Cover StoryA tale of two hospitals
The pitch was impressive.
With an offer on the table to purchase the Chicago Lakeshore psychiatric hospital, the State of Illinois required a public hearing as part of its approval process, allowing mental health advocates and residents to question and evaluate the potential buyer.
Which is why, in August of 2001, three top executives from the Salem Service Co. of California ventured to the Windy City. Their mission: assure folks that the company would provide quality care and, as a good corporate citizen, contribute to the well-being of the entire community. Salem’s vice president of operations, P. Blair Stam, handled most of the presentation, taking care to limn the character and qualifications of the man engineering the whole deal — a metro Detroit psychiatrist and businessman named Soon K. Kim.
“A few years back he decided to retire,” began Stam. “If you know Dr. Kim, retirement generally did not work for him. He’s too active. And he came out of retirement a few months later for two reasons. One, I think he was bored. But two, he had a heart for what was happening in behavioral health care. And in the Detroit area at that time, it was falling apart. The main hospital ... had gone into bankruptcy. And he felt that unless someone stepped to the plate, that knew what good care was, that knew the business, and was willing to step in and take some responsibility and not be greedy, that, as a high likelihood, they would continue to go down.
“He did step in at that time and purchased the facility, this first facility in Detroit in the mid-’90s out of bankruptcy, and has been very successful in turning it around, and it’s going strong to this day.”
Although never mentioned by name, the Detroit facility referred to is the Aurora mental hospital on the city’s west side. Stam hit the mark when he talked about Kim stepping in to retrieve from bankruptcy the one-time pride of Detroit’s mental health network; it’s difficult to overstate Aurora’s importance to the community. Established as a nonprofit corporation in the 1980s, Aurora’s primary mission became the delivery of care to troubled children and teens. Consisting of two buildings with a total of 140 beds, the hospital treated adults as well, including mentally ill inmates transferred from the county jail.
There were, however, a few details not covered in Stam’s presentation.
As he and his colleagues were touting Kim’s virtues in Chicago, Aurora was far from “going strong.”
Besieged by government health care regulators and facing dire financial straits, it circled a fast track to oblivion in August 2001. Within six months its lifeblood contract with the local mental heath board would be canceled and its doors closed, leaving Detroit without a mental hospital. The mentally ill who relied upon Aurora for two decades were forced to scramble in search of care outside Wayne County, further burdening already troubled lives.
As for Kim himself, a Metro Times investigation found evidence of a man much different from Stam’s depiction of a bored retiree motivated by altruism. Instead, his critics, financial records and court documents portray a shrewd and rapacious businessman.
According to our analysis, a web of for-profit companies affiliated with Kim collected at least $23 million from the hospital in a span of four years. That windfall came at a heavy cost, say critics, who point to government reports that show patients at Aurora suffered from inadaquate care while an undermanned staff struggled to do its job. An attorney for Kim disputes our financial analysis, saying the figure “sounds inflated.” The doctor defends his business dealings, saying his for-profit companies provided services at or below market rates, and that an independent board running the nonprofit hospital approved the contracts.
Moreover, says Kim, Aurora’s fate was part of a pattern.
“Media reports over the past few years have detailed the closure, and pending closure, of several mental health facilities/hospital units,” asserts Kim, who declined requests to be interviewed for this article but did respond to written questions. “Importantly, most, if not all, of these facilities serviced a predominantly Medicaid population. Cuts in Medicaid funding, among other factors, have played a significant role in the closure of hospitals throughout this county, state and country.”
That is indisputable.
There is also the matter of $4 million Aurora officials claim is owed them by the Detroit-Wayne County Community Mental Health Agency. William Stone, the former chair of Aurora’s board of directors, maintains that the county’s refusal to pay that debt is ultimately what led to the hospital’s downfall. The county agency claims that, rather than owing the hospital money, Aurora owes it more than $1 million.
That issue is being fought out in Wayne County Circuit Court.
