NEW: Owner of nursing home where 8 died linked to Medicare fraud case

The hospital co-owned by a Florida doctor whose nursing home was the site of eight deaths last week is linked to the biggest Medicare fraud case ever filed against individuals in U.S. history, court records show.

Neither Larkin Community Hospital nor its president, Dr. Jack Michel, is named nor charged in the criminal fraud case filed last year in Miami federal court.

But in 2004, in a civil case also filed in Miami, federal prosecutors cited multiple links among Michel, Larkin and Michel’s former business associate, Philip Esformes, the man prosecutors say is the ringleader of a scheme that used elderly patients to bilk Medicare and Medicaid of about $1 billion.

Further, court records say one of the hospitals in the current criminal case is the same one at the heart of the 2004 civil case, which targeted both Esformes and Michel — and that hospital was Larkin Community Hospital.

Federal prosecutors alleged at that time that nursing home and assisted living patients were being admitted to Larkin for care that wasn’t needed, leaving Medicare and Medicaid to foot the bill.

The civil case was settled for $15.4 million, with no admission of wrongdoing by Esformes, Michel or others named in the suit.

Michel spokeswoman Alia Faraj-Johnson emphasized that Michel and Esformes “have not had a relationship since the civil case was settled” in 2006.

Further, she said, after the settlement, whatever business dealings the two men had were severed. “Dr. Michel divested from all of Mr. Esformes’ facilities” and Philip Esformes’ father, Morris, who had an ownership interest in Larkin, also divested his interest in the hospital.

A spokeswoman for the Department of Justice declined to comment when asked about Larkin in the current Medicare fraud case.

Larkin Community Hospital has thrived under Michel’s leadership since the civil case.

The hospital executive has a string of awards to his name, including being named “Our Hometown Hero” by a local TV station.

The hospital has a nursing school and a residency program. It has two campuses. Specialized services include arthritis and psychiatric care. The 2015 purchase of the Hollywood Hills nursing home seemed like yet another step forward.

The acquisition, Michel told the South Florida Business Journal, was “another step in the evolution” of Larkin Community Hospital, where Michel is president and chairman.

But last year, prosecutors said that after settling the lawsuit in 2006, “Philip Esformes and his co-conspirators allegedly continued this criminal activity — adapting their scheme to prevent detection and continue their fraud after the civil settlement,” according to the Justice Department news release.

Esformes, prosecutors charge, was doing in 2016 what the 2004 civil suit alleged he had been doing with Larkin and Michel.

$1 million for $5 million

Sometime in 1997, federal prosecutors said in the 2004 lawsuit, Jack Michel sat down with Philip Esformes at the Fontainebleau Miami Beach hotel.

Michel didn’t yet own Larkin Community Hospital. He was years away from acquiring the Rehabilitation Center at Hollywood Hills, where eight elderly patients died after Hurricane Irma blew out air conditioning, leaving them in sweltering, post-hurricane heat.

But he had a plan to make money both from nursing home patients and Larkin.

In fact, he already was doing so, the U.S. Attorney’s Office alleged in 2004, through a series of kickbacks coordinated with his brother, George, also a doctor, and the father-and-son business team of Morris and Philip Esformes.

Prosecutors believed that months before the Fontainebleau meeting, Michel met with a longtime employee of Larkin Hospital’s owner, and said, “Ask your boss if he would pay $1 million to make $5 million.”

The then-owner of Larkin Hospital struck a deal to pay kickbacks to Jack Michel and a practice group Michel owned, Oracle Health Systems, in exchange for patients, court records state.

The estimated profit to Michel: $70,000 a month.

In addition to owning a physicians’ practice and pharmacy, Michel was medical director at Oceanside Extended Care Center, a North Miami Beach nursing home in which the Esformes had an ownership interest.

Many patients would come from Oceanside.

To do so, they would be transferred 20 miles to Larkin, passing much closer hospitals and, prosecutors alleged, jeopardizing the health of patients with the longer drive.

At least some would get medical treatment that was not needed, but which could be billed to Medicare and Medicaid.

Some months later, Jack Michel made plans to buy Larkin.

When he, Philip Esformes and other business associates gathered at the Fontainebleau, prosecutors said, they agreed it wouldn’t be necessary to pay kickbacks anymore to doctors to get patients for Larkin.

With Jack Michel owning the hospital, they could simply use their own growing string of nursing homes and assisted living facilities to pack the hospital.

