A.G. Schneiderman Announces $8 Million In Settlements With Specialcare Hospital Management Corp. And Hospitals In Yonkers, Kingston And Hudson For Defrauding Medicaid

OAG Joint Investigation With U.S. Attorney For The Eastern District Revealed That Yonkers, Kingston And Hudson Hospitals Billed Medicaid For Unlicensed And Unnecessary Detox Services

Yonkers And Hudson Hospitals Paid Illegal Kickbacks To SpecialCare For Referrals To Unlicensed Drug And Alcohol Treatment Program

Schneiderman: Those Who Abuse Medicaid And Defraud Taxpayers Will Be Held Accountable

NEW YORK— Attorney General Eric T. Schneiderman today announced that his office has secured settlement agreements with five defendants in a False Claims Act case that will return more than $8 million to the Medicaid and Medicare programs. The agreements resolve claims that SpecialCare Hospital Management Corporation defrauded Medicaid and Medicare by illegally referring patients to unlicensed drug and alcohol treatment programs at Columbia Memorial Hospital in Hudson, and St. Joseph’s Medical Center in Yonkers, in exchange for kickbacks. The Attorney General’s complaint alleges that SpecialCare Hospital Management Corporation, a for-profit out-of-state vendor, received the illegal kickbacks under the guise of providing purported administrative services to the hospitals. It further alleges that SpecialCare’s illegal referrals caused the hospitals to provide those patients with unlicensed and medically unnecessary inpatient drug and alcohol treatment services, and submit false claims to Medicaid for those services, from approximately 2002 to 2006. The settlements also resolve claims that St. Joseph’s Medical Center, Columbia Memorial Hospital, and Benedictine Hospital in Kingston submitted false claims to Medicaid for unlicensed and medically unnecessary inpatient detoxification services. Benedictine Hospital changed its name to HealthAlliance Hospital Mary’s Avenue Campus on February 5, 2013. Under the terms of the four settlements, more than $7,367,000 will be returned to the Medicaid program, and $597,000 to the federal Medicare program.

“Drug and alcohol treatment programs are designed to help vulnerable people struggling with addiction. By exploiting their needs and the Medicaid program in order to maximize revenue, SpecialCare Hospital Management Corporation, St. Joseph’s Medical Center, Benedictine Hospital and Columbia Memorial Hospital wasted Medicaid resources and illegally billed taxpayers for unlicensed and medically unnecessary treatment services,” said Attorney General Schneiderman. “This settlement holds those institutions accountable for their scheme, and will make providers think twice before defrauding the Medicaid system. Together with our federal partners, my office will leave no stone unturned in the fight to recover misappropriated money on behalf of New York’s taxpayers.”

The Attorney General alleged that St. Joseph’s Medical Center and Columbia Memorial Hospital entered into an illegal patient referral scheme with an out-of-state vendor, SpecialCare Hospital Management Corp., disguised as an “administrative services agreement.” Under the scheme, each hospital agreed to pay the vendor a monthly fee in exchange for the referral of Medicaid patients to its unlicensed inpatient detoxification unit. Referral of Medicaid patients for a fee violates federal and state anti-kickback laws and Medicaid regulations. Furthermore, the Attorney General alleged that Benedictine Hospital, St. Joseph’s Medical Center and Columbia Memorial Hospital illegally operated and marketed discrete units providing chemical dependency treatment or services, through the “New Vision” program, even though they lacked required State licensure to do so. State law requires a hospital to obtain an operating certificate from the New York State Office of Alcohol and Substance Abuse Services before it operates a discrete unit providing chemical dependency treatment or services, or holds itself out to the public in a manner that indicates the availability of chemical dependency programs, treatment or services. The Attorney General’s complaint also charged that the inpatient detoxification services provided by the three hospitals were not medically necessary, and/or failed to meet professionally recognized standards of care. 

In the settlement agreement with SpecialCare and Robert McNutt, its former Chief Executive Officer, those parties agreed to pay $6 million to resolve claims that they caused and conspired with the hospitals to submit false claims to Medicaid. SpecialCare and McNutt also agreed to a five-year injunction on doing business with any Medicaid or Medicare providers in New York State for which said providers may submit claims to Medicaid or Medicare, or to Medicaid or Medicare managed care organizations in New York State.  SpecialCare and McNutt also agreed to notify the State if, after that period, they decide to attempt to do any such business in New York. SpecialCare and McNutt also entered into a Corporate Integrity Agreement with the United States Office of Inspector General of the Department of Health and Human Services.  In the separate settlement agreements announced today, Benedictine Hospital agreed to pay $880,000 to resolve allegations that it submitted false claims for inpatient detoxification services from 2002 to 2005; St. Joseph’s Medical Center agreed to pay $600,000 to resolve allegations that it submitted false claims for inpatient detoxification services from 2002 to 2006; and Columbia Memorial Hospital agreed to pay $650,000 to resolve allegations that it submitted false claims for inpatient detoxification services from 2003 to 2005.  

These settlements were the result of a joint investigation into New York of False Claims Act violations by the Attorney General’s Medicaid Fraud Control Unit and the United States Attorney’s Office for the Eastern District of New York. The investigation began after allegations were made by whistleblowers Mathew I. Gelfand, M.D. and Enrico Montaperto. Following their joint investigation, the Attorney General’s Office and the United States Attorney’s Office filed Complaints-In-Intervention against seven New York hospitals, SpecialCare Hospital Management Corp. and SpecialCare Chief Executive Officer Robert McNutt for making false claims to Medicaid and Medicare. Prior settlements in this case were reached with New York Downtown Hospital for $13.4 million, and Our Lady of Mercy Medical Center for $4.5 million.  The total amount recovered under the six settlements in this False Claims Act case exceeds $25,000,000.

The whistleblowers originally filed complaints that alleged claims under New York’s False Claims Act, which authorizes persons who have uncovered fraud against the State to file claims on its behalf.

The Attorney General’s Medicaid Fraud Control Unit and the United States Attorney’s Office worked in partnership to investigate the allegations and to litigate the cases, and also worked with the New York State Department of Health and the New York State Office of Alcohol and Substance Abuse Services on the investigation. Attorney General Schneiderman thanked Acting United States Attorney for the Eastern District of New York Kelly T. Currie, Assistant United States Attorney Richard K. Hayes and Affirmative Civil Enforcement Auditor Emily J. Rosenthal for their invaluable assistance and cooperation in these cases. Attorney General Schneiderman also thanked the New York State Office of Alcohol Substance Abuse Services, the New York State Department of Health, and the New York State Office of the Medicaid Inspector General for their assistance and cooperation in the investigation.

Special Assistant Attorneys General Amy Held, James P. Clarke and Lara Merchan, Supervising Investigator James F. Spellman, Assistant Chief Auditor Investigator Margaret McArdle, and Senior Investigator Gerard P. Worysz (Ret.) investigated and litigated the matter for the Medicaid Fraud Control Unit, with the assistance of Regional Chief Investigator Greg Muroff. The Medicaid Fraud Control Unit is led by Acting Director Amy Held and Assistant Deputy Attorney General Paul J. Mahoney. The Division of Criminal Justice is led by Executive Deputy Attorney General Kelly Donovan.

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