Chicago. Approximately 40 in-patients were in the hospital this morning, and representatives of the HHS Centers for Medicare and Medicaid Services (CMS) were on site and coordinating with the Illinois Department of Healthcare and Family Services to ensure continuity of patient care.

“These charges and the affidavit’s other allegations outline a kickback conspiracy to bribe doctors to refer patients to Sacred Heart where they would be treated in in an environment in which the quality of care and appropriate medical analysis were less important than maximizing the numbers of patients funneled into the hospital,” said Gary S. Shapiro, United States Attorney for the Northern District of Illinois.

“The payment of kickbacks or bribes in exchange for the referral of Medicare or Medicaid patients, regardless of the form in which they are paid, is a crime,” said Lamont Pugh, III, Special Agent in Charge of the Chicago Region of HHS-OIG. “The Office of Inspector General will continue to work closely with our law enforcement partners to aggressively investigate alleged illegal patient referral schemes and hold accountable those who seek to exploit vulnerable patients and the Medicare and Medicaid programs.”

“Today’s arrests demonstrate our commitment to enforcing the laws intended to prevent abuses of the Medicare and Medicaid programs and to preserve the ability of those programs to provide appropriate medical services to the elderly and the needy,” said Cory B. Nelson, Special Agent in Charge of the Chicago Office of the Federal Bureau of investigation.

The defendants were charged in a complaint that was filed yesterday and unsealed today after the arrests. All six defendants were scheduled to appear beginning at 3 p.m. before U.S. Magistrate Judge Daniel Martin in Federal Court.

Kickback Conspiracy

A 90-page affidavit in support of the criminal complaint and search and seizure warrants states that former Sacred Heart Physician A began cooperating in the investigation in October 2011, and Administrator A and Administrator B began assisting in January 2013 and February 2012, respectively. Each of them made consensual recordings of meetings and telephone conversations with other executives, administrators, physicians, and employees that are described in the affidavit.

According to the complaint—at Novak’s direction and with his approval and Payawal’s assistance—Sacred Heart implemented a scheme to pay kickbacks to physicians in return or referrals of Medicare and Medicaid patients. Novak and Payawal allegedly tried to conceal the scheme by masking payments as fictitious rental payments; paying the salaries of physicians’ employees; providing physicians ghost contracts for duties without any real responsibilities; creating alternative billing arrangements; and purporting to pay physicians to supervise and teach non-existent medical students.

In a conversation that Administrator A recorded on February 28, 2013, Novak and Payawal allegedly identified Drs. Moshiri, Maitra and May as physicians receiving regular kickback payments who Administrator A should pay.

Between January 2010 and February 2013, May allegedly received $74,000 in the form of 37 checks, for $2,000 each, disguised as “rental payments”; Moshiri, a podiatrist, allegedly received $86,000 in 38 checks pursuant to a purported contract to teach podiatry students; and Maitra allegedly received $68,000 in 34 checks pursuant to a purported teaching contract—and the $228,000 total in alleged kickbacks were all in exchange for their referral of patients to Sacred Heart, the charges allege.

In a recorded conversation last month, Maitra allegedly explained to Administrator A that he used to make Novak “so much money” performing almost daily penile implant procedures on patients, but that he no longer performed as many of those procedures because Medicare had decreased its rates of reimbursement for the procedure. Maitra did not comment on whether the patient need for the procedure had somehow changed, according to the affidavit.

Regarding Dr. Kuchipudi, Administrator A told agents that he was one of Sacred Heart’s most prolific patient referral sources and, according to Physician A, was known within the hospital as the “king of nursing homes.” According to Administrator A, Sacred Heart paid Kuchipudi for Medicare patient referrals in two ways: first, by paying most of the salaries of a physician’s assistant and a registered nurse who were effectively employed by Kuchipudi, and second, by paying Physician B for treating Kuchipudi’s patients at Sacred Heart, despite the fact that Kuchipudi, and not the hospital, billed insurers for the services Physician B provided to those patients. These arrangements allegedly benefited Kuchipudi as a result of the hospital absorbing employee salary costs that Kuchipudi would normally have to pay himself.

