TeamHealth, a medical staffing firm owned by private-equity giant Blackstone, charges multiples more than the cost of ER care. All the money left over after covering costs goes to the company, not the doctors who treated the patients.
This article was first published on Friday, June 12, 2020 in ProPublica.
In 2017, TeamHealth, the nation's largest staffing firm for ER doctors, sued a small insurance company in Texas over a few million dollars of disputed bills.
Over 2 1/2 years of litigation, the case has provided a rare look inside TeamHealth's own operations at a time when the company, owned by private-equity giant Blackstone, is under scrutiny for soaking patients with surprise medical bills and cutting doctors' pay amid the coronavirus pandemic.
Hundreds of pages of tax returns, depositions and other filings in state court in Houston show how TeamHealth marks up medical bills in order to boost profits for investors. (Some of the court records were marked confidential but were available for download on the public docket; they were subsequently sealed.)
TeamHealth declined to provide an interview with any of its executives. In a statement for this story, the company says it's fighting for doctors against insurance companies that are trying to underpay: "We work hard to negotiate with insurance companies on behalf of patients even as they unilaterally cancel contracts and attempt to drive physician compensation downward."
But the Texas court records contradict TeamHealth's claims that the point of its aggressive pricing is to protect doctors' pay. In fact, none of the additional money that TeamHealth wrings out of a bill goes back to the doctor who treated the patient.
Instead, the court records show, all the profit goes to TeamHealth.
Anatomy of an ER Bill
Two TeamHealth affiliates in Texas billed 7.7 times more than their actual costs of paying for clinicians and support services. The bulk of the charges were discounted or written off. About 10% of the money actually collected went to corporate profits.
"These companies put a white coat on and cloak themselves in the goodwill we rightly have toward medical professionals, but in practice, they behave like almost any other private equity-backed firm: Their desire is to make profit," said Zack Cooper, a Yale professor of health policy and economics who has researched TeamHealth's billing practices and isn't involved in the Texas lawsuit.
"In the market for emergency medicine, where patients can't choose where they go in advance of care, there's a real opportunity to take advantage of patients, and I think we're seeing that that's almost precisely what TeamHealth is doing, and it's wildly lucrative for the firm itself and its private equity investors."
Some of TeamHealth's own physicians say they're uncomfortable with the company's business practices.
"As an emergency medicine physician, I have absolutely no idea to whom or how much is billed in my name. I have no idea what is collected in my name," said a doctor working for TeamHealth who isn't involved in the Texas lawsuit and spoke to ProPublica on the condition of anonymity because the company prohibits its doctors from speaking publicly without permission.
"This is not what I signed up for and this isn't what most other ER docs signed up for. I went into medicine to lessen suffering, but as I understand more clearly my role as an employee of TeamHealth, I realize that I'm unintentionally worsening some patients' suffering."
Most ER doctors aren't employees of the hospital where they work. Historically they belonged to doctors' practice groups. In recent years, wealthy private investors have bought out those practice groups and consolidated them into massive nationwide staffing firms like TeamHealth and its largest competitor, KKR-owned Envision Healthcare.
These takeovers have affected patients, too, because the groups have gotten into payment disputes with their insurers. As a result, patients can receive huge medical bills even when they pick a hospital within their insurance plan's network, because the individual doctor working for a contractor like TeamHealth could be out of network. This practice, known as surprise billing, caught the attention of lawmakers who have spent months working on legislation.
TeamHealth said surprise bills are "rare and unintended," but with millions of patients, it has happened tens of thousands of times. The company has called surprise billing a "source of contracting negotiating leverage" to demand higher payments from insurers.
"Underneath this are patients who may well be charged outrageous amounts of money, but that's just not a core consideration," said Joshua Sharfstein, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. "The situation a lot of patients feel like they're in is they're collateral in this financial tug of war."
TeamHealth and Envision Healthcare have poured millions into political ads attacking surprise billing legislation. The companies have said they want to settle out-of-network bills through arbitration instead of using average local rates, as some lawmakers have proposed.
As an alternative to going after patients themselves, TeamHealth said it sues insurers to demand higher payments for out-of-network charges. The company has filed 38 such lawsuits since 2018.
In the Texas case, two TeamHealth affiliates that provide doctors and nurses to emergency rooms in the Houston and El Paso areas sued a small insurance company called Molina Healthcare. TeamHealth identified almost 5,000 out-of-network claims in 2016 and 2017 for which it billed $6.6 million and Molina paid $760,000. TeamHealth sent a letter demanding that Molina pay $2.3 million. Molina's lawyers viewed this as an admission that the original bill was far higher than even TeamHealth thought was fair.
The actual costs of medical services are not a factor in setting TeamHealth's prices, according to the deposition of Kent Bristow, a TeamHealth executive in charge of revenue. At some locations, TeamHealth's prices were higher than those of 95% of other providers and eight or nine times more than what Medicare would pay, according to Bristow's deposition.
Most of the two TeamHealth affiliates' charges were never actually collected, according to their tax returns and a deposition of the accountant who prepared them. For the years 2016 and 2017, the two affiliates billed a combined $1.9 billion, the tax returns show. But $1.1 billion, or 58%, was discounted according to negotiated deals with insurers. An additional $528 million was written off as bad debt that would never get repaid. So the combined revenue that the two affiliates actually received across the two years was $274.5 million, or about 14% of the amount initially billed, according to the tax returns.
The amount that TeamHealth charges doesn't determine how much TeamHealth pays its doctors who perform those services, the company's chief financial officer, David Jones, said in an October 2019 deposition. Instead, the doctors are paid a base compensation plus an incentive tied to how much work they do (which is not the same as the price billed for their services). For the two TeamHealth affiliates in the Molina case in 2016 and 2017, the company paid doctors a total of $170.5 million, or 62% of the net revenue, according to the tax returns. Other health care providers such as nurse practitioners and scribes received another $48.4 million.
Multiple private-equity-backed staffing companies have cut hours for thousands of emergency room doctors, physician assistants and nurse practitioners. That means there are fewer medical workers at a time in hospitals and they are receiving less pay.
The administrative services that TeamHealth provides — such as billing, printing and malpractice insurance — added up to $29.5 million, according to the tax returns.
After covering all those expenses, the amount of money left over — commonly called profit — was $26.1 million, about 10% of the two affiliates' net revenue in 2016 and 2017. (The accounting method that TeamHealth uses for its tax returns is different from how it prepares financial statements regulated by the Securities and Exchange Commission. Under the latter method, the tax returns note a total of $36.8 million for the two affiliates in 2016 and 2017. Because of these accounting variations, it's impossible to compare the figures on the TeamHealth affiliates' tax returns to profits reported by publicly traded health care companies.)
The TeamHealth executive in charge of the two affiliates said he assumed the profit would be shared with the doctors who did the work. "It would most likely go back to the providers," the executive, Lance Williams, said in a deposition. Under further questioning, he admitted, "Yeah, I'm not sure."
In fact, the entire leftover $26.1 million went to TeamHealth's "management fee." The management fee is not a fixed rate but rather everything that remains after covering costs, regardless of the amount, according to the CFO's deposition. "If the revenues exceed the expenses, that is essentially the management fee," Jones said.
In other words, out of the $1.6 billion that was originally billed but not collected, any additional dollar that TeamHealth managed to recover would be passed through to the corporate parent. The doctors would not see it.
Jones said doctors benefit from increasing collections because their incentive-based pay is adjusted over time. In addition, Bristow said the management fee is not the same as profit because there may be additional expenses at the corporate level.
"The economic benefits created by these practices, any profit, if you will, ultimately flows up to the TeamHealth entity," Ron Luke, a health economics expert hired by Molina, said in a deposition.
To establish this business model, TeamHealth had to find a way to deal with long-standing state laws that were specifically designed to protect the medical profession from becoming beholden to profit motives. These laws, known as the corporate practice of medicine doctrine, require doctors to work for themselves or other doctors, not lay people or corporations like TeamHealth. Court records in the Molina case show how TeamHealth's lawyers use shell entities to avoid directly employing doctors.
"TeamHealth monetizes this process by unilaterally setting charges and then billing patients and payors for those amounts and retaining all of the profits of the enterprise," Robert McNamara, a former president of the American Academy of Emergency Medicine, wrote in a memo as an expert witness against TeamHealth in the lawsuit. "The fees generated, billed, and retained by TeamHealth reflect the type of overt commercialization of the medical profession that the prohibition on the [corporate practice of medicine] is designed to prevent."
TeamHealth said its business arrangements comply with all laws and no court or agency has ever found otherwise. "TeamHealth's clinicians are supported by a world-class operating team that provides them with comprehensive practice management services that allow our clinicians to focus on the practice of medicine," the company said. Envision Healthcare also said it follows all local, state and federal laws and regulations.
State laws against the corporate practice of medicine date as far back as the 19th century, as doctors strove to distinguish themselves from quacks and snake oil salesmen. According to the American Medical Association, the laws are meant to prevent profit motives from influencing medical judgments — a recognition that corporations' devotion to shareholder value shouldn't mix with doctors' Hippocratic oath.
Another way to think about it is: Practicing medicine requires a license, and only a real human being can possibly have the education, training and character qualifications that licensing boards require.
Courts have scrutinized these arrangements for decades. No judge has ever ruled that TeamHealth or Envision Healthcare specifically violate state licensing rules. But such allegations have repeatedly cropped up in lawsuits involving the companies, some of which settled favorably to the other side, according to McNamara, who was consulted on many of the cases.
After the Blackstone Group acquired one of the nation's largest physician staffing firms in 2017, low-income patients faced far more aggressive debt collection lawsuits. They only stopped after ProPublica and MLK50 asked about it.
TeamHealth and Envision have themselves acknowledged that they operate on questionable legal ground. During periods when the companies were publicly traded, their investor disclosures highlighted the controversy surrounding their compliance with state licensing regimes. TeamHealth and Envision said they believed their business models were legal but recognized that prosecutors, regulators and judges could conclude otherwise. TeamHealth specifically cited "laws prohibiting general business corporations, such as us, from practicing medicine."
"While we believe that our operations and arrangements comply substantially with existing applicable laws relating to the corporate practice of medicine and fee splitting, we cannot assure you that our existing contractual arrangements, including restrictive covenant agreements with physicians, professional corporations and hospitals, will not be successfully challenged in certain states as unenforceable or as constituting the unlicensed practice of medicine or prohibited fee splitting," the company said in its 2015 annual report. "In this event, we could be subject to adverse judicial or administrative interpretations or to civil or criminal penalties, our contracts could be found to be legally invalid and unenforceable or we could be required to restructure our contractual arrangements with our affiliated provider groups."
TeamHealth says the laws are outdated and unnecessary — as one of the company's senior lawyers called it in a deposition, "this arcane law we call the corporate practice of medicine that nobody needs."
Not all states have such laws. In Florida, for instance, TeamHealth employs doctors directly. In states that have laws against the corporate practice of medicine, TeamHealth has a workaround depending on the specific requirements in that state. Here's how it works for the affiliates involved in the Molina litigation, just two out of hundreds of equivalent arrangements around the country.
Doctors working for TeamHealth are technically independent contractors to a "professional association," or P.A. In order to comply with Texas law, the professional association is owned by a licensed physician. The professional association then contracts with TeamHealth subsidiaries to provide administrative services — such as billing, payroll and malpractice insurance — in exchange for payment.
These professional associations, however, are hardly independent. They're "owned" by an executive at TeamHealth, and the company has the power to remove and replace him at any time. For the two professional associations involved in the Molina case, when a new executive took over as "owner" in 2019, he said in a deposition that he couldn't remember how he "bought" the entities or if he ever paid anyone the $2 nominal price of their shares.
"Everything about your right to own, operate, and manage ACS and EST [the two professional associations] is dependent upon you staying in the good graces of the TeamHealth organization, correct?" Molina's lawyer asked in the deposition.
"Correct," the owner/executive, Lance Williams, said.
"And if you were fired for any reason, you would lose ownership of ACS and EST, lose the right to manage ACS and EST, correct?"
"Correct."
Williams also said there's no "black and white" separation between clinical and financial issues.
In sum, the contract between TeamHealth and the professional associations gives investors more control of the business than doctors, according to Chuck Pine, a financial investigator who specializes in examining shell companies to determine the real beneficial owners. Pine isn't involved in the Molina litigation.
Molina's lawyers called the arrangement "a sham to permit TeamHealth to unlawfully practice medicine by allowing it to in effect employ physicians in violation of state law."
TeamHealth countered that whether or not Molina's claims are right, they aren't enforceable through private litigation; only the state's attorney general could prosecute a corporation for practicing medicine without a license.
The judge rejected Molina's claims in an order that didn't explain her rationale. Other parts of the case are still pending.
TeamHealth has used the same argument to defeat other lawsuits. It puts opponents in a Catch-22: State licensing boards have no control over a corporation that might be practicing medicine without a license because the boards don't license corporations. The boards could theoretically punish the "owners" of the professional associations, but those doctors are not always licensed in the same state as the practice, and TeamHealth could always replace them with someone else.
The Texas attorney general's office didn't respond to requests for comment. McNamara said he's brought several cases to the attention of various state attorneys general, to no avail.
In scrambling to buy protective equipment for the coronavirus pandemic, federal agencies purchased up to $11 million worth of Chinese-made masks, often with little attention to manufacturing details or rapidly evolving regulatory guidance about safety or quality, a ProPublica review shows.
Some agencies cannot say who made their masks at a time when thousands of foreign-made respirators appeared on the market, some falsely claiming approval or certification by the Food and Drug Administration. Some agencies bought the masks, known as KN95s, from companies that share a U.S. representative with another firm recently accused of fraud by the Justice Department.
The contracts reflect the intense pressure federal agencies were under to procure protective equipment as the pandemic surfaced and rapidly spread in the U.S. Now, some experts worry that the products could remain in circulation long past the crisis and be used by unsuspecting federal employees who believe they have legitimate respirator masks.
Agencies have relaxed procurement standards, including granting many contracts without competitive bidding, and have been tripped up by shifting FDA standards, the flood of foreign companies entering the U.S. market and a limited domestic supply of respirators made for medical use.
"I'm so glad we didn't get involved in this KN95 market," said Andy Mitchell, a vice president at Mallory Safety and Supply, which supplies N95 masks. "This isn't right what's happening here."
ProPublica reported last month that the Indian Health Service had purchased $3 million of Chinese-made respirator masks from a company started by a former White House official, and that the masks did not meet FDA standards. A House of Representatives committee plansto hold a hearing on Thursday examining the IHS' response to the COVID-19 pandemic.
