Corruption Allegations Shake Illinois Government, Health Care Market

Published September 1, 2004

Illinois hospital construction projects worth hundreds of millions of dollars have been awarded or blocked on the basis of kickbacks and shakedowns, according to a federal whistleblower lawsuit filed before the Illinois State Supreme Court on May 24, 2004 by Edward Hospital in Naperville, in west suburban Chicago. The lawsuit also alleged a $10 billion bond deal the state of Illinois okayed last year also involved kickbacks.

Governor Rod Blagojevich (D) responded to the allegations in July by halting activities of the Illinois Health Facilities Planning Board, which approves or rejects hospital construction projects. On August 9, he signed a bill, passed in July by the state legislature, to reconfigure the board. The measure removes from office all nine current board members. The new board, which will remain in place until July 1, 2006 unless the legislature votes to continue its operation, will have just five members, all of whom will be appointed by Blagojevich.

Edward Hospital was shaken down at least twice, according to the lawsuit. The first time, in 2001, the hospital went along and received approval for a $189 million expansion project. The second time, earlier this year, hospital officials refused to acquiesce to the shakedown conditions and saw their proposal for a $200 million hospital project stalled.

Federal subpoenas have been served to members of the state’s Health Facilities Planning Board, and the U.S. Attorney’s office in Chicago has confirmed it has begun two criminal investigations as a result of the allegations. One involves the questionable approval of a proposal to build a 70-bed hospital in Crystal Lake, in far northwest suburban Chicago. The other involves possible financial wrongdoing at a North Chicago medical school where two trustees have been deeply implicated in the alleged kickback and shakedown scheme.

Political Powerhouses Implicated

Powerful political insiders in Illinois have been implicated, including

  • Stuart P. Levine, a wealthy Chicago attorney who recently resigned as vice chairman of the Health Facilities Planning Board. Levine also recently resigned as a member of the board of Rosalind Franklin University of Medicine and Science in North Chicago.
  • Jacob Kiferbaum, president and founder of Kiferbaum Construction Corp. in Deerfield, Illinois, which has worked on numerous hospital construction projects. Kiferbaum recently resigned his position as a member of the board of Rosalind Franklin University of Medicine and Science, where Kiferbaum Construction has done tens of millions of dollars’ worth of work.
  • Nicholas Hurtgen, who recently resigned as manager of the Chicago office of Bear, Stearns & Co. Inc., a politically connected bond firm that has done billions of dollars of business with the State of Illinois and with Illinois hospitals.

According to the lawsuit, the scheme began in 2001 when Donald Udstuen of Crystal Lake introduced Hurtgen to Edward Hospital officials. Udstuen is a former chief operating officer with the Illinois State Medical Society and a close advisor to former Governor George Ryan (R), who faces a 22-count federal indictment alleging a host of corrupt activities while in public office. Udstuen last year pleaded guilty to federal corruption charges involving his work with the Ryan administration and is cooperating with prosecutors for Ryan’s upcoming trial.

Edward Hospital had planned to use Morgan Stanley to finance its 2001 project, according to the suit, but Udstuen allegedly told hospital officials it was “important” to use Hurtgen at Bear, Stearns. The hospital did so, and the state board okayed the project, according to an account in the Chicago Sun-Times, which broke the story after obtaining a copy of the sealed lawsuit.

Hospital Shakedown Alleged

The Sun-Times report quotes the lawsuit as saying that last January hospital officials were pressured to hire Kiferbaum Construction Corp. to build a new hospital in nearby Plainfield. Hurtgen told them “he was politically connected to the [previous] Illinois state government administration and can ‘get things done,'” the suit reads.

Hospital officials initially balked, and they later met Kiferbaum at the Egg Shell Cafe in Deerfield, where he told them he was “good friends” with most of the nine-member state board and could kill the hospital project if the hospital officials refused to deal with him. The suit alleges Levine and Hurtgen were also at the restaurant but seated elsewhere.

During the conversation, Levine allegedly walked over to the table and told the hospital officials Kiferbaum’s “word was good,” according to the Sun-Times account of the allegations.

Edward Hospital declined to work with Kiferbaum, and on April 21 the Health Facilities Planning Board announced it intended to deny plans for the new Plainfield hospital and would delay a final vote on Edward’s medical office building, also in Plainfield.

However, the board approved plans for the 70-bed Mercy Crystal Lake Hospital and Medical Center, even though the plans failed to meet most state requirements, including a 100-bed minimum for such facilities. The Health Facilities Planning Board staff had recommended against approval, and the board earlier had indicated the application would be rejected.

As the board was voting on the Mercy proposal, Levine left his seat and whispered in the ear of fellow board member Dr. Imad Almanaseer, who had just passed on the vote. When it became apparent the hospital plan would be rejected, Almanaseer stunned the audience by changing his vote in favor of the Mercy proposal, giving it a one-vote margin of approval. Almanaseer did not seek reappointment to the board after his term expired on July 1.

The lawsuit alleges the Mercy proposal won approval because the project would be financed through Bear, Stearns and the construction would be done by Kiferbaum’s firm, according to published reports.

Feds Launch Probes

Since the story broke in late June, federal investigators have launched their own probes. Levine and Kiferbaum have stepped down from the board of Rosalind Franklin University of Medicine and Science. John Glennon, a close friend of Levine and Kiferbaum and another top advisor to former Governor Ryan, was fired from his job as real estate consultant at the medical university.

In the five years when Levine and Kiferbaum served on the university’s board of directors, Kiferbaum Construction did $57.5 million worth of work at the school, according to university officials. University president Michael Welch has announced he is launching an internal review of university contracts.

The lawsuit also alleges a kickback was involved in last year’s $10 billion bond deal the State of Illinois approved to shore up underfunded pension funds. Bear, Stearns issued those bonds.

The person who allegedly received the kickback was not named in the suit, according to the Sun-Times, but the involvement of Robert Kjellander raised eyebrows. Kjellander, a Republican National Committeeman who backed the bond deal even though it was proposed by a Democrat governor and opposed by most Republican state legislators, received $809,000 for unspecified work on the project. Kjellander is also the Great Lakes region coordinator for President George Bush’s re-election campaign.

Since the Sun-Times broke the story, others in Illinois have been looking into the backgrounds of Health Facilities Planning Board members. These investigations have uncovered potential conflicts of interest and have noted that on several occasions Blagojevich has appointed people to the board shortly after receiving sizable contributions from them.

In July 2003, for example, two medical specialists were appointed a few days after contributing $50,000 to the governor. Blagojevich denies having known about the contributions before making the appointments.

Steve Stanek ([email protected]) is an Illinois-based freelance writer and regular contributor to Health Care News.