Kickbacks and sham contracts: How Borrego Health says ex-insiders stole millions
Several top former trustees and employees — including a long-time CEO — of the Borrego Community Health Foundation schemed for years to siphon off millions of dollars from the nonprofit corporation, a new lawsuit alleges.
The foundation, which provides medical services to thousands of residents in inland and desert southern California, filed the lawsuit Tuesday in U.S. District Court, with several former members of its own board of trustees listed as defendants.
The lawsuit focuses in part on the actions of Bruce Hebets, who died in 2019, the year after he retired following 14 years as CEO of Borrego Health. Hebets is not named as a defendant, “though he would have been, if possible,” according to the complaint.
The board members and employees named in the lawsuit — which refers to them as the “Borrego Insiders” — collaborated with other medical professionals to drain millions of dollars from the nonprofit corporation through several different schemes, according to a copy of the complaint obtained by The Desert Sun.
Borrego Health spokesperson Dan Kramer said the organization is seeking damages of more than $40 million and added, “We need to conduct discovery to make a determination of the ultimate number which could be far higher.”
Among other schemes to enrich themselves, the lawsuit says, the "insiders" started private companies to perform medical and administrative services, then had Borrego contract with those firms at inflated rates. The lawsuit says they also had the nonprofit they controlled hire friends and relatives at above-market salaries.
All the while, they “worked tirelessly to cover up their misdeeds, and, until recently, were successful is doing so,” according to the complaint.
Sandra Hansberger, the current chair of Borrego’s board of trustees, told The Desert Sun the lawsuit is “just part of our/Borrego Health’s multipronged effort to bring the wrongdoers to justice.”
“I am appalled at how individuals took advantage of their positions at a non-profit for their own personal gain, at the expense of their communities and the patients that Borrego serves,” Hansberger said. “It’s time we take this action to shine a light on these activities so that we can move forward.”
“Our primary objectives are to preserve vital community health services, to do as much as we can to make the government whole, and to support the government in bringing those responsible to justice,” she added.
The complaint also sheds new light on why Borrego Health’s Medi-Cal payments were suspended by the state in 2020, saying it was a result of “the false and fraudulent billing of dental services.”
“The state and federal government are also investigating Borrego Health for tax issues, its non-profit status, among many other things, due to these schemes,” the complaint notes.
The FBI and state investigators raided foundation offices in 2020 as part of a still-ongoing investigation into suspected Medicare fraud, the San Diego Union-Tribune reported last year.
The nonprofit corporation, which laid off 218 employees earlier this summer, operates medical clinics, dental clinics and pharmacies in Riverside and San Diego counties, including in Indio, Thermal, Palm Springs, Cathedral City and Desert Hot Springs. The foundation's primary focus is on "underserved" communities, according to a mission statement on its website.
Kickbacks and overpayments
The complaint outlines several alleged schemes that Hebets, his wife Karen, other executives and “insider” board members carried out at the expense of Borrego Health.
“While CEO of Borrego Health, Bruce Hebets devised a scheme to have Borrego Health incur unnecessary costs by providing physician services and administrative services to Borrego Health through companies that he and other Borrego Insiders would create and control,” the complaint states. “This allowed the Borrego Insiders to improperly profit from those companies at the expense of Borrego Health.”
The companies created by the “insiders” included Borrego Management Services Organization LLC and Borrego Independent Physicians Association, according to the complaint.
The lawsuit says those companies, which had no other clients, provided services that were already being by Borrego Health's own staff “without the unnecessary expense of contracting with outside companies.”
In 2012, Borrego Health paid $2 million to buy the two companies, a transaction described in the complaint as a “sham” in which the insiders were compensated “through kickbacks or other payments or remuneration.”
The setup, which resembles others detailed in the suit, was described in the complaint as “one of the earliest discovered schemes concocted by the Borrego Insiders.”
Defrauding a dental program
The lawsuit also alleges the corporation’s insiders took advantage of a contract dental program, in which Medi-Cal paid Borrego Health a fixed rate for services by its contracted dentists.
Borrego Health operated the program solo at first, but in 2015, Hebets proposed contracting with an outside organization to manage it, according to the complaint.
“Ultimately, on or about October 29, 2015, the full Borrego Health Board rejected Bruce Hebets’ proposal to enter into an arrangement with a (management firm) in which he held ownership interest as a result of the inherent conflict of interest,” the complaint states.
Despite the board’s rejection of the idea, in March 2016, Hebets outsourced management of the dental program to Premier Healthcare Management, a corporation based in El Cajon and owned by Daryl Priest.
