California hospital chiefs overpaid their own firms $23M, complaint alleges

The union that accused Bakersfield, Calif.-based Kern County Hospital Authority of overpaying its executives through their own private consulting firms has escalated its concerns to an official complaint. 

Service Employees International Union Local 521 filed the complaint with the state Fair Political Practices Commission Feb. 27. The filing, shared with Becker's, alleges the hospital authority's current CEO and CFO and former CEO had violated California law by participating in making contracts where they had "cognizable financial interests."

"SEIU Local 521 has uncovered a corrupt scheme in Kern County's public health system that has undermined the quality of care available for the people of Kern County while enriching a small clique of executives," the complaint said. 

A spokesperson for Kern Medical — the hospital authority's brand name — told Becker's the complaint is "utterly meritless," and that the system will "aggressively defend" itself against the accusations. The spokesperson alleged that the union has not engaged in "good faith" efforts to improve labor relations, saying: "SEIU will learn that frivoulous actions have consequences."

The allegations against Alton Scott Thygerson, the hospital authority's current CEO; Andrew Cantu, its current CFO; and Russell Judd, its former CEO from 2016 to 2021, first arose in June. A union report alleged that the hospital's payments to Cantu Management Group (of which Mr. Cantu is president) and Meridian Healthcare Partners (of which Mr. Judd is owner and president and Mr. Thygerson is vice president) had exceeded contractual amounts by 40% to 147% — leading to $23 million in unauthorized compensation over the past four years. 

All three executives were originally contracted through the two private consulting firms, but in August 2023 — two months after the allegations emerged — Mr. Thygerson and Mr. Cantu were both hired directly by the Kern County Hospital Authority to continue managing its assets. 

The CEO, Mr. Thygerson, is also the hospital authority's purchasing agent. Originally, he could enter contracts and certain medical service agreements "costing a maximum of $250,000 per year with a maximum cumulative total not to exceed $750,000" without prior approval from the board of governors. In 2017, a resolution requiring the CEO to provide the board with a written quarterly expenditure report was removed, according to the complaint. 

Mr. Cantu, Mr. Thygerson and Mr. Judd have directed millions in overpayments to their own respective companies, then influenced the board to retroactively approve them, the complaint alleges. According to executive compensation information the union obtained through the  California Public Records Act, Mr. Judd approved 15 unauthorized payments to Cantu Management Group above its maximum payable amount between Jan. 27, 2021, and Aug. 31, 2021 — totaling more than $2.92 million in unauthorized payments. The board did not address the unauthorized payments until July 20, 2022, after the union filed a complaint. At this point, the board passed a retroactive amendment to its agreement with Cantu Management Group, approving the payments that previously exceeded the maximum payable amount, per the complaint. 

Between December 2016 and December 2021, Mr. Judd and Mr. Thygerson "direct[ed] and influence[d]" Vice President and General Counsel Karen Barnes to repeatedly amend the hospital authority's contract with Meridian. They effectively removed established performance measures and increased Meridian's management fee, per the complaint. 

The pay increases were justified by a "study" initiated by Ms. Barnes, though there is no evidence that the study results were ever provided to the board, according to the complaint. 

Despite the contract amendments — allowing Meridian to receive an annual max payable amount of approximately $4.5 million — Meridian was overpaid more than $20.26 million between 2017 and 2021, according to the complaint. 

In a June 28 statement shared with Becker's, Kern Medical denied the initial allegations of contractual overpayment, financial mismanagement and concealment of information. The system stated that services offered by the outside management firms have been beneficial to patients. 

In 2022, Kern County ranked 53 out of 58 California counties in health, according to the complaint. 

"Since its inception, KCHA executives have increasingly privatized the public healthcare system for their own benefit and to the detriment of the underserved community in Kern County," the complaint alleges. "Unfortunately, these executives engaged in a pattern of self-enrichment at the expense of Kern County's poorest residents."

This story was edited Feb. 28 at 1:15 p.m. to include an updated statement from Kern Medical.

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars