Kansas Heart Hospital has filed a lawsuit against two former executives it alleges stole almost $7 million in unauthorized compensation and blocked more than $4 million in CARES Act relief from reaching the hospital.
The case was filed last week in Kansas’ U.S. District Court and names former Chief Financial Officer Steve Smith and former Chief Operating Officer Joyce Heismeyer as the defendants.
It alleges that between 2015 and 2020, the executives coordinated in violation of the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and breached their fiduciary duty to the hospital.
Kansas Heart Hospital claims that it is entitled to recover damages in excess of $31 million, along with other expenses from litigation, from the defendants.
Of note, the complaint frequently names Greg Duick, M.D., Kansas Heart Hospital’s cofounder and former president and chairman, as a knowing participant in Smith and Heismeyer’s alleged embezzlement and racketeering. He is not, however, listed as a defendant.
Legal representation for Smith and Heismeyer refuted the hospital’s allegations in a statement provided to Kansas-area ABC affiliate KAKE.
“We are disappointed by the Kansas Heart Hospital’s plan to sue and tarnish the reputations of two long time employees,” the executives’ lawyer said in the statement. “Joyce and Steve vehemently deny the allegations and will aggressively defend themselves and expect to clear their names in court. “
Kansas Heart Hospital’s complaint outlines a string of alleged bonuses and deferred compensations totaling $4.5 million that it said were not disclosed by the hospital’s management committee and often approved by Duick.
The suit also describes $1.5 million in severance payments approved around the time of Heismeyer and Duick’s resignations from the hospital in early August. Kansas Heart Hospital’s managing committee did not have knowledge of these payments until later in the month, according to the suit. It was at this time the hospital said it began its formal investigation into the executives’ behavior.
The hospital alleged in its complaint that all three executives used U.S. Mail and interstate wire for communications and transportation of the funds across state lines without the knowledge of the managing committee. Smith and Heismeyer were also said to take actions to copy and then delete evidence of their actions from the hospital’s computer systems.
Beyond the alleged theft, the hospital said that the executives caused further harm to the company by returning millions in Provider Relief Fund (PRF) and Paycheck Protection Program (PPP) support without first consulting the management committee of their decision. Members of the committee questioned Smith on those decisions across multiple meetings, as the hospital was experiencing 20% to 30% declines in procedures, a $1.5 million drop in revenue and other pandemic uncertainties, according to the complaint.
“Mr. Smith and Ms. Heismeyer, along with Dr. Duick, associated and conspired to return the PRF and PPP funds received from the federal government under the CARES Act through interstate wire transfers to avoid a federal government audit which would have disclosed their unauthorized bonuses and deferred compensation payments,” the hospital wrote in the complaint. “The actions of Dr. Duick, Mr. Smith and Ms. Heismeyer in breaching their fiduciary duties as to return the CARES Act proceeds caused the hospital to lose funding for which the hospital qualified in the amount of $4,408,000.”
The hospital alleged that these actions together “constituted a pattern of racketeering activity” that violated RICO and breached the fiduciary duties Smith and Heismeyer owed the hospital.
Founded in 1998, Wichita, Kansas-based Kansas Heart Hospital is a limited liability company that provides specialized and comprehensive cardiovascular healthcare services. Ascension Health-owned Via Christi Regional Medical Center purchased a 49% stake in the hospital in 2007, with physician referring investors (22%) and non-referring investors (29%) comprising the rest of its current ownership.
Smith has served as the hospital’s chief financial officer since 1998, while Heismeyer entered her chief operating officer role in 2011.
Smith, Heismeyer and Duick all publicly announced their departures from Kansas Heart Hospital in August in a joint announcement published by the hospital. It said that Duick described the trio as “a special team” and that the executives would support a smooth transition to their successors.
“We came as a team, we worked as a team and now we are leaving as a team,” Duick said in the departure announcement.
Fierce Healthcare has reached out to Kansas Heart Hospital for additional comment as to why Duick was not named as a defendant in the complaint.