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Analysis

Hospital Execs Charged With Misuse of FHA Loan

By John Commins  
   September 27, 2019

The defendants allegedly schemed to improperly obtain a $164 million FHA-backed loan to build a for-profit hospital in Texas.

A Texas hospital, a Tennessee-based healthcare company, and three healthcare executives have been accused of improperly obtaining and misusing federal loans targeted for hospital construction in underserved areas, the Department of Justice said.

The alleged violations of the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act were leveled against Lakeway (TX) Regional Medical Center, LLC; Franklin, Tennessee-based Surgical Development Partners, LLC; Surgical Development Partners' CEO G. Edward Alexander; Frank Sossi; and John Prater, federal prosecutors said. 

Lakeway Regional Medical Center suffered financial difficulties soon after the 106-bed, for-profit hospital opened in 2012, and defaulted on a $164 million HUD loan in August 2013, according to The Austin American Statesman.

In September 2016, HUD sold the hospital for $50 million to BaylorScott&White Health in 2016.

The federal complaint alleges that the defendants schemed to improperly obtain a Federal Housing Administration-backed loan to build the Lakeway hospital.

Prosecutors allege that the scheme delayed refunds to investors who had cancelled their investments to make it appear as if the project satisfied cash-on-hand covenants required to close the loan. 

Prosecutors also allege that the defendants improperly doled out project funds.

"We will do what it takes to ensure that the American people are not left footing the bill when borrowers fail to comply with FHA program requirements intended to protect the public fisc," U.S. Attorney John Bash of the Western District of Texas said in prepared remarks. 

BaylorScott&White 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."

In June, four development companies and their executives involved in the Lakeway project agreed to pay the federal government $1.1 million to settle allegations that they improperly obtained and distributed money from the FHA loan.

“We will do what it takes to ensure that the American people are not left footing the bill when borrowers fail to comply with FHA program requirements intended to protect the public fisc.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

Photo credit: Mark Van Scyoc / Shutterstock.com


KEY TAKEAWAYS

Lakeway Regional suffered financial difficulties soon after it opened in 2012, and defaulted on a $164 million HUD loan in 2013,

The alleged scheme delayed refunds to investors to make it appear as if the project satisfied cash-on-hand covenants required to close the loan. 

Prosecutors also allege that the defendants improperly doled out project funds.

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