On April 3, 2014, Vidant Health CEO David Herman, MD spoke at the signing ceremony for the historic mediated settlement that resulted from the North Carolina NAACP's filing of a Title 6 complaint with the U.S. Department of Justice. The complaint had pointed to the disproportionate impact Vidant's takeover and closing of the Pungo District Hospital in Belhaven, NC would have on poor and minority communities, prompting the DoJ to step in.
Vidant Health, Inc. has an operating margin (profit margin for non-profits) of over $100 million per year, and is seeking increase that number to build upon its sprawling medical center in Greenville, North Carolina, about an hour west of Belhaven. In the fall of 2011, Vidant Health (then known as University Health) took control of Belhaven's Pungo District Hospital — as well as Beaufort County Hospital which is half way between Greenville and Belhaven. Both of these newly acquired hospitals have seen increased losses since their acquisition by Vidant. In the fall of 2013, Vidant announced it would close Belhaven's hospital, which was smaller and further out into the country, providing emergency services to approximately 20K people.
The NAACP argued that Vidant's rural business practice of extracting well-insured patients from wide geographic regions, while limiting emergency services to those regions, would disproportionately impact African Americans, poor, rural Americans, and other minorities. From a business perspective, it is understandable that Vidant would prefer to service customers with insurance — each year, Medicare pays out an average of $10,000 per patient and there are 13,000 Medicare recipients in the region worth $130 million dollars per year. But a preference for well-insured patients, while using vast geographic distances as barriers for uninsured patients, disproportionately impacts poor people and people of color. This much is indisputable. Vidant Health receives 70% of its funds from government programs such as Medicaid, and, under Title 6 of the 1964 Civil Rights Act, it is against the law to accept federal funds and then use them in ways that are discriminatory. (And, as Washington Post columnist Dana Milbank would point out later, even patients who DO have insurance may not be able to use it in time, to tragic results, if the closest emergency room is 75 miles away.)
The U.S. Department of Justice has an agency called the Community Relations Service (CRS) designed to help address and prevent conflict based on religion, race, color, national origin, gender, gender identity, sexual orientation, and disability. In March of 2014, CRS offered to provide mediation to settle the NAACP's Title 6 complaint against Vidant Health, Inc. and both parties accepted. The Department of Justice then sent Suzanne V. Buchanan, a Conciliation Specialist with CRS to facilitate the mediation sessions. Vidant Health sent CEO, Dr. David Herman, attorney Mary Beth Johnston, and other executives and attorneys with the corporation. The North Carolina NAACP sent its president, Rev. Dr. William Barber, its lead attorney Alan McSurely, and regional NAACP leaders such as Mike Adams, president of the Hyde County NAACP and Bill Boothe, president of the Beaufort County NAACP. Belhaven's Mayor Adam O'Neal represented the Belhaven town and region.
Story of America was among the television and print journalists who waited outside of mediation sessions for news. Often, the statements were brief, leaving to interpretation how things were progressing. After the second day of mediation, the body language was gloomy, and we soon learned that Vidant Health had drawn up a contract to pass the hospital over to its partner company Pantego Creek, LLC. We took this as a sign that Vidant didn't like the way that mediation was progressing, and would rather have the hospital, and thus, potential Civil Rights Act violations, become the responsibility of Pantego Creek LLC (which is not dependent on federal funds to stay in operation).
But on March 26 during the 4th day of mediation, things seemed to take a turn for the better. The two sides came out and announced that a settlement had been reached that would avert the planned closure of the hospital on April 1, and transfer the hospital back to the community by July 1. When asked about the paperwork hastily drawn up to pass the hospital over to Pantego Creek, LLC, Dr. Herman said that this contract had not been executed.
However, the contract was executed in June when Pantego Creek, LLC announced that it would not allow the hospital transfer to go through, thus breaking the DoJ-mediated settlement.
What's with Pantego Creek, LLC?
Pantego Creek, LLC (PCLCC) was created at the insistence of Vidant Health in order to be the other side of a negotiation that transferred control of the hospital to the corporation. Vidant — then known as University Health Systems (UHS) — hoped that PCLCC would be less unwieldy than its predecessor, the Pungo District Hospital Corporation, might have been with over 100 shareholders. PCLCC was designed to minimize the rights of the shareholding Members and give maximum power to its appointed Managers. The Managers were not elected, for instance, as they had been under the Pungo District Hospital Corporation. Instead they were appointed by Jay "Rocky" Jacobs, the former chairman of the Pungo District Hospital Corporation, who had been a cheerleader for the Vidant acquisition and would later become a member of Vidant's board. (Exactly how this process took place is a question that later led to controversy and confusion).
The contract that gave Vidant Health control of the hospital also stipulated that Vidant would pay $50,000 to provide PCLCC with funds for legal fees associated with applying for non-profit status. However, most of those funds have been paid to attorney Arey Grady, III in recent months since the hospital closure was announced, with Grady working closely with Vidant's attorney Mary Beth Johnston to craft language in support of Vidant and the hospital closure to send to PCLCC Members.
When Vidant announced it would close the hospital in September of 2013, there was an expectation that PCLCC would object, given that the contract promised to keep the hospital open, and PCLCC's only real purpose was to see that it did. But the appointed Managers of PCLCC accepted that the hospital must be closed, and proclaimed that doing so would not be a breach of contract. On February 25, 2014, the appointed Managers engineered a vote on this question — should PCLCC take the hospital back from Vidant Health, and manage it despite personal financial risk for all the Members, including a $28,000 price tag, each, for startup cash. The result was a lopsided vote: no.
