HomeMy WebLinkAboutMINUTES - 04191988 - 2.2 THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY , CALIFORNIA
Adopted this Order on April 19, 1988 , by the following vote :
AYES : Supervisors Powers, Fanden, McPeak, Torlakson, Schroder
NOES: None
ABSENT : None
ABSTAIN: None
SUBJECT : LOS MEDANOS COMMUNITY HOSPITAL DISTRICT
The Board received a letter from Lillian Pride, President of
the Board of Directors of Los Medanos Community Hospital
District, along with an attached "Disclosure Report" and oral
comments from Ms. Pride, indicating the Hospital District would
appreciate assistance from the County in the area of
administrative oversight; and
The Board members discussed issues related to the Los
Medanos Community Hospital District fully; and
Supervisor Torlakson MOVED the following, based on the
comments of Board members:
( 1 ) Refer to the County Administrator, Health Services
Director, and County Counsel for a recommendation on
what legal action the Board might take to recover the
financial losses suffered by the Hospital District,
including breaking the settlement agreement with the
former Administrator and joining in any taxpayers ' suit
to recover the investment losses sustained by the
District.
( 2) Encourage the Hospital District Board of Directors to
conduct all of their meetings publicly in the future.
( 3 ) Request the County Administrator and County Counsel to
recommend ways in which possible state legislation
might assist in recovering some of the funds that have
been misappropriated or misspent.
( 4 ) Request the County Administrator to recommend the
composition of 'a team which might be put together by
the County to include County staff and community
leaders to assist the Hospital District Board of
Directors and the Hospital Administrator in providing
the administrative oversight required by the Hospital
District and to assist in implementing some of the
necessary reforms.
The Board further directed that the above requested reports be
made to the Internal Operations Committee in two weeks.
cc: Los Medanos Community Hosp Dist
County Administrator I hereby certify that this is a true and correct copy of
Health Services Director an action taken and entered on the minutes of the
Board of Supervisors on' the date shown.
County Counsel
Internal Operations Committee ATTESTED: i�� /Q, /Q 8g
PHIL BATCHELOR, Clerk of the Board
of Supervisors and County Administrator
By , Deputy
i• i
THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA
Adopted this Order on April 19, 1988 , by the following vote:
AYES Supervisors Powers, Fanden, McPeak, Torlakson, Schroder
NOES : None
ABSENT : None
ABSTAIN: None
SUBJECT : LOS MEDANOS COMMUNITY HOSPITAL DISTRICT
The Board received a letter from Lillian Pride, President of
the Board of Directors of Los Medanos Community Hospital
District, along with an attached "Disclosure Report" and oral
comments from Ms. Pride, indicating the Hospital District would
appreciate assistance from the County in the area of
administrative oversight; and
The Board members discussed issues related to the Los
Medanos Community Hospital District fully; and
Supervisor Torlakson MOVED the following, based on the
comments of Board members:
( 1 ) Refer to the County Administrator, Health Services
Director, and County Counsel for a recommendation on
what legal action the Board might take to recover the
financial losses suffered by the Hospital District,
including breaking the . settlement agreement with the
former Administrator and joining in any taxpayers ' suit
to recover the investment losses sustained by the
District.
( 2) Encourage the Hospital District Board of Directors to
conduct all of their meetings publicly in the future.
( 3 ) Request the County Administrator and County Counsel to
recommend ways in which possible state legislation
might assist in recovering some of the funds that have
been misappropriated or misspent.
( 4 ) Request the County Administrator to recommend the
composition of 'a team which might be put together by
the County to include County staff and community
leaders to assist the Hospital. District Board of
Directors and the Hospital Administrator in providing
the administrative oversight required by the Hospital
District and to assist in implementing some of the
necessary reforms.
The Board further directed that the above requested reports be
made to the Internal Operations CommitteeAn two weeks.
cc: Los Medanos Community Hosp Dist ihereby certify thatthisisatrue and correct copy of
County Administrator an action taken and entered on the minutes of the
Health Services Director Board of Supervis��o��rsonthe date shown.
