All the Governor's Men
Gov. Jeb Bush will likely be pulled into a federal grand jury investigation of the North Broward Hospital District, the $800 million-a-year, tax-subsidized public health powerhouse that serves as one of his chief political fiefdoms.
The grand jury is looking into a project by the nation's sixth-largest public hospital system, which runs four hospitals and numerous clinics, to build a $30 million medical office building in Fort Lauderdale. The deal is marked by apparent insider dealing and an estimated $100 million of inflated profits for a few well-connected businessmen, including Bush supporter Austin Forman, a scion of the county's most prominent family.
Though Bush appointed all seven NBHD commissioners who voted for the building plan and has strong political ties to some district officials and lobbyists, he's managed so far to keep clear of the scandal, which last year led to the embezzlement conviction of former district CFO Patricia Mahaney. Sources close to the probe say that is about to change: A little-noticed veto by the governor played a crucial role in the medical office building saga, paving the way for Forman's deal.
To understand the connection, one must follow not only the money but the legislation. And all roads in this imbroglio lead to William Scherer, who, as the district's general counsel, oversees $5.5 million in NBHD legal work, $3 million of which goes to his law firm, Conrad and Scherer.
Scherer is not only the chief power at the district, where he controls several contracts and counsels board members on their votes, but he's also a close friend and business partner of Forman and his wealthy and influential father, Hamilton Forman, who lorded over the district for three decades as NBHD chairman. It was the man called "Ham" who took Scherer under his wing when the lawyer first moved to South Florida in 1972 from his native Indiana. The senior Forman gave Scherer entrée into the heavy-hitting world of Broward County development and landed him his position at the district in 1988.
Scherer is also one of Bush's chief political supporters. He's personally raised hundreds of thousands of dollars for both the governor and his brother, the president, and worked on campaigns for both Bushes. Scherer even serves as a Jeb Bush appointee on the state Judicial Nominating Commission.
A gregarious man prone to audacious statement, Scherer is a triple threat -- a lawyer, lobbyist, and developer, who controls more than $10 million in land held in trusts. But when questioned about the veto after last week's board meeting, he was silent, refusing to make any comment on the matter.
Like the district, he's part public, part private, all political. The NBHD prides itself on running like a corporation, downplaying its reliance on the $174 million in property taxes and more than $200 million in Medicaid and Medicare dollars it will collect this year. But it's more a classic political machine. New Times investigated three district deals -- the Forman agreement and two lucrative doctors' contracts -- that provide a close view of district business, which is rife with inflated compensation, possible violation of federal laws, and rampant cronyism.
First, the deal that involved the governor's veto pen:
Back in 1999, the district decided to put a new medical office building on SE Third Avenue, just east of Broward General Medical Center, its flagship Fort Lauderdale hospital. The only problem: The location was occupied by 14 homes and businesses. So the district set out to acquire them and by early 2000 had bought seven. The remaining landowners, however, held out for exorbitant prices -- at least $2 million more than NBHD was willing to pay. Facing a stalemate, administrators turned to Tallahassee.
Enter Scherer, who began a legislative effort to win "quick-take" rights for the district, wherein it could gain ownership of the properties and let a jury decide a fair price later. NBHD lobbyist Ron Book also played a key role in the legislation but says he obtained his orders from Scherer's office.
"Bill spoke to the governor about the quick-take," explains Nico Winningham, who was then the real estate manager for the district. "All along, he was the tie to Jeb."
The ensuing bill sailed unanimously through the House and overwhelmingly passed the Senate. Then came Bush's surprise veto on June 7, 2000. "The governor told Bill before the veto that it was going to happen," says Winningham, who was laid off with 42 other district employees in November 2002 and now works for a real estate company owned by the son of U.S. Rep. Clay Shaw (R-Fort Lauderdale). "I heard that Bill said afterward that he wasn't going to expend any more of his political capital on the matter."
Bush explained in a 2000 letter to then-Secretary of State Katherine Harris that his veto came in defense of private property rights and argued that the district could use regular eminent domain to obtain the properties. He said expanding the district's power to take the properties wasn't in the "spirit of fair play."
So the district, after expending months and more than $2 million on Third Avenue, turned west, to Andrews Avenue, the second-ranked location. As Winningham puts it, "The veto was huge -- it changed the site rankings."