In scrambling to buy protective equipment for the coronavirus pandemic, federal agencies purchased up to $11 million worth of Chinese-made masks, often with little attention to manufacturing details or rapidly evolving regulatory guidance about safety or quality, a ProPublica review shows.
Some agencies cannot say who made their masks at a time when thousands of foreign-made respirators appeared on the market, some falsely claiming approval or certification by the Food and Drug Administration. Some agencies bought the masks, known as KN95s, from companies that share a U.S. representative with another firm recently accused of fraud by the Justice Department.
The contracts reflect the intense pressure federal agencies were under to procure protective equipment as the pandemic surfaced and rapidly spread in the U.S. Now, some experts worry that the products could remain in circulation long past the crisis and be used by unsuspecting federal employees who believe they have legitimate respirator masks.
Agencies have relaxed procurement standards, including granting many contracts without competitive bidding, and have been tripped up by shifting FDA standards, the flood of foreign companies entering the U.S. market and a limited domestic supply of respirators made for medical use.
"I'm so glad we didn't get involved in this KN95 market," said Andy Mitchell, a vice president at Mallory Safety and Supply, which supplies N95 masks. "This isn't right what's happening here."
ProPublica reported last month that the Indian Health Service had purchased $3 million of Chinese-made respirator masks from a company started by a former White House official, and that the masks did not meet FDA standards. A House of Representatives committeeplans to hold a hearing on Thursday examining the IHS' response to the COVID-19 pandemic.
ProPublica reviewed 21 contracts awarded by 11 federal agencies that specifically mentioned procuring KN95 masks, a Chinese version of N95 respirator masks. Five agencies — the Bureau of Prisons, the Department of Veterans Affairs, the U.S. Marshals Service, the U.S. Mint and the U.S. Forest Service — could not say who manufactured their masks or did not respond to questions. The total spent on the 21 contracts was more than $11 million, but some of the deals also involved other items such as ear loop face masks and hand sanitizer.
Foreign-made masks have come under increasing scrutiny from federal regulators. The FDA issued an emergency use authorization for some Chinese-made masks in health care settings in April, but it narrowed the authorization after some masks were found to let through far more particles than advertised.
In many cases, the agencies buying the masks are not directly involved in health care provision, and are thus beyond the scope of the FDA authorization, although the Indian Health Service and the National Institutes of Health were among the purchasers. Some agencies told ProPublica they would use the masks they purchased only in nonmedical settings, a recognition of the lesser protection they may provide.
But experts said the purchase of such products at all still poses a risk to employees. Dr. Meghan Dierks, a Harvard Medical School professor who previously worked at the FDA on medical device shortage issues, said she is concerned about "all of these potentially inferior products remaining in circulation, remaining on shelves" after the current crisis passes, whether used in medical or nonmedical settings.
"If you're in charge of procuring a product that you expect to confer some level of safety or protection to your workers, there's responsibility there for knowing what's the basic performance criteria and what's the regulatory authority in the United States that monitors this," Dierks said.
The FDA tightened its April emergency rules a month later, after testing by the Centers for Disease Control and Prevention revealed that some Chinese masks let in too many fine particles. Dozens of Chinese manufacturers that had initially appeared on an approved FDA list were removed, tripping up buyers who had purchased masks just weeks earlier.
Dr. Suzanne Schwartz, deputy director of the Office of Strategic Partnerships and Technology Innovation at the FDA's Center for Devices and Radiological Health, said the agency has "encouraged importers and distributors to do their own due diligence and take the appropriate steps to verify the product's authenticity prior to importing, particularly those products not authorized by the FDA."
Typically, the FDA moves slowly when issuing rules and regulations, but it quickened its pace during the pandemic, said Michael Abrams, a co-founder of Numerof & Associates, which advises hospitals, pharmaceutical companies, financial institutions and others on health care issues.
"They've been forced to make decisions that they sometimes need to go back on," he said. "Certainly that makes it more difficult for anyone who's relying on what these regulatory entities have to say."
That includes the rest of the federal government. On May 1, the Department of the Interior purchased $114,400 worth of KN95 masks from Red River Resources LLC, a California vendor. The manufacturer was Guangdong ZhiZhen Biological Medicine Co. Ltd., according to the agency.
"At the time of purchase, the respirators were on the list of approved products," Andrea Antunes, an Interior spokeswoman, wrote in an email. "Subsequently, they were removed from the approved list and will not be purchased again."
Antunes did not respond to questions about what the agency would do with the purchased masks.
The website of Guangdong ZhiZhen Biological Medicine displays a mask it labeled "FDA approved FFP2 KN95 Mask." Phone calls and emails sent to CCTC Service Inc., the company's U.S.-based agent, were not returned.
CCTC, based in Delaware, is named as the representative for nearly 1,600 devices listed with the FDA this year, including KN95 masks manufactured by two firms used by Zach Fuentes, a former White House deputy chief of staff, to fulfill the contract with the Indian Health Service.
In a federal court complaint filed June 5 against another Chinese mask manufacturer, King Year Printing and Packaging Co. Ltd., by the Justice Department, an FDA special agent said that there is "probable cause to believe CCTC is a fictitious corporation." FDA records list a residential address for the company, the complaint said, and the house's occupant and owners said they had no knowledge of or connection to CCTC. The Wall Street Journal first reported the federal complaint against King Year.
In the complaint, the government alleges that King Year falsely labeled its respirators with the logo of the National Institute for Occupational Safety and Health, which conducts medical device testing, and included "a test report showing compliance with the N95 standard despite the respirators not meeting the minimum standard for N95 respirators."
Since a national emergency was declared in the U.S. on March 13, more than 3,600 Chinese-made products categorized as "surgical respirators" have been listed with the FDA, a ProPublica analysis of government data shows. In all of 2019, the total number of surgical respirators registered with the FDA was five.
"There are a lot of people producing face masks who are not necessarily reputable suppliers or historic suppliers of this product," said Phil Farinelli, vice president at Government Scientific Source, a Northern Virginia supplier that sold KN95s to the National Institutes for Health. "I probably get 10 emails a day from people trying to sell me face masks from China."
The NIH, the agency responsible for public health research, signed a separate contract worth nearly $700,000 for respirator masks in March with Missouri-based Phoenix Textile Corp., federal data shows.
The original contract was for N95 masks, the agency said in a statement to ProPublica. But because those were unavailable, Phoenix Textile proposed KN95s as an alternative.
"When NIH received the order and learned that the masks were not FDA-approved, NIH tested the products using the FDA standards for respirators and the product had failed," the agency said.
NIH requested a refund for the masks it had already received, will not pay for any more and plans to return the masks to Phoenix Textile. Executives with Phoenix Textile did not respond to an email and voicemail requesting comment.
Tests of some imported respirator masks are finding that they often do not provide the level of protection they advertise. Evan Floyd, a professor at the University of Oklahoma's Health Sciences Center, has been testing the filtration capability of KN95 masks purchased by the state of Oklahoma and private businesses.
Around one-third of the approximately 70 brands he has tested thus far do not meet the 95% filtration standard, Floyd said.
Dr. John Howard, the director of NIOSH, said in an FDA webinar on Tuesday that the agency recently had tested over 130 international respirator models and found that more than half were "substandard."
The Indian Health Service purchased 4,000 KN95 masks manufactured by a Chinese firm, ZhangJiaGang ShineYa Sanitary Products Co. Ltd., in an April 9 contract, an IHS spokesman said. The contract is separate from the Fuentes deal. The masks were sent to the IHS office in Bemidji, Minnesota, which serves tribes in Illinois, Indiana, Michigan, Minnesota and Wisconsin.
Half of the masks are still in the Bemidji area office and "will not be distributed to health care personnel," an IHS spokesman said. The other 2,000 masks are being used by IHS environmental health officers "and are being used in non-health care settings," he said.
The company's listed U.S. agent, John Flair, did not respond to a request for comment. The U.S. vendor that supplied IHS with the masks, California-based West Coast Business Products Inc., also did not respond.
The U.S. Marshals Service purchased $77,500 worth of KN95 masks in April from Knock-Out Specialties, a Texas firm that recently began selling PPE. The masks were made in China and "the products or vendors have been registered or certified by FDA," said Drew J. Wade, a Marshals Service spokesman, in an email. They are being used in "non-medical, law enforcement situations."
But "registration" with the FDA does not mean that the FDA approves the manufacturer or its products, a fact prominently mentioned on the FDA website. FDA's registration and listing database serves merely to provide a public, central listing of companies that may sell certain medical equipment.
When asked to clarify if the masks were just registered with the FDA or had some further certification, Wade responded: "I'm not sure I can sufficiently answer that question at this time. USMS holds certificates that appeared to denote some sort of FDA approval."
John Bottone, the owner of Knock-Out Specialties, did not respond to a phone call and email seeking comment.
One agency that kept up with the FDA's shifting rules was the Department of Energy's National Nuclear Security Administration. In a contractwith a Georgia-based vendor, American Dream Builders, the agency purchased over $400,000 worth of KN95 masks. An NNSA spokeswoman identified the masks' manufacturer as "Guangzhou Powecom Labor Insurance Supplies Company LTD," which does appear on the FDA-approved list.
Another manufacturer was originally supposed to fulfill the order, spokeswoman Kate Hewitt said. But when the FDA updated its criteria and the original manufacturer fell off the approved list, the purchase order for the mask contract was modified on May 18 to change to "an FDA-approved manufacturer," Hewitt said.
The Federal Emergency Management Agency also appears to have purchased KN95 masks from Guangzhou Powecom, although FEMA provided ProPublica with a slightly different manufacturer name when asked abouta $4 million contract for KN95 masks it signed in May.
FEMA's vendor was Osirius Group, an automotive manufacturing firm based in Birmingham, Michigan. Timothy Smith, Osirius Group's CEO, said in an email that "they are the same company." Osirius' first shipment to FEMA was set to arrive this week.
Guangzhou Powecom and other firms with the FDA's endorsement are being inundated with orders, Smith said.
"The FDA list has become a bible of sorts and any one on that list gets overrun," he said via email. He said his firm has been doing business in China since 1992.
Our country's long history of structural racism stands at the center of why police brutality, COVID-19 and the opioid crisis are disproportionately killing black Americans, including in Chicago.
This article was first published on Friday, June 5, 2020 in ProPublica.
We had planned to write this week’s newsletter about a story we published examining a sharp increase in opioid overdoses in Cook County at the same time the death toll from the coronavirus pandemic continues to rise here. But the killing of George Floyd in Minneapolis and subsequent civil unrest have us thinking about what those seemingly separate crises have in common.
Opioid-related deaths, police brutality and COVID-19 are all disproportionately killing black Americans, including in Chicago.
That brutal trend became clear as we began reporting on overdoses after getting a tip that the number of opioid-related fatalities was up this year. We analyzed death records from the Cook County Medical Examiner’s Office and found a stunning increase: More than twice as many people have died or are suspected to have died from opioids so far this year than this time last year.
As with so many stories we’ve both reported, it was impossible to not see the disparities. More than half of the dead were African Americans, many of them from Chicago’s West or South sides.
Kathleen Kane-Willis, a researcher with the Chicago Urban League who has written about the impact of opioids on African Americans, told us black drug users have higher overdose mortality rates for many of the same reasons that they’re more likely to die from COVID-19: higher rates of poverty, less access to effective medical treatment, more underlying health conditions.
The underlying causes driving Chicago’s opioid crisis and COVID-19 are sadly relevant to the national conversations we’re all having now about police violence and racial inequity.
Our colleague Mick Dumke likes to remind us that police brutality and disparate enforcement in black communities are symptoms of broader inequities and white supremacy. Our country’s long history of structural racism — and the segregation, disinvestment, loss of job opportunities and chronic stress that come with it — stands at the center.
This is what we’re thinking about as we consider Floyd’s death and the ensuing protests, and decide on a reporting path for ourselves as a news organization. Here are some of the recent stories we’re reading that are helping us get to the heart of these issues and offer context on how we got to this point.
This week, WBEZ and City Bureau partnered to report on modern-day redlining, as banks have invested more in a single white Chicago neighborhood than all of the city’s black neighborhoods combined.
Chicago magazine had an interesting piece on how one elected official in suburban Evanston was able to do something that had been a political non-starter for decades: pass legislation approving reparations for African Americans.
Last fall, our colleague Logan Jaffewrote about so-called sundown towns, focusing on one community in southern Illinois with a lengthy history of racism where many black people continue to feel unwelcome.
Black lives are being lost to COVID-19 at twice the rate of others. For protesters we talked to, that’s one more reason to be on the street. “If it’s not police beating us up, it’s us dying in a hospital from the pandemic,” one said.
This article was first published on Friday, June 5, 2020 in ProPublica.
WASHINGTON — On Tuesday, when he decided to protest, William Smith, 27, used a red marker to write a message on the back of a flattened cardboard box: “Kill Racism, Not Me.”
As he stood alone, somber, he thought about George Floyd, a fellow black man whom he’d watched die on video as a Minneapolis cop kneeled on his neck eight days earlier. “Seeing the life leave his body was finally the last straw that broke the camel’s back for me,” he said.
But he also thought about people he knew, a handful of them, who died after catching the new coronavirus. “They were living in impoverished areas. Couldn’t get proper treatment. Lived in crowded conditions, so social distancing was hard to do. And they were still forced to go to work and be put in harm’s way.”
When speaking out against the loss of black lives, it is tough to separate those who die at the hands of police from those who die in a pandemic that has laid bare the structural racism baked into the American health system. Floyd himself had tested positive for the coronavirus. Eighteen black protesters interviewed by ProPublica were well aware that black lives were being lost to the virus at more than twice the rate of others, and that societal barriers have compounded for generations to put them at higher risk.
It was fueling their desire to protest and their anxiety about joining the crowd. But they flocked to the White House on Tuesday afternoon, one day after peaceful protesters there were tear-gassed so that President Donald Trump could hold up a bible for a photo op at St. John’s Episcopal Church. There were tanks on the streets, along with a battalion of federal agents, military troops and police. Many of the protesters said they were willing to sacrifice their bodies, either to violence or the virus, to be heard.
In front of the White House stood Caleb Jordan, who turns 21 on Saturday. He showed up with an overstuffed backpack to make sure his 62-year-old grandmother, Carolyn Jackson, had enough water to drink and a hoodie to protect her arms in case of violence. “I don’t know what I would do if anything happened to her,” he said. Some people had on masks. Some did not. Some pulled their masks down to talk or breathe. “I’m not comfortable with that,” he said. She’s got a chronic lung condition, and he had been so worried about her catching the coronavirus in the past few months that he wouldn’t hug her. But then she mentioned that she drove by the protests on Sunday, and immediately he asked, “Why didn’t you take me?”