But critics of Kim claim Aurora struggled under an additional burden.
“Dr. Kim milked Aurora for all he could,” says Mel Ravitz, a former Detroit city councilman who served on the Aurora board for more than a year before resigning in protest. “What happened there is scandalous.”
It was also, in key respects, a repeat performance. That’s another piece of information absent from Stam’s presentation: Aurora wasn’t the first Detroit hospital to sink while a company of Kim’s manned the helm. And it wasn’t the first to spark accusations that avarice on the part of Kim resulted in a shuttered hospital and lost jobs.
Before Aurora came Greater Detroit Hospital, which closed in 2000. Kim contends that the blame for that hospital’s failure, like Aurora’s, belongs to cuts in Medicaid funding and the failure of Wayne County to pay its bills.
But, in a bitter lawsuit that has dragged on for more than four years, a former business partner of Kim’s claims that he drained Greater Detroit to financially benefit Aurora and other companies he controlled, and that those actions financially crippled Greater Detroit.
At 60, Dr. Soon K. Kim has lived the American dream. The immigrant from South Korea and his wife, Bouh, who’s also a psychiatrist, have amassed a net worth of $40 million, according to an unaudited financial statement submitted to Illinois regulators. There’s a $1 million home in Bloomfield Hills, and a farm in Salem Township worth $6.2 million. There’s a second home, valued at $1.3 million, in the exclusive seaside community of Dana Point in Southern California. Kim’s share in seven health-care companies is worth $18 million, according to his financial statement.
There’s another $7.5 million in cash and investments, and millions more in retirement accounts.
Born and educated in Seoul, he immigrated to the United States in 1966 at the age of 24, arriving here with a medical degree, boundless energy and a head for business. After serving an internship in Buffalo, he moved to the Detroit area and began a residency in psychiatry at Wayne County General Hospital. He served at various local hospitals, rising into management before venturing out on his own. By the early 1990s, he owned a string of outpatient clinics operated under the name Evergreen Counseling.
In 1994, he bought his first hospital. Working with a fellow physician named Orekonde Ganesh, he purchased the bankrupt North Detroit General Hospital and an adjacent medical office complex on the border of Hamtramck for $2.2 million.
It was a risky venture. Southeast Michigan had an abundance of hospital beds at the time, and some saw the attempt to bring an empty facility back on line as foolish.
But Kim and Ganesh, with the help of administrator Linda Carroll, had a plan. First they created a nonprofit corporation they called Greater Detroit Hospital. The nonprofit, on paper at least, had control over running the reborn facility. With Kim, Ganesh and Carroll serving as the nonprofit’s initial board members, it leased the hospital and its equipment from Greater Detroit Hospital-Medical Centers, a new for-profit company they jointly owned. According to court records, Kim controlled 50 percent of the corporation, Ganesh, 43 percent and Carroll, 7 percent.
A second company with the same ownership structure was created to provide the hospital’s management team. According to the contract, that second company, First Sterling Management, would furnish a chief executive officer, financial officer and other top personnel responsible for day-to-day operations and long-term planning.
Carroll, a longtime family friend and business associate of Ganesh’s, was selected to be the CEO. Once everything was put in place, Ganesh and Kim recruited board members and stepped down from the board. The new trustees then ratified Carroll as the hospital’s CEO.
Restarting a bankrupt hospital proved every bit as daunting as the skeptics predicted. Because of the prior bankruptcy, credit was impossible to come by. Medical certification had to be acquired anew. Staff needed to be hired. Cash was chronically short. In retrospect, Kim would admit the venture was underfunded from the outset.
But Carroll persevered, and business began to build. According to her, she kept in constant touch with Kim, talking with him several times each day and sending him financial reports weekly. By 1997, according to an Internal Revenue Service filing, the 225-bed hospital had revenue of more than $8 million per year.
