Saturday, March 22, 2008

Integrity, Integrity....3/24

From the Boston Globe:

Emerson Hospital misstated financials

Investigation finds senior executives created documents
By Jeffrey Krasner, Globe Staff March 21, 2008

Two senior executives of Emerson Hospital in Concord created documents that misstated the hospital's financial condition over parts of its last three fiscal years, the hospital found after an investigation and audit that concluded last week.

The misstatements made the hospital's performance appear better than it actually was, at a time when it was seeking donations for a major expansion that is now nearing completion.

As a result, Emerson violated some promises it made to lenders. That, in turn, forced the hospital to reclassify some of its borrowing as short-term debt, a technical measure that could limit its borrowing ability.

Emerson has not missed any payments and officials said it is not in danger of defaulting on its bonds. The audit completes an inquiry that began last August when a midlevel manager noticed billing irregularities and told a supervisor, said chief executive Christine Schuster.

In all, the hospital had to wipe out $7.1 million in improperly recorded revenue. Because of accounting rules, however, it only had to formally restate its books for fiscal 2006.

The two senior executives - Dana P. Diggins, Emerson's chief financial officer, and Michael Collins, its controller - left Emerson last year. Officials declined to say whether they resigned or were fired. A third financial executive, who the hospital would not name, was let go.

The matter has been referred to the office of Attorney General Martha Coakley, said John M. Lowe III, chairman of the hospital's board of directors.

John O. Wilhelm Jr., interim chief financial officer, said the misstatements were accidental.

"They weren't aware they were misstating it - they thought they were correctly stating it, but they were wrong," said Wilhelm. "People make mistakes and they move on. That's life. They were big mistakes."

Diggins is now chief financial officer at Harrington Memorial Hospital in Southbridge. Collins is chief executive at Merrimack Valley Hospital in Haverhill. Neither responded to calls seeking comment.

Schuster said the former employees manipulated the hospital's earnings by misusing contractual allowances - a term that describes the discounts hospitals give to insurance companies on the "official" prices they charge for services and procedures. Each month, the hospital must adjust the amount of money it expects to receive to account for such discounts.

"The controller at the time overrode the estimates that the contractual allowance model was generating," said Schuster. "That resulted in an overstatement of revenue."

The restatement is particularly sensitive because the hospital is required to keep its lenders and bondholders informed of any changes in its financial condition. A failure to file audited statements can constitute a technical violation of the many promises and ongoing commitments lenders require of borrowers.

Footnotes to the restated financial results, by the accounting firm PricewaterhouseCoopers, state Emerson was "not in compliance with certain debt covenants" for a $3.9 million loan from Bank of America.

In addition, the footnotes state Emerson was not in compliance with covenants for a $63 million bond offering conducted in 2005 by the Massachusetts Health and Educational Facilities Authority, a quasi-public agency that facilitates borrowing for smaller institutions.

Wilhelm said that after the audit was completed, the hospital was able to forge a new agreement with Bank of America that waives the violations. He said that contrary to what PricewaterhouseCoopers reported, there was no violation of loan agreements with the Massachusetts authority.

"This was a fluid issue going back and forth with the auditors," said Wilhelm. "There were a lot of rewrites (to the footnote) and there was a little hurry-up at the end. We are not, and have not, been in violation of any of our bond covenants."

The facilities authority, which arranged the bond offering, declined to comment.

The restatement also comes at a difficult time for Emerson. The hospital made a small profit, $1.7 million, on its healthcare operations in fiscal year 2006. But in fiscal year 2007, it lost $8.1 million on healthcare operations. Some of the losses were offset by investment income, yielding a loss of $4.7 million for the most recent year.

For the first four months of the current fiscal year, the hospital has broken even. But officials said the results were dragged down by a series of one-time charges, some associated with the accounting problems.

In particular, the hospital paid $490,000 to FTI Consulting Inc. - a healthcare consulting firm hired to improve the hospital's financial operations - and about $100,000 to the law firm of Wilmer Cutler Pickering Hale and Dorr LLP, which conducted the investigation.

"The board was concerned when this came to light, but because Chris (Schuster) had kept us informed all along, we were comfortable we were taking the right steps," said Lowe, the chairman. "We're now focusing on regaining our financial strength."

Jeffrey Krasner can be reached at

This might be a non-story, except for two names that we're familiar with: FTI Consulting, and Michael Collins. Wonder if the GE Capital mortgage will be the next subject for Mr. Krasner's reporting skills?


