Central Health’s $35 million payments to Dell Medical School an unlawful ‘gift of public funds’ that exceed statutory authority

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The University of Texas at Austin Dell Medical School

Commissioners Court to consider ordering that Central Health undergo an independent audit

Let’s be blunt. Under the Texas Constitution and Health and Safety Code, The Travis County Healthcare District, aka Central Health, is prohibited from spending any part of the $2 billion-plus it has received in local property tax funds since 2004 for anything other than healthcare services for Travis County’s neediest residents.

But laws that strictly limit how Central Health spends taxpayer funds have not stopped Central Health from transferring $35 million a year to the University of Texas at Austin for use by the Dell Medical School.

The obligation for these $35 million annual payments was established through an Affiliation Agreement executed July 10, 2014 between the University, Central Health, and its nonprofit subsidiary Community Care Collaborative. Those transfers started in 2015 and total $245 million to date. Another $35 million is due this year.

University documents published online plainly state that the Dell Medical School has no intention of providing healthcare services to low-income patients in return for these funds.

The Glossary of Terms within the University of Texas at Austin’s Operating Budget for the Fiscal Year ending August 31, 2022, classifies the money received from Central Health as “nonoperating.” This is defined as “Funding received from state or local governments for which no exchange of goods or services is perceived to have occurred (including) funding for the U.T. Austin Medical School provided by the local healthcare district.”

The details included in the University’s budget for Dell Medical School show $35 million in income from Central Health and list 12 line items for medical school expenses paid with Central Health funds totaling $11.5 million.

Those expenses are: $200,000 for a design institute, $400,000 for health disparities, $900,000 for medical education, $1.7 million for business affairs, $800,000 for communications, $500,000 for development, $1.1 million for strategy and partnerships, $1.4 million for research, $900,000 for professional education, $900,000 for undergraduate medical education, $1.4 million for facilities, and $2.2 million for technology.

There is no indication in the Operating Budget of what the University intends to do with the remaining $23.5 million out of the $35 million that Central Health provided for that budget cycle.

The Bulldog asked the university’s media office June 21st to show where within the UT Operating Budget for Fiscal Year 2022 the goods or services provided to Central Health can be found. Receiving no response, the Bulldog followed up June 24th. The university still has not responded. The Bulldog filed a public information request June 27th for a list of goods and services provided to needy healthcare patients of Travis County and to identify where the UT Dell Medical School has budgeted to provide goods and services to Central Health’s patients.

Narrow constraints on Central Health spending

Healthcare districts are authorized by the Texas Constitution, Article 9, Section 4, to “assume full responsibility for providing medical and hospital care to needy inhabitants of the county.” (By statute, a healthcare district is technically a hospital district.)

Unlike home-rule cities such as Austin, which can do anything not specifically prohibited by state law, healthcare districts may only do what state law specifically authorizes.

To that end, state statutes provide detailed restrictions for what a hospital district can do. Health and Safety Code Chapter 61, the Indigent Health Care and Treatment Act, in Sections 61.055 and 61.028 sets forth specific basic services that hospital districts “shall endeavor to provide.” These include:

(1) Primary and preventative services to include immunizations, medical screening, and annual physical examination; (2) inpatient and outpatient hospital services; (3) rural health clinics; (4) laboratory and X-ray services; (5) family planning services; (6) physician services; (7) payment for not more than three prescription drugs a month; and (8) skilled nursing facility services, regardless of a patient’s age.

Section 61.0285 lists optional medically necessary services that may also be provided if determined to be cost-effective:

(1) ambulatory surgical center services; (2) diabetic and colostomy medical supplies and equipment; (3) durable medical equipment; (4) home and community health care services; (5) social work services; (6) psychological counseling services; (7) services provided by physician assistants, nurse practitioners, certified nurse midwives, clinical nurse specialists, and certified registered nurse anesthetists; (8) dental care; (9) vision care, including eyeglasses; (10) services provided by federally qualified health centers, as defined by 42 U.S.C. Section 1396d(l)(2)(B); (11) emergency medical services; (12) physical and occupational therapy services; and (13) any other appropriate health care service identified by department rule that may be determined to be cost-effective.

