FBI agents raided Chicago’s Sacred Heart Hospital in April, arresting its CEO, Edward Novak, its CFO, Roy Payawal, and four physicians in connection with a Medicare/Medicaid fraud scheme that targeted patients for unnecessary, risky procedures, including sedation, penile implants, and tracheotomies. Employees worked undercover with the FBI gathering evidence as part of a three-year investigation leading up to the raid. A fifth physician is accused of prescribing hydrocodone, a commonly abused painkiller, without authorization. The investigation also involves 11 more people, who are only identified in government court filings by letter, such as Administrator A or Physician D.
The conspiracy brought in more than $2 million in reimbursements, and over $225,000 in cash kickbacks were paid to the physicians involved since 2012, prosecutors say. The crooked Docs also received indirect kickbacks, such as covering the salaries of employees and “training costs” for non-existent students.
According to acting U.S. Attorney Gary Shapiro, their case outlines “a kickback conspiracy to bribe doctors to refer patients to Sacred Heart where they would be treated 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.”
Federal investigators say they were compelled to gather undercover evidence earlier this year after learning that physicians would be performing an unnecessary tracheotomy on an elderly man. Three cooperating witnesses agreed to wear wires after being caught in the conspiracy, according to Modern Healthcare. An undercover administrator recorded CEO Edward Novak saying that tracheotomies are the hospital’s “biggest moneymaker,” bringing in about $160,000 for the procedure if the patient stays admitted for at least 27 days, prosecutors say.
“Any time you come across a case where patients are being used as pawns for profit, it is troublesome,” says Lamont Pugh, head of the Chicago department of HHS’s Office of Inspector General.
One of the involved physicians allegedly performed 28 unnecessary tracheotomies on Medicare patients since 2010, and five of those patients died within two weeks of the surgery—more than triple the Illinois mortality rate. Physicians can bill $160 for every visit to a tracheotomy patient at the hospital, compared to $32 for seeing a ventilator patient in a nursing home. In at least one case, the hospital’s pulmonologist allegedly directed an ICU nurse to “snow” (sedate) a patient so heavily that only “the whites of his eyes” would be visible in order to perform an unnecessary tracheotomy.
Novak has owned and has run the hospital since 1988, when he took over the struggling nonprofit Franklin Boulevard Community Hospital. He gave the hospital a new name even though it is has no religious affiliation, said Patrick S. DeMoon, the hospital’s CEO before the change. Mr. Novak personally receives about $750,000 per month from various business interests and has total assets worth $26 million, according to federal authorities. They allege that he orchestrated a system of kickbacks that was meant to induce doctors to refer their patients to Sacred Heart.
New York City-based Alvarez & Marsal Holdings LLP has taken over the operation of Sacred Heart, which may be put up for sale.