HMC sues former management co.
By Dwayne Bremer
Feb 21, 2014, 18:49
Hancock Medical Center has filed a federal lawsuit against its former management company claiming that a decade of "mismanagement" has cost the hospital millions of dollars.
The suit, Hancock Medical Center versus Quorum Health Resources was filed on Wednesday in U.S. District Court in Gulfport.
Attorney Trent Favre of the firm Jones-Walker filed the suit on behalf of HMC's Board of Trustees. Favre was formerly the attorney for the hospital's board of trustees.
Favre said in the suit that Quorum's performance was "abysmal."
The suit claims, among other things, that Quorum allowed the hospital and doctors contracted by the hospital to be severely overstaffed, it did not collect $8 million for services that were provided, and that hospital administrators hired doctors and handed out contracts without permission of the hospital board.
"This case seeks to remedy the substantial harm suffered by Hancock County's community hospital from the negligent failures of a professional management company to perform its responsibilities to manage the hospital's affairs," the suit said. "Quorum utterly failed to operate Hancock Medical in a manner that would maintain its financial stability and ensure long-term viability."
HMC is a publicly-owned hospital under the umbrella of the Hancock County Board of Supervisors.
Supervisors appoint a seven-member board to oversee the operations at the hospital.
For the past two decades, the board contracted with Quorum, a Tennessee-based company, to manage the hospital.
Quorum's duties included management responsibilities, overseeing the performance of administrative functions, communicating and advising the hospital board regarding financial activities, submitting budgets and monthly statements and cash-flow projections, the suit said.
The board, in turn, used the information received from Quorum to make decisions on financial and operating matters, the suit said.
According to the suit, one of the first signs of trouble came in 2011, after Quorum issued a "scathing report" regarding HMC's management.
The report identified on-going deficiencies in the revenue cycle process, the suit said.
Another document issued in 2011 stated that department managers had little accountability to achieve their targets, staffing levels could not be justified, and there was a need to educate department managers on productivity policies, the suit said.
As a result, Quorum sacked Hal Leftwich, the hospital's former director, without any discussion or advance notice to the hospital board, the suit said.
Quorum replaced Leftwich with Joyce Hein, who later wrote in a memo that the hospital had "left millions of dollars on the table," the suit said.
Hein described the prior management's shortcomings as "not just an elephant, but a herd of elephants," the suit said.
Hein was replaced by Robert Pascascio in 2012, and things apparently did not improve.
According to a productivity report for the period ending in June 2013, Quorum suggested the hospital was "significantly overstaffed" and if staffing levels had been according to Quorum's own benchmarks, the hospital would have saved more than $3 million a year, the suit said.
Compounding the problem, the suit said, was Pascascio's apparent inability to comprehend his own company's reports.
"Still do not understand what this means," Pascascio wrote in an email regarding the productivity report to a colleague seven months after he was named director, the suit said.
The suit said Quorum's mismanagement included abuse and misuse of authority.
The suit said hospital administrators entered into employment and compensation agreements with physicians without authorization from the board.
These actions could have had potentially "devastating" consequences, the suit said.
"Such agreements must meet certain requirements to comply with federal law," the suit said. "A violation can include the hospital's ability to participate in the Medicare program and collect Medicare revenue."
In addition, the suit said Pascascio issued two contracts to outside consulting firms, Channelford Associates and Spectra Technologies without board approval.
"Pascascio apologized to the board for his wrongful actions, however, he failed to disclose to the board that he had also previously caused the hospital to enter into unauthorized contracts with two other doctors, thus lying to the board, by omission. Quorum violated the most basic principals of trust and confidence essential to fiduciary relationships, thereby destroying the foundation of Quorum's relationship with the hospital."
In May 2013, the board demanded that Pascascio be removed as HMC director and he was, the suit said.
A new director, Craig Cudworth, was named and Cudworth "quickly recognized Quorum's on-going failures," the suit said.
One of his first recommendations was for the hospital to reduce staff by cutting 40 full-time employees.
Cudworth then approached the board of supervisors with a request to amend the hospital's budget and to give him authority to seek a $6 million bond issue which would be financed by a new millage created to support the hospital's operations.
The request to create a new tax did not sit well with supervisors and no action was taken.
In August 2013, Quorum approached the hospital board offering to voluntarily separate itself from its contract if the board agreed to release Quorum on all claims and keep all of the previous issues confidential, the suit said.
Instead, the hospital board decided to replace Quorum with another management company, the suit said.
The hospital board approved a 90-day contract with Ochsner Health Systems in September 2103, and a long-term contract was announced earlier this week.
After being replaced, Quorum submitted a Notice of Claim to the American Health Lawyers Association Dispute Service in an attempt to receive an arbitrated settlement, the suit said.
The suit claims that Quorum was terminated because of several reasons, including breach of contract, negligence, breach of covenant of good faith, and corporate waste, the suit said.
HMC claims in the suit that arbitration clauses in Quorum's contract are "void and unenforceable."
HMC's suit seeks to have an injunction against Quorum's arbitration action and for the hospital to recover relief as is "just, equitable and proper."