Feds sue Texas hospital executives over $167M loan

The federal government filed a complaint alleging a Texas hospital, a healthcare company in Tennessee and three executives improperly obtained and misused a federal loan, according to the Department of Justice.

Lakeway (Texas) Regional Medical Center and Franklin, Tenn.-based Surgical Development Partners are named as defendants in the complaint. The hospital's former CEO, SDP's CEO and the CFO of both organizations are also listed as defendants, according to TV station KXAN. They're accused of engaging in a scheme to defraud the federal government.

The allegations focus on a $166.8 million loan obtained in 2010 to build Lakeway Regional Medical Center. Federal prosecutors claim the defendants improperly obtained the loan, which was insured by the Federal Housing Administration, and then misused those funds.

The defendants allegedly delayed refunds to investors who had canceled their investments to make it appear as if the project satisfied mortgage covenants regarding the cash on hand required to close the loan. They also allegedly impermissibly distributed the project funds, according to the Justice Department.  

The hospital defaulted on the loan in 2013, according to The Austin American-Statesman. Dallas-based Baylor Scott & White Health acquired the hospital three years later and is not part of the investigation.

Frank Sossi, who is identified in the complaint as the hospital's former attorney and CEO, denies the allegations. In a statement to the American-Statesman, he said the defendants "believe the allegations are untrue and will demonstrate their falsity at the appropriate time."

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