Bruce Hebets, deceased, and Daryl Priest are going to court to answer accusations of committing fraud, using inflated office rents, and 30-year-leases to steal millions from the state’s Medi-Cal, and Medi-Cal Dental, insurance funds meant to provide healthcare for underserved people. This time it’s not the Borrego Sun calling out Priest of Premier Healthcare Management infamy, and Hebets, the unscrupulous founder and former CEO of BCHF, guilty of fraud.

For real, the Borrego Community Health Foundation (BCHF) Board of Trustees filed a lawsuit, June 4, 2021, claiming that to date, $58 million has been paid to Priest in fraudulent rental contracts signed by Hebets. As a result of inflated rental charges grossly exceeding Fair Market Value (FMV), BCHF is accusing Priest of stealing $11.5 million from the Foundation.

According to Sandra Hansberger, chair of the Borrego Health Board of Trustees, “BCHF commenced litigation against the Daryl Priest entities to ask the Court to intervene and help BCHF resolve issues pertaining to leases between BCHF and Priest related entities. We have no further comment on this pending litigation.”

What caused such a sudden reversal in direction by the BCHF Board of Trustees? These are the same people that gave Hebets a $1.9 million dollar retirement gift in 2018, to show their gratitude, and consciously misrepresented the gift as “salary” on the Foundation’s 2018 tax report. Weirder yet, the Trustees just last year gave Hebets an additional $504,557, which was simply disclosed in the tax return as “former CEO.”

Evidently, it wasn’t any of the disclosures and questions raised by the Borrego Sun that motivated them. Since the Trustees claimed they weren’t aware of the illegal contracts, or other dishonest activities until October 2020, when the FBI/ State Department of Justice (DOJ) investigation brought serious criminal practices to their attention.

Meanwhile, the Sun has been exposing illegally inflated rental contracts with private individuals, often 4 times over Fair Market Value (FMV), since 2015. Over the past two years, the newspaper has written about multiple criminal practices and urged Borrego Health Trustees to stop greedy individuals from siphoning off government funds intended for the clinics.

THE BORREGO HEALTH LAWSUIT: Filed in the United States District Court Southern District of California, Borrego Health is specifically suing Daryl Priest over three rental contracts between BCHF and Priest owned properties. The Trustees claim they had no previous knowledge of fraudulent contracts “Because the true facts were suppressed by Hebets, and others acting in concert with him after his death.” The rental contracts provided the perfect cover to hide and funnel up to $100 million of government health care funds to Priest as legitimate expenses.

The three LLC’s owned by Daryl Priest named as defendants are: Inland Valley Investments, leasing to a BCHF clinic in San Bernardino County; DRP Holdings, a clinic also in San Bernardino County; and Promenade Square clinic in El Cajon, San Diego County; Will Lightbourne, Director of the California Department of Health Care Services (DHCS); and 1 – 50 yet to be identified individuals that were complicit, who will be added to the lawsuit.

The total combined lease price of all three leases named in the suit is $100 million. BCHF has already paid $58 million for the three leases, with approximately $11,500,000 over FMV, which is basically illegal money by state law.

Hansberger, an attorney, took over the chairmanship from Dan Anderson in September 2021. It’s a dirty job, untangling the mess Hebets, and his friend and legal counsel, Mikia Wallis, who followed him as CEO, created for the Federally Qualified Health Center (FQHC). The criminal exploits of a few Borrego Health trustees, executives, officers and employees seriously compromised the future of the clinics.

The lawsuit over inflated rental payments, is only one of the many changes BCHF is required to make as part of a DHCS’ mandated “Corrective Action Plan” (CAP). CAP is a non-negotiable contract between BCHF and the state that addresses the foundation’s criminal charges with an action plan covering illegal activities and organizational changes, designed to correct abuses and prevent future violations of state law. DHCS is the state’s department that funds Medi-Cal, and Cal-Dental, but also enforces the rules that come with the privilege of being a FQHC. Hiding profits or personal benefits in expenses is a big “No-No” for a not for profit, especially, a FQHC; and can result in Borrego Health losing its Medi-Cal insurance, and other state and federally funded health insurance programs.

And depending on the amount of corruption and abuse of government funding found, the Federal government, which insures FQHC’s, can completely close down all of the clinics.