Tracheotomy Procedures

The investigation is also probing claims that Sacred Heart Physician D, a pulmonologist, allegedly performs a high number of unnecessary intubations and prolongs them by directing heavy sedation of his patients, often resulting in tracheotomies being performed by Sacred Heart surgeons that may not have been medically necessary. Administrator A told agents that during a lunch with Novak and Payawal in December 2012, they both explained that tracheotomy cases provide substantial insurance reimbursement income for the hospital. On March 1, 2013, Administrator A recorded Novak stating that tracheotomies are Sacred Heart’s “biggest money maker” and the hospital can make $160,000 for a tracheotomy if the patient stays 27 days. On March 7, 2013, the Intensive Care Unit case manager told Administrator A that she must often “stretch” a tracheotomy patient’s stay to 28 days to maximize Medicare reimbursements “to make Novak happy.”

Novak’s Business Interests

According to the affidavit, Novak has direct or indirect ownership interest in various related entities, including Superior Home Health LLC, a home health care company; the Golden L.I.G.H.T. clinics, which are family practice/internal medicine clinics operated as divisions as Sacred Heart; the Chen Medical center; the Garfield Kidney Center LLC, an outpatient dialysis center; and the Bentley Insurance Group, a medical malpractice insurance company. Novak also owns various real estate and corporate management holding companies, and prior to June 2012, he operated the Chicago R.E.A.C.H Foundation, a purported non-profit, senior citizen program financed by the state of Illinois.

In a series of recorded conversations over the last two months, Payawal told Administrator A that a substantial part of Sacred Heart’s revenue comes from Medicare and Medicaid reimbursements and explained various ways in which revenue generated from the hospital is transferred to and among Novak’s other corporate interests.

Conspiracy to violate the federal anti-kickback statute carries a maximum penalty of five years in prison and a $250,000 fine and restitution is mandatory. If convicted, the court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

The government is being represented by Assistant U.S. Attorneys Joel Hammerman, Terra Reynolds, and Ryan Hedges.

The public is reminded that a complaint is not evidence of guilt. The defendants are presumed innocent and are entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The case falls under the umbrella of the Medicare Fraud Strike Force, which expanded operations to Chicago in February 2011, and is part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Justice Department and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. More than five dozen defendants have been charged in health care fraud cases since the strike force began operating in Chicago.

To report health care fraud to learn more about the Health Care Fraud Prevention and Enforcement Action Team (HEAT), go to www.stopmedicarefraud.gov.

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Ovidiu Isac, Chicago Leader of Romanian-Based Conspiracy That Obtained $1.6 Million in False Tax Refunds, Sentenced to 85 Months in Prison

The leader in Chicago of a Romanian-based international conspiracy to fraudulently obtain millions of U.S. tax dollars was sentenced to just over seven years in federal prison. The defendant, Ovidiu Isac, oversaw and directed nearly two dozen co-defendants in the United States who used their bank accounts to receive fraudulent federal income tax refunds after overseas co-conspirators filed hundreds of false tax returns claiming refunds in the names of Romanian citizens who had visited the United States on exchange student visas.

At least 470 false tax returns, typically claiming refunds between $4,000 and $7,000, were filed and resulted in a loss of more than $1.6 million to the U.S. Treasury during the conspiracy that spanned three tax years between 2007 and 2009. The returns were filed in the names and Social Security numbers of individuals who had previously traveled to the United States on temporary student visas and had filed tax returns in the past, but who were likely no longer living in the U.S. nor filing a real return in their own name. Isac led and organized the co-conspirators in Chicago and controlled the flow of money to his co-conspirators in Romania. On one occasion, Isac led a group of co-conspirators in physically attacking a group of individuals who were associated with someone who refused to pay Isac his cut of the proceeds.

Isac, 31, a Romanian citizen who lived in Skokie, was sentenced on Friday to 85 months in prison and ordered to pay restitution totaling $1,641,209 by U.S. District Judge Charles Norgle. Isac pleaded guilty in January to conspiracy to defraud the United States and theft of government funds. He will be subject to deportation after completing his sentence.