County Counsel / sf�(.t.Cr ��. �QBg- --
Internal Operations Committee ATTESTED:
PHIL BATC ELOR, Clerk of the Board
of Supervisors and County Administrator
By , Deputy
LM
CH
L®s Hadar®s community Hospital
March 31, 1988
Board of Supervisors
Contra Costa County
651 Pine Street
Martinez, CA 94553
Honorable Members of the Board:
This correspondence is in response to the inquiry received on March 22,
1988, regarding response to the Grand Jury Report and actions the Board is
taking to manage the District's business. Please be advised that the
District Board is in the process of developing a response to the Grand
Jury Report and have not yet completed that task. We anticipate that the
response will be available within thirty days, and a copy will be
forwarded to you immediately upon completion.
In the interim, we are providing you with a summary of actions which have
been taken or are in progress.
Disclosure Report
Prior to the issuance of the Grand Jury Report, the District issued a
Disclosure Report which detailed the investments made through the
subsidiary corporations and included a copy of the review of the
investment activity by the Arthur Young Company. This review was
conducted under agreed-upon procedures in consultation with the State
Attorney General's Office and the Grand Jury. A copy of the Disclosure
Report is enclosed for your information. During the week of February 22,
1988, a series of meetings was conducted by the Board for the medical
staff, employees, and the public. Eight meetings were held over a
three-day period and copies of the Disclosure Report were made available
to the audiences, media and public. During the week of February 29th,
follow-up meetings were held to answer questions generated by the
Disclosure Report and since then numerous inquiries have been responded to
during public board meetings.
2311 Loveridge Road Piftsburg,CA 94565 (415) 432-2200
J
Board of Supervisors
March 31, 1988
Page 2
Action Plans
As the result of an analysis by the District Board of the subsidiary
corporation activity, it was determined that major contributing factors in
the failure of the system and resulting losses included a lack of
communication between the District and subsidiary boards, the lack of
timely financial reports, and lack of adequate investment policies. The
District Board has mandated that certain action plans be implemented which
address the following:
- Immediately address the Grand Jury Report
- Receipt and review of monthly financial reports by project
- Receipt and review of quarterly consolidated District financial
statements
- Improved communications between the District Board and subsidiary
boards-
- Strict compliance with the Brown Act
- Recording secretary to be present at all board meetings
- Review of organization structure of the District
- Complete documentation of all actions taken by LMCH boards
- Improvement of communications between medical staff and boards
- Improve communications internally by the formation of ad hoc
committees to address fiscal matters and governance issues (board
members, employees, medical staff)
- Adoption and implementation of new investment criteria as recommended
by Arthur Young Company
- Adoption and implementation of physician loan policies
- Physician involvement at board level (physician membership on Health
Care Corporation Board)
- Adoption of travel and expense policy
- Immediate implementation of collection of receivables
- Increased monitoring of Administration
- Redefine role, responsibilities, and level of authority of the Chief
Executive Officer (CEO)
- Review, development and adoption of severance pay policies
- Active pursuit of affiliation opportunities
- Improved utilization of hospital resources
Review of bylaws to address the issue of hospital .staff membership at
board levels
All of the above listed actions are in various stages of progress and are
being implemented system-wide as applicable. A report on progress is
anticipated within 30 days. We will be glad to provide an update at that
time.
Governance Issues
The District Board is in the process of filling a vacancy created by the
resignation of Nicholas Ventrice. Applications have been solicited from
residents of the hospital district, and public interviews will be
conducted on April 5, 1988. This is the process of filling vacancies
which has been followed by the District Board for a number of years.
f �
Board of Supervisors
March 31, 1988
Page 3
It should be noted that four of the five board seats will be subject to
election in November 1988. The two persons appointed on October 1, 1987,
must stand for election for the remaining two yeas of the terms to which
they were appointed; two seats are open for election in the normal
expiration of four year terms. A sufficient number of applications have
been received from apparently qualified district residents. We do not
anticipate difficulty in the filling of this vacancy.
Mr. Chomor and myself have declinded to resign for the present because of
the critical need for some logical transition of leadership. The issue of
public creditability will be addressed through the elective process for
which the filing period begins in July. Inspite of the emotionalism
surrounding the fiscal difficulties of the District, it must be recognized
that the original problem of hospital operational losses continues (not
associated with the investment activity) and must be agressively
addressed. The departure of virtually all of the administrative staff
team has exacerbated the problem, and an effective mechanism for
mitigating an abrupt discontinuity in board membership does not exist.