In legal terms, the Borrego Health Lawsuit, requests the Judge to settle the rental impasse with the following alternate actions: Assist with reformation, rescission (in alternative), declaratory relief, interpleader actions and injunction against counter lawsuits, justified by charges of fraud, Money Had and Received, Unfair business practices, and RICO Racketeering. A central issue is the repayment of the illegal $11.5 million Borrego Health overpaid to Priest. Under Rico, racketeering charges, BCHF is demanding that damages of $11.5 million be tripled to $34.5 million, and paid to the Foundation. Both parties are demanding a jury trial. No trial date has been announced.

Perhaps, under Hansberger’s leadership, the board has finally grown a spine, even if it required a significant nudge from DHCS regulators.

In a letter, dated August 3, 2021, Bruce Lim, assistant director of the Department of Health Care Services, outlined actions in the “Correction Action Plan” Borrego Health is required to take to correct the illegal rental agreements. The list, which was to be completed in 90 days, mandates the Foundation to: “Renegotiate the terms to FMV rates, with a termination clause with a reasonable notice period. Terminate the lease by mutual agreement of the parties, as Borrego must not pay higher than FMV rates to any landlord and lessor.

“Evaluate the legality of the leases and determine the legal options for restructuring the leases to FMV with a termination clause or outright termination. Determine if cost reports were filed for the Priest properties that included lease costs that were above FMV costs for the leases in question by filing amended cost reports. Ensure that the appropriate related party disclosures are made in the amended reports such as the IRS and Center for Medicaid and Medicare (CMS) filings.”

The Trustees, evidently, saw their only road to salvation was to seek legal absolution. Caught between the state’s Medi-Cal cops in whose hands the future of Borrego Health hangs, and DHCS’s specific order that the Foundation cannot pay any rents above FMV; and Priest, who refuses to budge on his rental rates, the board is asking the court for relief from the conflicting demands, and consequences.

Priest has threatened eviction of BCHF from all three clinics if the Foundation reduces the rent for “even one clinic.” The choices are loss of Medi-Cal insurance, or eviction by Priest.

Another problem on the horizon: According to IRS laws, contract payments to disqualified persons--individuals that received funds in excess of FMV – or other unlawful diversions of a non-profit’s revenue by falsely disguising profits as operating expenses, can result in a tax liability and/or loss of non-profit status.

So what does this case mean for Borrego Springs? While the local clinic had no role in the fraud, leading to BCHF’s troubles, the fate of the Borrego Springs clinic is tied to the future actions of the Borrego Health trustees, executives, and officers.

The Leases: On September 12, 2012, Priest and Hebets entered into a lease obligating BCHF to pay above-market rates of $41,749.52 for 20 years to Promenade Square in El Cajon, San Diego County. In March 2013, Priest and Hebets executed Amendment No 1, substantially increasing monthly rent in future years.

On, or about, September 13, 2013, the two signed an amendment increasing the El Cajon Clinic’s monthly rent to $52,000. On April 3, 2015, Priest and Hebets amended the lease further increasing the amount of square footage, with a term of 30 years and monthly rent of $97,912.50. Then, on March 22, 2016, the monthly rent was increased to $111,900,00, and the lease term to 33 years. Meanwhile, the FMV for the space in Promenade Square never exceeded $73,000.

The Inland Valley Investments’ contract as of August 29,2017, called for BCHF to pay $960,303, for the office space in San Bernardino, in unlawful yearly rent over the course of the last 5.25 years, resulting in a loss of no less than $5,041,590.75. DRP had a 30-year lease signed by Hebets in 2016, which billed BCHF $460.871.40 in unlawful yearly rent over the course of the last 5.5 years, resulting in damages of no less than $2,534,792.70.

The Victims: In the lawsuit, the current Board of Trustees claim to be innocent victims of the illegal, grossly inflated contracts signed by Priest and Hebets. The agreements they maintain were made and kept secret from the board. They also point out that if they had the opportunity to review the leases, they would never have approved them, stating that “No rational board member would agree to such conditions.”

