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$11 million settlement reached, charges filed against two former Hacienda HealthCare leaders

Posted at 1:12 PM, Sep 02, 2020
and last updated 2020-09-02 20:21:37-04

PHOENIX — An $11 million agreement has been reached between Hacienda HealthCare and the state of Arizona over improper billing, and two top former executives have been indicted, according to Arizona Attorney General Mark Brnovich.

A fraud investigation into Hacienda HealthCare reportedly showed that executives with Hacienda intentionally inflated costs in several ways to markup paperwork given to the Arizona Health Care Cost Containment System, resulting in nearly $11 million in excess payments from the state to Hacienda from 2013-2018.

Brnovich says that Hacienda entered a contract in 2013 with the Division of Developmental Disabilities which would give Hacienda $1,100 per day per patient at the Hacienda HealthCare facility. If there was any money left over from that pool, it was supposed to be returned to the DDD.

During that same time period, South Mountain Health Supply, which operates under the umbrella of Hacienda, would purchase medical supplies from third-party vendors and then sell them to Hacienda at a 12.5% markup. A delivery fee would also be paid, even though the two companies have the same listed address.

"The indictment also alleges between July 1, 2013 and January 23, 2019, Timmons directed the fraudulent billing of health insurance companies for multiple uses of a Synagis vaccine. Timmons purportedly told staff not to discard Synagis vials after a single-use, but rather administer all remaining medication to patients. Health insurance companies were still billed for the entire cost of a vial," the release says.

Those actions, among others, resulted in the overpayment of at least $10,895,648.25 from the Arizona Health Care Cost Containment System (AHCCCS) to Hacienda.

As part of the settlement, Hacienda agreed to pay back the excess costs as well as a $1 million fine.

"This settlement provides a pathway for Arizona to recover funds misused for years by Hacienda," said Brnovich. "While our office is limited in what we can say about ongoing criminal cases at this time, I can assure Arizonans that the individuals who perpetuated this fraud will be appropriately prosecuted."

Brnovich said in the release that former Chief Executive Officer (CEO) William Timmons and Chief Financial Officer (CFO) Joseph O’Malley were recently indicted by a State Grand Jury.

He says this is a very complex investigation that took them two years to piece together.

"We're dealing with multiple government agencies, we are dealing with a lot of money, and we're dealing with someone who is CEO and CFO of a major corporation here in Arizona," said Brnovich.

He added that the settlement amount would cover all of the money allegedly stolen by the two men.

"I've said this from day one, our highest priority is protecting the most vulnerable and making sure Arizona taxpayers," said Brnovich.

Timmons and O'Malley face the following charges:

William Timmons

  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Illegally Conducting an Enterprise, a Class 3 Felony
  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Fraudulent Schemes and Artifices, a Class 2 Felony

Joseph O’Malley

  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Illegally Conducting an Enterprise, a Class 3 Felony

If found guilty, Timmons could face anywhere from probation to 30 years in prison while O'Malley could face anywhere from probation up to 12.5 years behind bars.

A spokesman for Hacienda healthcare sent ABC15 this statement:

"Early in 2019, members of the Hacienda HealthCare Board of Directors were made aware that Hacienda had received improper overpayments from the State of Arizona. The Board took immediate action to investigate and fix this, including hiring forensic accountants to investigate the matter, implementing new procedures to ensure appropriate cost allocations and reaching out to the State to make repayment of wrongfully received funds.

Current Hacienda leadership and staff cooperated fully with the Attorney General’s Office throughout its investigation into improper billing practices and financial wrongdoing by former Hacienda leaders. No one currently involved with Hacienda was aware of these alleged illegal actions, nor could anyone have been aware given the way these actions were recorded.

Although the $12 million repayment and fine included in the civil settlement represent an extreme financial hardship for the company, we agreed to it voluntarily because it’s the right thing to do – and because it gives Hacienda a chance to move forward honorably. With a new management team and system in place, and new safeguards to protect residents and resources, our team has never been more committed to serving Hacienda’s residents with compassion and professionalism."

For the full release from the Attorney General's Office, click here.