Second in a series.
The deficiencies which the Alabama Department of Public Health enumerated against Chilton Medical Center in a September, 2012, report show that in only 19 months after the hospital was bought by the former owners of Carraway Medical Systems, LLC, of Springfield, Mo., the facility was little more than a shell, drained of cash, management governance, and patient care capabilities.
Those three areas summarize the condition of Chilton Medical as outlined in the 25-page report, which concludes that the hospital was not operated in a responsible manner because the owners of Chilton Medical, principally James Cheek and Herschel Breig, failed to assure that it remained financially sound to do so.
Details from employee interviews within the report show that, at times, employees had to buy certain supplies from local discount stores or beg them from other area hospitals because medical supply vendors had not been paid, in some cases for up to a year. The report concludes that such practices endangered patient care as the result of financial irresponsibility on the part of the hospital's governance, Carraway Medical Systems, LLC, and its owners.
“Based on interviews, review of the Chilton Medical Center Cash Forecasting Report, hospital bank statements and observations, the hospital leadership failed to assure the facility was operated in a financially sound manner,” the report states. “This has the potential to affect all patients served by Chilton Medical Center.”
The report notes, at the outset, that Carraway was, at that time, little more than a shell company.
“Three of the four corporate officers listed for Chilton Medical Center's controlling entity – Carraway Medical Systems, Inc. - are no longer serving in their capacity,” the report states. “Media reports reviewed by the surveyor indicated Officer #1 and Officer #2 are both serving prison sentences for charges related to failure to pay federal taxes and embezzlement, unrelated to Chilton Medical Center.”
Both Cheek and Breig had, in June, 2012, been sentenced to federal prison in connection with those charges.
“Officer #3 is no longer employed by Carraway Medical Systems,” the report states. That individual is not named in the report.
Teddy Cheek, brother of James Cheek, was named president of Carraway in early 2012, according to published accounts, and was still, apparently, involved in the company at the time ADPH interviewed a person it identifies as Employer Identifier No. 2 “the Owner of Chilton Medical Center and Chief Executive Officer of Carraway Medical Systems, Inc.” on August 15, 2012.
According to corporate filings in Wyoming, where Carraway was originated, Teddy Cheek, James Cheek, Herschel Breig, and Dudley Bell were all “member/manager” participants in Carraway.
“EI #2 continued his statement, 'I got handed the hospital the last part of March and April of 2012,'” the report states.
As a result, EI No. 2 states that he, Chilton Medical Executive Director Ted Chapin, and EI No. 4, the chief financial officer of the hospital, who is not named in the report, were responsible for decisions made at Chilton Medical Center for the remainder of 2012.
Page 2 of 4 - “The hospital has not had a Governing Body meeting for the calendar year 2012 to discuss the operation of the hospital,” the Sept. 19, 2012, report states.
As a result, the report notes that the Carraway governance of the hospital had violated the original by-laws of the hospital under its organization in 1999.
The second aspect of the report concerned the hospital's finances, noting that Chilton Medical was so cash strapped that it owed Central Alabama Medical Associates, LLC, which held the real estate for SunLink Health Systems, Inc., of Atlanta, Ga., more than $340,000 in back rent. As well, the report notes that Chilton Medical owed $134,514.38 in electric utility costs, $24,204.10 in gas utility costs, and $8,673.62 in water utility costs at the time of the report.
“I'll be honest, we don't pay our bills, we don't pay on time,” the hospital's accounts payable/payroll clerk, who is not identified by name, said in the report.
Based upon an Aug. 15, 2012, interview, the report states that, at that date, the hospital owed almost $4 million in unpaid bills to its vendors, most of which was for medical professional services and products. In a Sept. 14 follow-up, the Chilton Medical financial officer told ADPH that the hospital had a total of $93,028.41 in its three bank accounts, and needed $68,819.51 just to meet its payroll, which netted at $161,847.92 for the current two-week period.
EI No. 1, allegedly Chapin, told the ADPH on Aug. 15, 2012, that Chilton Medical had not produced any financial reports since March, 2012, and “he knew the hospital was in financial trouble, but was not sure how bad as of Aug. 15, 2012, because he needed the financial report run...EI #1 went on to say he knew cash was tight and he did not know why.”
The report also shows that Chilton Medical was under a Medicare audit at the time, and that the hospital had to ask an outside company for a loan to pay its emergency room doctors. At that point, the report notes, Chilton Medical no longer provided any surgical services because it could not pay staff or buy supplies.
Yet, according to a profit and loss statement finally obtained by ADPH on Aug. 28, 2012, for the period ending June 30, 2012, reflecting the end of its previous fiscal year, the hospital had patient revenue of $38.1 million.
“There were no amounts listed for income taxes paid and the statement showed the hospital had a total loss of $2,159,430,” the report states.
Then, on Sept. 12, 2012, EI No. 1, allegedly Chapin, called ADPH to report that the hospital would not meet its payroll for Sept. 14 “due to low cash flow.”
“EI #1 went on to say that the hospital functions on a day to day basis,” the report states. The inability to pay its staff, as well as its medical faculty, coupled with a loss in vendor support, was forcing a complete financial collapse at Chilton Medical.
Page 3 of 4 - And, on top of that, the report notes that Chilton Medical had not paid Alabama taxes totaling more than $194,000.
By Sept. 14, 2012, the senior staff at the hospital met daily to decide what supplies it could purchase for that day, the report explains.
“I cannot honestly tell you we will make it more than 2 weeks,” EI No. 1 is quoted as saying. “After that wouldn't be safe for patient care. By the grace of God, if we get a big payment, we might last a little longer. Unlikely.”
Asked what the hospital was borrowing from other medical facilities at that point, he said, “I don't know what we are borrowing. I think we tried to do that, get supplies from our vendors. I think we tapped out our good will (with hospital vendors and other healthcare facilities).”
The report outlines how an anesthesiology group and an emergency room staffing group had simply walked away from Chilton Medical because neither group had been paid in 2012. The anesthesiology group had already gone to court to recover its billings, the report states.
By August, 2012, Chilton Medical was consistently borrowing supplies from seven other area hospitals, the hospital's materials management director told the ADPH.
Physicians interviewed by the ADPH related several instances of patient care issues connected with the hospital's inability to maintain supplies and medications.
“Physician No. 3 stated he had a patient that came into the Emergency Department on Sept. 14, 2012, intoxicated,” the report states. “But, Physician No. 3 had no way of obtaining a blood alcohol level on the patient. Physician No. 3 stated that the patient was known to him, so, he ordered the patient held in the ED until the patient sobered up.”
Another doctor complained Sept. 18, 2012, that Chilton Medical staff consistently called him to ask for changes in medications for his patients because “...the new owners have trouble getting supplies and do not have the money to purchase medications.”
A third doctor told ADPH the same day that he was informed the hospital could not perform certain lab tests because, “...some medications are on short supply and the hospital cannot obtain the medications because the hospital cannot afford to purchase them.” The doctor told ADPH that he began taking samples of certain drugs from his office to provide for his patients who were hospitalized at Chilton Medical.
And, the director of Chilton Medical's lab told ADPH in August, 2012, that certain lab tests had to be sent out to other labs because the hospital could not pay for some testing elements; and, in other cases, had to borrow testing elements from other hospitals.
“EI #5 stated blood for transfusion is now obtained by Cash on Delivery from Lifesouth Community Blood Centers, Inc.,” the report states.
The hospital was closed by the ADPH in October, 2012, and its license suspended.
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