The plot thickens as the hospital crisis deepens in Hudson County.
CarePoint Health has dissolved and has been liquidating its assets. That includes selling Bayonne Medical Center (BMC), Christ Hospital in Jersey City, and Hoboken University Medical Center (HUMC).
This effort has led to complex litigation involving all three of CarePoint’s hospitals and the CEO of Alaris Health, Avery Eisenreich, who has purchased the land and buildings of all three facilities.
Eisenreich and Alaris are pushing back against CarePoint Health’s lawsuit, filed on Dec. 4, alleging that Eisenreich interfered with CarePoint’s negotiations to find a hospital operator for Bayonne Medical Center and instead allegedly intends to turn it into a nursing home.
Eisenreich denies this as well as allegations that he has interfered in CarePoint’s negotiations with RWJ Barnabas Health to operate Christ Hospital, allegedly jeopardizing the deal.
In a counterclaim against CarePoint’s owners on Jan. 15, Eisenreich says that the charges alleged in CarePoint’s complaint are “barred” because CarePoint allegedly consented to his conduct, which CarePoint now alleges is wrongful.
Eisenreich also claims CarePoint’s owners were embezzling millions of dollars from the three hospitals, leaving Christ Hospital deeply in debt.
CarePoint’s owners named in the suit are Vivek Garipalli, James Lawler, and Jeffrey Mandler, with Garipalli owning the majority interest in each hospital.
The counterclaim has also been filed against Hudson Holdco, LLC, the managing company for Christ Hospital, and Sequoia Healthcare Management, LLC, a shell company allegedly set up by CarePoint’s owners.
According to that lawsuit, the three owners are also managers and controlling members of limited liability corporations (LLCs) that operate and control the three hospitals, as well as the third parties that provide management services to the hospitals.
An alleged embezzlement scheme for the books
The counterclaim alleges that the CarePoint owners and Sequoia Healthcare Management committed fraud and breach of contract, among other wrongdoings.
Sequoia Healthcare is one of two shell companies allegedly formed by the owners of CarePoint as is IJKG, LLC.
The counterclaim alleges: “From 2012 until the present time, [Garipalli, Lawler and Mandler] have systematically carried out a scheme to defraud the hospital out of tens of millions of dollars through a pattern of tortuous and illegal conduct that includes causing the hospital to pay fictitious management fees and expense allocations, pledging and assigning the fraudulent income stream from the hospital as collateral for a bank loan, and falsifying the books and records of the hospital to cover up their fraud.”
The suit also alleges that, starting in 2012, the CarePoint owners diverted over $169 million in income from the three hospitals “for fictitious management fees and other allocations” to Sequoia Healthcare.
According to the counterclaim, these companies have no employees and report no significant operating expenses.
CarePoint owners allegedly entered the shell companies into duplicate management service agreements with Christ Hospital and BMC, even though a management agreement with CarePoint’s actual management company, CarePoint Health Management Associates, LLC (CPHMA) was already in place.
Sequoia Healthcare, an alleged shell company, owns CPHMA.
According to the counterclaim, Garipalli allegedly signed the management services agreement between Sequoia Healthcare and Christ Hospital on behalf of both parties and did the same for BMC, signing the agreement on behalf of the hospital and on behalf of IJKG, LLC.
The claim also states Garipalli allegedly signed both parts of the management service agreement between the hospitals and CPHMA. However, the owners of CarePoint allegedly only reported the agreement with the CPHMA; hiding the duplicate agreements with the shell companies.
This made it appear as if Sequoia Healthcare and IJKG, LLC, the alleged shell companies, were providing management services that were actually being provided by CPHMA.
The suit states that this is how CarePoint’s owners allegedly embezzled the funds from the three hospitals, under the guise of management fees for fictitious management services.
A web of alleged lies
Eisenreich’s counterclaim alleges that the owners of CarePoint formed a complex web of these inter-related companies to shift expenses and payments to, from, and between the hospitals. This allowed the owners to allegedly conceal their activities and falsify the books.
According to the Jan. 15 court document, from 2013 to 2016 more than $157 million in fees were paid to the alleged shell management companies, approximately $30 million from Christ Hospital, $30 million from HUMC, and $99 million from BMC.
As a result of the fictitious charges, the lawsuit claims Christ Hospital has been bankrupted and is currently $30 million in debt.
On Nov. 15, 2019 layoffs were issued to 2,100 employees at Christ Hospital and Hoboken University Medical Center, as the sale of the two hospitals was announced.
Eisenreich owns 25 percent of Christ Hospital and is suing for damages caused by the alleged embezzlement scheme.
The exact amount that Eisenreich could be awarded is to be determined at trial, but he estimates the damages to be $42.3 million.
The counterclaim cites the NJ State Commission of Investigation report that initially uncovered the alleged scheme involving CarePoint’s owners.
The report was based on an extensive audit of the books, records, financial disclosures, and the tax returns of the CarePoint owners and while it condemned their actions, it did not recommend a criminal investigation.
For updates on this and other stories, check www.hudsonreporter.com and follow us on Twitter @hudson_reporter. Daniel Israel can be reached at email@example.com.