United States Obtains $3 Million Consent Judgment and Federal Healthcare Exclusions to Settle Civil Complaint Alleging Fraud By Operators of Community Mental Health Clinics

PHILADELPHIA – U.S. Attorney William M. McSwain announced that United States District Judge Jeffrey L. Schmehl entered a $3 million consent judgment against Melchor Martinez, Melissa Chlebowski, both of Allentown, PA, and their businesses, as follows: Northeast Community Mental Health Centers (in Philadelphia); Lehigh Valley Community Mental Health Centers (in Allentown, Easton, and Bethlehem); and Carolina Community Mental Health Centers (in Raleigh, North Carolina). 

The consent judgment was entered on October 18, 2018 as part of a settlement resolving a civil health care fraud lawsuit filed by the U.S. Attorney’s Office for the Eastern District of Pennsylvania under the False Claims Act.   The institutional defendants are community mental health clinics that were funded largely by Medicaid and Medicare. 

Martinez was convicted of Medicaid fraud in 2000 by the Commonwealth of Pennsylvania.  As a result, he was excluded from participating in all federally funded health care programs, including Medicaid and Medicare.  The exclusion prohibited Martinez from owning, managing, or receiving payments from any federally funded health care provider.  The United States alleged in the lawsuit that in spite of his exclusion, Martinez, assisted by his wife Chlebowski, continued to own and operate the Northeast and Lehigh Valley clinics, and that he started the Carolina clinic in Raleigh, North Carolina while his exclusion was ongoing in 2009.

The United States alleged in its complaint that Chlebowski falsified Medicare and Medicaid enrollment applications by failing to disclose that Martinez, an excluded person, was managing the clinics, and that, as a result, all of the clinics’ Medicare and Medicaid claims were false. Retired former Chief Judge Lawrence Stengel, in a 2017 decision denying the defendants’ motions to dismiss the United States’ complaint, determined that such allegations state false claims under the long-recognized “fraudulent inducement” False Claims Act theory. 

The complaint also alleged that Martinez and Chlebowski funneled money from the clinics to Martinez himself, who profited from violating his exclusion, and took steps to cover it up.  The United States alleged that the Northeast and Lehigh Valley clinics paid Martinez $35,000 per month in rental payments for properties that he owned and leased to the clinics.  The pair attempted to conceal the payments to Martinez by issuing rent checks to Chlebowski or to Martinez’s shell entity, MM Consultants.  Martinez also allegedly profited when the Lehigh Valley clinic paid about half of the purchase price for an Allentown property purchased by Martinez’s shell entity, and when the Lehigh Valley clinic paid approximately $900,000 to renovate two clinic properties in Allentown and Bethlehem that were owned by Martinez or his shell entity. 

The United States also alleged other various types of fraud under Martinez’s and Chlebowski’s management of the clinics.  The complaint alleged that clinic patients, including children, were being seen by clinic doctors for psychiatric medication management (also known as “med checks”) for as little as two to three minutes, while the Northeast and Lehigh Valley clinics billed Pennsylvania Medicaid as if the patients had been seen for 15 minute visits.  

The complaint alleged that as part of the scheme, Martinez himself recruited individuals from his native Dominican Republic to work as mental health therapists in the Lehigh Valley and Northeast clinics.  The complaint further alleged that the clinics employed individuals who did not have the requisite credentials to work as mental health therapists and that, as a result, the clinics falsely billed Medicaid for services performed by unqualified persons. 

Finally, the complaint alleged that under Martinez’s and Chlebowski’s management, the Northeast and Lehigh Valley clinics failed to appropriately staff their multiple clinic locations with an onsite psychiatrist as required by Medicare rules.  As a result, the clinics fraudulently billed Medicare for services performed by therapists under the supervision of a physician when no physician was actually present.  

The consent judgment and settlement resolve a lawsuit filed under the False Claims Act (FCA) in the U.S. District Court for the Eastern District of Pennsylvania by a former employee of the Carolina Community Mental Health Clinic.  Under the qui tam or whistleblower provisions of the False Claims Act, private citizens are permitted to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery.  The False Claims Act also permits the government to intervene and take over the lawsuit, which occurred in this case.

“A federal healthcare exclusion is intended to side-line an entity or individual who has previously defrauded the government,” said U.S. Attorney McSwain.  “It must be respected – not ignored, as in this case.  Participating in and receiving payments from Medicare, Medicaid, or other federal healthcare programs while excluded is fraud, plain and simple.  This lawsuit and its resolution represent our commitment to holding accountable those who violate the terms of their exclusion.  We thank the relator and the relator’s attorney for their invaluable contribution in this case. Without information from citizens like the relator, detecting fraud and conserving government program funds would be much more difficult,” said U.S Attorney McSwain.

“Civil enforcement is an important tool in our ongoing battle against health care fraud,” said Maureen R. Dixon, Special Agent in Charge of the Office of the Inspector General for the U.S. Department of Health and Human Services.  “We will continue to work closely with the United States Attorney’s Office to ensure the integrity of taxpayer funds and protect beneficiaries of federal healthcare programs.”

Prior to the United States filing its civil fraud lawsuit in 2015, the Northeast and Lehigh Valley clinics were the largest providers of mental health services to Medicaid patients in their respective regions.  They generated $75 million in combined Medicaid and Medicare payments from 2009 through 2012.  Soon after the United States filed this lawsuit, the Northeast and Lehigh Valley clinics were forced out of Pennsylvania’s Medicaid program.    

As part of the settlement with the United States, Chlebowski and the mental health clinics are excluded from participating in federal healthcare programs for a period of five years.  Martinez, who was previously excluded, is now excluded for an additional ten years based on this matter.  

The government’s resolution of this matter illustrates the government’s emphasis on combating health care fraud.  One of the most powerful tools in this effort is the False Claims Act.  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services at 800-HHS-TIPS (800-447-8477).

This matter was investigated by the U.S. Department of Health and Human Services’ Office of Inspector General and the U.S. Attorney’s Office for the Eastern District of Pennsylvania, with assistance from the Pennsylvania Office of Attorney General and the North Carolina Department of Justice. The case is assigned to Assistant U.S. Attorneys Judith A. Amorosa and Viveca D. Parker of the Civil Division, health care fraud auditor George Niedzwicki, and Paralegal Specialist Patricia Bontempo.

The case is captioned United States v. Melchor Martinez, et al. / United States and State of North Carolina, ex rel. Smith v. Carolina Community Mental Health Centers, et al., No. 5:11-cv-02756 (E.D. Pa.).  The claims resolved by this settlement are allegations only and there has been no determination of liability.