The statute allows Central Health to arrange to provide such healthcare services through a number of different agencies or even provide these benefits through health insurance. But it is self-evident that Central Health lacks statutory authority to transfer $35 million a year to the UT Dell Medical School and receive nothing in return.

Illegal ‘gift of public funds’

If, as it appears, UT Dell Medical School is not actually providing healthcare services for the needy residents of Travis County—a question of fact that an independent audit being considered by the Travis County Commissioners Court should determine with certainty—then the $35 million a year it receives from Central Health may constitute an illegal gift under the Texas Constitution, Article 3, Section 52(a).

Susan Spataro

That’s the opinion of Susan Spataro, who served as Travis County auditor from September 1988 to September 2012.

In a June 22nd email, Spataro wrote: “In a nutshell Section 281 (of the Health and Safety Code) very narrowly defines public purposes as medical and hospital care for indigents in Travis County. There is not a lot of latitude on that.

“Otherwise in my opinion the money is a gift.”

“When I was the Auditor, social service agencies always wanted us to send them a check with the vague idea of go forward and do good. We would not do that. We rarely disbursed money to anyone prior to services/goods being rendered and documented.”

Spataro’s written analysis of Central Health’s funding arrangement goes into greater detail, stating, “It is always risky to distribute money first and then look for documentation of compliance after the money is disbursed, as opposed to paying for services after they are rendered and documented.”

“Without documentation of the medical and hospital services provided by DMS (Dell Medical School) to the poor in Travis County, it is difficult to determine if the $35 million in funds were spent consistent with the public purpose (her emphasis) stated in Section 281 or were a broad-based gift of public funds to DMS.” (our emphasis.)

Rebuffed reforms triggered a lawsuit

Actually, there’s nothing new in these findings being brought to light by this investigation. For years Central Health’s critics have tried with little success to get the Travis County Commissioners Court to use its statutory authority to increase accountability for the organization that by law is solely responsible for funding healthcare services for the poorest people in the community.

Bob Ozer
Bob Ozer
Fred Lewis

These efforts stretch back to at least 2017. Back then two experienced attorneys, Fred Lewis and Robert “Bob” Ozer, did everything they could to increase scrutiny of how Central Health spends taxpayer money and what benefit that money delivers for low-income patients. One or both of them testified to the University of Texas Board of Regents, the Travis County Commissioners Court, and the Board of Managers of Central Health, in fact to the latter two agencies on multiple occasions. Their efforts proved fruitless.

At a September 19, 2017, Travis County Commissioners Court meeting, reported by the Bulldog September 29, 2017, Travis County Judge Sarah Eckhardt said, regarding the rules Lewis and Ozer had proposed to tighten Central Health’s accountability, “I’m trying to get us out of financial legalities. These things are decided by a civil court—not the commissioners court.”

It’s as if Eckhardt was inviting a lawsuit. And it wasn’t long before one came.

As the Bulldog reported October 18, 2017, Fred Lewis, along with Phil Durst and Manuel Quinto-Pozos of Austin-based Deats Durst & Owen PLLC, filed suit on behalf of several taxpaying citizens of Travis County.

In response to the lawsuit, Central Health issued a statement the same day: “…we are confident Central Health’s investment in Dell Medical School at the University of Texas is legal and appropriate…As a result of our Affiliation Agreement with Dell Med, today, nearly 300 medical residents are working in Travis County hospitals and clinics serving people with low income. We’re also improving specialty care services for people who are low-income and uninsured.”

That lawsuit against Central Health and its president and CEO, Mike Geeslin, in his official capacity, is still active. (Case No. D-1-GN-17-005824) Discovery is underway. Plaintiffs filed  a First Amended Original Petition March 21st. (Durst’s name does not appear in recent court filings because he died in 2019.)

Central Health is represented in the litigation by Beverly Reeves and Sinéad O’Carroll of Reeves & Brightwell LLP along with Daniel Richards and Clark Richards of Richards Rodriguez & Skeith LLP.

