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Former Texas Hospital CEO Sentenced to Federal Prison in Kickback Scheme

Jeffrey Paul Madison, 49, of Burnet, Texas, a former hospital CEO, has been sentenced to 36 months in federal prison for conspiring to violate the Anti-Kickback Statute, U.S. Attorney Damien M. Diggs announced. Madison was also ordered to pay $5,343,630 to resolve False Claims Act allegations.

Madison, along with Susan L. Hertzberg, 66, of New York, New York; Matthew John Theiler, 58, of Pinehurst, North Carolina; David Weldon Kraus, 66, of Maryville, Tennessee; and Thomas Gray Hardaway, 52, of San Antonio, Texas, was found guilty by a jury on November 30, 2023, after a seven-week trial in U.S. District Court.

The scheme involved kickbacks disguised as investment returns to incentivize physicians to make referrals to rural hospitals and an affiliated lab for blood testing services. Two Texas hospitals, Little River Healthcare in Rockdale and Stamford Memorial Hospital in Stamford, partnered with Boston Heart Diagnostics (BHD), a Massachusetts-based clinical lab, to fraudulently bill insurers at higher hospital outpatient service rates.

The kickback operation included payments to marketers who facilitated referrals and to physicians through management services organizations (MSOs). This scheme generated substantial illegal revenue for the hospitals, marketers, and BHD personnel.

Madison’s co-defendants have also been sentenced:

  • Matthew Theiler: 18 months in federal prison, $75,000 fine (sentenced November 20, 2024).
  • David Kraus: 22 months in federal prison, $25,000 fine (sentenced December 5, 2024).

Several other defendants pleaded guilty before trial, including Jeffrey Paul Parnell, Laura Spain Howard, Todd Dean Cook, and others. Robert O’Neal, 66, of Beaumont, pleaded guilty to conspiracy charges in January 2022 for arranging referrals and laundering kickback proceeds. Peter J. Bennett of Houston was convicted in July 2023 for laundering over $2.7 million in healthcare kickback proceeds through sham trusts and shell corporations.

The case was investigated by the U.S. Department of Health and Human Services, Office of Inspector General; U.S. Department of Defense – Defense Criminal Investigative Service; U.S. Secret Service; and U.S. Department of Commerce - Export Enforcement. It was prosecuted by Assistant U.S. Attorneys Adrian Garcia, Nathaniel C. Kummerfeld, Lucas Machicek, and Robert Austin Wells.

Violations of the Anti-Kickback Statute carry penalties of up to five years in federal prison.

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