Former EGH VP and EGH spar over hospital finances in lawsuit
Posted: 07/22/2013 at 6:58 pm
By: Tim Vandenack
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Kevin Higdon, former vice president of finance for Elkhart General Hospital (Photo Supplied)
If he stayed for another year with EGH — in the midst of melding with Memorial Hospital of South Bend into a new two-hospital group — he’d get a $150,000 bonus. He held “a position of trust,” EGH said in court papers, and the accord, a retention agreement, seems to underscore his importance to smooth operation of the hospital.
Just a few weeks later in December, Higdon, who started working at EGH in 1996, was out.
A few months after that, on March 15, 2012, Higdon filed suit against EGH in Elkhart Superior Court 1 in Elkhart, about the same time EGH announced a series of layoffs and cost-cutting measures to offset a disappointing performance in 2011. Nearly a year-and-a-half later, the matter continues, raising questions about what exactly was going on with EGH finances in the period.
In his suit, the former financial officer maintains he was let go for no legitimate reason and that he’s entitled to the $150,000 bonus, per terms of the retention agreement.
EGH, in court papers, said Higdon was let go “for cause,” and in its response — a sharp turnaround from the esteem the hospital held for him as suggested by the retention agreement — it unleashed on the former executive. He’s not entitled to the $150,000, the hospital says. In fact, in a July 2, 2012, counterclaim, the hospital said Higdon mismanaged EGH’s finances, dating to perhaps October 2008, straying from accepted accounting norms.
It might be nothing more than a personnel dispute except for the fact that the time frame in question coincides with a period of apparent financial strain at EGH. On March 9, 2012, six days before Higdon filed suit, EGH announced a series of layoffs and other measures to offset a 2011 loss and losses in the first two months of 2012.
The suit makes no mention of the belt-tightening measures, so it’s not clear there’s a connection aside from timing. But the language EGH used in its counterclaim suggests the hospital took a hit. EGH officials declined comment for this article, citing the ongoing nature of the lawsuit.
“Mr. Higdon’s misconduct not just jeopardized the hospital’s financial integrity and reputation, but caused the hospital damages,” EGH’s counterclaim reads. “Mr. Higdon induced bonuses and a retention bonus agreement that the hospital would not have entered but for his fraudulent and gross misconduct.”
In the suit, Higdon called EGH’s claims “frivolous, unreasonable and groundless.”
He wouldn’t delve into particulars when contacted, but issued a statement saying EGH financial statements he oversaw through October 2011 showed EGH was “financially strong.” He also noted that quarterly statements for 2011 were closely scrutinized by the EGH board in the lead-up to the vote in November 2011 to affiliate with Memorial, never generating reports of problems.
“It has been very frustrating for my family and I to have my reputation and integrity questioned in response to these false accusations,” said Higdon, who’s been an accountant and worked in health care for more than 30 years. “My reputation has always been to be honest and very community-minded.”
Higdon now works as chief financial officer at Thorek Memorial Hospital in Chicago. Interestingly, he also serves as treasurer of the Elkhart General Hospital Foundation, a volunteer post. The foundation helps raise funds for the medically underserved in the community, but is independent of EGH or Beacon Health System, the new parent company of EGH and Memorial.
EGH and Memorial, both nonprofit facilities, formally affiliated in late 2011 under Beacon. The move, proponents say, will help the hospitals operate more efficiently and save money.
FUNDS FOR 2011 or 2012?
Parsing EGH’s finances, at the heart of the dispute over the $150,000, is no straightforward task.
When EGH plans to eliminate 40 posts and implement other changes due in part to the poor 2011 performance came to light in March 2012, a letter to employees cited the struggling local economy and reductions in payments for services, according to Elkhart Truth reporting at the time.
EGH’s counterclaim against Higdon charges that the finance official “artificially increased” EGH revenue for 2011 by including “phantom” income for 2012 from a Medicaid program. It also says he “manipulated” the hospital’s bad debt reserve for 2011, lowering it “to perpetuate the appearance of positive operating income rather than an actual operating loss.” Such activity would seemingly fit in with reports of a poor performance in 2011.
On the other hand, a note in EGH’s unaudited financial report for the second quarter of 2012, posted Aug. 29, 2012, and available online, said certain Medicare and Medicaid funds “related” to the second half of 2011 were actually included in the report for the first half of 2012. That is, revenue presumably meant to cover 2011 hospital activity was included in the financial reporting for 2012, seemingly undercutting 2011 numbers.
The Form 990 for EGH for 2011, filed Nov. 15 last year, indicated a loss of $3.89 million, subtracting expenses from revenue for the year. Form 990s are filings required of nonprofit organizations by the Internal Revenue Service.
In a partial judgement in favor of EGH in the Higdon case last February, Superior Court 1 Judge Evan Roberts determined that the $150,000 in dispute can’t be considered “wages” under law, closing one possible legal avenue for Higdon to lay claim to the funds.