He had been losing sleep over what he was seeing in social media and on TV, having nightmares in which he was fighting a “real-Jim-Crow-looking white guy in a white button-down shirt, black tie, sleeves rolled up.” His mom told him he was fighting racism. “It’s like obstacle after obstacle,” he said. “If it’s not police beating us up, it’s us dying in a hospital from the pandemic. I’m tired of being tired. I’m so tired, I can’t sleep.” It was something he continued thinking about until he couldn’t help himself, sending a text at 3 a.m. asking his grandmother if they could attend together. “I thought about it and said, ‘This is a teachable moment,’ ” she recalled.
So Jackson took the day off from her job as an accountant at a hospice organization and put on some peace sign earrings and a T-shirt from the 20th anniversary of the Million Man March. On the car ride into the city, her grandson asked about her struggles with race. She explained what it’s like being a professional black woman with over 30 years experience who still feels overlooked for opportunities because of questions about her qualifications. Her awareness of being treated differently dates back to how her white paternal grandmother favored her lighter-skinned cousins. She found solace in her black maternal grandmother, who would comb her hair while she sat between her legs. Jackson wants her grandson to feel that kind of comfort from her.
That desire extends to her mission to help the black community understand palliative care is an option that can offer dignity and support at the end of life. “Because when people hear hospice, their hands go up and they say, ‘I don’t want to hear it.’” She’s also heard that resistance when it comes to getting tested for the coronavirus; she has gotten tested twice and plans to get tested again. She feared being exposed on Tuesday, but being here with her grandson was too important to miss. “We internalized a lot with my generation,” she said, “but I think it’s important for him to see this.”
N.W.A.’s “Fuck Tha Police” blared from a nearby speaker outside St. John’s Episcopal Church until an interfaith group of men and women bowed their heads and began to pray. Among them was Timothy Freeman, pastor at Trinity African Methodist Episcopal Zion Church, who wore a brightly colored kente cloth-inspired mask, its vibrant yellows and reds standing in stark contrast to his ministerial black suit and white clerical collar.
Freeman, 42, knows eight people who have been diagnosed with the virus; one died. For two weeks, a sick friend had a fever and could barely move from fatigue but refused to get tested, running through all the scenarios of what might happen if he had it: What if he wound up isolated in an ICU with no one to advocate at his bedside? Another sick friend worried an ambulance would take him to a hospital that he didn’t trust. These conversations, the pastor said, are always infused with an awareness of the medical system’s record of neglect and abuse of black people, from dismissing their pain to using their bodies for research without consent. The virus has forced this all top of mind.
A licensed occupational therapist for 19 years who spent a decade managing a skilled rehab facility, Freeman said he has seen racial disparities in health care firsthand and that access to adequate insurance coverage is crucial. “I have seen diagnostic tests not performed … and hospitalizations cut extremely short — or not happen at all — because of insurance.” COVID-19 is affecting black and brown people in disproportionate numbers, “and not just because we’re black and brown, but because of the social and economic conditions people are forced to live in,” he said.
“All of it comes together. What happened with George Floyd publicized to the world the experience that we live,” he said. “It’s a conglomeration of everything.”
A block away from the prayer group, Elizabeth Tsehai, 53, drove slowly in her BMW SUV, honking her horn, as federal agents in riot gear began to march past the crowd just behind her. She had a Black Lives Matter T-shirt displayed on the dashboard and a bike rack on the top of her car that she joked made her look like the “caricature of a soccer mom.”
She stopped her car on the road and remained there as protesters to her left took a knee. There was some heckling from the crowd but no one was in anybody’s face. A Secret Service agent warned her to move. Her response: “Arrest me. I can’t breathe!” Agents then pulled her from her car and to the ground and handcuffed her. “I didn’t resist because I know they just arrest you for resisting arrest,” she said. “But the minute they pulled me up on my feet, I was talking all kinds of trash.”
Her car was left unlocked in the middle of the street, where it was protected by protesters. She was questioned and released. She said agents told her they were afraid she was going to hit protesters because people have been using their cars as weapons. They told her to move it and leave. The Secret Service did not respond to questions about this incident.
“Ordinarily, I would not get involved,” Tsehai said. But George Floyd’s death was enraging, as were “all of the things that came before it.”
All of the things.
How a white nurse looked her up and down when she arrived at the hospital to give birth to her son and sneered, “Can we help you?”
How her brothers, who live in Minneapolis, recount being pulled over by police for driving while black.
How a black man couldn’t watch birds in Central Park last week without having the police called on him.
“The pandemic is hitting black people hard and exposing these structural inequalities,” she said. “Then on top of that, you get Amy Cooper … weaponizing her white privilege at a time when he might end up in jail, where infection is rife.
“But when they manhandled protesters who were peaceful, that was a bridge too far,” said Tsehai, who grew up in Ethiopia under an authoritarian regime during a period known as Red Terror. She didn’t know life without a curfew until she moved to the United States to attend Georgetown University 35 years ago.
“Moments like this are quite unusual,” she said. They can also inspire change, a message she shared with her children, ages 12 and 14, when recounting her ordeal with them. “I want these children to live in a different world. It’s not enough to read about it and get outraged and talk about it at the dinner table. Silence makes you complicit.”
Rural Oklahoma communities are desperate to protect their vulnerable hospitals and hand the reins to management companies that say they're turnaround experts. Instead some companies failed the hospitals, bled them dry and expedited their demise.
This article was first published on Thursday, June 4, 2020 in ProPublica.
By Brianna Bailey, The Frontier
It was the sort of miracle cure that the board of a rural Oklahoma hospital on the verge of closure had dreamed about: A newly formed management company promised access to wealthy investors eager to infuse millions of dollars.
The company, Alliance Health Southwest Oklahoma, secured an up to $1 million annual contract in July 2017 to manage the Mangum Regional Medical Center after agreeing to provide all necessary financial resources until the 18-bed hospital brought in enough money from patient services to pay its own bills.
But about a month later, hospital board members were summoned to an emergency meeting.
Early one morning in August 2017, Alliance's CEO Frank Avignone told hospital board members that his company, which had boasted of access to up to $255 million from well-heeled investors, was out of money.
Alliance needed a line of credit, and the bank required the board's permission to use the hospital's incoming payments as collateral. If board members didn't agree, paying nurses and other health care workers would be a "slight miracle," Avignone said, according to an audio recording of the meeting that was obtained by The Frontier and ProPublica.
"There were supposed to be so many millions available," Staci Goode, chairwoman of the hospital board, said during the meeting, asking what happened to the promises made just weeks earlier.
Investors needed to see an improvement in the hospital's finances before committing their money, Avignone replied.
"We're in a bad spot right now with our investors just like you are," he said. "We're out over our skis a little bit."
Exasperated, Mangum's hospital board approved the line of credit.
Over the next year and a half, Alliance borrowed millions of dollars from the bank. The company paid itself and businesses tied to its partners a significant chunk of the money and then used $4 million from Medicare to help pay down the line of credit, according to interviews with town leaders and court records obtained by The Frontier and ProPublica.
Financial pressures have forced the closures of 130 rural hospitals across the country in the past decade, leaving communities grasping for solutions to avoid losing health care in areas with the most need. Rural health experts fear many more won't survive the coronavirus pandemic.
An investigation by The Frontier and ProPublica found that some private management companies hired to save the most vulnerable hospitals in rural Oklahoma have instead failed them, bled them dry and expedited their demise.
It starts like this: Rural communities desperate to protect their hospitals hand the reins to management companies that portray themselves as turnaround experts and vow to invest millions of dollars.
Those companies are often hired without background checks or any requirement that they have experience running hospitals. They operate under nearly nonexistent state and local regulations with little oversight from volunteer governing boards. After they extract hefty monthly fees, they sometimes cut ties and leave rural communities scrambling.
In Mangum, a prairie town of 2,800 people in southwestern Oklahoma, the hospital is fighting several ongoing lawsuits stemming from Alliance's management. It also has filed its own litigation, accusing Alliance of fraud and of siphoning away millions of dollars from the hospital. Alliance disputes the allegations and is countersuing to collect $1 million in management fees it claims the hospital still owes for its services.
Leaders from the Oklahoma towns of Seiling and Pauls Valley, who relied on Alliance's assurances that it could revive their hospitals, similarly accuse the company of making lofty promises and leaving them deeper in debt.
Alliance's failure to produce promised investments for the Pauls Valley Regional Medical Center made it harder for the hospital to escape the debt it had incurred under its previous management company, said Jocelyn Rushing, the town's mayor. The hospital closed in October 2018 under Alliance's management.
"What I can tell you is that Frank is a smooth talker, and he definitely knows how to play the media to his side," Rushing said, referring to Avignone. "And he left Pauls Valley high and dry."
Avignone denies wrongdoing. He said leaders in Mangum and other small towns have no experience running hospitals and don't understand enough about the industry to appreciate the work done by his management company.
"At the end of the day, we did save the hospital but, you know, no good deed goes unpunished," Avignone said of Mangum. "The local municipality decided they didn't want us and called us crooks and ran us out of town."
In the end, Avignone said, his company did the best it could given the economic pressures facing rural hospitals.
"Vulture Capitalists"
Across the country, rural hospitals struggle under crushing financial realities. They are more dependent on Medicare and Medicaid, which generally provide lower reimbursement rates than private insurance companies. They also treat higher percentages of uninsured patients and struggle to recruit doctors and nurses. And they have millions of dollars in costs for basic maintenance and repairs that are often deferred for years because of razor-thin profit margins.
A study released in February by the Chartis Center for Rural Health estimates that about 450 rural hospitals across the country are vulnerable to closure.
The challenges are magnified in states like Oklahoma that have opted against expanding Medicaid for the working poor, as encouraged under the Affordable Care Act, hospital advocates and researchers say.
On June 30, Oklahoma voters will decide whether to expand Medicaid through a constitutional amendment. The state's Republican leadership has previously blocked expansion, but a petition drive supported by the Oklahoma Hospital Association landed the question on the primary ballot.
"Clearly, had these hospitals not been in such a precarious situation, these companies wouldn't even be in the picture," said Patti Davis, president of the hospital association.
Last year, the hospital association released guidance urging local officials to carefully assess the financial standing of management companies by requesting records that include tax returns and audited financial statements. The records, which offer a glimpse into a company's liabilities and assets, are not required under state law, but the association said refusing to produce them can be a red flag.
The guidance came as multiple rural hospitals struggled under the control of Missouri-based EmpowerHMS. One Oklahoma hospital run by the company closed in 2018 and four more entered bankruptcy in 2019.
Empower had boasted of its ability to increase revenue by entering into deals with outside toxicology laboratories that allowed flailing rural hospitals to bill at higher rates for blood and urine tests performed elsewhere. But insurance companies soon flagged ballooning laboratory bills as possible fraud and the U.S. Department of Justice launched a criminal investigation. It's not clear if the investigation is still ongoing. Empower has denied allegations of wrongdoing in response to a federal lawsuit filed by insurance companies.
The vast financial challenges facing rural hospitals can make it difficult to determine how much strain resulted from the management companies. A recent federal report found that hospitals owned by for-profit companies have a particularly high closure rate. Such hospitals represented 11% of rural medical facilities but 36% of closures from 2013 through 2017, according to a 2018 report from the U.S. Government Accountability Office.
Struggling hospitals can be good business for companies seeking to turn a quick profit, said Tom Getzen, professor emeritus of risk, insurance and health management at Temple University.
"What you've got is management companies that are vulture capitalists," Getzen said. "These are organizations that know that entities that are in difficulty probably would never be profitable but can have their assets stripped out and can therefore make money. It's important to recognize that troubled company management is actually a very profitable business."
As the coronavirus threatens to further hamstring rural hospitals, forcing them to cancel lucrative elective procedures and purchase additional medical supplies, concerns grow that more communities will fall prey to promises of magical turnarounds.
"You have these communities that are desperate, and they are willing to sign a deal with the devil," said Casey Murdock, a Republican state senator whose district includes nine of Oklahoma's more than 80 rural hospitals. "These companies strip the hospital down, make all they can make and move on to the next one."
"The Company Was Founded on a 1 a.m. Phone Call"
Alliance Health Southwest Oklahoma formed four days before the company signed a contract to manage the Mangum hospital.
In fact, Avignone, a co-owner of Praxeo Health, a Dallas-based laboratory services company, had never run a hospital.
But with help from Larry Troxell, a well-known Oklahoma hospital manager, as well as a company providing surgery services in Mangum, Alliance persuaded board members that it could provide a breadth of financial resources that no other company could.
"The company was founded on a 1 a.m. phone call," said Avignone, adding that a former business partner called to tell him the hospital would close the following day without assistance. Avignone didn't name the former partner.
This was not Mangum's first experience with a management company. In June 2017, right before it struck the deal with Alliance, the town had wrested control of the hospital from Little River Healthcare, a now-defunct company that filed for bankruptcy the following year.
In order to take over the operating license for the hospital, the governing board, which at the time was Mangum's city commission, had to absorb $2.1 million of debt accrued by the previous operators.
Town leaders didn't have money to run the hospital, but they knew that its closure would leave about 80 employees without jobs. Residents would have to travel at least 25 miles to get to the nearest emergency room if the hospital closed.
That's when they turned to Avignone.
Two months before the town took charge of the hospital, Troxell reached out to Avignone for help. The two had met in 2014 at Medical University of South Carolina while pursuing doctoral degrees in health administration. According to Troxell, who served as the interim CEO for the Mangum hospital during the transition, Avignone called him two years later to say he had a group of investors interested in buying hospitals.
Troxell was an investor in Greenfield Resources, a company that claimed to have developed new technology to treat wastewater. Greenfield, Praxeo Health and Alliance Management Group, owned by Darrell Parke, later partnered to form Alliance Health Southwest Oklahoma. Troxell said that while he invested in Greenfield, he had no ownership stake in any of the companies.
After Alliance was hired, it quickly became apparent that Avignone didn't have the money he had promised, said Troxell, who remained at the Mangum hospital working as an administrator. He said he went without pay in Mangum and used his personal credit card to purchase supplies.
Alliance did not respond to questions about his claim.
"The only thing I can tell you about Frank is he misled me. He misled everybody," said Troxell, now the CEO of a rural hospital in Texas. "And I believe that he had partners that had money that could bring it to the table at Mangum. And he didn't do it."
"I'm So Angry"
Tammy Sandifer never had a hard time trusting people until she accepted a job as a lab technician at the Pauls Valley Regional Medical Center, about 60 miles south of Oklahoma City.
