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FBI investigating Upstate Medical administrators’ compensation, sources say

2011-07-07-db-Hospitals4.JPGSYRACUSE, N.Y. – The FBI and federal prosecutors are investigating whether top Upstate Medical University administrators illegally received extra pay, intensifying a scandal that has already resulted in resignations, according to three sources.

The U.S. Attorney’s Office in Syracuse recently issued grand jury subpoenas for documents and testimony related to the payments, according to one source.

Upstate’s president, Dr. David R. Smith, resigned last month after the head of the State University of New York questioned his compensation from two companies that do business with the hospital and medical school.

SUNY Chancellor Nancy Zimpher told him in a letter that she was launching an investigation into whether he improperly padded his pay with compensation from MedBest Medical Management Inc. and Pediatric Service Group LLP.

FBI Special Agent Fred Bragg and Assistant U.S. Attorney Edward Broton are investigating whether crimes were committed, according to three sources who spoke on the condition of anonymity.

Bragg declined to comment. Broton could not be reached for comment.

Executive Assistant U.S. Attorney John Duncan would not confirm or deny that his office is investigating.

Upstate’s longtime senior vice president for administration and finance, Steven C. Brady, suddenly retired shortly after Smith did. Brady also has received compensation from MedBest in addition to his Upstate salary.

A third Upstate administrator, Wanda Thompson, also was paid as an employee of MedBest, according to her financial disclosure filing with the state Joint Commission on Public Ethics.

Smith’s lawyer, Michael Whiteman of Albany, said he was not aware of a federal investigation, and declined to comment. Smith, Brady and Thompson did not respond to requests for interviews Tuesday.

Investigators could be looking at whether the payments to Smith and other administrators were kickbacks, according to Donald Kelly, a Syracuse criminal defense lawyer.

A federal anti-kickback statute prohibits someone from receiving items of value in any form as a reward for referrals of services paid for by a federal government health care program. The law could apply because Upstate receives federal funding.

Since Smith was getting paid by companies that were doing business with Upstate, prosecutors could look at whether he was being rewarded for providing contracts to those companies, Kelly said.

“Influence purchasing would absolutely be a possibility,” said Kelly, who has defended people charged with white-collar crimes and other offenses for 17 years.

Pediatric Service Group has received contracts from Upstate worth more than $42 million since 2008, state records show. Those contracts cover the cost of doctors, nurse practitioners and other services the group provides at Upstate.

MedBest, which provides billing and other services to doctors affiliated with Upstate, has received contracts from Upstate worth more than $22 million since 2009, records show.

MedBest, which has an office in Salina Meadows office park in Liverpool, was created in 1996 by Upstate University Hospital and its doctors. It started out providing billing and other support services to Upstate doctors’ clinical practices. Over the years it has grown and now employs many non-union nurses and other staffers who work at Upstate.

In Smith’s case, a lot will likely depend on the wording of his employment contract with Upstate, Kelly said.

“It comes down to what provisions, if any, were made for outside employment or outside compensation,” said Kelly, a partner in the law firm Tully Rinckey.

In a Nov. 1 letter to Smith, Zimpher told him that at a minimum he accepted the outside income without her approval. She told him that he would likely have to make substantial repayments.

Brady and Thompson reported to the state ethics commission that they were getting paid by MedBest. But Smith’s most recent financial disclosure filing with the commission makes no mention of MedBest or Pediatric Service Group or any income from those organizations.

The state public officers law says that anyone who knowingly makes a false statement in his or her financial disclosure can be fined up to $40,000 and be charged with a misdemeanor, according to the joint commission’s web site.


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