Non-Profit and CEO Charged with Medicaid Fraud

The U.S. Attorney’s Office filed a federal civil fraud lawsuit against Maranatha Human Services Inc., a not-for-profit organization, and its founder for improper payments to founder and his family.

Damian Williams, the U.S. States Attorney for the Southern District of New York, and Scott Lampert, the Special Agent in Charge of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), filed a civil fraud lawsuit against a not-for-profit, Maranatha Human Services, Inc. (“Maranatha”), and its founder, Henry Alfonso Coley (“Coley”) for Medicaid fraud. Coley and Maranatha falsely claimed that millions of dollars expended to benefit for-profit ventures owned and controlled by Coley and Maranatha, as well as payments to cover Coley’s personal costs and excessive payments to Coley’s family members, were reasonable and necessary in connection with Maranatha providing Medicaid-funded services to individuals with developmental disabilities.

Specifically, the Government alleges that, from 2010 to 2019, Coley and Maranatha submitted to the State of New York cost reports that falsely claimed expenses as “allowable” costs. This fraudulently inflated Maranatha’s Medicaid reimbursement rates and resulted in Maranatha receiving millions of dollars in Medicaid funds to which it was not entitled. This case is a recent example of the U.S. Attorneys’ office asserting a fraud claim based upon false cost reporting by a facility.

At the same time, the government resolved its claims against Coley simultaneously with the filing of the suit. Coley will pay a total recovery of $220,000. The settlement amount is based on the Office’s assessment of Coley’s ability to pay based on the financial information he provided. Coley also agreed never to work for or accept payments from any entity that receives funds from a federal healthcare program, and entered into a Voluntary Exclusion Agreement with HHS-OIG, which prohibits him from participating in Medicaid and other federal healthcare programs for 15 years.

Founders of not-for-profit healthcare entities should be extremely careful to ensure that all business expenses paid to individuals and related for-profit entities are commercially reasonable and consistent with fair market value.  This is critical not only to preserve the entity’s not-for-profit status, but also to avoid an allegation of Medicaid fraud in the event the entity files a cost report.  A determination of commercial reasonableness and fair market value should be done through qualified legal counsel to properly direct the process, and ensure that the attorney work product privilege is maintained.