A former hospital CEO in Texas has been sentenced to three years in federal prison for his involvement in a health care kickback scheme. Jeffrey Paul Madison, 49, of Burnet, Texas, was found guilty of conspiring to violate the Anti-Kickback Statute and agreed to pay over $5 million to settle related allegations under the False Claims Act.
Madison was one of several individuals convicted following a seven-week trial that concluded on November 30, 2023. The trial took place before U.S. District Judge Jeremy D. Kernodle.
"The defendants were charged for their roles in a conspiracy through which physicians were incentivized to make referrals to rural hospitals and an affiliated lab in exchange for kickbacks," according to court documents.
Other key figures involved included Susan L. Hertzberg from New York; Matthew John Theiler from North Carolina; David Weldon Kraus from Tennessee; and Thomas Gray Hardaway from San Antonio, Texas. Sentences varied among those involved, with Theiler receiving an 18-month sentence and Kraus sentenced to 22 months.
The conspiracy revolved around two rural Texas hospitals—Little River Healthcare in Rockdale and Stamford Memorial Hospital in Stamford—and Boston Heart Diagnostics (BHD), a Massachusetts-based clinical laboratory. The hospitals used marketers who operated management services organizations (MSOs) as a facade for facilitating payments to physicians for laboratory referrals.
"The MSOs were simply a means to facilitate payments to physicians," court records state. BHD processed blood tests while hospitals billed them at higher rates as outpatient services.
Several other individuals pleaded guilty prior to the trial, including Robert O’Neal of Beaumont and Peter J. Bennett of Houston, who faced charges related to money laundering within the scheme.
The investigation was led by multiple federal agencies including the U.S. Department of Health and Human Services Office of Inspector General and the U.S. Department of Defense – Defense Criminal Investigative Service (DCIS).
"This case was prosecuted by Assistant U.S. Attorneys Adrian Garcia, Nathaniel C. Kummerfeld, Lucas Machicek, and Robert Austin Wells," according to official statements.
Violations of the Anti-Kickback Statute can result in up to five years imprisonment under federal law.