The lawsuit seeks a declaratory judgment that defendants may expend funds only on items related to furnishing medical aid or hospital care to indigent and financially needy Travis County residents for a statutorily authorized purpose. It also seeks a temporary or permanent injunction to enjoin defendants from expending funds on anything not related to those purposes.

Although the state statutes are perfectly clear about what Central Health may spend its money for, the legal waters were muddied by the ballot language of a November 6, 2012, election. Fifty-five percent of voters who cast ballots in that election approved a property tax increase of five-cents per $100 property valuation.

The ballot language stated, in part: “funds will be used for improved healthcare in Travis County, including support for a new medical school consistent with the mission of Central Health (emphasis added), a site for a new teaching hospital, trauma services, specialty medicine such as cancer care, community-wide health clinics, training for physicians, nurses and other healthcare professionals, primary care, behavioral and mental health care, prevention and wellness programs, and/or to obtain federal matching funds for healthcare services.”

If a trial is conducted it will be up to the court to decide whether Central Health must comply with the Texas Constitution and state statutes or the ballot language provides sufficient latitude to do otherwise.

Should the plaintiffs win the case to stop Central Health from transferring $35 million a year to the UT Dell Medical School, that would halt future payments. But likely it would do nothing to recoup the $280 million already given. That’s because “Generally, sovereign immunity protects governmental entities from lawsuits for money damages,” according to legal precedent in City of El Paso v. Heinrich 284 S.W.3rd 366 (Texas 2009). The rationale for governmental immunity, set forth in other litigation, is to protect “the public from the costs and consequences of improvident actions of their governments.”

Red Flags Report

While progress in the litigation has been slow—it’s still in the pre-trial discovery phase—criticism of Central Health’s spending has not abated. It escalated this year when Health Equity First, a joint project of NAACP Austin and Texas LULAC District VII, issued its Central Health Red Flags Report. The report, released at a March 23rd press conference, calls for the Travis County Commissioners Court to order a comprehensive independent third-party performance audit. The report states the Commissioners Court has “express statutory authority to oversee Central Health’s finances” under Texas Health and Safety Code Sections 281.049 and 281.053.

Among the numerous “red flags” listed in the report are: (1) the federal inspector general found $83 million in impermissible payments involving the Community Care Collaborative, Central Health’s subsidiary nonprofit; (2) Central Health’s contingency reserves grew from $36.6 million to $298 million in the last five years, an eightfold increase; and (3) Central Health gave Dell Medical School $280 million (the figure assumes the 2022 transfer will be made) without receiving documentation for the amount and type of direct healthcare provided to needy patients.

Ted Burton

Asked for Central Health’s response to the claims made in the Red Flags Report, Ted Burton, Central Health’s vice president of communications, said in a June 24th email, “Unfortunately, the report is not based on facts. Of Central Health’s FY2022 $506 million budget, more than 97 percent ($491 million) is dedicated to healthcare delivery for people with low income. These are people at or below 200 percent of the Federal Poverty Level, and…in FY2021 more than 147,000 individuals received a health care service funded by Central Health.”

Burton, however, has not not responded to the Bulldog’s follow-up question sent in a June 25th email: “Specifically, what facts does Central Health contend are wrong in the Red Flags Report?”

Performance audit under consideration

A draft order prepared for the Travis County Commissioners Court states, “Pursuant to Chapter 281 of the Health and Safety Code and Article 9 of the Constitution of the State of Texas, the Travis County Commissioners Court hereby orders a comprehensive, independent third-party performance audit of the Travis County Healthcare District (aka Central Health) per the attached order and that this order shall become effectively immediately.”

It should be noted this is a very different Commissioners Court than it was in 2017. Sarah Eckhardt and Commissioner Gerald Daugherty (the court’s only Republican) have departed. Eckhardt won a state senate seat and Daugherty retired. The were succeeded by Andy Brown and Ann Howard, respectively.

