In early 2016, the Tulare Local Healthcare District (TLHCD) took on an unexpected role as a financial lender for a hospital in Lone Pine, Calif., extending it a $500,000 line of credit.
Both the Lone Pine hospital and Tulare Regional Medical Center are managed by Healthcare Conglomerate Associates (HCCA), a Tulare-based company, that has taken over day-to-day operations and management at both hospitals.
HCCA appears to have extended the line of credit to the Southern Inyo Hospital without the approval of the TLHCD Board of Directors. The company disputes claims the line of credit was ever kept secret from the public, though no documents on the hospital’s website from the time period the loan was approved appear to show the existence of the line of credit.
While a signature from the Southern Inyo Healthcare District’s (SIHD) Board president was present on multiple documents, signatures from any TLHCD board member were absent. HCCA stated that it did not need to bring this item to the board as it was not of a material nature, nor was board approval expressly required.
Additionally, as HCCA officials inked the line of credit with SIHD — which has since been repaid, with interest, according to HCCA — the Tulare hospital was facing hundreds of thousands of dollars in past due invoices from a major vendor. The district later took out a $800,000 line of credit to repay that particular vendor.
Lending Out of One Hand
Documents provided to the Voice show that on March 25, 2016, a $200,000 line of credit was established with the Tulare Local Healthcare District, the public legal entity that runs Tulare Regional Medical Center, acting as a lender to the Southern Inyo Healthcare District. Its due date was marked as June 30, 2016.
That line of credit was upgraded from $200,000 to $500,000, in a document dated July 8, 2016. The July agreement also extended the due date to September 30, 2016.
View noteBoth documents were signed by three officials: Richard Fedchenko, president of the SIHD Board; Alan Germany, acting as Chief Restructuring Officer for SIHD; and Benny Benzeevi, CEO/chairman of HCCA.
Germany also holds the titles of the Chief Financial Officer/Chief Operating Officer for HCCA, and is also the CFO for TLHCD.
View noteThere was no apparent financial risk to the Tulare district, as the loan was guaranteed by HCCA, which would take the brunt of any default by the Southern Inyo district. In a response to the Voice, HCCA states the same.
“[…] there was no risk to the Tulare District because the loan was fully guaranteed by HCCA (and the Tulare District owed substantial sums to HCCA against which any unpaid guaranteed amounts could be offset,” a statement from HCCA read. “The loan has been now fully repaid to the Tulare District with interest.”
While Fedchenko, the SIHD Board president, signed off on the loan, no signatures from any Tulare Local Healthcare District board members are present on either document.
The terms of the Management Services Agreement, which governs the relationship between the district and HCCA, would appear to disallow such actions.
“[HCCA] shall not engage in any financial lending, financing, or banking actions that result in liens, mortgages, lines of credit, security interest or financial obligations in the name of the District, without the prior written consent of the Governing Body,” one paragraph reads.
“The District shall assure that its funds are used to support the Hospital and the Clinics and Other Facilities and to provide charitable care therein and are not diverted to other uses,” another reads.
However, HCCA states that no approval was required from the Tulare board, stating that TLHCD had previously entered into similar agreements with other healthcare districts.
“The loan did not require Board approval. We only bring to the Board matters that are of a material nature or for which Board approval is expressly required. Neither situation applied here,” officials with HCCA wrote.
Borrowing In The Other
While still acting as a lender to Southern Inyo, the Tulare Local Healthcare District needed to obtain its own line of credit.
The TLHCD Board of Directors approved a line of credit on September 1, 2016, with Bank of the Sierra, for $800,000. Members of the board told the public at that meeting that any expenditures from that line of credit would be made public and voted on before being executed.
“If we do spend this money, we will bring that item to the board, to be voted [on] by the board, to be spent on a particular item,” Dr. Parmod Kumar, vice president of the TLHCD Board, said.
Controversy erupted when it was revealed that multiple officials with TRMC and HCCA knew, before the meeting, that the money would immediately be used to repay past due debts to Cardinal Health, a major pharmaceutical vendor.
