July 29, 2008 — Mismanagement of funds and a lack of transparency by officials at Schneider Regional Medical Center has "irrevocably" damaged the public's trust in its health-care system and, as a result, the governor may dissolve the center's board or replace its members, according to a joint local and federal audit report.
The highly anticipated audit report — a combined effort by the Offices of the Inspectors General of the Department of the Interior and the Virgin Islands — was released around 5 p.m. Tuesday. In its 25 pages, the audit showed that the medical center's top three executives — Rodney Miller Sr., Amos Carty Jr. and Peter Najawicz — were paid hundreds of thousands more than what was outlined in their employee contracts, used the center's official credit card for at least $317,200 in personal purchases and worked hand in hand with board members to "misrepresent" financial figures and prevent the release of financial documents to investigators working on the audit.
"Unfortunately, we faced an alarming degree of secrecy and deliberate concealment of financial records that limited our ability to do a comprehensive review of the medical center's administrative functions," the report said. "To get the information on which we base this report, we were forced to issue (seven) subpoenas. A court proceeding in the V.I. Superior Court was ultimately required to enforce the subpoenas."
The audit was conducted from December 2006 to October 2007. Investigators went to court in November 2007 to get the information needed to finish the report.
The medical center's district board also "acquiesced and colluded" with hospital executives to divert the funds and misrepresented what executives were being paid by handing out "incomplete and inaccurate" information during the annual budget hearings, and by omitting any salary decisions from the minutes of their board meetings, according to the audit.
The medical center averaged losses of $25.4 million annually from 2002 to 2006. Based on "faulty and misleading information" provided by board members and hospital executives, the Legislature appropriated an average of $21.8 million to help with operations and personnel costs, the report said.
"These conditions, when taken in totality, were serious enough to warrant the instigation of a criminal investigation," according to the audit.
Executive Pay Packages
In April 2002, Miller was brought on as the center's chief executive officer and awarded a three-year contract at $450,000, or $150,000 per year. Also included, however, was another $142,400 for perks such as housing allowances and signing bonuses. Extra housing allowances and money awarded for unspecified "educational expenses" ultimately pushed his compensation package up to $648,700, the report said.
Before the three years were up, the board decided to evaluate Miller's contract and hired Clark Consulting — a company that specializes in employee compensation and benefits — to see whether his salary was comparable to those offered to executives at similar health-care facilities on the mainland. Because much of the hospital's money is garnered from the government, Clark representatives said it would be "problematic" to increase the CEO's salary, and recommended a two-year compensation package of $585,300. The board instead eked out a two-year agreement — with a one-year option to renew — for about $1.8 million, the report said.
Miller was only entitled to receive the full $1.8 million if he renewed the contract, which didn't happen. Still, he received a little more than $2 million — or an excess of $406,400, the report said.
Once the two years was up, the board created yet another agreement in 2007 — despite warnings by Clark Consulting representatives that the special cash payments could adversely affect Schneider Regional's finances. Miller's new agreement was valued at about $1.3 million, including a $310,000 salary and close to $993,000 in perks. Miller voluntarily resigned before the final contract expired, and received a little more than $1 million.
Miller's contracts allowed for the establishment of a Rabbi Trust — a plan, paid for by the employer, similar to 401(k)s established for top company executives. Instead of paying money to an independent third party — such as a bank or trust company — the board never set up the trust, but deposited about $1.4 million straight into Miller's personal bank accounts, according to the report.
The board approved about $2.5 million worth of payments, according to medical center documents, but Miller allegedly racked up close to $3.8 million in salary and associated perks throughout his five years at the helm of the hospital.
Clark Consulting was contracted again in August 2005 to analyze compensation packages and benefits given to the hospital's chief financial officer (Najawicz) and chief operating officer (Carty). Notices of Personnel Action — documents filed with the Division of Personnel that outline, among other things, what a government employee is being paid — showed that both were being paid $80,000. However, between 2005 and 2007, the chief financial officer was pulling in at least $166,000, while the chief operating officer was receiving about $146,000.
In total, both officials were overpaid by $456,100, the report said.
"Both executives also received the benefit of extra life insurance and long- and short-term disability insurance payments totaling $96,000 in 2006 and 2007 that were not available to other medical center employees," the report said.
No supporting documentation was provided, according to the report, to back up thousands of dollars more in credit card charges (including airline tickets, golf outings, ticket upgrades and meals) and reimbursements made to hospital executives.
No Controls
Medical Center executives did not keep up with refund payments owed to patients and actually used money owed to its insurers to cover expenses. Officials also "allowed" patients to be over-billed for air-ambulance services and did not properly apply discounts covered by two of the hospital's insurers, the report said.
"Over the past five years, the medical center's accounting system reflected possible payments due to patients and insurers that were either caused by an actual overpayment for services or by data-entry errors," according to the report. "Rather than analyzing the amounts to determine how much were actually due to overpayments, medical center officials allowed these possible refunds to increase to $8.8 million."
Payments received were keyed in as revenue and used to support operating expenses. Though the medical center is currently in the process of making refunds to patients, poor internal controls in place for processing repayments subjected the money to "fraud and abuse," and could not show that refunds were actually accurate or paid to the appropriate people, the report said.
After turning up a dozen instances in which patients were over billed for air-ambulance services, investigators were told by medical center employees that they were instructed to "inflate claims" by Schneider Regional's director of patient accounts and one of its consultants. The director, however, attributed the over billings to errors made by employees, saying that they "did not possess adequate education to process claims for air-ambulance charges."
Audit Recommendations and Governor's Response
The governor should take immediate action to evaluate the performance of individual board members and remove those that have contributed to the center's money mismanagement and financial crisis, the report said.
Investigators also recommended that the governor:
— evaluate the performance of senior management and recommend disciplinary action for those members who contribu
ted to the current management and financial crisis by failing to live up to their fiduciary responsibilities;
— establish an independent audit committee that reports directly to the board and put in place a policy the refers instances of fraud to the appropriate law-enforcement agencies;
— immediately establish effective internal controls and appropriate control structures;
— recover payments and credit-card charges that were inappropriate or did not benefit the medical center; and
— evaluate credit balances due patients and insurance providers and make the appropriate refunds.
The scathing audit has exposed the medical center to a loss of public confidence and damaged the reputation of the medical center and its governing board, Gov. John deJongh Jr. wrote to investigators early this month, in response to the report. Consequently, the hospital's board will either be dissolved or its members replaced, he said.
"The newly reconstituted district board will evaluate the actions and performance of senior management and take an unbiased look at the findings of the audit," the report said. "As part of his response, the governor also provided information showing that the medical center had either initiated or was in the process of initiating plans of action to implement each recommendation."
The governor will soon make a public response to the audit, once a thorough review of the findings — and other allegations laid out in recent published news reports — is complete.
"The health care provided to our residents must be of the highest standard, and the operation of our hospitals and clinics must provide that high standard of care while remaining free from scandal and wrongdoing, as well as free from the perception of scandal or wrongdoing," deJongh said in a release issued from his office Tuesday afternoon. "Our resources are far too scarce and valuable to be squandered on corruption, waste or inefficiency, and I assure all in the Virgin Islands that I will not be satisfied until the operation of our hospitals is beyond reproach and providing the quality care that our residents demand and deserve."
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