In November 2017, Sandifer moved her family from Mississippi to Oklahoma on the assurance that the town's 64-bed hospital was financially stable.
Wearing a crisp white lab coat and medical scrubs, Avignone, who isn't a doctor, rubbed his face as he announced that the hospital was immediately closing its doors.
"You can only live on borrowed time for so long," Avignone told employees.
The hospital closed on Oct. 12, 2018. Five days later, Sandifer was diagnosed with cancer.
A mother of two and the primary breadwinner in her family, Sandifer had learned just weeks earlier that she didn't have health insurance.
The hospital had been deducting $566 from Sandifer's paycheck for health benefits for her family of four. An additional $70 a month was pulled from her paycheck for a supplemental cancer policy.
NewLight Healthcare, a different management company, was running the hospital when Sandifer was hired. It had missed payments for the self-funded employee health insurance plan, even as money continued to be deducted from workers' paychecks, according to interviews and a May 2018 letter from the hospital's health benefits administrator.
Alliance Health Southwest Oklahoma took charge of the hospital in July 2018. The company made some payments but never caught up.
The money to pay for insurance just wasn't available because "the previous manager let all of that lapse," Avignone said, referring to NewLight.
NewLight Healthcare did not answer detailed questions from The Frontier and ProPublica about the lapse in insurance payments at Pauls Valley, but it said in a statement that the company "consistently worked alongside community leaders, providers, state associations, and other leaders to attempt to create new models and programs that will improve the business climate for rural hospitals."
The company added that rural hospitals will continue suffering until government leaders provide additional funding.
Under Alliance, the hospital also stopped paying payroll taxes, according to city leaders who provided The Frontier and ProPublica with a spreadsheet indicating how much the hospital owed employees after the closure.
"None of the payroll taxes were being paid. Nothing — state, federal — nothing," said James Frizell, the city manager for Pauls Valley. "How do you do that? How do you with a good conscience even think about doing that?"
At least seven rural hospitals in Oklahoma run by management companies stopped paying workers' wages or failed to pay for health insurance benefits in 2018 and 2019, The Frontier and ProPublica found.
In the past year, the Oklahoma Department of Labor awarded more than $1 million in unpaid wages, benefits and damages to workers at rural hospitals that have either closed or experienced financial distress. But the agency doesn't have the power to enforce the judgments or make employers pay workers.
"It's been disappointing to see the number of claims this past year that we've had to investigate," said Don Schooler, general counsel for the Labor Department. "We recognize it has affected entire communities and huge, huge portions of the state."
Since the money had already been pulled from her paycheck, Sandifer spent weeks trying to gather enough to purchase health insurance through the federal exchange under the Affordable Care Act.
Sandifer said she signed up the first week in October but had to wait until November for the plan to take effect. She now pays $700 a month for an individual plan.
The lapse in insurance coverage meant Sandifer had to wait a month to start treatment at MD Anderson Cancer Center in Houston.
By then, Sandifer had to have a portion of her pancreas removed. She said a tumor on her pancreas grew from about the size of a nickel to a silver dollar during the time spent waiting for treatment.
Since her surgery, the cancer has spread to her liver and her spine. She is undergoing clinical trials, hoping for good news.
Sandifer, who returned to Mississippi to be close to her family, said she can't help but feel betrayed.
"I had uprooted my entire family and trusted that everything was the way it was supposed to be because that's what they told me to my face," Sandifer said. "The fact that somebody could just look me in my eye and just lie, you know a baldfaced lie, I'm so angry but probably hurt more than anything."
Millions at Stake but No Written Contract
The experience of Pauls Valley and Mangum illustrate the consequences of nearly nonexistent state regulations and little oversight from local governing boards.
The state has few laws that govern hospital management companies, and those that exist are rarely enforced.
In Oklahoma, a management company can either own the license to operate a hospital or it can run a hospital for which a local government or nonprofit organization holds the license. Under state law, the owner of a hospital license must be "of reputable and responsible character."
State officials could not provide The Frontier and ProPublica with clear criteria for disqualification and were unable to identify any companies that were denied an operating license. They said such information was confidential.
Even the lax state regulations that exist don't apply to management companies running hospitals owned by Oklahoma towns and counties.Eight nurses are the overwhelming majority of employees who remain at Haskell County Community Hospital in Oklahoma. The future of the 25-bed hospital, which has been whittled down to operating only an emergency room since 2019, is increasingly grim.
In such cases, local governing boards are responsible for vetting companies and providing oversight. Many such towns hire management companies on little more than their word that they can reverse spiraling finances.
"No matter how much money you give these small towns, they're going to hire a management company," said T.J. Marti, a Republican state representative from Tulsa who supports legislation that would encourage nonprofit health care chains to take on management of rural hospitals. "They don't understand how health care works, and the management company literally takes every penny they can out of the hospital and reinvests nothing."
The Mangum hospital board didn't ask for proof that Alliance had the money it promised or get in writing how much investors were willing to commit. It approved a line of credit in Alliance's name but did not require that the company have board authorization when withdrawing money.
By comparison, the town of Seiling also approved a line of credit but insisted on keeping tight control over how the money would be spent. The hospital kept the line of credit in its name and required a vote of the board to withdraw money.
In Pauls Valley, the governing board handed control to Alliance on little more than a handshake. City leaders say no written contract exists despite minutes from a July 2018 meeting indicating that the hospital board approved a management agreement with Alliance.
"Unfortunately, most of it was implied," Frizell said.
NewLight loaned the hospital more than $1 million, charging it 9.75% interest annually. The hospital also owed the company for management fees that had been deferred.
By April 2018, the hospital owed NewLight more than $2 million, according to the company. Ready to cash out, the company cut ties with Pauls Valley and enforced a lien on the hospital's incoming payments, which meant it would be paid before employees and bills for medical supplies.
As town leaders scrambled to find a buyer for the hospital, a representative from Alliance contacted them to pitch the company's services. Alliance would manage the Pauls Valley hospital with the goal of eventually buying it.
"Frank Avignone, he comes and sells us a song and dance," Frizell said. "That he could infuse $1 million immediately in the hospital and $4 or $5 million in 90 days. That sounded good."
The multimillion-dollar investment never arrived.
Two months after taking over, Avignone instead sought to raise money by appealing to celebrities on social media.
"My friends and I that work at Pauls Valley Hospital in Oklahoma are reaching out to all the Hollywood stars to ask for your help in saving our little hospital," Avignone posted on the Facebook pages of television host Ellen DeGeneres and movie director Steven Spielberg in September 2018.
"The hospital has been in danger of closing for some time and we need help just getting the word out," Avignone wrote on country music star Shania Twain's Facebook page.
In a more personal Facebook plea to Darius Rucker, the lead singer of Hootie & the Blowfish, Avignone said: "Believe it or not you and I went to USC (University of South Carolina) at the same time! Now I find myself in a different part of the world trying to save a little country hospital in Pauls Valley Oklahoma."
"Little hospitals like this all over the country are in danger and I can only save one at a time," he wrote in the post. "So far my team and I have saved two others but right now I need help getting the word out about this one."
In an interview with The Frontier, Avignone said his plan to save the Pauls Valley hospital was pinned on his ability to tap the funding stream he discovered in Mangum. He wanted to obtain a line of credit by using the hospital's incoming payments as collateral. But Avignone said the plan was thwarted when he learned that NewLight had a stranglehold on the hospital's assets.
The Frontier and ProPublica requested any written contracts or agreements between the hospital and Alliance stipulating payments or promises and all financial records for the hospital. The city provided partial financial records but said many of the records were either lost or never existed.
Former Pauls Valley Mayor Gary Alfred said he knows the city should have done more to document Alliance's promises. But, he said, the town was desperate to save its hospital.
"If somebody comes in under the guise that they're going to provide for the hospital, that's not a stone you want to leave unturned," Alfred said.
"He's That Smooth"
In the year and a half that Alliance managed the Mangum hospital, the company and other businesses run by its owners were paid more than $3 million.
Alliance collected more than $1.2 million in fees and reimbursements, financial records show. Some employees were also reimbursed for expenses that included mileage to travel to the other two hospitals that the company managed in Oklahoma.
Mangum officials claim in litigation that Alliance lied about the hospital's financial position, skirting a provision in its contract that required the company to wait until all other financial obligations were met before collecting its management fee. Board members said that because they trusted the company's expertise, they relied on such representations when approving several payments they now dispute.
Praxeo Health, the laboratory services company co-owned by Avignone, was paid more than $350,000, records show. Avignone says the company was owed money after it paid employees in July 2017.
Two other companies, Medsurg Consulting and Surgery Center of Altus, which the Mangum hospital board says were co-owned by Darrell Parke, a partner in Alliance, collected $1.7 million, according to records.
Records show Parke signed contracts on behalf of both Medsurg and Surgery Center of Altus. Medsurg is registered in Oklahoma under Parke's name. While Surgery Center of Altus is registered under the name of a law firm, a contract Parke signed with Mangum lists him as a member of the company's ownership.
An attorney for Parke said his client denies the Mangum hospital board's claims. He declined to answer detailed questions from The Frontier and ProPublica.
In a May phone call, Avignone said he and his company were "being unfairly crucified by a lot of people." He also declined to answer detailed questions, saying instead that he would forward them to his attorneys, who would respond to The Frontier and ProPublica. They did not.
Mangum's hospital board fired Alliance in December 2018. In a letter severing its relationship with Alliance, the board said the company repeatedly breached its management agreement, citing a decision to use a $4 million cost reimbursement from the federal government to pay down the line of credit without the board's consent. It also highlighted payments to companies owned by Alliance's partners. Alliance never disclosed that its members were financially connected to some of those businesses, the board alleges in court documents.
A month later, the board voted to allow its attorneys to report Alliance to state and federal law enforcement. A formal complaint was never filed. Instead, the hospital board opted to sue Alliance.
"He's the greatest con man of all time," said Corry Kendall, Mangum's city attorney. "He would convince you that despite what all the paperwork says and what all the documents say and all the anecdotes say, that he's right. He's that smooth, and you want to believe that because he is one of those people that you want to believe."
Making matters worse, it turns out that Medicare had overpaid the hospital based on flawed calculations, reimbursing it for a full year of costs instead of for the partial year that it was owed. The hospital board currently projects it will have to repay the federal government about $3.5 million, which will likely have to be returned with 10.25% interest, according to the current management.
The bank that provided the line of credit to Alliance is suing the hospital for $1.8 million that has yet to be paid. And Surgery Center of Altus and Medsurg Consulting are suing the hospital, seeking the return of medical equipment and alleging about $1 million in damages. Both lawsuits are ongoing. The hospital has returned some equipment, according to court documents, but disputes that it owes the companies any money.
"I understand where they were coming from, but nobody stole any money from that hospital," Avignone said in an interview in October 2019. "Every dime went back into that hospital. We did everything that we could, as good stewards of municipal money, to make sure that that hospital not only stayed open but grew."
"Blind Hope"
The Mangum hospital is again out of money. And, once again, the town has pinned its turnaround hopes on a for-profit company: Oklahoma-based Cohesive Healthcare Management and Consulting.
Barry Smith, Cohesive's chief executive officer, said he believes a turnaround is possible but cautioned that the hospital can't afford any more lawsuits. A prolonged outbreak of the coronavirus could also further strain finances, he said.
"When you have a huge hole, it just takes a very long time to dig out of," Smith said.
At the end of March, Mangum owed Cohesive $6.7 million in unpaid management fees and payroll expenses for the hospital's medical staff. The company absorbed many of the hospital's costs after it took over from Alliance.
Alliance Health Southwest Oklahoma is no longer operating. Avignone is now the CEO of Affinity Health Partners. The company operates the Washington Regional Medical Center in Plymouth, North Carolina, which entered bankruptcy in 2019 after the collapse of its former operator, EmpowerHMS.
In December, Affinity announced it couldn't come up with the money to pay hospital employees. Avignone blamed billing problems and a delay in funds from Medicare. The hospital later received a loan to cover payroll.
Kendall, Mangum's city attorney, said he's happy Alliance is no longer managing hospitals in Oklahoma, but he warned that the town's experience should encourage rural communities across the country to be more vigilant as they consider hiring for-profit companies.
"I'm hoping other communities elsewhere won't make the same pitfalls, fall in the same traps and mistakes, have the same lapses of judgment, the same blind hope that we had," Kendall said.
Revenues soared at some rural hospitals after management companies introduced laboratory services, until insurers accused them of gaming reimbursements.
This article was first published on Thursday, June 4, 2020 in ProPublica.
By Brianna Bailey, The Frontier
At least 13 hospitals in Oklahoma have closed or experienced added financial distress under the management of private companies. These companies sold themselves to rural communities in Oklahoma and other states as turnaround specialists.
Revenues soared at some rural hospitals after management companies introduced laboratory services programs, but those gains quickly vanished when insurers accused them of gaming reimbursement rates and halted payments. Some companies charged hefty management fees, promising to infuse millions of dollars but never investing. In other cases, companies simply didn't have the hospital management experience they trumpeted.
Below are examples of rural hospitals that pinned their hopes on private management companies that left them deeper in debt. They are based on interviews, public records and financial information from the Centers for Medicare and Medicaid Services and the American Hospital Directory.
Rural Oklahoma communities are desperate to protect their vulnerable hospitals and hand the reins to management companies that say they're turnaround experts. Instead some companies failed the hospitals, bled them dry and expedited their demise.
Memorial Hospital of Texas County
Location: Guymon in Oklahoma's Panhandle
Number of hospital beds: 25
Status: Open. Currently managed by a chief executive officer hired by the hospital board.
Financial status in 2019:
Total assets, including real estate, cash on hand, investments and inventory: $4.5 million
Total liabilities, including mortgages and other loans, payroll costs and money owed to vendors: $5.9 million
Net income: -$331,493
Management history and finances: The county-owned hospital has cycled through four management companies in the past eight years. Oklahoma City-based Synergic Resource Partners, the most recent management company, failed to meet the emergency needs of patients, according to a 2018 investigation by the Oklahoma State Department of Health. The investigation found instances in which patients were not given critical life-saving medications, including antivenom for snake bites and a common clot-busting drug used to treat stroke patients. Synergic Resource Partners began managing the hospital in October 2017, but it took full control of operations in April 2018. In March 2019, Doug Swim, the company's CEO, sent a series of emails to the hospital board saying he would close the facility if the board didn't agree to take back ownership. One email asked the hospital board to sign a new $60,000 monthly management agreement with the company. Fearing Swim would close the hospital, the governing board filed a lawsuit in April 2019. The board settled with the company and regained control of the hospital the same month.
