The former CEO of Hunter Health Clinic hid $1 million in debt from her board of directors, did not pay vendors and endangered the clinic’s federal contract with the Indian Health Service, according to documents the clinic released to The Eagle as part of a two-year court case.
The board found out about the problems only after CEO Susette Schwartz went on family medical leave in late 2012.
The revelation left them “reeling,” according to Heather Baker, co-chair of Hunter’s board of directors, who started on the board as Schwartz departed.
The clinic, which was founded in 1976 to serve American Indians, is largely funded by federal grants and is the only Urban Indian Health program in Kansas.
Board members decided to turn over the documents from the time Schwartz was CEO rather than continue a legal fight.
“We felt that we wanted to move forward and we have a good story now in terms of progress made,” Baker said. “It was a difficult time for the clinic, but we’ve made so many advances.
“Whatever the motivations were then, the board has a different view now and we’re focusing on our true mission and moving forward, and not continuing a disagreement with The Eagle.”
The board fired Schwartz in February 2013 and expects to name a new CEO soon.
Since 2013, the clinic has paid off the $1 million in debt and changed its board structure to provide more oversight, Baker said.
Employees, who agreed to a pay cut to help stabilize clinic finances, have had their pay reinstated, Baker said.
Board members say they are ready to move forward and fulfill the original mission of the clinic, which provided free or reduced cost medical care to about 14,000 patients at its three locations last year.
Those plans include eventually building a new clinic to replace its dilapidated central clinic near downtown.
The 420 e-mails and 219 attachments from 2012 and 2013 released to The Eagle, in addition to audits provided by the clinic, show:
▪ Indian Health Services told clinic officials that their contract was endangered because of nearly $175,000 owed to National Supply Service Center, which “manages the purchase and distribution of pharmaceuticals, medical, and other health care related supply items” for the federal government.
▪ Requirements for several federal grants were not followed.
▪ The clinic had deducted money from employee paychecks for retirement and other benefits, but had not deposited those funds into employee accounts.
▪ The clinic owed nearly $267,000 to Kansas Children’s Service League for children’s mental health services, which affected the financial stability of that organization.
▪ That Schwartz did not share information with the Board of Directors about the financial health of the clinic, and when she did, information was “often incorrect or embellished.”
Schwartz did not respond to requests for an interview. She was CEO from 1993 to February 2013, when she was fired with cause from the clinic, according to the e-mails.
According to the nonprofit clinic’s 990 tax form for 2012, Schwartz was paid $196,654 in addition to $22,065 in other compensation.
Hunter Health Clinic was originally called the Wichita Urban Indian Health Center when it was founded in 1976.
In its infancy, founding physician Vernon Dryer – an obstetrician who is Choctaw and Prairie Band Potawatomie– would see patients in offices at the Mid-America All-Indian Center, draping sheets on desks.
Eventually, the clinic got its own space and in 1985 expanded to serve people of all backgrounds.
As an Urban Indian Health program, the clinic is a federally designated location for card-carrying American Indians to receive free health care. Those Indian Health Service programs are the legacy of treaties signed between the federal government and tribes to help ensure that American Indians and their descendents would receive quality health care. Without Hunter Health Clinic, people in the Wichita area would have to travel at least two hours to get to another clinic where they can be seen for free.
According to the Census, there are more than 15,000 people in Sedgwick, Butler, Reno and Sumner counties with American Indian or Alaska Native heritage.
Hunter’s funding primarily comes from federal grants aimed toward American Indians, low-income and homeless patients. About two-thirds of its funding comes from grants and contracts; the rest comes from patient fees and insurance.
Plan of action
Hunter Health Clinic’s board of directors was not aware of the extent of the clinic’s financial troubles until Schwartz went on family medical leave in November 2012, Baker said.
It was then, according to the e-mails, that the clinic’s new chief financial officer and other employees became aware of mounting debt to vendors, which they relayed to the clinic’s board.
The $1 million debt was more than half the clinic’s net assets of $1.7 million, according to its 990 tax form, for the year that ended in September 2012.
