BOP Criticized for Failing to Oversee Healthcare Administrator at FCC Butner

by Derek Gilna

The federal Bureau of Prisons (BOP) is facing criticism for its apparent failure to adequately oversee a Florida-based company responsible for coordinating the payment of BOP bills for prisoner medical care in North Carolina.

Before it went into receivership, MDI Holdings, Inc. of Ponte Verde Beach, Florida was a health care technology and analysis company that administered medical care for some 5,000 prisoners at the Federal Correctional Complex in Butner, North Carolina. The BOP’s contract with MDI was the company’s largest; the actual medical care at Butner was subcontracted to Duke University Health Center and a number of private practitioners.

MDI was successful for a number of years. Sales in 2009 reached $97 million, for example. But shortly thereafter the firm experienced a series of events that culminated in the expiration of its contract with the BOP in July 2012. When that contract was not renewed, the financial house of cards holding the company together collapsed.

The court-appointed receiver tasked with cleaning up the mess was Ronald Winters, a managing director with the Alvarez & Marsal Healthcare Industry Group in New York. The main challenge that Winters faced was repaying a $30 million loan that MDI had obtained from Wells Fargo & Company.

“We tried to make sure that nobody would become worse off than they were when we got here,” Winters said. “In a difficult situation, we think we achieved a favorable outcome.”

However, that “favorable outcome” did not include settling any debts incurred by MDI prior to Winters’ appointment in September 2012. Those unpaid debts included amounts due to the Duke University Health System, which was owed about $8.3 million, and to various North Carolina doctors who performed medical services at FCC Butner, which includes the Federal Medical Center that houses prisoners who are elderly, ill or infirm.

Those health care professionals felt that the BOP should share responsibility for the millions of dollars still owed to them after MDI’s collapse.

“Who provides services to the U.S. government and worries they’re not going to get paid?” asked Douglas Holmes, owner of ENT and Audiology Associates in Raleigh, North Carolina, whose small office is owed almost $30,000 for prisoner medical care.

“Someone in the Bureau of Prisons surely knew [MDI officials] weren’t doing things properly but they didn’t tell us, and continued to send MDI payments” that should have gone directly to providers such as himself, he said.

Holmes’ claims and others are under investigation by the North Carolina Medical Society. Society Associate General Counsel Conor Brackett said Freedom of Information Act requests have been filed with the BOP in an effort to determine the agency’s responsibility for the unpaid medical bills.

“What we would like to understand a little more about what that oversight was like, meaning ... the Bureau of Prison’s responsibilities and authority over MDI while the contract was in effect,” Brackett said.

Another disgruntled provider, Carolina Vascular Surgery and Diagnostics, is owed nearly $50,000 by MDI, and also feels that the BOP bears some responsibility for the unpaid bills: “The government paid MDI to process claims and that’s all ... they did, process and pay, so they should be [considered] government-backed.”

Although the Duke University Health Center and other physicians are once again being paid for current medical services through a new company, Holmes is still not satisfied. “From what I’ve heard MDI did with the money, I’m wondering why the Department of Justice isn’t getting involved and trying to put some of the [MDI] executives in Butner themselves.”

MDI founder and former CEO Richard R. Willich, who claimed to be a Vietnam veteran, former Marine Corps reserve officer and law school graduate, was known for a lavish lifestyle that included a working farm and a $120,000 electric car, paid for with funds loaned to MDI by Wells Fargo, according to allegations in the bank’s lawsuit against the company. The Business Journal reported that $1 million worth of artwork and artifacts had been displayed at the firm’s headquarters. Wells Fargo confiscated and sold the artwork, along with furniture and other items in the building, to help satisfy MDI’s debt.

MDI also fell prey to a former employee who stole some of its intellectual property rights, which were then used by other companies to undermine the firm. MDI sued John Long-Field Smith and obtained a $2 million judgment plus attorneys’ fees and costs in December 2011, but by then it was too little, too late.

“There was a substantial amount of business damage done to MDI Holdings,” stated attorney Mike Freed, who represented the company. He estimated losses in MDI’s finances and reputation at greater than $10 million, though he noted the exact amount was difficult to calculate.

MDI and Wells Fargo had been negotiating a restructuring of the $30 million loan until March 2012, when the bank demanded full repayment. MDI countered by filing suit because, according to the company’s attorney, Geoffrey Heekin, “They weren’t ready to surrender just yet.”

When the BOP did not renew its contract with MDI for administering healthcare at FCC Butner, the company realized the end was near. It dropped the suit against Wells Fargo and agreed to receivership and liquidation. The liquidation was finalized in early 2013, and the corporation’s office building went into foreclosure.

“They made that decision based on the economics of it,” said Heekin. “They realized there wasn’t much hope.”

Sources: www.staugustine.com, www.bizjournals.com

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