This is an UPDATE of a Street Sweeper column that ran on July 11, 2012.
Healthcare is big business. You may not like that fact but you're going to have to get over it. Just witness the battle lines that were drawn over the recent Obamacare fight to get a sense of the bucks involved.
The economics of treating the sick among us has reduced the numbers of solo practitioners and independent community hospitals. Today, it's about humongous medical practice "Centers" operated by even more humongous hospitals. Have you sat down to watch television without seeing one of those feel-good commercials for a treatment or surgery you didn't know you needed?
Tenet Healthcare, HCA Holdings, Universal HealthServices, Community Health Systems, Health Management Associates, to name but a few, are all publicly traded hospital companies. Along with a stock symbol comes the demand to turn a profit, to control costs. Add into this sector all of the university affiliated hospitals and you have an industry that's collapsing over healthcare costs, government programs, and corruption.
Of course, let's not pretend that the entire hospital sector isn't a frequent target of civil and criminal lawsuits for malpractice, negligence, and corruption - many of those stories have been reported here on "Street Sweeper" in recent years.
With growing competition to service hospitals and with the ever-increasing size of such contracts, we've also seen evidence of increasing corruption at the hospitals themselves. The hidden cost of kickbacks and bribes imposes numerous challenges upon the victimized hospitals and their patients - overcharges for services that could have been obtained cheaper elsewhere, a lessening in the integrity of critical maintenance, and the whole host of crap that goes hand in hand with the corrosive nature of backdoor and under-the-table dealings.
Antitrust Division Case
An investigation by the Department of Justice's Antitrust Division's New York Field Office discovered evidence of an eight-year conspiracy that engaged in bid rigging, fraud, bribery and tax-related offenses in connection with the awarding of construction, maintenance and service contracts for the purpose ofasbestos abatement, air monitoring and general construction by the facilities operations department of New York Presbyterian Hospital ("NYPH"). Allegedly involved in the conspiracy to defraud the hospital were:
- Michael Yaron and two companies owned by him:
- Cambridge Environmental & Construction Corp., which does business as National Environmental Associates (Cambridge/NEA), an asbestos abatement company, and
- Oxford Construction & Development Corp., a construction company;
- Moshe Buchnik, the president of two asbestos abatement companies;
- Santo Saglimbeni, a former vice president of facilities operations at NYPH;
- Artech Corporation, a company owned by a relative of Saglimbeni; and
- Emilio "Tony" Figueroa, a former director of facilities operations at NYPH.
The investigation determined that Saglimbeni, with the assistance of Figueroa, awarded asbestos abatement, air monitoring and general construction contracts to Yaron, Buchnik, Cambridge/NEA and Oxford in return for over $2.3 million in kickbacks paid to Saglimbeni. Thereafter, it was alleged that a portion of those kickbacks were funneled by Yaron to Saglimbeni through Artech. The feds characterized Artech as a sham company created by Saglimbeni in order to conceal the kicbacks - moreover, Saglimbeni put the company in his mother's name.
On April 27, 2010, a New York City federal grand jury returned an Indictmentcharging Yaron, Cambridge Environmental & Construction Corp., Oxford Construction & Development Corp, Buchnik, Figueroa, Saglimbeni, and Artech with engaging in wire and mail fraud conspiracies to defraud NYPH, starting as early as 2000 and extending through at least January 2008; and with substantive wire fraud as a result of the electronic transfers of money from the bank account of one co-conspirator to the bank account of Artech on or about May 5, 2005.
It was further alleged that from as early as June 2001 through June 2006, Saglimbeni, Figueroa, and their co-conspirators engaged in a mail fraud conspiracy, in which Saglimbeni and Figueroa awarded contracts for the installation and repair of the Heating Ventilation and Air Conditioning Systems ("HVAC") at NYPH to a co-conspirator's company in return for cash kickbacks and other valuable gifts given to Saglimbeni and Figueroa by that co-conspirator.
Finally, Saglimbeni and Figueroa were also charged with mail fraud as a result of causing NYPH to mail a payment on a fraudulently awarded contract to a co-conspirator's company on or about May 5, 2005.
SIDE BAR: The mail and wire fraud violations that the individuals are charged with each carry a maximum penalty of 20 years in prison and a $1 million fine. The maximum fine for the charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine. The Indictment also seeks the forfeiture of certain assets as they relate to the kickbacks received in connection with the mail fraud charges in the indictment.
Previously, 10 individuals and three companies pleaded guilty to charges arising out of this investigation.
After a four-week trial, on February 2, 2012, a Manhattan jury convicted Yaron, Buchnik, Saglimbeni and Figueroa; and Cambridge/NEA, Oxford Construction & Development Corp, and Artech for conspiracy and wire fraud.
At sentencing on July 10, 2012, the Court handed down the following:
- Yaron: 60 months in jail; $500,000 criminal fine.
- Cambridge/NEA and Oxford Construction: Each sentenced to pay a $1 million criminal fine.
