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Suit alleges kickbacks at Hospital for Special Surgery

Manhattan's Hospital for Special Surgery is one of the nation's top-ranked centers for orthopedics, the official hospital for the Giants, Mets, Knicks and Nets. It's got Tiki Barber on its board and former patients playing on both sides of this year's World Series.

But in a new lawsuit, a Long Island businessman claims the hospital has also been the scene of a complicated "kickback distribution scheme" that squeezed doctors and forced vendors seeking the hospital's business to give its longtime former chief executive a cut of their earnings in the form of "consulting fees."

And Richard Radoccia of Laurel has produced what he calls the canceled checks that prove it.

Radoccia is seeking $10 million in damages from the hospital, its former chief executive John R. Reynolds, and a Freeport medical billing company, Professional Billing Controls, Inc., that Radoccia calls a participant in the alleged kickback scheme.

Reynolds' attorney Charles Stillman, the only lawyer to comment Wednesday, said only, "We will be responding to the allegations in court and look forward to winning this case."

A hospital spokeswoman said officials had been "very, very surprised" to see the copies of the canceled checks.

"We're shocked, frankly" by the allegations, said Deborah Sale, the hospital's executive vice president for external affairs, noting that Reynolds left the hospital's employ in December 2006. If the charges proved true, "it would represent the actions of an individual who was intent on enriching himself and circumventing the hospital's procedures and its compliance programs." Sale said the hospital denies any liability and will file a motion to dismiss the case next week.

 

Billing business slid

According to the civil complaint filed Sept. 29 in state Supreme Court in Manhattan, Radoccia's newly founded company, Healthwave Incorporated of Westbury, in May 2003 bought Professional Billing Controls, Inc., which advertised itself as the sole medical billing company for all new contract physicians at Hospital for Special Surgery. Healthwave's backers were betting its proprietary software would make billing more efficient than the paper systems used by Professional Billing Controls.

Reynolds had met with Healthwave executives and told them he selected the billing vendor for all contract physicians and that doctors were satisfied with the company Healthwave was buying, the suit claims. But immediately after the sale, it says, Radoccia learned several doctors had served notices of termination on Professional Billing Controls, angry over poor service and having to pay it as much as 7.75 percent of the amount they billed patients - almost double the 4 percent most independent physicians paid other companies for the same work.

Though Radoccia poured money into service improvements, the other doctors began abandoning Healthwave at a quickening pace and Radoccia came to believe that Reynolds and others at the hospital were forcing them to terminate, the suit alleges.

In September 2005, according to the suit, a Healthwave officer asked the former head of Professional Billing Controls, Michael Kemp, why the business was evaporating.

"You have to pay them," Kemp replied, according to the complaint. Three months later, the suit continues, Kemp told Radoccia that he had "paid continuous kickbacks to Reynolds depicted as 'consulting fees.' " He explained that his 15-year business with the hospital had only taken off after he agreed to increase his service fee by 2 to 2.5 percent and kick half that markup back to Reynolds.

A former hospital official told Radoccia that he also had concluded there were kickbacks going on after discovering that "Reynolds had preordained several substantively inexplicable vendor selections" for the hospital, according to the complaint, which adds that another former consultant confirmed their suspicions, urging them to search the old files of the company they had bought.

 

Canceled checks found

Most were long gone, but Radoccia did find 11 checks from the billing company to a "KMC Healthcare" in 2000 and 2001, which were filed as exhibits in the case. The signature of "John R. Reynolds" appears on the back of the checks, which were deposited in a Bank of New York account in Harrison, N.Y. The sums on the checks ranged from $1,887.06 to $6,378.15.

Reynolds, 60, now resides in Cataumet, Mass. He received $1.3 million in pay and benefits in his last year at the hospital and $1.4 million the year after he left; Sale described that as "essentially a severance period."

Healthwave, deprived of the physician billing contracts that were its lifeblood, lost the backing of a key investor; in 2008 its proprietary software and remaining client base were sold to Sonix Medical Technologies Inc. of Hauppauge, according to the complaint.

The hospital's physicians now contract with six different companies for billing, Sale said.

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