Deal Gives HCCA Right to Buy Tulare Regional Medical Center

Various documents mentioned in the article below are available to view, download, and print by clicking here.

In an agreement largely kept concealed since it was signed in May of 2014, the Directors of the Tulare Local Health Care District (TLHCD) have granted an exclusive right to buy all its assets — including Tulare Regional Medical Center — to the company it hired to oversee its operations.

Though the agreement, known as the Management Services Agreement (MSA), was signed by the Board of Directors and TLHCD manager and Healthcare Conglomerate Associates (HCCA) CEO Yorai “Benny” Benzeevi on May 29, 2014, it did not become public knowledge until sometime near the end of 2015. Of particular concern is an additional document signed by Benzeevi as HCCA’s representative, and the Board, on the same day. Known as the “Option Agreement,” that document’s terms grant HCCA the “irrevocable and exclusive” right to sign a 30-year lease to control all the District’s assets, including Evolutions Fitness Center, all five of its health care centers, its pharmacy, services center, X-ray center and laboratories, or to purchase them outright at fair-market value.

HCCA paid TLHCD $100 for the consideration.

The documents were signed by Chairwoman Sherrie Bell, Vice Chairman Dr. Parmod Kumar, Secretary Rosalinda Avitia, and members Laura Gadke and Richard Torrez on the District’s behalf.

HCCA Paid 130% of Employee Costs

The deal is even sweeter for HCCA, almost unbelievably so. In two other documents signed that day, the Board agreed to pay Benzeevi and HCCA an “employee lease payment” of 130% of “the salary or other base compensation but excluding, without limitation, employee benefits, insurance, …” and other employment-related costs. While Benzeevi, according to sources who wish to remain anonymous due to fear of reprisal, has allegedly said the additional 30% is to cover costs such as employee benefits, the MSA specifically states TLHCD will pay them. Bell, Benzeevi and HCCA have not responded to a request for an interview.

Making the deal sickeningly sweet for HCCA is an amendment to the MSA that allows HCCA to bank that 30% over-payment against the future purchase price of the District’s assets. That option can be exercised at the “manager’s sole and absolute discretion” at any time. It is not known if HCCA has already begun banking the payments against the purchase of District assets or if it is taking the District’s cash instead.

In November of 2014, all District employees were terminated and rehired by HCCA, and labor became a purchased cost for the District. During the fiscal year ending in June 2014, the District spent nearly $31.5 million on salaries and benefits, according to an independent auditor’s report performed by Armanino Consulting. For the fiscal year, 2015, the District spent only $11.9 million on salaries and benefits; however, its cost for “medical and other fees and services,” where employee contracts were listed, went up by $21.4 million, more than $1 million more than had been budgeted for salaries and benefits during that cycle.

Assuming the HCCA’s employment costs rival those of the District, the 30% payment it garnered for 2015 could be as much as $9.45 million above payments it already receives from the District. The term of the management agreement with HCCA is 15 years, and includes a $225,000 monthly payment to HCCA for its services. That number, however, has likely risen since the MSA was signed, triggered by riders in the contract, and it could now be as high as $269,000 a month. No documentation is available from the District, and HCCA and the District did not respond to a request for the information.

The agreement also contains an automatic 10-year renewal clause.

Can Buy Hospital at Any Time

Under the terms of the agreements, HCCA can exercise its option to buy the District’s assets at any time by delivering a written notice to the Board. There appear to be no other restrictions in the more than 200 pages of documents signed by the parties. It is not known if HCCA has exercised the option to buy or if it intends to do so. The option agreement specifically states it will not be recorded; though both parties were required to have the signed agreement notarized, and HCCA may record it at any time.

Further, the agreement allows HCCA to make a down payment on the purchase of the TLHCD’s assets of just $500,000. Its monthly payments would be $100,000 a month for the first three years; $200,000 a month for the next three years; and the balance would be paid over four years.

The agreements also allows HCCA to transfer this right to any company that buys its assets or with which it merges. It may also transfer those rights to another party with the District’s consent.