“I was new to the board so I didn’t understand how that could happen,” Baker said.
“It was an overwhelming amount of money. How could we make up for it? How could we ever pay that back?”
It was an overwhelming amount of money. How could we make up for it? How could we ever pay that back?
Heather Baker, co-chair of Hunter’s board of directors, on learning about the $1 million debt
The clinic’s new CFO, who had been hired shortly before Schwartz left on family medical leave, created an action plan to repay vendors and to streamline financial policies.
Baker said she credits him, the interim CEO and other staff who took temporary pay cuts for helping get Hunter in better shape.
To help offset costs, the clinic raised its sliding fees for patients in 2013.
Staff took a 5 percent pay cut across the board in 2013.
The number of people employed by the clinic dropped from 116 to the 80 employees the clinic has currently.
The clinic discontinued its employee retirement plan.
Our debts have all been paid. Everyone, everything that was owed at that time has been paid.
Heather Baker, co-chair of Hunter’s board of directors
Board members also knew they needed more help, so they started recruiting more people for the board.
In an e-mail to the board from a clinic employee, the employee expressed concerns that Schwartz had hand-picked her board members, making it more difficult for the board to hold her accountable:
“The individuals were picked because it was believed that they would not question her authority. She could do as she pleased, tell the board what she wanted them to know, and go on about her business. … Employees have requested to attend meetings but have been told that they are strictly off limits to anyone that has not been approved. … We can’t help but believe that the reason this is done is to with hold information from you as a board or from us as employees.”
Since Schwartz’s departure, the board has grown to 14 members and one emeritus member. Four of the 2012 board members remain on the board today.
All of the new members were recruited by other members and not the CEO, Baker said.
It’s a practice the board is interested in continuing.
“When I returned to Wichita I recognized that we were at a point in time where the clinic was refocusing and needed to serve patients, which is the same mission my father had 40 years ago to provide quality care for people in the community,” said Ryan Dyer, Vernon Dyer’s son, who joined the Hunter board as treasurer after hearing about financial troubles at the clinic.
Having accurate and up to date financial information has helped the board make better decisions and provides more transparency for granting agencies, said Dyer, who previously spent eight years as tribal treasurer for the Prairie Band Potawatomie Tribe and taught finance classes at the University of Kansas and Haskell Indian Nations University in Lawrence.
With new board members like Dyer, the clinic implemented a number of changes in financial policies at the clinic, including updating the clinic’s audits, which were out of date.
Scope of the problem
It’s unclear how far back Hunter Health Clinic’s financial troubles went.
On May 20, 2013, The Eagle submitted a Kansas Open Records Act request to Wichita State University seeking e-mails about the clinic to or from two Wichita State employees who were also members of Hunter’s board of directors.
The newspaper sought the e-mails as part of its reporting on the financial troubles at Hunter.
Former CEO Schwartz went on family medical leave from the clinic in November 2012, and in February 2013 she was terminated for not returning from the leave, according to the termination letter signed by then board chair Jaya Escobar.
Former board chair Richard Muma, associate vice president for academic affairs at WSU, was on the board from 2008 to 2012, leaving with a two-sentence resignation letter weeks before Schwartz went on leave. Escobar, assistant director of Upward Bound at WSU, was on the board from 2009 to 2014, taking over as board chair after Muma left.
Muma and Escobar are no longer affiliated with Hunter and refused requests for interviews about the e-mails. The e-mails The Eagle received were from their WSU accounts.
“You are fully aware of the financial and other crises that HHC (Hunter Health Clinic) is currently facing. Overall, it is clear that HHC operations have been ignored, as evidenced by HHC’s current debt in excess of one million dollars,” Schwartz’ termination letter said.
The termination letter went on to state that the board believed Schwartz violated policies about disclosing pertinent information to the board, including previously asking Kansas Children’s Service League to not approach the board about non-payments by Hunter. Kansas Children’s Service League had contracted with Hunter for children’s mental health services.