The draft being considered calls for the Commissioners Court to prescribe the terms of a Request for Proposal and within 45 days select an independent third-party firm to conduct the performance audit. Central Health would be required to pay for it.

The draft states the audit firm(s) selected will be an independent third-party, without potential or actual conflicts of interest with Central Health or its affiliate components, because of prior or ongoing relationships with Central Health, the Community Care Collaborative, CommUnityCare, Dell Medical School or the University of Texas at Austin. The audit firm(s) will have wide professional healthcare organizational performance, accounting, management, and auditing experience. The audit firm(s) will report solely to the Travis County Commissioners.

If approved the order would require the audit firm within 90 days to determine the specific amount of healthcare services provided by Dell Medical School from the $35 million annual payments. The audit firm would be required to complete a number of additional tasks within 180 days. A written report of audit results would be presented to the Commissioners Court and “made fully public.”

The Commissioners Court is tentatively scheduled to discuss the audit order July 12th although the language may be revised before the matter comes to a vote.

Peck Young
Peck Young

Peck Young, who was a political consultant for some 50 years and is now retired, is one of several volunteers lobbying members of the Commissioners Court to order the audit. In a June 24th interview he said, “We think we have a majority of the court but it’s like lot of things I’ve worked on. People agree with each other but they don’t agree about what they agreed on.

“I think we’ve built a clear majority on the concept (of ordering an audit). But in government, everybody may be saying ‘It’s a great idea,’ but we have to have final language—and we’re working on that.”

Central Health contends this audit not needed

Communications Vice President Burton said in his June 24th email, “Central Health already undergoes a comprehensive independent performance review every five years, which was recommended by Travis County Commissioners. Our last review was conducted in 2017 with a comprehensive report issued in 2018. Our next review is scheduled for 2023, and planning is currently underway.

“Central Health has implemented or is in the process of implementing many of the recommendations in the 2017 review, including the Systems Planning Review, which resulted in the Healthcare Equity Plan (Equity-focused Service Delivery Strategic Plan) adopted by the Board of Managers in February of this year.

However, when that review was produced in 2017, Central Health overstated its findings with respect to the $35 million a year transfers to the UT Dell Medical School. In fact, Central Health issued an August 31, 2017, press release headlined, “Auditor Reports ‘No Findings’ After Reviewing Central Health-related Dell Med School Financial Transactions.

Calling that an “audit” was inaccurate. The six-page document issued August 17, 2017, by Austin-based CPA firm Atchley & Associates plainly states, “We were not engaged to and did not conduct an audit….”

Instead, the document is labeled a “Report on Agreed Upon Procedures.”

As the Bulldog reported September 29, 2017, that report made no attempt to address whether or how much funding was used by the medical school to deliver indigent healthcare services. That point was made clear in the Board of Manager’s discussion when the Atchley report was presented.

Others lobbying for the audit

Gonzalo Barrientos

Nelson LinderIn addition to Peck Young, two other volunteers are working to gather the Commissioners Court votes needed to approve the audit order. They are retired State Senator Gonzalo Barrientos (D-Austin) and NAACP Austin President Nelson Linder.

Barrientos coauthored Senate Bill 1905 with Jeff Wentworth (R-San Antonio) to provide the statutory authority for establishing the Travis County Healthcare District. Although that bill failed to pass in the 2003 session, Wentworth’s amendment to House Bill 2292 was accepted and details of SB 1905 were made part of that larger bill, which passed. Then, in the election of May 15, 2004, 55 percent of voters casting ballots approved. In the election of November 6, 2012, the same percentage of voters approved raising Central Health’s property tax rate by an additional 5 cents per $100 valuation.

Since its establishment in 2004, Central Health has received $2.022 billion dollars ($2,022,538,235 to be exact) in property tax funds, Communications Vice President Burton said in an email. Thus, the $280 million transferred (assuming this year’s $35 million is given) to the UT Dell Medical School represents 13.8 percent of Central Health’s total property tax revenue.

Barrientos told the Bulldog in a June 21st interview that he wants the proposed performance audit finished, problems identified, and needed changes in Central Health made as soon as possible.

