This Health Care Company Settled With the Feds Over Fraudulent Billing Claims—Then Got a $45 Million Federal Bailout Anyway

In mid April, as the first wave of COVID-19 was claiming tens of thousands of lives, it would’ve been easy to miss a pair of obscure federal government notices that landed within days of each other.

On April 15, the Department of Justice announced that it had reached a $41 million settlement with two Florida healthcare providers—a lab and a pain relief center, both subsidiaries of Surgery Partners—and two of its former executives over fraudulent billing claims. This quartet, the government alleged, had for half a decade asked patients to undergo unnecessary urine drug tests solely for the purpose of getting reimbursements under Medicare and Medicaid.

On April 10, five days before that settlement was announced, another arm of the federal government, the Department of Health and Human Services, had made a different announcement, this one tied to the $30 billion in federal grants to healthcare providers included in Congress’s $2.2 trillion coronavirus relief package, the CARES Act. HHS gave the Florida lab $152,812 and the pain clinic $602,000 in federal bailout funds, according to the department’s recipient database. Surgery Partners, the providers’ parent company whose former executives had also settled the fraud claims, received roughly $45 million total from the CARES bailout, per its filings with the Security and Exchange Commission.

The $41 million that Surgery Partners’ subsidiaries paid on April 15 to settle serious federal fraud allegations had been essentially erased the week earlier—all with taxpayer dollars.

“You have the federal government on the one hand accusing a company of cheating the government and then you have, [on] the other hand the government giving money to that same company,” says Philip Mattera, Research Director at Good Jobs First, a non-profit organization tracking recipients of CARES funds. “At the very least, it’s unseemly.”

It’s also not uncommon. An analysis provided to TIME by Good Jobs First found that at least 200 organizations that had reached settlements on federal fraud allegations within the last decade—some worth hundreds of millions of dollars—received bailout funds under the CARES Act. Tenet Healthcare and Community Health Systems (CHS), behemoth companies that own more than 150 hospitals nationwide, paid more than $605 million and $477 million respectively, to settle federal fraud allegations. Since April, Tenet received more than $1.4 billion and CHS received $331 million in federal bailout loans and grants.

Overall, watchdogs say the Surgery Partners example is yet another illustration of government agencies, under pressure to pump money into the economy as quickly as possible, have distributed federal funds without adequate vetting. HHS has also been criticized by both lawmakers and health care providers that the formula it used to disburse CARES Act funds initially failed to provide enough relief to providers most in need, like urban health centers and those reliant on Medicaid.

“The situation with Surgery Partners is not an isolated instance,” says Mattera. “The question is, should they be subject to additional scrutiny? Is HHS doing enough to make sure taxpayer money is being protected?”

A representative for Surgery Partners declined to comment on the record. An HHS spokesperson said in a statement to TIME that the department worked with the Center for Program Integrity and the Office of the Inspector General to screen providers, and removed those who had lost Medicare billing privileges or been excluded from participation in federal healthcare programs, but that there was no additional scrutiny beyond those measures.

The April 15 settlement agreement, which was reviewed by TIME, specifically includes language ensuring that the organizations involved are not excluded from those programs. As part of the settlement, they entered into “corporate integrity agreements” with the department’s Inspector General that in part requires them to retain an independent body to review their practices.

Surgery Partners was founded in 2004. The company went public in 2015, and currently runs at least 100 facilities in 30 states. Their facilities primarily handle a range of non-emergency surgeries, from orthopedics to ophthalmology. Like healthcare providers across the country, the financial burden their facilities incurred from COVID mostly came from pausing elective surgical procedures. The company noted in its SEC filings that its revenue had been declining. By late March, some the company’s surgical facilities were operating at 20 percent of their usual capacity, and the company furloughed “a significant” portion of its workforce, converted an unspecified number of salaried workers to hourly wages, and reduced some executive pay by 50 percent, according to its first quarter earnings call.

Surgery Partners’ financial strain was partially alleviated by federal aid. The company disclosed in its May 11 SEC filing that it had received a $45 million grant and $120 million in loans under the CARES act. The grant was from HHS, and the loans were part of an advanced Medicare payment program. The grant money was automatically distributed based on Medicare Fee for Service claims, although recipients had to sign an agreement that they would comply with HHS’ various stipulations. The loan process required a separate application. HHS data analyzed by TIME show that the grant money went to at least 60 of Surgery Partners’ subsidiaries, which received funds ranging from $798 to upwards of $5 million.

Lobbying disclosure records also show that the firm sought out additional help in Washington. For the first time, Surgery Partners retained the lobbying juggernaut Akin Gump Strauss Hauer & Feld, paying the law firm $30,000 in the first quarter of 2020 to lobby both Congress and HHS for financial assistance.

Surgery Partners’ May SEC filings also included acknowledgement of the $41 million settlement that two of its subsidiaries, Logan Laboratories and Tampa Pain Relief, had officially reached with the DOJ in April. The company had disclosed in its filings a year earlier that a “non-binding agreement in principle had been reached.”

The federal lawsuits that preceded the settlement had been filed in two U.S. district courts: one in Tampa in April of 2017 and one in Eastern Pennsylvania in August of 2016. The government’s claims were brought in lawsuits by whistleblowers, including former employees. Surgery Partners was named as defendants in both cases. By November 2017, the government had suspended Medicare payments to Logan Laboratories, a penalty that was lifted in December.

The suits alleged that Michael T. Doyle, who was then the chief executive officer of Surgery Partners, and Christopher Utz Toepke, then group president of ancillary services, had doctors in their networks universally order drug testing for patients, regardless of whether they needed it. (Neither Doyle nor Toepke are still employed by the company. In September of 2017, Doyle resigned as CEO of Surgery Partners, although he stayed on as a consultant for another six months. (The Nashville Post reported his severance package exceeded $6 million).

The testing was performed at Logan Laboratories and Tampa Pain Relief Center, which would then bill the government for reimbursement under Medicare and Medicaid. The whistleblowers alleged these actions violated the False Claims Act.

In announcing the settlement, William M. McSwain, U.S. Attorney for the Eastern District of Pennsylvania, where one of the suits had been filed, called the allegations “the type of conduct that must be rooted out of our health-care system.” But even as the settlement was made public, HHS was propping up those same companies with federal funds.