Fight Over Hospital Inflicts Deep Wounds

Once the city’s pride and joy, Downey Community Hospital was everyone’s favorite charity. Prominent citizens competed for seats on the hospital’s board of directors. Its annual Charter Ball topped Downey’s social calendar.

“The hospital was the crowning glory of this city,” recalled former City Councilwoman Barbara J. Riley. “When you got on the hospital board, you reached the pinnacle of social standing in the community.”

But what had once been a unifying factor in Downey now is the wedge that is tearing the community apart. Residents feel they have lost control of their cherished institution to a small group of insiders, who say only they can save the hospital from being shut down or swallowed up.

From courtrooms to the doctor’s dining room, from the annual charity ball to the sidelines at Little League games, three years of intense legal, political and social skirmishing have created bitter divisions in this middle-class bedroom community of 100,000.

Careers have been ruined, reputations destroyed, and a cloud of uncertainty cast over a once-proud hospital trying to survive in the steadily shrinking world of independent medical centers.

As an outgrowth of the escalating battle, hospital directors are the focus of an investigation by the state attorney general’s charitable trust division. There will be a state audit. And a bill moving through the Legislature would require the hospital to seat City Council members on its corporate board of directors.

City’s Establishment Has Been Split

The fight is largely about money--a charitable endowment estimated to be as high as $120 million--and whether rules are being bent and broken by those spending it. But it’s also about what longtime community residents say is a violation of the trust and sweat they’ve poured into the hospital for the last three decades.

Longtime volunteers and community hospital directors say that before they knew it, their hospital was hijacked from them in a series of Machiavellian moves by hospital administrators who went on a secretive spending spree.

The administrators tell a different story, saying that the moves that turned the quiet community hospital into a hydra-headed health corporation were necessary. Along the way, Downey was turned into a city of Hatfields and McCoys, firing legal briefs instead of bullets.

“The heart’s been ripped right out of this community,” said one prominent local citizen, describing the bitter infighting.

Doctors from warring factions have faced off in the physicians dining room, exchanging angry words. Longtime regulars at the charity ball have turned back their invitations, refusing to write any more big checks. When a hospital executive walks into a Rotary Club meeting, eyes turn to a onetime friend, who has been known to get up and walk out.

Pushing the debate are the dynamic tensions underway in both the health care industry and southeast Los Angeles County, where populations are changing from Anglo to Latino and the institutions that serve them are shifting and changing to keep pace.

Simply by staying open, independent Downey Community Hospital is bucking the trend.

Over the last 10 years, 53 hospitals have closed their doors in Southern California, victims of an insurance-driven squeeze on health plan payments and technological advances that are keeping fewer people in hospitals for shorter stays. While hospitals in nearby Lynwood, Lakewood, Cerritos and Long Beach have been gobbled up by bigger, richer corporate entities or simply closed, Downey has remained independent. Even though it lost $2.6 million last year, hospital officials say its financial balance sheet is rock solid, largely because of the hefty endowment.

Whether all this has had an effect on health care is debatable.

Dr. John Kurnick, former chief of medicine and a onetime hospital board member, recently told a panel of state lawmakers that there had been a “dramatic deterioration of patient care” at Downey Community in recent years.

Kurnick complained that patient records were being misplaced, that the hospital was understaffed, and that experienced registered nurses were being replaced in the wards by caregivers with far less training.

But hospital executives point to a relatively high eighth-place finish in a survey of 72 Los Angeles area hospitals conducted by HCIA Inc., a health care information firm.

One thing that is not debatable is the toll that Downey Community’s struggle to stay independent has had on the city.

What passes as conversation in Downey often starts with a subpoena and ends with a deposition.

Neighbors who have known each other most of their lives have stopped talking. Friends have turned on each other. Heated exchanges develop at service clubs at the mere mention of the hospital.

“Everybody in town has an opinion about it,” said banker and Optimist Club member Steve Allen. As for his own views, Allen declined to comment. Like many in Downey, he has friends on both sides of the feud, and tries to stay out of the cross fire.

A Home-Grown Source of Pride

For nearly three decades, money and goodwill poured into the hospital, helping to build the huge endowment now keeping the hospital afloat. Built with city-backed bonds, private donations and a favorable land lease, the hospital opened in 1969. At the time, City Council members were allowed to sit on the hospital board and review its annual budget.

“For 25, 26 years it was sort of a fairy tale,” said hospital President and Chief Executive Allen Korneff, 58, who grew up in the community and has been with the hospital for 29 years. “And within a couple of years that was all destroyed.”

