Madera hospital CEO offered job, $150K check. Was it meant to ‘improperly influence’ her?

A Modesto-based company vying to take over a shuttered, bankrupt Central San Joaquin Valley hospital is accused of sending the hospital’s chief executive a $150,000 check that the hospital’s lawyers say was an attempt to “improperly influence” her decision-making.

According to a statement by the hospital executive, Karen Paolinelli, chief executive of Madera Community Hospital, she received an “unsolicited” job offer and the check made out to her personally during the competitive bidding process to find a financial partner to take over hospital operations.

Upon receiving the offer and check, she notified the hospital’s board vice chair, and then sent a certified letter response returning the check and declining the offer, according to bankruptcy court records.

American Advanced Management Inc. offered to retain Paolinelli in “an active leadership capacity” if they were to move forward as the hospital reopening partner, according to court filings, as well as providing her a $150,000 “signing bonus.”

“The entire interaction made me feel very uncomfortable,” said Paolinelli, in a court declaration submitted on Friday.

Attorneys Riley C. Walter and Kurt F. Vote said in court filings on behalf of Madera Community Hospital that the unsolicited offer and the check were an “obvious attempt to improperly influence the Debtor’s (Madera Community Hospital) decision-making” as well as an attempt “to improperly gain a competitive advantage” during the bidding process.

Karen Paolinelli Declaration by Melissa Montalvo on Scribd

In an email statement sent to The Bee on Sunday, an official from American Advanced Management Inc. said that at the time of their offer they did not believe there were any other interested parties or competing offers to operate or sell the hospital and they wanted to secure her services as an executive going forward.

“When American Advanced Management presented Karen with an offer letter and signing bonus in May 2023, our focus was on reopening the facility as quickly as possible for the community,” said Matthew Beehler, chief strategy officer for American Advanced Management Inc.

Beehler said Paolinelli’s continued involvement was key to a fast, efficient hospital reopening.

“We had been in talks with Karen and the board for six months at that point and believed they were moving forward with us as their partner. With Karen’s experience and specific work to reopen the hospital, securing her commitment seemed to be the next logical step,” he said in the emailed statement.

As the CEO of Madera Community Hospital, Paolinelli is involved in finding new reopening partners for the hospital, along with the hospital’s board of directors. The hospital has the exclusive right to submit a business reorganization plan – such as a plan to reopen under a management service agreement with a partner – to the court until Oct. 6.

Paolinelli doesn’t have the final say on the decision, however. Any proposed partner is subject to approval by a federal bankruptcy court, creditors, the California attorney general, as well as the state health department that has earmarked a $50 million loan for the hospital to reopen.

Index of Exhibits in Opposition to Motion to Compel by Melissa Montalvo on Scribd

Hospital seeks reopening partner

Madera Community Hospital closed its doors in late December and filed for Chapter 11 bankruptcy in March, after a deal to sell the hospital fell through, leaving Madera County’s 160,000 residents without access to an acute care facility.

The hospital announced in late July that it signed a letter of intent with Adventist Health, a faith-based, nonprofit health system operating in California, Oregon and Hawaii, to reopen Madera Community Hospital. The letter said that Adventist Health would plan to enter a management services agreement with the hospital contingent upon the hospital securing state funding.

In August, the state announced a $2 million bridge loan for the hospital, plus an additional $50 million contingent upon submission and approval of a “comprehensive hospital turnaround plan” from Adventist Health.

Less than a week later, AAMI, a hospital management company that operates eight California hospitals as well as clinics and urgent care centers, made public during bankruptcy proceedings its interest in being considered as a reopening partner.

AAMI, which is also a creditor with a claim in the bankruptcy proceedings, told a bankruptcy judge as well as The Bee that their proposal to take over hospital management should be considered because it’s a better deal for the community and creditors alike.

Hamid Rafatjoo, a partner with Raines Feldman Littrell LLP and lawyer for AAMI, criticized the hospital’s leadership for not seriously considering their offer and filed a motion for discovery to investigate why the hospital did not report AAMI as another possible reopening option to the court.

Paolinelli said in a declaration to the court that they had signed a non-disclosure agreement with AAMI and other third parties and could not divulge AAMI’s interest in the hospital.

Rafatjoo also alleged during a bankruptcy hearing that Madera Community Hospital management chose to move forward with Adventist Health “to preserve their jobs in the future.” Paolinelli said that the accusation was “completely false.”

This also is at odds with what Paolinelli said AAMI executives told her in an August meeting. AAMI leaders told Paolinelli that Adventist Health would “not keep you” once any transaction closed, according to a declaration Paolinelli submitted to the court. (Adventist Health’s letter of intent doesn’t specify details on hospital management’s future employment.)

Walter and Vote, the lawyers representing Madera Community hospital, said in court filings that American Advanced Management Inc.’s recent actions – and claims their proposal is better than that of Adventist Health – are an attempt to “harass” Madera Community Hospital and interfere with its right to create and propose a reorganization plan.

The hospital has the exclusive right until Oct. 6 to come up with a reorganization plan to keep the business alive and pay creditors over time.

Hospital’s future subject to bankruptcy court approval

AAMI said their offer to take over Madera Community Hospital is still on the table.

“We will continue to pursue all avenues to get support from the debtor, creditors, and bankruptcy court for our offer,” Beehler said. “Our offer will pay the creditors, take financial responsibility for current and future operations, and begin opening the hospital as soon as the court approves,” he said.

Walter, the lawyer representing Madera Community Hospital through the bankruptcy proceedings, said in an email statement to The Bee on Sunday that Madera Community Hospital is hard at work pursuing a management services agreement with Adventist Health.

He also said that when the hospital brings forward a potential deal to the bankruptcy court, “it will be very public and transparent so that dissatisfied parties can voice their opposition and be heard by the court.”

Approval of the management services agreement will be subject to objections if any party feels it is a bad decision, Walter said, but it will not be subject to bidding.

“MCH (Madera Community Hospital) is confident it can and will show that the decision to go with Adventist Health is best for the community,” he said.

A hearing is scheduled for Tuesday, Sept. 12 at 9:30 a.m.