Check It Out:

What are your favorite local places for shopping, pampering or entertaining? Vote now in this year's Best Of Holiday Shopping readers' choice poll.

Health insurance scam cost $20 million, Virginia Tech says

The CEO of a company that handled the university's insurance pleaded guilty Wednesday to charges including money laundering.

RELATED COVERAGE

Texas company charged with defrauding Virginia Tech over student health insurance
April 9, 2013

Jeff Sturgeon | 981-3251

Thursday, September 12, 2013

A Texas CEO is facing a possible prison sentence after he pleaded guilty Wednesday to running a health insurance scam that prosecutors say cost Virginia Tech and some Tech students more than $1 million and that Tech says cost much more.

John Paul Gutschlag, 73, of Aubrey, Texas, pleaded guilty to conspiracy to violate racketeering laws and to two counts of money laundering, according to a news release from the U.S. Attorney’s Office for the Western District of Virginia.

The company he led, GM-Southwest Inc., pleaded guilty to the same three charges through a company lawyer, prosecutors said after proceedings in U.S. District Court in Abingdon.

Gutschlag, GM-Southwest’s former owner, faces a 20-year prison term for the racketeering offense and 10 years on each of the laundering charges, officials said. It was unclear what punishment is facing the company. Sentencing was scheduled for Jan. 7.

As an independent, third-party administrator of student health insurance, GM-Southwest contracted with secondary school systems and universities across the county to provide student health insurance through a lineup of carriers. GM-Southwest ran the health plan at Tech from August 2003 through the end of the 2010-11 school year, officials said. It collected premiums from policyholders, paid health care providers and kept a commission, officials said.

Beginning 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,” prosecutors said in a release.

The CEO and company admitted they inflated the amount of claims paid on behalf of Virginia Tech by more than $1 million between the 2003-04 and 2009-10 academic years, the release said. When charges were first filed in April, the university said that the scam cost it and its students as much as $20 million. The university’s contention is unchanged, university spokesman Larry Hincker said Wednesday.

Whatever the amount, authorities said the scam caused widespread harm.

The conspiracy “negatively impacted thousands of students who depended on them to provide a very important service,” said Thomas Kelly, special agent in charge of the criminal investigation arm of the Internal Revenue Service in Washington, D.C., in a prepared release.

As a result of the convictions, the company is required to pay the university and students $1.2 million in restitution and forfeit an additional $1.2 million to the government, prosecutors said. If they wish, Tech and students can seek additional compensation for their losses through the civil courts, prosecutors said.

The prosecution also netted two other people associated with the company.

Gutschlag’s administrative assistant, Carolyn Beck, pleaded guilty to conspiracy to commit wire fraud, mail fraud and money laundering, prosecutors said. No information about her possible sentence has been released.

James Lane of Botetourt County paid $250,000 in additional restitution to Virginia Tech for his conduct, according to the news release. His role and company position aren’t specified in the release, which said that his prosecution was deferred. However, according to the indictment, GM-Southwest had delegated the administration of its Virginia Tech account to “JL” who worked from an office in Daleville.

Saturday, September 14, 2013