To resolve $110 million in Borrego Health debt, state regulators agree to accept $20 million

California regulators have agreed to write off more than $90 million in debt owed by Borrego Health, the nonprofit medical provider that was the subject of a long-running state and federal fraud investigation that has yet to result in any criminal charges.

Borrego Health, formally known as the Borrego Community Health Foundation, announced Tuesday that it had finalized a settlement with the California Department of Health Care Services.

The agreement calls for the taxpayer-funded health care provider to resolve a claim filed by state regulators worth more than $110 million for $20 million. At the same time, Borrego Health officially transferred operations of its 18 clinics to DAP Health, a community health care provider in the Coachella Valley.

“We had initially hoped for a different outcome and envisioned a process where we could work with the state to hold the wrongdoers accountable and also overcome the staggering debt,” said Sandra Hansberger, the Borrego Health chair.

“Nonetheless, we are pleased that our patients will maintain access to essential health care services and our employees will have continued employment,” she added. “DAP Health stood out as a successor due to their unwavering commitment to preserving continuity of care for Borrego’s patients.”

The state Department of Health Care Services declined to comment on why regulators agreed to the settlement. State regulators had been the largest creditor since Borrego Health filed for bankruptcy last year.

In a statement, Borrego Health spokesperson Daniel Kramer said the provider had spent more than $10 million so far on the bankruptcy proceeding, which is expected to push forward as other creditors fight over the nonprofit’s remaining assets.

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The announcement Tuesday all but closes a saga involving allegations of fraud on a staggering scale within the once-tiny federally qualified health center, or FQHC, based in the northeast San Diego County community of Borrego Springs.

The board chair said she wished more could have been done to hold prior board members, senior executives and contractors responsible for tens of millions in misspent federal healthcare dollars.

“In the interests of preserving healthcare for underserved communities, we hope that state and federal investigators will continue to thoroughly examine how such fraud could go undetected for an extended period,” Hansberger said.

“We believe our board did all we could, given that we do not have the power of the state to pursue investigations of this nature,” she added.

Neither the FBI nor the U.S. Department of Justice responded Tuesday to requests for comment about the criminal probe into Borrego Health. The investigation burst into public view in October 2020, when dozens of state and federal agents raided at least five clinics and offices.

The search warrants executed that day in Borrego Springs, El Cajon and San Diego came after Borrego Health officials for years paid huge salaries to its executive staff and spent lavishly on other costs for employees and board members.

Borrego Health also was paying hugely inflated rents on facilities across San Diego, Riverside and Orange counties, records showed.

The entity also paid an outside contractor millions of dollars a year to process patient billings, many of which appeared to have been filed for services that were unnecessary or not performed at all.

In the year ending in June 2020, for example, Borrego Health charged the federal government for more than 445,000 patient visits to a small dental clinic in Desert Hot Springs, according to documents obtained by The San Diego Union-Tribune. The modest community north of Palm Springs has barely 30,000 residents.

“Money was made fast and furiously,” board member Martha Deichler told the Union-Tribune back in 2020. “It was like a speeding train that got out of hand. There was greed and mismanagement.”

The nonprofit was founded in the 1990s as a single clinic serving the poor and needy in Borrego Springs, a resort and vacation community with a year-round population of some 5,000 people.

By the 2010s, however, under the late chief executive Bruce Hebets, Borrego Health had greatly expanded. It added clinics across multiple counties and eventually boosted annual revenue to some $340 million.

Tax records show Borrego Health paid numerous executives annual salaries exceeding $600,000. At one point, agency officials sought to use Borrego Health assets to buy a country club.

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A civil lawsuit filed last year accused dozens of former Borrego Health officials and vendors of conspiring to steal tens of millions of dollars from the organization.

Its business practices came under scrutiny after Hebets died in 2019. Soon after the search warrants were executed in late 2020, state regulators suspended all payments to Borrego Health.

The decision crippled the healthcare provider’s ability to treat patients, and officials quickly appealed to the Department of Health Care Services to reinstate at least some of the payments.

State officials in early 2021 relented and agreed to restart payments under specific conditions. But they later reversed course and again suspended the federal reimbursements.

The Borrego Health board voted last year to sell its remaining assets, namely the clinics it operated in San Diego and Riverside counties.

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The selection of DAP Health, which still needs a bankruptcy court’s approval, comes more than two years after federal agents raided Borrego Health clinics and offices.

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Under the direction of the bankruptcy court in San Diego, the medical centers were sold earlier this year to DAP Health, another FQHC based in Palm Springs originally formed as the Desert AIDS Project.

FQHCs are federally recognized healthcare providers that receive extra funding for delivering medical, dental and mental health health services to needy patients in rural areas.

At its peak some three years ago, Borrego Health was the highest-funded FQHC in the United States.

With the settlement and transfer of assets to DAP Health, Hansberger said it will be up to state and federal officials to decide whether to pursue litigation aimed at clawing back funds that could be used for patient care.