Anonymous said...

Wasn't Salerno with FTI? $490,000 for their advice on what he should have known?

We wondered why Mikey came over from Emerson, and why he would bail to Essent? Ha! Mystery solved.

Anonymous said...

Wow, that was a lot of information. Let's see if we can break it down a bit, shall we?

Michael Collins, previous controller at Emerson and current CEO at Essent's Merrimack Valley Hospital, left Emerson after an investigation and subsequent audit found that the bottom line had been materially overstated in financial statements over a 3-year period. Emerson's new CFO (the old one left the building with Collins) now contends that this situation was simply a mistake, and that this mistake was not known to the hospital at the time.

Okay, well let's take a peak at the article written by Boston Globe's Jeffrey Krasner. Krasner states that an "Investigation finds senior executives created documents", which is a far cry from what the hospital states. Let's just examine some of the quotes from the actors involved, and you can make the final determination as to the truth:

John O. Wilhelm Jr., interim chief financial officer, said the misstatements were accidental.

"They weren't aware they were misstating it - they thought they were correctly stating it, but they were wrong," said Wilhelm. "People make mistakes and they move on. That's life. They were big mistakes."

So Mr. Wilhelm (current CFO) states that this artificially high bottom line was simply an accounting mistake of which management had no knowledge. Well that certainly sounds a bit fishy, but ................ ah okay.

"The controller at the time (Collins: chief executive at Merrimack Valley Hospital now) overrode the estimates that the contractual allowance model was generating," said Schuster (CEO of Emerson). "That resulted in an overstatement of revenue."

So, per Emerson's CEO, Collins calculated the contractual adjustment (btw, this is an adjustment that reflects the discounted contracts the hospital has with its payers), but then willfully changed the calculated number. The happy result of Collin's change was an artificially high bottom line.

Please tell me the logic that permits one to consider a direct manipulation of the bottom line to be "a mistake"?

Again, please draw your own conclusions. I know I have.

Anonymous said...

Mikey had to get out of Emerson because he knew he was going to be caught cooking the books! Isn't it scary to have someone like him heading up our hospital? No wonder everybody despises him?
Doesn't say a lot about Essent management does it? He will probably do anything to hit the numbers at the expense of the employees and patients? How sad for us...

Anonymous said...

Since the statistics are reported to by the hospitals and apparently the figures can be fudged, you wonder how accurate those figures are from all of the Essent hospitals????

Could they be even further in the hole than what is stated????

They'd better hope that the improvements to the Paris facilities draw back some customers, or they will be so far down that hole that a crane couldn't get them out.

Anonymous said...

"They weren't aware they were misstating it - they thought they were correctly stating it, but they were wrong," said Wilhelm. "People make mistakes and they move on. That's life. They were big mistakes."

Uhhhhhhh.............yeah. Wonder if I can tell the IRS my underreporting of my personal income was a mistake. Why, I'm sure they would understand, and move on. Hey, people make mistakes.

No, folks, this wasn't a mistake by these two- this was a deliberate LIE. You can't sugarcoat this, or paint a picture with sunshine & rainbows, complete with chirping birds and dancing bunnies- it is what it is:

An unvarnished LIE

And shame on John Wilhelm for calling it anything else but a lie.

Anonymous said...

I think it is pretty clear from the article that Mike Collins was involved in willfully manipulating the numbers and making it look better than it really was...

The hospital took action and it looks like all those involved in the situation are no longer there. Kudos to the hospital for taking action and getting those chumps out.

The bigger problem is for Merrimack Valley Hospital--- they now have a CEO--Collins-- who clearly is not a person of integrity. Is he manipulating the numbers here? Will we now have a multimillion dollar loss because of him? I don't know about you but I have car payments and a mortgage and I have to feed my kids so this is a worry to me...

An even bigger quetion-- do the Essent stockholders know about Collins?

Hmmm makes you wonder...

Anonymous said...


Yep, I took the spelling from a comment and used it for a search. Plenty of hits. Doesn't mean it was right, just that it is commonly misspelled. And, I actually bypassed the Google suggestion of spelling. silly me...anyway, it's changed....frank

Anonymous said...

No problem...We get the point-- Mike Collins has no integrity!

Anonymous said...

Enron, Emerson, isn't it strange that these "mistakes" always make the company look better than they really are. You would think that with the law of averages, occasionally they would understate the company's bottom line.