View noteAccording to documents received by the Voice, TRMC accumulated $827,922.34 in past due invoices to Cardinal.
Those past due invoices began as far back as November of 2015, and continued through to May 2016 – and by March, when HCCA inked the agreement with SIHD, the district was in arrears to Cardinal to the tune of $494,865.94.
Hospital officials, when the documents were revealed, stated that the $800,000 line of credit was taken out to maximize cash flow, and stated that the revelations were meant to “viciously and falsely discredit” the turnaround at Tulare Regional Medical Center.
“Anybody who’s anybody knows that cash flow and profit are two different things. Any smart business will do what it can to maximize cash flow. The profits of the hospital for the last three years are indisputable. Two audits have already confirmed this and a third one is on the way. Four total credit rating agency upgrades (FITCH Ratings and Moody’s) specifically mention HCCA as being the cause of the dramatic turnaround and further confirmed it,” a hospital representative wrote.
Officials with TRMC and HCCA also pled penury to Novia Solutions, a healthcare consulting company that the hospital owed $44,500 for services performed from June 2015 to February 2016. They were able to negotiate the balance down to $35,000.
In an email from Novia’s corporate counsel, Daniel Stein, to both Germany and Delbert Bryant, TRMC controller, the company stated that the hospital’s words and actions appeared to be divergent:
“…it appears that TRMC repeatedly executed agreements with payment terms that TRMC’s officers, employees and/or agents apparently had no intention or present ability to perform,” Stein writes to Bryant and Germany.
“Despite assertions in Mr. Bryant’s email concerning TRMC’s ability to pay Novia, TRMC’s website currently touts the hospital’s financial turn-around, including returning TRMC to profitability, significantly increasing TRMC’s days of cash on hand, and providing significant raises to TRMC workers.”
HCCA states that its results speak for themselves.
“[…] why has a company that saved the hospital from bankruptcy, is keeping it fully and completely in public hands, turning a loss of over $1M per month into now 33 continuous monthly profits, and having saved over 500 local jobs, being castigated?” the statement read. “Is the community so filled with hatred that it wants to destroy any good that comes its way?”
Reaction
The line of credit to Southern Inyo made its first media appearance in the Visalia Times-Delta, which dubbed it “TRMC’s secret loan.”
HCCA disputes the idea that the loan was secret, and states that there are more important issues to address.
“[…] why are we discussing this instead of the critical issues that have faced and continue to face the Tulare hospital for years,” the HCCA statement read, “critical issues that instead of being addressed and reconciled, are constantly avoided by a constant stream of manufactured “crises”?”
While HCCA disputes the ‘secret’ characterization, the newly-elected board members, Mike Jamaica and Kevin Northcraft, say they have been left completely in the dark.
“When I read it, I sent Dr. Benzeevi an email asking if he could give Kevin and I some information to that, as to the loan, but I never heard anything back from him, and neither has Kevin,” Jamaica said. “No one has said anything to us at all about anything.”
“It’s something that we had put on our agenda. We wanted to have a meeting in December, but we never heard anything from them on that, also,” Jamaica said. “We want to know if they can give us information on the loan to Inyo on the next board meeting that we’re having.”
Northcraft concurred, and said that he was not aware of any responses to their requests for information.
He also said that not only have they not been given information about the loan, but they have only been given one ‘orientation session’ in preparation of their work on the board.
“We don’t know when the next one will be,” he said.
HCCA, for its part, says that they’re going to do more to inform the public.
“[…] the community has spoken. And we hear them loud and clear. They want the ugly of the past two decades laid bare before them before we can move forward with a future for our hospital,” a statement from the company read. “But they have been misguided as to why the problems of the past arose and who was in fact responsible.”
“So, we will soon be releasing to the public extensive documented details of the on-goings here over the past two decades,” the statement continued. “We will soon see who are the true guardians of Tulare’s public hospital.”
Board member Linda Wilbourn declined to comment for this article. Board member Parmod Kumar did not return a request for an interview.
The hospital’s statement, which includes references to a recently-written article about the old MEC, is available here.
Loan documents made available to the Voice are available below.
