Hospital Execs Off to Jail for Kickback Scheme

A press release from the U.S. Attorney’s Office:


CHICAGO ― The former owner and chief executive officer, the chief operating officer, and the chief financial officer of the now-closed Sacred Heart Hospital were convicted by a jury after a nearly two-month trial of collectively paying hundreds of thousands of dollars in illegal kickbacks in exchange for the referral of hospital patients who were insured by Medicare and Medicaid.

The jury found that

  • EDWARD J. NOVAK, 60, of Park Ridge, Sacred Heart’s owner and chief executive officer
  • ROY M. PAYAWAL, 66, of Burr Ridge, executive vice president and chief financial officer
  • CLARENCE NAGELVOORT, 59, of Chicago

paid physicians concealed bribes and kickbacks to induce patient referrals and to increase the patient census, which, in turn, increased hospital revenue.

Sacred Heart Hospital was a 119-bed acute care facility located at 3240 West Franklin Blvd., in Chicago.

The hospital closed and filed for bankruptcy in 2013, after Medicare payments were suspended in the aftermath of criminal charges that were first filed in April 2013.

All three defendants were convicted of one count of conspiring to violate the federal healthcare anti-kickback statute by offering and paying kickbacks and bribes, directly and indirectly, to physicians to induce them to refer patients to the hospital for services that would be reimbursed by Medicare and Medicaid.

The charged conspiracy spanned from no later than 2001 through April 2013.

The jury also convicted

  • defendant Novak of 26 substantive counts of paying kickbacks for patient referrals
  • defendant Payawal of 17 substantive counts of paying kickbacks for patient referrals
  • defendant Nagelvoort of 11 substantive counts of paying kickbacks for patient referrals

The jury acquitted defendant Payawal of ten substantive kickback counts and Nagelvoort of one substantive kickback count. The jury did not reach a verdict on one substantive kickback count for defendant Novak.

Defendants remain free on bond pending their sentencings, which have been scheduled for July 2015. Each count in the indictment carries a maximum penalty of five years in prison and a $250,000 fine and restitution is mandatory. The Court must impose a reasonable sentence under federal statutes and the advisory United States Sentencing Guidelines.

Four defendants previously entered guilty pleas in the case. These defendants are:

  • Dr. SUBIR MAITRA, 73, of Chicago
  • Dr. JAGDISH SHAH, 70, of Oakbrook
  • ANTHONY J. PUORRO, 57, formerly of Chicago, who was Sacred Heart’s chief operating officer
  • NOEMI VELGARA, 64, of Chicago, who was Sacred Heart’s vice president of geriatric services and was responsible for overseeing the Golden L.I.G.H.T. medical clinics, including managing employees responsible for marketing, and recruiting and transporting patients.

Four additional physicians associated with Sacred Heart Hospital are scheduled to proceed to trial later this year.

Zachary Fardon

Zachary Fardon

The verdict was announced by U.S. Attorney Zachary T. Fardon for the Northern District of Illinois; Lamont Pugh III, Special Agent-in-Charge of the Chicago Region of the U.S. Department of Health and Human Service Office of Inspector General; and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.

The government is being represented by Assistant U.S. Attorneys Joel Hammerman, Ryan Hedges, Kelly Greening, Diane MacArthur, Debra Bonamici, and Brian Wallach.

The case falls under the umbrella of the Medicare Fraud Strike Force, which expanded operations to Chicago in February 2011, and is part of the Health Care Fraud Prevention & Enforcement Action Team, a joint initiative announced in May 2009 between the Justice Department and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Dozens of defendants have been charged in health care fraud cases since the strike force began operating in Chicago.

To report health care fraud and to learn more about the Health Care Fraud Prevention & Enforcement Action Team, go to:


Hospital Execs Off to Jail for Kickback Scheme — 10 Comments

  1. Hospitals generate a lot of revenue, some regional hospitals are $700M Annual Revenue and greater, often the biggest employer in town (obviously Sacred Heart is not the biggest employer in Chicago).

    Lots of potential for fraud.

    In addition to the “Sacred Heart Hospital” link above which links to the October 2013 blog article which links to the indictment press release, this March 2013 Illinois Policy Institute article links to an April 2013 arrest press release.

    One takeaway from the story, it’s good to get a 2nd opinion on major surgery.

    With the baby boomers retiring, both the the Medicare Fraud Strike Force, and the Health Care Fraud Prevention & Enforcement Action Team, should be busy for the foreseeable future.

  2. There is another way to achieve the same result without going to jail.

  3. Instead of paying kickbacks to doctors, you buy their practices outright, then you order your employed physicians to refer all patients to facilities that you own.

  4. Uncle Sam will fund the the whole buy out operation via “facility fees.”

  5. BTW, I wanted to write a single message, but the final sentence “And it is all legal” must have triggered the spam guard.


  6. Here’s the conclusion:

    Doctors will get paid more, at least temporarily, once they get bought out by the hospital.

    The hospital of course profits from keep the business inside its network.

    And as I said, nobody goes to jail.

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