“The bottom line is we need to get people who are hurting treated now, not when UT finds a cure for cancer in five years. They need treatment now.”

In a June 22nd interview, Linder said, “This time we are focused on healthcare disparities that haven’t been addressed in Central Health’s history. I want all people treated the same. If we can’t send healthcare services to black and brown people we need to address that.

“I want to make sure all people are treated fairly. We’re all paying the same tax rate,” he said.

This story was updated at 2:45pm July 26, 2022, to correct information about the specific enabling legislation that allowed for an election to be held for the creation of the Travis County Hospital District, aka, Central Health. 

Trust indicators: Ken Martin has been doing investigative reporting in the three-county Austin metro area since 1981. He’s been investigating and reporting on Central Health since 2018. See more on Ken on the About page. Email [email protected]

Who funds this work? This report was made possible by contributions to The Austin Bulldog, which operates as a 501(c)(3) nonprofit for investigative reporting in the public interest. You can help support this independent coverage by making a tax-deductible contribution.

Related documents:

Affiliation Agreement, The University of Texas at Austin, Central Health, and Community Care Collaborative, July 10, 2014 (49 pages)

Atchley & Associates Independent Accountants’ Report, August 18, 2017 (6 pages)

Central Health Red Flags Report, March 23, 2022 (20 pages)

Central Health management response to Germane Solutions performance review, February 12, 2018 (7 pages)

Central Health press release, Auditor reports “no findings” after reviewing Central Health-related Dell Med School financial transactions, August 31, 2017 (1 page)

Central Health Statement of October 18, 2017, regarding the lawsuit, Birch et al v Travis County Healthcare District (1 page)

Draft order of Travis County Commissioners Court requiring an independent, third-party performance audit of the Travis County Healthcare District (4 pages)

Excerpts from the UT Austin Operating Budget, Fiscal Year Ending August 31, 2022, showing Central Health funding for UT Austin Dell Medical School (6 pages)

Former Travis County Auditor Susan Spataro’s Analysis of Central Health funds transferred to UT Dell Medical School (2 pages)

Germane Solutions contract, June 22, 2017 (17 pages)

Glossary of Terms included in the UT Austin Operating Budget, Fiscal Year Ending August 31, 2022 (1 page)

Plaintiffs’ Original Petition, Birch et al v Travis County Healthcare District, October 18, 2017 (7 pages)

Plaintiffs’ First Amended Original Petition, Birch et al v Travis County Healthcare District, March 21, 2022 (10 pages)

Related Bulldog coverage:

New documentary takes aim at diversion of indigent healthcare funds, November 15, 2021

Central Health $76 million of bonds for new real estate, September 1, 2021

Central Health plans $63 million headquarters, July 6, 2021

Central Health settles Wallace lawsuit, April 27, 2021

Former Central Health exec sues for $1 million-plus, November 5, 2020

When the Me Too movement collides with Black Lives Matter something’s gotta give, October 30, 2020

Central Health manager’s ethics questioned, September 21, 2018

Central Health sponsorships top $200,000, May 2, 2018

Central Health’s checkup delivered, February 14, 2018

Lawsuit challenges Central Health spending, October 18, 2017

Central Health financial policies hotly debated, September 29, 2017

Dining and shining on taxpayer dollars, March 30, 2018

2 COMMENTS

  1. Look in to the pressure put on to Austin Regional Clinic staff to vote for the initial tax of 35 million a year that would directly benefit Seton and ARC, which they own a controlling interest in

  2. I was not aware of the Austin Regional Clinic promoting a “yes” vote in the 2012 election that raised Central Health’s tax rate by 5 cents per $100 valuation. But I have a Central Health press release that noted early voting would feature mobile voting sites at all Seton Hospitals. That release quoted Sister Jean Brewer, vice chair of Seton Healthcare Family’s board of trustees, touting the benefits. Both the Austin American-Statesman and Austin Chronicle endorsed it. The problem isn’t that we have a medical school, but that Travis County taxpayers are paying for it with money that can only be spent to pay for healthcare services for low-income patients.

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