Mark Herring’s Worst Thanksgiving –  Conspiracy Against EVMS may lead to Federal Involvement

by James C. Sherlock

Sentara CEO Howard Kern

Scandals are sometimes overrated. Not this one.

I have reported here before on the strange case of the EVMS-ODU merger. I posted here on Nov 1, Nov 2  and Nov 3 with my own concerns on the subject. Many of my assessments came to fruition.

On November 13 and 20, the Checks and Balances Project picked up the story and took it to the next level. The quotations below are from the November 20 story.

I am not an attorney, but I will project today the significant legal jeopardy into which the process may have put the group that got together to coordinate and plan that merger without EVMS participation. 

Not to mention the legal and personnel mess that it puts on the desk of Virginia’s Attorney General and the Governor. 

The participants in the planning that went on without EVMS included:

  • Manatt Health Strategies, a consultant paid by ReInvent Hampton Roads and Sentara;
  • ReInvent Hampton Roads, a tax exempt 501(c)(3) public charity according to the IRS and the Commonwealth. Howard Kern is a Director. Kern’s involvement with ReInvent was not disclosed to EVMS even when, late this summer, the planning was disclosed. EVMS did not find out about this until October and is substantially concerned about this conflict of interest.

“ReInvent funded the bulk of a $175,000, four-month study to “identify options of cooperation/relationship among Eastern Virginia Medical School (EVMS), Sentara Healthcare and Old Dominion University (ODU).”

  • Sentara Healthcare also a federal and state tax exempt 501(c)(3) public charity, or at least that is how it is designated by the IRS and the Commonwealth. Howard Kern is CEO. His compensation in 2017 was $5,200,000; 

“However, according to records obtained by Checks and Balances Project, the scope of the study soon expanded, with Sentara Healthcare paying for most of it. EVMS leadership was largely cut out of the process.”  

To connect the dots, Kern’s ReInvent Hampton Roads paid for the study until Kern’s Sentara picked up the tab.

  • Old Dominion University, a state-supported university. ODU has a governor-appointed board, Rector and Attorney General-appointed University Counsel.  The current Virginia Assistant Attorney General and University Counsel at ODU is Earl Nance. He is brand new to the position. He succeeded Pat Kelly. It is not clear whether Mr. Kelly knew this was going on. If he did, the University Counsel’s office should publish the legal advice he provided.

EVMS was not among the secret planners for nearly a year.  That organization also has a Governor-appointed Board and Rector, who have fiduciary responsibility to protect the interests of EVMS.

So before we start we have a conflict of interest among two of the three voluntary actors in this planning who formed an admittedly secret cabal to keep EVMS in the dark.  

Now let’s review what the reported goals of the planning included:

  1. to get Sentara out from under its $26 million annual contribution to EVMS and to transfer that responsibility to ODU, and thus the state.

“As early as December 23, 2019 Homan wrote EVMS Board of Trustees Member Wayne Wilbanks of his suspicion that Sentara was maneuvering to free itself from an obligation of financial support” 

“I suspect one potential outcome of the “consult” will include a push for affiliation with ODU. As we discussed, this path will provide the facade of state financial support …. and reduce/absolve the obligation of financial support to EVMS from Sentara.”

  1. to transfer EVMS Medical Group to Sentara to increase its domination of medical services in South Hampton Roads;

Checks and Balances cites a meeting with Governor Northam.

Two weeks after the revelation that John (Dubby) Wynne (heads ReInvent and huge political donor) had been secretly working with Sentara, at a meeting set up by Wynne with Virginia Governor Ralph Northam and Secretary of Finance Aubrey Layne, (EVMS President) Homan learned of Manatt’s final recommendation: It was to dismantle EVMS’s (separate governance) and combine it with Old Dominion University.

“From EVMS Rector Theresa S. Emory, MD to Manatt’s Thomas Enters on Nov. 5:

“I have reviewed the document. While EVMS agreed to participate in the engagement despite the fact that it was already underway before our knowledge, Manatt’s recommendation to dismantle EVMS’ independent governance without a single communication or the entire EVMS Board of Visitors is unacceptable and not under consideration.”

