SANTA FE, N.M. (AP) — A special audit of management contracts is raising concerns about weak financial controls, executive compensation excesses, and potential profiteering at a county-owned hospital on the edge of the Navajo Reservation that became overwhelmed by the COVID-19 pandemic.
The state auditor’s office on Tuesday released results for the Rehoboth McKinley Christian Hospital in Gallup and its management and service contracts dating to 2016.
The audit delves into a five-year contract for management of the hospital by the company Healthcare Integrity, whose CEO David Conejo came under criticism in public protests in May as the hospital grappled with coronavirus infections among staff. It resorted to transferring acute COVID-19 patients to other hospitals. Conejo was fired by the hospital in June.
The state auditor’s office said the contract with Healthcare Integrity allowed the company to hire hospital executives as its employees, while requiring the hospital to pay their salaries, circumventing effective oversight.
“The hospital’s former CEO had significant influence over the hospital’s operations, while the Healthcare Integrity management contract circumvented internal controls with respect to the hospital’s code of conduct and conflicts of interest policy,” the agency said.
Rehoboth hospital is supported in part by taxpayers through a property tax mil levy that provides about $2.5 million a year, giving the county fiduciary responsibility.
“You just had a complete breakdown in internal controls … which allowed the leadership to take advantage of the people of McKinley County,” State Auditor Brian Colón said in an interview.
The audit says that compensation was established for Conejo without indication of approval by the hospital board of trustees and that annual CEO pay of up to $645,000 may be in excess of norms for fair and reasonable compensation at a 60-bed facility.
“It’s unconscionable the hospital’s much-needed funds went to a CEO overseeing one-tenth the beds of University of New Mexico Hospital for nearly the same pay,” Colón said in a news release.
Conejo could not immediately be reached for comment. In July, he filed a lawsuit alleging that he was wrongly blamed for the consequences of the pandemic.
The area surrounding McKinley County has the state’s highest overall rate of infections since the pandemic began, and Gallup was encircled by police roadblocks for ten days during a public health lockdown as the virus raged through the area.
The audit also said the hospital allowed service contractor Invictus Healthcare Management to bypass internal controls, and that the hospital is now disputing charges of about $750,000 in doctors’ hours and night-shift staffing services that were not rendered. The CEO of Invictus Healthcare Management served as the hospital’s chief operating officer at the time the contract was negotiated, the audit said. That executive and Invictus could not immediately be reached for comment.
In another finding, the audit says that a construction company owned by the former chairman of the hospital board of trustees, David Dallago, conducted business with Rehoboth hospital without a contract or evidence of competitive bids. Payments of $253,000 were made to the construction business in 2017 and 2018.
Contacted Tuesday, Dallago said his family-owned construction business competed for the work, despite what the audit says.
“I can tell you everything I’ve gotten up there I had to bid,” said Dallago, who no longer serves as a trustee and is recovering from personal health issues. “Some of it was carried through the county, some of it was carried through the hospital.”
The hospital audit also highlighted as “grossly excessive and atypical” the fees promised to Healthcare Integrity if Rehoboth were to terminate its management contract early or sell the property.
In a statement Tuesday, Rehoboth said it already has begun work to ensure proper internal controls and “restore the financial integrity to the organization” under interim CEO Donald Smithburg and Chief Financial Officer Mary Bevier.
The hospital laid off nurses in March as a cost-saving measure only to be overwhelmed by a surge in coronavirus infections, eventually opting to transfer patients with severe respiratory problems to health care facilities in Albuquerque. Conejo has defended his handling of the pandemic and said decisions on staffing and medical care were not his alone.
Auditors said that compensation provisions for the hospital CEO and other top managers raise concerns about possible violations of IRS codes. The audit report was referred to the state attorney general’s office, the state Taxation and Revenue Department and the Internal Revenue Service.