Ex-Sacred Heart CEO pushes back in Medicare kickback case

The indicted former owner and CEO of Chicago's Sacred Heart Hospital is arguing that evidence gathered in a search of the facility last April should be suppressed because of the alleged questionable credibility of federal prosecutors' key cooperating witness.

In a filing this month, lawyers for Edward Novak say that in its 90-page affidavit in support of a search warrant, the FBI should have disclosed information about Anthony Puorro that would have cast doubt on what Puorro, Sacred Heart's former chief operating officer, told investigators about an alleged Medicare kickback scheme.

Among the omitted information, the filing argues, is that a week before agents arrested Novak and another Sacred Heart administrator, Puorro recanted part of his account to FBI agents and prosecutors, only to “recant his recantation” a few days later. Novak's attorneys also argue that the affidavit should have indicated that Puorro was implicated—though never charged—in an earlier, unrelated healthcare fraud case in Pennsylvania.

The affidavit includes “a recitation of the purported credibility history of the government's principal informant and cooperating witness that was so woefully incomplete that, had his true history been disclosed . . . the magistrate judge (who approved the warrant) would likely have disregarded anything he said,” Novak's filing states.

The argument about Puorro, who also has been indicted in the case, is part of a motion before Judge Matthew Kennelly requesting a hearing to determine if evidence seized via the warrant should be allowed at trial. The motion also alleges that the FBI omitted information that would have cast doubt on its case against Novak and his co-defendants, and mischaracterized the contents of surreptitious recordings in ways that unduly implicate the ex-CEO.

Prosecutors in the Sacred Heart case have until April 1 to respond to Novak's motion.

A spokesman for the office of U.S. Attorney Zachary Fardon declined to comment on the defense motion, as did Novak's lead attorney, Sergio Acosta of Chicago-based Hinshaw & Culbertson LLP, and Puorro's lawyer, Chicago defense attorney Susan Shatz.

In seeking a so-called Franks hearing, the defense is likely hunting for an opportunity to cross-examine Puorro prior to trial, and getting the court to grant the hearing would be a strategic win, one expert said.

But even if there is a hearing, the defense still must prove that prosecutors intentionally included false information in the affidavit, said Laura Hoey, a Chicago-based partner in Ropes & Gray LLP's government enforcement practice. If the defense gets past that hurdle and some parts of the affidavit are stricken, she added, the judge still could find that the rest of the document is enough to provide probable cause for the search.

“It's a high bar,” said Ms. Hoey, a former federal prosecutor. “The Franks hearing is just one step in the motion to suppress.”

Eleven months ago, federal law enforcement officials arrested Novak, former Sacred Heart CFO Roy Payawal and four doctors—Venkateswara Kuchipudi, Percy May, Subir Maitra and Shanin Moshiri—alleging that the executives for years had paid the doctors to refer Medicare and Medicaid patients to the hospital in violation of federal statutes. They also seized records and computers from Sacred Heart and $1.2 million from its bank account.

The government dropped charges against Dr. Kuchipudi in September but indicted Messrs. Novak, Payawal and Puorro. Also indicted was hospital executive Noemi Velgara, Drs. May, Maitra and Moshiri, and a fourth doctor, Rajiv Kandala.

Dr. Kandala's attorney, Theodore Poulos of Chicago-based Cotsirilos Tighe Streicker Poulos & Campbell Ltd., and Dr. Kuchipudi's attorney, Daniel Rubinstein of Winston & Strawn LLP in Chicago, declined to comment. Lawyers representing the other defendants did not return messages for comment.

In the months following the arrests and the FBI's raid of the hospital on April 16, Sacred Heart struggled to keep its doors open. Under the operation of a turnaround firm, the for-profit hospital closed and filed for bankruptcy protection in July. After unsuccessful attempts to sell the facility, the hospital auctioned off much of its equipment and other assets and finally sold the building itself in December.

In the motion, Novak's attorneys say Puorro told federal investigators in November 2012 that Novak instructed him to hand-deliver kickback checks to Drs. Moshiri and Maitra, only to change his story on April 9, when he allegedly told agents that he didn't know if the checks were for patient referrals.

Then, at an April 11 meeting with prosecutors and FBI investigators, Puorro said the statement he had given them two days earlier wasn't true and that he had said it because he wanted to protect himself.

The FBI's affidavit acknowledges that Puorro “made certain statements which he has subsequently acknowledged were not accurate” but offers little more. Novak's attorneys argue that if more detail had been provided, it would have affected how the magistrate judge, Daniel Martin, viewed Puorro's credibility and perhaps whether the search warrant was allowed.

Novak's attorneys also say prosecutors should have disclosed that Puorro, when he was CEO of Aliquippa Community Hospital near Pittsburgh in 2003-06, was alleged to have “acted in concert” with a doctor in a scheme to acquire drugs from a federal discount program and improperly sell them to other doctors

Puorro was never indicted in the investigation, but prosecutors in the case said he was “equally culpable with” the doctor, according to court records. The government later dropped charges against the doctor, who agreed to pay $565,000 in a settlement agreement. Aliquippa fired Puorro in 2006.

"Ex-Sacred Heart CEO pushes back in Medicare kickback case" originally appeared in Crain's Chicago Business.