by Martha K. Huggins, Ph.D.......
Like a set of increasingly small wooden Russian nesting dolls placed one inside the other, Key West’s hospital cannot be understood by unpacking it. Reputed as community and tourist-unfriendly, our hospital system consists[i] of two for-profit hospitals—dePoo Hospital on Kennedy Drive [ii] -- and Stock Island’s, Lower Keys Medical Center. These two privately nested hospitals are part of a corporate superstructure dubbed, ‘Key West HMA LLC.’ But the Alpha corporation within our hospital system’s nesting set is the Delaware/Tennessee for-profit corporation, Community Health Systems - ‘CHS,’ a Delaware/Tennessee registered fortune 500 corporation listed on the New York Stock Exchange as ‘CYH’—and its Florida affiliate, Community Health Systems, Inc.
But it wasn’t always this way and Community Health Systems did not in and of itself transform our local public hospital into one of the lowest rated and most expensive for-profit hospitals in the nation. It was local power brokers, Florida state legislators and their lawyers who accomplished that. Community Health Systems made profit-seeking more aggressive, and if you’ve been listening to a good number of its clients -- ruthless, and cruel. However, it can be argued that the greatest threat to excellent, affordable, and corruption-free hospital care in Florida’s lower Keys is the collusion between some local medical professionals and the investors with whom they partner.
After a month researching the interwoven set of corporations that impact the quality, availability, and cost of hospital care for Key Westers and tourists, I still have two very basic questions: Did our community Hospital District legally relinquish control of its public hospital? Who actually benefits financially from the pricey for-profit hospitals embraced within our community’s ‘hospital district’?
Non-Profit Corporations Aren’t Always Non-Profit
For-profit hospital privatization in the Lower Keys really began taking shape when a group of profit-seeking entrepreneurs, possibly headed initially by Miami businessman Roberto Sanchez, proposed tweaking an existing community based non-profit corporate superstructure [Lower Florida Keys Health System, Inc.] so that Key West’s private for-profit dePoo Hospital -- which investor Sanchez had purchased and had a $1.5-million-dollar mortgage on—would be able to merge, on paper, with Stock Island’s not-for-profit publicly run Lower Keys Medical Center. The idea was to place both hospitals inside a common for-profit managerial cocoon. Call me naive but I don’t understand why combining two hospitals into one, required converting our only public hospital into a private one. Why not create two public hospitals, each with a different client base?[iii] Anyway, as attorney Lew Fishman, counsel for the Lower Florida Keys Hospital District Board, recounts in his August 6, 2016 memo explaining the 1998, “Determination of the District Board”[iv]:
“The [Attorney General] Opinion cited the referenced section 155.40(1), Florida Statutes, which provided that:
In order that citizens and residents of the state may receive quality health care, any county, district, or municipal hospital organized and existing under the laws of this state, acting by and through its government board, shall have the authority to sell or lease such hospital to a for-profit or not-for-profit Florida corporation, and enter into leases or other contracts with a for-profit or not-for-profit corporation for the purpose of operating and managing such hospital and any or all of its facilities of whatsoever kind and nature. The term of any such lease, contract or agreement and the conditions, covenants, and agreements to be contained therein shall be determined by the governing board of such county, district or municipal hospital. The governing board of the hospital must find that the sale, lease or contract is in the best interests of the public and must state the basis of such finding. If the governing board of a county, district or municipal hospital decides to lease the hospital, it must give notice in accordance with paragraph (4) (b).”
In the end, the lure of profits won out over “the best interests of the public” and a gnarly contradiction surfaced: Thinking that for-profit hospitals, managed by a for-profit, stock market registered corporation, would serve the uninsured and the elderly lacking supplementary Medicare insurance, seemed unrealistic. The Lower Florida Keys Hospital District Board tried to avoid this apparent conflict when entering into the contract with Health Management Associates (HMA)[v] [CHS predecessor] by requiring that this corporation management group, adhere to an “indigent care” agreement.[vi] The deal with HMA was closed in 1999, with the for-profit corporate management group paying $20 million dollars for a 30 year lease and becoming obligated to fulfill its “indigent care” agreement with the Lower Florida Keys Hospital District Board.
