Former Hacienda CEO sentenced to 3 years of probation for fraud, must pay state nearly $775K

The disgraced former CEO of a Phoenix facility where an incapacitated woman was raped and gave birth has avoided prison for defrauding the state of millions of dollars.

Maricopa County Superior Court Judge Timothy Ryan on Friday morning sentenced former Hacienda HealthCare CEO William Timmons to three years of supervised probation. Timmons also must pay restitution of $500,000 to Arizona's Medicaid program, plus $274,500 in fines and surcharges, Ryan said.

Hacienda HealthCare is a private, nonprofit facility that houses patients whose care is paid for through the state's Medicaid program — the Arizona Health Care Cost Containment System — and whose cases are managed by the Arizona Department of Economic Security.

State prosecutors have said Timmons and longtime Hacienda HealthCare Chief Financial Officer Joseph O'Malley used direct and indirect costs, inflated expense reports and false bills to bilk the state's low-income health care system out of at least $10.9 million over five years, from 2013 to 2018. The state's case against O'Malley is ongoing.

Timmons in June pleaded guilty to two counts of felony fraudulent schemes and artifice and had faced a punishment ranging from probation to up to 12.5 years on each count. When Ryan asked Timmons during Friday's sentencing whether he had anything to say, Timmons said no.

"The Arizona taxpayer does put a lot of blind faith that their money is being spent appropriately. People like Mr. Timmons, CEOs of nonprofit organizations like that, they do have a responsibility as stewards to the taxpayer, and that is where Mr. Timmons failed ... He failed horribly," assistant attorney general Sean Coll said during the sentencing.

"The reality is, your honor, this crime was more ego-driven than greed-driven ... One of the biggest benefits he received from his crime was the illusion that he was a better CEO than he was."

Timmons' attorney David Dow, who said Timmons has accepted responsibility for his crime, had requested three years of probation, while the state had requested seven.

"The prosecution said it was ego. It may have been part ego, but it was also, he loved his job," Dow said. "He's got a big heart ... . He loves to help people."

Age, health played role in sentence

Timmons received a direct benefit from the overbilling in terms of bloated salaries and bonuses, prosecutors said. By the end of 2018, Timmons' yearly salary and bonuses for that year were $747,366, according to court documents.

Timmons could have gone to prison for his crimes but at, 74, he has heart problems, is in poor health and incarceration could be a death sentence, Coll said.

"While we certainly think his conduct could merit incarceration, the circumstances surrounding this case, including his age and health and the pandemic are not allowing the state to make that recommendation at this time," Coll said.

"One of the goals of this case, one of the priorities, was to make the Arizona taxpayer whole and return as much money as possible that was improperly allocated from AHCCCS back to AHCCCS."

A Maricopa County grand jury in 2020 August indicted Timmons and O'Malley on multiple charges related to bilking the state by orchestrating a complex billing scheme involving a series of connected businesses.

At the same time Timmons and O'Malley were indicted, the facility was ordered to pay the state $11 million.

Rape occurred as Timmons was CEO

Timmons was the CEO of Hacienda from July 1989 until Dec. 31, 2018, which was two days after a 29-year-old patient at Hacienda HealthCare's intermediate care facility unexpectedly gave birth in a case that attracted international attention.

A Hacienda HealthCare staff member who cared for the patient — Nathan Sutherland — was later accused of rape using DNA evidence. Sutherland was a licensed practical nurse who has since surrendered his license.

Sutherland in September pleaded guilty to charges of sexual assault and abuse of a vulnerable adult and is facing prison time.

Timmons left the Hacienda HealthCare altogether on Jan. 7, 2019.

The patient rape increased attention on Hacienda HealthCare, and on Timmons. Arizona Attorney General Mark Brnovich launched a criminal investigation into Hacienda’s finances in early 2019 after officials say they learned the institution failed to comply with its contract terms.

The indictment alleged that from 2013 until June 30, 2018, Timmons and O’Malley intentionally misallocated funds from the Arizona Department of Economic Security’s Division of Developmental Disabilities and from AHCCCS, by manipulating costs to avoid repayments of state funds in favor of inflated salaries and bonuses.

Timmons used the money to pay for a large portion of costs at Hacienda's other facilities and did not reimburse the state as required by the contract, Brnovich's office said.

According to the grand jury indictment, Timmons and O'Malley used separate businesses to sell medical supplies and equipment to Hacienda at inflated costs, sometimes marked up by 12.5%.

For instance, a company called South Mountain Health Supply operated under the umbrella of Hacienda. South Mountain purchased medical supplies from third-party vendors and then re-sold the supplies to Hacienda at an increased cost, according to the indictment.

Authorities also allege Timmons double-billed the state by reusing vials of a vaccine against protocol.

$7.5M settlement to victim's family

Separate investigations by The Arizona Republic found Timmons had a long history of sexual harassment and bullying complaints that went unchecked by Hacienda's board.

The Republic also found widespread self-dealing and nepotism by board members who were doing business directly with Hacienda. That included board chairman Tom Pomeroy, who for decades brokered health insurance for roughly 800 Hacienda employees through his private company. He later resigned.

Authorities said O'Malley came clean about the fraud after Timmons resigned in 2019. He reportedly told the board of directors "costs had not been allocated correctly" over the course of the Medicaid contract with the state and that he and Timmons were aware of it.

O’Malley resigned from Hacienda HealthCare in March 2019.

In June, Maricopa County Superior Court Judge Theodore Campagnolo approved a $15 million settlement agreement between the family of the incapacitated woman, now 32, and the estate of the physician who cared for her at Hacienda HealthCare, Dr. Phillip Gear Jr. Gear died on Dec. 20, court documents say.

The woman and her family had previously reached a settlement with Arizona for $7.5 million.

According to court records, the rape victim and her family settled a claim against Hacienda HealthCare for an undisclosed amount prior to filing their lawsuit.

The rape victim did not return to Hacienda HealthCare and is now living in a different Arizona facility. Her child is living with the woman's parents in the San Carlos Apache community.

Reach the reporter at Stephanie.Innes@gannett.com or at 602-444-8369. Follow her on Twitter @stephanieinnes

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This article originally appeared on Arizona Republic: Former Hacienda CEO William Timmons gets 3 years' probation for fraud