Borrego Health Files for Chapter 11 Bankruptcy Protection; an Analysis



Borrego Community Health Foundation (Borrego Health) filed for chapter 11 bankruptcy protection on September 12, 2022, in the US Southern District of California (case no. 22-02384). Borrego Health claims assets of approximately $50-100 million, and liabilities of approximately $50-100 million. Formerly, Borrego Health was asserted to be the largest federally qualified health care (FQHC) non-profit organization operating in the nation.

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Most of its production income allegedly originated from various schemes of abuses and fraud related to dental encounter fee agreements, by subcontracted private dentists.

Unlike typical subcontracted dental care from FQHCs, these uniquely constructed agreements by Borrego Health paid private dental providers on an encounter fee basis, and not via a fee-for-service methodology. As such, without intensive oversight by Borrego Health’s chief dental officer, Dr. Timothy S. Martinez, and his subordinate staff, fraud and abuses were seemingly encouraged. The FBI raided Borrego Health and its retained billing contractor, Premier Healthcare Management, on October 20, 2020.

One of the alleged more egregious contracted dental providers was Dr. Husam Aldairi and 40/30 Dental, which the new administration of Borrego Health has sued in a civil legal action and disputed him as a creditor. His extensive disciplinary actions from regulatory boards and failures to comply with consent agreements before the Illinois Dental Board and Illinois Department of Financial and Professional Regulation were public record, prior, and during his contracted time with Borrego Health. Also problematic were disturbing misrepresentations by Aldairi and a discipline ruling, and judicial fine handed down against Aldairi, in his Illinois bankruptcy.

All this troubling public record data related to Aldairi was easily accessible to the Dental Board of California (DBC), which credentials and renews dental licenses. It was also available to the California Department of Health Care Services (DHCS) which approves and renews credentialing for Medicaid providers. It was also easily obtainable through a due diligence vetting process under Borrego Health’s former chief dental officer, Martinez.

In fact, Martinez, under oath and under questioning by his attorney, stated, “I have done clinical work, but also part of my specialty is Medicaid fraud. So, I’ve worked with dental investigations both – all over the United States… Basically my background is in Medicaid fraud.” (Superior Court of the State of California, in the County of San Diego, Sept 7, 2022, case no. 37-2021-00049304, in the matter of Martinez and Tuso).

Few would dispute Martinez’ knowledge and expertise in the field of dental Medicaid fraud.

Aldairi has never been disciplined by California regulators related to Borrego Health, or Illinois consent orders and failure to comply with consent orders in Illinois (which concurrently represent violations in California). Although he was disciplined for an unrelated violation by the DBC, Aldairi maintains Medi-Cal credentialing and a California dental license.

Eye-Rolling Bankruptcy Creditors

Daniel Kramer, chief of media and public relations for Borrego Health, stated for Dentistry Today, “Parties included on the list of noticed parties are not all creditors and do not necessarily have claims against the debtor (Borrego Health). The list represents parties who may have been vendors to Borrego Health in recent years. The list also includes current and former employees who may have incurred expenses on Borrego Health’s behalf using a personal account in recent years.”

The listing of creditors is beyond astounding and points to scandal on a massive scale. The number of high-profile Las Vegas casinos and resorts is disturbing, especially for a nonprofit IRS 501c company.

These include:

  • Caesar’s Palace
  • Mandalay Bay Resort & Casino
  • MGM Grand Hotel & Casino
  • Mirage Hotel & Casino
  • Paris Hotel & Casino
  • Planet Hollywood Resort

Locally, the Spotlight 29 Casino in Coachella, California, earned an entry on the creditors’ bankruptcy role. Not making this record was another neighboring gambling casino, Sycuan Casino. However, this casino was mentioned in formal discipline considerations of the DBC against Aldairi, in a matter totally unrelated to Borrego Health.

“Complainant alleges that on or about September 10, 2019, the Sycuan Tribal Police arrested Respondent (Aldairi) at the Sycuan Casino for being drunk and disorderly in public. He was loud and disruptive, and refused to leave the casino voluntarily even after police arrived. He asked the police to arrest him.”

Other questions can be raised by the extensive number of party supply companies, flower shops, and event planning firms which made the creditors’ register. Additionally, a musical instrument sales outfit (Guitar Center) was included. Rarely does one consider a FQHC nonprofit healthcare provider as “party central.”

