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Nearly two years after FBI raid, Borrego Health sues former executives, staff and contractors

Almost two years after state and federal agents raided a suite of Borrego Health clinics and offices that do business with the nonprofit healthcare provider, its leaders are going on offense against people they say cheated it and the communities it served.

In a head-spinning lawsuit filed in San Diego federal court, the Borrego Community Health Foundation, which operates dozens of clinics in Riverside and San Diego counties as Borrego Health, accused past board members, executives and contractors of racketeering, fraud, nepotism, excessive compensation and blatant self-dealing.

The lawsuit accuses dozens of former officials and contractors of stealing millions of dollars from the charity and falsifying records to generate excess revenue. The defendants conspired to conduct lucrative business that benefitted a select few without informing the board of directors, the lawsuit filed late last month said.

“While Borrego Health was attempting to complete its mission of providing healthcare to underserved communities, certain individuals and entities, both inside and outside of Borrego Health, siphoned off money from Borrego Health that should have benefitted to the community it serves,” the complaint alleges.

The lawsuit was filed under the Racketeer Influenced and Corrupt Organizations Act, or RICO, first enacted in 1970 to fight organized crime syndicates. That designation allows plaintiffs to collect significantly more money in damages should they prevail in court.

According to the legal complaint, which extends 154 pages not including dozens of exhibits, unscrupulous executives and vendors sold “useless assets” to Borrego Health at inflated prices.

They also entered one-sided contracts, committed and covered up healthcare fraud and paid themselves and their family members excessive salaries, the lawsuit alleges.

Borrego Health “insiders” also tried to buy a country club without telling the organization’s board, lawyers for the nonprofit said.

“Those same individuals and entities worked tirelessly to cover up their misdeeds and until recently were successful in doing so,” the suit said.

Sandra Hansberger, who chairs the Borrego Health board of directors, said the lawsuit is one of many steps the organization is taking to address internal wrongdoing by past leaders and contractors.

“I am appalled at how individuals took advantage of their positions at a nonprofit for their own personal gain,” she said in a statement. “It’s time we take this action to shine a light on these activities so that we can move forward.”

The lawsuit names as defendants at least 39 former board members and executives, vendors, dental providers and others. In recent months, Borrego Health terminated several of its senior leaders and replaced a number of board members.

None of the defendants has yet responded to the lawsuit, according to federal court records, but several have previously denied doing anything improper.

Among others, the suit names as a defendant longtime Borrego Health attorney and chief executive officer Mikia Wallis, who was terminated in 2020.

It also names Karen Hebets, a former Borrego Health vice president who also is the widow of Bruce Hebets, who preceded Wallis as CEO and built the tiny desert medical clinic into one of the nation’s largest federally qualified health centers, or FQHCs.

FQHCs are federally designated entities that receive higher government reimbursements for delivering healthcare services to poor and rural families. Bruce Hebets died in 2019.

Neither Wallis nor Karen Hebets could be reached for comment last week.

Former board member Chuck Kimball, also a defendant, declined to comment when reached at his Julian home.

Daryl Priest, the El Cajon businessman and philanthropist whose companies collected millions of dollars a year in rent and billing fees from Borrego Health, did not respond to a request for comment.

Shortly after the Premier Healthcare Management offices were searched by the FBI, Nicholas Priest — the CEO and Daryl Priest’s son — issued a statement saying the firm was cooperating with the investigation.

“We are proud of the high quality services we provide all our clients, including Borrego, and if our relationship is under review then we look forward to meeting with them to discuss our services and our relationship,” wrote Nicholas Priest, also a defendant in the new lawsuit.

Mike Hickok, one former board member named in the complaint, previously told The San Diego Union-Tribune that critical information was withheld from him even though he formerly served on the board’s executive committee.

Hickok is quoted in the lawsuit as pointing out that Borrego Health’s billing and lease agreements with companies owned by Priest were improperly secretive and way too expensive.

“I’ve been trying to call attention to these issues for years and gotten nowhere until the Borrego Sun (started) to expose them,” he wrote in an email cited in the lawsuit.

The Borrego Sun, an independently owned weekly newspaper based in Borrego Springs, has reported on allegations of misconduct by Borrego Health executives for years, including most of the claims now being asserted by the charity in the federal lawsuit.

Phantom billings

The suit also names as defendants more than a dozen dentists, who are accused of repeatedly over-billing for services as well as filing what the nonprofit calls “false and fraudulent” bills.

