Former Hacienda executives indicted in fraud scheme, company to pay $11M

PHOENIX — Two former Hacienda Healthcare executives were indicted as part of an alleged fraud scheme that will cost the company more than $11 million in order to resolve the case, officials said Wednesday.

The resolved case stemmed from a Medicaid fraud investigation that determined the former Hacienda executives improperly allocated costs, inflated reporting expenses and engaged in improper billing from 2013 to 2018.

It’s estimated the fraud resulted in a $10,895,648.25 overpayment from the Arizona Health Care Cost Containment System to the facility.

Former Chief Executive Officer William Timmons and Chief Financial Officer Joseph O’Malley were recently indicted by a state grand jury. Timmons was indicted on four felony fraud counts and O’Malley was indicted on two felony fraud counts.

“This settlement provides a pathway for Arizona to recover funds misused for years by Hacienda,” Arizona Attorney General Mark Brnovich said in a press release.

According to the settlement, Hacienda will deliver an initial payment of $7 million to the Attorney General’s Office followed by monthly payments of $50,000.

“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,” Hacienda CEO Perry Petrilli said in a statement Wednesday. “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.

Petrilli said the repayment will be an “extreme financial hardship for the company,” but they are doing it voluntarily.

“We agreed to it voluntarily because it’s the right thing to do and because it gives Hacienda a chance to move forward honorably,” Petrilli said.

The Arizona Attorney General’s Office launched a criminal investigation into the facility after finding they failed to comply with its contract terms with AHCCCS. Hacienda had agreed to provide an Intermediate Care Facility and would receive $1,100 per day per patient.

Hacienda also had other contracts with the state for programs where they received a reimbursement for individuals served.

Over the course of the contract, Timmons and O’Malley regularly met with Hacienda’s Board of Directors to discuss financial date regarding the performance, according to documents. However, they did not discuss how costs were allocated for the programs and entities.

In January 2019, O’Malley disclosed to the board that costs were not allocated properly and he and Timmons were aware of that, according to documents.

In 2018, the facility came under fire after an incapacitated woman gave birth after being raped at the facility. The patient had been living at the skilled-nursing facility near 16th Street and Baseline Road since 1992.

In June 2019, the Arizona Department of Health Services had issued a notice of intent to revoke the license after a patient was found with maggots under his bandage near an incision. However, in January 2020, the department said it was giving the facility another opportunity to come into compliance.

The facility was also set to have its Medicaid participation terminated in 2019, but reached an agreement with the Centers for Medicare and Medicaid Services.

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