Herschel A. Breig and James R. Cheek, operators of Chilton Medical Center, have been indicted on tax and embezzlement charges related to their work at a Texas hospital.

A federal grand jury in Lubbock, Texas indicted both men on seven counts of failing to pay more than $1.8 million payroll taxes and one count of theft or embezzlement related to money withheld for employee health benefits.

The allegations stem from their work at Highland Medical Center (HMC) in Lubbock. The indictments were handed down Wednesday, Aug. 10.

Cheek is president of Missouri-based Carraway Medical Systems LLC, while Breig is executive vice president. Carraway leased Chilton Medical Center from SunLink Health Systems out of Atlanta earlier this year.

The agreement, which was announced in March, gave Carraway the option to buy CMC during the six-year term of the lease.

CMC spokeswoman JoAnn Bartlett said Monday morning the company had no comment about the indictment at the present time.

According to the indictment, Breig and Cheek took over control of HMC in March 2006. The hospital was bought by Shiloh Health Services, which involved several individuals, but was essentially controlled by Breig and Cheek, according to U.S. Attorney James T. Jacks.

From March 2006 to May 2008, Cheek acted as Highland’s CEO while Breig served as the hospital’s senior vice-president of cash management, according to the U.S. Attorney’s Office.

The indictment alleges during the same time period, Breig and Cheek failed to pay withheld payroll taxes and didn’t turn over money withheld from employees’ paychecks for benefits like health, dental and life insurance.

Specifically, the indictment says that as responsible parties for HMC, the two failed to pay $1,856,529 in payroll taxes to the IRS.

Breig and Cheek were indicted on the theft or embezzlement charges because the two allegedly embezzled $135,079 from Shiloh Health Services Inc. medical and drug insurance plans by not turning in premiums withheld from employee paychecks, which caused the plans to be terminated in December 2007.

The indictment further charges that Breig and Cheek continued to deduct such premiums from employee paychecks until June 2008, even though the plans had been terminated.

If convicted, each of the seven tax counts carries a maximum sentence of five years in prison and a $250,000 fine. The theft or embezzlement charge related to the health care costs, upon conviction, carries a maximum sentence of 10 years in prison and a $250,000 fine.

The IRS – Criminal Investigation division and the U.S. Department of Labor are investigating the case.

Jacks and Breig were expected to surrender to federal authorities in the “next few weeks,” according to the U.S. Attorney’s Office.