Former hospital CEO sentenced to 4.5 years in prison

Judge: Novak treated elderly, low-income patients as 'commodities to be bought'

Edward Novak, the former owner and CEO of Chicago's Sacred Heart Hospital, was sentenced Wednesday to four-and-a-half years in prison for his role in a multimillion dollar kickback scheme, Jason Meisner reports for the Chicago Tribune.

Background on the case

The federal government raided the now-shuttered 119-bed hospital in April 2013, arresting Novak, another executive, and four physicians. Federal authorities alleged that Novak—who acquired Sacred Heart in 1988—paid thousands of dollars a month to physicians in exchange for referrals that defrauded Medicare and Medicaid.

A physician and two hospital administrators secretly taped their coworkers discussing the push to perform tracheotomies, which Novak reportedly said were the hospital's "biggest moneymaker" at roughly $160,000 per case.

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Prosecutors charged Novak, COO Clarence Nagelvoort, and CFO Roy Payawal for their involvement in the kickback scheme. During the six-week trial earlier this year, attorneys for the executives argued that members of the staff were responsible for the kickbacks.

Jurors found all three executives guilty of participating in the scheme. Specifically, the jury convicted:

  • Novak on 27 of the 28 counts leveled against him, including conspiracy and paying direct kickbacks to doctors;
  • Nagelvoort on 11 of the 12 counts against him; and
  • Payawal on 17 of the 27 counts against him.

Sentencing details

Prosecutors had asked U.S. District Judge Matthew Kennelly to sentence Novak to 12-and-a-half years in prison for the scheme, citing a tape of an expletive-laden outburst by Novak after an executive asserted the community might react unfavorably if the hospital changed the type of care it provided.

"(Expletive) the community," Novak said. "Who gives a (expletive)? You own the place, you do what you want with it. (Expletive) them! What are they going to say about it?"   

Assistant U.S. Attorney Joel Hammerman said of the tape, "It's not a rant, that's what's so shocking about it. It's a cold calculus...It's him talking about what he gets to do with his hospital."

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But Novak asked the judge for leniency, and said that particular comment "was made out of frustration." Novak said he was wholly dedicated to the East Garfield Park community where the hospital was located and that serving the people there drove his "life's work."

During the sentencing, Kennelly said Novak treated elderly and low-income patients like "commodities to be bought." He stated, "People have a right to expect that decisions about their health care are going to be based on need and not on whether there is money to be made."

However, Kennelly said that the initial allegations of unnecessary surgeries and potentially lethal oversedation of patients "disappeared" over the course of the case, and there was no proof that any patient was actually harmed.

Kennelly also ordered Novak to pay $10.4 million in forfeiture and fined him $770,000 (Meisner, Chicago Tribune, 7/29; Ellison, Becker's Hospital Review, 7/29).

Make sense of the changing fraud and abuse landscape

The Obama Administration has taken several steps to intensify its enforcement activities, including recent amendments to the False Claims Act and unprecedented coordination between the Department of Justice and the Department of Health and Human Services.

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