While Carroll handled finances and bureaucratic matters, Ganesh concentrated on medical operations. Kim’s role was to build up psychiatric services. To that end, a company named Promed Management, which had Kim as its president, signed a contract with Greater Detroit Hospital Medical Centers in April 1994 to provide a “partial hospitalization” program for mentally ill patients at Greater Detroit. More intense than outpatient services but less costly that full hospital stays, such programs provide daylong treatment over short periods.
Along with continuing to run the Evergreen Counseling Centers, Kim and a group of investors paid a reported $5.5 million for another hospital — a psychiatric facility in Warren known then as the Carlyle Center for Mental Health. It too had gone into bankruptcy. In addition to serving the general public, part of the facility, renamed Arborview, was leased to the Children’s Home of Detroit, a charity that provides an array of services to troubled children.
The partnership between Kim and Ganesh came to an abrupt end in July 1996 when Ganesh died in an accident. He drowned after his car plunged into a pond. He left a widow and three daughters.
Carroll refused repeated requests to be interviewed for this story, saying a confidentiality agreement and an ongoing lawsuit she has filed against Kim prohibit her from talking. The Ganesh family, which also sued Kim in a fight over how assets owned by the two doctors would be divided, declined to be interviewed as well.
But the accounts of what played out at Greater Detroit Hospital unfold in voluminous depositions taken as part of those lawsuits. According to Carroll’s sworn deposition, this is what happened following Ganesh’s death:
Kim wasted no time moving to fill the void created by his partner’s demise. At the funeral home, while the viewing was under way, Kim pulled Carroll aside and demanded that he replace Ganesh as president of Greater Detroit Hospital-Medical Centers, the for-profit company leasing the hospital to the nonprofit.
But assuming the presidency of the company wasn’t enough; he wanted control of both the hospital and First Sterling, the for-profit management company, and to do that he needed more than 50 percent of the stock.
In September 1997, Kim issued a letter of intent stating he would buy out his partners’ interest in the hospital and adjacent office complex, known as Carpenter Plaza, for $400,000. Because of her long friendship with Ganesh, Carroll was designated by his family to be the estate’s personal representative. She insisted on obtaining an appraisal of all the property before considering any offer.
Kim, seeking to gain her assistance in persuading the family to sell, attempted to “bribe” her, she testified.
“Dr. Kim demanded that I sell my stock to him or use my influence to induce the Ganeshes to sell stock to him. When I refused, Dr. Kim threatened to bankrupt the hospital and run them out.”
Kim says that accusation is “a complete and total fabrication.”
If so, it is well-embellished.
“He wanted to buy them out and he wanted to buy it at a low price without an appraisal,” Carroll testified. “He wanted me to convince the Ganeshes to sell their shares to him. And if I would do that, he would pay me. One number for sure was 5 percent of all the laboratory work that came through his Salem organization.”
“Do you have any idea, based on all the depositions we’ve been through, how much money we’re talking about?” Carroll asked, addressing the attorney who had been questioning her for hours. She answered her own question: “Probably millions of dollars. And for someone to say no to that, which I did, and protect the widow and three kids, which was the right thing to do, and I did that. Do you see why I have such a bad taste in my mouth about what went on at this hospital?”
By the fall of 1997, more than control of the company was shredding the business relationship between Kim and Carroll. She claims that’s when Kim began plundering Greater Detroit to the benefit of Aurora.
In the spring of 1997, a for-profit limited liability partnership, called Michigan Health Care Network and controlled by Kim, purchased the Aurora mental hospital in Detroit out of bankruptcy for $4.2 million to keep it operating.
Almost immediately, Kim set up a deal that was supposed to benefit both the new acquisition and Greater Detroit Hospital. Because of a state law in existence at the time, Aurora needed to be affiliated with a hospital that performed medical and surgical procedures. In addition, Greater Detroit would lease 40 beds at Aurora at a rate of $56,000 per month. Carroll testified that Kim promised her that the income associated with those beds would generate profits of 15 percent to 25 percent for Greater Detroit. Also, Aurora and Arborview began using Greater Detroit’s pharmacy, paying a 15 percent markup in return for being able to acquire the drugs without having to pay up front, according to Carroll. Aurora and Arborview were also cash-strapped and having credit problems because of their respective bankruptcies.
