In early November, Dr. David Smith resigned as president of the State University’s Upstate Medical University and University Hospital. Days before, the Times Union in Albany had reported Smith was close to leaving Syracuse’s biggest hospital to become president of Penn State University.
Instead, he’s found himself the subject of several investigations.
Smith, and later, another top executive lost their job at Upstate hospital, the city's largest employer, over charges they took unauthorized outside pay. Much of the money in question comes from a medical contractor the hospital itself created.
A letter to Smith from SUNY Chancellor Nancy Zimpher dated Nov. 1 says he had taken compensation, without authorization, from 2012 into this year worth $349,295.59 from two hospital contractors: MedBest Medical Management and Pediatrics Service Group.
Upstate University Hospital operated at a $36 million deficit the past two years, according to hospital financial records. State University employees have also been hit by furloughs in recent years.
MedBest was created in 1996 by the doctors group at Upstate hospital, University Medical Associates at Syracuse, to handle billing services. Dr. David Duggan, a long-time hospital executive who is currently the dean of the medical college, was one of the three original directors when the company was formed, according to its certificate of incorporation filed with the state.
In its nearly two decades of operation, MedBest has grown to provide staffing throughout many hospital departments. It currently has a $22 million contract with the hospital to implement an electronic medical records system and provide staffing, according to a copy of the contract reviewed by WRVO.
Shortly after Smith stepped down, the state comptroller’s office announced it will audit MedBest’s contract to "examine whether SUNY Upstate’s use of this single source contract with MedBest is in violation of state law and identify if any abuse occurred," Comptroller Thomas DiNapoli said in a release.
A former doctor at Upstate told WRVO the original contract with MedBest was “forced through.”
MedBest management referred questions to the hospital. Upstate spokesman Darryl Geddes declined multiple requests for an interview.
A 2010 comptroller’s audit of Upstate’s overall contracting practices found limited justification for many of its contracts. The report doesn’t name specific ones, but the comptroller says some of them were used to “attract physicians for certain positions and provide compensation.”
The hospital’s use of MedBest has the unions within the hospital upset. Paula Bartley, a representative of PEF, the nurses union, says the hospital is using MedBest to circumvent organized labor.
"I think it was just a matter of time before it came to light, because rumors were around," she said. "I mean, as the unions ourselves, we knew there was always some kind of intertwine between MedBest and the hospital."
Bartley and others say morale inside the hospital, and its reputation, have both been damaged.
"Flavor of life" at Upstate
State ethics laws require high level state employees to report all outside pay and affiliations. While Smith got in trouble for not reporting outside earnings, his 2011 financial statement does list ties to the contractor.
That year, Smith reported he was on its board. He also listed a deferred compensation account from MedBest, though he did not give a dollar amount. Deferred compensation accounts are a type of retirement fund. SUNY Chancellor Zimpher, in her Nov. 1 letter, ordered Smith to relinquish claim to that fund.
"That’s a conflict of interest that would be visible from outer space it’s so dramatic," said Dr. James Holsapple.
Holsapple left Upstate in early 2009 for Boston University. He had been with the medical school and hospital since the 1980s. He’s suing Upstate for constructive termination, meaning he’s arguing the hospital made it impossible for him to work there.
Holsapple and another former Upstate doctor, who did not want to be named, talk of a culture where dissent to senior management, no matter the form, was not tolerated.
"People not known for shutting up, were shut up," the former Upstate doctor told WRVO.
The "flavor of life" within Upstate's highest ranks was "totalitarian," the former doctor at Upstate added.
Holsapple says he’s not surprised that culture would result in the alleged misconduct.
"If we find out these things are real and significant and that things really took place and that a power was potentially abused to enrich individuals, that’s going to have a deep, penetrating and lasting effect on the reputation of the institution," he said in an interview.
Through his attorney, Dr. Smith declined to be interviewed. In a Nov. 7 statement announcing his resignation, Smith said he was stepping aside "so that this great institution can move on to even greater success."