And that paved the way for Austin Forman, whose family supports Bush and has contributed at least $15,000 to the GOP and the governor's campaigns. According to FBI reports, Forman's real estate partner, William Murphy, had behind-the-scenes talks with then-district CFO Mahaney about putting the medical office building on Andrews Avenue. After the veto, Forman and Murphy optioned the land and orchestrated a deal with NBHD that will pay them and downtown developer Terry Stiles $170 million over 55 years to construct the building. That represents roughly a $100 million profit for the trio. The Bush-appointed board approved the deal without taking bids in 2002.
"It was an unusual move by the governor," says Fort Lauderdale attorney Bruce Lyons, who is representing a grand jury witness he declines to identify. "Why would the governor veto that, especially when you look at the value of a small amount of homeowners versus the quality of medicine and health care in Broward County? It is definitely unusual."
And Scherer's involvement raises more critical questions: Why would he step outside his usual duties as the district's lawyer to do a job that should have been handled solely by NBHD lobbyists? And having done that, why would the general counsel, who has the governor's ear, shepherd a bill through the legislature that Bush was going to veto? Was the governor really making a rare and uncharacteristic stand for the little guy against his rich and powerful supporters at the district? Or did someone engineer a late-stage veto to facilitate Forman's deal?
It also isn't clear whether James Blosser's governmental consulting firm had a role in the veto. Blosser is a business associate of Scherer's and a top-tier supporter of the governor and the president. The district pays his firm, Poole, McKinley, and Blosser, $72,000 a year to lobby the governor and legislature in Tallahassee. According to one high-level source who asked that his name not be used, Bush made his veto based on a recommendation from Brian Yablonski, who was then the governor's deputy chief of staff. Yablonski, who didn't return calls for comment, now works as a partner in Blosser's firm, as does the governor's former spokesman, Justin Sayfie.
The recently convened grand jury may have to use all of its considerable powers to answer questions about the veto. Bush's press office didn't return repeated phone calls.
The office building deal is only the beginning. Next stop in understanding the district is Sein Lwin, a surgeon who is close to the general counsel. Very close, in fact -- he lives next door to Scherer's newly renovated, palatial home in the exclusive Fort Lauderdale neighborhood of Rio Vista.
Lwin is where politics, money, and medicine meet -- and taxpayers and patients seem to be forgotten.
Upon first meeting Sein Lwin (pronounced "sin le-WIN"), it's hard to imagine that the slight, five-foot-six, orthopedic surgeon could be a significant political force. The 64-year-old native of Burma has a white doctor's coat and a friendly smile and speaks English with a thick accent. He's personable, though hardly charismatic.
But his unassuming manner shouldn't fool anyone; Lwin is indisputably a political animal. He controls a veritable monopoly on orthopedic care in Broward General's emergency room. The district pays $1.7 million a year to Lwin's firm, North Broward Orthopedic Associates, to provide that care.
To win the contract, Lwin needed the right contacts. He has long been a fixture at political fundraisers and regularly attends monthly district board meetings. "Lwin begins to inculcate commissioners even before the governor appoints them," says Dr. Deepak Kapila, a former partner of Lwin's who is now vice chief of surgery at Broward General. "He develops the contacts at a very early stage."
How Lwin, who refused to comment for this story, came to live next door to Scherer isn't known, but it's clear the two men are friends and political allies. The physician is also close to Austin Forman, whose brother, Collins, is the registered agent for one of the doctor's companies, Lwin Investments.
Lwin also hired the right man to negotiate the contract: Blosser, who doesn't let his district lobbying contract stop him and partner Sayfie from representing clients before NBHD. Lwin's firm, which he shares with two partners, paid Blosser at least $75,000 in 2002 for renegotiating the contract, Kapila says.
Lwin basically serves as a conduit for Scherer to doctors and their money, several physicians contend. He's notorious for stopping surgeons in Broward General's corridors and calling them on the phone when he wants campaign contributions.
Campaign records show that Lwin and one of his two partners, Michael Abrahams, have since 1995 given about $26,000 -- $19,000 of it from Lwin -- in political contributions to candidates in state races alone.
Neither partner seems driven by political ideology. From 1995 through 1997, when the late Democratic Gov. Lawton Chiles controlled the district, Lwin and Abrahams gave exclusively to Democrats. In 1998, when Jeb Bush seemed to be a shoo-in over Democratic contender Buddy MacKay, Lwin and Abrahams had a conversion, giving $4,500 to GOP candidates and just $1,350 to Democrats. Since Bush gained control over the district, the born-again Republicans have contributed about 80 percent of their political capital in state races to the GOP and its candidates.