HCCA also has the right to purchase “all furniture, fixtures, equipment, supplies and other tangible and intangible personal property owned by the District and used in connection with the operation of the Hospital and the Clinics and the Other Facilities.”

A second amendment to the Option Agreement, also signed by the same District and HCCA representatives but not dated, requires payment of the District’s bond debt or the consent of the bond trustee before the transfer of assets can take place. The Option Agreement also requires voter approval of the transfer, but only if that approval is required by law.

Sale Wouldn’t Cover Construction Cost

Practical realities of the real estate market make it unlikely the District could recoup what it spent during the last seven decades to build Tulare Regional and its other facilities, should it be forced to sell. While the Option Agreement requires HCCA to pay fair-market value for the District’s property, that number would likely not come close to matching what it spent to build them.

According a legal expert familiar with similar situations but who wishes to remain anonymous, the value of TRMC could be very low. In 2008, a sell-off of seven hospitals in Southern California owned by Tenet Healthcare Corporation, all of them larger than TRMC, resulted in an average sale price of just $3.3 million. Only one of the hospitals, one on the campus of the University of Southern California, was sold for an amount nearing the $500 million cost of its construction.

District Asking for More Money

The revelation of the MSA’s terms comes against the background of recent turmoil at the TLHCD. The District recently discharged and replaced its medical staff, triggering a lawsuit with its former Medical Executive Committee (MEC). Despite the judge in the case declining to issue an order immediately reversing the decision, the lawsuit continues, with plaintiffs alleging the District’s action is not allowed by state and federal laws that require a separation of powers between the medical staff and the hospital’s administration.

The District was also recently the subject of an investigation by the Tulare County Grand Jury, which found, among other things, that the District had “routinely circumvented” laws requiring disclosure of how it spent $85 million in publicly approved bonds. The Grand Jury also found TLHCD’s Board “intentionally or unintentionally” misrepresented the District’s ability to fund the difference between the $85 million voters approved and the $120 million estimated cost of building its five-storey expansion.

Now, with the tower still unfinished, the District has decided to ask voters to allow them to float another $55 million in bonds to finish the project. At a meeting of the Board on March 29, it formally stated its intent to pay for completion of the tower with that $55 million bond issue. However, the scandals surrounding the District and its management team seem to have lengthened the timeline for going to the polls. The District originally intended to ask for voter approval in a mail-in ballot in August. The deadline for that ballot has passed, and the TLHCD did not file the paperwork required.

Controversies Continue

Like almost everything surrounding the District these days, the attempt to drum up community support for the bond issue has been touched by controversy. In support of the delayed bond issue, the District released a full-color pamphlet detailing the need to finish the hospital’s expansion project. While the pamphlet correctly states the hospital must meet state seismic requirements by 2030 or face closure, it also intimates failure to pass the bond will create “economic ruin” for Tulare with $100 million dollars in annual losses.

The source for that dire prediction is a study performed by the Center for Economic Development at California State University, Chico. A member of the community, another who wishes to remain anonymous to avoid negative consequences of speaking out, said he attempted to get the text of the study from HCCA and was rebuked.

“I tried to get a copy of this and was refused. I requested a copy from Bruce Greene (attorney for HCCA). Their excuse was it’s a privately-funded document,” the source said.

Benzeevi was named in connection with paying for the study, the source said. The source also called the study’s author at Chico, who confirmed it was funded privately by HCCA.

Community Letter in Question

Another controversy erupted in the form of a letter signed by 15 community leaders taking the California Medical Association to task for its opposition to the sudden replacement of TRMC’s MEC. The two-page letter is addressed to Dr. Steve Larson, head of the CMA, and declares the leaders’ support for the TLHCD decision to replace the MEC. It also threatens legal action against the CMA for attempting to intervene on its members’ behalf.

The letter sent to the CMA may not be the same one some of those who signed it were originally presented. The letter was apparently first circulated on or near January 17. The decision to remove the MEC was not made until a meeting held January 28. The letter to CMA is dated January 31. It is reported that at least three of the individuals who signed the letter have said the body does not match the letter they were asked to sign.

