Manhattan U.S. Attorney Announces Charges Against Former CEO Of Hospital For Special Surgery In $1.4 Million Kickback Scheme

Preet Bharara, the United States Attorney for the Southern District of New York, and Thomas O’Donnell, the Special Agent-in-Charge of the New York Office of the U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), announced today the arrest of JOHN R. REYNOLDS, the former Chief Executive Officer of the Hospital for Special Surgery (the “Hospital”), in connection with a decade-long kickback scheme involving $1.4 million in payments that he allegedly extorted or solicited from Hospital vendors, a Hospital employee, and a United Kingdom-based healthcare organization. REYNOLDS is also charged with making false statements to law enforcement. He was arrested this morning at his home in Massachusetts and is expected to appear later today in federal court in Boston.

Manhattan U.S. Attorney Preet Bharara said: “By allegedly exploiting his position at the helm of a world renowned hospital for his own personal gain, John Reynolds tarnished the hospital’s reputation and did a disservice to its employees. This office has zero tolerance for corruption, and we will aggressively prosecute anyone who engages in such conduct.”

HHS-OIG Special Agent-in-Charge Thomas O’Donnell said: “Kickbacks have no place in the healthcare industry. They can influence medical decision making, cause overutilization of services, and lead to increased costs in the Medicare program on which millions of elderly and disabled Americans rely.”

According to the allegations in the Indictment unsealed today in Manhattan federal court:

From 1986 until 1997, REYNOLDS served as the Chief Financial Officer of the Hospital, the oldest orthopedic hospital in the United States. In 1997, REYNOLDS was promoted to the position of Chief Executive Officer (“CEO”), and served in that capacity as a full-time Hospital employee until October 2006. In order to effectuate a smooth transition in Hospital leadership to a newly hired CEO, Reynolds served as a contract employee in the same position through December 2008.

In violation of both the law and his duty to provide honest services to the Hospital, REYNOLDS engaged in three separate kickback schemes from 1996 through 2007 in which he solicited or extorted approximately $1.4 million in illegal kickbacks. Between 1996 and November 2002, REYNOLDS solicited and received approximately $420,000 in kickbacks from at least two different Hospital vendors, in return for using his position at the Hospital to help them secure contracts and future business. Between 2000 and 2005, REYNOLDS extorted and received approximately $298,500 in kickbacks from a subordinate employee of the Hospital in exchange for negotiating payment of that employee’s annual bonus. And between 2005 and 2007, REYNOLDS solicited and received approximately $670,000 in kickbacks from a U.K.-based healthcare organization, in exchange for using his position at the Hospital to approve a clinical partnership between the Hospital and the organization. During these time periods, REYNOLDS also repeatedly made false statements to, and withheld information from, the Hospital’s board of directors about his outside consulting arrangements, and other conflicts of interest that would or might prevent him from acting in the best interests of the Hospital.

REYNOLDS is also charged with making a number of false statements to HHS-OIG agents in May 2008 about individuals and entities involved in the kickback scheme.

REYNOLDS, 63, of Cataumet, Massachusetts, is charged with one count of racketeering, which carries a maximum sentence of 20 years in prison, and one count of making false statements to the federal government, which carries a maximum sentence of five years in prison.

Mr. Bharara praised the investigative work of the U.S. Department of Health and Human Services, Office of Inspector General.

This case is being handled by the Office’s Complex Frauds Unit. Assistant U.S. Attorney Christopher D. Frey is in charge of the prosecution.

The charges contained in the Indictment are merely accusations and the defendant is presumed innocent unless and until proven guilty.