Prison health care firm collapses, owing millions to Duke

Prison health care firm leaves Duke, doctors in $8 million lurch

jprice@newsobserver.comOctober 24, 2012 

— A Florida-based company that lent its CEO more than $5 million for an Angus cattle ranch and a biography and screenplay about himself has gone into receivership, leaving Duke University Health System and area doctors’ offices owed more than $8 million for treating patients from Butner federal prison, according to court records and officials of the state medical society.

MDI Holdings Inc., of Ponte Vedra Beach, Fla., had a contract to administer some of the health care for the 5,000 inmates at the prison, subcontracting the work to Duke and local physicians.

The federal government let the Butner contract expire earlier this year after problems surfaced with MDI’s finances. Last month, Wells Fargo won a $30 million lawsuit that forced the company into receivership.

This means that apparently Wells Fargo, which had lent MDI $37.5 million over several years, will get any money left at MDI, said Conor Brockett, associate general counsel with the N.C. Medical Society.

The society isn’t sure how many of its members are owed money, Brockett said. It has fielded calls from about 10 so far and has begun spreading the word that none are likely to recover a cent from MDI. It has begun investigating, though, whether the Federal Bureau of Prisons has any obligation to pay the outstanding bills for treating its prisoners.

“At this point, our take is that they have no chance of getting anything out of MDI because Wells Fargo, as a secured creditor, was first in line, and they are squeezing as much as possible out of the remaining assets to satisfy that debt,” Brockett said.

Duke is unsecured creditor

Duke and the various doctors’ offices who are owed money are unsecured creditors, which puts them further down the list of creditors to be paid from the remains of a collapsing company. A new company is administering the Butner health care contract.

Among the doctors who weren’t paid is Douglas Holmes, who owns ENT & Audiology Associates in Raleigh. His small office is owed $27,000 to $30,000 for work it did with prisoners.

The problems started last winter, Holmes said, when MDI began sending payments for just a fraction of some bills. It took awhile for the company that handles his billing to notice, because there were payments in each case, just the wrong amount. Then the money stopped coming in altogether.

Holmes said he probably should have caught on more quickly, but a contract being paid by the federal government, albeit through a contractor, didn’t seem like something that required close monitoring.

“Who provides services to the U.S. government and worries that they’re not going to get paid?” he said.

Holmes said he thinks the government is responsible to some degree for the unpaid bills because it should have kept a closer watch on MDI.

“Someone in the Bureau of Prisons surely knew they weren’t doing things properly, but they didn’t tell us, and continued to send MDI payments,” he said.

One factor in Wells Fargo’s decision to sue to wrest control of the company from CEO Richard Willich – who owned more than half of MDI – and other owners was the risk that its contract at Butner would not be renewed. Much of that risk was driven by MDI’s debt to Duke, about $8.3 million in outstanding charges.

Duke was a subcontractor to MDI, providing care at Durham Regional Hospital and the Duke Ambulatory Surgical Center. A Duke spokeswoman said that its billing with MDI had been the subject of arbitration but that the results were confidential.

“Duke continues to provide medical services to prisoners of Butner Federal Correctional Complex, primarily at Durham Regional Hospital, under an arrangement with a different company that contracts with the Federal Bureau of Prisons,” Duke spokeswoman Sarah Avery wrote in an emailed statement.

The medical society said that, after talking with the receiver, Duke got nothing, because Wells Fargo was first in line and there wasn’t enough money to cover even the bank’s losses.

Doctors left with unpaid bills

Local doctors who have contacted the society about the situation were owed a total amount in the low six figures, Brockett said.

In the past week, the society filed a Freedom of Information Act request seeking details about the contract between the government and MDI. It also is seeking information on prison officials’ oversight of MDI.

“What we would like is to understand a little more about what that oversight was like, meaning … the Bureau of Prison’s responsibilities and authority over MDI while the contract was in effect,” Brockett said.

Basically, MDI was a middleman operation that contracted with the Bureau of Prisons to assemble a network of medical services in the community that would provide care for prisoners when there wasn’t the capacity or expertise at medical facilities on the federal campus.

Documents filed in the Wells Fargo suit include a letter from U.S. Reps. David Price, Howard Coble and Melvin Watt of North Carolina seeking more information on the money owed the Duke medical system and the bureau’s oversight of the Butner contract.

A spokesman for the Bureau of Prisons was not able to answer questions Tuesday about how the contract with MDI was overseen, how it was structured, or which other prisons MDI worked with. Butner, though, provided 35 percent of its income, according to Wells Fargo’s complaint.

Answers about MDI’s remaining assets are scarce. No one answered the phones at the company this week, and the court-appointed receiver, Ronald Winters of Alvarez & Marsal Healthcare Industry Group LLC, didn’t return telephone calls.

One practice in Raleigh, Carolina Vascular Surgery and Diagnostics, has tried to get answers from the receiver about the chances of even some money from the remnants of MDI, but can’t get its calls returned, said Deb Sanford, an insurance billing specialist.

The practice, which still performs vascular surgery for prisoners under the new company that administers the contract, is owed nearly $50,000 by MDI for work it performed from April through June, Sanford said. The problems didn’t really become clear until midsummer because MDI had 60 days to pay.

She, too, said that the government bears some responsibility for the bills.

“The government paid MDI to process claims, and that’s really all they did, process and pay, so they should be government-backed,” Sanford said.

The 71-year-old Willich, MDI’s CEO, is a Vietnam veteran, former U.S. Marine Corps Reserve officer and law school graduate, according to the company website.

“In addition to MDI, Willich has also established two successful farms in North Florida: Grace Farms, a 30-acre company retreat with thoroughbred horses, and Picalata, a 110-acre farm that’s home to the top one percent of Registered Aberdeen Black Angus cattle in the state of Florida,” the biography says.

In its lawsuit, Wells Fargo said that it took legal action to protect itself when it become alarmed at the way MDI was handling its finances.

It pointed to the loans to Willich for the farm and for a company that held rights to biography and a screenplay about his life. It questioned lease payments for a $110,000 electric sports car and an unexplained $1.1 million wire transfer by the company to an attorney days after MDI fired a restructuring officer, who had been hired to try to reverse its financial problems.

Attorney defends MDI spending

MDI attorney T. Geoffrey Heekin of Jacksonville, Fla., did not return calls this week, but he told the St. Augustine Record last month that the car wasn’t for Willich. Use of it was awarded to the IT department employee of the month, Heekin said. The loans, he said, had mainly been used to outfit the interior of the company headquarters, which Willich designed himself and the newspaper valued at $8 million.

“Willich designed and built it with marble and granite. Inside he (displayed) historical artifacts from the area,” Heekin said.

It’s unclear how large the IT department was, but the company had about 200 employees in 2010, according to the St. Augustine newspaper.

According to a judge’s order, Willich was granted a temporary consultant’s fee of $33,000 for September and $15,000 per month through December.

Now that a new administrative company is in place, many of the doctors who are owed money, including Holmes, have begun treating prisoners at Butner again.

Holmes said that the new company seems to be handling the bills properly and that he hopes the work will lead to a perk.

“From what I’ve heard MDI did with the money, I’m wondering why the Department of Justice isn’t getting involved and trying to put some of the executives in Butner themselves,” Holmes said. “I’d kind of like to get a chance to treat them.”

Price: 919-829-4526

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