Francine Hipskind, executive director of the Tulare County Medical Society, said Tulare City Council Member Carlton Jones has confirmed to her the letter he signed and the one sent to the CMA are not the same. There appear to be two versions of the letter, one two pages in length and the other four pages long. The switch will not play into the MEC’s case against the District, Hipskind said.

“I have indeed spoken to Carlton Jones, but it wasn’t anything that would substantially do anything in one way or the other,” she said. “I have asked him to speak with whoever he thinks would be appropriate coming forth with that. It wasn’t anything that was new.”

Council Confrontation

Two of the other signatories have made statements questioning the authenticity of the letter, including Tulare Mayor David Macedo, who allegedly had a heated confrontation regarding it with former Tulare City Councilman and fellow signatory Skip Barwick. Sources report Macedo was upset the letter sent to CMA did not match the letter he was told he was signing. Macedo did not respond to requests for an interview.

Of the 15 who signed the letter, only Tulare City Council Member Maritza Castellanos, Tulare County Supervisor for District 2 Pete Vander Poel and Assemblyman Devon Mathis (R-26) have said the letter sent to CMA was the same letter they signed. Mathis’ office, however, provided a copy of the letter with spaces for two additional signatories who were not listed on the letter sent to CMA.

The others who signed the letter include Tulare County District Attorney Tim Ward; Tulare County Sheriff Mike Boudreaux; Tulare City Fire Chief Willard Epps; Mark Watte, chairman of Cotton Incorporated; Manuel Mancebo, CEO of Kings County Truck Lines; Larry Stone of Stone Chevrolet; Tony Taylor, president and CEO of Res.Com; former TLHCD Board member Rosalinda Avitia; and former Tulare County Supervisor Lali Moheno.

All of the signatories were contacted directly by the Valley Voice. Only Mathis, Vander Poel and Castellanos replied. All three said the letter sent to CMA was the same letter they signed.

The Valley Voice’s inquiry with Mathis office prompted a letter from HCCA attorney Bruce Greene that inaccurately describes the contact with Mathis’ office and frames this reporter as “clearly so biased he will go to any length to vent his frustration.” The letter threatened “immediate and severe consequences … if any such article is published.”

Greene has made no attempt to contact this reporter with regard to this. In his communication, he did make a statement about the questions about the authenticity of the community letter.

“This, of course, is absolute nonsense,” Greene wrote.

He did not state why he believes this reporter is biased or why he believes this reporter has “a personal vendetta against the hospital.”

Ignorant Board?

Several members of an unofficial group that opposes the actions of HCCA and the Board, and have been nicknamed the “Gang of Eight,” have reported they were told by TLHCD Board Chair Bell she had not read the entire MSA before signing it. Further, they allege she was not aware of the 130% payment or of HCCA’s option to buy the District’s assets. The serendipitous meeting took place at a local restaurant when Bell joined a conversation already in progress, the source said.

Bell did not respond to a request for comment.

“[One of the Gang of Eight] pulled out the contract. She admitted right there she didn’t know parts of it were in there,” the source said. “He went out and brought the contract back in. He showed her the 130% thing. That HCCA had first right of refusal.”

The source said Bell came close to tears during the confrontation. It has since been stated during a TLHCD Board meeting that Bell read the contract prior to signing it. There is, of course, no way to confirm this.

Still No Bond Audit

With so much fur flying near the intersection of Cherry Street and Merritt Avenue, one almost might not notice the TLHCD and HCCA have still not provided an accounting of how they spent $85 million in voter-approved bond funds. The Grand Jury recommended full release “without delay” to the public of how the $85 million in bond funding was spent during the period from September of 2007 to December 2015.

Al Aguilar, the member of the Bond Oversight Committee appointed to watch those funds, hasn’t forgotten. With his attempts to get Mathis to initiate an audit with the state Joint Legislative Audit Committee going unheeded, Aguilar has since turned to Assemblyman Luis Alejo (D-Salinas) for help. A future article in the Valley Voice will detail the results of this most recent effort for disclosure and transparency.

