From The Northwest Herald

Federal investigation mires Mercy
By JEFF KOLKEY
jkolkey@nwherald.com
July 26, 2004

Mercy Health System officials sought out politically connected lawyers,
contractors and financiers in their bid to win state approval for a hospital
in Crystal Lake.
The strategy now has Mercy officials embroiled in a federal investigation
into corruption allegations against the Illinois Health Facilities Planning
Board that they were trying to persuade.
A federal whistle-blower lawsuit that could be unsealed as early as today
alleges that Mercy complied with a shakedown scheme in which members of the
board used their votes to steer contracts to a construction company and bond
brokerage house.
Gov. Rod Blagojevich suspended the nine-member board he appointed in 2003
until a law is passed allowing him to replace the members - some of whom
donated tens of thousands to his campaign.
A bill to overhaul the troubled state board was approved by the House and
Senate on Saturday night and now heads to Blagojevich's desk for his
signature. Blagojevich has indicated that he will sign the bill.
"It is important to note not all the board members have been charged with
any wrongdoing," Blagojevich spokeswoman Cheryl Jackson said.
"The ones that are under investigation; it's only that - an investigation,"
Jackson said. "There have been no charges. Nothing has been proven."

Mercy hires political clout
Mercy officials, like many in the health-care industry that must work with
the planning board, aligned themselves with politically connected people
from the beginning.
When Mercy began its move southward from its traditional base in Janesville,
Wis., into northern Illinois in 2003, it retained Franks, Gerkin and
McKenna, the family law firm of state Rep. Jack Franks, D-Woodstock. Franks'
father, Herb Franks, also is a partner.
Mercy's purchase of Harvard Memorial Hospital was approved by the planning
board in March 2003. The Frankses' Marengo firm had worked for the Harvard
hospital since 1999 and stayed in place when ownership changed hands.
Mercy would not respond to requests for comment for this story. Mercy Vice
President Rich Gruber has previously explained that the company made
campaign donations to local politicians it felt were sympathetic to medical
industry positions. Among the recipients were Franks; McHenry County Sheriff
Keith Nygren; Bill LeFew, McHenry County Republican chairman and county
treasurer; and state Rep. Rosemary Kurtz, R-Crystal Lake.
In the build-up to a September 2003 public hearing on Mercy's proposal for a
70-bed hospital at Route 31 and Three Oaks Road, Franks lobbied members of
Blagojevich's Cabinet. He encouraged the directors of state agencies, such
as the Illinois Department of Public Aid and Department on Aging, to write
letters supporting the hospital proposed just outside his district.
Three of the directors later said they were unsure whether Franks was acting
as a legislator or a lawyer when he made the requests.
Five state agency directors wrote letters, but they appeared to have little
influence over the planning board. In December, the Mercy proposal was
rejected, unanimously given a notice of the intent to deny its application.

Requirements unmet
The hospital plan failed to meet basic state planning criteria. Planning
board staff recommended its rejection because the proposed hospital was not
large enough, it was too close to other hospitals, and occupancy estimates
for the first year were below state standards.
It also was opposed by all area competitors, along with state Sen. Pamela
Althoff, R-McHenry, and Kurtz.
The day before their December appearance before the health facilities
planning board, Mercy officials hired the Chicago-based law firm of Gardner,
Carton and Douglas.
Gardner, Carton and Douglas paid for $11,265 worth of door prizes for a
Blagojevich fund-raiser in December 2003, records show. The firm also
donated $25,000 to Blagojevich in July 2003.
Mercy officials said the Frankses' law firm would continue as Mercy's local
lawyers, while the Chicago firm would handle its application before the
state planning board.
Franks has said he introduced Mercy officials to his former campaign manager
Michael Noonan, a lobbyist with Chicago-based Greenberg Traurig, who also
had worked on Illinois Attorney General Lisa Madigan's campaign in 2002.
Greenberg Traurig lists Mercy and Advocate Health Care - operator of Good
Shepherd Hospital in Barrington - in state reports.
Greenberg Traurig also employs politically connected operatives Victor Reyes
and Milan Petrovic, a Blagojevich fund-raiser who said he never worked on
behalf of Mercy. Greenberg Traurig has donated $37,500 to Blagojevich and
$1,250 to Jack Franks since 2002.
Noonan and Jack Franks would not comment for this story.

Curious decision sparks investigation
When Mercy officials returned in April for a second try to win approval from
the planning board, they presented a hospital plan with almost no
substantial changes.
Just as it appeared about to fail, planning board Chairman Thomas Beck
momentarily stopped the vote tally, wondering aloud, "Where are we at?"
Board member Stuart Levine stood up, walked around a table, and whispered in
the ear of fellow board member Imad Almanaseer.
A confused audience watched as Almanaseer changed his vote from "pass" to
"yes." And with the "yes" vote of Beck, the proposal passed 5-2.
Levine later resigned from the board, and Almanaseer asked not to be
reappointed when his term expired July 1.
The strange vote prompted calls by Althoff for an investigation, and
Blagojevich asked the Illinois inspector general to look into the matter.
But soon after the inspector general began to investigate, federal
prosecutors asked the state to back off, officials said. The U.S. attorney's
office was conducting a criminal investigation into the board, focusing on
Levine and his connection to Kiferbaum Construction.

Whistle-blower lawsuit
The same day that Mercy's hospital proposal was approved, a proposal from
Edward Hospital in Naperville for a new facility in Plainfield was rejected.
According to published reports of a sealed federal lawsuit, Edward officials
said they were encouraged by Levine to use the company owned by his friend
Jacob Kiferbaum, Deerfield-based design and build company Kiferbaum
Construction, for their hospital project.
Kiferbaum and Levine had served together as trustees of a North Chicago
medical school. They since have left the board amid allegations that the
school may have been the victim of fraud, a spokesman confirmed.
According to reports of the sealed lawsuit, Edward officials also were
encouraged to use Bear, Stearns and Co., a banking investment firm run by
Nicholas Hurtgen, who has connections to prominent Wisconsin Republicans,
including U.S. Health and Human Services Secretary Tommy Thompson.
Hurtgen resigned from the company in July after the federal investigation
was initiated.
Bear, Stearns is listed on planning board Chairman Thomas Beck's statement
of economic interest.
Levine, Beck and Kiferbaum did not return calls seeking comment.

Althoff advocates reform

Though some question the need for the planning board to exist at all,
Althoff said she favors reforming the board rather than dissolving it.
"There are so many allegations with regard to the current board makeup and
actions that the only answer to the problem is to reconstitute it," Althoff
said. "There needs to be an oversight agency in place that determines where
health-care facilities are located and how big they need to be. The process
may need to be revamped, but the overall process needs to remain in place."
Like any politically appointed or elected board, there is the potential for
corruption. Althoff said strict ethics reform should minimize the risk in
the future.
Thirty-six states use some form of the certificate-of-need process that is
in place in Illinois. There are varying degrees of regulatory power and
jurisdiction, planning board executive secretary Jeffrey Mark said.
"The CON process, to my knowledge, is the only program in the country that
attempts to rationalize the distribution of health-care resources," Mark
said. "On that basis, it has a lot of potential for a lot of good."