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Second Lawsuit Names Closed Crittenden Regional Hospital

4 min read

The ultimately fatal financial troubles at Crittenden Regional Hospital in West Memphis might have started three years ago, according to a federal lawsuit filed last month against the hospital’s former directors.

The lawsuit was filed by former employee Rhonda Michelle Goodfellow, who is seeking class-action certification for her case. She accused the hospital and its directors of using employees’ money that was earmarked for the hospital’s self-insured health benefit plan as operating revenue for the hospital, possibly as far back as 2011.

She is the second employee to sue over the allegations that the hospital took the employees’ health insurance premium money. Both lawsuits are seeking class-action status and are pending. The cases might be merged together.

“We do not know exactly when the diversion of funds commenced” because discovery hasn’t started, one of Goodfellow’s attorneys, Tim Edwards of Memphis, told Arkansas Business. “We know there had been problems with payment of claims for several years back, so we assume that’s when the diversion of employee funds that were deducted from paychecks” started.

The hospital’s failure to forward the money to the third-party administrator resulted in the employees being responsible for paying medical bills that they assumed were covered by insurance, Goodfellow’s lawsuit said.

The law firm for the hospital and its officers and directors said in a statement that there wasn’t a deliberate attempt to damage the hospital’s finances.

“The evidence we have seen contradicts the allegation that contributions collected from employees for the Health Plan were used for anything unrelated to the Health Plan and employee health benefits,” Mark Peters of Waller Lansden Dortch & Davis, of Nashville, Tennessee, said in a statement. “Employee contributions typically accounted for less than a quarter of the claims annually incurred under the Health Plan. The Hospital made additional contributions to the Health Plan.”

Goodfellow’s 41-page complaint also shines a little more light on the collapse of the nonprofit hospital, which was operated by Crittenden Hospital Association. CHA filed for Chapter 7 bankruptcy protection last month and listed $33.3 million in debts and $27.75 million in assets.

Goodfellow’s lawsuit alleged that the hospital’s directors knew that “without additional capital CHA would ultimately fail. Therefore, in an effort to financially prop up CHA, the Officer and Director Defendants decided that CHA could save money if CHA simply ‘took a pass’ on making the necessary and required contributions to the Plan.”

Through the alleged scheme, the hospital deducted an average of about $200 a month from employees’ wages, supposedly to pay for health insurance. By not paying the third-party administrator, the hospital kept about $100,000 per month and more than $4 million between 2011 and September 2014, the lawsuit said.

“We can only assume that it was being used for operating capital,” Edwards said. “We don’t have any evidence that it was used for anything other than keeping the doors of the hospital open.”

Also named as a defendant in the lawsuit is Cigna Health & Life Insurance Co., of Bloomfield, Connecticut, which was the third-party administrator of the hospital’s self-insured plan.

When hospital employees would quiz Cigna as to why their claims weren’t being paid, “Cigna would respond that [the employees] were fully covered and they were under health insurance,” Edwards said.

In September, though, employees learned that they haven’t had any coverage since May, he said. “It was quite a shock to them,” Edwards said.

Goodfellow has received medical bills totaling $9,500 that she thought she had coverage for, the lawsuit said.

Peters said that hospital officials had asked providers not to pursue payment from the hospital’s employees. So far, at least three providers have agreed not to pursue payment from the employees.

The U.S. Department of Labor is looking into the health insurance issue, according to an affidavit filed last month in the bankruptcy case by the hospital’s former CEO, Gene Cashman.

Cigna, Cashman wrote, claimed it was owed $32,000 for administrative fees and would not handle claims for the Crittenden Regional employees until it was paid. Cashman said the $32,000 was sent, but Cigna then said more was owed for stop-loss premiums. The hospital didn’t have the money to pay that, so Cigna canceled its contract, he said.

“The true amount owed on health insurance claims is still unknown,” Cashman wrote.

Crittenden County Judge Woody Wheeless said last week he’s still trying to find a buyer for the hospital.

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