Twelve South Dakota doctors practicing at the Center for Neurosciences, Orthopedic & Spine (CNOS) in Dakota Dunes filed a lawsuit against four hospital administrators for allegedly defrauding them of several million dollars. The doctors included orthopedic surgeons and neurosurgeons. As investors in Progressive Acute Care (PAC), the doctors claim the administrators purposefully presented the four hospitals as a healthy investment, allegedly covering up key details that ultimately led the hospital group to bankruptcy. In 2009, Progressive Acute Care owned three hospitals in rural Louisiana including Winn Parish Medical Center (Winnfield), Avoyelles Hospital (Marksville), and Oakdale Community Hospital (Oakdale) with plans to purchase Dauterive Hospital (New Iberia).
The lawsuit, filed in early 2017, claims that the doctors owned 40 percent of preferred equity. They were introduced to Progressive Acute Care by former CNOS CEO and former COO of PAC Mike Hurlburt. According to the lawsuit, Hurlburt teamed up with three other PAC members in 2012 to devise a plan to purchase a fourth Louisiana hospital, Dauterive Hospital. He allegedly “told the physicians that a return of three-to-four times their investment was assured, and that he was expecting a return of ten times their investment” according to court documents.
“Buy” the Numbers
Already with $8 million invested in the three other PAC hospitals, the doctors invested $3 million more to buy the fourth hospital. An additional $10 million in debt was also accrued so PAC could make the final purchase. However, the doctors claim that the figures Hurlburt gave for Dauterive were falsified. PAC declared bankruptcy in 2016, and during that filing a memo allegedly surfaced which shows PAC purposefully falsified the profitability quotient of Dauterive. PAC’s 2016 bankruptcy fillings claim their total liabilities are $10 – 50 million, and total asset value is between $1 – 10 million (final figures will be available as the bankruptcy claim moves forward).
The doctors’ lawsuit claims that, “What the physicians did not know was that each of these representations was based on fraudulently manipulated data or was highly misleading based on the omission of material facts.” According to the doctors, the hospital administrators deliberately didn’t disclose their internal audits which revealed a number of “deficiencies” within their financial department. The total equity investment in PAC is estimated at $8 million according to the lawsuit—all of which is now “worthless.” This is inclusive of the $3 million in Series B Preferred Units spent to help purchase Dauterive.
As of February 17, 2017, the hospital administrators have not responded to the complaint.
