Former hospital administrator C. David Morrison considers himself a champion of healthcare quality in West Virginia. Federal investigators say he is an embezzler and money- launderer. The people of this rural and underserved community of about 40,000 don't know what to believe.
A trial in federal court may soon help them make up their minds.
Morrison is accused in a federal grand jury indictment of 24 counts of fraud and embezzlement involving millions of hospital dollars he allegedly misdirected toward development schemes and payment of personal debts unrelated to hospital business during the last several years of his almost 29-year tenure as top administrator of Logan (W.Va.) General Hospital. A trial is tentatively scheduled to start May 1 in U.S. District Court in nearby Charleston, W.Va.
Morrison, who is 53, resigned from Logan General in December 1998, just two months after the hospital missed several payments on a $31.5 million bond issue and filed for bankruptcy protection.
The hospital's 12-member board, which critics say was lax in its oversight role during Morrison's last few years, has been almost totally revamped, with many new members and a changed governance structure.
Just four years ago, Morrison authored a brochure trumpeting the milestones of his 25 years at the hospital's helm.
"I look forward to another fantastic 25 years!" he wrote in an optimistic introduction.
Now, Morrison has no involvement with the 132-bed hospital, which sits in the crook of a mountain, jutting above the Guyandotte River. The river runs through downtown Logan, which is about an hour's drive from Charleston.
Logan Bank & Trust has repossessed Morrison's comfortable but not opulent home; he also faces unrelated misdemeanor charges of obstruction and battery.
Plowing ahead. Morrison, a stocky man with a ready smile, is trying to remain optimistic: He hopes to start a healthcare consulting firm; in the meantime, he works in a cluttered office in the back of a small building in Logan owned by his father. Outside, the town is abuzz with talk about his case and the fate of the hospital that critics say he ran with near total autonomy--and nearly into the ground.
Framed on his office wall are aerial photographs of Morrison's pet project: a strip mall called the FountainPlace Shopping Center. The construction of the mall between 1995 and 1998 was one of the many questionable fiscal maneuvers Morrison spearheaded that forced the hospital into insolvency. The mall is also cited in Morrison's federal indictment.
Under Morrison's leadership, the indictment alleges, $4.5 million was deducted from hospital employees for federal taxes but did not end up in federal coffers. And Morrison and another hospital official are accused in the indictment of embezzling upwards of $636,000 of hospital money.
This complex case underscores the potential hazards hospitals face when they attempt to expand beyond the business of healthcare.
"Hospitals went through that whole diversity strategy in the late '80s and early '90s," says Thomas Senker, a former hospital CEO from Morgantown, W.Va., who was named Logan General's interim chief executive officer in February after being hired as a consultant last July. "Most were restricted to healthcare-related activities, though; this was somewhat of a departure."
According to the indictment, between 1995 and 1998, at Morrison's direction, the not-for-profit hospital loaned $15 million to its sister company, Monterra Development Corp., which was developing the 271-acre strip mall that now sits in a shored-up and carved-out space between a mountain and a valley, like so many other buildings in this coal mining region of West Virginia.
Hospital officials have more recently put the total loan amount at more than $20 million. Last year the mall was valued at $42 million. Now the hospital is selling it for an estimated $34.6 million to a local businessman to help dig itself out of bankruptcy. The transaction stands to benefit Morrison financially through a consulting relationship he has arranged with the new owner.
"The investment would have paid off over 25 years," says Hershel Chafin, Logan General's chief financial officer, "but we needed the money right away because the Bank of New York had filed a receivership motion. That was the only place to sell an asset, rather than cutting back services at the hospital, to get enough money to satisfy everyone."
The circumstances surrounding Logan General's plunge into bankruptcy and Morrison's subsequent fall from grace are emerging slowly through the federal investigation.
Morrison's version. What the feds describe as embezzlement, money laundering and fraud, Morrison justifies as moves to improve the quality of life of residents of Logan County, where coal strip mines pepper the landscape and the per capita income in 1997 was $16,383, nearly 15% below the national per capita income of $19,241, according to state figures and information from the U.S. Bureau of the Census.
Donald Gene Cabell, the former credit and collections manager for the hospital and a business partner of Morrison's, and their jointly owned development company, American Development Corp., were also named in the same indictment. Cabell was indicted on similar charges in November 1999, at which time Morrison was not included by name.
