In what Justice Department officials — along with South Florida's U.S. attorney, the FBI, and Health and Human Services agents — have described as the nation's biggest Medicare fraud case, federal prosecutors have lost a major battle as a judge threw out key evidence after finding “misconduct” by the Justice Department's investigative team.

Miami Beach businessman Philip Esformes was charged in 2016 in the Southern District of Florida (Miami Division) with allegedly orchestrating an unprecedented $1 billing in Medicaid and Medicare bribery and kickback scheme. The indictment claims that Philip Esformes and a handful of Miami co-conspirators defrauded Medicaid and Medicare for 14 years beginning in 2009 by cycling some 14,000 patients through various Esformes facilities, where many received unnecessary or even harmful treatments. Drug addicts were allegedly lured to the facilities with promises of narcotics, and prosecutors say some received OxyContin and fentanyl without a physician's order to entice them to stay. The case is expected to go to trial in January 2019.

Read more about the charges against Esformes here: Nursing home operator from Chicago jailed as feds allege $1 billion scheme

In a pre-trial motion, Esformes's defense team argued that the 35-count indictment should be dismissed and the team of Justice Department prosecutors and FBI agents who were involved in the 2016 search of Esformes' North Miami assisted-living facility, where his company's lawyer had an office, should be disqualified because the search at the facility was tainted. The defense based its argument on the fact that hundreds of seized documents in the 70 boxes carted away by agents were protected under attorney-client privilege.

Magistrate Judge Alicia Otazo-Reyes agreed, suppressing the protected correspondence as well as other evidence that was improperly obtained and handled by federal prosecutors and agents in a scathing 117-page decision where she “found the government's attempt to obfuscate the evidentiary record to be deplorable.”

If the district judge adopts the magistrate's findings, federal prosecutors won't be able to use some 1,000 seized documents and other evidence because federal agents committed misconduct in the handling of privileged documents, messages, and recordings. Included are secret recordings of Esformes made by defendants in a separate fraud case — the brothers Gabriel and Guillermo Delgado — after they decided to cooperate with the government. The government wrongly directed those secret recordings, since the Delgados previously had a joint-defense agreement with Esformes, the court found. Among those recordings is a conversation in which Esformes allegedly arranges to fly Guillermo Delgado out of the country to help him avoid arrest and serves as the basis of an obstruction of justice charge against Esformes.

The parties have until August 24 to make any objections to the magistrate's findings. If any objections are filed, they will be submitted to U.S. District Judge Robert Scola along with the Magistrate's Report and Recommendation for a final ruling.