A later e-mail from the clinic’s attorney to Schwartz’ attorney states, “It has become apparent that Ms. Schwartz’ leadership failures caused many of the financial issues that HHC is now facing.”
It has become apparent that Ms. Schwartz’ leadership failures caused many of the financial issues that HHC is now facing.
E-mail from the clinic’s attorney to Schwartz’s attorney
Prior to fall 2012, there was a revolving door of chief financial officers at the clinic – it’s unclear how many.
And according to e-mails between a former CFO and board members, Schwartz directed him to report directly to her and not to the board.
In keeping important financial information from the board, Schwartz may have violated her fiduciary duty, or legal duty to act in the clinic’s interest, said Joseph Mastrosimone, associate professor of law at Washburn University.
An e-mail between the clinic’s attorney and Schwartz’s attorney states that examination of Schwartz’s clinic e-mail after she left revealed “shocking information,” that she had “received e-mails dating back to September 2012 informing her of a large balance that HHC owed to National Supply Service Center (“NSSC”). The e-mails were unopened. HHC had no knowledge of this balance until finding the unopened e-mails in Ms. Schwartz’ inbox.”
The e-mail noted that the board’s concerns went beyond the clinic’s finances. “While Ms. Schwartz was on leave, multiple employees have stepped forward to describe the working conditions at HHC. The board was shocked to find that Ms. Schwartz controlled HHC personnel with what has been described as a ‘culture of fear,’” the clinic’s attorney wrote.
Last, the e-mail said the board had learned Schwartz had engaged in activities that could jeopardize the clinic’s standing as a 501(c)(3) nonprofit by paying excessive benefits and other activities that “would potentially cause HHC to violate certain federal and state regulations related to employees benefits and the appropriation of grant funds.”
Current board members said they do not know details about the activities that could have jeopardized the clinic’s non-profit status, or about potential violations of state and federal law.
One possibility is that charitable organizations that pay excessive benefits to employees can face penalties by the Internal Revenue Service, according to the Society for Human Resource Management. Those who receive the benefit are liable to pay an excise tax of 25 percent of the benefit, which increases to 200 percent if it’s not paid by the end of the next year. Additionally, organization managers and board members may also be subject to a 10 percent excise tax.
For a time, employee health and dental plans had reached the point of cancellation after several months of non-payment, despite the money being deducted from employee’s checks. Life insurance premiums also were not being paid, which may be a violation of the Employee Retirement Income Security Act of 1974 and the Kansas Wage Payment Act, Mastrosimone said.
Those laws allow employers to make certain deductions from payroll for employee benefits.
“But they presume that the money is actually paid out to the plan,” Mastrosimone said.
After receiving a termination letter from the clinic, Schwartz’s attorney wrote to the clinic that Schwartz was interested in a settlement with the clinic and that she wanted them to release her from all future claims.
The clinic refused.
In an e-mail to other board members, then board chair Jaya Escobar suggested the possibility of a “conversation between the attorneys to maybe exchange the words if she fights she could go to jail.”
If a clinic does not comply in a timely manner with federal grant requirements, it can lead to loss of the funds.
In an April 2013 e-mail to the clinic, Indian Health Services wrote that the clinic’s non-compliance was endangering those contracts, specifically:
▪ Delinquent submissions of numerous grant applications and reports.
▪ The extremely large balance due to the National Supply Service Center (about $175,000).
▪ Lack of response to phone calls and e-mails.
▪ No record of required Audits for Hunter Health Clinic after FY-2005, until FY 2013, after Schwartz left.
According to clinic audits released to The Eagle for 2013 and 2014, the clinic was not in compliance with several requirements, including:
▪ Not submitting proper financial reports
▪ Not requiring supervisors to approve employee time before being submitted to a third party payroll processor
▪ Not properly recording work activities for employees who are grant funded
▪ Not creating an inventory of equipment bought with grants
▪ Not properly reporting data like the number of immunizations and other health statistics to the government
Board members say they believe the compliance issues largely stemmed from Schwartz’s time as CEO.
