The FBI probe into Borrego Health

Barely 30,000 people live in Desert Hot Springs, a hardscrabble community in Riverside County just a dozen miles from its more glamorous neighbor to the south, Palm Springs.

But according to internal Borrego Community Health Foundation budget documents, the charity’s Desert Hot Springs Dental Partners expected more than 445,000 patient visits in the year ending June 30.

Another dental clinic in El Cajon operated by the nonprofit foundation budgeted almost 225,000 visits over the same 12 months — treatments funded by federal tax dollars through a program designed to provide healthcare to poor families.

It’s possible the Desert Hot Springs and the El Cajon clinics attracted patients from outside their communities. But those projections stand out compared to most of the foundation’s other dental shops, which reported between 2,000 and 5,000 patient visits a year.

The eye-popping number of dental visits linked to Borrego Health helped drive revenue at the charity to record levels — nearly $340 million last year and almost $1 billion over the past five years, according to its tax filings.

But the crush of patients also appears to have drawn interest from federal investigators, who joined state Department of Justice police last Tuesday in executing search warrants at no fewer than four locations as part of a broader criminal investigation

Borrego Health Chairman Daniel Anderson said investigators also were examining one of the organization’s dental clinics in San Bernardino and that the FBI had searched that office earlier this month.

But he declined to answer questions about what might have prompted the multitude of warrants served in recent days.

Instead, the Borrego Health chairman issued a statement saying the foundation is moving forward in its mission and cooperating fully with investigators.

“Borrego Health wants every member of the community to know that our clinics remain open and available to provide the healthcare services they’ve come to expect,” the statement said. “Our top priorities are providing quality, reliable care for the communities we serve and doing all we can to ensure continued trust in Borrego Health.”

Premier Healthcare Management, the El Cajon billing vendor for Borrego Health, also had its offices searched last week. Its Chief Executive Officer Nicholas Priest said he understands that the FBI’s case involves a single dental clinic.

“It’s our belief that they are investigating a specific dental office’s billing practices,” he said in a statement.

State and federal officials declined to comment on the searches beyond confirming that agents executed warrants at two sites in Borrego Springs, another Borrego Health office in Kearny Mesa and the Premier Healthcare headquarters in El Cajon.

Anderson declined to discuss the criminal investigation or the large volume of dental visits in Desert Hot Springs and El Cajon.

The Borrego Medical Clinic first opened in the 1980s as a satellite of the Scripps Health network, offering basic care to the 3,000 or so year-round residents — and to the thousands of snow birds who spend their winters in the remote Borrego Valley.

The clinic struggled due to costs and location and broke away from Scripps. Civic leaders in 1990 set up the nonprofit Borrego Community Health Foundation to manage the facility, state records show.

Since its founding, the organization has expanded far beyond the modest clinic on Yaqui Pass Road, buying or opening facilities across San Diego, Riverside and San Bernardino counties.

It now operates several dozen clinics that provide medical, preventative, mental health and dental care to hundreds of thousands of immigrants, refugees and poor families who might otherwise have no access to healthcare.

Borrego Health also became a Federally Qualified Health Center, or FQHC, which allows it to collect higher Medicare reimbursements than other providers. In its most recent tax filing, the once-tiny charity reported more than 1.3 million patient visits.

The exponential growth has made Borrego Health the biggest FQHC in the country. Meanwhile, it has generated additional scrutiny and complaints from community members and the Borrego Sun newspaper, noting high salaries, nepotism, and self-dealing.

Over the past several months, Borrego Health acknowledged terminating more than a dozen board members and employees — partly in response to the pandemic but also due to questionable practices and property leases.

Even before the FBI raided four of its facilities and its medical billing vendor, Borrego Health said it hired a law firm to review all of its operations, including examining potential Medicare fraud.

The board also said it is re-examining its compensation practices, which include six-figure salaries for hundreds of employees, dozens of spouses and immediate family members, and others on the payroll who are related to key organization officials.

Borrego Health also is on the hunt for a new auditor.

