Category Archives: Healthcare

Houston biotech company appoints new CFO

CNS Pharmaceuticals, which just went public last week, has officially appointed Christopher Downs as its new CFO.



Mr Downs joins from Innovative Aftermarket Systems LP, a privately held provider of finance and insurance solutions where he was VP of Finance and Treasurer. Prior to that he spent 7 years at InfuSystem Holdings Inc, a provider of infusion systems to oncologists in the US. He is a West Point graduate and has an MBA from Columbia Business School.

CNS doesn’t have any revenues yet and is developing anticancer drugs for the treatment of brain tumors. Based on preclinical data and positive results of the Phase I clinical studies conducted at MD Anderson Cancer Center, the company believes its lead drug candidate, Berubicin, could significantly help in the treatment of glioblastoma, a type of brain cancer that is considered incurable.

The company raised $8.5 million (net of fees) by selling 2.1 million shares at $4, at the low end of its range of $4-$5. Mr Downs agreed to join in September, conditional on the Initial Public Offering being completed.

Mr Downs will receive a base salary of $300,000. He was also granted a 10-year option to purchase 30,000 shares at an exercise price equal to the public offering price per share of the shares sold in the IPO. Mr Downs, who has lived in Houston previously, but currently lives in Utah, will also receive a one-time relocation bonus of $15,000.

Mr Downs replaces Matt Lourie who was the part-time fractional CFO prior to going public.

SEC filing – CNS Pharmaceuticals – CFO

Houston biotech company completes IPO

CNS Pharmaceuticals, a biotech company, has completed its initial public offering. It has its head office in the Galleria area. The company raised $9 million by selling 2.1 million shares at $4, at the low end of its range of $4-$5.

The company is listed on the Nasdaq with a ticker symbol ‘CNSP’ and has a market capitalization of $67 million.



CNS doesn’t have any revenues yet and is developing anticancer drugs for the treatment of brain tumors. Based on preclinical data and positive results of the Phase I clinical studies conducted at MD Anderson Cancer Center, the company believes its lead drug candidate, Berubicin, could significantly help in the treatment of glioblastoma, a type of brain cancer that is considered incurable.

Berubicin was discovered at MD Anderson by Dr Waldemar Priebe, the founder of the company. Dr Priebe initially licensed the drug to Reata Pharmaceuticals. However they allowed their investigative drug application with the US Food and Drug Administration (FDA) to lapse for strategic reasons.

The money, along with a $5.8 million grant given to a sub-licensee, partially owned by Dr Preibe, will be used to commence the Phase 2 trials of Berubicin.  However the company will need to raise a further $7 million to complete the trials.

CNS becomes the fifth Houston-area IPO this year, following Sunnova and Castle Biosciences in July, Landcadia Holdings II, and Soliton.

You can see the complete list of Houston-area public companies on my blog here.

https://www.prnewswire.com/news-releases/cns-pharmaceuticals-announces-pricing-of-initial-public-offering-300954480.html

 

 

 

80-year-old man convicted in $19 million medicare fraud

Bobby Rouse Sr, an 80-year-old former Houston man, has pleaded guilty to conspiring to pay and receive kickbacks and money laundering related to the Medicare program.



Mr Rouse becomes the 14th and final person convicted in relation to the scheme. Rouse and three others were part of the executive team for Continuum Healthcare LLC. They owned the Westbury Community Hospital (now closed) in Houston. The company also owned mental health centers in Hornwood, Baytown and Missouri City.

Each location operated a partial hospitalization program (PHP), a short-term intensive treatment program but without 24-hour daily care. Numerous people were referred to treatment in exchange for payment. However the vast majority did not qualify for PHP services because they were not experiencing an acute psychotic episode or were actually suffering from dememtia or Alzheimer’s.

Six of the defendants owned personal care homes while four were marketers for Continuum. Each admitting payments to refer the patients, receiving amounts ranging from $130,000 to $2.6 million each.