A problem, apparently never addressed by the Hospital District Board, even before entering into the HMA agreement, was the investigation and monitoring of sets of interlocking executive board memberships that, on paper at least, appeared in conflict. For example, several members of the Hospital Districts’ not-for-profit The Lower Florida Keys Health System, Inc’s board that ran the public hospital on Stock Island, and whose President and Director in 1997 was (and continues to be) Dr. Robin Lockwood, MD, also served on the governing board of the public Health System’s affiliated for-profit dePoo hospital [owned by Florida Keys Medical Center].
According to a summary report provided to The Blue Paper by a confidential researcher, Dr. Lockwood--a Class I shareholder (1997) in Kennedy Drive Investors (KDI), Ltd., headed by Roberto Sanchez, principal owner of dePoo Hospital real estate -- was also at the time reportedly among those benefitting economically from KDI’s fiduciary relationship with the Hospital Districts’ non-profit corporation, Lower Florida Keys Health System, Inc.:
In the six years between 1992 and 1997,
“in addition to receiving all of its debt service from [the Lower Florida Keys Health System, Inc]…as Base Rent, KDI [Kennedy Drive Investors] received $7,947,000 in excess Medicare funds, plus $4,001,000 in the profits of the hospital, for a total of $11,948,000.”[vii]
Once Key West’s two hospitals, had become one hospital, on paper, "it" became eligible to receive “enhanced” Medicare reimbursements: Being the Lower Keys Hospital District’s, “sole rural…community provider” of health care,[viii] was ‘bankable’:
“Medicare payment policies for rural health care providers are influenced by the assumption that the limited supply of physicians in rural areas causes rural Medicare beneficiaries to receive fewer health care services than their urban counterparts…[, an assumption that] has contributed to the growth in special payments to rural providers. [Especially in the late 1980s and 1990s,][ix] Medicare paid rural providers [of health care] $3 billion more each year…than they would [have] receive[d] under traditional payment rates.”[x]
Never mind that Key West and many of the other Lower Keys islands are far from demographically rural. But who complains when being rural is a ‘Cash Cow’! Well the Internal Revenue Service (IRS) would if a not-for-profit looked like it might be making lots of money for some for-profit corporate affiliate. In 1998/99 --under threat of having its not-for-profit status revoked -- the Lower Florida Keys Health System was audited by the IRS. Then hospital administrator Dr. Robin Lockwood and his accountants asked for additional time to pull together the materials requested by the IRS. After that, no further IRS audits of the Lower Florida Keys Health System could be located. As a not-for-profit 501(c)(3), Lower Keys Health System is expected to file an IRS income report annually to the IRS, something it has, apparently, not done for several years now.
The merging of the hospitals and the conversion to for-profit management was, reportedly, profitable for Roberto Sanchez and the stockholders in his Kennedy Drive Investors, LLC. Investor Sanchez’s $1.5 million mortgage on dePoo Hospital was satisfied soon after The Lower Florida Keys Hospital District Board and KDI extended leases to HMA’s local affiliate, Key West HMA. The researcher's summary report also reveals that the non-profit Lower Florida Keys Health System’s “Financial Statement shows that in 1997, KDI was to receive $1,004,349 in ‘excess’ Medicare funds (one-half of $2,008,698) and in 1996, KDI was to receive $1,167,573.50 in ‘excess’ Medicare funds (one-half of $2,509,662). However, because System could not afford to pay that, it was on the books as a debt from System to KDI and it was paid when the lease to HMA occurred.”
With the IRS on its tail, the Hospital District Board fast-tracked offering a 30-year administrative contract to Health Management Associates [HMA] -- an out of state for-profit corporation that already had a lousy management record associated with cost-cutting patient care and price gouging to enhance its investors’ profits.[xi]
Fishman seems to have acknowledged some doubts at the time of the HMA ‘deal’ about the legality of the District hospital’s lease with HMA:
“The District options are: 1) to seek declaratory decree action; or (3)[sic] assuming that HMA is able to convince a title insurance company to write the title policy and indemnify both HA[sic., HMA] and the District, to go forward with the transaction knowing that if a suit is brought, the title company will step in to defend it.”
~~ Hospital District Board minutes, December 1998
Did the Hospital District Board do something illegal back in 1999? The Hospital District attorney, Fishman, argues that a 1996 amendment to Florida Statute 155.40 specifically authorized the District to enter into a lease with a for-profit entity. Others, like former City Attorney, Diane Covan, argue that even if that were so [and she doesn’t believe it is], the District could not have legally relinquished its very specific oversight responsibilities as spelled out in the enabling legislation:
“... the district shall supervise such not-for-profit corporation by election of a majority of such not-for-profit corporation's board and by review and approval of such not-for-profit corporation's budgets, rates, and charges; its policies regarding medical staff appointment, reappointment, and adverse action, and its policies regarding admission and discharge of patients and purchase of goods and services.
