Lakeway Regional Medical Center LLC And Co-Defendants Agree To Pay Over $15.3 Million To Resolve Allegations They Fraudulently Obtained Government-Insured Loan And Misused Loan Funds

The Department of Justice announced today that Lakeway Regional Medical Center LLC (LRMC) agreed to pay $13,580,822.79, and Surgical Development Partners LLC, Surgical Development Partners of Austin Enterprises LLC, G. Edward Alexander, Frank Sossi, and John Prater collectively agreed to pay $1.8 million, to resolve allegations they violated the False Claims Act and other statutes in connection with the development of Lakeway Regional Medical Center, a hospital in Lakeway, Texas.  LRMC was formed to develop and operate the hospital.  The other settling parties assisted in the development of the hospital and the management and operations of LRMC. 

The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), insures loans used to build hospitals in underserved areas.  The settlement announced today resolves allegations that, when applying for a mortgage loan insured by the FHA to fund construction of the hospital, the defendants made numerous false statements and material omissions in order to overstate physician support for the hospital and understate other key credit risks, thereby obtaining the loan under false pretenses.  In particular, the United States alleged that the defendants delayed refunds to investors who had cancelled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan.  The settlement also resolves claims that, after obtaining the loan for LRMC, the defendants distributed project funds in contravention of FHA’s requirements.  HUD purchased the mortgage note, and suffered a loss, when LRMC defaulted. 

“Individuals and entities that benefit from FHA insurance must be truthful with the government and honor their commitments,” said Acting Assistant Attorney General Jeffrey Bossert Clark of the Department of Justice’s Civil Division.  “This settlement demonstrates the department’s resolve to hold accountable borrowers who subvert FHA’s important efforts to support hospitals in underserved communities.”

“My office will continue to vigorously enforce the False Claims Act, which protects taxpayers and helps ensure that federal programs operate as Congress intended,” said U.S. Attorney John Bash of the Western District of Texas.  “I am proud of the work that my team did in this important case.”

“This case demonstrates HUD’s commitment to holding accountable FHA participants that commit fraud against HUD’s healthcare programs,” said HUD’s Federal Housing Commissioner Dana Wade.  HUD’s Principal Deputy General Counsel Michael B. Williams added, “We will continue to collaborate with the Department of Justice to enforce HUD’s rules and protect FHA programs and their beneficiaries.”

“Misconduct in FHA’s hospital loan insurance program ultimately harms underserved communities and vulnerable populations who need access to critical medical services,” said Rae Oliver Davis, HUD Inspector General, U.S. Department of Housing and Urban Development.  “Today's settlement is the latest example and should serve as a stark reminder that HUD OIG, in conjunction with our law enforcement partners, will vigorously pursue any attempt to undermine the integrity of FHA insurance programs.”

This matter was investigated by the Commercial Litigation Branch of the Department of Justice’s Civil Division, the U.S. Attorney’s Office for the Western District of Texas, HUD, and the HUD Office of Inspector General.  The lawsuit resolved by this settlement is captioned United States v. Lakeway Regional Medical Center, LLC, Case No. A-19-CV-945 (W.D. Tex.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability.