Nothing stopped doctor from paying health care fraud fine, then buying a nursing home

Dr. Jack Michel (Courtesy)

When Florida regulators went to approve new ownership of a Hollywood nursing home in 2015, they had before them a Miami doctor trained in internal medicine who controlled a major hospital.

He also had been a key figure in a civil suit brought by the U.S. Department of Justice alleging massive health care fraud.

That, however, was not a deal breaker. The state allowed Dr. Jack Michel to take over the Rehabilitation Center at Hollywood Hills even though he’d been hit with a $15.4 million fine years earlier to settle claims that he and others swindled Medicare and Medicaid.

It’s a common practice in the health care industry, where people and institutions accused of fraud are allowed to write large checks to the U.S. government then continue operating.

Now the Hollywood Hills nursing home is the subject of a criminal investigation into the deaths of 12 people left for days without air conditioning after Hurricane Irma. The medical examiner has ruled them homicides caused by heat exposure. The deaths of two other nursing home patients, previously suspected as storm-related, are no longer part of the criminal investigation.

There’s no indication that Michel was at the nursing home during the crisis. Yet he is a main character in the matter because he owns the Hollywood Hills facility, through a limited liability company.

Why was he allowed to take over the nursing home after having been accused in federal court of bilking Medicare and Medicaid?

Had he been convicted of a crime, Michel would not have been able to own the nursing home. But the federal government brought a civil suit, not a criminal one, and then settled it with Michel and his colleagues.

A civil settlement with no admission of wrongdoing does not preclude purchasing a nursing home. There is no law or statute that precludes it,” Michel’s lawyers, Julie W. Allison and Geoff Smith, said in a statement to the Sun Sentinel.

Also typical: Michel and his companies agreed to five years of special monitoring, but were never expelled from participating in Medicaid or Medicare -- a vital element to running a nursing home.
Had Michel been banned from the programs, he would not have been able to operate the Rehabilitation Center at Hollywood Hills.

In fiscal 2007, the year of Michel’s settlement, the government barred more than 3,300 service providers from federal health insurance programs for misconduct, usually criminal, according to statistics from the U.S. Health Care Fraud and Abuse Control Program. That same year it collected $1.8 billion in civil settlements. By fiscal 2016, it was up to $2.5 billion.

Why some people are arrested and others aren’t, and why some are excluded from Medicare and others aren’t, isn’t always obvious. Lawyers who have handled such cases say the decisions can hinge on the scope and complexity of the fraud.

“It’s a case by case decision,” said Don White, spokesman for the U.S. Department of Health and Human Services’ Office of Inspector General.

The more money stolen and the greater the number of victims, the more likely the case will be filed criminally, experts said. Patient harm is also a key factor. In recent years, the government has made increased efforts, especially in South Florida, to bust organized criminal networks engaged in health care fraud.

Harvard health care Professor David Grabowski, who’s researched the economics of long-term care, said policy makers in Florida and other states should consider tightening the criteria for owning a nursing home, given the approval of Michel.

He had been accused by the government of taking kickbacks for hospitalizing elderly patients when they didn’t need to be hospitalized.

“Would any of us want to send a parent or grandparent to a nursing home owned by somebody like that?” Grabowski asked.

Elderly exploited

Now 52, Jack Jacobo Michel earned a medical degree in 1989 from the University of Miami and later developed a busy gerontology practice.

In a publicity video for the University he says he became close to the owners of Larkin Community Hospital in South Miami and was invited to become a minority owner, with a 10 percent interest, in the 1990s. By 1998, he had bought a majority stake in Larkin. And in 2004, the 146-bed hospital became the focus of a federal fraud case.

The Justice Department filed a civil case against Michel, his brother, and five other people for their roles in several “interlocking schemes” in the late 1990s to defraud Medicaid and Medicare.

The suit accused Larkin’s main owner, Dr. James Desnick, of paying Michel kickbacks for admitting patients to the hospital from his private practice and from Oceanside Extended Care Center, a Miami Beach nursing home where Michel was the medical director.

Once he became the majority owner of the hospital, Michel allegedly arranged with business partners Morris and Philip Esformes, father and son nursing home operators from Chicago, to buy numerous assisted living facilities in Florida and then transfer residents to Larkin for unnecessary treatment, court records state.

The legal drama continued until just before Thanksgiving 2006 when Larkin hospital, Michel and Desnick, and the Esformes men agreed to pay a $15.4 million penalty.

The attorneys for Michel told the Sun Sentinel that he “did not engage in any illegal conduct” but settled “rather than continue with the costs, expense and uncertainty of litigation.”

The lawyers said it is not uncommon for companies in today’s highly regulated health care environment to settle with the government over allegations of filing “false claims” against Medicaid or Medicare. They noted that Tenet Healthcare, HCA, Baptist Health System and Broward Health have all been subjects of civil settlements.

“Many health care professionals -- including those who have gone on to hold elective office -- have served in companies that have settled claims with DOJ,” the attorneys said in the statement released to the Sun Sentinel. They were referring to Florida Gov. Rick Scott, who founded HCA but left in 1997 in the midst of a federal investigation that led to a $1.7 billion health care fraud settlement.

When the government enters into such settlements, it expects the defendants will follow all laws and regulations in the future – and not fleece U.S. taxpayers. Officials commonly force greater monitoring, reporting and accountability requirements on the defendants and did so for Michel and Larkin Hospital. As of mid-November, the federal government had about 380 of these “Corporate Integrity Agreements” ongoing nationwide with hospitals, hospices, pharmaceutical firms, nursing homes, diagnostic imaging centers, doctors and others, according to the U.S. Health and Human Services Office of Inspector General’s web site.

Michel and Larkin were no longer on the monitoring list in the summer of 2015 when a company tied to Larkin bought the building housing the Hollywood nursing home in a bankruptcy auction.

Ironically, Michel and Larkin took over the nursing home after the building went into foreclosure when its owner went to prison for health care fraud. That case was egregious for endangering patients.

Karen Kallen-Zury and three other executives were imprisoned for defrauding Medicare of more than $70 million at a psych hospital in the same building. They were accused of paying bribes to recruiters to find Medicare beneficiaries, including drug addicts, from as far away as Maryland and bus them to the psych hospital, where they were forced to attend bogus “treatment sessions” or be evicted from nearby halfway houses where many stayed. The drug abusers desperately needed substance abuse help but instead got “day care sessions in which their life-threatening illness went untreated,” according to prosecution documents. Others who actually needed psychiatric treatment did not get it and “their lives were put at risk as a result,” the government argued.

As a result of the bankruptcy proceeding, the state awarded the nursing home’s operating license to a company owned by Michel.

He had hired Fort Lauderdale lobbyist William Rubin, a campaign supporter and former business associate of the governor, to facilitate the process, paying him at least $100,000, state records show.

Mallory McManus, communications director for the Florida Agency for Health Care Administration, said the change of ownership request from Michel went through the normal review practice, including background checks.

“There was no disqualifying offense based on Florida statutes,” she said.

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Nothing stopped doctor from paying health care fraud fine, then buying a nursing home