Finally, from EVMS Rector Emory to President Homan on November 10:

“Is it possible that the consulting arrangement with Manatt, which was positioned as a neutral, agenda-less effort funded by ReInvent, was actually driven by Sentara CEO Howard Kern in his capacity as a member of ReInvent’s Board? I wonder if the study was predominantly funded by Sentara Health System with the sole purpose of pushing EVMS’ costs to ODU and Virginia’s taxpayers, while retaining all the benefits Sentara enjoys from being associated with a nationally ranked medical school? The only conclusion I can reach is that this has all been for the sake of a merger that will prove lucrative for Sentara.”

The potential legal issues that may arise include:

  • Every organization that the plan deals with is a major recipient of federal and state funds. Not a good place to start.
  • The Commonwealth won’t sue because Sentara swings too big of a bat here and because the AG had an Assistant Attorney General in place as University Counsel at ODU.  
  • ODU also has a Governor-appointed Rector and Board.  Did they know how this was done?
  • Virginia’s Attorney General is obligated to defend ODU in any legal proceeding. Not sure what happens if he finds out his Assistant AG at ODU was kept in the dark. Reasonable question.
  • The federal Department of Health and Human Services and its Centers for Medicare/Medicaid Services may not be amused and certainly will not be awed. The  Centers spend a fortune supporting both undergraduate and graduate medical education. The Justice Department is responsible to prosecute any federal case brought for HHS.
  • The anti-trust implications of a Sentara capture of EVMS Medical Group and of, if proven, attempting to shed its EVMS funding responsibilities in this manner are clear. The Justice Department Anti-Trust Division will be interested.
  • The Federal Trade Commission is considering a planned merger between Sentara and a North Carolina hospital system. They will certainly take note.
  • The Justice Department may see this sequence of events as a conspiracy to defraud EVMS, a federally funded and certified medical school.

The Southern Association of Colleges and Schools accredits ODU. Its Commission on Colleges has six core values. They are:

  • Integrity
  • Peer Review/Self-regulation
  • Student Learning
  • Continuous Quality Improvement
  • Accountability
  • Transparency

Integrity, Accountability, Transparency.

Finally, if the federal government sues for any reason, then the planners, having conducted their planning in secret without notifying EVMS and once revealed, having concealed from EVMS the conflict of interest between two of the planning organizations, may be considered conspirators.

What the Governor will do with this situation is unclear. His own appointees are in charge at EVMS and are an injured party.  His own appointees are in charge at ODU.  Some of his biggest donors were behind the effort. That is called a dilemma.

What Virginia’s Attorney General will do with this hot mess is yet to be seen. One of his personally appointed Assistant Attorneys General is a person of interest in this sequence of events. Given the mess he is in if federal legal action is brought, this may not be Mark Herring’s best Thanksgiving.

But then I’m not a lawyer.

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26 responses to “Mark Herring’s Worst Thanksgiving –  Conspiracy Against EVMS may lead to Federal Involvement

  1. Thank you for making my day Mr. Sherlock. I’ve seen time and again where Sentara has hoofed over regular folks like myself and gotten away with it. It is time to break up the monopoly.

  2. I really do not see this as a big legal problem. It is not unusual for people and groups to get together to plan consolidations. Yes, EVMS should have been included in the discussions. Yes, to not include them suggests the others were trying an end run and not to include that institution was unsavory, to say the least. And, yes, this all smells of Sentara trying to expand its power and reduce its costs.

    But, EVMS is a state institution, set up by the Code of Virginia. Any change of that status, such as a consolidation with Old Dominion University, will have to be approved by the General Assembly. Yes, Sentara will have its lobbyists out in force, while EVMS will be hampered by its status as a state institution. I wonder how the Governor, a former employee of EVMS, feels about this proposal? Obviously, that is why Dubby Wynne set up the meeting with the Governor–to lobby him. (I should not have been surprised at Wynne’s involvement in this; he has had his fingers in state government issues for a long while. However, the success of his activities has been questionable. I had thought that he had been shunted off to pasture a few years ago.)

    Whatever happens, it will be hard to make an anti-trust case against something that was sanctioned by the legislature.

    • As for the Governor – Dubby’s meeting worked. From the Virginian-Pilot:
      “Private parties began exploring potential integrations of Eastern Virginia Medical School with Old Dominion University and Sentara Healthcare about 10 months before telling top leaders of the medical school.”
      “Shortly after EVMS was informed, a consultant was hired to study the academic institution’s programs and finances. Its task will be to provide recommendations to Gov. Ralph Northam on new ways the schools and hospital system could combine.”
      “Northam, who announced the project Aug. 5, said the results may lead to significant changes for Hampton Roads’ “health care ecosystem,” which serves more than 1 million people.”
      “This is an important effort to benefit Hampton Roads, and the Commonwealth as a whole,” Northam, a pediatric neurologist and EVMS graduate, said then.”