Company response: Swim declined an interview request. He said he would only answer questions if The Frontier and ProPublica granted him anonymity. The news organizations declined.
Latimer County General Hospital
Location: Wilburton in southeast Oklahoma
Number of hospital beds: 33
Status: Closed in October 2018.
Financial status in 2017:
Total assets: $10.9 million
Total liabilities: $1 million
Net income: -$580,400
Management history and finances: In September 2018, Blue Cross Blue Shield of Oklahoma dropped the hospital from its network, citing allegations of billing fraud involving its management company. The hospital was run by the now-defunct Missouri-based EmpowerHMS. When Latimer closed a month later, the hospital owed more than $1 million in unpaid payroll taxes and outstanding vendor invoices, former Chairman Danny Baldwin said.
Company response: Attempts to reach a representative for the company and for Empower were unsuccessful. Empower has denied allegations of wrongdoing in response to a federal lawsuit filed by insurance companies.
Pauls Valley Regional Medical Center
Location: Pauls Valley, about 60 miles south of Oklahoma City
Number of hospital beds: 64
Status: Closed in October 2018
Financial status in 2018:
Total assets: $6.6 million
Total: $14.4 million
Net income: -$8.1 million
Management history and finances: The governing board gave Alliance Health Southwest Oklahoma control of the hospital in July 2018. Officials say no written contract exists. Alliance pledged to invest millions of dollars with a plan to eventually purchase the hospital, according to town leaders. The board believed the investment from Alliance would help the hospital pay its debt to the former management company, NewLight Healthcare, giving it a chance to start fresh. The multimillion-dollar investment never arrived.
Company response: Frank Avignone, CEO of the now-defunct Alliance Health Partners Southwest Oklahoma, said he planned to seek a bank loan and use the hospital's future payments as collateral. But Avignone said he was unable to secure financing because of the lien that the prior management company had placed on the incoming payments.
Seiling Regional Medical Center
Location: Seiling in northwest Oklahoma
Number of hospital beds: 18
Status: Open. The hospital is currently managed by Shawnee, Oklahoma-based Cohesive Healthcare Management and Consulting.
Financial status in 2019:
Total assets: $1.2 million
Total: $2.7 million
Net income: -$85,956
Management history and finances: Town leaders say the hospital's former management firm Alliance Health Southwest Oklahoma entered into contracts and paid for services that were not approved by the board. The company hired an accounting firm for nearly $100,000 despite stating that it had a financial expert on staff that would be available as part of its contract with the town. It signed a five-year pharmacy services contract for up to $4,500 a month, plus the cost of drugs. And it entered into another contract for medical billing software that town leaders say they didn't approve. Officials in Seiling said they learned of the contracts when bills began appearing on the hospital's monthly financial reports. Seiling ended its relationship with Alliance in February 2019. Cohesive Healthcare has since taken over management of the hospital.
Company response: Alliance Health Southwest Oklahoma did not respond to written questions about its management of the Seiling hospital. The company has denied any wrongdoing in its management of three Oklahoma hospitals.
Sayre Community Hospital
Location: Sayre in western Oklahoma
Number of hospital beds: 31
Status: Closed in August 2018.
Financial status: Financial information is not available for the hospital.
Management history and finances: The chronically troubled hospital, which closed in 2016, was revived the following year by SMH Acquisition, an Oklahoma-based management company. It continued to struggle financially. The company failed to pay at least three employees' health and dental insurance premiums despite deducting them from paychecks, according to a ruling on wage claims by the Oklahoma Department of Labor. The hospital landed in court for unpaid bills and was sold to pay creditors in May 2018. Another management company, Synergic Resource Partners, purchased the hospital only to abruptly close the facility three months later.
Company response: In an email, Robert Hicks, the owner of SMH Acquisition, said that despite the Oklahoma Department of Labor ruling that his company was responsible for unpaid insurance, he was no longer in charge of the hospital at the time. Swim, the CEO of Synergic Resource Partners, declined interview requests. Swim said he would only answer The Frontier and ProPublica's questions on the condition of anonymity. The news organizations declined.
Mangum Regional Medical Center
Location: Mangum in southwest Oklahoma
Number of hospital beds: 18
Status: Open. The hospital is currently managed by Cohesive Healthcare Management and Consulting.
Financial status in 2018:
Total assets: $5.8 million
Total liabilities: $11.3 million
Net income: -$1.8 million
Management history and finances: Officials in the town of Mangum allege in an ongoing lawsuit that Alliance Health Southwest Oklahoma enriched itself and other companies controlled by its owners at the hospital's expense. The town's hospital board fired Alliance in December 2018. In a letter severing the relationship, the board said the company repeatedly breached its management agreement, citing a decision to use a $4 million cost reimbursement from the federal government to pay down the line of credit without the board's consent. It highlighted payments to companies owned by Alliance's partners. The hospital now owes Medicare a projected $3.5 million and is being sued by a bank for $1.8 million to repay the line of credit. The lawsuit is also ongoing. Cohesive Healthcare has since taken over management of the hospital.
Company response: Alliance Health Southwest Oklahoma has denied wronging. Avignone, the company's CEO, said Alliance saved the hospital from closing.
Carnegie Tri-County Municipal Hospital
Location: Carnegie in western Oklahoma
Number of hospital beds: 17
Status: Open. The hospital is currently managed by Cohesive Healthcare Management and Consulting.
Financial status in 2019:
Total assets: $7.2 million
Total liabilities: $20.6 million
Net income: $2.4 million.
Management history and financial situation: The Carnegie hospital board and the Oklahoma City-based First Physicians Capital Group cut ties in 2017. That year, state inspectors found violations of patient care so severe that they determined the facility no longer met the minimum requirements to receive Medicare payments. Violations included a lack of security and monitoring for psychiatric patients in the emergency room and failing to provide adequate nursing staff. Cohesive Healthcare has since taken over management of the hospital.
Company response: First Physicians did not respond to interview requests.
Newman Memorial Hospital
Location: Shattuck in northwest Oklahoma
Number of hospital beds: 25
Status: Open. The hospital board hired a full-time CEO instead of another private management company.
Financial status in 2018:
Total assets: $11.9 million
Total liabilities: $10.9 million
Net income: -$3 million
Management history and financial situation: Under Illinois-based People's Choice Hospital, a management company, Newman Memorial falsely claimed that it was performing a large number of blood and urine tests to collect more than $21 million in payments, according to allegations made by the insurer Aetna in an ongoing federal lawsuit. Between January 2016 and April 2017, the hospital billed the insurer for thousands of samples tested at laboratories in other parts of the country, the lawsuit claims. The strategy allowed the hospital to collect $2,250 per test instead of the standard $120 that the insurer would normally pay larger facilities. The town's hospital board fired People's Choice in 2017 and sued the company for fraud and breach of contract because of the lab billing. The company and the hospital settled out of court in 2018. The terms of the settlement were not made public.
Company response: Attempts to reach a representative for People's Choice were unsuccessful. In response to the lawsuit, the company denied the allegations from Aetna, stating that it saved the hospital from bankruptcy.
Cimarron Memorial Hospital
Location: Boise City in Oklahoma's Panhandle
Number of hospital beds: 25
Status: Open. The hospital board hired a full-time CEO instead of another private management company.
Financial status in 2018:
Total assets: $1.2 million
Total liabilities: $3 million
Net income: -$493,157
Management history and financial situation: Austin, Texas-based NewLight Healthcare ran the hospital for about a decade before deciding in January to end its relationship with the county. In 2017, the hospital increased lab testing to bring in more money, but the insurers questioned a high volume of charges and halted payments. To save money, the hospital stopped providing health insurance for nurses and other employees in December 2018. The hospital owed NewLight more than $1 million from deferred management fees as of February 2020. It has since paid its debt to the company, according to hospital officials.
Company response: NewLight Healthcare did not answer detailed questions from The Frontier and ProPublica. Instead, it responded with a statement: "NewLight Healthcare, LLC has consistently worked alongside community leaders, providers, state associations, and other leaders to attempt to create new models and programs that will improve the business climate for rural hospitals. Ultimately, in order to maintain quality rural healthcare, leaders in government will need to make additional funding sources available to rural hospitals."
Haskell County Community Hospital
Location: Stigler in southeast Oklahoma
Number of beds: 25
Status: Open. The hospital is currently managed by Indiana-based Boa Vida Healthcare.
Financial status in 2019:
Total assets: $6.3 million
Total liabilities: $3.8 million
Net income: -$2.4 million
Management history and financial situation: The hospital laid off about 85% of its staff last year, leaving it with only eight nurses, who double as the cleaning crew. The cuts were part of an effort to make the hospital more appealing to buyers. Haskell County was among four Oklahoma hospitals that entered bankruptcy in 2019 after insurance companies stopped reimbursing for laboratory tests that they alleged were part of a billing scheme conceived by EmpowerHMS, the management company that ran the hospitals. Blue Cross Blue Shield of Oklahoma booted Empower hospitals from its network in 2018 after allegations of fraud against the company. While under the management of Empower, the hospital stopped paying employee salaries and health benefits, according to testimony at a state hearing in November 2019. During the hearing, Haskell hospital employees questioned why no one was held responsible for their lost wages, benefits and money that was supposed to be paid into employee retirement plans.
Company response: Attempts to reach a representative for Empower were unsuccessful. The company has denied allegations of wrongdoing in its response to a federal lawsuit filed by insurance companies.
Drumright Regional Hospital
Location: Drumright in northeast Oklahoma
Number of beds: 15
Status: Open. The hospital is currently managed by Missouri-based Rural Hospital Group.
Financial status in 2018:
Total assets: $12.1 million
Total liabilities: $13.7 million
Net income: -$821,484
Management history and financial situation: In February 2019, a state court judge appointed a representative to oversee spending at the hospital. The hospital, one of four in Oklahoma that filed for bankruptcy in 2019 under the management of EmpowerHMS, lacked money to purchase medicine and supplies. It was getting toilet paper from the local Fire Department, according to court documents. Insurers flagged increased laboratory for blood and urine tests as possible fraud at Empower hospitals.
Company response: Attempts to reach a representative for Empower were unsuccessful. The company has denied allegations of wrongdoing in its response to a federal lawsuit filed by insurance companies.
Fairfax Community Hospital
Location: Fairfax in northeast Oklahoma
Number of beds: 15
Status: Open. The hospital is currently managed by First Physicians Capital Group.
Financial status in 2019:
Total assets: $1.2 million
Total liabilities: $3.6 million
Net income: -$6.7 million
Management history and financial situation: After the hospital entered bankruptcy in March 2019, a skeleton crew of nurses worked without pay to staff the emergency room, according to Donna Renfro, the former chief nursing officer. Not doing so could have put the hospital at risk of losing its operating license under state law. The hospital, one of four in Oklahoma run by EmpowerHMS, ran out of money after insurance companies accused the company of fraud. Empower sought reimbursements for blood and urine tests that were not performed at the hospitals the company managed, insurance companies allege in a federal lawsuit.
Company response: Attempts to reach a representative for the Empower group were unsuccessful. The company has denied allegations of wrongdoing in its response to a federal lawsuit filed by insurance companies.
Prague Community Hospital
Location: Prague in eastern Oklahoma
Number of hospital beds: 25
Status: Open. The hospital is currently managed by Cohesive Healthcare Management and Consulting.
Financial status in 2019:
Total assets: $8.2 million
Total liabilities: $3.7 million
Net income: -$812,868
Management history and financial situation: The hospital was forced to rely on food donations to feed its patients in January 2019 after Empower stopped paying its bills, according to news reports. The hospital and three others in Oklahoma run by Empower entered bankruptcy in 2019 when insurers accused the company of a lab billing scheme that charged for blood and urine tests performed elsewhere. Cohesive Healthcare has since taken over management of the hospital.
Company response: Attempts to reach a representative for the company were unsuccessful. The company has denied allegations of wrongdoing in its response to a federal lawsuit filed by insurance companies.
The federal government and states have fueled an unregulated, chaotic market for masks ruled by oddballs, ganjapreneurs and a shadowy network of investors.
This story was first published on Monday, June 1, 2020 in ProPublica.
It was 10 p.m. on a Tuesday, and I was watching footage of secret stockpiles of N95 masks, so-called proof-of-life videos sent to me by strangers, when Tim, the juicer salesman, called.
"My name is Tim, and I heard you're looking into VPL," the man said in a squeaky, nervous timbre. "I distanced myself from the company because they weren't delivering what they said."
A few hours earlier, I had called the owner of VPL Medical LLC, a company outside Los Angeles that had gotten a $6.4 million contract from the Department of Veterans Affairs to supply 8 million three-ply surgical masks to hospitals dealing with the COVID-19 crisis. My call freaked them out, Tim said, and someone at the company had passed my number along to him.
What was his interest in the story, I asked.
"I went and got myself $8,000 in cash. I was on my way with the money in a briefcase…," he began.
I had called VPL because records showed the company incorporated just four days before it won the VA deal, and it went on to win another $14.5 million no-bid contract the next day from the federal office in charge of the national stockpile. Its new website featured a photo of the sort of "ear loop" mask the federal government has since branded as ineffective Chinese knockoffs. The moniker stands for Viral Protection Labs, but the labs exist only in the stock art chosen for the website.
Before forming the company to exclusively sell medical supplies, VPL's owner operated Rock On IT, a company specializing in search engine optimization and digital marketing. Both companies were registered to the same unit in an office park in Rancho Cucamonga, about an hour from LA.
Tim, whose last name is Zelonka, said he had driven halfway to that office park from West Hollywood with his briefcase stuffed with cash when his deal to buy a relatively small amount of masks from VPL fell through. He said he thought perhaps he had asked too many questions of a company representative — about where the masks were sourced, if they were kept in sanitary conditions and about the company's credentials.
"He said: 'They're not in boxes. They're in Ziploc bags,'" Zelonka said, recounting his conversation with VPL's representative. "And I said: 'That's not what you're advertising. You're advertising made in the U.S.A. and in sealed packaging.'"
That's when Zelonka said the deal was abruptly canceled by the representative, whom I'd later learn was sued by the Federal Trade Commission in 2018 for a robocalling scheme that involved bogus smoking cessation treatments and sexual performance enhancement pills.
VPL's owner, Bobby Bedi, said his company has delivered on its contracts and is providing good products during an unprecedented crisis. He dismissed fraud allegations against him and an associate as inevitable hiccups in doing business. He also denied that Ziploc bags were used to store hismasks, which are much cheaper and less effective than N95s at stopping the spread of the virus..
"VPL does not and has not ever delivered finished goods in repackaged materials," he said.
