AttorneyClient Privile^ Ronda McKaig Assistant CountyCounsel County of Ventura 800 South VictoriaAve 4th floor Ventura, CA93009 August-19-2017 RE: Required disclosures based on Severance Agreement and Release of Claims between Ventura County and Tim Patten Dear Ronda, As part ofthe above agreement Iam required to disclose what Ibelieve are potentially illegal and in appropriate practices with VCHCA. With this letter, Iam completing this requirement. My disclosures are based on what Iheard, saw, read and experienced while working for HCA and Ventura County They are what Ibelieve to be true and based on my 30+ years of Healthcare executive work in avariety of sectors, my extensive transactional and compliance work, and 3different OIG matters Iworked on with 3 different companies. First, Iwill cover accounting irregularities within HCA. This may not rise to the level of fraud but in any other sectors Iworked these would be corrected immediately. 1. Accounting irregularities in Ventura County HCA a. Budgeting process is incomplete and inadequate to manage an $850 million dollar business -February 2016 Annual budgeting process begins. Generally, in ahealthcare business this large ($850 Million) there is aformal budgeting process, budget software, a budget calendar and aspecific set of budget assumptions and guidelines are distributed. None of this occurred. Irecommended to CFO and Barry aprocess and list of recommendations. The CFO rejected them without comment. Additionally, the numbers used to forecast were only 5months (July-November of the prior fiscal year). This is very unusual and problematic. One would normally have at least 9months particularly in healthcare where seasonality plays a big factor. The winter months of December thru March, is a high time for flu season and are the busiest and need to be factored into the budget. This was not done and distorts the process and results. At least 10 of the hospital clinics never got budgets developed and they were multi-million dollar operations. b. Accounting methodology is inconsistent - Generally in healthcare an entity choses 1 general accounting method (either cash oraccrual accounting) and then follows theGAP general accounting method for the type chosen. The CFO verbalized and generally followed cash accounting principles. This was the case unless the numbers did not support where the CFO wanted or needed the entity needed to be. The best example of his is that at the end ofthe 2015/16 fiscal year the CFO directed the accountants book J*lm,,,,0un" accrual (receivable) from Gold Coast Health plan in orderto get the board ofsupervisors. This accrual was based on the affordable care act legislation and VCMC numbers to match the projections given to the bond rating agencies and the will not be reconciled for approximately 2years from now. The CFO's staff did not want obook the entry but were directed to do it. This was not disclosed to the hospital leadership, county leadership or HCA leadership. Ifound out in acausal conversation with the accounting staff. . Accounting for Hospital replacement wing has several irregularities - about 4years ago the county did the largest financing in its history when it placed $305 Million of bonds to build apartĀ«al replacement wing for VCMC. 15 year projections were done to place these bonds and there are very specific bond covenants that must be met in order to stay in compliance with the financing. At the time of my dismissal about 75% ofthe funding had been drawn down. Additionally, the project was running well over original projections and several other sources of funding had been put in place including a$25 Million-dollar line of credit with Bank of America, a$17 million Dollar capital lease with Phillips, a$10 million-dollar line of credit with Winthrop leasing, and the transfer of$5 Million dollars of CA state tobacco tax money to the project that generally would have gone to VCMC operations. There was an apparent duplicate entry for these funds on paper dispersed to the affiliated clinics. "Shell Accounting" that does not follow GAP rules - Within the Ventura County HCA apparently, there is only 1legal entity the county ofVentura. All the other entities are considered departments and have discreet accounting and cash management but are not legal entities. Many also have restricted funds that per state and/or federal guidelines cannot be moved in adiscretionary fashion. We had amonthly Cash management meeting with a large group of leaders in the agency and the finance team in which we reviewed and updated the cash flow projections that were tied to both the budget and the HRW financing and associated projections. This meeting consisted primarily ofthe finance staff making up numbers to balance the projections. Millions of dollars were added and subtracted without any back up or consent on the part of the operational leaders. When the shell accounting did not balance the books properly the operators were told to come up with additional savings or revenues to balance the books. This