Palm Drive board votes to put CEO on administrative leave

The Palm Drive Heath Care District’s board of directors is
apparently split on how to deal with alleged infractions by
hospital CEO James Russell.
In a special session last Friday (June 26) the board narrowly
voted to place Russell on administrative leave, pending an
investigation into conduct surrounding two contracts signed with
outside technology consulting firms by Russell and Chief Operating
Officer Lori Austin, who is acting as the hospital’s chief
administrator while Russell remains under investigation.
“The hospital’s administration is diligently working to ensure
the best patient care,” Austin said. “We at Palm Drive Hospital are
interested in finding all the facts and want the community to know
that we’re focused on maintaining a high level of care.”
The vote to place Russell on administrative leave was 3-2, with
board members Stephen Murphy and Linda Johnson voting in solidarity
with board president and hospital benefactor Dan Smith, while
members Nancy Dobbs and Frank Mayhew — another hospital benefactor
who had just returned from England — voting against the action.
The current state of affairs dates back to the days before the
district was given the go-ahead to exit Chapter 9 bankruptcy on
June 19. Smith asked for an accounting of the hospital’s finances
due to concerns about the district’s ability to sell bonds.
Its S&P bond rating is BB, which is two steps below
investment grade BBB.
The board discovered a $1.3 million turnaround in cash flow that
was linked to the contracts and an extra pay period in May.
Since then, the board has had multiple special meetings to
decide the fate of Russell, who says he was under pressure to
resign his position.
Smith alleges that Russell violated board policy and possibly
state law, when he entered into contracts with the MaxIT
Corporation for IT consulting and services. State law requires a
competitive bidding process for contracts of more than $25,000, and
board policy requires consultation for all major expenditures.
In a letter dated June 22, addressed to Human Resources Director
Raoul McDuff, Russell, Austin, Chief Business Officer Cynthia
Denton, and Chief Nursing Officer Karin Reese accused Smith of
violations including “sharing of personal and confidential e-mails,
lack of security of patient, financial and personal ID
information.”
Further, the letter accuses Smith of keeping information from
the CEO and COO of the hospital as well as covering up infractions
by the hospital’s IT manager Bruce Espinosa, Smith’s foster son. He
is also accused of violating state meeting laws.
At last Friday’s meeting, Mayhew asked for clarification of
Russell’s allegation that a board member had informed him two weeks
ago that the board “unequivocally” wanted his resignation.
Murphy admitted that he was the one who spoke to Russell, but
Smith stopped the discussion, saying that it was not on the agenda
and therefore the board could not follow up at that time. Mayhew
then asked that the discussion be put on a future agenda.
This week has seen board meetings scheduled and then canceled.
There will be a meeting of the district’s finance committee at 4
p.m. today (Thursday, July 2), and as of Tuesday, the board hopes
to have a special meeting on Friday to address Mayhew’s
concerns.
While Smith is adamant that violations occurred, Mayhew believes
the board had sufficient notification of the MaxIT
consultation.
“The actions were discussed in board meetings and the board was
aware they were on site,” Mayhew said. “I don’t think it is a major
issue to be resolved by the dismissal of the CEO.”
Mayhew believed the issue was under control before he left for
England, and the board was resolving it “before this crisis took
place.”
Invoices obtained from the district show that between April 20
and June 16, MaxIT, based in Westfield, IN, billed the district
$127,945 for work performed by the company’s consultants.
The bills include nearly $100,000 for 778.5 hours of work done
by four consultants, and more than $23,000 for airfare, lodging,
meals, car rentals, and other services billed at about $130 per
hour.
Smith is sure that the board’s actions will be vindicated and
that the district won’t be on the hook for the MaxIT contracts.
“We’re lawyering up,” Smith said. “We’ve requested legal council
to the validity and legality of the (MaxIT and Novarand
contracts).”
Smith said that the delay in scheduling a public meeting
involves the wording of Mayhew’s discussion item, which will be on
the next agenda in some form.
He added that if legal council finds that violations occurred,
the district will be required to notify the District Attorney’s
office.
Russell, who is unwilling to speak on the record regarding
pending legal action, has hired an attorney as well, retaining the
services of Leila Narvid of Paine & Fears LLP.
Narvid would not comment on the ongoing investigation, but is
confident that Russell will remain as CEO of the hospital.
“Everyone in the community knows that due to Mr. Russell’s
leadership the hospital that’s historically been in the red is now
in the black,” Narvid said, adding that Russell “won’t go away”
despite a “personal vendetta” against him.
Mayhew echoed those statements, saying that the hospital is in
better shape than it’s ever been.
“That’s being jeopardized by allegations of illegal activity by
members of the board,” he said. “The vote to put Mr. Russell on
administrative leave was 3-2, so none of these decisions have been
unanimous.”