In one case, a contract dentist charged Borrego Health for 26 visits for a single patient in May 2019, even though there were just 22 business days that month, the complaint says.

Despite the questionable billing, Premier Healthcare Management regularly reviewed and approved such invoices, the lawsuit adds.

The complaint filed last month is unrelated to another lawsuit Borrego Health filed last year against its landlord in several clinics — properties leased to the charity by companies owned by Priest.

That suit, which also is pending in San Diego federal court, seeks at least $18 million in damages for what it says were inflated rents Priest negotiated with the late CEO Hebets.

“The lease terms are unconscionable and would result in the diversion of millions of ‘over-FMR’ (fair-market rent) dollars of federally funded health program money to entities owned by a friend of the CEO,” the 2021 lawsuit alleged.

Publicly available tax filings show Borrego Health paid its senior leaders a lot of money.

Last year, for example, Wallis received more than $614,000 in base pay; interim CEO Edgar Bulloch collected $353,000 for just over eight months of service. In 2019, the nonprofit reported having 245 employees who each made more than $100,000 that year, a number that dipped to 188 last year.

In its latest tax filing covering the 12 months ending in June 2021, Borrego Health also publicly disclosed having a slew of family members and relatives of key executives and officers on the payroll. The healthcare provider reported more than $1.3 million in salaries paid to 10 people related to “interested persons.”

The Borrego Community Health Foundation was organized in the early 1990s to operate a single medical clinic in Borrego Springs, the small unincorporated community in the northeast corner of San Diego County.

Although the nonprofit began with the one clinic, it expanded quickly. Under the late Hebets’ leadership, Borrego Health grew into one of the largest rural healthcare providers in the United States, with annual revenues totaling hundreds of millions of dollars.

FBI, state DOJ raid

In October 2020, dozens of FBI agents and investigators from the California Department of Justice executed simultaneous search warrants at several Borrego Health clinics as well as the corporate offices of Premier Healthcare Management, Priest’s medical billing firm.

The Union-Tribune subsequently reported that one Borrego Health dental clinic in Desert Hot Springs — a Riverside County city of barely 30,000 people — had recorded 445,000 visits by dental patients in the year ending June 30, 2020.

Another clinic in El Cajon reported some 225,000 dental patient visits in the same year, internal Borrego Health records obtained by the Union-Tribune showed.

“Money was made fast and furiously, and the people making the money were dizzy with the thoughts of how lucrative this business is,” Borrego Health board member Martha Deichler told the newspaper at the time. “It was like a speeding train that got out of hand.”
No criminal charges have been announced by state or federal investigators as a result of the 2020 searches.

But weeks after the search warrants were executed, state regulators suspended Medi-Cal payments to Borrego Health. The decision sharply affected the organization’s revenue and ability to deliver medical and dental services to patients.

Early last year, the California Department of Health Care Services reinstated much of the nonprofit’s reimbursements, although millions of dollars in payments for dental care continued to be withheld by the state.

In the same agreement, an independent monitor was installed to help ensure compliance with state and federal healthcare regulations.

Declining revenue

By late last year, the changes had begun affecting Borrego Health‘s revenue, which dropped sharply. In a major restructuring, the charity closed two clinics, planned for the relocation of at least one other facility and laid off more than 110 employees.

According to its federal tax filings, annual revenue sank from $341 million in the year ending June 30, 2020, to $235 million in the most recent tax year.

In one case from five years ago, the lawsuit alleges, Borrego Health insiders sought to use some of its revenue for purposes unrelated to its nonprofit mission.

In 2017, the lawsuit said, Borrego Health sought to acquire De Anza Country Club, a privately-held property featuring a mid-century clubhouse and restaurant along with a 72-hole golf course that over the years had attracted the likes of Marilyn Monroe, Bing Crosby and James Dean.

According to the complaint, the transaction was proceeding without approval from the board of directors, until it was called off after an outside attorney warned of “severe consequences” if the deal were to go through.

Borrego Health has continued to make key changes in its operations in recent weeks.

The nonprofit healthcare provider last month named Rose MacIsaac its interim chief executive officer. MacIsaac, who joined Borrego Health earlier this year as chief financial officer, will serve as CEO until a permanent successor is found.

Borrego Health also announced last month that it had signed a letter of intent to transfer three of its clinics to Neighborhood Healthcare, another federally funded nonprofit healthcare provider.

Details of the deal, which includes the Arlanza Health Center and Eastside Health Centers A and B, all based in Riverside, were expected to be negotiated by Sept. 1, Borrego Health said in a July 7 announcement.

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