Angry residents said it was Korneff who played a huge role in destroying the hospital culture’s tradition of collegiality.

Seeing hospitals squeezed financially, Korneff and his allies decided on a strategy that would mimic giants in the field like the Kaiser Foundation. Within a relatively few years, Downey Community would have its own insurance plan, an HMO, home health care and van shuttle service, as well as a partnership with a physicians group.

But the investments would be risky, so to make it work, Korneff solidified power into a select group of loyal supporters on the hospital’s board of directors. Critics were purged, and in the process, relationships with scores of longtime community volunteers and fund-raisers were destroyed.

Taking extraordinary steps to shield the hospital’s inner workings from public view, directors reorganized hospital boards and went to Sacramento to win passage of a law that carved a special exemption for the hospital in the state’s open meeting law. The City Council, which once sat in on board of directors meetings and reviewed the hospital’s annual meeting, is now locked out of meetings of the hospital’s new corporate board.

“For survival, we had to go this way,” Korneff said.

The lease between the city and the hospital is the focus of much of the unhappiness. The most recent version of the lease was approved by 72% of the city’s voters in 1983.

Addressing city leaders at a recent legislative hearing, state Sen. Steve Peace (D-El Cajon) told them it “is written in circles to say you have no power.”

Among other things, the lease allowed directors of the Hospital Foundation Board, including hospital executives, to create a smaller and more powerful board--and took power away from the once revered Hospital Foundation Board, which at times numbered up to 130 prominent citizens.

Critics say Korneff and his allies ran roughshod over anyone who questioned their moves.

Civic activist Rosemary Ferraro lost her seat. For her, the fight took on personal overtones. Ferraro had lived up the street from Korneff and watched the hospital chief grow up. The two no longer speak.

Dr. Kurnick, the patient care critic, also was removed from the hospital board at the same time. Kurnick had climbed Mt. Kilimanjaro and hiked in Nepal with Korneff and considered him a friend. No more. The two don’t speak.

Upset by the moves of hospital management, a hard-core group of about 100 Downey residents organized to fight the changes. Petitions were circulated and ads criticizing Korneff and his allies were taken out in the local weekly newspaper, the Downey Eagle.

Anonymous letters targeting hospital executives and the physicians group they had partnered with, CareMore, began circulating, accusing them of crimes and even sexual improprieties.

A headline on one of the letters captures the spirit of the anonymous missives: “More on sex, lies and deceptions.”

A defamation suit was filed by targets of the letters against Dr. Verner Waite and a group called Concerned Citizens of Downey, accusing Waite of being the author of slanderous dispatches. Waite, a surgeon now retired, denies the allegations, but concedes that he had private detectives investigate the hospital and CareMore physicians.

As events snowballed, hospital management became embroiled in a fight with Dr. Ron Crowell, onetime hospital golden boy who for 20 years ran the emergency room and led a $4-million fund-raising drive to build a new one, which opened last year. But Crowell ran afoul of the hospital administration when, as chair of the Memorial Trust Foundation Board, he raised questions about what he thought were risky loans with CareMore and dealings between hospital executives and friendly physicians.

Among those were loans of at least $15 million to CareMore physicians. In the hospital’s last budget, $7.6 million in loans were written off as possible losses. The hospital also bought nearby Rio Hondo Hospital, then took a $3.6-million loss after closing it.

Directors of the hospital’s parent corporation took away Crowell’s foundation seat and Korneff terminated his contract to run the emergency room.

Crowell responded with a lawsuit, charging hospital officials with a breach of charitable trust by illegally moving millions from the $120-million endowment into for-profit corporations such as CareMore.

As tensions escalated, the hospital last year sued the city, and the city counter-sued the hospital. At issue was whether city officials had a right to sit as nonvoting members on the board of directors.

Relations with the city are so contentious that when Mayor Gary McCaughan and other city officials go to a Foundation Board meeting they cannot take documents out of the meeting room with them.

As the fight goes on, there is no end in sight. Just last month, a delegation of local leaders went to Sacramento seeking a review of the hospital’s lease and other issues.

“The hospital has just lost the confidence of the community,” said state Sen. Betty Karnette (D-Long Beach), who was elected with the help of hospital critics from Downey and pressed hard for the audit.

Legislators at a recent hearing in Sacramento suggested the two sides try to work things out.

But no one is holding their breath.

“It’s like both sides have drawn a line in the sand and dug in,” said businesswoman Diane Boggs, 66, a former mayor and a councilwoman for 12 years. “They can’t seem to negotiate or arbitrate their way out.”