The Lakeway Regional Medical Center (LRMC), a hospital management group in Lakeway, Texas, has agreed to pay over $13.5 million to resolve allegations that it lied about finances when applying for a Federal Housing Administration (FHA) loan to build a hospital. Other partners involved with the deal, including the Surgical Development Partners LLC, and Surgical Development Partners of Austin Enterprises, as well as a handful of individuals, will collectively pay another $1.8 million for alleged violations of the False Claims Act. In its September 28 press release, the Department of Justice (DOJ) claimed that LRMC and its associates misrepresented the hospital group’s finances to qualify for an FHA building loan.
In 2010, LRMC applied for an FHA loan designed for improving medical care in underserved communities. To qualify for the $166.8 million loan, the company needed an extra $38 million of cash on hand that it didn’t have. LRMC allegedly signed documents attesting that investments from physician investors had given them the money they needed to close the loan. LRMC then allegedly paid kickbacks of over $900,000 to two of their own board members who had floated them part of the $38 million they had needed. The DOJ’s September 2019 filing claims that these kickbacks were disguised as “fees” and “early redemption of purchased notes.” The DOJ also claims that LRMC delayed refunds to investors who wanted out of the project to try to project false financial security to the FHA.
In the fall of 2013, LRMC defaulted on the loan, and the FHA auctioned it off for $50 million. Another medical management company, Baylor Scott and White, bought the project and continued construction on the hospital. Baylor Scott and White is not mentioned in the allegations. Rae Oliver Davis, Department of Housing and Urban Development (HUD) Inspector General, emphasized the effect that this kind of financial malfeasance can have on underserved and already struggling communities: “Misconduct in FHA’s hospital loan insurance program ultimately harms underserved communities and vulnerable populations who need access to critical medical services.”
Although it is unlikely that there was a whistleblower involved with this case, False Claims Act cases like this one are often originally brought by whistleblowers, or qui tam relators. Relators can stand to claim rewards of 10 to 30% of the total money recovered by the government.