Zelonka attempted to do business with VPL in April, as the company brokered its deal with the VA, whose massive hospital system had been overrun by the coronavirus pandemic. In desperate need of supplies, the VA has signed more contracts without competitive bidding than any agency other than the federal government's central contracting office.
Like so many in the emerging underground mask business, Zelonka had no background in the medical supply chain. He handled U.S. distribution for a Spanish commercial juicer company, whose equipment can hold dozens of whole oranges and allows users to make custom selections and watch the machine pluck, press and pound out juice. He had been furloughed, so he thought maybe he could make money as a PPE broker, connecting buyers to sellers on a black market fueled by desperation and opportunism, a Wild West occupied by oddballs, ganjapreneurs and a shadowy network of investors.
Zelonka's plan was more novel than the dozens I had heard in recent weeks from other brokers over meandering phone calls, cryptic Twitter messages and dispatches sent through Signal, an encrypted texting app. He hoped to sell masks, gowns and gloves for food service workers at places like Jamba Juice, which were reopening as states lifted stay-at-home orders — a cottage industry within a cottage industry.
He wanted to make a modest profit, Zelonka said, while remaining ethical.
He said he'd been meeting other mask suppliers, working out cash deals, and that he'd be happy to show me his world. He said he might set up another meeting with VPL to get a look at its product.
"If you come out to LA," Zelonka said, "I can show you."
I bought a ticket the next day.
'Like Stumbling Into the Drug Business'
My descent into the pandemic PPE trade began with the story of one federal contractor whose failed attempt to find and sell N95 masks in a $34.5 million deal with the VA involved a private jet and the former attorney general of Alabama. The contract was ultimately canceled and referred to the inspector general for investigation.
After the story ran and the federal inquiry began, my social media and email inboxes exploded with messages from people claiming to have giant stockpiles of masks or to know a guy who knows a guy with a stockpile.
Some called me directly, such as a man near Seattle, to ask if I could connect them with the top brass at, say, the Federal Emergency Management Agency. (I told this person that journalists don't help people with their business dealings, and when I followed up with a series of questions about his alleged stockpile, he cut short the call.)
In reporting on the first VA contractor, I was intrigued and a little tickled that he had been sent a proof-of-life video, cellphone footage that purported to show millions of masks ready to be shipped once the money was wired. It seemed like something out of a spy movie, but the more I talked to people in this world the clearer it became that this was how deals were actually being done.
Bored in my apartment after many weeks of isolation, I began to use the same jargon as insiders when responding to mask entrepreneurs: "Can you show me proof of life?"
On Twitter, a South African sent me a video, apparently shot in China, of boxes of supposed KN95s, the Chinese version of the N95s, which filter out 95% of particles including those that could carry the new coronavirus. A woman held a sheet of paper with his name on it over the boxes to show ownership. Another solicitation included a date-stamped video of a man loading boxes onto a truck.
"Yes my contact has proof of life...I will connect you with my guy," one contact told me through a Twitter direct message.
The solicitations went on and on.
The backdrop was clear: Overnight, a global scarcity of masks created an unregulated market that grew as the Trump administration left states and hospitals to fend for themselves in bidding wars that drove up prices. Governors including New York's Andrew Cuomo implored anyone who had stock or could manufacture PPE to reach out. Meanwhile, Trump's executive branch offered what seemed more like bounties than contracts to spur hundreds of untested companies to go out and find scarce masks and respirators, paying as much as six times the manufacturer's list price to those with the right connections.
"It's like stumbling into the drug business," said one broker, Rick B., who asked that his last name be withheld so he could talk freely about his business. Using public records, I independently confirmed his name and business associations.
"You start out as a guy on the corner holding a little bit of product, and the next thing you know, you're making calls and connecting people."
Rick B. said he was a comedy writer in California and was in the process of setting up a marijuana dispensary when COVID-19 scuttled his plans. Through his marijuana business, he had made contacts with some medical suppliers, who suggested that he, like countless other small business owners, pivot his business to focus on PPE.
"The ones that got in early," he said. "Those guys made just stupid amounts of money."
He and others described to me a "daisy chain" of middlemen who were getting rich off this pandemic, flipping masks from one private buyer to the next. The transactions resemble a real estate deal: A broker knows a seller of masks; another broker knows a buyer of masks. The two brokers set up the deal and each takes a commission, a percentage off the final unit price. And there's a lot of room for profit. One model of N95 respirator, made by 3M, lists for about $1.27 per mask, yet FEMA agreed to pay one inexperienced contractor $7 per mask.
"There are scandalous brokers out there. There are people that just make me want to take a Silkwood shower at the end of the day," Rick B. said, referring to the classic film about radiation exposure. "There are brokers out there who are buying at $3 and marking it up to $6 or $7."
Deals are usually negotiated through WhatsApp, he said, often only with first names divulged. After they set up the business relationship, the brokers collect commissions on any subsequent deal, like royalties: "On a 300 million 3M mask deal, that deal might be 1 or 2 cents a mask. It's a big deal," he said, or a $3 million to $6 million commission just for brokering the deal.
"That's the kind of money that's changing hands," he said. "There's some billionaires with a B getting involved."
In a few well publicized cases, the U.S. Justice Department has brought price gouging charges, and 3M has sued distributors who were hiking up PPE costs.
But the potential corruption runs deeper, importers and brokers told me. Businesses or investors with PPE can sell to another private buyer with no scrutiny at prices that might be considered obvious price gouging if they were sold directly to a government agency. One stockpile can change hands several times, with a little profit for brokers and traders at each step.
If an end buyer, such as a hospital, is paying $4.50 or more per mask, Rick B. said, "that usually means it's a broker chain involved. It's a broker who knows a broker who knows a broker. 'I know a guy, and I'm going to be having Jerry give you a call, and put me in for a dime.' That means 10 cents a mask."
The harm is measured not just in the higher price hospitals and government agencies eventually pay, but in time wasted as health workers wait for gear that could mean the difference between life and death.
Touchdown in LA
We were somewhere on the edge of Culver City heading for the garment district when the trip's absurdity began to dawn on me.
I was still stressed from the early morning commercial flight, six hours of sharing air and space with too many people, some of whom took off their masks when flight attendants weren't near.
Zelonka, full of energy, wore a blue polo shirt, retro amber gradient aviator sunglasses and a yellow cloth mask as he navigated his Infiniti through unusually sparse traffic on I-10. As he put it, he is nearly 50, but he's an "LA 50," which he estimated appears 15 years younger than elsewhere.
He had been sharing his various strange conversations with mask suppliers, detailing how they didn't make sense, or there was no product, or the supplier couldn't answer basic questions.
"It would be like if you went to buy a gallon of milk and you asked: 'Is it whole milk or skim milk?' And they didn't know the difference."
Then it occured to me — had he actually purchased any masks?
"I have purchased none because everyone's full of shit," he said.
Had he made any money at all yet?
"Nope."
We arrived at the garment district, an odd detour from our stated mission of looking into brokers and shady deals.
Once there, Scott Wilson, owner of Ustrive Manufacturing, showed how he had transformed his small organic T-shirt factory into a humming PPE production line. The company's masks were made of cotton and spandex and were being sold as a nonmedical protection for Kaiser Permanente.
Zelonka had seen this company featured on the local news and just showed up the next day to introduce himself. In LA, where masks are legally required, it wouldn't hurt to know a producer, he said.
As we drove away, Zelonka piqued my interest with a comment about a venture capitalist in Florida who claimed to have connections with 3M and was interested in sinking a billion — with a "B" — or so into the mask trade.
Zelonka played back for me some of a recorded video conference call.
"We've got several billion dollars sitting in escrow to procure product right now, and we need it yesterday," said the man on the phone. "We had no idea what we were doing, to be honest with you."
Zelonka gave me a misspelled version of the guy's name and said he was a venture capitalist working for a company called something like "Oasis."
This potential deal was quite an escalation from $8,000 in a briefcase. I asked Zelonka, Is this investor legitimate? He said that he wasn't sure, but that he was working to secure a pipeline for masks from a source in Mexico.
"I think he's looking for a credible source that isn't 3M that he could use to supply the federal government with masks."
Zelonka seemed uneasy but intrigued, as if grappling with a moral dilemma: Can one make a profit off a global crisis without becoming a vulture, and where is the line?
"Then I would be what you're investigating," Zelonka joked. "A profiteer."
"There Was No Time for Anybody to Think"
Bedi, the VPL owner I spoke with, has operated numerous California businesses and been subject to multiple tax liens and about a dozen civil lawsuits, including allegations of fraud, lease manipulation and breach of contract.
Last summer, he was sued by a tenant who operated a restaurant in a gas station owned and then sold by Bedi's company. In court records, the tenant accuses Bedi's company of providing a forged lease to the gas station purchaser, "whiting out" and altering a date to effectively evict the tenant two years early. When the new owners tried to kick out the restaurant owner, all three parties ended up in an ongoing lawsuit.
"I have been an active part of the business community for many years and thru some 20 years of business experience have had issues we all face as part of being an active business owner," Bedi said in an email.
When I first talked with Bedi, he said his $6.4 million deal with the VA was going off without a hitch. They were all brought in from China, he said, though he hopes to start manufacturing masks in the U.S. this summer. A spokeswoman for the VA said VPL has delivered all its masks in accordance with the contract.
What he couldn't tell me was how his brand-new company managed to get such a big deal with the federal government with no competitive bidding, as has become customary in the COVID-19 era. As ProPublica previously reported, the federal government has signed multimillion-dollar deals with many companies that popped up overnight, including one deal to provide masks that was given to a former Trump aide. But VPL was far from the Beltway, seemingly obscure, and this deal appeared to be instrumental in growing the company, which recently issued press releases saying it will open two U.S. PPE manufacturing facilities. In all, the federal government awarded VPL nearly $21 million within its first week of existence, federal data and California business filings show.
VPL has yet to deliver a shipment of masks to the national stockpile overseen by the Department of Health and Human Services. "HHS has taken appropriate steps available under Federal Acquisition Regulations to request the company provide assurance that it will uphold its contractual obligations as we consider our options moving forward," said Stephanie Bialek, spokeswoman for the Strategic National Stockpile.
The Trump administration has promised at least $1.8 billion to 335 first-time contractors, often without competitive bidding or thorough vetting of their backgrounds.
Bedi said he couldn't recall how his company got their contracts. "The important thing is right now there is a global pandemic. There is a shortage of masks, and we are fulfilling it on time," he said.
"It all happened quickly," Bedi added. "There was no time for anybody to think."
Bedi said he would talk with his employees to figure out how his company got the deal, but when I called back at our arranged time, he hung up.
That's all I knew when I met Zelonka the next day, Friday, in a Walmart parking lot, where he guzzled a Monster Energy drink — "my last nonalcoholic drink of the weekend," he joked — as he prepared to walk into VPL's office with a reporter in tow.
Zelonka had previously told me he was working out a time to meet with a VPL representative, Jason Cardiff, to examine the firm's product, this time for far more effective KN95 masks the company advertised. Bedi confirmed Cardiff works for VPL as a "consultant."
Cardiff's business history offers a good read. In 2018, the Federal Trade Commission sued to shut down Cardiff and a company he and his wife operated, describing it as a pyramid scheme that involved robocalling people and making "false and unsubstantiated claims for dissolvable film strips advertised for smoking cessation, weight loss, and male sexual performance."
A federal court issued an injunction, shutting down the Cardiffs' business and freezing their assets. But in March of this year, Cardiff was found in contempt of court for, among other things, hiding 1.5 million Canadian dollars in assets.
The FTC alleged that Cardiff was funding a lavish lifestyle through an account he opened in his 90-year-old father's name. "The Cardiffs are spending nearly $17,000 per month," court records state. "On Bentley, Porsche, and Range Rover lease payments, private elementary school tuition, restaurants, phone and cable bills, salons and spas, pet grooming, a 5-star hotel in New York City, music lessons, taekwondo lessons, ride shares, movie theaters, and other lavish expenditures."
At the same time, the couple stopped paying the $12,000 a month mortgage on their home and "strikingly," the FTC told the court, the secret bank account was not paying rent for Cardiff's father's retirement home.
Cardiff didn't provide comment, but Bedi defended him, suggesting the FTC was the fraud.
"We are pleased to have Mr. Cardiff's expertise in manufacturing and logistics, and we are aware of the fraud that the Federal Trade Commission has committed on him," Bedi wrote in an email, noting that Cardiff is working to bring the company's U.S. production online.
I was hoping to meet Cardiff. But Zelonka's exchanges with Cardiff had gone cold (Zelonka would later tell me he had told several people close to the company that he was working with a reporter, which might have scared people away). There was no briefcase. No meeting time. No element of surprise.
As someone who's knocked on countless doors with nothing but a hunch and a prayer, I believe all doomed reporting missions should be seen through to their end. Besides, Zelonka's pluck was entertaining, and I'd come all this way, so we went, two guys in masks, one zapped on Monster Energy and the other on Starbucks double espresso, roaming an empty office park in Rancho Cucamonga as the world was falling apart.
We found the door. The sign said "Rock On IT." He knocked. No one answered. We waited in the running car. He called the number he had for Cardiff, and the man who picked up said he was in a meeting and had to hang up.
"Well," Zelonka said as we drove solemnly back to the Walmart. "You can go home with a suntan."
With VPL in his rearview, Zelonka became increasingly focused on his potential partnership with the venture capitalist in Florida, with whom he had signed a nondisclosure agreement, standard fare among PPE dealers.
"This is somebody who says they have a billion cash," he said.
Zelonka said he planned to meet with the investor while on a work trip to Texas.
The Mystery Investor
When I returned to Washington, D.C., I began trying to track down Jason Cardiff. When I called the number Zelonka had given me, the man on the other line said he wasn't Jason and had no affiliation with VPL. Cardiff also did not respond to questions sent via text and a LinkedIn message.
On Tuesday, Zelonka texted me and said his investor "is looking to spend $1.8 billion on 3M model" at a cost of $6.25 each (they list for about $1.27).
"Anyway," he continued. "I'm meeting him in Texas on Wednesday, and if the Mexican supplier works out I'm going to visit them the following day."
I called the firm and investor that Zelonka named but could not confirm any connection between him and the company.
As we prepared to publish this story, I connected with Zelonka, who said he was in Dallas to show clients how to sanitize their high-end juicers. The prospect of being the star in a story about PPE gambling had soured on him. Something in his tone had changed.
He's not in the PPE racket, he said, and never really was. He's just focusing on juicers now, he said.
Three times, I asked if he was still going into business with the alleged investor to buy and sell masks.
"I'm not going to comment on anything because I'm not sure how that will go," he said.
