Thursday, January 18, 2007

University Medical Center of Southern Nevada's CEO Fired After Undisclosed Financial Losses Discovered, Criminal Allegations Made

Amidst all the stories about pharmaceutical, biotechnology, and device companies, do not forget that management problems also afflict hospitals and health care systems. Proving that stories do not always stay in Vegas, the Las Vegas Review-Journal reported the firing of the CEO of University Medical Center of Southern Nevada, a major teaching hospital of the University of Nevada School of Medicine, and home of the state's only level 1 trauma center, amidst allegations of no-bid, no-work contracts given to his friends and associates.

University Medical Center CEO Lacy Thomas was fired Tuesday shortly after police revealed he is under criminal investigation and outside auditors reported that the public hospital lost $34.3 million last year, nearly twice the figure he'd given Clark County commissioners in November.

County Manager Virginia Valentine said that even though the theft, fraud and criminal misconduct allegations against Thomas are still under investigation, she decided to terminate his tenure heading UMC because he repeatedly misled county officials about the fiscal health of the hospital, which has hemorrhaged some $50 million during the past two years.

'I had concerns about his lack of transparency regarding the hospital's financial situation,' Valentine said moments after presenting the hospital's CEO with notice of his firing.

One of the people whose firm is under investigation for its dealings with the medical center played the race card.

But Thomas' friend Bill Taylor, owner of one of the Chicago companies whose contracts with UMC police are investigating, opined that Thomas is the victim of a racial vendetta.

'If this man was white, this wouldn't be happening,' Taylor said. 'He's an African-American in a redneck state. They hated his guts the day he walked in there. ... There's a lot of racist folks that don't want him there, and they'll do anything to get him out of there, including lying.'

The story has elements that will be familiar to readers of Health Care Renewal. The allegations about the former CEO were extensive, and also involved two other "C level" hospital executives. Hospital managers who made the allegations had been fired by hospital leadership.

Thomas, 50, joined UMC three years ago after leaving his job as director of John H. Stroger Jr. Hospital of Cook County, formerly Cook County Hospital, in Chicago.

Authorities are investigating Thomas' ties to several other Chicagoans, according to the affidavit detectives filed seeking permission to search UMC on Tuesday.

Besides Thomas' office, police searched the offices of Chief Financial Officer Richard Powell and Marlo Hodges, the hospital's chief operations officer.

The affidavit states that police suspect that Powell and Hodges, both former employees of Thomas from Chicago's public hospital, had knowledge of suspected fraudulent contracts Thomas arranged for friends 'and even assisted in the crimes.'

Before Tuesday's search of UMC, police had gathered much of their information from two former UMC executives ousted by Thomas.

Former COO Blaine Claypool and former CFO Mike Walsh told police that Thomas bypassed them and awarded hospital contracts 'to businesses of his friends from the Chicago area.' The contracts were all 'professional services' contracts not subject to a competitive process in which public agencies must publicize a job offer and accept the lowest bid for the work.

Several of the companies did not have business licenses in Nevada or Illinois, the affidavit states.

Claypool, Walsh and other UMC officials told police no work product ever resulted from the contracts, but five of the Chicago-based vendors received anywhere from $22,575 to $673,268 for services rendered.

Claypool told police that Thomas was a close friend of ACS Senior Vice President Bob Mills and was flown to the Virgin Islands to observe consulting work the company was performing at a hospital on St. Thomas.

Upon Thomas' return, he drafted a contract with ACS to take over collecting bills, handling patient admitting and record-keeping at UMC.

'Claypool indicated that he and Walsh told Thomas numerous times that the contract was not in the best interests of UMC and that due to the wording in the contract, (ACS) would receive money for basically doing nothing,' the affidavit states. 'Thomas ignored his objections.'

County Auditor Jeremiah Carroll found the contract Thomas recommended with ACS Consulting -- designed to bolster the hospital's bottom line -- actually led to a $6 million fall in revenue during its first year in place.

