Amid a public and painful effort to turn around financial losses, officials at Jackson Health System in Miami acknowledged allegations of fraud and excessive payments to its pharmacy manager, Cardinal Health, and vowed last week to quickly tighten financial oversight and overhaul Jackson's compliance office.
Authorities are investigating whether the public health system may have overpaid Cardinal Health by more than $170,000 per month, while two former employees-one from Jackson and one from Cardinal-may have misspent hospital money on trips and a strip club. The allegations, and news of a criminal investigation by Miami-Dade's state's attorney and Office of the Inspector General, were first reported Sept. 26 by the Miami Herald.
Cardinal Health, Dublin, Ohio, received a $2.6 million no-bid contract to manage Jackson's pharmacy in November 2003.
In the wake of the public airing of the allegations, Jackson's president and chief executive officer, Marvin O'Quinn, called for greater scrutiny of no-bid contracts, and pharmacy spending and expense reports, and outlined internal and independent probes into the allegations in a Sept. 27 memo to the Public Health Trust, the system's public governing board.
"I believe there is sufficient evidence of lax managerial controls and serious lapses in judgment to warrant immediate action," O'Quinn wrote in the memo to trustees. O'Quinn declined to comment until results of an internal audit are known.
Conchita Ruiz-Topinka, a spokeswoman for the health system, said Jackson is awaiting results from Miami-Dade's inspector general's office, which began its investigation after being contacted by a Jackson whistle-blower in August, and results from Jackson's own audit of invoices to explore allegations it overpaid Cardinal.
The allegations of overpayment and misuse of funds were first raised internally by a Jackson employee in July, who then took his concerns to state investigators. A review of one month's invoices and spending found a Jackson computer glitch resulted in $170,000 in excess payments to Cardinal plus $75,000 in overpayment to Cardinal for medication, Ruiz-Topinka said. The bills were authorized by Jackson's former vice president of logistics and distribution, Alson Cook, who also signed off on expense reports for fishing and strip club trips, she said. Cook resigned in mid-September. Efforts to reach Cook, a Pembroke Pines, Fla., resident, were unsuccessful.
Cardinal spokesman Jim Mazzola declined to say if an investigation by the Miami-Dade state attorney and the inspector general's office includes the company.
Cardinal's own inquiry found discrepancies in expenses submitted by Kevin Reece, a Cardinal project manager, Mazzola said. Reece no longer works for Cardinal, and the company reimbursed Jackson $45,000 for all of his expenses-legitimate or otherwise, Mazzola said. "This is obviously the kind of thing we take very seriously," he said. "As part of the investigation, we took quick corrective action."
Brian Tannebaum, a Miami attorney with Tannebaum, Planas & Weiss who is representing Reece, said his client is innocent. "He didn't do anything wrong," Tannebaum said. "Nothing criminal happened."
Mazzola said that to date Cardinal isn't aware of any instances of overbilling Jackson. The company will cooperate with Jackson on the public health system's ongoing audit of its pharmacy contract and review its own billing to search for errors, he said. If scrutiny uncovers overbilling, Cardinal will move quickly to reimburse Jackson, as it did in response to its employee's expenses, he said.
Mazzola defended Cardinal's performance managing Jackson's pharmacy, saying its management improved operations and saved Jackson more than $2 million.
O'Quinn described the pharmacy as "in serious disarray" and in need of "an immediate overhaul of management" prior to Cardinal's selection as manager in November 2003, according to the Sept. 27 memo to trustees.
Cardinal, which holds two previously existing pharmacy contracts with Jackson-both won in open bidding-received the third, no-bid contract based on its knowledge of the health system's operations, the memo stated. To date, Cardinal has cut $2.1 million from Jackson's drug expenses, according to O'Quinn's memo.
Jackson, which owns 1,839-bed Jackson Memorial Hospital, was projected to end its fiscal 2004 on Sept. 30 with an operating loss approaching $60 million, said Frank Barrett, its chief financial officer since May. Barrett is Jackson's third CFO in 14 months, and turnover in the office created a void in leadership that may have contributed to loose oversight of spending, Ruiz-Topinka said.
Jackson's administrators, along with Miami-Dade County officials, have been working to erase a projected $133 million shortfall projected for fiscal 2005 and to find longer-term solutions to the health system's financial woes, Barrett said.
A string of money-losing years and the growing number of patients who cannot afford to pay for medical care have eroded Jackson Health System's cash reserves, said George Burgess, Miami-Dade's county manager. "This is probably the largest gap we've ever been confronted with, for sure," he said.