NATCHEZ — Citing gross negligence and outright fraud, Natchez Regional Medical Center filed a federal lawsuit this week against its former management company and two former top executives.

The lawsuit seeks $46 million in damages for what the county-owned hospital calls “negligence, breach of fiduciary duties, fraud and other wrongful acts and omissions” committed during 2006 and 2007.

In a 54-page filing with the U.S. District Court for the Southern District of Mississippi, NRMC alleges the mismanagement and deception caused by Quorum Health Resources, a Brentwood, Tenn., hospital management company, ultimately led to the hospital’s bankruptcy filing on Feb. 12.

Click on the following link to download a copy of the full complaint filed in U.S. District Court

NRMC vs. Quorum

Former NRMC CEO Jeffrey Wesselman and former CFO Michael Anderson are named as co-defendants in the case.

Since 1992 until it was fired in 2008, Quorum had provided financial and operational management services to NRMC, including providing its employees to serve as CEO and CFO.

The lawsuit alleges Quorum and its employees, Wesselman and Anderson, falsely portrayed the hospital’s financial situation to its board of trustees by providing “misleading and inaccurate financial information.”

That led to the board’s belief that the hospital’s financial condition was “healthy and on a road of financial stability.”

Early signs of trouble

Natchez Regional’s financial woes began in September 2007 when an outside auditor, hired by the board of trustees, began seeking information to prepare for an upcoming audit, the lawsuit states.

Quorum officials allegedly suggested to the hospital’s board that NRMC would have a $1.5 million profit for the fiscal year ending Sept. 30, 2007.

In November 2007, after the auditors continued to press for information, hospital trustees began to realize something was amiss, board member Dan Bland said.

First, Quorum officials admitted to a nearly $400,000 loss on the fiscal year.

“The numbers were skewed to me, and I suddenly realized we were broke,” he said.

Ultimately, the lawsuit alleges, the outside auditors determined the hospital had actually suffered a $1.9 million loss in profit for fiscal year 2007.

Soon after Anderson, then hospital chief financial officer, was fired by Quorum.

By mid-April 2008, the hospital board of trustees hired Healthcare Management Partners to help get the finances in order.

In the months that followed, the hospital went through significant restructuring, including reducing its staff by 25 percent, or approximately 100 employees.

‘Gross mismanagement’

The lawsuit details a series of “gross mismanagement” including the hospital’s failure to raise fees for services to stay in step with the industry as a whole and the competing hospitals.

From 2001 until Quorum was fired in 2008, the lawsuit alleges that NRMC was charging services at a discount of 50 percent or more than competing facilities.

The result of the lower rates and the failure to renegotiate managed care contracts, the lawsuit states, was a $6.3 million loss in revenue for 2007 alone.

A number of strategies and ventures are cited in the lawsuit were “unreasonable, unachievable and economically draining and harmful.”

Included among those cited in the lawsuit are:

Allowing managed care contracts — with such agencies as BlueCross and BlueShield, Multiplan Inc., Coventry Health Care and PPOplus LLC, to become outdated, resulting in revenue shortfalls.

Skyrocketing staffing levels.

Pressuring NRMC to purchase supplies from vendors within a Quorum group purchasing plan when more economical alternatives were available.

Replacing fixtures such as chairs that did not need replacing.

Utilizing third-party providers for rehabilitation and geriatric psychiatry services rather than using in-house services.

Hefty fees associated with recruiting new physicians

Months in the making

Hospital board attorney Walter Brown said the decision to sue Quorum came after months of forensic investigations of the hospital’s accounting.

“(Filing the lawsuit) was done after a great deal of thought and a great deal of study,” Brown said.

Although Brown described the case as “complex,” he said he felt confident in the merits of the case.

“The very fact that we had to go into bankruptcy is sort of the proof in the pudding of the mismanagement,” he said.

Brown will not be representing NRMC in the lawsuit. Two attorney firms, one from Jackson and one from Baltimore, Md., will represent the hospital.

Bland, an outspoken critic of Quorum, particularly since the accounting concerns first surfaced, said he was disappointed, but wants taxpayers to know the hospital board was determined to get to the bottom of the problems.

“I’m not angry. I’m just disappointed that the people of this community relied upon somebody. They had an obligation to this community and they didn’t fulfill it,” he said. “This board is out here fighting a battle for (taxpayers) for the way they were treated, the way they were misled.”

Susan Hassell, Quorum’s vice president of marketing and corporate communications, said late Wednesday afternoon that she was aware of the lawsuit.

“I cannot make any comment because it’s pending litigation,” she said.

Bankruptcy soon over

Despite Natchez Regional’s financial woes in the last two years, including the Chapter 9 bankruptcy filing earlier this year, Natchez Regional is poised to come out of the bankruptcy next week, Chief Administrating Officer Bruce Buchanan said.

So far, no creditors have filed objections to the bankruptcy plan that would pay all vendors in full, he said. The deadline for objections is Friday.

“If that holds, we expect that the judge will go ahead and approve that plan,” Buchanan said. “That’s a very positive outcome for the hospital, this community and for the businesses in this community.”

A hearing on the bankruptcy is scheduled on Tuesday.

“This lawsuit is important, but a small part of the overall challenge that this hospital and this board has,” Brown said. “The future of health care in Adams County is what we’re interested in.”