Exterior of Hacienda HealthCare facility in Phoenix on Feb. 18, 2019. (Photo: Tom Tingle/The Republic)
Two former officers of a Phoenix facility where an incapacitated woman was raped and gave birth have been indicted on criminal fraud charges, and the facility will pay Arizona more than $11 million for years of inflated Medicaid billings.
Board members of Hacienda HealthCare on Wednesday acknowledged receiving millions of dollars that it didn’t earn from the state as part of a civil settlement with the Arizona Attorney General’s Office.
A grand jury this week indicted Hacienda’s former chief executive officer and chief financial officer on multiple fraud charges. Authorities accused Bill Timmons and Joseph O’Malley of orchestrating a complex scheme to artificially jack up costs through a series of connected businesses.
State prosecutors allege Timmons and O’Malley used direct and indirect costs, inflated expense reports and false bills to bilk the state’s low-income health care system out of at least $10.9 million over five years, from 2013 to 2018.
“This settlement provides a pathway for Arizona to recover funds misused for years by Hacienda,” Attorney General Mark Brnovich said in a news release. “While our office is limited in what we can say about ongoing criminal cases at this time, I can assure Arizonans that the individuals who perpetuated this fraud will be appropriately prosecuted.”
Neither Timmons nor O’Malley could be reached for comment Wednesday. Court records indicate they have not yet entered pleas.
The move comes weeks after the state agreed to pay the rape victim $7.5 million to settle a lawsuit. The victim’s lawyer, John Micheaels, confirmed the settlement Wednesday.
The lawsuit did not name Hacienda HealthCare as a defendant. It alleged the state of Arizona was “grossly negligent” in monitoring, overseeing and assessing Hacienda’s operations.
Hacienda cares for individuals with intellectual disabilities. Many patients can’t walk or breathe on their own. In addition, they can have seizure disorders, behavior problems, mental illness or visual or hearing impairments.
The indictments and the settlement follow years of special treatment afforded to Hacienda by state officials and accusations of fraud that initially were dropped by the state in 2016.
For decades, the facility benefited from special protections from the state that allowed it to operate without competition or much regulation.
State legislators in 1987 gave Hacienda a monopoly in the privately owned intermediate-care market. The legislation, co-sponsored by former Gov. Jan Brewer, made it so only facilities under contract with the state before 1988 were allowed to operate. Hacienda was the only one.
The law remained on the books until 2015. That wasn’t the only law uniquely designed to help Hacienda. In 1997, legislators removed licensing requirements from Hacienda, allowing it to operate without the state inspections and oversight required of other health care facilities.
An investigation by The Arizona Republic last year documented allegations of Medicaid fraud and the 2016 effort by state officials to remove patients from the facility over claims it billed the state more than $4 million in bogus charges.
Regulators with the Department of Economic Security, Arizona’s social-welfare agency, wanted to remove developmentally disabled patients from Hacienda HealthCare in 2016 and terminate contracts that allowed the facility to provide services for the state.
But a criminal case was dropped in 2017, and no charges were filed.
Tim Jeffries, the former head of the DES, unsuccessfully tried to blow the whistle on Hacienda in 2016. He said Wednesday he was pleased by the indictments.
“I am pleased that Hacienda management has FINALLY been indicted for the malfeasance that my DES team and I were sure existed four years ago,” Jeffries said in an email to The Republic. “I am immensely grateful for the AG’s office finally lowering the boom on those who failed some of the most vulnerable and treasured Arizonans in our State. I hope and pray Justice is now swift and unrelenting.”
Separate investigations by The Republic last year found Timmons had a long history of sexual harassment and bullying complaints that went unchecked by Hacienda’s board.
The newspaper also found widespread self-dealing and nepotism by board members who were doing business directly with Hacienda. That included board chairman Tom Pomeroy, who for decades brokered health insurance for roughly 800 Hacienda employees through his private company. He later resigned.
Brnovich’s office launched its criminal investigation into Hacienda’s finances in early 2019 after officials say they learned the institution failed to comply with its contract terms.
It found that the Arizona Health Care Cost Containment System, the state’s Medicaid program, overpaid at least $10,895,648.25 to Hacienda for medical and behavioral health services.
In a statement issued Wednesday, current Hacienda HealthCare CEO Perry Petrilli said current Hacienda leadership “cooperated fully” with the investigation.
“No one currently involved with Hacienda was aware of these alleged illegal actions, nor could anyone have been aware given the way these actions were recorded,” his statement says.
“With a new management team and system in place, and new safeguards to protect residents and resources, our team has never been more committed to serving Hacienda’s residents with compassion and professionalism.”
Here’s what we know about the 36-year-old nurse accused of raping and impregnating an incapacitated patient under his care.
Incapacitated woman gives birth
Hacienda HealthCare made international headlines in early January 2019 after a then-29-year-old woman with severe disabilities gave birth at Hacienda’s 1402 E. South Mountain Ave. facility in Phoenix, where she was a resident.
Staff who made the 911 call about the birth indicated they did not know the woman was pregnant.
Hacienda responded to community pressure for accountability by hiring former Maricopa County Attorney Rick Romley to conduct a top-to-bottom investigation of the facility.
Two months later, Romley and several other managers walked off the job, saying the board had stymied his investigation.
Romley said Wednesday he “appreciated the Attorney General’s Office looking into this matter.” He said attorney-client privilege prevented him from speaking on the settlement or the indictment.
Asked if he alerted the Attorney General’s Office to suspected wrongdoing, Romley said: “I can’t comment on that.”
In February 2019, Gov. Doug Ducey called for an investigation into patient care, financial fraud and sexual-harassment claims at Hacienda. He also called for the removal of Hacienda’s entire board of directors, saying he had no confidence in the leadership. It didn’t happen.
Facility’s former leaders accused of fraud
According to the grand jury indictment, Timmons and O’Malley used separate business to sell medical supplies and equipment to Hacienda at inflated costs, sometimes marked up to 12.5%. Authorities say they used the money to pay themselves lucrative salaries and bonuses.
For instance, a company called South Mountain Health Supply operated under the umbrella of Hacienda. South Mountain purchased medical supplies from third-party vendors and then re-sold the supplies to Hacienda at an increased cost, according to the indictment.
Authorities also allege Timmons double-billed the state by reusing vials of a vaccine against protocol. Synagis is an expensive injection used to prevent RSV, a respiratory disease in infants and children.
“Timmons purportedly told staff not to discard Synagis vials after a single-use, but rather administer all remaining medication to patients,” according to the Attorney General’s Office. “Health insurance companies were still billed for the entire cost of a vial.”
Timmons worked at Hacienda for 28 years and earned $609,000 in 2015, according to the nonprofit’s most recently available tax filings.
His salary that year included a $75,000 bonus, $18,777 in retirement and $11,742 in non-taxable benefits. Tax records show he got a $50,000 salary raise in 2014 and a $71,000 raise in 2015.
Authorities said O’Malley came clean about the fraud after Timmons resigned in 2019. He reportedly told the board of directors “costs had not been allocated correctly” over the course of the Medicaid contract with the state and that he and Timmons were aware of it.
O’Malley resigned in March 2019.
Hacienda will pay $7 million to the state initially, followed by monthly installments of $50,000. It also will pay a $1 million fine to the Attorney General’s Office and the AHCCCS Office of the Inspector General.
In return, the state agreed not to take any other civil, criminal, or administrative legal action against Hacienda unless it breaks the settlement agreement.
Robert Anglen investigates consumer issues for The Republic. If you’re the victim of fraud, waste or abuse, reach him at [email protected] or 602-444-8694. Follow him on Twitter @robertanglen
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