July 2 (Bloomberg) -- Chicago’s Sacred Heart Hospital, where the owner and two physicians are under an investigation for allegedly unneeded tracheotomies, closed abruptly Monday after what owner Edward Novak called a cutoff of federal funding.
The Centers for Medicare and Medicaid Services decided in early May “to suspend all payments” for hospital services to Sacred Heart patients, said Novak, who had also served as Sacred Heart’s chief executive, in a written statement Tuesday. Novak was arrested in April for trading money for patient referrals.
Losing the federal funds would “inevitably force the hospital to close” and employees would lose their jobs, said Novak, who was prohibited from running the hospital after his arrest. Free on a $10 million bond, he also denied the allegations in a criminal complaint.
The remaining eight patients at the 119-bed hospital were discharged or moved to other facilities Monday, said Melaney Arnold, a spokeswoman for the Illinois Department of Public Health.
“Sacred Heart is presently reviewing offers from interested buyers,” said Rebecca Baker, a spokeswoman for Alvarez & Marsal, a New York-based turnaround and interim management firm that has been running it. “It remains hopeful that a sale can be completed quickly and that the state and federal governments will cooperate with a prompt change of ownership.”
Officials at CMS in Chicago and the inspector general’s office of the federal Health and Human Services Department who are working on the Sacred Heart inquiry didn’t respond to requests for comment.
“It’s a rare occasion for a hospital to close and this is certainly a unique situation,” said Phyllis Pavese, a spokeswoman for the Illinois Hospital Association.
It’s also unusual for federal officials to suspend Medicare payments to a hospital, said Ryan Stumphauzer, a former federal health care fraud prosecutor in Miami.
“There’s a risk of interfering with legitimate patient care and there are less drastic remedies,” Stumphauzer said. “Here the government has alleged fraud and wants to stop the bleeding.”
The FBI arrested Novak and five other people affiliated with the hospital on Medicare fraud charges on April 15, alleging they traded kickbacks for patient referrals. An FBI affidavit filed with the criminal complaint alleges that doctors also performed unneeded tracheotomies.
The hospital could get as much as $160,000 from Medicare for each tracheotomy and related care afterward, according to the affidavit. In such procedures, an opening is cut in a patient’s throat to open an air passage directly to the windpipe for patients who can’t breathe otherwise.
Sacred Heart depended on Medicare and Medicaid for 97 percent of its patient revenue in 2011. Novak told Medicare authorities the hospital made a $9.4 million profit in the year ending June 30, 2012, up from $1.3 million the year before.
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