Central Texas hospital, medical practices settle claims for misrepresentations to obtain mortgage

by Ben Vernia | October 20th, 2020

On September 28, the Department of Justice announced that a central Texas hospital, two medical practices, and three individuals had agreed to pay $15.3 million to resolve civil allegations that they had made false statements to secure mortgage backing to build the hospital. According to DOJ’s press release:

The Department of Justice announced today that Lakeway Regional Medical Center LLC (LRMC) agreed to pay $13,580,822.79, and Surgical Development Partners LLC, Surgical Development Partners of Austin Enterprises LLC, G. Edward Alexander, Frank Sossi, and John Prater collectively agreed to pay $1.8 million, to resolve allegations they violated the False Claims Act and other statutes in connection with the development of Lakeway Regional Medical Center, a hospital in Lakeway, Texas.  LRMC was formed to develop and operate the hospital.  The other settling parties assisted in the development of the hospital and the management and operations of LRMC. 

The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), insures loans used to build hospitals in underserved areas.  The settlement announced today resolves allegations that, when applying for a mortgage loan insured by the FHA to fund construction of the hospital, the defendants made numerous false statements and material omissions in order to overstate physician support for the hospital and understate other key credit risks, thereby obtaining the loan under false pretenses.  In particular, the United States alleged that the defendants delayed refunds to investors who had cancelled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan.  The settlement also resolves claims that, after obtaining the loan for LRMC, the defendants distributed project funds in contravention of FHA’s requirements.  HUD purchased the mortgage note, and suffered a loss, when LRMC defaulted. 

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The case apparently arose from a government investigation, and not from a whistleblower’s qui tam complaint.

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