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Healthcare Business News
 

Chicago hospital to close in wake of fraud investigation


By Andrew L. Wang and Kristen Schorsch, Crain's Chicago Business
Posted: July 1, 2013 - 7:00 pm ET
Tags:

Sacred Heart Hospital, the target of a federal fraud probe, is closing its doors, Crain's has confirmed.

The West Side, for-profit hospital advised the Illinois Department of Public Health at 1:30 p.m today of the immediate closing, a department spokeswoman said.

The facility had enlisted the help of prominent restructuring firm Alvarez & Marsal Holdings LLP to run operations. The New York-based firm was hired after owner and CEO Edward Novak, CFO Roy Payawal and four doctors were arrested in mid-April by federal investigators in connection with an alleged kickback scheme in which doctors were bribed to admit Medicare patients to the hospital.

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Executives of Alvarez & Marsal this morning gathered hospital employees together to announce that the hospital was closing and that its handful of inpatients would be transferred to nearby hospitals, according to people who attended the meeting. The hospital's outpatient clinics and home health services business also would be shut down, two of the sources said.

The decision to close came after Medicare decided to suspend payments for 180 days, said Robert Wild, an attorney in the Chicago office of law firm Krieg DeVault LLP, which represents the hospital.

An Alvarez & Marsal executive at the hospital declined to comment.

Hiring a turnaround firm was a strong sign the hospital was being primed for sale.

It is unclear what impact, if any, the closing may have on prospects to sell the 119-bed hospital at 3240 W. Franklin Blvd.

Sacred Heart “is seeking a long-term solution and reviewing all available options, Mr. Wild said in an email.

A state nurse surveyor is at Sacred Heart to ensure the safety of existing patients and their medical records, the public health department spokeswoman said. The state also will alert emergency care providers not to route patients to Sacred Heart, she said.

Hospitals are required by Illinois law to give a 90-day notice before closing, and the closing must be approved by the Illinois Health Facilities and Services Review Board, which regulates health facilities.

The abrupt closure is a compliance issue and will go before the board, said Courtney Avery, administrator of the facilities board.

Federal authorities allege that Mr. Novak, who acquired Sacred Heart in 1988, orchestrated a scheme that paid thousands of dollars a month to doctors in exchange for referrals that defrauded Medicare and Medicaid. One doctor, allegedly at Mr. Novak's behest, performed medically unnecessary tracheotomies on patients to bring in more revenue, the FBI says.

Prior to the arrests, the hospital apparently was profitable, according to an affidavit filed in U.S. District Court in Chicago that was used to obtain search and arrest warrants.

But the investigation had made doctors afraid to admit patients there, leaving only about a half-dozen beds filled, sources said.

Sergio Acosta, a partner in law firm Hinshaw & Culbertson LLP, who represents Mr. Novak in the criminal case, declined to comment.

"Sacred Heart Hospital to close" originally appeared in Crain's Chicago Business.


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