In all, Continuum billed Medicare approximately $189 million for fraudulent PHP claims and Medicare paid $66 million on these claims. Mr Rouse admitted to causing Medicare to pay $18.8 million based on false and fraudulent claims. For Mr Rouse, the scheme ran from March 2005 through May 2012.

Mr Rouse will be sentenced in January 2020. He faces up to 10 years in prison and a possible $250,000 maximum fine.

Ten of the defendants were originally indicted in 2014 though Mr Rouse was not charged until 2017. This followed an investigation by the Houston Chronicle back in 2011.

https://www.justice.gov/usao-sdtx/pr/final-defendant-convicted-189-million-health-care-fraud-scam

Two nurses charged in $2.1 million medicare fraud

Another week, another Medicare fraud indictment in Houston. Joseph Nwankwo of Houston and Stacey Ajaja of Richmond have been arrested. They appeared in court in the Southern District of Texas last Friday.



According to the indictment, Mr Nwankwo and Ms Ajaja owned Hefty Healthcare Services from 2009 through 2017. The company was based off the Westpark Tollway in Mission Bend. From July 2013 through November 2016, the company billed Medicare $1.6 million for home health services that were never provided and not medically necessary. The pair obtained patient referrals by paying marketers and patients. They bribed physicians to authorize medically unnecessary home health services. Medicare paid out $2.1 million on these claims.

Nwankwo and Ajaja are both charged with one count of conspiracy to commit health care fraud, five counts of health care fraud and one count of conspiracy to pay and receive health care kickbacks.

If convicted, they face up to 10 years in prison for the fraud charge and up to 5 years for the kickback charge. They also face fines of $250,000 and $25,000 for the charges.

Earlier this month, a Houston doctor was convicted in a $16 million fraud scheme.

https://www.justice.gov/usao-sdtx/pr/two-nurses-charged-health-care-fraud-and-illegal-kickback-scheme

 

Houston doctor convicted in $16 million medicare fraud scheme

Yolanda Hamilton, M.D., has been found guilty of participating in a $16 million Medicare fraud scheme. After a six-day trial, she was convicted of

  • one count of conspiracy to commit health care fraud,
  • one count of conspiracy to solicit and receive health care kickbacks and,
  • two counts of false statements relating to health care matters.



Dr Hamilton was the owner and operator of HMS Health and Wellness Center, based in SW Houston. Between January 2012 and August 2016, Hamilton signed false and fraudulent plans of care and other medical documents to make it appear that patients of Hamilton and her co-conspirators qualified and received home-health services under Medicare. In fact, Hamilton paid patients to sign up and charged home-health agencies an illegal kickback in the form of a $60 patient ‘fee’ for certifying patients for home-health services.

The scheme resulted in approximately $16 million in false and fraudulent claims.

Hamilton will be sentenced at a later date.

This is not the first time Dr Hamilton has been in trouble. Back in August 2013, the Texas Medical Board and Hamilton entered into an Agreed Order requiring Dr Hamilton to refrain from treating chronic pain patients. Another physician was also required to monitor her practice. The Board found that Dr Hamilton failed to maintain adequate medical records. In addition, in some instances, she lacked full justification for the continued prescriptions of opiates and muscle relaxers.

https://www.justice.gov/opa/pr/texas-physician-convicted-16-million-medicare-fraud-scheme

Biotechnology company hires interim CFO

Salarius Pharmaceuticals has hired Mark Rosenblum as Interim CFO. He replaces Scott Jordan, who has been appointed Chief Business Officer.

Salarius is based in the Medical Center. The primary drug in its pipeline is one that treats Ewing sarcoma, a bone cancer that affects children and young adults. The company moved from Salt Lake City in 2016 after receiving a $19 million grant from the Cancer Prevention and Research Institute of Texas.  The company went public in July 2019 via a reverse takeover.



According to LinkedIn Mr Jordan is based in Chicago while Mr Rosenblum is based in Dallas. Mr Rosenblum has been working as a consultant to Salarius since February 2019. He has previously served as CFO of another biotech company, Advaxis.