Upstate’s number two executive, Steven Brady, spent four decades with the hospital and was the senior vice president for finance until he followed Smith into retirement a week later.
On his most recent financial statement submitted to the state, for 2012, he said he was both a board member and the executive director of MedBest. He received between $50,000 and $75,000 as executive director. He also reported having a compensation account worth between $150,000 and $250,000.
His older financial statements do not note any relationship with MedBest. However, his bio on Upstate’s website listed him as MedBest’s executive director for at least a year longer than he reported.
Attempts to contact Brady over the past few weeks were unsuccessful.
Wanda Thompson, whom Smith brought to Upstate from Texas where they both worked before, is head of operations. She posted on her financial disclosures that she was employed by MedBest since 2010. On her latest statement, for 2012, she said she earned between $50,000 and $75,000 from the contractor. (She did not list an amount in 2010 and 2011.) She is still employed by the hospital and declined an interview.
Along with investigations by SUNY and the comptroller, multiple sources have confirmed to WRVO that the FBI is investigating Upstate. The FBI and U.S. Attorney's office in Syracuse both said they don't confirm or deny ongoing investigations.
Kathy Yeldon, the union representative for CSEA employees at the hospital, says the state Inspector General’s office is also soliciting hospital documents. Inspector General spokesman Bill Reynolds said he could not confirm that.
In her union role, Yeldon had been looking into the hospital’s contract with the non-profit MedBest since before Smith and Brady stepped down.
"[MedBest is] compensating University Hospital’s top executives to be able to have that company here," she charged.
She says this also likely goes further down the chain of command.
"From what I’m thinking, there’s got to be at least a dozen [people]," Yeldon said. "I mean, you don’t have that kind of revenue coming in and people not knowing about it."
SUNY spokesman David Doyle would not discuss details of their investigation.
"I wouldn’t dare put a timeframe on it beyond saying that it’s ongoing and it will take as long as it needs to take to be thorough and proper and to get all the facts and all the information necessary," he said.
Upstate does not have its own independent oversight board. Instead, the same SUNY board of trustees that looks over all 64 schools keeps an eye on Upstate. The board’s Dec. 17 meeting included a lengthy discussion about implementing independent boards for SUNY’s three hospitals.
Having a discussion about hospital oversight had been on the board's to-do list for months, according to Vice Chancellor Lora Lefebvre, who gave the presentation.
Lefebvre told WRVO the timing of the talk was coincidental, but "clearly, the problems that we're facing both [at Downstate Medical Center] and at Upstate might benefit from a discussion about how we might change governance at the hospitals."
Dr. John McCabe, Upstate hospital's chief executive, was at the meeting.
"We believe that in Syracuse, some additional board structure, similar to what we see in other hospital entities might be useful for us and help us engage the outside community better," he told the trustees, referring to the hospital's internal advisory panel.
"We think a look from the inside is helpful, but a look from the outside, especially in changing times down the road, may be even more helpful," he added.
As CEO, McCabe signed off on the $22 million contract with MedBest.
Dr. Holsapple says that lack of close oversight, either from SUNY or a local board, created an opportunity for misbehavior.
"In a climate where those things were not recognized as severe, loud signals that the stewardship was highly errant and maybe should have been replaced," he said, "those in charge might feel comfortable exploring ways to enrich themselves in ways that others might feel is not appropriate."
Dr. Gregory Eastwood was installed to oversee Upstate on an interim basis following Smith's retirement. Eastwood was president from 1993 until Smith replaced him. He sent a letter to MedBest on behalf of SUNY telling the contractor to stop paying into compensation accounts of past and current Upstate employees.
In a separate letter to the hospital's staff, Eastwood warned "the ongoing SUNY audit and reviews by external agencies may last for several months with substantial effort required to respond to all of these reviews."
Dr. Eastwood held a forum with Upstate employees when he first returned, at which CSEA’s Yeldon says she asked him about the hospital’s future with MedBest. She says his response was that the relationship would “continue to operate as usual.”