Among the numerous allegations in the February indictment are the following:
* Morrison in 1977 did not turn over to the IRS the full $4.5 million in federal taxes that had been withheld from employees of the Logan Medical Foundation, the corporate parent of the hospital.
* Morrison embezzled $324,803 from the medical foundation by directing employees to pay invoices for a for-profit air charter corporation in which he had an ownership stake.
* Morrison's and Cabell's company, American Development Corp., bought various residential and commercial properties, including the 18-room Briarwood Motel in nearby West Logan. Morrison and Cabell authorized the medical foundation to write a $154,473 check to the Logan Bank & Trust to pay off loans on the motel, promising that American Development would then give the motel to the medical foundation. Instead, three years later American Development sold the motel for $42,621 to "a third party," according to the indictment.
If found guilty of all charges, Morrison could face up to 110 years in prison and fines of up to $3.25 million.
Community reaction to the allegations have been mixed. Logan's mayor, Thomas Esposito, seems conflicted when asked about the situation.
He says Morrison has helped the community in various ways: By persuading the town to annex the land on which the mall sits, he helped the city collect an additional $700,000-$800,000 in fees annually. In fact, the mall project is likely to double the city's budget. It also provides hundreds of jobs for the community.
But Esposito, an attorney who has represented Morrison in the unresolved misdemeanor charges, also asks a more fundamental question, the one that has dogged many of the people who have been called in to try to fix Logan General's many problems.
"I kind of wonder where the board was when these expenditures were being made. How did he do all that without the board knowing?" Esposito asks.
Robert Whitler, a Charleston accountant who was appointed examiner for the Logan Medical Foundation by the U.S. Bankruptcy Court, asks the same question. His job has been to engineer a new board-nominating process and help Thomas Senker build a more effective board.
"I think that the board was very weak," Whitler says. "It did not fulfill its fiduciary responsibilities; for the past three years it didn't review audited financial statements, did not review monthly financial statements and did not have an effective committee structure."
Morrison, however, says the board knew exactly what was going on, although former and current members deny it. Ten of the current 12 board members have joined the board since January 1999, after Morrison resigned--five of those in the past two months.
Dennis Wellman, the board's current chairman, is a survivor. He's been on Logan's board for 18 years. A coal company shift superintendent, Wellman joined the board when his father, also a board member, died in late 1982. He gives Morrison credit for the hospital's apparent success over the years.
"He was always trusted because he gave us no reason not to trust him," he says. "For years and years, everything just grew and we didn't have a problem."
The downfall begins. The hospital was profitable in the early 1990s but started losing money in 1995, according to financial information provided by Chafin. In 1998, its net losses mounted to $12 million on total revenue of $139.7 million.
That's when Logan filed for bankruptcy protection under Chapter 11, with about $65 million in liabilities and $78.4 million in total assets, a figure that includes $29.5 million Monterra Development owed the hospital, Chafin says.
When board members asked Morrison about financial anomalies as they cropped up in the mid-1990s, Morrison always had a believable answer, Wellman says. By the time the board figured out the severity of the situation, it was too late.
Mark Spurlock, M.D., current board member, longtime pediatrician in Logan and retired director of medical affairs for the hospital, says he's been on staff at Logan General since 1953 and has known Morrison since Morrison came to town in 1970.
Spurlock considers Morrison a friend and says as a board member he had implicit trust in him.
But as Medicare reimbursement and bank pressures mounted, he says Morrison seemed to become a different person, and the hospital's management suffered.
"He just changed so drastically that it just took everybody by surprise," Spurlock says. "That's one of the reasons it took so long for it to be detected and dealt with, because no one believed or wanted to believe it."
Morrison came to Logan General in 1970, a year after E.R. Chillag, M.D., who had purchased the private hospital in 1967 and founded the not-for-profit Logan Medical Foundation, sold the facility and its assets to the medical foundation.
Within two years of Morrison's arrival, ground was broken on a new building to replace the original 1922 structure. The new hospital was completed in 1975, and an additional wing was added in 1987. The hospital serves much of southwestern West Virginia as well as patches of Eastern Kentucky. The health system includes a 15-bed critical access facility called Guyan Valley Hospital, just blocks away from the main hospital.
