Recently, a former Texas hospital (the “Hospital”) settled a multi-million dollar False Claims Act civil lawsuit involving the acquisition and use of funds from the largest Federal Housing Administration-backed mortgage for a for-profit hospital. The Hospital settled for $13.6 million and three top executives of the hospital, along with the development company, will collectively pay $1.8 million to resolve the false claims allegations for the development of the project. An additional settlement was reached with the Hospital for $1.1 million to resolve allegations of false claims submitted to Medicare and Medicaid programs.
The case involved civil False Claims Act allegations brought by the United States over the misuse of proceeds from a loan backed by the U.S. Department of Housing and Urban Development’s (“HUD”) Federal Housing Administration (“FHA”). The National Housing Act (the “Act”) created a program to support investment in hospitals in underserved communities by offering to insure the loans necessary for the construction of hospitals in those communities. However, the Hospital allegedly made numerous false statements and material omissions during the application process in order to overstate physician support for the hospital and understate other key credit risks according to the Department of Justice. Physician investor support was one of the key factors driving the creditworthiness of the Hospital, but support had eroded by the time of closing when the Hospital fell $5 million short of the $38 million equity stake required to close the loan.