Campbellton-Graceville Hospital Trustee Demands $1.3 Billion in Alleged Fraudulent Transfers From Breakwater Medical Group On Pretext of an Alleged Fraudulent and Unlawful Pass-Through Billing Scheme
May 24, 2021, Northern District of Florida – Trustee Marshall Glade for the Campbellton-Graceville Hospital Corporation ( “CGH” or “Debtor”) commences a lawsuit against a medical group, Breakwater Medical Group, LLC (“Breakwater Medical” or the “Defendant”) to recover avoided “fraudulent transfers” in the total amount of $1,394,326.59 according to 11 U.S.C. §§ 548 and 550 of the Bankruptcy Code.
CGH operated as a rural critical access hospital with 25 beds located in Graceville, Florida. Over the past decade, many critical access hospitals have been generally operating at a loss due to their very nature of being located in small, rural areas, coupled with a diminishing rural population. CGH was no exception and allegedly entered into a business arrangement with an independent group to boost the revenue of the hospital by creating a significant stream of clinical laboratory work for CGH (“Laboratory Outreach Program”). As alleged in the complaint, in actuality, the arrangement involved a “fraudulent and unlawful pass-through billing scheme” perpetrated by its architects. As a part of the Laboratory Outreach Program, the Debtor made transfers worth $67.5 million to Reliance Laboratory Testing for its role and participation (“Reliance transfers”). Further, during the same period, Reliance allegedly transferred a sum of $32.5 million to KTL labs for facilitating “kickbacks and payments” to individuals and companies. KTL Labs subsequently made payments totaling $1.3 million to Defendant for its participation in the “billing scheme”.
The Trustee alleges that the Reliance transfers constituted a transfer of the interest of the Debtor in property in which the Debtor “did not receive reasonably equivalent value”. Further, the Trustee argues that the alleged transfers were made within four years of the petition date with “actual intent” to hinder, delay or defraud Debtor. The Trustee accused Defendant to be immediate or mediate transferee of the transfers and urges the court to direct Defendant to turn over the transfers to the Trustee for benefit of the estate. According to the Trustee, the alleged transfers were “kickbacks”, disguised as independent contractor payments, paid to Defendant for its participation in the “billing scheme”.
Campbellton-Graceville Hospital Corporation commenced its bankruptcy case on May 5, 2017, by filing a voluntary petition for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101, et. seq. The Trustee has recently initiated 11 more adversary proceedings to recover similarly situated transfers from several other defendants.