We are in the final stages of recruitment for an experienced Chief
Executive Officer. Interviews for final candidates are scheduled for
April 1, 1988. We expect that the rebuilding of our administrative
leadership will provide for internal stability and additional support for
new board members.
We wish to assure you and the general public that the quality of medical
care within our facility is excellent. Our medical staff and employees
are dedicated to providing the highest standard of care, and this has not
been affected by the investment activity which is separate and distinct.
The District still has substantial capital reserves, and insolvency of the
District and the hospital is not an immediate concern.
We hope you will be supportive of our efforts to handle our current
difficulties in a responsible manner. Continued dialogue will be
necessary for you to gain a more comprehensive understanding. Toward that
end, we are willing to work cooperatively with the Board, its committees,
staff and other resources to further identify and implement corrective
actions and to restore the District to a sound basis in terms of
governance and public accountability.
Should you have questions while you are awaiting our further response,
please do not hesitate to contact us.
S' c%rely,
L llian J. r-idea
President, LMCHD Board of Directors
LJP/gr
cc: LMCHD Board of Directors
Mr. Tom Torlakson, Board of Supervisors
Mr. Claude VanMarter, Deputy County Administrator
t
I
D I S C L O S U R E R E P O R T 1 9 8 8
LOS MEDANOS COMMUNITY
HOSPITAL DISTRICT
FEBRUARY 23, 1988
LM
CH
Internal Correspondence
TO: IAS MEDANOS COMMUNITY HOSPITAL STAFF, PHYSICIANS b VOIDNTEERS
FROM: ROBERT A. MAESTRETTI 1I
ACTING CHIEF EXECUTIVE OFFICER
DATE: FEBRUARY 23, 1988
SUBJECT: BACKGROUND MATERIALS
To give you a better understanding of the events surrounding the investment
practices and policies of Los Medanos Community Hospital in 1983-87, we are
providing you with background materials.
It is our wish that all of your questions will be answered after attending
your briefing session and reviewing these documents. I recognize that the
complexity of this information may require further opportunities to learn more
about the facts so that all of your questions will be answered. To that end,
we have scheduled additional briefing sessions for anyone who would like to
attend. Please check with your supervisor for the time and place.
In addition, I encourage you to bring any questions you may have to me or any
member of the Board of Directors.
On behalf of the leadership of Los Medanos Community Hospital , I want to thank
you for your time and interest in these matters of great concern to all of us.
Attached you will find the following documents:
1 . Background Summary
2'. Statement of Financial Operations for each Subsidiary Investment
3. Summary Statement of Subsidiary Financial Activities
4. Agreed-upon Procedures Detail of Investment Activities
Los Medanos Community Hospital
Page 2
4
BACKGROUND STATEMENT
For almost forty years Los Medanos Community Hospital District made money by
billing insurance companies and individuals at "cost plus". This meant the
hospital billed the insurance company or the patient for the cost of the
patient's care plus an added amount to cover overhead and the rising cost of
new equipment and services.
In the early 1980's, shrinking health care reimbursement put pressure on
hospitals here and across the nation to compete for patients and dollars.
Private and not-for-profit hospitals began to invest in ancillary health care
services to increase their revenues. Prior to 1982, California's district
hospitals were handicapped by the fact that they were not allowed by
California State Law to form profit making subsidiary corporations.
For LMCHD the reduction in reimbursements for Medicare, Medi-Cal , and changes
in the county's Medically Indigent Adult program resulted in double-digit
annual losses of up to thirty-five percent. The hospital 's patient mix of
fifty-four percent Medicare, twenty-one percent Medi-Cal, and eight percent
having no insurance guarranteed future losses if no actions were taken.
The District Board recognized the problem and looked for creative solutions.
However, there were two major barriers. By law, they couldn't get into profit
making businesses. In addition, the District Board was required to conduct
business in public meetings, which would make potential business partners
concerned that strategic business information would be readily available to
competitors.
In 1982, the California legislature recognized this problem and passed a law
allowing district hospitals to form subsidiary non-profit and for-profit
corporations for the purpose of investment. This law made it possible for
district hospitals to compete in a fair way with non-profit and for-profit
hospitals.