- Moshe Buchnik: 48 months in jail and to pay a $500,000 criminal fine for his role in the conspiracy.
- Artech Corp: $1 million criminal fine.
Saglimbeni and Figueroa are scheduled to appear in court on July 31, 2012.
"The sentences imposed today are consistent with the seriousness of the crimes for which the individuals and companies were found guilty," said Acting Assistant Attorney General Joseph Wayland in charge of the Department of Justice's Antitrust Division. "Today's sentences hold accountable the unlawful conduct of those involved in illegal kickback conspiracies."
Counts three and four of the Superseding Indictment charging Saglimbeni and Figueroa with mail fraud conspiracy and mail fraud were severed from the matter and is scheduled for trial in August 2012 in the U.S. District Court in Manhattan. The defendants are presumed innocent on those counts unless and until found guilty beyond a reasonable doubt in a court of law.
SIDE BAR: The wire fraud and wire fraud conspiracy charges each carry a maximum penalty of 20 years in prison for individuals and a $1 million criminal fine for individuals and companies. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
Bill Singer's Comment
After recently excoriating the Antitrust Division in "UPDATE: LIBOR The Antitrust Division's Trojan Horse?" (" Street Sweeper" July 3, 2012) - and noting that the division is planning on closing down four of its field offices in favor of a dubious plan of consolidation in its Washington, DC headquarters - it's nice to see that justice was done to some truly bad guys who harmed those most vulnerable among us: hospital patients and their families.
The politics of regulation and prosecution is too often influenced by a quest for headlines, and far too often those headlines trumpet relatively meaningless victories that occur within the context of a "high profile" industry. All regulators and prosecutors have limited funds and resources and are obligated to triage their investigations and trials. Unfortunately, too many of those decisions are often influenced by considerations about plumping up one's resume or getting face-time on television.
What I like about this reported case is that it strikes me as a proper use of our nation's limited prosecutorial resources. The contracts involved in this case were, of all things, pertaining to asbestos! Not exactly an area where a contract should be awarded based upon a kickback rather than competency and competitive bids. Similarly, the asbestos at issue was in a hospital, as in a place where there are folks battling illnesses and don't need the added complication of asbestos particulate in the air. Finally, about the last thing that you want is to learn that those cleaning up asbestos problems are bribing hospital agents to get the job - which makes you wonder if those providers were compelled to take short-cuts in order to cover the cost of the payoffs and bribes.
On March 31, 2010, a Manhattan Grand JuryIndictment (originally filed under seal on February 18, 2010) was unsealed in which David Porath, a former owner of a maintenance and insulation company, was charged with engaging in a conspiracy to rig bids for NYPH contracts for re-insulation services, and for filing a false federal tax return in 2005 that substantially understated his income. Porath and Andrzej Gosek, the owner of a Langhorne, PA, company that provides asbestos abatement services, were also charged with conspiring to defraud the Internal Revenue Service ("IRS").
The Indictment alleged that between approximately 2000 and March 2005, NYPH awarded a number of contracts for re-insulation services to Porath's company in response to what was supposed to be competitive bidding. In reality, Porath and his co-conspirators allegedly submitted fraudulently high bids by competitor companies, which allowed Porath's company to appear to be the winning low bid.
Between October 2000 and February 2005, theIndictment alleged that Porath gave Gosek checks made out to companies in Brooklyn, NY, purportedly for NYPH work done by those companies as sub-contractors to Porath's company; however, federal prosecutors alleged that the companies had not performed such work and merely cashed the checks - thereafter, Gosek delivered the cash back to Porath. The checks totaled approximately $229,100 in 2000; $1.19 million in 2001; $760,000 in 2002; $50,000 in 2003; and $125,000 in 2004.
The Indictment characterized the alleged sham transactions as engineered for the purpose of allowing Porath to fraudulently deduct the payments on his company's and on his personal federal tax returns, which resulted in the reduction of taxable income. Based upon these checks to the Brooklyn companies, Porath took false deductions on his company's and his personal federal tax returns, allowing Porath to fraudulently reduce his taxable income. Porath is also charged with filing a false federal tax return on or about Feb. 17, 2005, which substantially understated his income.
Paying the Piper
Porath faces the following:
- Bid Rigging: a maximum penalty of 10 years in prison, and a $1 million fine.
- False Subscription On His Tax Return: a maximum penalty of three years in prison and a $100,000 fine.
Porath and Gosek face the following:
- Tax Fraud Conspiracy: a maximum penalty of five years in prison, and a $250,000 fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim of the crime, if either of those amounts is greater than the statutory maximum fine.
On November 17, 2010, Gosek pleaded guilty to one count of the three-count indictment.
On July 11, 2012, Porath pleaded guilty to the three-count indictment.
Including Porath and Gosek, 15 individuals and six companies have been convicted of or pleaded guilty to charges arising out of this federal antitrust investigation of bid rigging, fraud, bribery, and tax-related offenses relating to the award of contracts by the facilities operations department of NYPH.