Crying fraud

Oct 27, 2004 at 12:00 am

As CEO of Aurora mental hospital on Detroit’s West Side in the late 1990s, Barbara Clark was in charge of a facility with 140 beds and a multimillion-dollar budget. Now a substance abuse treatment center, Aurora at the time of Clark’s tenure was Detroit’s last remaining mental hospital, treating the city’s poor and uninsured, often taking on the most severe cases.

As time went on, Clark became troubled by the nonprofit’s relationship with psychiatrist Dr. Soon K. Kim, who technically employed her at Aurora through a contract his management company had with the hospital.

Kim had engineered buying the hospital out of bankruptcy in 1997; afterward, a string of companies he held financial interest in began doing business with Aurora. Clark eventually began raising questions about the propriety of those business relationships.

Those questions didn’t get far. Clark was fired in June 1999 after running the hospital for almost two years.

Now with the help of the Justice Department, her concerns are being addressed.

Soon after losing her job, Clark wrote to the charitable trust division of the Michigan Attorney General’s Office and the Internal Revenue Service, alleging that Kim and others were using the nonprofit hospital as part of an illegal scheme. Two years later, unable to rouse the government’s interest, she resorted to filing a civil lawsuit on its behalf, alleging that Kim’s web of companies was being used to defraud Medicare and Medicaid programs. She claimed $20 million or more in overcharges could be involved.

The suit she filed is known as a qui tam action.

Established by Congress to root out government procurement and program fraud, such actions allow a private citizen to file suit on behalf of the government; if successful, the individual is entitled to up to 25 percent of the funds recovered. By statute, such actions are sealed immediately upon filing, allowing the government time to review evidence presented so that it can determine whether to join in the suit.

Which is what happened with Clark’s suit — the very existence of which she was prohibited from disclosing until the U.S. Justice Department decided the case’s merits. With no public record, the case disappeared until September, when the U.S. Attorney’s Office joined with Clark and filed a civil suit against Dr. Kim, one of his employees and four companies Kim either owns or has a controlling interest in.

The government’s suit alleges that Kim, a multimillionaire who now lives in the California oceanfront town of Monarch Beach, failed to disclose the interrelated ownership of at least eight companies doing business with Aurora, which primarily served poor and uninsured Detroiters, and then used those companies to overcharge the government. Kim either owned or had “significant” interest in all the companies, according to the suit. (He also owns mental hospitals in Chicago and Southern California, which are not known to be under investigation.)

The filing makes no mention of the amount of money involved; the Justice Department would not comment on the case.

Nor do the court documents make much mention of the human consequence of all this: The closing in 2001 of Detroit’s only remaining mental hospital, part of which was dedicated to caring for mentally ill children, left a gaping hole in the city’s psychiatric safety net.

Kim’s pivotal role in the failure of two Detroit hospitals — in addition to Aurora, he played a key part in the demise of Greater Detroit Hospital on the border of Hamtramck — was disclosed last year in a two-part Metro Times exposé. Those stories revealed that over a four-year span, as debts mounted and the quality of care at Aurora declined, companies linked to Kim received more than $24 million through Aurora.

At that time, Kim justified the deals, saying that he provided market-rate services that Aurora might not otherwise have been able to obtain because of its troubled financial history. He blamed Aurora’s failure on the Wayne County Mental Health Agency, which allegedly owed Aurora millions of dollars in back payments.

Metro Times contacted three lawyers representing Kim or his companies in the newly launched federal case. All refused to comment.

Kim’s role in buying the hospital out of bankruptcy and turning it into a lucrative cash cow, first described in Metro Times reports, is laid out in the government’s suit. It allegedly worked like this:

Feb. 5, 1997: Kim creates Aurora Healthcare, Inc., a nonprofit corporation.

Feb. 12, 1997: The Michigan Mental Health Care Network, with Kim as its president and controlling member, contracts to purchase the Aurora Hospital for Children and an adjacent facility out of bankruptcy for $4.2 million.

Also on Feb. 12, Kim, as the creator of the nonprofit Aurora Healthcare, appoints its first board of directors. Four of the five board members are investors in Michigan Mental Health Care Network; the fifth member is employed by one of Kim’s companies and is a business partner. The new board immediately appoints Kim president of the nonprofit.

April 15, 1997: Kim’s appointed board signs a 10-year lease with Michigan Mental Health Care Network, a limited liability corporation. The lease calls for the nonprofit to rent the Aurora facility from the Network for $2.4 million per year. At that rate, the Network would be able to pay off its note on the facility in just two years.

Also at the April 15 meeting, board members contracted with Aurora Management Co. (later renamed Salem Service Co.) to provide the hospital with a management team consisting of a chief executive officer, chief financial officer and two other positions responsible for overseeing operation and financial management of the facility’s day-to-day operations. In return for that service, the management company would be paid $100,000 per month plus a bonus performance equivalent to 2.5 percent of the facility’s income, which, at that point, was nearly $20 million per year.

July 1997: The initial board resigns; among its new members are Kim’s personal accountant and a “personal friend” who conducts insurance business with other of Kim’s companies.

December 1999: After more than recouping through rent its initial $4.2 million purchase of the Aurora facility, the Michigan Mental Health Care Network strikes a deal with the nonprofit Aurora Healthcare’s board. Aurora Healthcare agrees to buy the hospital for $8.4 million in cash plus another $8.8 million in the form of a second mortgage that, with interest, would be paid back over time. A bond finances the deal.

January 2002: Having lost its contract with Wayne County, Aurora closes its doors. In 2003 the Salvation Army purchases the facility on Lawton on the city’s near West Side and turns it into a substance abuse treatment center.

In addition to Michigan Mental Health Care Network, seven other Kim-related companies did business with Aurora, providing management services, office and clinic space, pharmaceuticals, hospital supplies and transportation.

Clark, who previously was awarded a settlement in a wrongful termination suit she brought against Kim, says that she is “ecstatic” that the Justice Department has joined in the case and is taking Kim to court. She has never been told why the department took so long to pursue the case, but suspects that resources were diverted following the 9/11 terrorist attacks. Whatever the reason, she is looking forward to finally seeing Kim in court.

“I just hope something happens that he can’t do this to his hospitals in Chicago and California,” says Clark. “Aurora served the very poorest residents of this city, and now it’s gone. Nothing.”


Check out a tale of two hospitals. Curt Guyette is Metro Times news editor. Contact him at 313-202-8004 or [email protected]