Immediately, the District Board and administration began developing a
strategic plan for near-term and long-term investments in health care
enterprises that would bring new health care services to East County and
generate a profit for the District.
In June 1983, the District Board authorized the formation of LMAC, a private
non-proft , public interest corporation, for the benefit of the District.
$5,495,000 was transferred from surplus funds to LMAC. An agreement was
entered into between the LMCH District and LMAC that all transfered funds and
assets be used only for the benefit of the District and its public purposes.
The District Board served as the first LMAC board of directors until 1986.
The commonly held legal opinion until then was that District board members
could make up a quorum of a separate subsidiary board and not be in violation
of the Brown Act. Later, the District was advised by its attorneys that a
quorum of t:he Distrist Board could not sit on a subsidiary board, even though
it was a separate corporation. To remedy the situation,. the District Board
removed three members of the District Board and appointed other members of the
community.
Page 3
LMAC began implementing new health care programs and services, such as a home
health, retail pharmacy and a durable medical equipment company. Three LMAC
subsidiaries were established to provide these programs:
1. Mountain Sand Development Corporation;
2. Earth Grains Development Corporation; and,
3. Pacific IV Corporation.
In addition, LMAC opened interest bearing certificates of deposit to establish
near-term and long-term passive investments for unused/idle cash with the goal
of increasing the investment potential of the corporation. An initial
investment of $250,000 was made. The current cash value is $1 ,156,354. Cash
value is defined as available cash from all subsidiary corporations, except
the Health Care Corporation.
MOUNTAIN SAND DEVELOPMENT CORPORATION
In 1983, the District Board authorized $500,000 to be transferred to Mountain
Sand Development Corporation. Its purpose was to actively engage in the
business, delivery, and development of health care services. Mountain Sand
Development Corporation invested in MedWest, a chain of urgent care centers; a
business billing service; a professional registry; a pharmacy; and one
non-health care related investment, time-share condominiums in South Lake
Tahoe.
MedWest , an urgent care clinic enterprise, was the single largest investment
by MSDC, an investment of over three and half million dollars (the majority of
the funds were provided by LMAC). Urgent care clinics were being opened
nationwide by small and large hospitals as a way to meet the general
population's demands for lower health care costs and to generate referrals to
their inpatient facilities.
LMCH had been approached by the owner of MedWest, Dr. William Gerber, to join
him in establishing urgent care clinics throughout Contra Costa County. Dr.
Gerber made it clear he was also negotiating with other hospitals, but wanted
to give LMCH the right of first refusal. Ultimately, the investment was made
to protect the interests of the hospital and its immediate service area from
developers of urgent care clinics and to take advantage of what was seen as
the fastest growing and profitable health care delivery system of the time.
Between 1983-85 urgent care clinics were established in Antioch, Concord, West
Pittsburg, Vallejo, Clayton, and F.1 Cerrito.
Mountain Sand Development Corporation also invested in the following
enterprises:
Page 4
1. MedWest was the major investment by MSDC. Its strategic intent was to
increase the flow of patients to LMCH and to protect the hospital's emergency
room business. The hospital eventually became the majority partner in MedWest
to stop MedWest from accepting other offers from LMCH's competitors (see pages
2-6 of Approved Procedures).
After the first year of operations, patient utilization rates at MedWest's
urgent care centers were lower than expected. It was apparent consumers were
more likely, to see their family doctor when in need of emergency care. Urgent
care clinics around the nation were experiencing the same problems and were
successfully shifting their marketing focus to exclusive service contracts
with business and industries. As a result, MedWest did the same thing.
The long-range revenue projections improved with the signing of exclusive
service contracts with local industry. Two strategically placed primary and
urgent care centers had been developed as patient feeders to the hospital and
as bases of operations of an industrial/occupational health program. Revenues
from the new programs grew steadily, but failed to offset the large subsidies
by MSDC. Because of these significant losses, the long-term commitment to
subsidize day to day operational costs was not financially possible.
Investment: $4,657 ,211 (corporate office, clinics,
related partnerships and medical groups)
Outcome: All of the clinics were either sold to
private physicians or were closed to decrease long-term
financial exposure.