      See how many problems you can find with that.

      It is not at all clear that this needs to get to the General Assembly before federal action is taken. There are more issues at play than antitrust. We’ll see what happens.

    • FYI, Dubby Wynne has given $137,500 in political donations to Northam and his PAC.

      As for Howard Kern, his Sentara washes its contributions through Virginia Hospital and Healthcare Association, which has given Northam about $36,000. Kern personally is a $10,000 contributor to Northam and his PAC.

  3. “I really do not see this as a big legal problem.”

    Hear no evil, see no evil, speak no evil = The Virginia Way.

    • I’m not seeing it either. A group worked on a proposed merger without involving the target of their takeover? Doesn’t that happen in the real business world all the time? I actually have observed Wynne in action for years (always the smartest guy in the room, just ask him) and that does ring an alarm bell with me, but I’m not seeing any crime here.

      • It is all of the federal money sloshing around among the participants and EVMS that will get federal attention.

        HHS has a huge stake in this, not just EVMS, but the whole idea of medical schools being put secretly in play like this.

        ODU was reportedly seeking to increase its federal grant money. This is not the way to do it.

        Herring has to wonder what his Assistant Attorney General was doing at ODU.

        Sentara’s proposed merger with Cone Health sits at FTC. This can’t help. Sentara’s Board can’t be happy with Howard Kern putting them in this spotlight.

        As I said above, we’ll see.

        • I’m not an attorney either and you’ve lost me with the complexity.

          Apart from that, recent events tell me that everything done by Republicans is somehow scandalous and potentially illegal, but if Democrats are in charge it’s all okey-doke.

          We have a Democrat as governor, and Democrat as Virginia AG. Come January, we will most likely have a Democrat in the Whitehouse and a Democrat U.S. AG.

          Remember the IRS scandal? In my opinion, that was worse than Watergate. Turns out there’s not “even a smidgen of corruption” behind Internal Revenue Service targeting of conservatives.

          And “we the people” aren’t even allowed to see the depositions to know the details of what happened. Why?

          Lerner and Paz have said the release of their depositions “would expose them and their families to harassment and threat of serious bodily injury or even death.”

      • Steve say’s “Doesn’t that happen in the real business world all the time?”

        Yes, it does, but those are private companies, not public institutions. These private players here in James post are in affect buying and selling public institutions, like colleges and universities, related medical schools, and/or parts and functions thereof.

        This is like what has happened at UVA since 2012. UVA was then redesigned and renovated to serve not public interests and students but to serve private interest and be hired (bought) by private interests for the benefit of those who run UVA, and those who milk it, outside crony interests that pay off those who run UVA. It’s is a game of money and favor exchange. And it uses public institutions hijacked by those playing the game.

        This is an example of the root problem of American governments today. Their central task now is to hand out public money and public favors and power to private interests of all sorts and kinds. This generates for the players enormous power and wealth for who run the public institutions and also for those who have managed to buy or rent parts or functions of government or the public institutions it controls. It gives those elites control over enormous flows of cash, and it gives those elites huge competitive advantage out in the marketplace that is no longer free.

        The Obama Administration put these tactics on steroids, effectively gaining control of colleges and universities, for example. The adverse results were many. For example, Obama turned students and patients into commodities, cash cows for those who gained control over the institutions that served them. Obama also used direct grants to universities to buy research and gain political alliance of University leaders. He also use regulations like Title IX as a stick to punish those leaders in higher education if they did not ally themselves with him. Armed with these carrots and sticks Obama was wildly successful in getting his way, including the development of whole new activist leftist ideologies on campus that served Obama power and political base. We see the results of this all poison around us now. Obama’s affect on UVA was enormous, so we see it there particularly.

        Of course, this central problem has many variants and iterations. I believe that Jame’s post illuminates one sub species of the problem.

        • I agree it’s a story, I agree it might cross some lines (I don’t know the rules here), but to throw around allegations of criminal behavior is reckless. Apparently this cannot be done without the proper reviews and there is nothing new with efforts to wire that in your favor.