The past two audits show $29 million in unexplained third-party settlements and $22 million in accounts that auditors called doubtful. The nonprofit said it was seeking an explanation for these costs from auditors.

The foundation also is reevaluating its arrangement with Daryl Priest, the Premier Healthcare founder and El Cajon developer who built a relationship with Borrego Health’s late CEO Bruce Hebets that translated into deals that pay his companies tens of millions of dollars a year for leases, billing and other services to Borrego Health.

“We fully appreciate that it may look strange that one of our landlords also runs a medical billing company,” Borrego Health said in a statement. “We are currently reviewing all of our arrangements with Daryl Priest and his companies.”

Daryl Priest is the father of Nicholas Priest, the Premier Healthcare chief executive officer. Nicholas Priest said in a statement he is proud of the services his company provides its clients, including Borrego Health.

“And if our relationship is under review then we look forward to meeting with them to discuss our services and our relationship,” he said in an email.

Even Borrego Health’s current board members acknowledge it has a troubled history and there is much work to do to restore public confidence in its operations.

“The problem is money was made fast and furiously and the people making the money were dizzy with the thoughts of how lucrative this business is,” said Martha Deichler, a retired Borrego schools superintendent who now serves on the foundation board,

“It was like a speeding train that got out of hand,” she said in a telephone interview. “There was greed and mismanagement.”

Deichler and other directors said Borrego Health has confronted its challenges and is making changes. Between board and staffing adjustments and the ongoing internal review, they said they are addressing management and oversight lapses for the first time in years.

“There are multiple areas where we need to rebalance, really redistributing resources and income,” board member Gabriel Maldonado said.

Borrego Health served 267,000 patients last year, according to data from the federal Health Resources & Services Administration.

In 2018, Borrego Health reported serving 229,000 patients and 177,000 the prior year. The number of annual visits exceeds the number of patients because many people see their doctor or dentist more than once a year.

Most of the growth in Borrego Health caseloads was due to expanded dental services, federal data show. In 2017, the foundation treated 106,000 dental patients. Two years later, dental work accounted for 190,000 patients.

Federal records also show Borrego Health spends more per patient than the national average — and costs continue to climb.

In 2017, Borrego Health averaged $1,240 per patient. Last year, expenses rose to $1,364 per patient — a 10 percent increase. Nationally, the cost per patient in 2019 was $1,044 — about 30 percent less than what Borrego Health spent.

Much of that spending is reflected in the annual tax filings submitted by Borrego Health to the IRS.

According to the nonprofit’s most recent tax return, which covers the year ended June 30, 2019, revenue climbed by more than $100 million over the 12-month period, to $338 million. The total assets rose by almost $28 million, to just under $95 million.

Tax-exempt organizations are required to disclose their highest-paid contractors. But Premier Healthcare is not listed in the filing, even though it would have received $20 million or more under its service agreement with Borrego Health.

In a statement, Borrego Health said the matter was under review by the agency’s auditors.

“Unfortunately, we’ve had to end our relationship with our previous auditors and are in the process of engaging new auditors,” it said. “That has cost us time, but we are looking into this and other financial questions that have been raised.”

The tax filing also shows that three dentists collected almost $15 million from Borrego Health last year, including Husam Aldairi, whose clinic on El Cajon Boulevard was listed as the leading provider with just under $6.2 million in payments.

Aldairi, who has a clinic in the same building as Premier Healthcare Management, said the FBI raid of his neighbor’s office was a surprise. He said the revenue he clears from Borrego Health is the work of many professionals — and not related to Centro Medico El Cajon.

“I have seven to eight associates that work from 8 a.m. to 7 p.m. every day,” he said. “I have over 50 employees at three clinics. I am fully staffed, and we see no less than 150 patients a day.”

The Borrego Health tax filings raise other questions tied to the relationship between Borrego Health and the Riverside Community Health Foundation.

Anderson, the Borrego Health board chairman, works full-time as chief executive of the Riverside nonprofit, which operates health and wellness programs in the Riverside community.