Carroll's staff also found flaws in the ACS agreement that allowed the company to collect more than $1 million in fees even though the firm was supposedly working on a pay-for-performance basis. ACS also received a lucrative commission by arranging the sale of UMC's bad debt for a fraction of its worth, a bungled transaction criticized in the audit.

Claypool and Walsh also told police Thomas was friends with owners or key employees of other Chicago businesses with whom he arranged contracts.

For instance, Claypool told police that Thomas was a former fraternity brother of the president of Frasier Systems Group, Gregory Boone. The company was awarded a contract to evaluate how to speed up UMC's business office.

Boone briefly visited UMC, but Claypool never saw a completed work product from the company, the affidavit said. A source inside UMC told police detectives the company has been paid $673,268 from UMC coffers.

Whether the allegations of criminal conduct are true, the former CEO was apparently presiding over mounting losses which he did not clearly explain to those to whom he was accountable.

County officials stressed that having a much bigger loss than the $18.8 million deficit Thomas reported to them in November would not affect patient care or the hospital's abilities to meet its payroll obligations.

However, they acknowledged for the first time Tuesday that taxpayers will be on the hook for a subsidy to reduce the red ink spilling from UMC.

'There will be a bailout,' said George Stevens, the county's chief financial officer. 'The reality is the hospital has lost $50 million in two years.'

Meanwhile, Tuesday saw the culmination of concerns that commissioners, who serve as UMC's board of trustees, began raising in November about the lack of information they were receiving on the hospital's finances.

While Thomas, a certified public accountant, gave them private assurances everything was OK, he stopped delivering mandated monthly reports on the hospital's balance sheet in May.

Asked for a public report, Thomas told commissioners two months ago that the hospital had lost an estimated $18.8 million in the fiscal year that ended June 30, and assured them that the hospital was in good shape.

The hospital had been budgeted to lose $12 million.

But the hospital's outside auditors disagreed with his figures in a preliminary annual audit presented to commissioners Tuesday.

How this will affect the medical school and local medical education and research is unclear.

Dr. James Lenhart, vice dean of the School of Medicine which has 110 physicians under contract to provide medical services at UMC, said he was concerned by Tuesday's firing of Thomas and the criminal probe.

He said the School of Medicine will want to know about the hospital's new leadership and whether the county can find a quality replacement for Thomas given the recent problems.

Said Lenhart: 'It would appear, with everything that has transpired, we may have hired the wrong person.'

Of course, the University Medical Center of Southern Nevada has plenty of company there. Health Care Renewal has now aggregated quite a few stories of health care organizations, including other academic medical centers like Fletcher-Allen Health Care in Vermont (see post here), Roger Williams Medical Center here in Rhode Island (see most recent post here), and the University of Medicine and Dentistry of New Jersey (see most recent post here), which, to put it charitably, hired the wrong people. And we have aggregated many other stories involving the leadership of government agencies, managed care organizations, and pharmaceutical, biotechnology, and device manufacturers.

There clearly is a systemic problem with mismanagement by, conflicts of interest affecting, and outright crime and corruption committed by the leadership of too many health care organizations.

These big elephants in health care's living room are undoubtably partially responsible for rising costs, declining access, poor quality, and demoralized health care professionals. Yet the ongoing "anechoic effect" seems to prevent most people in health care from even talking about these systemic problems.

We will continue to talk about them on Health Care Renewal.

1 comment:

Anonymous said...

There must be something about Chicago that encourages this type of behavior. We learn from the Jan. 18, 2007 WSJ article by David Armstrong that Illinois Enters Lawsuit Over Alleged MRI Kickbacks. The article highlights the rising cost of imaging, far outstripping inflation, starting with a Chicago company and including companies with headquarters in other states.

The kickback scheme was simple. The physician would enter into an arrangement where they would lease a MRI machine from one of these vendors and then refer their patients. At no time were the physicians involved in the MRI process.

We learn from the long print version that:

"..the referring physician would bill an insurance company for half of the $800 cost of an MRI and the MRI center would bill for the other half."

I would think that $400 per patient referral would be a rather strong incentive to over use this technology.

Steve Lucas