However, board members say they do not think the clinic was imminently in danger of losing the funds.
“In order to serve Native Americans in our area, (Indian Health Service) works very closely and wants Hunter Health to be as successful as possible,” Dyer said.
“Think about it from the perspective of a granting agency: You only have so many tools to utilize in order to help an organization to improve. And one of those tools is threatening to reduce funding. I think in that situation a threat is a long way from the jeopardy of the funding because typically a granting agency has a mission and a purpose and they’re providing funding for a particular reason, and they don’t want that purpose to not occur. In this instance, providing health care for different populations.”
“Before a granting agency pulls a grant, they’re going to do everything possible to help that organization to succeed, including and not limited to bringing in a team to assess the situation or specialists to work on the ground to assist, and that never happened at Hunter. I’ve seen IHS come in and take over the entire medical operation… They’ve also done it with administrative groups and that was never posed to Hunter.”
The clinic says it expects to have all but one of the compliance issues resolved in time for its next audit since they are waiting on more direction from the federal government.
“None of us were intimately involved in the organization then,” Dyer said. “But what I can tell you is that those situations will not occur at Hunter again because we have an active, engaged board, we’ve put new processes in place, we’ve got the right staff in place, the team is good and the staff are committed to quality patient care.”
In May 2012, Schwartz announced that Hunter would build a new clinic to replace its dilapidated building at 2318 E. Central. The $10 million building would be partially funded with a $4.6 million federal grant awarded as part of the Affordable Care Act.
The grant guidelines required that the clinic must be built by June 2015, but that didn’t happen.
Baker said the clinic has been working with the federal government to extend the deadline for the grant so it can still have a new building – although it will be smaller than originally planned.
“We have had plans re-drawn. The original plans called for a much larger building, more grand, and $10 million was the price tag,” Baker said. “The clinic somewhere along the line didn’t stay stable enough to do that building. We do have tentative architect drawings to submit to the grantors, and it’s smaller and more reasonable.”
With finances on track, the clinic and its new leadership can start focusing on the new building again.
Amy Feimer, a board member, said it’s been difficult for the clinic to think about a new building with its financial troubles.
“Over the last two years, a lot of the focus has been putting out fires, building reserves and getting out of the trouble they got into in 2012,” Feimer said.
‘My father’s legacy’
Since 2013, Hunter Health Clinic has paid its vendors. It is no longer in debt.
The clinic has restored its employees’ pay cuts and is current on its health and dental plans.
The interim CEO who took over after Schwartz has left the clinic, so board members are searching for a new CEO. They hope to have someone new in place this month.
Although its debts have been repaid, not all relationships have been repaired.
A spokesperson for Kansas Children’s Service League confirmed that Hunter paid them, but that all relationships with Hunter have since been dissolved.
Remarkably, Baker said, there has been little turnover in staff at the clinic over the last several years.
“We’ve come a long way from being $1 million in debt to being on good financial status. Our revenue is good. We’re operating in the black, we’re not in the red. Our debts have all been paid. Everyone, everything that was owed at that time has been paid,” Baker said.
“And it’s due to the work of a lot of good people at the clinic. The employees have been very responsive and dedicated and loyal. We couldn’t have done it without them.”
And the new board is taking a more active role with staff, she said.
“We are promoting an open philosophy as much as we can. We want to be transparent and so I think the employees are more comfortable speaking to board members.”
My father was a big believer in everyone having the opportunity to receive quality care.
Ryan Dyer, Hunter board member and son of Vernon Dyer, the clinic’s founding physician
With finances in order – and lawsuits behind them – the clinic’s mission can continue.
“My father was a big believer in everyone having the opportunity to receive quality care,” Dyer said.
“That’s my father’s legacy, and I want it to be the best it can be.”
Hunter Health Clinic Board of Directors, 2015
Heather Baker – Co-Chair
Bill Cornell – Co-Chair
Ryan Dyer - Treasurer
Demetria Wilson – Treasurer Elect