Actually, the real victims are the patients, and clinic employees. With just a share of the Medi-Cal, Medicaid and Medicare funds Priest and Hebets and others have stolen, all of the clinics could improve the quality of care and serve more medical needs. Now, their future hangs on a twisted and fragile thread that this Board of Trustees is trying to untangle.

Not all previous boards, as well as BCHF executives, officers, and managers were innocent victims. Many were complicit, or enablers by remaining silent, or going along. Hebets handpicked the officers and Board of Trustees. Anyone who questioned or challenged his actions, like Ray Bolanos, was immediately fired. After Hebets’ retirement and death, Dan Anderson took over the leadership of the Board of Trustees. BCHF signed a rental contract with Anderson for two clinics, in Riverside, for over $600,000 annually. An appraiser, who viewed pictures of the clinic offices, estimated that amount to be considerably over FMV. At least the contract was disclosed in the 2018 tax report. However, in the 2019 IRS-990, the Anderson’s lease agreement had mysteriously disappeared from the IRS schedule where conflicts of interest are required to be noted.

According to Hansberger, non-profits are not required to disclose, and she doesn’t know why rental fees paid to Anderson were disclosed in a previous tax disclosure.

So here’s an oxymoron, a non-profit, like Riverside Community Health Foundation, can defy the DHCS rule that BCHF cannot engage in rental contracts that exceed FMV. And furthermore, not disclose it. Anderson is still conflicted, and receiving inflated rental payments, and needs to disclose that as a board member. Why would it matter if his “conflicted interest” is a non-profit?

Anderson, conveniently named his non-profit, Riverside Community Health Foundation, and apparently had aspirations of folding Borrego Health into his foundation. Anderson’s Foundation has off-shore accounts and operates clinics, autonomous and independent of BCHF, but uses the Foundation’s FQHC status to access Medi-Cal, Medicaid and Medicare funding.

When the Sun was covering BCHF’s illegal activities, Anderson was asked about the Premier Healthcare Management scam, allowing Priest, and a host of private unethical dentists to steal millions that were meant for the clinics and their patients. Anderson’s answer, even after the FBI raid, attempted to downplay the seriousness of the crime, stating that “It was no big deal, just a couple of bad dentists.”

Prior to the raids, and before anyone but the Borrego Sun was saying Priest was pocketing an average of $20 million a year, Mike Hickok, longtime Board of Trustees member and treasurer, along with Sarah Rogers, a new board member, began asking about the Premier deal. When they repeatedly asked to see the Premier Management contract, their requests were repeatedly denied. Hickok was fired for asking too many sensitive questions. And Rogers resigned, fearing her own legal vulnerability after becoming familiar with how BCHF operated.

Prior to resigning in June 2020, a frustrated Rogers confronted the Board of Trustees about Priest and Hebets’ secret contracts and warned them of the legal consequences. The Board, however, continued to ignore her. She then filed an official complaint with the state Attorney General about her suspicions of illegal activities.

An example of the lack of focus on its health care mission, Rogers encountered, was about officers’ salaries, ranging from the upper $400,000 to $670,000 plus benefits, which were extremely generous and far above the standard range of salaries for FQHC personnel in comparable positions. Rogers and another board member asked the board for a “Compensation Study.”

“We wanted to adopt more reasonable salaries, more closely aligned to other FQHCs. CEO Mikia Wallis was directed to provide an immediate reply, but failed to do so. Despite my bringing this to Chairman Anderson’s attention monthly, approximately $l million in executive bonuses were paid.”

Every dollar, above industry standard salaries, going to officers is a Medi-Cal dollar that could provide for a permanent pediatrician at the Borrego Springs clinic. A board member sent Anderson a letter regarding his thoughts on Rogers’ resignation. He expressed pleasure that Rogers was no longer a board member.

“She was annoying, holding up the meetings with questions, and more questions, always questions and accusations about illegal activities.”

Maybe claiming to be victims isn’t the best excuse for failing to enforce compliance to Medi-Cal and Medicare rules and regulations. Not knowing, not asking, allowed hundreds of millions of medical dollars to flow into the bank accounts of unscrupulous contractors, CEO’s, executives, and officers.

Perhaps, BCHF wouldn’t be in such a legal bind if more of the Trustees had asked more questions, or, occasionally, picked up a copy of the Borrego Sun.