Present Value: $54 ,143
Current Status: Staff directed to sell/close all
remaining entities.
2. Leland Professional Health Agency was established by LMAC to
eliminate the high fees paid to registries for nurses and technical personnel
and to generate income through contracts for services with other health care
institutions. To keep operating costs down, a contract with an established
home health agency was sought.
The original home health venture presented to Leland was rejected because the
financial risks were greater than the potential profits. A more prudent home
health venture was accepted with lower financial risks.
Investment: $2,185
Outcome: Registry licences were obtained.
Page 5
0
Present Value: $2,185
Current Status: Presently, there are no business
activities. Staff has been instructed to evaluate
the income potential of this investment.
3. East Bay Billing was established by MSDC and a subsidiary of East
County Medical Group to provide an efficient and cost effective billing
service for physicians and physicians groups. Its objective was to satisfy
the requirements of private health insurance carriers and HMOs (see page 7 of
Approved Procedures).
Investment: $20,691 + the cost of data processing
equipment.
Outcome: First and second year operations have exceeded
revenue expectations. The enterprise is supporting its own
operations and is expected to be profitable by the end of
its second year.
Current Status: Business plan objectives were
accomplished. Staff will continue to evaluate financial
statements on a monthly basis.
4. Gateway Pharmacy was opened to meet contractual requirements of
HMOs/PPOs and was to be a retail outlet for the community (see page 7 of
Approved Procedures).
Investment: $69,181
Outcome: Gateway Pharmacy provides pharmaceutical
services to a HMO/PPO skilled nursing facility. Retail
sales to the surrounding community are growing.
Present Value: 36,932
Current Status:
Revenues in the second year of operations are
exceeding expectations. Staff will continue to monitor
monthly financial statements.
5. Tahoe Ridge was purchased for rental income and for appreciation
value of land and property (see page 8 of Approved Procedures).
Investment: $81,400
Outcome: Overbuilding in surrounding area has depreciated
value of property. ..One.of six weeeks has been sold, so far.
Page 6
Present Value: $70,680
Current Status: Staff has been instructed to try to
rent the remaining time share weeks until they can be sold.
6. Physicians Loans were approved for two LMCH physicians to help them
establish private offices in LMCH's service area (see pages 10 and 11 of
Approved Procedures).
Investment: $57,515
Outcome: Both loans are still outstanding.
Present Value: $37,993
Current Status: The hospital will negotiate a
payment schedule with both physicians to begin immediately.
7. Brentwood Land was purchased to build a medical office building in the
Brentwood/Oakley area. In an effort to speed up LMCH's presence in the area
rental property for medical offices was leased. Since the strategic
objectives were achieved by leasing office space, the land was sold (see page
8 of Approved Procedures).
Investment: $89,117
Outcome: Land was sold for $127 ,037 , a $31 ,920 profit.
8. Brentwood Family Medical Center was established to attract more
patients from the eastern part of Contra Costa County. A building was leased
and renovated, and a local physician was recruited to practice there (see page
15 of Approved Procedures).
Investments: $171 ,950
Outcome : Revenues from the clinic failed to offset
the subsidies from Mountain Sand Development Corporation.
The client base appears to be steadily increasing.
However, MSDC will continue to subsidize the Center.
Present Value: $81 ,320
Current Status: The BFMC lease is still in operation.
Rent from the sublessors are covering the lease expenses.
9. Accounts Receivable - POSCO In 1986-87 , MedWest provided on-site
medical care at the POSCO steel mill. The contract was discontinued because
MedWest corporate revenues for all programs, including POSCO, fell below the
subsidies provided by the .corporation.
rage i
Investment: $33,831
Carrying Value: $8,831 ($25,000 has already been
collected.)
Current .Status: Staff has been directed to collect
remaining receivables. Additionally, staff will evaluate
the business potential of LMCH's industrial health program
and make recommendations.
Page 8
EARTH GRAINS DEVELOPMENT CORPORATION
Earth Grains Development Corporation was incorporated in March 1984. It was
formed to provide an .investment vehicle for for—profit health care ventures
and for passive investments.
LMAC made an initial investment of three—hundred thousand dollars into EGDC.
Other authorizations were made by LMAC as investment opportunities arose.
