FOR IMMEDIATE RELEASE:
Wednesday - October 29, 2003
RALEIGH - United States Attorney Frank D. Whitney announced that RHETT RAYNOR, 47, of Dunn, N. C., was sentenced in federal court in Raleigh, N. C., on Wednesday, October 22, 2003. Chief U. S. District Judge Terrence W. Boyle imposed a sentence of three years probation and ordered RAYNOR to pay a $20,000 fine and a $100 special assessment, and to perform 100 hours of community service. Prior to sentencing, RAYNOR paid restitution in the amount of $51,486 to the North Carolina Medicaid program.
Pursuant to a plea agreement with the government, RAYNOR pled guilty on January 21, 2003, to a one-count Criminal Information that charged him with attempting to obstruct a criminal investigation of a health care offense.
According to evidence presented at the plea and sentencing hearings, RAYNOR was the Controller of Life, Inc., which was enrolled as a provider in the North Carolina Medicaid program. Also, he operated Intermediate Care Facilities for the Mentally Retarded (ICF-MR), consisting of approximately 20 group homes in Eastern North Carolina. Victory Contract Services, Inc. (VCS) leased equipment and vehicles to Life, Inc. Although G.
Nelson Smith was listed as President of VCS, RAYNOR in fact controlled VCS. Therefore, Life, Inc. and VCS were related parties.
Under federal regulations, a Medicaid provider must reveal the existence of related parties to the Medicaid program. Further, services and supplies furnished to a Medicaid provider by a related party are only allowable in the Medicaid provider's cost report at the cost of the related party, because the provider is in effect obtaining the supplies from itself.
On October 2, 1995, RAYNOR caused Life, Inc., to submit a materially false cost report certification, cost report, and Internal Control Questionnaire to Medicaid for the fiscal year ending June 30, 1995, that failed to disclose that Life, Inc., and VCS were related parties and that Life, Inc., had included as allowable costs on the cost report, costs for leasing equipment and vehicles from VCS that were in excess of the cost to VCS of providing the equipment and vehicles. As one example, VCS obtained a vehicle at the cost of $19,627. However, Life, Inc., leased the vehicle from VCS for seven years and paid VCS a total of $53,554 for leasing this vehicle. Therefore, Medicaid reimbursed Life, Inc., $53,554 for a vehicle that should have cost only $19,627. As a result of this and similar lease arrangements, Life, Inc., evaded its obligation to repay Medicaid $51,486 for the fiscal year ending June 30, 1995.
On December 16, 1999, RAYNOR gave Smith two $5,000 checks issued by VCS made payable to Smith. RAYNOR instructed Smith to cash both checks and give the cash to RAYNOR, which he did.
On January 11, 2001, criminal investigators served federal subpoenas on Life, Inc., and VCS. Between January 11, 2001, and July 22, 2001, after RAYNOR became aware that federal subpoenas had been issued to Life, Inc., and VCS for evidence concerning Life, Inc.'s business activities in connection with the North Carolina Medicaid program, RAYNOR attempted to prevent, obstruct, mislead, and delay the communication of information and records relating to this investigation to a criminal investigator. On more than one occasion, RAYNOR instructed Smith to give false statements during interviews with a criminal investigator and not to tell the investigators that Smith had given cash to RAYNOR and, if asked, to tell the investigators that Smith had taken the money to pay off Smith's gambling debts, which would have been a false statement. If Smith had communicated this false information as requested, it would have obstructed the investigation. However, when interviewed, Smith did not follow RAYNOR's instructions but provided truthful information to the investigators.
In a parallel civil proceeding, on November 18, 2002, Life, Inc., entered into a Settlement Agreement with the United States Department of Justice, the United States Department of Health and Human Services, and the North Carolina Attorney General, regarding allegations that Life, Inc., violated the federal and state False Claims Acts by submitting a Medicaid cost report for the fiscal year ending June 30, 1995, in which Life, Inc., had failed to disclose that Life, Inc., and VCS were related parties and had included unallowable costs for leasing equipment and vehicles from VCS in excess of the cost to VCS. Life, Inc., did not admit liability but agreed to pay $102,972 in settlement of these allegations.
The investigation of this case was conducted by the Federal Bureau of Investigation and Attorney General Roy Cooper's Medicaid Investigations Unit, North Carolina Department of Justice. Special Assistant United States Attorney Charles H. Hobgood handled the case for the government.