Mississippi hospital sued QHR; case settled and court documents sealed

Court documents obtained by the Banner-Tribune indicate that two employees of the same company that runs Franklin Foundation Hospital were accused in 2009 of fraudulently misleading a hospital board in Mississippi of the institution’s financial situation which subsequently resulted in the hospital seeking protection in bankruptcy court.
The Chief Financial Officer, Jeffrey S. Wesselman, and the Chief Executive Officer, Michael Anderson, both employees of Quorum Health Resources, with the Natchez Regional Medical Center (NRMC) in Natchez, Mississippi were sued by the institution that accused the two of working together to financially ruin the hospital. Quorum was also named as a defendant in the case.
The hospital was subsequently put up on the auction block a few years later and was purchased by Quorum’s parent company, Community Health Systems.
According to court documents, the two Quorum employees were not only accused of fraud but were also accused of shifting contracts for products and services to their associates and hiding information from a former NRMC CFO who was not a Quorum employee. Quorum was also accused of removing employees who did bring financial problems with NRMC to their attention.
Quorum has been in charge of managing Franklin Foundation Hospital for over two decades. The firm has been repeatedly sued all across the country in 10 states and has been sanctioned by the federal government multiple times, paying hundreds of millions of dollars in fines for fraud and negligence.
In the case of NRMC, the documents state, “this case seeks to remedy monumental harm to a fifty-year-old non-profit institution caused by the Quorum Defendants’ negligence, breach of fiduciary duties, fraud and other wrongful acts and omissions as well as Quorum’s breach of contract. On February 12, 2009, having long previously hired and entrusted its day-to-day management to the Quorum Defendants, Natchez Regional was forced to file for bankruptcy protection in order to maintain its existence and ability to serve the community following mismanagement and improper reporting of misleading and/or inaccurate financial information to the Board of Trustees by the Quorum Defendants.”
And while the defendants were accused of financially ruining the hospital, they themselves were accused of financially benefitting from the fraud.
The documents further state, “Bankruptcy protection was sought only after the Quorum Defendants, who purportedly specialized in healthcare and hospital management and who touted Quorum as a ‘national leader in hospital management’ having served ‘nearly 1,000 hospitals,’ enriched themselves with fees while economically destroying the hospital.”
The court documents continue, “Rather than purchase supplies directly from vendors or from a hospital association group purchasing plan, which offered reduced costs for supplies, the Quorum Defendants sought and directed the hospital to purchase supplies from companies with whom Quorum had existing relationships and from whom Quorum received payments on accounts of the purchases. The Quorum Defendants put pressure on Natchez Regional personnel to buy supplies only from vendors in the Quorum group purchasing plan because the purchases would provide Quorum additional income from Natchez Regional in the form of rebates even though prices charged by the Quorum purchasing plan vendors were higher than Natchez Regional would have been able to obtain on its own.”
The Quorum defendants were not only accused of hiding the declining financial performance of the hospital from the board, they were also accused of preventing other hospital employees from discovering the fraud.
Court documents state, “All during 2006-2007, and for several years prior, long-time former CFO, Charles Mock, a non-Quorum employee, was kept out of board meetings by the Quorum Defendants and was relegated to lower level accounting functions as controller at the hospital. Moreover, during fiscal year 2007, Mock was directed by Defendant Anderson to make accounting journal entries without appropriate support.”
Quorum was also accused in the case of not only ignoring information on the sagging financial stability of the hospital, but of removing their own employees when they did report issues.
“In what can only be described as a ‘revolving door’ of Quorum management at Natchez Regional, Steve Miller joined Natchez Regional in May 2005 as its then next interim CFO selected by Quorum,” court documents state. “Miller quickly recognized that operating expenses were over budget and that a careful review of the hospital’s expenses needed to occur. Just three months after Quorum brought in Miller as CFO and Miller raised his concerns regarding the hospital’s operating expenses, Quorum replaced Miller with defendant Wesselman as the hospital’s new CFO in September 2005.”
One of the reasons put forth in the case that the two defendants were reporting misleading information to the hospital board was because of another potential loss of financial benefit to Quorum. The firm’s contract was about to end with Natchez Regional Medical Center effective September 30, 2007:
“During 2006 and 2007, the Quorum Defendants acting negligently and/or out of greed, disloyalty, bad faith and/or gross negligence and conflicted by a desire to secure yet another contract extension from Natchez, repeatedly and wrongfully misrepresented to Natchez Regional’s Board that significant progress had been made to rehabilitate the hospital’s ailing financial condition while failing to take those measures which a reasonably competent manager would have undertaken and/or recommended to the board.”
The court documents further alleged that not only were the Quorum CEO and CFO not telling the hospital board how much money they were losing, they were actually encouraging the board to spend more money that the hospital didn’t have:
“These misrepresentations and failures by the Quorum Defendants led the board to believe that the hospital’s financial condition was stable, that it was not necessary to take timely affirmative steps to restructure the hospital’s finances and operations and also caused the board to approve borrowings, capital expenditures and other operational expenses recommended by the Quorum Defendants when such undertakings were not reasonable and feasible in light of the hospital’s financial condition.”
The case was settled out of court for an undisclosed sum and the results were sealed as per request from Quorum.