The creditors also included an extensive number of auto dealers, car detailing companies, as well as auto repair and towing enterprises. One would reasonably expect auto leasing, purchasing, and maintenance for vehicles utilized by home health nurses, and social services for homebound patients. It might include transportation services for non-ambulatory patients to and from Borrego Health clinics. Kramer stated, “Borrego Health owns and leases vehicles for a variety of care-delivery and business purposes.”

This vast listing related to autos should not include private transportation vehicles for senior Borrego Health officers and directors, especially of a nonprofit entity. A forensic accounting would be reasonably essential for determination, based on the troubling history of Borrego Health.

Party Central at Borrego Health

Luxury hotels and resorts locally, nationally, and internationally were also named. Moreover, limousine services and airlines also were included.

Some are cited as follows:

  • Alaska Airlines
  • American Coach Limousine (Chicago)
  • Caribe Royal Resort (Orlando, Florida near Disney World)
  • The Colony Palms Hotel and Bungalows (Palm Springs, California)
  • Diamond Limousine (Hughesville, Maryland)
  • Gaylord Hotel Opryland Resort (Nashville, Tennessee)
  • Hyatt Regency Huntington Beach Resort
  • Hyde Resorts (Hollywood, Florida)
  • InterContinental Hotel (luxury hotel near French Quarter in New Orleans, Louisiana)
  • Jake’s (fine dining in Palm Springs, California)
  • Julian Gold Rush Hotel (Julian, California)
  • La Casa Del Zorro Desert Resort and Spa (Borrego Springs, California)
  • Mears Transportation (limo transportation in Orlando, Florida)
  • Miracle Springs Resort & Spa (Hot Springs, California)
  • Palm Springs Riviera Resort & Spa (a/k/a Margaritaville Resort)
  • The Royal Crescent Hotel & Spa (Bath, United Kingdom)
  • Sonesta Hotel (Philadelphia, Pennsylvania)
  • Southwest Airlines
  • The Mission Inn Hotel and Spa (Riverside, California)
  • United Airlines
  • The Watergate Hotel (Washington DC)
  • The Willard InterContinental Hotel (luxury historical hotel near White House in Washington, DC)
  • Walt Disney Resort (Orlando, Florida)
  • Westgate Lakes Resort and Spa (near Walt Disney World and Sea World Orlando)

An unusual number of creditors were recreational vehicle (RV) sales and service companies. A specialty custom trailer hitch supplier was included as well.

Borrego Health does support a number of mobile medical and dental clinic vehicles, which may explain some of this expensing. Kramer advised that Borrego Health operates ten mobile health units. Again, a forensic accounting would be necessitated to ensure Borrego Health resources were not diverted.

Construction & Land Development

Apparently out-of-place were various firms focused within the construction and land development industry. These included a roofing company, an asphalt supplier, multiple plumbing and backflow companies, a variety of industrial crane operators, lumber supply, and a host of landscaping and pool companies.

Further forensic investigation might confirm or deny, whether all or some of these construction and landscaping operations were solely for structures owned and operated by Borrego Health. Kramer stated, “Borrego Health operates multiple facilities throughout its service area.”

A nonprofit healthcare corporation should never be subsidizing expenses which should rightfully be borne by others, particularly in construction and land development. A FQHC should not be paying over-inflated rental fees, especially on properties which they developed and maintain. Borrego Health should not be subsidizing the construction costs of unrelated projects. Such an unlawful activity might be viewed as a form of money laundering and fraud, perpetrated by those benefiting.

Dental

The creditors’ list also cited over 20 outsourced dentist contractors and clinics. These private sector dentists and their clinics were sometimes listed as “disputed,” which implied allegations of Medicaid abuses and fraud, and/or a failure to meet terms of Borrego Health provider contracts. Two of the disputed entities are the aforementioned Aldairi and 40/30 Dental.

Another listed dentist creditor holds a public record disciplinary action from the Alaska Board of Dental Examiners, which resulted in profound injury to a patient. This did not elicit the BDC to sanction his dental license. He continues to maintain Medi-Cal credentialing under the California DHCS. Obviously, any due diligence by Martinez and his crew acting at the behest of Borrego Health did not exclude him as a contracted provider.

