The county hospital and a nursing home chain it owns were allegedly involved in an illegal kickback scheme that is now part of a larger lawsuit against Community Health Network for alleged shady business dealings.
The lawsuit, filed by Thomas Fischer, a former chief financial officer at Community Health Network, alleges that, among other things, Community was involved in a “sham” deal with Johnson Memorial Health that made it look like Community was monitoring and performing consulting services for the network’s nursing homes, but the services performed were minimal for the price paid, according to the lawsuit submitted to the U.S. District Court for the Southern District of Indiana.
Johnson Memorial is not a defendant in the lawsuit, but Fischer claims the hospital paid about $6 million a year for Community’s services, including illegal referrals to its nursing homes.
Miller’s Health Systems, owned by Johnson Memorial Health, has 33 nursing homes throughout the state that operate under the name Miller’s Merry Manor. None of those nursing homes are located in Johnson County.
The suit alleges that Johnson Memorial’s 2011 purchase of nursing home chain was completed with a deal to split with Community the excess funds not spent on operations at Miller’s each fiscal year, facilitated through the unlawful referrals to Miller’s from Community, the lawsuit says.
The deal was allegedly a way to bring in more money to both hospitals at the expense of the nursing homes, which was achieved by exploiting a law that allows county hospital-owned nursing homes to receive a larger share of Medicare dollars, the suit says.
The lawsuit claims Community Health CEO Bryan Mills personally negotiated the agreement with former Johnson Memorial President and CEO Larry Heydon. Together, Mills and Heydon met and negotiated a mutually beneficial agreement with Miller’s, the suit says.
Following negotiations, Mills directed Fischer to negotiate a service agreement that would support a large sum of money being paid to Community by Johnson Memorial, according to the lawsuit.
The service agreement provided 2.25% of net patient revenue and management fees to Community. Community received about $6 million a year between 2013 and 2018, when the deal was terminated, the suit says.
All told, Community allegedly received about $30 million from Johnson Memorial.
Community’s true cost of providing oversight of the nursing homes accounted for about 6.5% of the revenue it received from the arrangement annually, the suit says.
It is not clear from the lawsuit how much money Johnson Memorial received as a result of the deal, or if referrals from Community decreased after the deal was terminated.
The deal was terminated after Community was informed that it was named in Fischer’s lawsuit, which was originally filed in 2014 but remained under seal while the U.S. Department of Justice investigated.
Heydon, who was Johnson Memorial’s president and CEO for 11 years, left suddenly in February 2019. He is now the chief financial officer for a short-term rehabilitation and long-term skilled nursing chain that operates 23 facilities in Indiana.
Why Heydon was terminated remains unclear. A separation agreement reached by Heydon and the hospital’s board of trustees said neither side would discuss it in detail nor admit to any wrongdoing or liability.
Johnson Memorial board member Sandi Huddleston said at the time despite what hospital documents say, Heydon resigned, and due to the hospital industry’s difficult climate right now, he wanted to move onto something different.
Heydon did not respond to a request for comment.
The lawsuit alleges Heydon told Fischer in 2014 that “(He did not) want to go to jail over the Community nursing home deal.”
Community says in a recent bonds report regarding the lawsuit: “The Network believes the allegations presented by the government and the whistleblower are without merit and as such will defend itself vigorously. The ultimate potential exposure in this matter is not determinable but could have a material adverse effect on the Network’s results of operations, financial position and cash flows.”
Johnson Memorial President and CEO Dr. David Dunkle, who assumed leadership following Heydon’s departure, said he was not involved.
“I was not CEO at the time. Our current relationship with Miller’s organization benefits patients both at the nursing facility and the hospital level,” Dunkle said.
Prior to becoming CEO, Dunkle was a physician at Johnson Memorial.
The kickback scheme is Fischer’s latest allegation against Community.
The allegations involving Johnson Memorial are pending court approval of the 2014 lawsuit, said Veronica Nannis, one of Fischer’s attorneys.
