Kickback scheme earns Chicago hospital CEO 4.5 years behind bars

August 03, 2015
by Thomas Dworetzky, Contributing Reporter
Former Sacred Heart Hospital owner Edward Novak found out his fate Wednesday — when he was sentenced to a hefty 4.5 years in prison for the kickback "pay for referral" fraud at his now-closed Chicago facility.

"People have a right to expect that decisions about their health care are going to be based on need and not on whether there is money to be made," U.S. District Judge Matthew Kennelly said. Novak was also hit with a fine of $770,000 and a forfeiture of $10.4 million.

Novak's personal wealth was said to be $30 million according to court records in March. He had been out on $10 million bail after his conviction at that time.

"There was a secret behind the doors at Sacred Heart Hospital," Assistant U.S. Attorney Diane MacArthur stated when the trial opened. "The secret was that the most sacred thing at Sacred Heart was money." She and other prosecutors argued that the institution had paid kickbacks to doctors for Medicare and Medicaid patient referrals over a 12-year period and pulled in over $35 million in the scheme.

The shocking case first unfolded in 2013 with claims of unneeded operations and oversedation of patients. But those allegations, observed Kennelly "disappeared" by the time of trial and the prosecution did not show that any physical harm came to patients from the unsavory business practices.

Novak did not react to the sentencing and made no comment when leaving the Dirksen U.S. Courthouse.

Novak's team had claimed he was driven by a desire to do good. But prosecutors played a tape of him talking to one of his executives about the level of care delivered to those he served that did not make it seem so, according to the Chicago Tribune.

"(Expletive) the community," Novak said on the tape. "Who gives a (expletive)? You own the place, you do what you want with it. (Expletive) them! What are they going to say about it?"

Assistant U.S. Attorney Joel Hammerman noted that the scariest part of the taped comments was that it wasn't "a rant," but rather, "a cold calculus... It's him talking about what he gets to do with his hospital."

Novak, pleading for leniency, told the attorney, "I believe that comment was made out of frustration." His attorney Sergio Acosta said that the jury had only heard a "small glimpse" of his client's personality on the tape.

"He has lost his life's work and the hospital he spent 25 years building... It's gone," Acosta said.

Ironically, Novak's sentence is actually less than the five years sought for former hospital administrator Anthony Puorro, who wore a wire for the FBI, recording many of Novak's conversations.

In December, 2014, Puorro, Novak's former second-in-command at the hospital, and Noemi Velgara, a former vice president, who also wore a hidden recorder and was an informant for the FBI, pleaded guilty to being part of the scheme.

In March, former COO Clarence Nagelvoort was found guilty on 11 of 12 counts, and former CFO Roy Payawal was convicted on 17 of 27 counts for their roles in the illegal activity.