United States Of America Et Al V. Healthcare Associates Of Texas Llc Et Al

Case Background

On October 21, 20119, Plaintiff  United States of America, ex rel. and Cheryl Taylor filed a Medicare fraud lawsuit lawsuit in the United States District Court, Northern District of Texas, Dallas Division (Case number: 3:19cv2486). Judge  Judge David C Godbey presided over this case.

Cause

In a groundbreaking legal action, a former senior executive, Cheryl Taylor brought a comprehensive False Claims Act (FCA) lawsuit against Healthcare Associates of Texas (HCAT), alleging systematic Medicare fraud that defrauded the United States government of millions of dollars. The lawsuit exposed several sophisticated schemes designed to manipulate Medicare reimbursement processes and perpetrate healthcare billing fraud.

Organizational Background

Healthcare Associates of Texas operated as a primary care group practice serving patients across North Texas. The organization submitted between $18 million to $20 million in Medicare claims annually, positioning itself as a significant healthcare provider with over 40 primary care providers at six locations. The founding physicians, including Doctors Powell, Deems, Gaman, Feehery, and Baird, maintained critical operational roles within the organization.

Key Fraudulent Practices

The lawsuit detailed four primary modes of fraudulent Medicare billing practices:

Non-Credentialed Provider Billing

HCAT allowed and encouraged medical service providers to submit billing records that misrepresented the actual providers of medical services. The organization knowingly submitted claims for services performed by improperly credentialed providers, fully aware that Medicare would not reimburse such services. This practice enabled HCAT to illegally obtain millions in taxpayer-funded reimbursements by concealing the true identities of service providers.

Split Billing Scheme

The organization implemented an elaborate “split billing” policy, systematically submitting claims for procedures under the names of founding physicians, regardless of actual service provision. A striking example revealed Dr. Powell listed as the “rendering provider” for over 13,000 laboratory service claims in 2019, despite only submitting 88 office visit claims and working primarily in an administrative role. This scheme generated higher reimbursements by exploiting Medicare’s billing complexities.

Physical Exam Preparation (PEP) Department Fraud

HCAT created a specialized department called PEP, which became a hub of fraudulent activities. Medical assistants conducted procedures without proper physician supervision, directly violating Medicare regulations. The department routinely ordered extensive “screening” laboratory tests during annual wellness checkups, deliberately falsifying medical necessity documentation to secure unauthorized Medicare payments.

Incomplete Medical Record Submissions

The organization allowed claims to be submitted with deliberately incomplete medical records. Leadership, including David Harbour and Kristian Daniels, justified these practices by claiming they would conduct retrospective audits. However, evidence suggested these audits were never performed, further demonstrating a systematic approach to healthcare billing fraud.

Injuries

The fraudulent practices caused significant financial harm to the United States government. By submitting false claims, HCAT:

  • Obtained millions of dollars in unauthorized Medicare reimbursements
  • Violated federal healthcare billing regulations
  • Undermined the integrity of the Medicare reimbursement system
  • Diverted taxpayer funds through intentional misrepresentation

Damages

While exact monetary damages were not specified in the complaint, the lawsuit suggested that HCAT fraudulently obtained millions of dollars through systematic misconduct. The False Claims Act allows for significant penalties, including:

  • Treble damages (three times the actual damages)
  • Civil penalties for each false claim
  • Potential criminal investigation and prosecution

Key Arguments and Proceedings

Legal representation

  • Plaintiff(s): United States of America, ex rel. | Cheryl Taylor
    • Counsel for Plaintiff: Richard J. Guiltinan | Robert W. Gifford | Catherine Elizabeth Gaither | Daniel S. Klein | Thomas Samuelson
  • Defendant(s): Healthcare Associates of Texas LLC | David Harbour | Kristian Daniels | Healthcare Associates of Irving LLP | Dr. Walter Gaman | Dr. Terrence Feehery | Dr. Charles L Powell
    • Counsel for Defendants: Robert Jeffrey Layne | Bradley James Purcell | Elizabeth C. Brandon | Jason M. Crawford  | Jennifer S. Romano  | Kristin B. Parker  | M. Patrick Yingling  | Megan A. Hudgeons | R. Alan York  | Sarah C. Stewart  |  Stephen J. McConnell  | Steve Smith  

 Claims

The lawsuit, filed under the False Claims Act, specifically alleged that HCAT:

  • Knowingly submitted false Medicare claims
  • Created fraudulent medical billing records
  • Deliberately misrepresented medical services
  • Systematically violated Medicare billing regulations
  • Engaged in intentional Medicare fraud
  • Potential Financial Consequences

Whistleblower’s Role

Cheryl Taylor, the qui tam relator, played a crucial role in exposing these fraudulent practices. As a former executive responsible for HCAT’s revenue cycle, she documented multiple compliance violations. After raising concerns about the fraudulent billing practices and being terminated on January 23, 2019, she initiated the lawsuit to hold the organization accountable.

Defense

The defendants denied the core allegations in the relator’s False Claims Act lawsuit, asserting multiple defenses. They argued that they did not present false or fraudulent claims for payment, nor did they act with knowledge or reckless disregard of the truth. The defendants claimed the lawsuit lacked sufficient detail and did not meet the fraud pleading requirements.

They contended that their actions had been conducted with the government’s full knowledge and approval, which they argued negated the intent requirements of the False Claims Act. Additionally, they maintained that any alleged false statements were not material to the claims’ payment and that any damages were too remote to warrant recovery.

The defendants raised constitutional defenses, asserting that potential damages and penalties would violate the Eighth Amendment’s Excessive Fines Clause and the Fifth Amendment’s Due Process Clause. They emphasized compliance with applicable laws and regulations, claiming their conduct fell within regulatory safe harbors.

They also pointed to procedural and substantive barriers to the lawsuit, including issues related to the statute of limitations, the public disclosure bar, and doctrines like unclean hands, laches, and estoppel. Furthermore, the defendants argued that the individual defendants should not be held liable and reserved the right to assert additional defenses as the case progressed.

Jury Verdict

On November 18, 2024, the jury found that some of the named defendants violated the False Claims Act, while others did not. Specifically:

  • HCAT was found to have violated the False Claims Act.
  • HCAI was also found to have violated the False Claims Act.
  • The other defendants—David Harbour, Kristian Daniels, Charles Powell, and Walter Gaman—were not found to have violated the False Claims Act.

Further, the jury concluded that HCAT knowingly submitted or caused 21,844 false claims, resulting in damages. To fairly compensate the government, the jury awarded $2,753,641.86. The court did not find any of the other defendants liable for false claims or require them to pay damages in a Medicare fraud lawsuit.

Court Documents:

Available Upon Request