Earth Grains Development Corporation was merged with Mountain Sand Development
Corporation to eliminate duplication of efforts and an unnecessary additional
layer of corporate structure.
Earth Grains Development Corporation invested in the following business
enterprises:
1 . Medstar Company was retained to perform marketing services for the
health care ventures of LMAC subsidiary corporations. Start—up capital was
loaned to Medstar with the potential for future investments by EGDC (see page
9 of Approved Procedures).
Investment: $30,000 loan
Outcome: EGDC decided not to invest further in Medstar.
An informal agreement was made to reduce Medstar's debt
to LMAC through services rendered.
Present Value: $30,000
Current Status: The loan is potentially
a bad debt. Staff has been directed to collect
receivables through cash or services.
2. East County Medical Group (ECMG) was incorporated as a professional
corporation under the laws of California in 1984 and is wholly owned by its
physician shareholders. It is an Independent Practice Association (IPA) that
was formed to provide quality health care to the residents of East Contra
Costa County. ECMG contracts with insurance companies, HMOs, and PPOs to
provide multi—specialty care.
Approximately seventy—five physicians, a broad cross section of medical
specialties, are members-of ECMG. Thirty of these of physicians are
shareholders of the group.
In 1984, ECMG signed contracts with IPM, MaxiCare, 'and Health Plan of America.
Contracts with Health America, Bay Pacific, Take Care, Cal Care, Met Life, and
aobc �
PruCare were added in 1987, increasing ECMG's patient population by
one-hundred percent. ECMG projects its enrollment to reach 6000 members by
1989.
ECMG holds exclusive contracts with its HMOs for all of East Contra Costa
County. HMOs associated with ECMG provide significant competition to Kaiser
Permanente in its service area. A substantial number of ECMG enrollees are
former Kaiser members.
ECMG is likely to expand due to rapid population growth in East Contra Costa
County and recent dramatic increases in the cost of indemnity insurance. As a
result, employer groups and subscribers are frequently selecting HMOs and PPOs
over traditional indemnity plans.
Investment: $209,764
Outcome: ECMG is the only integrated Independent
Practioners Association in East Contra Costa County. It
has been supportive of LMCH in HMO/PPO negotiations.
Joint efforts by LMCH and ECMG to win HMO/PPO contracts
will continue indefinitely.
Current Status: Profits from East County Medical
Group's interest in East Bay Billing will be used to repay
the principal and accrued interest on the original loan.
3. Paradise Cuisine is a stock investment in a company that produces a
non-dairy frozen dessert. It was to be marketed nationwide to food service
organizations and restaurant chains (see page 10 of Approved Procedures).
Investment: $200,000
Outcome: The investment has not performed well due
to product distribution problems.
Present Value: none
Current Status: A return on the investment is possible
only if the formula for the product is sold. Staff has
been directed to investigate that possibility.
4. MRI is a joint venture with a group of Contra Costa County hospitals to
provide magnetic resonance diagnostic imaging services to Central and East
Contra Costa County. It was intended to allow LMCH and partners to purchase
expensive state-of-the-art technology at reasonable prices (see page 10 of
Approved Procedures).
Investment: $14,500
Outcome: Plans to build a centrally located
Page 10
permanent facility were cancelled because of increased
competition from a rival corporation that drastically
reduced MRI's market share.
Present Value: none
Current Status : There are no plans to reactivate the
enterprise. Staff has been directed to collect all
remaining receivables.
5. Contra Costa Health Providers was an Independent Practice Association
(IPA) retained to assist LMCH with HMO/PPO contracting in East County (see
page 11 of Approved Procedures).
Investment: $18,750.00
Outcome: After East County Medical Group was
formed, the relationship was ended.
Current Status: The majority of the investment was
written off as uncollectable. Staff was directed to
collect remaining receivables.
6. Home Oxygen Medical Equipment is a local durable medical equipment
and oxygen company. EGDC holds a partnership in HOME with some local
physicians (see page 11 of Approved Procedures).
Investment: $25,000
Outcome: Operating losses were recorded in 1984 and 85,
the first two years of operations. A $15,000 dividend
was yielded for both 1986 and 87. All business indicators
suggest a positive cash flow for next year.
