RICHMOND, Va. (AP) - A Texas company that provided health insurance to Virginia Tech students fraudulently overstated claims by more than $9 million to boost its profits, according to a 57-count federal indictment unsealed Tuesday.
The grand jury indictment in U.S. District Court in Abingdon, Va., charges GM-Southwest Inc. and its former owner, 73-year-old John Paul Gutschlag Sr., with racketeering, conspiracy, money laundering and fraud. The indictment says that by overstating claims, the company was able to charge higher premiums to Virginia Tech and its students and discourage competitors from bidding to provide the service.
Company officials in Frisco, Texas, did not immediately return a telephone message, and no phone listing could be located for Gutschlag in the Frisco area. Court documents do not list an attorney for the defendants.
The indictment seeks forfeiture of the defendants' property and bank accounts, which were frozen Tuesday by U.S. Magistrate Judge Pamela Meade Sargent.
"This is a step in the process of trying to recoup the losses that we believe we sustained," Virginia Tech spokesman Mark Owczarski said in a telephone interview. "It's clearly a lot of money, and given the fiscal realities, these are state resources and we need to make sure they are used and managed most effectively."
According to the indictment, GM-Southwest is a third-party administrator of health insurance for secondary school and college students. Major insurance carriers provide the coverage, but GMS collects premiums, pays claims and reports the transactions to both the schools and the carriers. The carriers pay GM-Southwest a commission or fee for the service.
The indictment says the company, at Gutschlag's direction, reported accurate figures to the carriers but inflated claims numbers to the university over a seven-year period beginning in the 2003-2004 academic year. It says the university's risk manager retired in 2010, and that employee's successor questioned the accuracy of EM-Southwest's reports.
Owczarski said an internal review of the program determined the university was overcharged. He said university officials reported the findings to the Virginia attorney general's office, which turned it over to federal authorities.
Aetna now administers the university's student health plan, Owczarski said.
The indictment charges the defendants with 41 counts of mail fraud, seven counts of wire fraud, five counts of money laundering and one count each of racketeering, mail fraud conspiracy, wire fraud conspiracy and money laundering conspiracy.
U.S. Attorney Timothy J. Heaphy's office says that if convicted, Gutschlag could face up to 20 years in prison and a $500,000 fine on each count. The company also could be fined $500,000 per count.
No hearing dates have been scheduled.
U.S. Attorney Office news release:
United States Attorney Timothy J. Heaphy announced today that a Federal Grand Jury sitting in the United States District Court for the Western District of Virginia in Abingdon has charged GM-Southwest Inc., and the company's former owner, with racketeering, conspiracy, money laundering and fraud charges.
In a sealed indictment returned April 8, 2013 and unsealed today, the grand jury has charged John Paul Gutschlag Sr., 73, of Aubrey, Texas and GM-Southwest, Inc., in a 57-count indictment.
Gutschlag, the former owner of GM-Southwest and the corporation have been charged with one count of racketeering, one count of conspiracy to commit wire fraud, seven counts of wire fraud, one count of conspiracy to commit mail fraud, 41 counts of mail fraud, one count of money laundering conspiracy and five counts of money laundering. The Indictment also seeks forfeiture of real and personal property, including business and personal bank accounts associated with the defendants.
According to the indictment, under the direction of Gutschlag, GM-Southwest was in the business of collecting health insurance premiums from students and universities, paying claims and providing reports related to the premium collection and claims payment both to the university and the carriers. The carriers, in turn, paid GM-Southwest a set commission or fee, typically a percentage of the gross premium collected.
From August 2003 through the end of the 2010-2011 school year, GM-Southwest, under the direction of Gutschlag, provided student health insurance for Virginia Tech's undergraduate and graduate students. The indictment alleges that in 2005, Gutschlag, and others, devised a scheme to defraud colleges and universities by providing false and fraudulent claims reports and other misrepresentations designed to increase the income of GM-Southwest and to personally enrich Gutschlag. They did this by devising and utilizing a "claims modifier" to alter the claims numbers to produce an inflated dollar amount which overstated the claims paid and loss ratios, causing students and Virginia Tech to pay significantly higher premium costs.
The indictment accuses Gutschlag and GM-Southwest of overstating the amount of claims paid on behalf of Virginia Tech by over $9 million from 2003-2004 through the 2009-2010 academic years.
If convicted, Gutschlag faces a maximum possible penalty of up to 20 years in prison on each count and/or fines ranging from $250,000 to $500,000 on each count. GM-Southwest Inc. faces corporate probation and/or fines ranging from at least $500,000 per count.
The investigation of the case is being conducted by the Internal Revenue Service Criminal Investigation. Assistant United States Attorneys Anthony Giorno and Randy Ramseyer will prosecute the case for the United States.
Bedford County Sheriffs Department had the SWAT unit out issuing search warrants today and will have more information tomorrow.