Gruesome details and brazen schemes make Sacred Heart fraud case stand out from the rest



By the nature of my job, I read through a lot of healthcare fraud cases. Most of them are redundant--run-of-the-mill kickbacks or false claims schemes that eventually unravel under the scrutiny of federal authorities or whistleblowers. The details might vary slightly, but, after a while, they all start to blend together.

But every once in a while, I come across a scheme so brazen and egregious that it stands out from the pack. These cases stick with you.

The allegations levied against executives at the now-extinct Sacred Heart Hospital in Chicago are a case in point. They might as well have a blinking red beacon. Even though fraud allegations surfaced in April 2013, the case has taken enough twists and turns over the course of the last two-plus years to make it one of the more scintillating fraud cases in recent memory.

Mix in the alleged decade-long kickback scheme orchestrated by the hospital's top brass that came at the expense of the sick and elderly and you've got a truly cringe-worthy case that provokes a slack-jawed stare from onlookers.

And now that the trial involving three executives and a doctor dubbed "the king of nursing homes" officially kicked off last week, it looks like we'll be taking one last plunge down this roller coaster ride of corruption.

Let's start from the top.

It all began in April 2013, when federal agents raided Sacred Heart. They arrested Edward Novak, owner and CEO of the hospital; Roy Paywal, a senior executive; and four physicians and charged them with conducting an illegal kickback scheme. After a three-year investigation that included secret recordings from wired hospital administrators, federal agents estimated that the scheme netted $225,000 in cash and more than $2 million in Medicare and Medicaid reimbursements.

How the hospital made that money was even more troubling. The feds alleged that hospital executives unnecessarily admitted emergency room patients and worked directly with ambulance companies to admit nursing home patients through the ER. In some cases the ambulance bypassed closer hospitals in order to bring patients to Sacred Heart.

Agents also found that physicians at the hospital performed unnecessary intubations on heavily sedated patients so they would require a tracheotomy. According to the affidavit, one particular physician had performed 28 tracheotomy procedures from 2010 to 2013. In five of those cases, the patient died within two weeks. Another physician bragged about making Novak "so much money" off of daily penile implant surgeries.

"Any time you come across a case where patients are being used as pawns for profit, it is troublesome," Lamont Pugh III, special agent-in-charge of the Department of Health and Human Services' Office of the Inspector General for the Chicago area, told The Chicago Tribune at the time.

"Troublesome" is putting it mildly.

But when the indictment came down six months later, those allegations involving patient deaths were oddly absent. Instead, the feds focused on the elaborate kickback scheme that alleged Novak and three other executives directed payouts toward physicians that referred patients covered by Medicare and Medicaid. In addition to Novak and Payawal, two additional executives, Anthony Puorro, Sacred Heart's chief operating officer, and Noemi Velgara, vice president of geriatric services, were charged with violating antikickback statutes. For nearly a decade, the administrators concealed the kickbacks as consulting payments, rent and instructional stipends, according to the feds, and executives paid "marketers" to recruit patients to the hospital.

Although Puorro and Velgara pleaded guilty in December, they will play intricate roles in the upcoming trial. Both are set to testify against Novak and Payawal as part of their plea deal. Perhaps more importantly, Puorro and Velgara secretly taped conversations--employing the same tactics the feds might use to bring down a mobster--which will be crucial to the prosecution's case.

Already the district court judge has barred disturbing evidence that has somewhat weakened the prosecution's case, including allegations that inpatients were doused with bug repellant in 2009 to counteract a maggot infestation in the ICU, according to The Chicago Sun-Times. The judge also threw out evidence that one of the defendants, Venkateswara Kuchipudi (aka "the king of nursing homes"), referred to the hospital's surgeon as a "butcher."

Although the prosecution had planned to argue the hospital's poor condition provoked executives to essentially buy off patients through kickbacks, that approach seems less plausible. Instead, in their opening remarks prosecutors focused on how the struggling hospital was desperate for money, according to The Tribune. The prosecution's first witness, the hospital's podiatric residence program director for more than ten years, already testified that Novak had a hand in setting up teaching contracts to disguise kickback payments.

The defense's argument has the consistency of tissue paper. Novak's lawyer said the CEO trusted his employees to do the right thing. Paywal's lawyer lamented that his was merely "a bean-counter," apparently oblivious to the schemes that surrounded him.

From what we know about Novak, the man sitting at the eye of the storm, one gets a faint whiff of a Jekyll and Hyde persona. Some employees describe Novak--a man said to be worth $26 million--taking cash out of his pocket to give to patients in need of money or food and employing a full-time driver to give rides to patients without transportation. On the other hand, secretly recorded conversations show a man driven by profits--so much so that he once called tracheotomies the "biggest moneymaker" for the hospital.

The trial is expected to last six weeks, so plenty more details are likely to emerge from those recordings. If they are as ghastly as the allegations that have already surfaced, it will be hard to look away. - Evan (@HealthPayer)