Present Value: $5,000 in excess of the initial
capital investment.
Current Status: $30,000 in dividends have been received
to ,date. Therefore, the present value is $5,000 in excess
of the original capital investment.
7. Novato Retirement Facility is a proposed retirement residence in
Novato, CA. EGDC purchased a limited partnership interest from the developer,
Colson & Colson (see page 12 of Approved Procedures).
Investment: $550,000
Outcome: MSDC's strained financial position forced the
corporation to sell the investment for $6.71 ,.1.81, a profit
of 127,181.
rage I
8. Crescent Health Investment is currently a partnership of four
hospitals in a durable .medical equipment company. Originally, twenty-two
hospitals were involved in an attempt to compete in the Northern California
market. The scope of the company has shifted solely to the Bay Area (see page
12 of the Approved Procedures).
Investments: $60,000
Outcome: Over the last two years of operations, the
volume of business has steadily grown. To date, the
company is still profitable. If this trend continues
there is potential for affiliation with larger durable
medical equipment companies that service the Northern
California market.
Current Status: With two back to back increases in the
profit margin, Crescent remains an attractive investment.
The hospital will monitor business indicators of future
profitability.
PACIFIC III FINANCIAL CORPORATION
The corporation was formed to lease medical equipment to LMCH, other
hospitals, and physicians (see page 13 of Approved Procedures).
Investment : $50,100
Outcome: The marketing effort was crippled by the
resignation of the sales manager in the first year of
operations. Revenues have fallen below subsidies
provided by the corporation.
Present Value: $36,243
Current Status: Staff was directed to evaluate the
investment's business potential and to recommend actions.
46 coA,
MV A MEMBER OF ARTHUR 1tUUNG INTERNATIONAL
Arthur Young 2175 North California Blvd.
Walnut Creek, California 94596
Telephone: (415) 977-2900
January 27, 1988
Board of Directors
Los Medanos Community Hospital District
2311 Loveridge Road
Pittsburg, California 94565
Dear Madams or Sirs:
At your request, we have completed certain agreed-upon procedures, as
discussed below, relating to the investment activity of LMAC and its
affiliates. The procedures were performed solely to assist Los
Medanos Community Hospital District (LMCHD) in responding to the
inquiries by the Grand Jury of Contra Costa County and the office of
the Attorney General of the State of California who are conducting an
investigation of the activities of LMAC and its affiliates. It is
understood that this report is solely for District information and is
not intended to be distributed to anyone who is not an officer,
director or legal counsel of the District or a member of the Contra
Costa County Grand Jury or a representative of the California
Attorney General.
This document presents the results of agreed-upon procedures which
were to summarize the activities of all LMAC and its affiliates
investments from the date of initial investment to the sale date or
carrying value at June 30, 1987. The nature and extent of our
agreed-upon procedures, which consist primarily of inquiries and
inspection of documents, are as follows:
1. Listed all, investments, based on a review of the general ledgers
and supporting documents obtained from District, LMAC and its
affiliates.
2. Read all available board minutes of LMAC and its affiliates and
summarized the discussion of investment purchase, sale or
explanation to maintain investment.
3. Reviewed the District's, LMAC's and its affiliates files for
documentation that discusses investment activities.
4. Inquired of board members as to information available regarding
investment activities.
Arthur Young
January 27, 1988 CON F I �C,� L
Board of Directors
Los Medanos Community Hospital District
Page 2
5. Inquired of legal counsel as to discussion of investment
activities before, during or at time of sale.
6. Summarized findings.
The results of our procedures are summarized in Attachment A.
For each investment in Attachment A, the following supporting
documentation is available:
1. Listing of all Board minutes where specific investments were
discussed.
2'. Listing of all documents in the "Thirteen Volumes of Los
Medanos" which relate to each investment.
3. Listing of all documents obtained during review of all files
made available to us during site visit to LMCHD. This listing
includes: documents we obtained from legal counsel based on
finding a specific reference to, but which were not available in
LMCHD files.
The report at: Attachment A and the supporting documentation listed
above are summaries of the information obtained through the specific
agreed-upon procedures referenced to above. The documents obtained
were limited to those made available to us based on performance of
the agreed-upon procedures referenced above and we make no
representation as to the completeness of the documents obtained.