But the deals didn’t pan out.
By October 1997, Greater Detroit was in financial crisis. According to court documents filed by Carroll, a Medicare audit of the Promed psychiatric program found major problems. In essence, the government alleged that some patients who could have been controlled with medication and did not require acute care were needlessly being admitted to Greater Detroit, according to Carroll’s deposition. Another former hospital administrator agreed, stating in a deposition that the deal had indeed come under the scrutiny of regulators who alleged that required documentation showing the need for hospitalization was missing, and that the length of time many patients were staying in the program couldn’t be justified.
An investigator in Detroit’s Medicare office also confirmed that a probe had been conducted, but refused to provide details.
According to Carroll, the government demanded repayment of $786,000. She negotiated the amount down to less than $300,000.
Even more pressing was an issue with the Internal Revenue Service. Court documents indicate the IRS demanded back payroll taxes totaling at least $600,000. The state and City of Detroit were also owed payroll taxes.
On Oct. 17, 1997, Carroll told the board about the tax situation. She also presented a plan. According to minutes from the meeting, Carroll calculated that Aurora and Arborview owed Greater Detroit more than $500,000. Collecting that money would enable it to pay most of the IRS debt. In addition, the hospital was expecting an infusion of cash because of new programs coming on line, with as much as $400,000 due within months.
But Carroll never got the chance to put her plan into action. On Oct. 23, Kim summoned her to a meeting at Aurora and told her she was fired. Locks were changed at Greater Detroit; when she showed up there, armed security guards tried to force her out. When she refused to leave, the police were summoned.
Greater Detroit’s board of directors sided with Carroll. They maintained she was their employee, and that Kim, as president of First Sterling Management, had no authority to fire her.
Board President Timmiah Ramesh responded to Kim’s firing of Carroll by issuing her a letter saying the board was “pleased” with her performance and wanted her to remain as CEO.
Kim ignored their protests. They, in turn, refused to cooperate with Kim and the new executive officer he selected to succeed Carroll. The board filed a lawsuit to regain control of the hospital.
Jerome Moore, the attorney who represented that first board, says he has no doubt that Kim acted improperly in firing Carroll.
“It was illegal,” he says in response to a question about the lawsuit’s basis. “It should not have happened.”
But the lack of money to fight, coupled with the death of two board members and the steady decline in the hospital’s viability, eroded motivation to pursue the case. A replacement board was eventually installed.
“Our purpose was to try and preserve the hospital,” says Moore. “But at a certain point, it became apparent that wasn’t going to be possible.”
The Ganesh family, which along with Carroll still owned 50 percent of First Sterling, also went on record supporting Carroll.
But Kim prevailed. He appointed a new CEO, and brought in employees from his other companies to serve as officers of the nonprofit Greater Detroit.
Despite the IRS obligations, Kim directed that $300,000 be paid from Greater Detroit to Aurora within two months of Carroll’s firing, she testified.
She also alleged that Kim took the employees and inventory from Greater Detroit’s pharmacy and, without compensation to the hospital, used them to create a for-profit enterprise, Salem Hospital Pharmaceutical Co. (Salem Hospital Pharmacy and Salem Transportation were subsidiaries of a new management company, Salem Services, controlled by Kim.) Kim denies the allegation.
According to Carroll, Greater Detroit, which had owned the pharmacy, suddenly was paying a 15 percent markup for drugs.
Kim then attempted to squeeze Greater Detroit even further. Immediately following Carroll’s firing, he demanded payment of rent and management fees he claimed were owed. In a letter to the board, he stated that Greater Detroit Hospital-Medical Center was owed $4.8 million in rent, and that First Sterling Management was due $1 million.
“Kim made the demands to try to create a state of panic and crisis at the hospital so he could take over control,” Carroll alleged.
