State cannot cut Medi-Cal payments to Borrego Health, judge says

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A federal bankruptcy judge has barred state health officials from cutting off Medi-Cal payments to the Borrego Community Health Foundation, a move that breathes new financial life into the struggling nonprofit that is still under criminal investigation.

In a decision released last week, Judge Laura S. Taylor said the California Department of Health Services could not suspend reimbursement to the health care provider known as Borrego Health.

State health officials had planned to suspend reimbursements Sept. 29 due to what they said continued fraud and mismanagement by the Borrego Springs-based health clinic.

But lawyers for Borrego Health, which still operates dozens of medical centers in San Diego and Riverside counties, argued that the Chapter 11 filing last month imposed an immediate suspension of the agency’s finances, which means that the suspension should not take effect.

Cutting state reimbursements would cripple the organization and threaten the quality of care it provides to more than 90,000 low-income and needy patients, Borrego Health’s legal team said.

In a decision released last Tuesday, the judge agreed.

“The Department (of health care services) does not pursue regulatory remedies for the benefit of the public, such as revoking the debtor’s ability to function as a health care provider,” the judge noted.

The decision gives Borrego Health more time to restructure its finances, which have deteriorated sharply over the past two years amid persistent allegations that former executives, board members and contractors fraudulently spent million in federal taxes.

In a separate ruling, the bankruptcy judge ruled that state health regulators must stop referring Borrego Health patients to other Medi-Cal providers.

Over the summer, when the Department of Health Services announced plans to stop reimbursements to Borrego Health for services, regulators began the process of assigning patients to other clinics.

State officials declined to comment in detail on developments in the bankruptcy court.

“While DHCS cannot comment on pending litigation, DHCS’s priority is to ensure the health and well-being of affected Medi-Cal beneficiaries,” spokesman Anthony Cava said in a statement.

Borrego Health spokesman Daniel Kramer said ending Medi-Cal’s suspension strengthens the health care provider’s ability to continue treating thousands of patients.

Kramer also welcomed the court’s decision to halt the transfer of patients to other clinics and said Borrego Health was working to correct the issues uncovered by the criminal investigation and the civil lawsuits.

“Borrego Health’s Board of Directors and leadership team are carefully considering the way forward to help ensure that the communities and patients we serve can continue to receive the important and culturally competent care for which Borrego Health is known. “, did he declare.

“The Chapter 11 process provides protection and flexibility to explore various options to ensure Borrego Health patients have continued access to care at these facilities, not just today, tomorrow or next month, but for the coming years.”

Other recent filings in the bankruptcy case show how much money the Chapter 11 proceeding is costing the healthcare provider.

Just last week, the court was told that Borrego Health had hired special counsel to handle its restructuring effort – global law firm Dentons, which has already been awarded more than $1.2 million.

Borrego Health has also retained regulatory counsel, the law firm Hooper, Lundy & Bookman in San Diego, which has already raised $1.9 million, according to court filings.

The nonprofit organization also informed the court that it was paying experts from Ankura Consulting up to $990 per hour to help run the clinic. The consultancy has already received over $2.2 million to date.

Borrego Health incorporated in the early 1990s as a tax-exempt entity. As a federally licensed health center, it receives higher than usual government reimbursements for treating needy, rural patients who otherwise would not have access to doctors and dentists.

The clinic expanded in the early 2000s. As of 2020, it operated over three dozen facilities and had annual sales of over $340 million.

But two years ago this month, state and federal agents executed multiple search warrants at administrative offices in Borrego Springs and at least four other locations in San Diego County.

The FBI and the California Department of Justice seized computers, documents and other materials as part of a criminal investigation into the business operations and billing practices of Borrego Health, particularly at its dental clinics under contract.

Federal and state officials declined to provide additional comment on the criminal investigation.

But in a civil lawsuit filed earlier this year and in its bankruptcy filing in September, Borrego Health admitted fraud and accused a number of former directors, executives and contractors of overcharging, personal dealings and nepotism.

No criminal charges have been filed.

But state health care regulators took the unusual step of suspending Medi-Cal payments to Borrego Health weeks after search warrants were executed.

Borrego Health initially reached an agreement with regulators to restore Medi-Cal reimbursements under several conditions – except for the dental work at the heart of the alleged fraud.

Among other things, the nonprofit healthcare provider has agreed to have an independent supervisor oversee day-to-day business practices. It also made sweeping changes to its board of directors and senior management.

But the Department of Health Services determined this summer that Borrego Health was failing to meet its obligations under the agreement reached early last year.

Regulators said the charity continued to tolerate waste and fraud by its clinics and contractors. They announced that all Medi-Cal reimbursements would be suspended again effective September 29 – the decision that prompted Borrego Health to file for bankruptcy.

The proceedings include thousands of alleged creditors, including casinos, hotels, restaurants and at least one San Diego flower shop, according to bankruptcy court records.

Borrego Health has not yet filed records of its income and debts. This disclosure is due later this month.

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