In fact, when Jack Michel took the reins at the hospital, his brother George was the admitting physician for virtually all of the nursing home referrals to the facility.

Whistleblowing doctor

In 2016, Larkin again came under fire for allegations of unneeded medical treatment, this time in a doctor’s whistleblower suit.

In his federal action, Dr. Elroy Kalme said he joined Larkin in 1997, and stayed until he was fired in 2012. He was the medical director of the hospital’s podiatry department, said Kalme, as well as a member of the Medical Executive Committee.

In 2010, second-year podiatry residents approached him, reporting that a doctor was filing false claims to Medicare and Medicaid, he said in his court filing. The actual medical care was being done by a first-year resident, they told him.

Another resident, said Kalme, reported that the same doctor was offering cash, food and bar outings if the young doctors would refer nursing home patients at Larkin for graft surgery.

Kalme said he reported it to Michel, who told him to investigate, but according to Kalme, added, “Do not call me on the phone to tell me about situations and problems that deal with the possibility of fraud or Medicare problems and don’t send me any emails with stuff like this.”

Kalme said he did investigate and did find other problems.

Partnerships were being made with assisted living facilities to assure that patients would be taken to Larkin “even if they did not meet medical criteria,” he said. Some patients whose medical problems were not serious enough to warrant being kept in the hospital were given a psychiatric diagnosis.

Further, said Kalme, “Larkin allowed podiatry residents to schedule patients for surgical procedures that were not medically necessary simply to bill Medicare,” including amputations and bone resections.

Faraj-Johnson dismisses the allegation. To begin with, she said, Michel has never heard of the whistleblower action. There’s no indication in the whistleblower suit that the hospital was ever served.

As for Kalme’s assertion that Michel asked that nothing be put in writing, “Larkin has a strong compliance program in place and would never ask someone not to document potential fraud allegations,” she said.

In any event, if there were problems, “The physician should have alerted the compliance officer so that the officer could conduct a proper investigation.”

After several months in which Kalme filed no further motions, the doctor withdrew his suit.

The nature of the whistleblower suit meant that the U.S. Attorney’s Office had a chance to continue the case. It declined, though a prosecutor specified that the agency wanted to retain the ability to revisit the allegations at a later date.

By then, Philip Esformes, Michel’s ex-business associate and co-defendant in the $15.4 million settlement, was back in court, facing criminal charges of Medicare fraud and unneeded treatment for elderly patients.

A $1 billion charge

There was no finding or admission of guilt in the civil settlement, and nothing barring Esformes from buying and running more nursing homes.

That’s what the Miami businessman did. Ten years later, prosecutors said he operated a string of more than 30 nursing homes and assisted living facilities, filled with thousands of patients on Medicare and Medicaid.

Last July, federal prosecutors arrested Esformes and two others, including a former Larkin hospital employee, charging them with “the largest single criminal health care fraud case ever brought against individuals,” the Department of Justice wrote in announcing the prosecution.

It was, added prosecutors, “essentially identical conduct” to the deals that had triggered the civil kickback charges and the multimillion-dollar settlement: unnecessarily admitting patients from Esformes’ network of nursing homes and assisted living facilities to a hospital.

Using kickbacks and bribes, Esformes and his associates faked Medicare and Medicaid billings, prosecutors said, racking up charges for treatment that wasn’t needed and in some cases was never provided.

Along with Esformes, Odette Barcha and Arnaldo Carmouze were charged.

Barcha, once the director of outreach for Larkin, is charged with recruiting doctors at what is referred to as Hospital 1 in the indictment and paying them to refer patients to Esformes’ nursing homes.

Carmouze, the indictment charges, was a physician’s assistant who signed off on faked prescription and medical records, admissions and discharge paperwork at Hospital 1, sometimes not even meeting the patient.

Hospital 1 is the same hospital involved in the 2006 settlement, according to the indictment. That case pinpointed Larkin. No other hospital is named in the civil charges brought by federal prosecutors.

Faraj-Johnson said it was only natural some patients from Esformes’ sprawling nursing home and assisted living facility network would wind up in Larkin, but the hospital wasn’t getting a disproportionate share of those patients relative to other hospitals.

Esformes is expected to go to trial next year. He is being held without bond.

Barcha has entered a plea of not guilty. And while she was a Larkin hospital employee, her attorney clarified, she was never involved in Michel’s other business venture: “At no time did any of her duties or responsibilities relate in any way whatsoever with the facility known as Rehabilitation Center at Hollywood Hills.”

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