Former Hacienda Healthcare Officers Indicted in Elaborate Fraud Case

Hacienda to Provide More than $11 Million to State in Financial Settlement 

PHOENIX -- Attorney General Mark Brnovich announced former Hacienda Healthcare officers William Timmons and Joseph O’Malley have been indicted for an elaborate alleged white collar fraud scheme that bilked Arizona taxpayers out of millions of dollars. Additionally, the Attorney General’s Office (AGO) reached a financial settlement with Hacienda Healthcare Inc. (Hacienda), where it will pay the State more than $11 million to resolve its case.

In early January 2019, the AGO launched a criminal investigation into allegations of financial improprieties by former Hacienda executives. The former officers were charged with the following crimes:

William Timmons

  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Illegally Conducting an Enterprise, a Class 3 Felony
  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Fraudulent Schemes and Artifices, a Class 2 Felony

Joseph O’Malley

  • Fraudulent Schemes and Artifices, a Class 2 Felony
  • Illegally Conducting an Enterprise, a Class 3 Felony

The Arizona Department of Economic Security’s Division of Developmental Disabilities (DES/DDD) contracted with Hacienda to provide care and operate an Intermediate Care Facility (ICF) for individuals that have developmental disabilities. Starting in 2013, Hacienda and DDD entered into a cost-settlement reconciliation contract in which Hacienda would be given a certain amount of money per day per patient ($1,100 per day). The contract stated if Hacienda received an overpayment, Hacienda would reimburse DDD.

William Timmons was the Chief Executive Officer of Hacienda from July 1989 to January 2019. Joseph O’Malley was the Chief Financial Officer from 2013-2019.  The indictment alleges that from 2013 until Timmons resigned in 2019, Timmons and O’Malley intentionally misallocated funds from DES/DDD and the Arizona Heath Care Cost Containment System (AHCCCS) by manipulating costs to avoid repayments of state funds in favor of inflated salaries and bonuses.  The DES/DDD contract was with Hacienda’s ICF only. However, investigators purport Timmons and O’Malley used the money to pay for a large portion of costs at Hacienda's other facilities and did not reimburse the State as required by the contract. This resulted in millions of dollars of overpayment by the State.

South Mountain Health Supply operated under the umbrella of Hacienda. The indictment alleges between July 1, 2013 and June 2018, South Mountain purchased medical supplies from third-party vendors, and then re-sold the supplies to Hacienda at a 12.5% markup. Timmons purportedly directed the payment of the inflated prices, including a delivery fee (even though the two entities were located at the same address), with public monies.

The indictment also alleges between July 1, 2013 and January 23, 2019, Timmons directed the fraudulent billing of health insurance companies for multiple uses of a Synagis vaccine. Timmons purportedly told staff not to discard Synagis vials after a single-use, but rather administer all remaining medication to patients. Health insurance companies were still billed for the entire cost of a vial.

This investigation was led by Special Agents within the AGO Health Care Fraud and Abuse Section with the assistance of AHCCCS and DES.

Timmons and O’Malley were served their indictments and not arrested. No booking photographs are available.

All defendants are presumed innocent until found guilty in a court of law. Assistant Attorneys General Scott Blake and Sean Coll are prosecuting the cases.

The AGO case against Timmons and O’Malley is not related to the criminal case against Nathan Sutherland with the Maricopa County Attorney’s Office.

Copy of indictment.

Hacienda Healthcare Settlement
Recently, the AGO reached a civil settlement with Hacienda where it will pay the State more than $11 million to resolve its criminal case.

Settlement agreement details include:

  • Settlement Amount: Hacienda agrees to repay AHCCCS an overpayment in the amount of $10,895,648.25.
    • Hacienda will deliver an initial payment of $7 million by January 5, 2021 followed by monthly installments of $50,000.
    • $7 million is currently in an escrow account.
  • Fine Amount: Hacienda will pay a $1 million fine to the AGO revolving fund where it will be allocated to the AGO and AHCCCS Office of the Inspector General.
    • The fine will be paid in monthly installments of $15,000.
  • The State agrees not to take any civil, criminal, or administrative legal action against the entity Hacienda for the covered conduct unless there has been a breach in the settlement agreement.

Copy of settlement agreement.