          • Reed Fawell 3rd

            I respectfully disagree, Steve.

            Perhaps one problem is that I did not spend my life in government. So what might seem to stink to high heaven to me, might seem quite normal and standard operating procedure to you. Sometimes, outside perspectives might be useful, even revelatory, to those on the inside.

            In addition, I did not assert criminal behavior, thought certainly Aubrey Daniels last letter educates us on possible causes of action related to breaches of fiduciary duty, conflicts of interests, and hiding the truth, and possibly telling falsehoods, and acting covertly on public business, by those in high authority. These matters require looking into, and far deeper and more pervasive oversight, given Virginia’s sordid track record to date. One great problem here is the miserable record in Virginia of open transparent government. There is none of real consequence best I can tell. Likely that is because of the enormous amounts of money and favors that regularly change hands in Virginia, to the point where Government appears not to function without such exchange, whether it be board of Visitors seats at UVA, or licenses to operate casinos, or operate a health care facility, or whatever. It appears to this outsider, that politicians and players (crony capitalists, and now race hustlers) in Virginia by necessity swim in a sea of money and favors, like fish in water. And like fish are ignorant of the water on which their life depends, so the politicians and players have lost all conception of open decent governments should operate in a free, open, functional republic. Now, we have a cesspool instead, most everywhere we look.

        • “Yes, it does, but those are private companies, not public institutions. These private players here in James post are in affect buying and selling public institutions, like colleges and universities, related medical schools, and/or parts and functions thereof.”

          Bingo! And corruption has been so normalized in Virginia that veteran observers like Dick and Steve, good men both, can’t recognize it when they see it.

          Federal public corruption laws, unlike Virginia’s, have teeth.

          “Theft or bribery concerning programs receiving federal funds (sometimes referred to as program fraud or program bribery) is a federal crime under 18 U.S.C. § 666. The purpose of this statute is protect the integrity of the vast sums of money distributed through federal programs. The section is designed to facilitate the prosecution of persons who steal money or otherwise divert property or services from state and local governments or private organizations—for example, universities, foundations and business corporations—that receive large amounts of federal funds.”

          The maximum penalty is imprisonment for 10 years and a fine of the greater of $100,000 or twice the amount obtained in violation of the section.

          One does not need to be a public official to commit program fraud if conspiracy with a public official is involved. The President of ODU is a public official.

          It would not be a stretch for a federal prosecutor to allege such fraud here given the value of the federal medical research grant, federal capitation payments for undergraduate medical education and federal payments for graduate medical education at EVMS and to Sentara’s Norfolk General and Virginia Beach General hospitals.

          If the planning and negotiations had been above board, there would be no prosecution. Indeed there may not be one here.

          But given the secret way it was conducted and the very large amount of federal money involved, the process, to me a non-lawyer, virtually demands a federal fraud conspiracy investigation.

          Public corruption is a way of life in Virginia, but not so much with the federal government. The feds prosecuted Bob McDonnell under federal public corruption statutes, but that prosecution was an overreach because they could not prove a quid.

          Investigating a quid here regarding transferring a $26 million annual support payment from Sentara to the Commonwealth of Virginia if ODU takes over EVMS, as alleged in the EVMS emails and in the Virginian Pilot and Checks and Balances Project investigative reporting, seems a different matter. The amount of federal money involved seems to demand it.

          But we’ll see.

        • Reed, you seem to contend that it is only governments “today” that “hand out public money and public favors and power to private interests of all sorts and kinds.” The railroads in the 1800’s benefited enormously from grants of public lands.” The oil and gas industry has benefited greatly from favorable provisions in the U.S. tax code. Farmers have benefited for generations from farm subsidy payments. Corn growers in Iowa love that requirement that a certain percentage of gasoline be ethanol. As for Obama spawning “whole new activist leftist ideologies on campus that served Obama power and political base,” every generation has complained about higher education being too liberal. In my day, people like you were complaining about (and shooting) those leftists on college campuses who protested against the Vietnam war.

          In other words, there is nothing new going on.

          • The old “lots of people do it” defense. I’m very, very tired of it. Wrong is wrong.

          • Dick Hall-Sizemore

            My reply was not intended to be “lots of people do it.” If one wants to criticize “hand[ing] out public money and public favors and power to private interests,” that’s legitimate and I would probably join in. But, what I was focusing on was the argument that this is the “root problem of American governments today” and that Obama put it on “steroids”. If you are going to criticize something, don’t limit your criticisms to one set of political actors, include all of them.