His dental group practice (small dental service organization – DSO) includes other troubling practitioners with a CDB history of “Malpractice Judgement.” One is left to speculate on the judgement of Martinez and Borrego Health to contract with a questionable DSO and their doctors, without intensive on-site clinical record inspection and monitoring of patient care, even assuming Borrego Health decided to contract with such dubious dental providers.

A different contracted dentist serving patients of Borrego Health had prior DBC public record disciplines related to:

  • “Epinephrine induced temporary myocardial (stunning), but her heart suffered no permanent heart damage.”
  • “Respondent (dentist) recorded no periodontal charting on Patient’s teeth. Based on his examination and x-rays, Respondent recommended cleaning Patient K.T.’s teeth, placing fillings in two teeth (teeth nos. 2 and 15), and a periodontal program, including deep cleaning. Patient K.T.’s parents sought a second opinion from Drs. R and S. Both doctors agreed that a periodontal program, including a deep cleaning was not necessary. Additionally, Dr. S determined that tooth no. 2 did not have a cavity or require a filling.”

Although this dentist’s license was revoked and subsequently immediately reinstated by the DBC, one might assume his Medicaid credentialing by DHCS would receive close monitoring, if not suspension or revocation. Similarly, one might question the wisdom of Borrego Health entering into Medicaid patient care contracts with this provider, without extremely close observation, if at all, for such a vulnerable Medicaid patient population.

The Borrego Sun reported on an extensive list of civil and criminal allegations against Borrego Health’s contracted dentists. These doctors and one dental assistant (allegedly providing unlicensed dental services) were named on the Borrego Health bankruptcy creditor list.

Two dentists, who were supervised by Borrego Health dental director Martinez, also made the extensive bankruptcy creditor tally. These were Martinez’ immediate subordinate, Nithya Venugopal, DMD, and his hand-selected investigator Elias Koutros, DDS, from Rhode Island.

Venugopal, formerly assisted directly under Martinez, is today serving with Borrego Health’s new Compliance Committee after the company shakeup. According to the Borrego Health website, “Under her leadership, she will oversee her team in the review of Medicaid provider activities, audit claims, and educate providers and others on the Denti-Cal program as it pertains to FQHC’s in our state.”

As reported by the Borrego Sun, “She failed in that role, for whatever reason. While like many others who remained silent about what they had to know was illegal, including former members of the Executive Committee of the Borrego Health Board of Trustees, it isn’t fair to place responsibility on her, but so many people, like her, had a choice to do something or go along. And unfortunately, they made the decision to go along, either for job security, friendships, or because for so long there were no repercussions.”

“One culprit of questionable character, Dr. Elias Koutros, is no longer being paid for medical (dental investigative) services. The doctor holds licenses in Rhode Island, and two other states (California dental license issued September 2019), and allegedly audited the Borrego Health dental clinics, even though a medical (dental) doctor, living on the East Coast. Go figure that one out? He was later hired at Borrego Health and listed in the foundation’s IRS reports as one of the highest earning personnel that was not an officer. Evidently, he had friends in high places.”

Martinez reached the creditor sheet as well, along with Maura Tuso, DMD, MS. Both are currently embroiled as adversaries in the previously cited civil legal case. The action involves a suit and countersuit for alleged harassment and restraining orders.

Martinez also serves on the Dental Hygiene Board of California (DHBC) and was formerly president of that state regulatory board. He regularly confers and collaborates with its sister state regulatory agency, the DBC. In this capacity, Martinez has routine ongoing contacts with board members and board directors appointed by Governor Gavin Newsom, as well as board attorneys assigned by the California Attorney General’s Office.

Nikki Symington of the Borrego Sun reported on November 11, 2021, “How did Dr. Timothy Martinez, Borrego Health’s Chief Dental Officer, liaison between Premier Healthcare Management and Borrego Health, not know there was cheating going on right under his nose? An intelligent man with a solid resume, Dr. Martinez probably helped Bruce Hebets (former Borrego Health CEO) develop the idea (this unique form) of contract dentistry and the management structure. Martinez has a professional history of advocacy for contract dentistry as a way for dentists to benefit and reach more of the underserved.”