Although he is described as the Interim CFO, Mr Rosenblum has converted from a consultant to an employee. He will be paid $265,000. He will also get a guaranteed bonus of $19,300 for 2019 and $14,500 for Q1 2020.

SEC filing – Salarius Rosenblum

Houston healthcare executive sentenced to 10 years for $16m fraud

Starsky Bomer of Houston has been sentenced to 10 years in prison for his role in a $16 million Medicare fraud scheme.

Mr Bomer was convicted in October 2018 of one count of conspiracy to pay and receive healthcare kickbacks, two counts of violating the Anti-Kickback Statute and one count of conspiracy to commit health care fraud.



Mr Bomer was the CFO & COO of Atrium Medical Center in Sugar Land and Pristine Healthcare in Pasadena. Between 2011 and February 2013, Bomer and others engaged in a scheme to defraud Medicare by submitting false and fraudulent claims for partial hospitalization program (PHP) services. A PHP is a form of intensive outpatient treatment for severe mental illness.

Mr Bomer orchestrated a scheme by which he paid bribes and kickbacks (typically around $1,500) to group home owners and patient recruiters in exchange for sending patients to Atrium and Pristine. Mr Bomer disguised the bribes and kickbacks as salary payments and transportation payments. In addition, Mr Bomer knew that most of the patients admitted to Atrium and Pristine’s PHP did not qualify for and were never provided legitimate partial hospital services.

Mr Bomer has to pay back $6.3 million in restitution and forfeit $158,000.

https://www.justice.gov/opa/pr/texas-hospital-administrator-sentenced-10-years-prison-role-16-million-health-care-fraud

CFO resigns from struggling healthcare company

Brandon Moreno, the CFO of Nobilis Health Corp, has resigned from his position. He was only promoted to the role in January 2019. He lasted a lot longer than previous CEO, Jim Springfield, who joined in December 2018 and left in May 2019!



Marissa Arreola also resigned as the Chief Legal Officer. No replacements were named for either Mr Moreno or Ms Arreola.

Amazingly the company is still not in Chapter 11 and its stock was still trading until 3 September (at 12 cents per share).

The last quarter or annual report filed by the company was for the quarter ended 30 June 2018. In November 2018 the company said it was working with its auditors, Crowe Horwath, to make a significant adjustment to the carrying value of accounts receivable, primarily out-of-network claims over one year old.

According to the last 10-Q filed, the company had $144 million in accounts receivable, of which $39 million was over a year old. The company had ZERO allowance for doubtful debts. That’s despite the amount over one year old virtually doubling since the previous year end.

In November 2018, the NYSE had sent a notice to the company that it was not in compliance with the listing standards. The company sent a plan to regain compliance back in May. That resulted in the NYSE offering an extension of the grace period to August 31. The stock was delisted on September 3 following that expiry.

The company owes its lenders $132 million. A few months ago the lenders hired an Investment Banker to effect a transaction. They also hired a Chief Restructuring Officer from Morris Anderson to assist them in their efforts to recover as much value as possible.

SEC filing – Moreno resignation

Prominent Houston attorney indicted for ambulance chasing

Jeffrey Stern, a prominent Houston personal injury attorney has been indicted for ambulance chasing, i.e. the practice of illegally soliciting clients who may need a lawyer.

Also indicted were;

    • Deborah Bradley, another attorney at his firm
    • Richard Plezia, an attorney with his own firm
    • Frederick Morris, case runner for Stern. His wife owned a healthcare clinic
    • Lamon Ratcliff, case runner and clinic owner
    • Marcus Esquivel (charged separately), case runner and owner of several advertising and consulting businesses.



Murder for hire case

Stern achieved infamy when his wife was shot in May 2010. Stern’s mistress was soon charged with conspiring to hire a hitman to kill his wife. The mistress reached a plea deal and was sentenced to 20 years. However, charges against Stern were dropped in 2012 and Stern and his wife reconciled.