The Riverside Community Health Foundation leases at least three properties to Borrego Health for more than $1.2 million a year, records show.

According to its 2017 tax filing, the most recent available on public databases, the Riverside foundation raised almost $10 million and spent a little over $6 million on its various programs. It also reported total assets of $102 million, much of that invested in the Cayman Islands.

Anderson said there is nothing unusual about the Riverside foundation’s business practices.

“It is a common practice for U.S.-based nonprofit organizations to invest in hedge fund strategies through offshore vehicles in order to mitigate unrelated business income tax,” he said in a statement.

The Riverside nonprofit also owns a for-profit limited liability company called Riverside Healthcare Plus LLC, its tax filing states. Anderson said the company was created “for liability reasons” and he derives no income from the subsidiary.

“There is no payment, staff or salaries from this entity,” he wrote.

The Borrego Health board has cycled through a number of directors in recent years, several of whom complained that they were not provided information they needed to make decisions about the direction of the organization.

Former board member Timothy Cohelan, who works as an employment law attorney in San Diego, joined the Borrego Health board three or four years after buying a vacation home in the valley. He resigned barely a year later.

“I’m a lawyer and I want to keep it that way,” Cohelan said.

Among other issues, Cohelan said directors and senior staff did not respond to concerns he raised about Borrego Health business practices.

“I began to see it wasn’t going to go the right way,” he said in an interview prior to the FBI raid. “This was federal money. I’ve been around long enough to know that when you are using federal money, you better do it correctly.”

Sarah Rogers was invited to join the Borrego Health board about two years ago, and left earlier this year after several disputes about the amount of information she was given.

“I was not provided information to do the job as a trustee,” she said. “The community has lost faith in the Borrego Community Health Foundation. I would like to see that faith restored by greater transparency, capability, patient care and expenditures.”

Transcripts of meetings of the Borrego Health board’s executive committee seem to bear out the concerns of former directors that critical information was withheld from the full board.

In one 2017 meeting, for example, three senior officers and four directors specifically noted that the Premier Healthcare Management contract was never approved by the board and that they did not plan to tell other directors about plans to expand contract medical practices.

“I don’t think you need to take this matter to the board,” one executive committee member said, according to the transcript. “I agree with you,” another said.

In another executive committee meeting later that year, the executive committee raised the prospect of buying a nearby country club in which three of the Borrego Health directors were members, and one also served on the club’s board of directors.

The discussions “show the desire to purchase a country club — not in keeping with the charitable mission of Borrego Health to provide health care, but apparently to provide some kind of free or reduced gold for members,” Anderson told board members last month.

“Had this purchase gone through, the organization could have been put at risk with state and federal agencies for acting outside the scope of its mission and jeopardizing its tax-exempt status,” he added.

The chairman, who was not on the executive committee at the time, provided recordings of the two meetings to the board on Sept. 30, ahead of a special meeting called to discuss findings from the internal investigation conducted by an outside law firm.

“These tapes are from a two-month period in late 2017 but they clearly illustrate a pattern where a small group of people made risky decisions and actively worked to keep those decisions from the board,” Anderson wrote in his email.

Anderson did not answer questions about the email.

Dana Goldman, who directs the Schaeffer Center for Health Policy & Economics at the University of Southern California, said last week that government policymakers, regulators and prosecutors need to do a better job safeguarding resources dedicated to public healthcare.

“I don’t know enough to comment on this specific case, but I can say generally that if you design a Medicare policy that pays fee-for-service, you better be ready to make sure all the services are delivered,” said

“It is apparent to all that we dramatically under-invest in rooting out fraud and waste.”

State law requires a judge to sign off on search warrants in advance of any raid. The affidavits for the search warrants executed by the FBI and state police last week were presented to a Riverside Superior Court judge -- and approved, the California Department of Justice said.

Those documents, which typically spell out why a law enforcement agency believes there is probable cause that criminal activity could be proved by executing a search, have not yet been unsealed by the court.