“Actually, the one thing Martinez can’t say is that he didn’t know about Aldairi’s illegal activities. Dr. Maura Tuso, a dental endodontist, went to great lengths to alert him and others that Dr. Aldairi was breaking the law.”

Daryl Priest and Companies

Noted Riverside and San Diego Counties real estate and land developer, Daryl Priest, some of his companies and his son, Nicholas Priest, were also named on the bankruptcy creditors’ filing. Allegations in a lawsuit of Borrego Health against Daryl Priest’s dental Medicaid billing firm, Premier Healthcare Management (Nicholas Priest was former Executive Director) contend the company grossly overcharged Borrego Health for outsourced billing services. Allegedly, Priest’s Summit Healthcare Management, Inc. was a mirror image with medical Medicaid billing services. The Borrego Sun produced a good summary of that lawsuit.

Each claim processed was allegedly charged up to $25/ per billing form submitted. Plaintiffs contend this represented a method of money laundering, to enrich those controlling the lucrative business of Medicaid fraud by a FQHC. Make no mistake, Medicaid fraud is by far, the most lucrative business model in the dental industry.

All the while, corporate officers and directors at Borrego Health initially reported no malfeasance, for a prolonged period of years. Eventually, after federal and state investigations, a massive shakeup in corporate control of Borrego Health occurred. If and when insider whistleblowers initially stepped forward, at personal risk to themselves and their careers, they were ignored, discredited, and silenced.

Investigative reporter for the Borrego Sun Nikki Symington stated, “Simply leasing out the non-profit status for a fee and the ability to access federal and state funding allows Borrego Health to not just grow, but increase revenues exponentially. All without the headaches of actually delivering health or dental services.”

“Bruce Hebets (Borrego Health’s founding CEO) originally put forward the concept of getting out of providing services by simply facilitating private providers to benefit from Borrego Health Foundation’s non-profit status for a fee. Using Premier (Healthcare Management) as the middleman manager of the private providers, the (Borrego Health) Foundation has expanded this program beyond Medicaid dental services to actual Medicare health services. Anderson (Borrego Health board member and former chairperson) admitted, at least three clinics are not being operated by Borrego Health, but by private providers, under contract with Premier.”

“The reason is: It costs to provide services, and management of clinics requires expertise and work.”

Rents paid by Borrego Health for real estate holdings of Daryl Priest and his companies are also the focus of current litigation. Plaintiffs contend property rental fees were intentionally overinflated, to launder money to Priest holdings as alleged in a civil RICO lawsuit.

Investigative reporter Symington offered, “Can the (Borrego Health) Foundation recover the millions of dollars Hebets and his successor, former CEO Mikia Wallis, gave to the likes of Daryl Priest? And, not just for the $11.5 million in inflated rent fees, the subject of Borrego Health’s current legal suit. But the estimated $100 million sucked from the Borrego Health budget and the clinics by Priest’s privately-owned company – Premier Healthcare Management.” (Note: Many consider those exceptionally low dollar estimates of the actual alleged fraud.)

Management

Borrego Health’s founding CEO was retired Port of San Diego Police sergeant, Bruce Hebets, who died in 2019. That year he was paid the salary of $1.9 million. The year after his death in 2020, Hebets was paid over half a million dollars. He held no prior background or experience in healthcare or corporate financial administration. He was purported to have been a close personal friend of local real estate entrepreneur and philanthropist, Daryl Priest.

The late Bruce Hebets was not cited on the bankruptcy creditor list, but his wife and heir Karen Hebets was named twice. She was not only heir to her late husband’s (Bruce Hebets’) estate, but also served in administration of Borrego Health. Obviously, ethical considerations of nepotism were not a factor worthy of review.

According to the Borrego Sun, “She was given $3 million ‘to support and sponsor,’ and loaned another $460,000 plus, by Borrego Health to a private healthcare network the Hebets’ founded called, Borrego Independent Physicians Association (BIPA). The BIPA advertised dental, pharmaceutical and OBGYN services in San Diego Directories.”

Borrego Health submitted on its 2019 IRS form 990 form, that dental encounter fees accounted for 63-65% of its income, which included nearly 900,000 patient visits.