Requests for Help Ignored

In letters dated December 28, 2015 and January 14 of this year, Aguilar asked Mathis to request an audit of TLHCD bond funds. Mathis, Aguilar said, did not respond to his first letter. He later talked with Mathis during an event in Tulare. It was then, Aguilar said, that Mathis told him he would not ask for an audit of TLHCD because of his relationship with Benzeevi.

Mathis, Aguilar said, attended the event with his district director, Trevor Lewis, and staff member Grace Robinson.

“Both of those individuals came to Tulare for the MLK March. Trevor Lewis and Grace Robinson were the only ones with him,” Aguilar, a retired postal worker, said. “When we spoke, we (Mathis and Aguilar) were alone. I wanted to know if he’d received what I sent to his office and if he intended to go forward. That’s when he told me he would not because he owed Dr. Benzeevi a favor.”

Mathis, through his communications director, has denied the exchange took place.

“At no time did Assemblyman Mathis say that he owed Dr. Benzeevi a favor, nor did he refuse to look into a JLAC audit as has been alleged,” wrote Matt Shupe. “This is a local issue and should be pursued through all local channels first.”

Mathis did not respond to requests for interviews before the original article detailing Aguilar’s efforts to unearth information on TLHCD’s bond spending was published. Mathis has accepted multiple donations to his campaign from HCCA totaling at least $7,700, according to documentation Form 460. Mathis’ office also did not respond to questions regarding additional possible donations from HCCA, Benzeevi or their associates.

Mathis’ district includes parts of Inyo County, where the struggling Southern Inyo County Hospital District recently agreed to give HCCA control of its small hospital. The SICHD Board had been seated just three days before approving its deal with HCCA.

‘Transparency and Accountability’

While looking into how TLHCD spent that $85 million, Aguilar said he discovered, with the help of late former TLHCD CEO Bob Montion, that more than $130 million has so far been spent on the Phase 1 Tower Project. Montion put together a package of 21 exhibits detailing the spending, all of which were provided to Mathis when Aguilar made his requests. Aguilar has made the documents available to the Valley Voice, which intends to publish them on its website, ourvalleyvoice.com.

“What I’m after is transparency and accountability,” said Aguilar. “I want to know what happened to that $85 million. That’s all I’ve ever asked for.”

He chafes at the accusation he lied about his conversation with Mathis, and his frustration has led him to seek the help of Assemblyman Alejo.

“I’ve done a little research, and there’s another assemblyman who’s had the state do an investigation in Salinas,” Aguilar said. “I sent the letter off to him Saturday.”

Getting a clear and accurate accounting of TLHCD’s spending is the job he was given, and he intends to see it through no matter how much opposition he faces from the Board, HCCA and its attorneys. Aguilar was appointed to the Bond Oversight Committee by former TLHCD Board member Rosalinda Avitia, one of the community letter signatories, who he helped get elected.

“One of the things she was trying to do was find out where the money was going. The first thing she did was ask me if I wanted to be on the Bond Oversight Committee. The Board said no way,” Aguilar said. “She went to Dr. Kumar, (and said) ‘All the other board members get to choose two; I only want one.’ Dr. Kumar wrote a nice letter getting them to let me on the committee. Once I started asking for the contracts, the invoices, all the data I could get my hands on, once I started making waves, they wanted to get me off the committee. It came from the members of the committee and the attorney … (not Greene) that I was a loose cannon and causing trouble.”

As is their apparent reaction to anyone asking questions about the District’s business, HCCA’s lawyers threatened Aguilar for doing his job too well, he said.

“When they found out about it, their attorney sent me a letter saying there could be consequences. They are vicious. Everyone who stands up to the Board and says something is threatened,” Aguilar said. “Bring it on. Let’s bring all the laundry out. I kind of wish the Grand Jury had asked the DA to go after them.”

Meetings of the Tulare Local Health Care District Board are held on the fourth Wednesday of the month in the Allied Services Building’s Second Floor Conference Room 2, 869 N. Cherry Ave. The next scheduled meeting of the TLHCD Board is at 4pm on Wednesday, April 27. The public may attend.