The CEO of troubled Saint Catherine Medical Center in Ashland, PA has been named as a co-defendant in a suit filed by the facility's Chapter 7 trustee. Filed in the US Bankruptcy Court for the Middle District of Pennsylvania, the suit alleges a "breach of fiduciary duty of care."
Filed on May 8, the suit, which stems from a management agreement between the medical center and Specialty Health LLC, the hospital's management company, names Specialty Health as the other defendant.
According to court documents, Saint Catherine's CEO, Merlyn Knapp, authorized a transfer of $300,000 from Saint Catherine Medical Center to Saint Catherine Hospital of Indiana LLC (dba Saint Catherine's Regional Hospital) to cover operating expenses. The Indiana hospital and the Pennsylvania medical center are part of Saint Catherine Health.
The date of the transfer is not included in the lawsuit, but the court documents note that as of the bankruptcy petition date (April 9) "a substantial portion of that amount is still due and owing" to the Pennsylvania facility.
Earlier this year, federal and state officials uncovered serious deficiencies and violations that put patient health and safety in immediate jeopardy at Saint Catherine Medical Center. The Pennsylvania Department of Health imposed a ban on new admissions. On April 3, federal officials sent a letter to Knapp threatening to terminate the facility's Medicare agreement.
Saint Catherine Hospital of Pennsylvania LLC (dba Saint Catherine Medical Center) filed for Chapter 11 bankruptcy on April 9, but changed to Chapter 7 on April 18 claiming it had $45,000 on hand and debt in excess of $5.8 million.
Knapp, who is identified as an employee of Specialty Health, served as president, CEO, and CFO of the Pennsylvania facility, and the lawsuit claims that he "knew or reasonably should have known" that Saint Catherine Medical Center was "insolvent or on the verge of insolvency."
The lawsuit alleges "abuse of the powers" delegated to Specialty Health under its management contract. Specialty Health "used it powers and authority under the management agreement for the improper purpose of diverting" account receivables away from the medical center.
In addition to the $300,000, the lawsuit also cites $1.7 million in "take backs" used by Capital Blue Cross to offset the amounts owed the Indiana and Pennsylvania hospitals, as well as Specialty Health, for employee health benefits against what the insurer owed Saint Catherine Medical Center for services rendered.
Although the "take backs" were "made for the benefit of the Indiana hospital and Specialty Health" neither have made any reimbursements to the medical center, the suit charges.
Other allegations include:
- Shipping as much as 900 pounds of supplies from the Pennsylvania medical center to the Indiana hospital just days before the medical center's bankruptcy petition was filed. The shipment was paid for with the credit card of Robert Lane, a Specialty consultant. The medical center was not reimbursed for the supplies.
- Milton Knapp received approval from Saint Catherine Medical Center's board to open an alternate bank account that "would provide an alternate means to handle fiscal matters." The signors on the account were alleged to be Knapp and Katie Schroyer, the medical center controller, rather than the medical center itself "to prevent the accounts from being attached or garnished" by creditors.
The lawsuit asks for several claims of relief suggesting that Knapp "acted with a purpose other than advancing" the medical center's best interests. "In fact, Knapp's actions were for the benefit of" the Indiana hospital and "operated to the detriment" of the Pennsylvania medical center, the suit alleges.
Specialty Health "fraudulently expanded" the medical center's indebtedness by continuing the medical center's operations and "continuing to incur debt" despite knowledge that the facility was "financially incapable of continued operations," the suit claims.
Efforts to reach Milton Knapp, who also serves as CEO of Saint Catherine Regional Hospital in Charlestown, IN, were unsuccessful Thursday.
See also:
Immediate Jeopardy for PA Medical Center
PA Hospital's Deficiencies Detailed in CAP
PA Hospital's Financial Woes Trigger Harsh Repercussions
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