  4. I’m having trouble seeing anything illegal here. What’s most troublesome is what is legal but shouldn’t be. By any definition Sentara exercises monopoly market power in Hampton Roads south of the James River. For a nonprofit institution, it is phenomenally profitable. It uses those tax-free profits not to lower charges to its patients but to build its empire. Now it wants to consolidate its power even more by absorbing EVMS. My concern is that a formal EVMS/ODU/Sentara combination would make southern Hampton Roads a wholly owned subsidiary of Sentara and make Howard Kern — elected by nobody — by far the most powerful man in Southeastern Virginia.

    • “What’s most troublesome is what is legal but shouldn’t be.”

      I agree, but would enlarge that statement.

      “What’s most troublesome is what is ( Or May Be) legal but shouldn’t be.” As to legality, there is much law in play here. New and amended laws of clarity and limitation likely are needed to restrict and regulate a broad array of public activities that might now be considered standard and legal in Virginia, particularly as to public institutions, property, assets, services and privileges.

    • Jim, if your reference is Virginia law, you are probably correct. Or at least the penalties are so absurdly light they are not worth prosecuting, as with public corruption. Under Virginia law, maximum penalty is $500 fine and removal from office.

      Federal laws applicable here are an entirely different matter. When federal grant money is put into play like it was here, the players are both arrogant and stupid. Both public corruption (ODU is a public institution and its President a public official) and program fraud are felonies. Federal prison time can be on the table.

      Some of the “smartest guys in the room” were morons to get involved in secret the way they did. All they had to do was be above board. But that is not the Virginia way.

  5. Hmmm, sounds like an attempted hostile takeover of a medical school… oooh, oooh, but not like in Grenada!

  6. Government picking Winners and losers…
    We need to get government out of the Healthcare business…
    We need to get rid of COPN.
    We need to stop government from limiting and regulating the number of doctors… ad nauseum…

    • So, you are advocating abolishing the VA hospitals, Medicaid, Medicare, and the state’s veterans’ care centers. I assume that you do not approve of President Trump’s “Operation Warp Speed” in which billions of public money has gone to the development of a COVID-19 vaccine or to the plan for the government to be involved in the distribution of a vaccine once one is approved.

      “Limiting and regulating the number of doctors?” How is that being done?

      • ““Limiting and regulating the number of doctors?” How is that being done?”

        Massive student debt? Oh, and generating millions of highly contagious diseased people?

        • We need to improve the readiness of Virginia students for med school admission.

          One thing that limits the number of physicians in Virginia is the failure to recruit and identify kids early enough to get them motivated to go through the steps starting in middle school necessary to qualify. And to make sure that the education they need in public schools to qualify is provided to them.

          This is especially true of kids from poor rural and urban areas where physicians are in short supply. First they need mentors. Then those kids from these areas destined for substandard high schools need to be identified as med school candidates even earlier to make sure their education will qualify them for pre-med in college.

          The medical community needs outreach to Virginia high schools to encourage kids in their first year of high school to consider the courses that will prepare them for pre-med studies in college. Then again in early senior year to identify those students who will be qualified for pre-med college courses to pursue them. Offer summer internships with local physicians, etc.

          If demand by qualified applicants to med school increases, so may the supply of medical school seats to accommodate them or at least the percentage of Virginia students in Virginia’s med schools would increase. Virginia’s med schools are roughly half filled by students from out of state. Data show that they are unlikely to remain in Virginia when they graduate.

          You notice that I spoke here of no role for government, except for school boards that should establish programs for kids motivated towards medical careers. The medical community must recruit their successors.

          • Wait. We don’t prep kids for ANY careers. In the US, careers are self-directed. We fall backwards into the roses.

  7. I don’t know if there’s anything criminal here or not, but there is a good chance that this will further impede competitive health care prices in HR. Any time there is consolidation, the usual loser is the patient since he or she cannot shop for procedures based on price. The best story I have seen about this problem was 12 years ago in the WSJ:

    https://www.wsj.com/articles/SB121986172394776997

    • I agree with you. I was already on the Sentara case, but that WSJ article was what got me started on the path that I am on to produce a book on the business of healthcare in Virginia.

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