2011-12-09 / Top Stories

Trustee: Strip Revival Of PHC Control

By Howard Schwach

A trustee appointed by the federal court to oversee the Peninsula Hospital Center bankruptcy proceeding has said in court documents that Revival, the new operators of the hospital, are “so enmeshed in conflicts of interest that they should be stripped of control of the Queens hospital.”

The trustee’s allegations come at a time when the court is meeting to decide whether or not to approve the agreement made in September in which Revival would take over the cash-strapped hospital by providing a cash $8 million operating fund and a larger fund to pay off its creditors.

Insiders told The Wave this week that Peninsula is approaching a payroll obligation next week that it won’t be able to meet without the $8 million debtor-in-possession loan that Revival promised, but which must first be approved by the court.

As The Wave goes to press, the hospital’s legal team, its creditors and court officials are locked in talks aimed at hammering out an agreement on a restructuring strategy and the loan. If a deal is not cut by next week, the insider says, then PHC might well be back in a position where it has to lay off more than half of its staff.

The talks are complicated by the trustee’s allegations that the forprofit company that now runs Peninsula, an affiliate of Revival Home Health Care, appointed its own CEO and has complete control over the hospital, something that is not allowed by state law without a state health department review.

The trustee said in court papers that “Peninsula lacks independent leadership, which is preventing it from making any meaningful progress towards reorganization.”

A number of members of the present board of directors, appointed before PHC was taken over first by MediSys and then by Revival, have told The Wave that they are now a “figurehead” group with “no say in what goes on in the hospital,” and that new CEO Todd Miller, appointed by Revival, makes all the decisions.

In addition, Steven Zakheim, the husband of the new owner, sits in at all of the board meetings as an “unpaid advisor.”

Zakheim pledged in 2005 not to have any connection with Revival or any of its companies because he failed to reveal a misdemeanor conviction on a previous DOH application.

Zakheim has been charged with both Medicare fraud and with sexual harassment.

The trustee wants to remove Revival primarily because one of its highest ranking officials, Miller, was named not by the board, but by Revival. Miller is a longtime associate of Zakheim, sources say.

Until last week, Miller remained an employee of Revival and his $30,000 a month salary was turned back to the Brooklyn-based corporation.

After the trustee’s filing, Miller reportedly resigned his position with Revival.

As reported in The Wave last week, the state is now investigating the governance of Peninsula Hospital Center in light of the information that Steven Zakheim is involved with the management of the facility and the fact that he is barred by his own agreement from doing so.

“We share the trustee’s concerns, we take them seriously and we will be watching the outcome [of the bankruptcy proceedings] closely,” a DOH spokesman said.

The trustee has also asked for an independent examiner to monitor the case and the governance of the hospital “in light of the apparent stranglehold that Revival holds over [PHC],” he wrote.

Even while the board members complain that they no longer have control over the affairs of the hospital, some still want Revival to maintain that control.

One board member, Martin Oliner, told Crain’s New York Business newspaper that “the board is just being told what to do by Revival, 100 percent,” and that it “doesn’t exercise any independent judgment,” but he wants Revival to continue on.

“Revival is the only game in town willing to put up money,” he told Crain’s reporter Barbara Benson. “I’m not a fan of theirs, but you need a plan to keep the hospital open.”

Meanwhile, talks continue in order to come up with a deal that everybody can live with, a deal that will eventually have to be vetted both by the court and by the state’s Department of Health.

On Monday, Judge Elizabeth Stong urged the parties to come to some sort of agreement before the payroll deadline.

She told them that she would not allow the stakeholders “emergency” to become the court’s problem and told them, “It’s not good to wait until the last minute.”

Most of Monday’s hearing focused on the hospital’s governance and the concerns raised by the trustee.

Under the law, the Peninsula board of directors must be at the helm, rather than sharing the power to make decisions with Revival and its board.

The judge was clearly concerned with the fact that Miller was appointed by Revival, and until last week, paid by that forprofit corporation as well. She questioned whether Miller was looking out for Peninsula’s benefit or Revival’s.

At press time there was a possibility that the judge would appoint an independent examiner to probe the conflict of interest claims.

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