activity was never completed just picked up the next month. When Iwas dismissed the HCA was into the county general fund for aloan of $117 Million partly due to this shell accounting. e. Behavioral Health Funds were not properly handled by finance staff- The county department ofbehavioral health has some very unique funding sources that come from Proposition 63 (the Millionaire tax), MHSA funding, and EPSDT funding. These each have very specific regulations on how the funds are used, dispersed, and accounted for by the entity. There are many restricted funds in this area and the reconciliation with thestate can run 5-10 years behind. On several occasions theCFO directed the accounting staffto move funds on paper and sometimes the cash from Behavioral Health to VCMC in ways that seemed inappropriate and lacked the backup documentation. This was done again to meet the projections for HRW, the bonds the rating agencies, orsimply to make payroll, f. Licensure issues that created billing errors and potentially false claims-Early on in my enure Ilearned that the HCA had opened several ambulatory clinics without the proper licensure. In several cases billing was still occurring for these clinics and no one was working to resolve them. When Ireported these issues to Barry he asked me to take the lead mresolving them. This included the Eastman Therapy clinic opened in about 2012 and not licensed until august of 2016. The Santa Paula PT clinic opened in 2010 and still not licensed but the paperwork was in process when Ileft. The Magnolia FQHC clinic which never got its license and FQHC provider number properly in place since it opened in 2014. This was fixed in June 2016. In all cases Iworked with our legal counsel at Hooper Lundy Bookman to work thru the issues and get the house in order Additionally, the hospital had not kept its license current and up to date on another 10 or so ambulatory clinic licensure issues. At Barry's direction, Iwas working with team to resolve these matters and had issued several letters to CDPH and had aface to meeting with them in early august to set in motion the correction ofthese items. The 1206 exemption does notapply since primary care was notinvolved, g. Ambulatory care billing issues and irregularities that created risk and financial loss for HCA - It appears that the prior leadership had not done their homework in relationship to changes from CMS on Specialty/E&M codes made in 2010 and facility billing fees for FQHC's. This resulted in both under billing ($5-10 Million per year) and potential over billing in the case of facility fees. Iwas working with Hooper Lundy Bookman to resolve the matter but did not get it finished prior to my departure, h. 340 BDrug Program unstated liability for 2015 distorts VCMC actual financial condition - VCMC applied for and received approval for a340 Bdrug program that allows the hospital to buy drugs at cost for low income patients. There are stringent requirements for storage arecord keeping with this program including storing this inventory separately from the normal drug inventory. In 2015 due to constraints imposed by the CFO the hospital fell out of compliance with the program and lost their eligibility. They however continued to get the preferred pricing since the vendors were not informed of the non-compliance. The hospital was required to self-report the problem to the vendors who are then entitled to recover the difference in pricing. The estimated liability is more than $15 million dollars. The CFO refused torecord ordisclose this amount to anyone that needed to know resulting in a large overstatement in the hospitals financial position forfiscal 2015/2016. 2. Potentially fraudulent accounting practices in HCA a. MD timesheets do not follow CMS guidelines and create potential false claims liability The county contracts with 350-400 independent contract MD's who are required to fill out monthly timesheets to get their compensation. The process used by the county for the past 10+ plus years violates CMS and federal standards for MD time keeping. According tostaff reports and contract meeting discussions, the MD signs a blank timesheet atthe beginning ofthe month. Their time is later recorded by a clerk in the contracting department and approved by the contract manager who has no knowledge ofactual time worked by the MD. The timesheets are never reviewed or approved by the person overseeing or supervising the MD. There is no reconciliation process to be sure the time is accurate. These timesheets are used for CMS and cost report purposes Iexpressed concern about this process in several public forums and to Barry Itold them how other organizations handle this process and the liability ofthe person signing and approvingthe timesheet. b. Affiliated Clinic cash transfers and accounting exceed the amount approved in PSOA's and by the BOS - the county uses apublic/private partnership clinic model to operate number (10 or so) clinics in the county. In this model aProfessional Services Operating Agreement