Kapila recalls that, in 2000, when he was a Lwin partner, the company books seemed off. Kapila says he learned that money was being withdrawn from corporate accounts. He says he could never ascertain how the money was spent but suspects some it went for political contributions. Kapila claims that Lwin told him the political activity was necessary to keep the contract.
Kapila may have personal reasons for speaking out -- he was expelled from North Broward Orthopedic Associates in 2002 after losing his malpractice insurance. The surgeon sued the company for reinstatement last year, and the case is pending.
Regardless of the infighting, Kapila's information is telling. Scherer and Lwin are definitely skilled at funding campaigns. During a 2002 race for state representative, the district backed challenger Franklin Sands over incumbent Roger Wishner, a Sunrise Democrat who was an outspoken NBHD critic. In all, Scherer and his family members gave $2,925 to the losing Sands campaign; he also raised tens of thousands of dollars more from legal and medical sources. Lwin gave $1,000 personally and $500 from his firm. Though Florida law sets a $500 contribution limit, the state elections database shows that he chipped in $500 on two different dates under the names "Sein Lwin" and "Lwin Sein."
"I think what is very obvious across the board is that if you have the connections, you do well at Broward General," Kapila says. "That is what counts, not medical expertise."
Lwin's connections have compensated him well. The NBHD contract, which includes $350,000 to help with malpractice insurance, pays his practice roughly $4,650 per 24-hour on-call period at the emergency room. To understand how high that number is, consider that Hollywood's Memorial Regional Hospital, which boasts the busiest emergency room in the county, pays just about a fourth of that, $1,200, to eight contracted surgeons for essentially the same service.
A handful of local orthopedists alleges that Lwin's lavish compensation allows him to subcontract much of the work to other doctors, freeing up his time for political functions. "The culture at the district is to feed at the trough," Kapila declares, "so you make as much money as you can while doing as little work as possible."
Lwin's qualifications as a surgeon certainly don't justify the contract. His curriculum vitae is bleak: A graduate of a Burmese medical school, he's been the subject of at least a half-dozen malpractice complaints during the past decade and has failed to become certified by the American Board of Orthopaedic Surgeons, the benchmark national organization. This despite the fact that the NBHD contract requires Lwin either to be board-certified or "eligible to be board-certified and in the process of obtaining such certification." Apparently, Lwin has been in the process of obtaining certification for at least the past 15 years.
"The joke is that he carries the suitcases of the district commissioners," says Dr. Michael Reilly, a board-certified orthopedist with a thriving practice in north Fort Lauderdale.
Reilly says Lwin's overcompensation is more the rule than the exception at the district. Back in September, Reilly complained at a monthly district board meeting about a deal between the district and Dan Kanell, who is the chief doctor for the Miami Dolphins and the Florida Marlins, and two of Kanell's partners. Reilly contends the contract violates federal law.
And it wouldn't have been possible without the behind-the-scenes work of Scherer and Blosser.
December 10, 2003, was signing day for Dan Kanell. He penned his name on contracts with NBHD that will likely pay him about $6 million, or $660,000 a year, for the next nine years. That figure represents about 65 percent more than the average pay for a sports medicine surgeon -- and it's just a part of a bigger mess of money.
His partners, George Caldwell Jr. and Erol Yoldas, also will make $660,000 and $502,000, respectively, from the district. Included in those salaries are $75,000 each for Kanell and Caldwell, the new sports medicine directors for the district. Another doctor, Kevin Kessler, also holds that title, NBHD now has three such directors.
Also included is $290,000 that NBHD will pay the doctors for taking care of the Dolphins and Marlins. The teams pay just $125,000 a year to the district, which means NBHD is subsidizing Kanell and his partners $165,000 to take care of rich athletes. This by a health system that was set up to care for the poor and uninsured.
After 18 months, the partners will be paid according to the number of patients they see and surgeries they perform. In the medical industry, every procedure is worth a commensurate number of "relative value units," or RVUs. The average sports medicine orthopedist pockets $28.10 per RVU, according to the Medical Group Management Association, a leading trade group. The district will pay Kanell $55.20 per RVU for his clinical work -- nearly twice the national average. But if you total his entire salary, it comes out to a whopping $79.10 per RVU, verging on three times the average.
Add another $2 million for a planned sports-medicine facility, $879,000 a year for support staff, and other benefits like rent and insurance, and the deal will cost the district more than $35 million by the time the contracts expire in 2012.
Kanell, who lives in Fort Lauderdale, does have a big name. After 35 years in in sports medicine, he's well known, having worked not only with South Florida teams but also with the Yankees and Orioles during spring training. The fact that his son, Danny Kanell, is a backup quarterback for the Denver Broncos only adds to the doctor's semifame.