~~ from the 2003 re-enactment of the enabling statute
A Modern Day Feudal System in the Midst of a Revolt
Acting like a squatter, HMA reportedly moved its computers into one of the local hospitals before final “public” negotiations had even ended on its deal with the Lower Keys Hospital District Board. The Lords —a jumble of corporation management companies that use all of the newest management ‘bells and whistles.’ For their part, like most feudal serfs—concerned Key Westers at the time--were not yet in a position to make any challenges. Now there is a nascent organization in Key West, armed to the teeth with tales of price gouging and second-rate care, ready to ‘Take Back Its Hospital’ and a former politician, Harry Bethel, is leading the charge. The impoverished serfs must no longer allow modern corporations to come and go as they please, just as CHS may be ready to do right now: Saying that it is ‘over-leveraged,’ Community Health Systems (CHS)[xii] is reportedly looking for a buyer to purchase its operations --and a Chinese billionaire has apparently expressed an interest in doing so. Perhaps, CHS will abandon Key West altogether and we can use our taxpayers muscle to keep the Hospital Board from repeating the mistakes of the past.
Do the Hospital District Board’s responsibilities to the community disappear when management is passed over to a for-profit corporation rather than a non-profit? If not, is the contract between the Hospital District and HMA in violation of the enabling statute or is the District Board simply asleep at the wheel? To what extent do KDI investors share in the revenue collected by Key West's CHS managed hospital system?
The Nesting Dolls:
- Florida Keys Medical Center, Inc. (Fla. reg. 585170) [owner of dePoo Hospital on Kennedy Drive, Roberto Sanchez, leased to Kennedy Drive Investors, KDI and sub-leased to Key West HMA May 1, 1999 for 30 years]
- dePoo Hospital [1200 Kennedy Drive, fictitious Name Reg # G08365900324 registered by Key West HMA]
- Lower Keys Medical Center on Stock Island [fictitious Name Reg # G08365900325 registered by Key West HMA] leased by Hospital District Board to Key West HMA, May 1, 1999 for 30 years]
- Key West HMA (Fla. Reg. L08000108767)
- Lower Florida Keys Health System, Inc.’ (Fla. reg. N35636) [the non-profit created by the Hospital Board, still active]
- Community Health Systems —‘CHS,’ a Delaware/Tennessee registered fortune 500 corporation listed on the New York Stock Exchange as ‘CYH’—
- CHS Florida affiliate, Community Health Systems, Inc. (33774).
- Kennedy Drive Investors (KDI), Ltd. (Fla. reg., A13350) [holds lease for dePoo from Florida Keys Medical Center, subleased to HMA May 1, 1999 for 30 years.]
[i] It also likely includes the Roberto Sanchez owned office building at, 1111 12th Street, Key West
[ii] Note that,dePoo Hospital is a fictitious name registered with the State Department of Corporations by Key West HMA. Florida Keys Medical Center, Inc. (Fla.reg. 585170) is the owner of the real estate property where dePoo is situated, 1200 Kennedy Drive.
[iii] dePoo is said to be a psychiatric and substance abuse hospital and treatment center, while the Lower Keys Medical Center is an acute care community hospital. Both hospitals have primary practice ‘indigent care’ clinics within their walls.
[iv] Memo by Lew Fishman, Hospital District Board's attorney, linked in the body of the text above
[v] The then HMA, Inc. was gobbled up by Community Health Systems (CHS, 2014), thus for consistency, CHS will be used when henceforth speaking about either HMA or CHS
[vi] Indigent care agreement supplied upon request.
[vii] Summary Report linked in text above, entitled, A Summary of Volume IV
[viii] 1997 and 1998 IRS filings by John Lockwood, MD for the Lower Florida Keys Health System, Inc. [Hospital District's non-profit]
[xi] See Martha K. Huggins, The Blue Paper, Issue, 186, 9/30/2016, for more recent examples: Part I: Shady Management; Shady Dealings: For Profit Health Care in Key West by Martha K. Huggins, Ph.D
[xii] After HMA was acquired by Community Health Systems in January of 2014, the name HMA was changed for most of the Community Health System entities to CHS, thus the corporation that is today looking for a buyer is CHS, not HMA.