Lakeway Hospital Investors Settle With DOJ, HUD

Baylor Scott & White Medical Center, Lakeway (formerly LRMC)

Baylor Scott & White Medical Center, Lakeway (formerly LRMC) (Photo by Jana Birchum)

On Monday, the U.S. Department of Justice announced three financial settlements – totaling more than $16.5 million – in legal actions against the bankrupt former Lakeway Regional Medical Center, LLC and several of the private hospital’s initial investors.

The settlements follow another 2019 settlement concerning DOJ allegations of LRMC fraud against the U.S. Department of Housing and Urban Development over a mortgage loan for the Lakeway for profit hospital that eventually cost HUD $172 million.

The settlements announced Sept. 28 by the DOJ include:

• $1.12 million paid by LRMC to the U.S. and the state of Texas “to resolve allegations LRMC submitted false claims to the Medicare and Medicaid programs.”

• $13.6 million paid by LRMC to the U.S. “to resolve allegations they violated the False Claims Act and other statutes” during the development of the hospital.

• $1.8 million paid by development interests Surgical Development Partners LLC, Surgical Development Partners of Austin Enterprises LLC, G. Edward Alexander, Frank Sossi, and John Prater to resolve similar allegations.

The three settlements announced this week follow a June 2019 DOJ settlement:

• $1.1 million paid by seven other corporate entities and executives to “resolve allegations that they violated the False Claims Act by improperly helping to obtain a loan insured by the Federal Housing Administration [through HUD programs] and receiving impermissible distributions of [LRMC] project funds.”

In each case, the DOJ statements reflect that the settlements resolve “allegations only,” and that there is no acknowledgement of liability by the settling parties. The settlements also do not necessarily mean the end of the legal actions connected to the LRMC hospital, which after bankruptcy and resale became Baylor Scott & White Medical Center – Lakeway. Additional parties may remain liable for fraud claims, in a complicated series of transactions that, the government alleges, involved “numerous false statements and material omissions” in applying to HUD for the mortgage loan … thereby obtaining the loan under false pretenses.”

The DOJ investigation was initiated in part by a whistleblower complaint filed by neurologist Dr. Robert Van Boven (cited, with Suzanne Van Boven, as the “relator” in the DOJ settlement). Van Boven, who in the course of his practice as an LRMC neurologist had earlier filed several complaints of medical negligence against the hospital (all confirmed by the state Dept. of Health and Human Services), is a named party to the $1.2 million settlement and is eligible for a percentage of the government’s financial recovery.

Dr. Van Boven told the Chronicle, “My family and I are grateful to our supporters who believe that physicians should prioritize patients over profits and insist on integrity and transparency in healthcare.”

Earlier this year, LRMC concluded its fourth financial settlement with Van Boven over the doctor’s claims of repeated retaliation for his complaints of medical negligence. He also has lawsuits pending against Baylor Scott & White, and a pending state Supreme Court appeal against the Texas Medical Board, claiming unlawful administrative actions.

To close the 2012 mortgage loan to LRMC of $164 million, HUD had required both $38 million in equity as a down payment on the development and evidence of local physician engagement – lacking either, the DOJ charged, the various investing parties “conspired to cover the shortfall with a number of kiting and kickback schemes.” According to the DOJ, the hospital administrators failed to return canceled investments (in order to maintain the appearance of equity), improperly borrowed funds to cover the shortfall, and “agreed to pay kickbacks to certain insider investors.” The fraud continued after closing on the mortgage, according to DOJ allegations, and the hospital was effectively insolvent before it opened.

Eventually, HUD paid claims for $172 million in connection with the LRMC loan, granted via a program encouraging hospital development in underserved areas. Despite this purported need for hospital care in one of Texas’ wealthiest communities, admissions were lower than expected. In 2013, LRMC and its investors defaulted on the HUD loan, and the agency auctioned its interest to real estate investment trust MedEquities Realty Trust Inc. for $50 million. MedEquities leased the real estate back to LRMC as a tenant, but in 2016, LRMC sold its interests to Baylor Scott & White for $72 million.

In a statement accompanying the announcement of the FHA settlement, Acting Assistant Attorney General Jeffrey Bossert Clark of the DOJ’s Civil Division said, “Individuals and entities that benefit from FHA insurance must be truthful with the government and honor their commitments. This settlement demonstrates the department’s resolve to hold accountable borrowers who subvert FHA’s important efforts to support hospitals in underserved communities.”

This is a still developing story; follow the Daily News and the Chronicle’s print edition for additional reports. For the full Robert Van Boven story, see here.