But the 63-year-old Kanell knows his limitations; he almost exclusively performs arthroscopic surgeries. When a serious knee injury befalls a Dolphins star or a world-class pitcher like World Series MVP Josh Beckett, the athlete usually sees an out-of-town specialist.
Like Lwin, the practice hired the right men to secure the district deal: Blosser and Sayfie. And Caldwell, whose father is a former Republican state legislator and right-hand man to Rep. Shaw, is well-connected in his own right, counting Scherer among his patients (as well as NBHD Commissioner Steven Berrard). Caldwell also happens to live just a few blocks from Scherer and Lwin on Ponce de Leon Drive in Rio Vista.
The Kanell deal was first aired publicly on April 15, 2003, at a meeting of the district's Legal Review Committee. To justify the doctors' exorbitant salaries, officials submitted a one-page sheet, called a pro forma, that lists all projected revenues and expenses. Today, that document is shrouded in mystery. No district officials, including Scherer or Kanell, have taken credit for it.
That might be due to the fact that the pro forma heavily inflates the Kanell practice's projected revenues and suggests that the district violated federal law that forbids doctors from receiving remuneration for referrals of patients and medical services to health care providers like NBHD.
The first number on the pro forma is the revenue projection for the three doctors: $2,491,451. This correlates with industry averages -- but it represents a vast exaggeration of what Kanell and his partners made in past years.
Before signing with the district, Kanell, Caldwell, and Yoldas worked for the private Holy Cross Hospital in Fort Lauderdale. Holy Cross officials wouldn't discuss Kanell's work there, but one former hospital board member, who demanded anonymity, claims the doctors were unproductive and cost the hospital hundreds of thousands of dollars between 1998 and 2003. Those shortfalls prompted Holy Cross leadership to force them out of their jobs last year, the source alleges. Kanell, however, insists he and his partners left of their own volition.
The doctors' Holy Cross revenues aren't a matter of public record, but the hospital apparently has a leak. Someone sent the 2001 Holy Cross orthopedic report to Dr. Reilly. It indicates that Kanell and his partners collected only $1,288,406 -- or about half the district's projection.
Kanell insists those numbers are low but doesn't dispute that they came from Holy Cross. He admits he doesn't know how much his practice actually earned. "Holy Cross came back with three different sets of numbers at three different times," Kanell complains. "They have a totally inaccurate accounting system over there. They can't come up with the right numbers."
But it seems apparent that the district figures were inflated to justify the lucrative salaries negotiated by Sayfie, who also says he can't pinpoint the district's revenues. "What isn't being taken into the equation is the MRIs we bring [to the district] and other things, like x-rays and physical therapy," Kanell elaborates. "Our numbers are more than just our services."
Kanell is basically confessing that the district is paying his practice for referrals. The problem with that explanation is that such compensation may violate federal anti-kickback legislation. Those laws are in place because such payments may be viewed as an inducement to defraud Medicaid by referring patients for unnecessary medical procedures.
The NBHD pro forma even seems to formalize illegal kickbacks -- it includes $788,837 for "ancillary revenue" -- or money generated from MRIs, x-rays, and other procedures picked up by the district, and $500,000 that would go to the district for "rehab revenue."
Fort Lauderdale health lawyer Gabe Imperato says the federal anti-kickback law, which is a felony punishable by up to five years in prison and parallel civil legislation, known as Stark laws, have numerous exceptions. One of the "safe harbors" for doctors is in cases of a "bona fide employer-employee relationship," so long as the compensation falls under fair market value.
Imperato, who received the details of the Kanell contract without the names of the doctors mentioned, says a case might be made that the terms don't constitute fair market value and are therefore unlawful. He added that a prosecutor could also argue that the contract is so flawed that there is nothing "bona fide" about the relationship between the district and the practice.
Basically, any blatant violation of the law, whether there is an exception or not, could lead to prosecution, he says. "I would never recommend to my clients to abuse the exceptions, because at some point, somebody is going to get annoyed by it and decide you are using them as an abusive way to pay referrals," the lawyer explains.
At the heart of any case would be the pro forma. Scherer insists through his public relations firm that he never had any involvement with the Kanell deal from the beginning. He claims to have recused himself because, as a patient of Caldwell's, he had a conflict of interest. Other officials say Scherer, because of his conflict of interest with Blosser, tries to stay away from all deals involving the lobbyist.
But the facts show that Scherer was, in fact, deeply involved in the Kanell hire.