"Don't Quit," declares an inspirational wall hanging propped up on the floor of Morrison's office.
Won't quit. Despite his sticky legal situation and rumors that swirl around him in the community, it is clear Morrison has not quit. He shows up at community gatherings and considers himself active in an ongoing battle to keep alive a money-losing hospital in Man, less than 20 miles from Logan.
Some of Morrison's past projects took him even farther afield. Following a trip during the mid-1980s to visit the Haitian homeland of a Logan General physician, Morrison submitted a proposal to the U.S. Embassy in Haiti to build a hospital there to improve access for the poor. The project never came to fruition.
These days, though, Morrison is consumed by local political and personal issues, including a battery charge brought last May by a 63-year-old woman who alleged Morrison verbally harassed her and pushed her at a flea market. Morrison denies the charges.
On a recent visit, legal papers, newspaper clippings and hospital-related documents litter Morrison's desk and office floor; he's quick to launch into discussions of Appalachia's many economic and social challenges.
"I came here in June 1970 as administrator, and I've pretty much worked my whole life to bring healthcare to an area that very much needed it and still needs it," he says.
Morrison would not address specific allegations against him but eagerly explains his rationale for what the indictment alleges boiled down to using hospital money for development schemes.
"I felt very strongly that we couldn't just be a healthcare provider, but that we had to be a comprehensive provider of quality of life," he says.
He dismisses the money problems the hospital has faced as a result of big banks and federal programs like Medicare "getting us over a barrel."
Morrison is proud of the strip mall he developed, which sits just off U.S. Route 119 leading into Logan. It is home to a 201,000-square foot Wal-Mart, a full-service Lowe's Home Improvement Warehouse, and a Goody's Family Clothing store.
But to George Partain, the hospital's general counsel, the mall has been quite a headache. Partain says he warned Morrison about getting into complex real estate deals and that the administrator was not particularly adept at keeping track of details.
"I don't think anybody has a real good feeling for what went into that mall," he says.
Both Partain and Chafin say the development and construction of the mall took longer and cost much more than anticipated because of the difficulties in carving a flat surface out of the inhospitable mountainside. Recently, the hospital has had to put $1 million in escrow to fix defects on the property, including a drainage problem and cracks in the building, Chafin says.
The hospital board's newer members are quick to create a distance between themselves and the past administration. Several, although longtime Logan residents, will not discuss Morrison or the hospital's fiscal mess.
Larry Bevins, general manager of local AM and FM radio station WVOW, says he agreed to join the board this year because he was afraid the hospital might not endure if community members did not get involved.
"We can't attract people to live here or bring their companies here if the nearest hospital is an hour away," he says.
Born and raised in Logan, Bevins says that his vision of the hospital's new board emphasizes accountability. "There will be checks and balances," he says. "We're not going to leave anything up in the air."
The bailout. The new board structure at Logan includes term limits, committees and a policy statement, none of which the old board employed. Part of the board restructuring was a requirement of an agreement with Genesis Healthcare, a not-for-profit system in nearby Huntington, W.Va., that has promised to guarantee an $18 million loan from Charleston-based City National Bank in return for absorbing Logan General into its three-hospital system. The plan, which is the basis for Logan General's reorganization, has not yet been approved by the U.S. Bankruptcy Court in Charleston. J. Thomas Jones, who is co-CEO of Genesis, would not discuss the Logan situation with MODERN HEALTHCARE.
Senker, interim CEO and also principal of Grace HealthCare Advisors, a turnaround firm based in Morgantown, W.Va., has managed to keep the hospital's financial and legal turmoil from interfering with daily operations and patient care, partly by refusing to immerse himself in the hospital's past.
His task is to guide the hospital through the deal with Genesis and get it back to the basics of administering healthcare within the community, he says.
That means completing the sales of various real estate holdings, getting a handle on the hospital's financial situation and regaining the confidence of the community.
"I think it's a tragic situation that occurred here, but I have confidence in the judicial system," Senker says. "Our focus is on the future."
Morrison also addressed the future in his 1996 publication about the health system.
"Through such projects as the regional retail mall and development and construction of suitable buildings to house new businesses, Monterra Development Corp. will stimulate the local economy, thereby providing patients for the healthcare system," he wrote.
His vision came at a cost that is only beginning to be tallied.