U.S. Department of Labor officials confirmed they are investigating the leaders of the old Hutcheson Medical Center for possibly millions of dollars in health care fraud.
In a subpoena, Labor Department Regional Director Isabel Colon asked the hospital's bankruptcy trustee, Ronald Glass, to meet with an investigator on Dec. 16. The purpose? A criminal inquiry into whether Hutcheson administrators defrauded employees of their retirement and health care benefits.
Multiple former Hutcheson workers told the Times Free Press earlier this year that debt collectors called them after they went to hospitals for operations, prescriptions and check-ups. Hutcheson was self-insured, and employees said they paid the company every two weeks for their benefits.
Nevertheless, they said, debt collectors began contacting them in late 2014, around the time Hutcheson filed for bankruptcy. This September, Glass filed a court document estimating the unpaid claims had reached $2.8 million.
In the subpoena, Colon asked Glass for records of Hutcheson's bank activity, payments to President Farrell Hayes, payments to Chief Operating Officer Kevin Hopkins, severance packages, salary increases, bonuses, board of directors meeting minutes and transactions involving Walker County Attorney Don Oliver, who also represented the hospital's board.
Hutcheson filed for bankruptcy in November 2014. The hospital had about $30 million in assets and $80 million in liabilities at the time. The next year, U.S Bankruptcy Judge Paul Bonapfel appointed Glass to handle the hospital's finances. In December 2015, he shut down Hutcheson, a hospital that had operated since the 1950s.
Weeks later, a company in Atlanta bought the hospital and re-opened it as Cornerstone Medical Center.
Glass and the DOL's lead investigator, Michael Morrow, did not return calls seeking comment Tuesday. But Hayes, the hospital's president until the shutdown, denied any impropriety.
He said the hospital fell behind on some health care claims before filing for bankruptcy. Then, after the filing, lawyers advised the hospital not to make any of the overdue payments. Those were considered "pre-petition" debts. And once you are in bankruptcy, he was told, you don't pay the old debts before new bills.
In early 2015, he said, lawyers told the hospital that, actually, the hospital could make those old payments. At that point, Hutcheson was millions of dollars behind.
The DOL's subpoena also confirms investigators are looking into whether the hospital defrauded employees of retirement benefits. Hayes said he has not heard of any issues with that plan. He also hasn't heard from DOL investigators.
"I haven't heard a word from anybody," he said. "Nobody has contacted me at all."
"Legal malpractice": Also Tuesday, Glass filed a lawsuit against Miller & Martin, the law firm that represented Hutcheson during negotiations with Erlanger Health System in 2011.
At the time, Hutcheson was on life support, and Erlanger offered to partner with the hospital. Erlanger would loan Hutcheson $20 million and manage the Fort Oglethorpe hospital. As part of the deal, Hutcheson gave Erlanger collateral. If Hutcheson could not pay back the loan - which, ultimately, it couldn't - Erlanger would have the right to foreclose on Hutcheson's main campus and its nursing home.
But, Glass said in a court filing Tuesday, Erlanger didn't actually want the nursing home as collateral. Hutcheson's attorney, Ward Nelson, just gave it to Erlanger anyway.
Glass' argument is based on an email from March 14, 2011, from Nelson to his co-worker Evan Allison.
"The collateral us [sic] only the main campus," Nelson wrote, before telling Allison the plan should not include the "nhome [nursing home]."
Allison then forwarded the request to a paralegal, to adjust the documents in the agreement. Apparently, that never happened. About 1 1/2 months later, leaders for Erlanger and Hutcheson signed the documents. Glass said Hutcheson's administrators had no idea their deal gave Erlanger the right to foreclose on the nursing home.
In early 2014, Glass said, Hutcheson's administrators tried to get a $4 million loan from Regions Bank. The bank's officials said they would give the money only if Hutcheson also gave them the right to foreclose on the nursing home. That's when the hospital realized what it had given Erlanger.
In October 2015, Hutcheson sold the nursing home for $7.2 million. But because Erlanger had the legal right to foreclose on the nursing home, Erlanger's leaders had to sign off on the deal. And, Glass said, they did so only after receiving $1.4 million off the top of the deal.
Glass' attorney, Jonathan Palmer, said they want a jury trial on the case, accusing Miller & Martin of legal malpractice, and breach of fiduciary duty. Palmer has not set a specific figure on how much a jury should award Hutcheson.
"There are a number of measures of damages," he said. "We'll try them and see what the jury has to say."
"When we represented Hutcheson Medical Center almost six years ago, the management team at that time worked hard to try to save the hospital," said Billy Eiselstein, of Miller & Martin. "Our attorneys diligently represented our client as part of that effort. We disagree with the allegations in the lawsuit and will present our case and expect to prevail."
Because Hutcheson no longer exists, Palmer said, the money would go toward paying back creditors. It's not clear how much money people are still owed. The hospital's bankruptcy attorney, Hayden Kepner, said the defunct hospital's debts are "better than we expected," but he did not know the specific total Tuesday.
Paul Chambers and Charlie Berry, who were part of the team representing Hutcheson in its negotiations with Erlanger in 2011, could not remember Tuesday all the specifics of their deal five years ago. That includes whether they knew Erlanger would be able to foreclose on Hutcheson's nursing home.
But in general terms, they both said they were pleased with Nelson's representation at the time. Berry said his team recruited several lawyers at the time, but most people rejected the job offer. Nelson agreed to represent Hutcheson in February 2011, about three months after Hutcheson and Erlanger began negotiating.
"Ward Nelson did an excellent job in there," Berry said. "He had a very challenging job. He didn't have hardly any time to prepare."
Contact staff writer Tyler Jett at 423-757-6476 or tjett@timesfreepress.com. Follow him on Twitter @LetsJett.