Consulting and Insurance Contractors

The standouts on the bankruptcy listing included James Hebets, brother to the late Bruce Hebets, The Hebets Company, and NFP Insurance Services.

James “Jim” Hebets is the founder and president of the Hebets Company, which is today in the portfolio of NFP.

Their website espouses, “The firm specializes in the areas of executive compensation and fringe benefit consulting, business succession planning concepts, wealth creation and estate preservation strategies and the facilitation of the purchase of extremely large amounts of life insurance.”

The Hebets Company openly promotes “estate planning for the exceptionally wealthy” and “… facilitating a strategic national approach to Federally Qualified Health Centers. The Hebets Company has over 45 years of experience in delivering some of the highest quality compensation and benefits consulting and service to healthcare executives and providers around the country.”

“The Hebets Company’s Executive Compensation and Supplemental Fringe Benefits division assists these enterprises in designing and implementing innovative compensation and benefit programs for purposes of recruiting and rewarding those key executives who are instrumental to the profitability of the company. Legislative changes over the years have repeatedly reduced the qualified plan benefits that can be allocated to this select group of highly compensated employees resulting in ‘reverse discrimination.’”

A primary focus of the Hebets Company is to maximize compensation packages for officers and directors of nonprofit FCHCs.

“We will evaluate the current FQHC compensation and retirement models, educate the FQHC executive team along with the Board of Directors regarding the compensation opportunities specific to not-for-profit organizations, and make a suggestion for the most appropriate model applicable to the specific FQHC. These options include a wide variety of governmentally sanctioned programs that have been codified in the Internal Revenue Code under the following sections: 162(b), 457(b), 457(f), 403(b), split dollar plans, executive/employee bonus programs, and other bonus retirement hybrid strategies. Additionally, there are other insurance and benefits based programs available to employees of not-for-profit FQHCs that may warrant exploration.”

In essence, compensation, and benefits for senior personnel of FQHCs are not reported as salary on IRS form 990, Schedule J, but shift to less transparent mechanisms. Only a deep forensic accounting could determine the degree to which Borrego’s officers and directors were truly remunerated.

Word has definitely gotten out about the lucrative positions of senior management generated within nonprofit FQHCs and how The Hebets Company can facilitate wealth creation.

“Today, we’re fortunate to serve more than thirty FQHCs across the country, including several of the ten largest.”

The Hebets Company is deep into reversing “reverse discrimination” foisted upon the super-wealthy.

What happened at Borrego Health may only be a tiny segment of a much larger pattern of deception and abuses, on a national level within the corporate nonprofit FQHC industry.


CONCLUSION

The size and scope of happenings at Borrego Health impact every taxpayer, not only in California, but in the country. Medicaid is jointly funded through state and federal moneys. The US government might be entitled to recover mismanaged Medicaid funds via claw-backs, from the State of California. Forensic accountants from the IRS and FBI should place this case front-and-center. The California Department of Insurance should analyze exactly how officers and directors of Borrego Health may have received “hidden” compensation.

State regulators inclusive of the DBC and California’s DHCS were either asleep-at-the wheel, or more likely tacitly complicit. The US Health and Human Services Office of Inspector General has repeatedly repudiated “Pay-&-Chase” has a highly ineffective means for recovery of taxpayer money. State authorities appointed by the California Governor and Attorneys General Office arguably facilitated a coverup. Dentist wrongdoers were either ignored or sanctioned for unrelated actions. Martinez, to this day, serves on a dental state regulatory agency.

Priest is a board member in the Lincoln Club of San Diego County. This Republican Party organization is highly influential in state politics and facilitates political donations and candidate support.

One of the few heroes in this report is Nikki Symington, reporter with the Borrego Sun. In the old-school tradition of small town print journalism, she has covered every local story from the annual Mother Goose Parade, to the depth of the scandal with Borrego Health.

Her exposés have not gone without severe criticism. Borrego Health brought employment to an economically depressed community. Outlays for overhead expenditures by Borrego Health supported numbers of local and regional small businesses, from car dealerships, to restaurants, to construction trade companies.

Social media in her local community of Borrego Springs went into attack mode against Symington. Some were rather vicious.