But then the Department of Justice stepped in. Vidant Health, and, it was widely believed, PCLCC decided to allow the mediation process to play out. The subsequent mediated settlement chose July 1 as the handover date. But in June, the team of lawyers and specialists assembled by the town of Belhaven to facilitate this transfer asked Vidant Health for 6 to 8 more weeks due to fundraising obstacles — for instance, Vidant Health had agreed in the signed settlement to turn over the hospital's financial assets and $1 million to the new hospital management team, but had not done so. Rather than responding to this request, Vidant Health allowed Pantego Creek, LLC to speak for them. The answer would be no. The settlement would be broken. And suddenly, public scrutiny on PCLCC intensified.
Vidant Health's executives claimed to be surprised when PCLLC's attorney, Arey Grady III, announced that the mediated settlement would not go forward. However, one Vidant board member, Jay "Rocky" Jacobs, told Story of America that the February 25, 2014 vote by the LLC had ensured that the settlement signed on April 3 would not go through.
Jacobs told us that he decided not to be a Manager when that corporation was absorbed into PCLCC to avoid the appearance of conflict of interest, since he had accepted a Vidant position. But Jacobs has remained a Member of PCLCC, one who seems to be in the know. He said that the only "surprise" to him was the timing of the announcement, which came just a few weeks before the hospital transfer had been scheduled to take place. He had thought it would be sooner, he said. By mid June, nearly two hundred thousand dollars, and nearly three months of effort, had been spent racing to prepare for the July 1 transfer.
Documents show that Grady, Vidant President Roger Robertson, and Vidant attorney Mary Beth Johnston began crafting the language with which PCLCC would undermine the settlement just a few days after the settlement was signed, and, that language first appeared in a letter to PCLCC Members drafted by Grady, and signed by the PCLCC Managers, on April 10, just one week later. Robertson contacted Grady the day after the settlement about how to handle communication with PCLCC Members about the settlement. A letter from Robertson to Grady dated April 4 reads, "We also understand that you have requested certain back-office assistance so that you may communicate with your membership concerning these new developments. Vidant is also willing to make such support services available as reasonably requested."
Despite having, apparently, worked with Grady during the week following the signing of the settlement to craft language to justify abandoning it, Robertson said in a statement 10 weeks later: “Vidant Health has learned that Pantego Creek, LLC is unwilling to agree to a transfer of ownership of Vidant Pungo Hospital to the Town of Belhaven. Pantego Creek’s decision in this regard is unexpected, and places Vidant Health in a difficult position in its ability to continue to assist the Town of Belhaven in its efforts to assume control of the hospital.”
The North Carolina NAACP responded by reopening the Title 6 Complaint under the Civil Rights Act of 1964. At a June 27 press conference, North Carolina NAACP attorney Alan McSurely explained his legal argument. "We feel that if the Department of Justice knew what we know about this situation, they would open up an investigation," he said afterward.
The complaint asked for injunctive relief to prevent the closure of Pungo District Hospital, stating that a permanent closure would have a disproportionate impact on poor people and minorities. The complaint also asked for an investigation into the relationship between Vidant Health and Pantego Creek, LLC. The Department of Justice said that there was not enough time to investigate whether an injunction was warranted, but that an investigation would take place. In addition, the DoJ invited Vidant Health to return to mediation, and this time invited Pantego Creek, LLC as well.
Tough Questions for Vidant
...Vidant Health was not involved in the establishment of the LLC, its membership, or its board. We are not involved its choice for independent legal counsel, nor do we pay for it.
Mayor Adam O'Neal's response
Here is Mayor O'Neal's response to Vidant's pulling out of the DoJ-mediated settlement, filmed earlier in the week at the Belhaven Town Council meeting:
The North Carolina NAACP press release
In a June 27 press release, the NC NAACP complained about what it calls "the Pantego Creek glitch," stating the following:
Vidant Attorney Mary Beth Johnston expressed surprise at the LLC's statement. Close observers, who believe that Vidant Health has been financing the maintenance of the LLC and paying for its attorney, were shocked that Vidant's creation had turned against the multi-million dollar hospital conglomerate over the hospital transfer. Most people close to Vidant's recent maneuvering in Belhaven believe the LLC's Board and Attorney were selected and controlled by Vidant.
"We were sitting directly across from the Vidant CEO when he told the mediator that it was not necessary to have the LLC at the table or involved in the signing of the agreement," said Rev. Dr. William J. Barber, II, president of the NC NAACP. "The clear implication was its leadership would do exactly what Vidant told them to do. Apparently, some of the LLC have an independent streak, like my people, who were brought up not too far from this hospital. We have asked the Attorney General and the U.S. Attorney to investigate what appears to be some back-door dealing that was not readily apparent when we worked out our agreement."
"I'm confident," Dr. Barber continued, "that the great work our transition team has done in preparing a viable business plan for the hospital for the next few years will keep it open. I cannot believe that Vidant and the members of the LLC want to be responsible for the deaths of dozens of poor and minority people from the outer banks and Beaufort County who will be deprived of Emergency Services within a 45-minute window - all because a handful of people have a back-door agenda that has nothing to do with health care and wellness centers. I trust the Justice Department's investigation will get to the bottom of this last-minute betrayal."
The NC NAACP's supplemental complaint, filed June 24, asked the U.S. Department of Justice to seek injunctive relief immediately to preserve the status quo of the Hospital.
"People will die," Dr. Barber wrote to Atty. General Eric Holder. "People will suffer long-term medical problems, because Vidant, and other entities acting in concert with Vidant, have reneged on promises and representations made during the mediation process. People of color in these counties will be without emergency and other critical services as of 1 July 2014."
Please support Story of America with a tax deductible donation.