The deal was never brought before Borrego Health's full board, but instead negotiated by insiders and drafted by Borrego's chief legal officer, Mikia Wallis, who later became CEO in 2018 after Hebets retired, the complaint says.
Wallis, who did not respond to a request for comment, was placed on administrative leave in October 2020, and terminated by Borrego Health in December 2020, according to the complaint.
Not until summer 2020, more than four years after the deal with Premier was signed, did the rest of the Borrego Health board learn of it, according to the complaint. At that point, they hired a valuation expert, who deemed the total market value of the services Premier provided to Borrego Health to be $19 million.
“However, Borrego Health paid over $60 million for those services, meaning (it) overpaid by at least $40 million,” the complaint states, later adding: “The Borrego Insiders were compensated for this access and control through kickbacks or other payments or remuneration.”
Some of the contracted dentists also allegedly exploited Medi-Cal’s billing structure, with some splitting services “that could have been done in one encounter to multiple encounters so that they could collect multiple times,” according to the complaint.
“More egregious than that, some dentists provided multiple services during a single encounter, but billed the services as multiple encounters,” the complaint states. “Finally, most egregious of all, some dentists billed for services they never provided.”
Premier officials, who were responsible for addressing patient grievances and auditing the dental providers, “completely abdicated their responsibilities”and knew they would benefit from the additional claims because Borrego Health paid them based on the volume of claims, according to the complaint.
The complaint lists more than a dozen California dentists as defendants. A request for comment from Premier Healthcare Management had not been returned by press time.
A plot to buy a country club
Beyond the fraudulent medical reimbursements, the lawsuit alleges the “board insiders,” including Harry Ilsley, Dennis Nourse, Mike Hickok and Chuck Kimball, also discussed a proposal for Borrego Health to buy the De Anza Country Club in Borrego Springs.
The discussion occurred during an October 2017 meeting of the corporation’s executive/finance committee, which included three “board insiders” — Hickock, Nourse and Ilsley — who owned property near the country club, according to the complaint.
“Following the October 2017 meeting, Borrego Health made a formal offer to purchase the country club, including paying earnest money on the deal,” the complaint states. “As usual, the Borrego Insiders did not take the De Anza transaction to the full Board for its review or approval.”
Other officials at the healthcare nonprofit did not understand why the group wanted a healthcare provider for underserved communities to purchase a country club, “though Borrego Health suspects that some or all of those individuals would personally benefit from such a transaction, at the expense of Borrego Health,” the suit states.
“Ultimately, for reasons also unknown to Borrego Health, the deal did not move forward, and de Anza returned the earnest money,” the complaint states.
Cleaning house
After Hebets’ death in 2019, Borrego Health’s board members “found themselves picking up the pieces of a highly disorganized organization,” and began taking action to address the uncovered issues, according to the complaint.
“All of the Board Insiders have resigned or have removed been from the Borrego Health Board, including most recently the removal of Mike Hickok (Treasurer) and Chuck Kimball (Secretary) on October 2, 2020,” the complaint states. “Ten new and diverse members were also added to the board between 2019 and 2020 and the Board was expanded to 13 members.”
Several current board members have ties to the Coachella Valley, including Coachella City Councilmember Neftali Galarza and Greg Rodriguez, a public policy advisor for Riverside County Supervisor V. Manuel Perez.
In addition to the turnover on its board, Borrego Health officials also began overhauling their governance policy and updating their bylaws, as well as creating a board audit committee and hiring new auditors, according to the complaint.
Borrego Health officials filed the lawsuit in federal court to pursue charges tied to the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO.
The nonprofit is pursuing RICO charges, which can come with severe financial penalties, against all of the more than 50 defendants listed in the some, while some individuals are also being sued for breach of contract and other alleged wrongdoing.
“Now that we have the information necessary to file this federal court complaint, it is imperative that we do so to hold the appropriate individuals responsible for misusing Borrego Health’s resources such that we can close this unfortunate chapter in our organization’s history, remove unnecessary barriers to delivering on our mission, and focus on moving forward,” said Kramer, the Borrego Health spokesman.
“This is the first step in a process that has already played out over nearly two years and will last many months into the future,” Kramer added. “We will likely not see any additional legal activity related to this filing until sometime in August or even later.”
Tom Coulter covers politics and can be reached at thomas.coulter@desertsun.com.
This article originally appeared on Palm Springs Desert Sun: Lawsuit: Ex-Borrego Health CEO, trustees stole millions from nonprofit