The kickback scheme

The 21-count indictment alleges conspiracy, witness tampering, obstruction of justice and multiple tax violations. According to the indictment, the scheme started in 2006.

Allegedly, Stern would pay kickbacks to the case runners and clinic owners in exchange for referrals of personal injury cases to Stern’s law firm. Stern would deposit such income to personal accounts and cash the checks with check cashers. This income was not reported to the IRS. However, the payments to the case runners were disguised in the business accounts and deducted illegally on Stern’s tax returns.

Beginning in 2006, according to the indictment, Stern sought to disguise his illegal kickback payments as legitimate referral fee payments to attorneys. Stern told Morris to find a lawyer who they could use. Morris suggested Attorney 1 (not named in the indictment), who agreed to take part in the scheme. Morris would cash the checks that Stern had written, using forged endorsements. He would use part of the cash to pay his sources.

Stern also issued checks to Attorney 2 and Attorney 3 who didn’t know about the scheme.

IRS audit

May 2010 was a rough month for Stern. Days after his wife was shot, the IRS notified Stern he was being audited. In 2011 Stern agreed to pay the IRS $1.1 million in assessments and $341,000 in penalties.

Allegedly, Stern also started issuing false 1099s to Attorney 1 which caused the IRS to go after attorney 1. Between 2011 and 2016, according to the 1099’s, Attorney 1 was paid over $7 million. In practice, little of that went to Attorney 1. Stern ended up funneling checks of over $330,000 to the attorney to cover the taxes owed on the declared (but phony) income of Attorney 1.

Of course, Stern didn’t issue 1099s to Attorneys 2 and 3 (as they didn’t know about the scheme) for the $1.7 million of checks written to them, but cashed by Morris.

Other kickbacks

As a result of the IRS audit, for 2011 Stern funneled kickbacks ($308,000) through the company owned by Morris’ wife.

According to the indictment, the kickbacks to Plezia took place between 2006 and 2013 and amounted to $686,000. The kickbacks to Ratcliffe were funneled from Stern via his partner, Bradley, and amounted to $329,000.

Witness tampering

In addition, Stern found out about the federal grand jury investigation in 2016 and ordered Morris not to co-operate and Esquivel to destroy records.

Reading the indictment, it appears that Attorney 1 became a co-operating witness and provided recordings of conversations with Stern that helped build the case.

If convicted, long prison term

Stern is 62 years old. If convicted, he could face up to

  • 5 years in prison for conspiracy to defraud
  • 3 years for filing a false tax return
  • 3 years for aiding and assisting in the preparation of false tax returns
  • 10 years for obstruction of justice
  • 20 years for witness tampering

Morris has pled guilty and will be sentenced in February 2020.

Indictment – Stern

https://www.justice.gov/usao-sdtx/pr/houston-personal-injury-attorneys-and-case-runners-indicted

 

Houston woman sentenced to 5 years for defrauding VA

Eudora McDaniel, 76, has been sentenced to 5 years in prison for conspiring to commit fraud against the Veterans Administration (VA). She was originally indicted in June 2018 and pleaded guilty in January 2019.



McDaniel was a former VA employee who conspired with a vendor, Divine Iron Works, to defraud the VA by submitting fake invoices for good and services that never happened. As a prosthetics representative for the VA, McDaniel had the authority to obtain prosthetic goods and services if a physician found it medically necessary. She was also authorized to pay using a government-issued VISA credit card.

Although Divine Iron Works was an authorized vendor, it was effectively defunct from January 2011 to December 2014.

McDaniel created fake purchase orders for Divine Iron Works and paid them using her government credit card. McDaniel and her co-conspirator, Angela Hunter, also of Houston, then split the payments. Hunter pleaded guilty in August 2018 and is scheduled to be sentenced on August 13, 2019.

McDaniel has also be ordered to pay $290,000 in restitution and a $100,000 fine.

https://www.justice.gov/usao-sdtx/pr/former-va-employee-sentenced-max-fake-invoice-scheme