The indictment marks the third major case federal prosecutors have filed alleging billing fraud at Perez-affiliated hospitals. (Photo: Shutterstock)

A Miami entrepreneur who led a rural hospital empire was charged in an indictment unsealed Monday in what federal prosecutors called a $1.4 billion fraudulent lab-billing scheme.

In the indictment, prosecutors said Jorge A. Perez, 60, and nine others exploited federal regulations that allow some rural hospitals to charge substantially higher rates for laboratory testing than other providers. The indictment, filed in U.S. District Court in Jacksonville, Florida, alleges Perez and the other defendants sought out struggling rural hospitals and then contracted with outside labs, in far-off cities and states, to process blood and urine tests for people who never set foot in the hospitals. Insurers were billed using the higher rates allowed for the rural hospitals.

Related: Feds recovered more than $2.6 billion in health care fraud last year

Perez and the other defendants took in $400 million since 2015, according to the indictment. Many of the hospitals run or managed by Perez's Empower companies have since failed as they ran out of money when insurers refused to pay for the suspect billing. Half of the nation's rural hospital bankruptcies in 2019 were affiliated with his empire.

"This was allegedly a massive, multi-state scheme to use small, rural hospitals as a hub for millions of dollars in fraudulent billings of private insurers," said Assistant Attorney General Brian Benczkowski of the Justice Department's Criminal Division in a statement.

Attempts to reach Perez for comment Monday evening were unsuccessful. But last year when Perez spoke to KHN, he said he was losing sleep over the possibility he could go to jail after propping up struggling rural hospitals.

"I wanted to see if I could save these rural hospitals in America," Perez said. "I'm that kind of person."

Pam Green, a former night charge nurse at the now-shuttered Horton Community Hospital in Horton, Kansas (population under 1,700), said she hopes Perez and his colleagues receive long prison sentences.

"He just devastated so many people, not just in Kansas, but in Oklahoma and all the other places where he had hospitals," said Green, 58, of nearby Muscotah, Kansas. "I went months and months without pay, without health insurance. He robbed the community."

Green recalled that money was so tight under Perez's management of her former hospital that the electricity was shut off at least twice and staffers had to bring in their own supplies. She said she is owed about $12,000 in back pay, as well as money for uncovered dental expenses and a workplace injury that would have been covered had employees' insurance or workers' compensation premiums been paid.

A KHN investigation published in August 2019 detailed the rise and fall of Perez's rural hospitals. At the height of his operation, Perez and his Miami-based management company, EmpowerHMS, helped oversee a rural empire encompassing 18 hospitals across eight states. Perez owned or co-owned 11 of those hospitals and was CEO of the companies that provided their management and billing services.

Perez styled himself a savior of rural hospitals, swooping into small towns with promises to save their struggling facilities using his "secret sauce" of financial ventures. Multiple employees told KHN they had no idea what happened to the money their hospitals earned after Perez and his associates took control, since the facilities seemed perpetually starved for cash.

Over the past two years, amid mounting legal challenges and concerns about the lab-billing operation, insurers cut off funding and his empire crumbled. Overall, 12 of the hospitals have entered bankruptcy and eight have closed. The staggering collapse left hundreds of employees without jobs and small towns across the Midwest and South without lifesaving medical care.

The four rural hospitals named in the indictment are Campbellton-Graceville Hospital in Graceville, Florida; Regional General Hospital of Williston, Florida; Chestatee Regional Hospital in Dahlonega, Georgia; and Putnam County Memorial Hospital in Unionville, Missouri.

The indictment marks the third major case federal prosecutors have filed alleging billing fraud at Perez-affiliated hospitals. In October, David Byrns pleaded guilty to a federal charge of conspiracy to commit health care fraud involving a Missouri hospital he managed with Perez. A Missouri Auditor General report previously found that the 15-bed hospital, Putnam County Memorial in Unionville, had received about $90 million in questionable insurance payments in less than a year.

In July 2019, Kyle Marcotte, owner of a Jacksonville Beach, Florida, addiction treatment center, pleaded guilty for his part in a $57 million lab-billing scheme involving two Perez-affiliated hospitals, Campbellton-Graceville and Regional General Hospital. Marcotte admitted cooperating with unnamed hospital managers to provide urine samples from his patients for lab testing that was billed through the rural hospitals and, in exchange, getting a cut of the proceeds.

Perez, on his own and through Empower-affiliated companies, in 2016 and 2017 purchased South Florida properties that totaled more than $3.7 million, including three condos on Key Largo, according to property records. He told KHN last year that the Florida properties were bought with earnings from unrelated software companies but declined to give details. He and his brother Ricardo Perez, if convicted, must forfeit over $46 million, according to the indictment, as well as two Key Largo condos and other properties.

Another defendant, Aaron Durall, if convicted, could lose $184.4 million and a six-bedroom, 6,500-square-foot home in the affluent Parkland district north of Fort Lauderdale, Florida.

Perez-affiliated hospitals also face ongoing lawsuits in Missouri and other states filed by dozens of insurers asking for hundreds of millions in restitution for allegedly fraudulent billings. In those court documents, Perez repeatedly has denied wrongdoing. He told KHN last year that his lab-billing setup was "done according to Medicare and state guidelines."

For former employees of EmpowerHMS and members of the affected communities, the indictment represents vindication. As the company foundered, hundreds of employees worked without pay in vain efforts to keep their hospitals afloat. They would discover later that, along with the missing paychecks, their insurance premiums had not been paid and their medical policies had been discontinued. In the June 2019 interview, Perez acknowledged that, as finances withered, he stopped paying employee payroll taxes.

"It's nice to think he might be held accountable," said Melva Price Lilley, a former X-ray technician at Washington County Hospital in Plymouth, North Carolina, which has reopened with new owners under a new name. "At least there's a chance that he might have to suffer some consequences. That gives me some hope."

Lilley, 56, said she and other employees could not retrieve their retirement savings from the bankrupt hospital until about three weeks ago. She has been trying to pay off about $68,000 in medical bills from a back surgery she needed for a workplace injury that wasn't covered by workers' compensation insurance premiums that went unpaid for hospital employees. She remains unable to work full time.

I-70 Community Hospital, an Empower facility in Sweet Springs, Missouri, has remained closed since February 2019. Tara Brewer, head of the Sweet Springs Chamber of Commerce and the local health department, said she was almost shocked to hear that Perez had gotten indicted after months of wondering if anything would happen.

While she hopes these charges bring closure to her community, she said, the charges do little to fix the closed hospital doors for a county that has had one of the highest per capita rates of coronavirus cases in Missouri.

"What he did to us will linger on for a long time," Brewer said.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation which is not affiliated with Kaiser Permanente.