Symington responded publicly in print, “Sometimes, bad news is actually good news. Especially, when it offers an opportunity to correct illegal behavior, reconcile conflicting facts and opinions; and lead to a real community debate about the realities that will determine the future of health care in Borrego Springs.”


DISCUSSION

Nikki Symington & Borrego Sun

Dentistry Today conducted an exclusive interview with Symington. We traversed a variety of topics. As a news reporter in a smaller disadvantaged community, she is the “go to” person for local citizens to access information. She represents an historical throwback when the media held esteem and value with the public.

To follow are excerpts from that interview.

“Keep in mind the Borrego Springs clinic, which is where I can make onsite evaluations as to patient care, provides the only medical services available within a 70-mile drive to major cities – and providers. There are no private doctor’s in Borrego.”

“Well, since the large amounts of money generated from the Premier Healthcare Management/contract Dentist scam (growth of about $100 million annually over five years) wasn’t being invested in our local clinic, per our observations, the Borrego Springs Clinic has not been able to keep a local doctor on site for the past 3-years. Without a doctor with whom patients can consistently identify with and trust there is a severe loss of medical help, miscommunicated case managements, mishandled prescription requests, difficulty getting referrals, and a general lack of trust.”

Symington continued, “People in Borrego call me and ask, ‘Is the clinic open, how long will we have a clinic, is there a doctor yet?’  ‘Why isn’t the clinic answering its phone?’ Now with the bankruptcy, my usual callers have changed from people needing medical information to employees questioning me about the ‘status of their employment and benefits.’”

“The Borrego Springs clinic, the original and only FQHC, on which Borrego Health built its empire on, has been deteriorating in both primary services and medical equipment prior to the investigation. In fact, the question of how Borrego Health could make so much money and run our clinic without a nurse practitioner, mental health provider, and doctor at the beginning of COVID was what got me wondering about their finances. Also, the clinic did not even have a wheelchair, had a dead heart monitor, and other deficiencies in medical equipment and professional staff.”

“Due to the clinic’s impotence, Borrego Springs residents relied on a collection of rural paramedics to provide the original vaccines. A major loss has been the children and youth’s preventive programs that were run in coordination with the local school district, this included well health checkups and dental care. With an 80 percent Mexican population, a large percentage of parents who do not speak English, this program stressed nutrition to fight the rash of obesity, and other aspects of preventative health care that is much needed and is currently no longer available.”

Symington added, “The state and, especially, the federal monitors failed miserably. They had 10-years of seeing red flags and, admittedly, did nothing, until the Borrego Sun wouldn’t stop writing about fraud, other illegal activities, and violations of Medicaid and Medicare regulations.”

“I have asked the federal department and agencies, about their obvious role in missing such as large theft of public health insurance, and received replies copied from their websites about their programs and how they monitor… yakety yak…” continued Symington. “I am not sure this type of large-scale fraud could have happened without support from within the government. I have no proof, except issues with the state Dental Board failing to protect the public by issuing licenses and protecting dentists with court records and bad histories.”

“My other observation is: How could they be so arrogant, actually reporting the outrageous amounts dental contractors were making, (Dr. Husam Aldairi, a private dental contractor, made $8 million in 2020); listing salaries for 200 people over $100,000 and inflated wages for officers, managers, friends, and family, in their IRS 990 reports? Who would be so brazenly proud of violations of FQHC regulations unless they felt protected?” added Symington.

“All it took was reading two IRS form 990s, and the auditors’ reports, and I knew there was something wrong, and I am far from a forensic auditor, just a curious person. I am afraid, we will never know who conspired and was complicit with Borrego Health in the state and federal governments, because the governments protect their own. And that is a shame.

“Furthermore, I have a theory only, that perhaps the reason the state Department of Health Care Services wants to shut Borrego Health down quickly is, so no further investigations can link government officials.”

Symington concluded, “I would add, this investigation made me sick. The amount of greed and self-serving was insatiable. I know I have a very jaundiced view of all public health and its particular vulnerabilities to fraud, especially towards some foreign nationals.”


ABOUT THE AUTHOR

Dr. Michael W. Davis practices general dentistry in Santa Fe, NM. He also provides attorney clients with legal expert witness work and consultation. Davis also currently chairs the Santa Fe District Dental Society Peer Review Committee. He can be reached at MWDavisDDS@Comcast.net.

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