When the Legal Review Committee passed the Kanell contract in April, Scherer was there to explain it. Just days later, the district board passed the deal without any discussion or debate.
Then, in September, Reilly complained about the contract at a board meeting. "I think the biggest financial fallout that the district fails to consider is the impact of alienating physicians such as myself, who are disgusted with the inveiglement of the public health care system," Reilly told the board before criticizing the pro forma.
From his seat on the dais, Scherer addressed Reilly. "We are doing due diligence, and the information you are giving us is helpful," Scherer said. "We are listening. If you have something that shows that we are operating on incorrect assumptions, I'll look into it."
Look into it he apparently did. According to district CFO Mark Knight, it was Scherer who determined that the original pro forma was, in fact, improper. A new pro forma was drawn up last November -- and nearly $700,000 disappeared from Kanell's projected practice revenues.
The original pro forma indicated that the district would lose $23,000 during the first year of the contract. The second pro forma lists an astounding $900,000 loss to the district -- and taxpayers -- on the deal. Call it voodoo orthonomics.
Though district spokeswoman Sara Howley asserts that the old pro forma is "null and void," the new one never went back before the board or any committees, leaving commissioners clueless about a $900,000 bath. The new pro forma also still includes possibly illegal extra rehab and ancillary revenues.
Most suspicious is Scherer's insistence that he had nothing to do with the Kanell contract. The general counsel contends that Bill Eck, a lawyer with the firm of Greenberg Traurig, handled the entire contract for the district. But Eck says he wasn't hired until late 2003 to look into it -- after it had already passed the board. He also asserts the high salaries are based on the "marketing power" of the Marlins and the Dolphins. That explanation, however, isn't reflected in any significant way on either of the pro formas. "In our view, there is no legal problem with that," Eck says. "It's not paying the doctors for MRI procedures. It's a marketing issue."
Even NBHD Commissioner Paul Sallarulo, who was present during the April Legal Review Committee meeting, contradicts Scherer's claim that he was uninvolved: "The general counsel [Scherer] worked a lot on that contract."
Reilly believes there's a reason Scherer is attempting to shield himself from the Kanell agreement. "The pro forma is an indictment -- it shows how the district uses referrals to work up these contracts," Reilly says. "And Scherer is deadly afraid of that."
The doctor says he refuses to take patients to NBHD hospitals, which he claims amounts to a loss of $3 million in revenues for the district. Another prominent orthopedic surgeon, who asked not to be identified, concurred with Reilly and added that the district's unfair contracts had cost the public hospital system tens of millions of dollars in revenues.
"The commissioners are all basically stooges for the Blossers and the Scherers," the surgeon said. "Blosser gets a success fee to deliver the contract. Guys like me and a half dozen guys around town are pissed off about [unfair district contracts], so I go out of my away to direct knee scopes away from the district."
Like the Kanell contract, the Lwin deal has cost Broward General millions in business, contends Dr. Kevin Shrock, one of only a few orthopedic surgeons active at the hospital who are not connected to the ER contract.
Shrock, a Stanford-trained physician and assistant professor at Nova Southeastern University, says Lwin's concession has driven away numerous physicians and destroyed any chance of building a thriving orthopedic department at the hospital. "There have been essentially no orthopedists who have come to Broward General and stayed other than myself and my partner," he says. "And the reason for that is they are excluded from the contract. It has been impossible for them to build a practice there. There is just no credibility."
Shrock has remained loyal to Broward General for a decade, even designing a new operating room for the hospital's ongoing $163 million expansion. But the doctor says he may not be there in the future if the district doesn't put health care concerns over its preoccupation with politics.
"I'm not sure I'm going to be around when that hospital is finished," Shrock declares. "You lose patience. Sein Lwin takes precedence. We bring $4 [million] to $7 million in revenue, but the hospital has not done much to help us. We need young physicians to have access to this revenue and bring in patients and get busy. We need to open up [emergency room] calls to all doctors."
But Lwin's ER monopoly is just a symptom, Kapila says, of a larger disorder that is afflicting NBHD. "The district does not reward excellence in medicine; it does not reward excellence in patient care -- it rewards the political handshaking and the sucking up and the going for campaign contributions," the vice chief of surgery says. "And that eventually has to be to the detriment to the institution and the public. The mandate to find a cost-effective way to deliver the best possible care has been lost in the political shuffle of fundraising and contact-making."
The responsibility to change things at the district lies, of course, with the governor -- but it may take a grand jury to really make a difference.
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