Hospital Developers Pay $1.1M to Settle False Claims Act Allegation

DOJ said the developers of the 106-bed Lakeway (Texas) Regional Medical Center 'participated in a scheme to improperly obtain the FHA-insured loan.'

Four development companies and their executives will pay the federal government $1.1 million to settle allegations that they improperly obtained and distributed money from a Federal Housing Administration loan for a Texas hospital project, the Department of Justice said.

DOJ said the developers of the 106-bed Lakeway (Texas) Regional Medical Center "participated in a scheme to improperly obtain the FHA-insured loan by delaying refunds to investors who had cancelled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan."

The developers named in the settlement are San Diego-based Pacific Medical Buildings LLC, PMB Lakeway LLC, RD Development Partners LLC, Lakeway Management LLC, J&L Rush Family Partnership LP, Jeff Rush, and Brad Daniel.  

The settlement also resolves allegations that the developers took "impermissible distributions of project funds," DOJ said.

The FHA backs loans to build hospitals in underserved areas.  

"It is deeply disconcerting when industry professionals, who have fiduciary responsibilities and are expected to act as honest brokers, exploit federal programs created to aid legitimate medical facilities," said Robert Kwalwasser, with the Housing and Urban Development Office of Inspector General.    

PMB issued a statement saying it is "extremely proud of the work it was contracted to complete on the Lakeway Regional Medical Center."

"With respect to the settlement, it was the most cost‐effective way to resolve allegations which PMB, Jeff Rush and Brad Daniel deny," the statement read. "Indeed, the settlement signifies no finding of wrongdoing on the part of the parties, and specifically no finding that their behavior in anyway undermined federal insurance programs."

Lakeway Regional Medical Center suffered financial difficulties soon after it opened in 2012, and defaulted on a $164 million HUD loan in August 2013, In September 2016, HUD sold the defaulted for $50 million  according to The Austin American Statesman.

The hospital was purchased by BaylorScott&White Health in 2016.

The health system issued a statement noting that "these allegations have nothing to do with Baylor Scott & White Health or the hospital it operates as Baylor Scott & White Medical Center – Lakeway. These allegations relate to matters that occurred long before we acquired the operations of this hospital."