I reminded him of our conversations about billion-dollar investors, the Mexican supplier and his aspirations to break into the business.
"You're breaking up," he said. "I can't hear you."
Opioid-related deaths in Cook County have doubled since this time last year, and similar increases are happening across the country. “If you’re alone, there’s nobody to give you the Narcan,” said one coroner.
This story was first published on Saturday, May 30, 2020 in ProPublica.
As COVID-19 kills thousands in Chicago and across Illinois, the opioid epidemic has intensified its own deadly siege away from the spotlight, engulfing one public health crisis inside another.
More than twice as many people have died or are suspected to have died of opioid overdoses in the first five months of the year in Cook County, when compared with the same period last year, according to a ProPublica Illinois analysis of medical examiner’s office death records. There have been at least 924 confirmed or suspected overdose deaths so far in 2020; there were 461 at this time last year. And much like the coronavirus outbreak, the opioid epidemic has disproportionately affected African Americans on Chicago’s West and South Sides.
Statewide, opioid deaths also are outpacing 2019 numbers, largely due to the increase in Cook County.
The deadly surge comes at what was supposed to be a turning point for Illinois. A 2017 state action plan from then-Gov. Bruce Rauner vowed to halt the “explosive growth” of opioid deaths and reduce the projected number of opioid-related deaths this year by a third.
Based on the number of overdose deaths so far in Cook County alone, it’s highly unlikely the state can meet that goal.
While the spike in deaths began several months before the first known case of the coronavirus appeared in Illinois, COVID-19 appears to be exacerbating the crisis.
“This is going to make it so much worse,” said Kathleen Kane-Willis, a researcher with the Chicago Urban League who has studied the opioid epidemic for more than a decade, adding that the true impact of the pandemic on drug overdoses likely won’t be known for some time.
“It’s going to wear on people. It’s going to make them more anxious and depressed,” she said. “Being thrust into poverty is such a stressor, and people do turn to substances to get through that stress.”
The rise in opioid-related deaths in Cook County echoes a pattern seen in other areas of the country, from Milwaukee to Memphis and in Virginia and western New York. The American Medical Association recently sounded an alarm, noting news reports from 28 states on increases in opioid-induced overdoses and issuing a series of recommendations to state governments.
Coroners in at least nine Illinois counties — ranging from Lake County north of Chicago to Peoria County in central Illinois and Madison County near St. Louis — have noted increases, though the number of overdose deaths is far lower than in Cook County. DuPage County Coroner Dr. Richard Jorgensen said he was so startled this month to see 22 overdose deaths in three weeks that he called local rehabilitation clinics and advocates to see if they could explain what was happening.
“They’ve been seeing the same thing — a lot of people calling with problems, having trouble staying sober, having relapses,” said Jorgensen, who worries that more people are using drugs alone because of the state’s stay-at-home order. “If you’re alone, there’s nobody to give you the Narcan,” he said, referring to the drug that can reverse overdoses. “That’s a problem.”
A Complicating Factor
Even before the pandemic hit, state officials, medical experts and drug recovery workers began to notice an increase in overdoses. State officials said they issued an alert in January warning the public about an increase in opioid-related overdoses.
A sustained climb in the number of opioid-related deaths over the previous year began in November, according to a ProPublica Illinois analysis of data from the Cook County Medical Examiner’s Office.
An increase in more dangerous blends of opioids hitting Cook County, including drugs laced with fentanyl and other synthetic additives, is likely partially to blame, several experts and city and state officials said.
“One thing we know for sure: The violent drug cartels and distributors have not stopped trafficking deadly fentanyl,” Robert Bell, the special agent in charge of the Chicago Field Division of the Drug Enforcement Administration, said in a statement. “The recent spike of overdose deaths emphasizes that the opioid and fentanyl epidemic has not paused — in fact, it has intensified in many places.”
In Cook County, fentanyl is listed as one of the primary causes of death in 81% of the confirmed opioid-related fatalities this year, up from 74% last year, according to ProPublica Illinois’ analysis. The majority of the cases involve fentanyl combined with other substances, such as heroin.
Still, the sheer number of opioid-related fatalities in Cook County this year has left some experts disheartened. As of Friday, the medical examiner’s office had confirmed nearly 500 deaths involving opioids. An additional 614 deaths are still under investigation, typically pending toxicology results. Of those, some 70% to 80% are expected to come back positive for opioids, according to the county’s chief medical examiner, Dr. Ponni Arunkumar. (Pathologists often ask for toxicology screenings when there is evidence of an overdose, such as white powder near the body or a needle in the arm, a spokeswoman for the medical examiner’s office said.)
That projection would put the year’s total at at least 924, more than double the number in the first five months of 2019.
“Oh, goodness. That’s insane,” said Dr. Steven Aks, an emergency room physician at John H. Stroger Jr. Hospital of Cook County and chief of toxicology for Cook County Health, when told about the increase. “This is something that we were very nervous about when the pandemic hit.”
In addition to the rise in deaths, state officials say there have been increases in nonfatal overdoses involving opioids in the first four months of this year. In February, the numbers jumped by more two-thirds, to 2,047 when compared with the average over the previous three Februaries. In Chicago, emergency calls related to overdoses were up by more than a third from January through mid-April this year compared with the same period in 2019, according to an analysis of police and fire department call data.
Dani Kirby, director of the division of substance use prevention and recovery for the state’s Department of Human Services, said in a statement that COVID-19 has complicated both the state’s response to the overdose crisis and the lives of those who use drugs.
“The stress of unemployment, isolation, and general uncertainty are all risk factors for a return to substance use or an escalation of existing patterns of use,” Kirby said. “There is an additional concern that, due to the risk of exposure to COVID-19, people may be more reluctant to call 911 or go to a hospital when an overdose occurs.”
Some overdose prevention strategies “directly contradict” strategies that are meant to prevent the spread of COVID-19, she added.
“We know that human connection is a fundamental element of service delivery — whether a program is linking someone to harm reduction supplies (clean syringes, naloxone, safer smoking supplies, etc) or providing treatment and recovery services — and COVID-19 makes it more difficult for people to access these services,” Kirby said in the statement. Naloxone is an overdose-reversal drug.
Matthew Richards, deputy commissioner of behavioral health for the Chicago Department of Public Health, echoed those challenges. “Sometimes persons that are at highest risk for overdoses, part of the effort is really meeting people where they are in community with peer services or community health educators and building rapport,” he said. “What that looks like right now in terms of social distancing and whatnot is really complicated.”
Some Chicago-based programs that serve people who use drugs have had to scale back or shutter services in the wake of the pandemic, in part to protect older workers who may be more vulnerable to the coronavirus. Officials at other programs, on the other hand, said they have been able to meet an increase in demands for some services, such as naloxone, or medical outreach.
The pandemic has also meant that many people who rely on panhandling to make money and buy drugs are unable to do so now, because so many downtown office workers are now working from home, said Andrew Wojda, who works on a street medicine outreach team for The Night Ministry, a Chicago-based organization that works with the homeless.
This decreases their drug tolerance, making them more vulnerable to an overdose when they use again. “When they do get some cash, then they’re going back to using however much they were using a few days ago,” Wojda said. “But within three days, their tolerance can go down. It doesn’t really take much time at all for that to start being a much riskier game they’re playing.”
A Statewide Problem
Researchers and advocates said they are worried about the spread of the coronavirus among drug users and whether deaths involving both opioids and COVID-19 are being adequately tracked. Drug users often have comorbidities — underlying medical conditions — that make them more vulnerable to contracting the coronavirus. It might be hard to distinguish virus-like symptoms from those of withdrawal, researchers said.
So far only four people whose deaths were related to opioids also tested positive for the coronavirus, according to data from the Cook County Medical Examiner’s Office. The office said it has not found a direct correlation between opioids and the coronavirus.
A spokeswoman for the office said they do not test every body for COVID-19. Instead, the body is tested if the person is suspected to have contracted the virus but was not tested at a hospital or if the office’s investigators find out the person displayed symptoms or was exposed to someone who had contracted the virus.
In suburban Lake County, where the coroner, Dr. Howard Cooper, said all bodies are tested for COVID-19 as a safety measure and to let families know if their loved one had the disease, only one of the 43 confirmed or suspected overdose deaths so far this year has also tested positive for the coronavirus. The county also has experienced a rise in fatal overdoses, which Cooper said totaled 23 this time last year.
Even in counties that haven’t seen a rise or are seeing modest increases of one or two deaths, coroners remain concerned. With 14 confirmed or suspected overdose deaths this year, Kane County is up by only two compared with the same time last year, but COVID-19 may upend things, said Coroner Rob Russell.
“Maybe we haven’t seen it yet,” he added. “Maybe it’s coming.”
In Peoria County, Coroner Jamie Harwood said it has been tough to witness a rise in overdoses because it represents a reverse of hard-won progress. From January to April of 2018, the county saw 31 overdose deaths. In 2019, that number dropped to six, which he attributes to increased naloxone distribution, offering fentanyl test strips and providing clean needles for exchange. But now, with this latest spike, the county is almost double 2019’s numbers for the same time with 11 overdose deaths this year.
“It’s really hard to see it go up because you know that there’s a kid left without a parent, a mom left without a daughter or a son,” Harwood said.
A Hopeful Goal
This was the year that opioid-related deaths were supposed to drop significantly in Illinois. A 2017 state action plan developed under Rauner outlined steps to reduce the estimated death toll by one-third, from a projected 2,700 to about 1,800 in 2020.
Statewide opioid-related deaths had been on the decline, from 2,202 in 2017 to 2,167 in 2018. It was the first decrease in overdose deaths among Illinois residents in five years. The numbers fell again last year to 2,107, state officials said.
The drop in 2018 was largely due to a decrease in opioid-related deaths for white residents. But those deaths rose for African Americans, who saw a 9% increase, and to a lesser extent for Latino residents, who saw a 4% increase, state figures show, resulting in what a 2019 state report called a “persistent disparity.”
The data on the most recent deaths in Cook County magnify the disparities. African Americans make up more than half the confirmed opioid-related deaths so far this year, even though they make up less than a quarter of county residents.
This trend is also happening nationally: One recent study showed that whites were the only group that saw a decline in drug-induced deaths in 2018.
Kane-Willis, who co-authored a 2017 report on the impact of the opioid epidemic on African Americans and is preparing to publish a follow-up paper, said black drug users have higher overdose mortality rates for many of the same reasons they’re more likely to die from COVID-19: poverty, less access to effective medical treatment and more health problems.
A spokeswoman for Gov. J.B. Pritzker’s office said the administration is “continuing to work toward” the action plan’s goals and highlighted initiatives this year to combat the overdose crisis with an emphasis on social and racial equity.
In January, Pritzker issued an executive order to promote equitable prevention and treatment access, as well as earmarking $4.1 million to expand opioid-related services across the state. Some of that money is going to a state Rapid Deployment Project that teams with local health departments to target specific communities that have seen spikes in overdoses, officials said.
In response to the coronavirus pandemic, Illinois has eased up regulations to allow patients to take home longer-lasting supplies of methadone, residential facilities are taking extra measures to protect residents and staff, and community organizations are ensuring patients have better access to naloxone, Kirby said.
The city of Chicago, meanwhile, said it’s studying data on overdoses to identify demographic and geographic patterns and determine which neighborhoods need the most resources, including naloxone, syringe exchanges and community health education, Richards said. The city has already increased funding for naloxone distribution, he said, and in June plans to start issuing monthly reports showing year-to-date trends.
The goal, he said, is to create a robust response to the epidemic.
“I don’t want to underestimate the challenge, but I also don’t want to underestimate the power of using data to fund things that work,” he said. “Our goal is to get the biggest impacts that we can possibly get. We’re talking about saving lives.”
Zach Fuentes, former deputy chief of staff to President Trump, won the contract just days after registering his company. He sold Chinese masks to the government just as federal regulators were scrutinizing foreign-made equipment.
This story was first published on Friday, May 22, 2020 in ProPublica.
A former White House aide won a $3 million federal contract to supply respirator masks to Navajo Nation hospitals in New Mexico and Arizona 11 days after he created a company to sell personal protective equipment in response to the coronavirus pandemic.
Zach Fuentes, President Donald Trump’s former deputy chief of staff, secured the deal with the Indian Health Service with limited competitive bidding and no prior federal contracting experience.
The IHS told ProPublica it has found that 247,000 of the masks delivered by Fuentes’ company — at a cost of roughly $800,000 — may be unsuitable for medical use. An additional 130,400, worth about $422,000, are not the type specified in the procurement data, the agency said.
What’s more, the masks Fuentes agreed to provide — Chinese-made KN95s — have come under intense scrutiny from U.S. regulators amid concerns that they offered inadequate protection.
“The IHS Navajo Area Office will determine if these masks will be returned,” the agency said in a statement. The agency said it is verifying Fuentes’ company’s April 8 statement to IHS that all the masks were certified by the Food and Drug Administration, and an FDA spokesperson said the agency cannot verify if the products were certified without the name of the manufacturer.
Hospitals in the Navajo Nation, which spans Utah, New Mexico and Arizona, have been desperate for protective supplies as the numbers of coronavirus infections and deaths have grown quickly. As of Friday, the Navajo Nation reported 4,434 COVID-19 cases and 147 deaths, a crisis that has prompted outcries from members of Congress and demands for increased funding.
Fuentes initiated email contact with officials at IHS, a division of the Department of Health and Human Services, the agency said. After the contact, the agency informally solicited prices from a handful of face mask providers and chose Fuentes of the six companies that responded because his firm offered the best price and terms, IHS said. Fuentes also benefited from government procurement rules favoring veteran- and minority-owned businesses, the procurement data shows.
Fuentes said political connections to the Trump White House played no role in his company’s selection. “Nobody referred me from the White House. It was nothing like that,” he said. “Emphatically no.”
The White House did not respond to a question about Fuentes’ contract.
IHS told ProPublica that Fuentes’ company reported that the masks were made in China, but the agency did not specify the manufacturer. Federal contracting records show without explanation that Fuentes refunded $250,000 to the IHS this month, and he said in an interview last week that he gave back money when he procured masks at a slightly reduced cost.
“We went back to IHS and said, ‘We were able to get this cheaper,’” Fuentes said. “We will never gouge our customers.”
Fuentes referred questions about the mask manufacturer and FDA certifications to his consultant, Sia N. Ashok, a business school classmate. In a phone interview, Ashok declined to name the manufacturer because it could violate the company’s contract, she said.
Ashok said the company lived up to the terms of its contract with IHS and has all the FDA certifications it needs in place.
“If the customer or IHS or anyone has any issues with anything, we would be more than happy to replace,” she said.