The $1 million bill from First Sterling is particularly interesting. During his deposition, Kim admitted that First Sterling had no offices, no phone, no stationery, no employees. Greater Detroit was its only client.
According to the deal First Sterling inked with Greater Detroit, the management company would provide a CEO, CFO, a risk analyst and a host of other management services. But, according to Carroll, during her tenure there was never a financial officer or risk analyst, and her CEO salary was paid by the hospital, not First Sterling.
Asked during a deposition whether the obligations outlined for First Sterling in its contract were fulfilled and the services actually provided, Kim, the company’s president, replied, “I cannot say exactly whether it was provided or not.”
Likewise, Laura Sanders, an attorney employed by Kim as an assistant in his various businesses, testified during a deposition that, to her knowledge, the only services provided by First Sterling involved supplying a CEO.
Asked to justify the $1 million management bill, Kim responded, “I don’t know the specifics.”
According to Carroll, First Sterling was never paid because Medicare had “disallowed” the management company’s charges, saying no work had been performed.
“I told Kim Greater Detroit Hospital was not going to pay because First Sterling Management didn’t provide the services,” Carroll testified.
Meeting minutes state that Greater Detroit’s new board members asked whether there would be any questions about their legitimacy. James Brenner, an attorney who represented the nonprofit corporation yet served as Kim’s personal attorney when he was sued by its board, responded: “It would appear that the purported board never were actually appointed.”
In any case, he added, the old trustees “have abandoned the role of board members by refusing to meet.”
The Rev. Jim Holley of Detroit’s Little Rock Baptist Church was selected chairman of the new board. A year later, as Greater Detroit was rapidly failing, the replacement board cried foul regarding the relationship between Greater Detroit and Aurora.
In a letter to the Aurora board dated March 18, 1999, Holley wrote that “$4,363,734.64 has been released to Aurora” without justifying documentation. In addition, Greater Detroit had provided Aurora more than $1.1 million in “in-kind service.”
“Pass through of dollars,” declared Holley, “will discontinue.”
According to Carroll, the motivation for Kim to funnel money into Aurora was a management contract that, in part, tied the for-profit Salem Services’ fees to a percentage of nonprofit Aurora’s revenue. At least four other for-profit companies affiliated with Kim relied on income from Aurora as well.
Eventually, Aurora no longer needed Greater Detroit. Because of a change in state law, it was no longer necessary for psychiatric hospitals to be affiliated with facilities providing medical and surgical procedures.
By late 1999, Greater Detroit was on its deathbed. Its staff had been reduced from a high of nearly 300 to a skeleton crew of 20.
At least two offers were made to purchase it, but according to Holley, no deal could be struck because of ongoing litigation between Kim, Carroll and the Ganeshes, who were fighting over ownership of the property and responsibility for paying back taxes.
“Our concern was to try and save that facility, and keep it operating as a hospital, because it performed a needed service for the people of that community,” says Holley. “But by the time our board was established, it was all downhill. By that point, there wasn’t much anyone could have done to save it.”
Kim cautions that sworn deposition testimony from Carroll, his former business partner, should be kept in perspective.
“We hope that in reading Ms. Carroll’s deposition, you considered the possibility that Ms. Carroll was in the midst of litigation she hoped to financially benefit from,” he wrote in response to questions from Metro Times.
Court documents provide a variety of reasons Kim gave justifying Carroll’s firing.
In a sworn affidavit provided by Kim a month after the dismissal, he claims to have been completely unaware of nonpayment of payroll taxes. He said he learned of the situation when he inquired about a $75,000 payment due Aurora.
“When I asked Ms. Carroll about the payment she said she could not pay Aurora because she had just sent $100,000 to the IRS for payroll taxes. This aroused my suspicions. On further investigation, I found that Greater Detroit Hospital actually owed hundreds of thousands of dollars more in payroll taxes than Ms. Carroll had led me to believe.”