It should be understood that we make no representations as to
questions of legal interpretation or as to the sufficiency for your
purposes of the procedures enumerated in the second paragraph of this
letter. Because the above procedures do not constitute an
examination made in accordance with generally accepted auditing
standards, we do not express an opinion on any of the items discussed
in the report.
Very truly yours,
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LM CONFIDEC� 7WI
//)nternal Correspondence
From: WendellL. a ir. of Finance Date: February 17, 1988
To: Board of; ctors of: Subject: Additional Grand
LMCHD Jury Information
LMHCC
LMAC
Mt. Sand
Attached is additional information which the Grand Jury received 2-11-88:
1) 2-11-86 Statement of operations
(Total Activity for each entity since inception through 6-30-87)
For: LMAC
Mt. Sand
Earth Grains
Pacific IV
Brentwood Family Medical Center
MedWest Prof. Mgmt Inc.
2) Mt. Sand Development Corp. calculation of carry value.
3) Mt. Sand and Earth Grains Summary of Operation
(Inception through 6-30-87)
4) Summary of All Activity
This information has been incorporated as part of the Agreed Procedures
Report.
WLS:wo
Los Medanos Community Hospital District
231 AOM _ _
GO
t4FjDENTIAL
SUMMARY OF SUBSIDIARY ACTIVITY (1)
Current
Value Gains Losses
LMAC - Operations $ 2549000 $ 243,000
(2) Mountain Sand/Earth Grains-Operations (469,000) 972,225
(3) Pacific IV - Operations ( 169000) 157,772
(4) MedWest - Operations (116,000) 1,786,847
Mt. Sand - West Pittsburg Clinic 11000 779,790
Clayton Clinic 558,344
Brentwood Medical Center 105,000 195,000
Antioch Clinic 13,332 659,654
(5) MedWest Miscellaneous 209777 82,734
Leland Health 20185
East Bay Billing 20,691
Gateway Pharmacy 28,552 70,041
Ridge Tahoe 55,361 15,219
Brentwood Land $31,920
Earth Grain - Med Star 30,000
ECMG 209,764
Paradise Cuisine 200,000
MRI 14,500
CC Health Providers 18,750
(6) HOME 5,000
Novato Retirement 677,181 127,181
Crescent Health 60,000
Total - $ 553,803 $164,101 $6,076,516
Total Resources
Available - $ 6,630,319
Total Resources
FOOTNOTES: Expended - $6,076,516
(1) Includes all cash transfers and HCC/District staff and expense allocations.
Excludes physician loan activity.
(2) Negative current value as reflects only liabilities. Assets are reflected
in clinic operations below. Discontinued operation costs liabilities are
included.
(3) Negative current value as reflects only net liabilities.
(4) Negative current value as reflects only liabilities. Assets are reflected
in clinic operations below. Discontinued operation lease costs and annual
depreciation for clinic.
(5) IncludeSGerbers non compete plus LTD Partners A/R.
.(6) Shows net dividend in excess of paid in capital.
MOUNTAIN SAND DEVELOPMENT CORPORATION
SUMMARY OF OPERATING EXPENSES
For the period Inception to June 30, 1987
Faith
Grain M.S.D.C•
Operating expenses:
Salaries and wages 44,036 44,036
Operating supplies 257 91,095 91,352
Purchased services 194,197 589,861 784,058
Interest 1,791 24,012 25,803
Depreciation 120,765 120,765
Other 91,606 237,925 329,531
287,851 1,107,694 1,395,545
Less other revenue (8,902) (414,418) (423,320)
278,949 693,276 972,225
OO N FI D E ITIP,!
MOUNTAIN SAND DEVELOPMENT CORPORATION
Calculation of Cary Value
Total assets $1,140,000
Less separately defined assets:
Antioch sale receivable 13,000
West Pittsburg sale receivable 1,000
MedWest miscellaneous 20,000
Gateway Pharmacy 29,000
Tahoe Ridge 55,000
Novato 677,000
Physicians'receivable 38,000
(833,000)
Less investment in wholly-owned subsidiary (134,000)
Less liabilities excluding intercompany 902,000
26( 0.000)
(642.000)
Carry value (469,000)
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