United States v. Gutschlag, GM-Southwest, Inc. U.S. Dist. Ct., W.D.Va. April 8, 2013
Third Party Administrator GM – Southwest, Inc. (TPA), and its former owner John Paul Gutschlag, Sr. contracted with Virginia Tech from 2003-2011 to provide health insurance to the school’s undergraduate and graduate students. The premiums for the health insurance were paid directly to the TPA, who accounted for the premiums received, deducted its commission, and then delivered the balance to the carriers.
Each year the TPA was responsible for compiling and reporting premium and claims information and the resultant loss ratios to Virginia Tech. The TPA allegedly used a claims modifier program that inflated the actual loss ratios by 30-40 percent. The TPA would submit the inflated numbers to Virginia Tech which allowed it to justify the increased premiums that it charged for the following years, while submitting the actual numbers to the insurance carriers. This lead to the payment of increased premiums to the TPA. Allegedly, the TPA fraudulently retained the overpayments amounting to almost $9 million over the 8-year time frame.
The TPA and its former owner are charged with 57 counts of fraud, racketeering, conspiracy, and money laundering which cost the victims over $9 million. If convicted, the former owner faces up to 20 years in prison on each count and fines of $250,000 to $500,000 per count. The corporation itself faces corporate probation and fines of $500,000 per count.