An attorney for Kim offered the same explanation to the new Greater Detroit board.
Kim also claimed to have become concerned that Carroll had a conflict of interest — she was working for Greater Detroit while owning stock in First Sterling.
“In my opinion, to avoid related party transactions, the CEO of a nonprofit corporation should not hold any stock in a profit-making corporation ...” he wrote to her two weeks before her dismissal — and more than two years after he helped create the very situation he was complaining of.
Kim also accused Carroll of devoting an inordinate amount of time to issues related to the Ganesh estate, detracting from her Greater Detroit obligations. There were also allegations that Carroll was an incompetent administrator, and questions about her honesty were raised. Those allegations led her to add slander and libel to her lawsuit against Kim and his companies.
Ultimately, Kim testified: “I fired her because I thought that as president [of First Sterling] I could fire her without any cause.”
Asked during a deposition to point out where in the agreement between First Sterling and Greater Detroit that power is granted, he could not. But, Kim protested, he was just a layman. Asking him to interpret a legal contract was unfair.
Under questioning during a deposition, Sanders, the attorney who served as Kim’s right-hand assistant, agreed that Kim was extremely intelligent, extremely logical and very detail-oriented.
But the person reflected in Kim’s deposition sounds markedly different. He displayed a porous memory, a hands-off management style and an incomplete command of English.
For example, when asked about his role at Greater Detroit Hospital, Kim responded: “I was not involved in nothing, period, at Greater Detroit Hospital.”
Asked when the hospital’s board was created, Kim replied, “I have no idea.”
Pressed to say whether Carroll was an employee of First Sterling or an independent contractor, Kim stated, “I don’t know what I understand.”
Typical of Kim’s deposition testimony was this exchange between him and William Dobreff, the lawyer for Carroll.
Q: Dr. Kim, were you supervising the CEO? Were you?
A: I don’t understand. I just as part of management contract First Sterling Corporation has obligation to provide qualified professional manager who work as chief executive officer for the nonprofit corporation. I don’t supervise none because we have different expertise but that person I would expect to function as in chief executive officer which whatever that function is to make assure that hospital corporation runs without getting in trouble.
Q: Were you supervising her, sir?
A: I’m not supervising her.
Carroll’s difficulty during her deposition was of a different sort. Transcripts of her testimony make it seem obvious she had trouble keeping her emotions from spilling over at times. She testified to sometimes forgoing pay so that checks to hospital staff wouldn’t bounce, and to purchasing equipment with a personal credit card when hospital accounts were running low.
She was particularly fervent when discussing the issue of greed with Kim attorney James Brenner.
“That’s why we’re still here today,” she said. “And that’s why that hospital’s overgrown with weeds and no patients are being seen. You should be ashamed, and Dr. Kim. Greed, Mr. Brenner. Greed.”
Last year, a part of that lawsuit was settled, with Kim agreeing to pay the IRS more than $600,000, receiving control of the hospital and medical building in return.
Kim maintains that Greater Detroit proved to be a losing proposition. Kim says he and Salem “have lost a lot of money because of mismanagement by others.”
That may be true. But if Linda Carroll’s allegations are correct, while Greater Detroit was losing money, Kim and his companies reaped a fortune at Aurora.
“He benefited directly from money paid to Aurora,” alleged Carroll, “and he left Greater Detroit with no means to stay afloat.”
The hospital shut its doors permanently early in 2000. Because of the length of time it’s been idle, the hospital’s state license was formally revoked last month.
“I look at that hospital standing there empty,” says the Rev. Holley, “and I just see so much waste.”
Next week: Dr. Kim establishes a web of companies that reap millions of dollars while patient care suffers, an undermanned staff struggles, and another hospital shuts its doors.
Check out Dr. Kim and his associates' web of nonprofit and for-profit companies.
Who sits on the board of directors for Dr. Kim's nonprofit corporation?
Read the second installment of this controversial cover story.
Curt Guyette is the Metro Times news editor. E-mail email@example.com.