is entered into between the county and asingle MD per clinic. The MD employs the staff MD's and other staff to run the clinic and the county provides the space, equipment, supplies, billing services EMR, etc. to run the clinic. The agreements are typically for aterm of 3years and specify the amount in dollars that the county can advance to each clinic above its collections. The total amount ofadvances allowed per year for all clinics is about $10 Million with acap per clinic. The clinics are not well run and have exceeded the advance amount for some time. Without any documentation or approvals from the Board ofSupervisors the county finance department at the CFO's direction transfers whatever amount is needed to fund the operations sometimes more than double the amount allowed by the PSA. Most of the funding being distributed is hospital revenue that isgiven to the clinics. c. MD contracting process has issues where FMV (salary and productivity) are not used or followed properly-The County HCA contracts with 350-400 MD's individually or through groups. The total budget for these contracts is just over $60 Million. In many cases the federal FMV rules were not taken into account properly. The county uses MGMA as ageneral guide but rarely until Igot involved was the MD's productivity taken into account which is the basis for MGMA. This results in many MD's being paid above FMV for their services. d. MD Bonuses paid without appropriate back up - Bonuses are usually based on RVU's or quality metrics. They are generally approved by one ofthe medical directors rather than an administrator which is more common. If the precise RVU or quality metrics are not readily available, the Medical Directors will guestimate the numbers and pay the bonuses anyway. e. Payment for services not in contracts -The MD timesheet process described above has other problems other than the ones noted above. An example was aclinic medical director asked for his contract to amended to include payment for administrative services. When Ipulled the file, and reviewed his timesheets itwas discovered that he had been billing and been paid for these not contracted services for some time. This highlights the serious problems with the review and approval processes for MD timesheets. f. MD Purchase Order contracts that do not follow federal guidelines - when one ofthe medical directors cannot get what they want through the formal contract process and committee they will often direct staff to process aPO contract through county procurement. These contracts do not meet the requirements of Federal law. County purchasing rules allow exemptions for contract under $100,000.00 per year in value and even lighter rules is the contract is under $35,000.00 per year, g. Lack of Contract compliance with Vendor contracts using verbal amendments not completed in writing - In several instances the contract management ofthe HCA was so poor that the written terms of contracts were not followed and vendors/providers were paid at rates well above the contract terms. Two examples ofthis are Community Memorial Hospital acompetitor was paid billed charges instead ofcontracted case rates for many cardiac procedures they performed. R8J prosthetics contract was 28 years old and anumber ofverbal agreement changes were made to the payment terms instead of revising the contract, h. The county charged both adults and children with claims billed in Inpatient Psychiatric unit while in violation of its license - In early 2015 VCMC was cited for comingling adult and pediatric psych patients on aunit only licensed for adults. In anormal situation, this would have been declared immediate jeopardy by DHS and stringent measures would have been taken. As Iunderstand it the county never self-reported the claims portion of this problem and never paid back the money tothe state or federal government for these claims. This comes after the hospital was operating under an integrity agreement from 2001-2006 for billing problems inthe psychiatric unit, i. Ventura County Healthcare Plan problematic accounting issues - Due to an inadequate rate adjustment the plan suffered heavy losses in 2015/2016 and was put on monthly financial review by the DMHC who monitors Knox Keene licensed plans. The solution developed by the CFO involved a2 part approach. 1. Aloan ofapproximately $4.5 Million from the county. All the projections done suggested this could not be repaid under any circumstances. This was not disclosed to the BOS in the board letter. 2. An accounting transfer of $4 to 4.5 Million from VCMC to VCHCP plan was recorded with no backup documentation or support and without approval ofthe BOS, VCMC, and HCA leadership. Both ofthese actions Ibelieve were intended to distort the actual financial position of VCHCP to the DMHC. Ibelieve this letter along with the letter to Department of Industrial Relations letter withdrawing my complaint completes my initial obligations and requires the payment to be made in 10 days or less. Sincerely, Tim Patten Cc: Legal Counsel