Isac was arrested in April 2010 and was among 24 defendants who were indicted in July that year for their roles in the conspiracy. Nineteen of the defendants have been convicted and sentenced, while five remaining co-defendants are fugitives.

Evidence in two companion cases showed that the fraudulent returns typically claimed large deductions for moving expenses, and the fraud was concealed by electronically submitting false wage and tax statements. The returns were filed in the names of real individuals and employers who likely were unaware that their identities and information were being misused. At least 200 bank accounts in the names of more than 75 individuals were used to receive and obtain the tax refund money triggered by the fraudulent returns.

The sentence was announced by Gary S. Shapiro, United States Attorney for the Northern District of Illinois; Cory B. Nelson, Special Agent in Charge of the Chicago Office of the Federal Bureau of Investigation; James C. Lee, Special Agent in Charge of the Internal Revenue Service Criminal Investigation Division; and Gary Hartwig, Special Agent in Charge of Homeland Security Investigations (HSI) in Chicago.

The government was represented by Assistant U.S. Attorneys Matthew Burke, Jennie Levin and Julie Porter.

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Stephen Talty Discusses "Agent Garbo: the Brilliant, Eccentric Secret Agent who Tricked Hitler & Saved D-Day"

April 18th, Stephen Talty discusses his fascinating book titled Agent Garbo: the Brilliant, Eccentric Secret Agent who Tricked Hitler & Saved D-Day on Crime Beat Radio. An investigation of the life and career of Garbo, World War II spy and history’s greatest double agent.

Crime Beat is a weekly hour-long radio program that airs every Thursday at 8 p.m. EST., on the Artist First World Radio Network at artistfirst.com/crimebeat.

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Harold Schechter Discusses "Psycho USA: Famous American Killers You Never Heard Of" on Crime Beat Radio

On April 11th, Harold Schechter (http://www.haroldschechter.com/) discusses his book, Psycho USA: Famous American killers you never heard of, on Crime Beat Radio.

Crime Beat is a weekly hour-long radio program that airs every Thursday at 8 p.m. EST., on the Artist First World Radio Network at artistfirst.com/crimebeat.

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Teen Gang Mobs Continue to Attack Shoppers and Tourists on Chicago's Magnificent Mile

More than two dozen teens were arrested Saturday night after dozens of groups began randomly attacking pedestrians on Chicago's Magnificent Mile.

Police responded to reports of disturbances around 6:30 p.m. Saturday near Michigan and Chicago avenues. They said a number of teens took to the streets and started fighting.

Police said 28 teens were arrested during the incident and charged with misdemeanor reckless conduct and battery and later released, according to Police News Affairs. Eleven other teens were charged with misdemeanor charges after they allegedly attacked a group of women on the Chicago Transit Authority's Red Line, police said.

"You have over three to four hundred teenagers with mob action, jumping on individuals that are downtown," community activist Andrew Holmes said. "Multiple people have been arrested and I caution those parents that get this call about your child being arrested -- maybe you need to check your child."

Officers began breaking up the attacks by ushering teens to the Red Line. Chaos continued underground but many attackers reportedly left the area. "I just saw a cluster run down to the Red Line," CTA passenger Amanda Dobson said. "I didn't know what was going on. I just kind of stepped back and let the police do what they needed to do."

Police continued to patrol the area on bikes, horses and on foot as smaller groups wandered around the Loop.

It is not clear if the attacks are related to a similar mobbing of Ford City Mall last month.

Residents were concerned that this could be the first in a long line of attacks after warm weather brought on a string of similar instances last year. "It's been happening a lot around here," said Eric Baldinger, who works along the Mag Mile. "Just keep your wallet close and your purse closer."

Others said the attacks were disappointing and feared for the future of the city. "I think it’s very childish," resident Angelica Wilson said. "That’s what wrong with the generation today because there’s always petty fights going on down here and everybody getting hurt. We don’t need more problems."

Thanks to Alexandria Fisher.

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