Fuentes’ contract price of $3.24 per mask is more expensive than the pre-pandemic rate of about $1 per mask, but far less than what some government entities have paid at the height of the crisis. Mask costs can vary widely depending on availability, demand, quality and exact specifications.
Fuentes is a retired Coast Guard officer and protege of former White House chief of staff John Kelly. He formerly served as Kelly’s military aide while he was secretary of the Department of Homeland Security, and Fuentes followed Kelly to the White House. In December 2018, as Kelly prepared to leave, The New York Times reported that Fuentes had told associates he planned to “hide out” in a vague role at the White House until he qualified for a Coast Guard early retirement program. Fuentes retired in January from the Coast Guard after 15 years of service. He said his retirement was for medical reasons.
He jumped into the federal contracting world in April at a time of great opportunity — and high risk. The coronavirus pandemic loosened many federal procurement rules as agencies scrambled to respond to a national emergency. But as supplies of personal protective equipment ran out and many countries restricted exports, delivering on contracts became more difficult, and agencies have wrestled with incomplete orders, cancellations and possible counterfeit goods.
N95 masks were so scarce that the FDA in April allowed the use of some Chinese masks that had not been certified by U.S. regulators. But in recent weeks, the FDA narrowed its guidance after tests indicated that some of the products were not as effective as they should be, and it tightened restrictions on the use of Chinese masks by hospital and medical personnel.
Fuentes formed Zach Fuentes LLC as the emergency regulations were evolving.
In April, the FDA authorized the use of masks made by close to 90 manufacturers in China.
But the masks made by some of those manufacturers did not pass CDC tests because they did not filter out enough fine particles. In some cases, the masks failed utterly.
This month, the FDA rescinded its authorization for the vast majority of the Chinese manufacturers, published a much smaller list of respirators made by 14 approved manufacturers and tightened the standards for evaluating Chinese masks.
Eleven federal agencies, including IHS, have reported buying either KN95 masks, or N95 masks made outside the United States, according to contract data. Of those, Fuentes’ contract with IHS is the second-largest that mentions KN95 masks specifically. The largest contract was struck by FEMA, for $3.9 million, on May 4.
Overall, IHS has spent $85.4 million to respond to COVID-19 as of May 22, signing 318 contracts with 211 vendors, according to federal procurement records. The masks provided by Fuentes went to five IHS medical facilities and to a government warehouse.
Fuentes’ new company has also received a much smaller contract from the Bureau of Prisons to provide 10,000 N95 masks for $1.31 each, according to a BOP statement to ProPublica and procurement documents.
One IHS hospital slated to receive masks from Fuentes is the Gallup Indian Medical Center in New Mexico. A doctor there, who declined to be named because he was not authorized to speak publicly, said the facility initially had a shortage of protective equipment. Conditions have improved thanks to federal purchases and donations, he said, though staffers still have to reuse masks up to five times each, he said.
“IHS facilities have sufficient quantities of N95 respirators at this time,” an agency spokesman said.
Secretaries are working as contact tracers. The person normally in charge of pet shops and tattoo parlors is monitoring nursing homes. And as the state reopens, workers worry duties will increase.
This story was first published on Friday, May 22, 2020 in ProPublica.
The beaches of the Jersey Shore are set to reopen on Friday. But in a state where nearly 11,000 people have been killed by COVID-19, the same public health system that struggled to implement widespread testing faces what could be an even larger challenge: preventing a second wave of infection that experts say is almost inevitable without coordinated, aggressive efforts.
And more than almost any state in the country, New Jersey relies on small, local health departments, which have found themselves stretched far beyond their missions by the pandemic.
In Kearny, a town of 41,000 where the coronavirus has killed more people than in eight states, the Health Department has four full-time workers. Before the pandemic, one of them, Kristine Schweitzer Budney, was responsible for dog vaccinations, tattoo parlor licensing and restaurant safety plans.
Now Budney runs the town’s contact tracing efforts, and on top of that, she is expected to closely monitor nursing homes as they implement new infection controls.
The town of Princeton had one of the state’s first “superspreading events,” a dinner party in February that would be linked to at least 15 infections. When Dr. George DiFerdinando Jr., chair of the town’s Board of Health, contacted the state for help investigating the incident, he said he was told the town was on its own. There may have been far more than 15 cases, he told ProPublica, but “without state coordination, we couldn’t get a final number.”
The structure of New Jersey’s public health system, which is made up of roughly 100 local agencies, along with the state Department of Health, has left some cities dependent on personal connections and good fortune to secure critical resources during the pandemic. The state, with 9 million residents, has far more local health departments than California or Texas. In New Jersey, some departments cover small towns and have as few as two full-time workers. Others span an entire county and have as many as 75 employees.
Like no crisis in the state’s history, the pandemic has highlighted the limitations of the patchwork system and the challenges of coordinating a response among such a disparate array of agencies.
Many of those local departments used to receive dedicated state funding. But in 2010, in the aftermath of the last recession, that state support was eliminated. Over the last decade that has meant the loss of tens of millions of dollars for the often modest budgets of local health departments.
Per capita, New Jersey ranks 31st in the nation in state funding for public health, according to a recent report by the nonprofit Trust for America’s Health, and it ranks last in grant funding from the Centers for Disease Control and Prevention.
“Public health has been cut to the bone, and because of that, when you are faced with the pandemic, or any kind of epidemic, you know that you do not have all the staff that you need to fight it the way that you should,” said Paschal Nwako, the health officer in Camden County in the southwest part of the state, just outside Philadelphia. “We should have been prepared for this kind of public health pandemic. We prepare for emergencies. We go through training, but still, we are underfunded.”
When the pandemic hit New Jersey in March, the state health agency’s top public health job was vacant, and more than two months later, the agency is still working to hire a permanent appointee. In the interim, the job’s responsibilities have been given to the state’s chief medical examiner.
ProPublica spoke with over 30 local health directors, municipal officials and health care leaders across the state, and many of them say that in responding to the pandemic, they’ve had to carry out critical tasks, like rolling out testing and securing personal protective equipment, with little guidance or support from the state.
In some of the communities covered by smaller departments, secretaries and recreation workers have been enlisted to follow up with people who were tested, provide test results, and in positive cases, conduct contact tracing to identify and alert anyone who was connected to the infected person.
And as COVID-19 deaths in New Jersey nursing homes were mounting last month, the state delegated oversight of outbreaks in the facilities to local health agencies, saddling them with a responsibility that several said they were ill-prepared to handle.
The state has defended its response to the pandemic, and some local officials have praised the Health Department’s leadership, including Commissioner Judith Persichilli, who, along with Gov. Phil Murphy, has presided over daily briefings in Trenton, the state capital.
Other states, including Massachusetts and Pennsylvania, took a more centralized approach to contact tracing, with the states taking the lead and sharing the work with local departments. By contrast, New Jersey’s effort has been “largely a regional or local” one, said Nancy Kearney, a state Health Department spokeswoman.
Last week, as Murphy faced questions about the need to expand testing so restrictions could be relaxed for reopening, the state announced a partnership with the School of Public Health at Rutgers University to bring in more contact tracers and increase testing.
Even as New Jersey bolsters its efforts to contain the disease, officials are also beginning to scrutinize the state’s early handling of the outbreak, particularly the calamitous toll of COVID-19 on nursing homes across the state. Residents and employees in long-term care facilities account for roughly 40% of all New Jersey’s COVID deaths that have been confirmed by a lab. According to state reports, there have been outbreaks in over 500 facilities, with more than 28,000 people infected and at least 4,000 dead. This month, the Murphy administration hired a team of outside experts to evaluate the state’s nursing home regulations and oversight mechanisms.
Many local health departments have questions of their own about how the state responded to the surge in deaths in nursing homes, and in particular the surprise directive to local health departments on April 22 that they would be the primary point of contact for infection control at and inspection of long-term care facilities.
DiFerdinando of Princeton said his Health Department was blindsided by the order and didn’t have the experience or legal authority to effectively oversee the three facilities in his town, two of which have active outbreaks.
“But by this memo, you are responsible for making sure the nursing homes in your area are following guidelines,” he told ProPublica.
Dr. David Barile, medical director of the Princeton Care Center nursing home, said that when his workers started getting sick, he reached out to the local Health Department for help with staffing and acquiring protective equipment.
He did not receive assistance on either front, he said. Eventually, he sent staff to the local hardware store to buy painter jumpsuits and masks. And in the end, 18 of his 110 residents died from the virus or related complications.
Barile called the decision to task the local Health Department with overseeing nursing homes “asinine.”
Asked about such concerns, Donna Leusner, a state Health Department spokeswoman, cited the directive, saying that the state “provides guidance on surveillance and reporting and infection control,” but local departments are “required to work with the facility to ensure these recommendations are implemented” and to investigate outbreaks.
For weeks, as thousands died in New Jersey’s nursing homes, Barile wrote letters to the governor pleading for Murphy to send in the National Guard to help overwhelmed nursing homes. In one open letter on May 1, he described facilities using trash bags and raincoats as personal protective equipment. “As of today,” Barile wrote, “all you have done for our sickest, most frail population is to loosen requirements and turn on the lights so everyone can watch as cases climb, and more people die.”
The next day, a reporter asked Murphy about Barile’s letter, and within a week Murphy announced he was deploying Guard members to long-term care facilities.
This month, the state has directed nursing homes to have all staff and residents tested. But when the state had tried to get nursing home residents tested in Kearny, it did not go as planned.
On May 4, state officials informed Budney that they would be sending supplies to Kearny’s nursing homes so that they could test all residents. But when the tests arrived, there weren’t nearly enough to test everyone, she said, and some of the kits were broken or missing swabs. They also came without instructions. Budney has repeatedly called various state offices to ask for guidance, but she said that after more than a week, she’s been unable to get an answer.
Budney is troubled by the oversight duties that have fallen on her shoulders. “I don’t think I should ever have been responsible for oversight of the care facilities in that way,” she told ProPublica. “Because I didn’t have any training.”
The early weeks of the crisis in particular were marked by a lack of communication from the state, Kearny’s mayor, Alberto Santos, said. “We felt that we were on our own. It felt like I’d woken up in this Hobbesian world where there’s no structure and everyone had to figure it out for themselves.”
For critical tasks like testing and securing PPE for first responders, Kearny was left to its own devices. To get testing for all of Kearny’s residents, including the uninsured, Santos had to personally contact a corporate lab CEO.
Budney has experience investigating outbreaks like Legionella and food poisoning, but nothing of this magnitude. While she said that the state has been “incredibly supportive” with medical questions, for contact tracing, she’s spent many hours tackling bureaucratic hurdles on her own. For instance, she said that frequently, when a lab tells Kearny a patient tested positive, the lab won’t provide a phone number or address for the patient.
Some New Jersey agencies use commercial databases to track down phone numbers, and Budney has been trying to get access to one for nearly a month. Weeks after signing a contract, however, she’s still making calls to the company to be approved for access. Until then, Kearny’s contact tracers have no way to track down many of the people who have tested positive.
Many health department employees told ProPublica they were concerned that as the state reopens, the demands on their time will increase, as they have to resume normal work, like restaurant and beach inspections, while continuing to contact trace if cases spike. (Leusner said as much, in noting that local health workers who “may have been helping with contact tracing have to inspect community pools for reopening this weekend.”)
In recent days, the state has been marshaling additional resources for local health agencies. It is preparing to send 10 retired health officers to assist some of the local agencies, and it is also developing the more centralized contact tracing workforce with Rutgers. Leusner further said the state has awarded $5 million in federal emergency funds this week to the nonprofit New Jersey Association of County and City Health Officials to distribute to local departments. The state also brought in McKinsey, a corporate consulting firm, to advise on “public health infrastructure work, modeling and long-term care issues.”
Since the state funding was cut in 2010, many departments have had to reduce staffing, said John Saccenti, executive vice president of the New Jersey Local Boards of Health Association and a past president of the national organization for local health boards.
When Saccenti became involved in the national group, he saw how much local health funding varies from state to state: “I thought everyone was like New Jersey. And then I realized, ‘Oh my God, the rest of them are functional.’”
Last year, New Jersey’s Health Department announced it would send $2.3 million to local health departments for work on communicable diseases. Unlike the old funding structure, jurisdictions had to compete for grants and the money ended up going primarily to larger county departments, not smaller municipal ones.
“We haven’t up until now acknowledged that we should be giving to public health,” said state Sen. Joseph Vitale, chair of the senate’s health committee. “Without a thoughtful public health dynamic in our state, we set ourselves up for failure.”
While other hard-hit states significantly increased their testing over the last two months, New Jersey’s numbers remained relatively constant. In daily press conferences, Murphy periodically described plans to expand testing, but New Jersey actually reported more tests in the first week of April than it did in the first week of May.
Last week, New Jersey’s testing numbers increased substantially, though that came after the state changed its reporting to include more small labs.
In Hudson County, the choice to place the first testing center in the 20,000-person town of Secaucus created issues for the much more populous Jersey City. The Secaucus site was drive-thru only, which made it inaccessible for many Jersey City residents without cars. This concern was echoed by officials across the state, who told ProPublica that the state’s early emphasis on drive-thru testing created significant barriers, particularly for low-income communities.
Jersey City eventually set up testing on its own, but the city’s mayor, Steven Fulop, said the state has far more resources to deal with the pandemic.
“Absent a coordinated response from the top, municipalities have no choice,” Fulop said. “We’re doing it with glue and Scotch tape and duct tape and paper clips.”
In southern New Jersey, Camden County’s health officer, Nwako, said Camden was on its own, too. But with a single health agency servicing all 37 municipalities, he and his team of 75 workers were in a better position to battle the virus as it spread south.
“We have been doing the testing on our own,” he said. “We did not have any kind of help from the state, and I get it.” The state was tied up with outbreaks in the north, and every area was trying to adapt to the new demands of the pandemic, Nwako said. But the obligations just kept piling up.
“It was a total shock for me when I heard from the state that it was my responsibility to go into the long-term care facilities,” he said. “They didn’t call it an inspection, because technically we aren’t going in there to inspect.”
Perry Halkitis, dean of the Rutgers School of Public Health, said he has been deploying student volunteers to assist some local departments, but the fragmented public health structure has made his efforts more complicated and time-consuming.
“My challenge with the whole department of health situation in New Jersey is that there is not one central department of health leading the way,” he said.
Santos, the mayor of Kearny, said that New Jersey’s system of small health departments was built for things like geese control and periodic counts of all the dogs in the area (which was required by law until 2015).
“It seems to me that the person doing the dog census and the person fighting the worst crisis of our time should be different,” Santos told ProPublica. “That whole model needs to be rethought.”
