CCMSD counterclaims for damages in HMS lawsuit
District claims HMS overbilled and repeatedly breached its contract
September 24, 2020
Crook County Medical Services District (CCMSD) has responded to a second lawsuit filed by its ex-management firm. Denying all allegations against it, the district claims that Health Management Services (HMS) overbilled for its management fee and repeatedly breached its contract.
The second lawsuit was filed in August after the original complaint was withdrawn because it did not meet the standards of the Governmental Claims Act. The new suit is essentially identical to the first and repeats HMS’s claims that the company is still owed payment after the sudden termination of its contract.
HMS’s complaint states that CCMSD retained its management services for five years, with an end date of September 30, 2020, and the agreed fee was equal to 5% of the district’s gross operating revenue.
On April 15, HMS says it received a 120-day notice of termination, which brought the contract’s end date to August 13. However, HMS was then notified the agreement had been voided effective May 1.
HMS claims the district “did not articulate any grounds nor cite any contractual provisions authorizing its unilateral decision to void the management services agreement”.
HMS further claims that a letter dated May 18 was sent to inform the district that the company was still willing and able to perform its management duties through the 120-day termination notice period and expected payment until that notice period expired. The company says CCMSD failed to make that payment or otherwise respond to the demand.
HMS feels CCMSD breached the duties it owed by ending the contract prior to the end of the notice period “and contrary to the express contractual terms.” The management company is seeking damages of $144,422.70 – the amount it feels should have been paid during the notice period – as well as attorney fees and costs incurred by the legal action.
In its response, CCMSD effectively denies all claims. The district says it “was entitled to immediately terminate HMS pursuant to the terms of the management services agreement” and that HMS was the first party to breach that agreement.
Specifically, CCMSD says that the CEO provided by HMS also accepted a position as CEO of Niobrara Community Hospital in the spring of 2018, which breaches the requirement of the agreement that the CEO work for CCMSD “on a dedicated, full-time basis”. The board of trustees objected to this.
According to the counter-claim, HMS “repeatedly” told the board it would resolve the situation but failed to do so. The CEO was then also appointed as CEO of the Saratoga Care Center.
A notice of breach was sent to HMS on February 26, according to CCMSD, giving 30 days for the company to cure its default. CCMSD alleges that HMS responded with “several potential resolutions”, but none were acceptable as none fulfilled the “dedicated, full-time basis” requirement.
“The parties continued to correspond through counsel, but the correspondence did not result in a resolution, and HMS never cured its default,” alleges the counter-complaint.
CCMSD also claims that the board discovered in late March that HMS had paid itself $61,727.83, some of which was management fees for November, 2019 and the rest for amounts that HMS allegedly found it was owed after it reconciled the fees owed to HMS with the ones that were actually paid. However, according to the counter-claim, HMS did not provide the board with a copy of that reconciliation.
Though the board expressed its concern, CCMSD claims that HMS did not provide further information. The counter-claim also points out that the management agreement requires that HMS obtain board approval for expenditures over $10,000, which would mean that paying itself this amount was another breach of terms.
In April, while assessing its options, CCMSD began the process of reviewing invoices from HMS and determined that HMS had overbilled for management fees “on a number of occasions”.
“Over the prior several months, CCMSD had repeatedly requested HMS provide documentation to support its calculations,” says the counter-complaint. CCMSD alleges that this was never provided.
Because no supporting documentation was provided, CCMSD claims it became necessary to review financial statements and other records. This review allegedly revealed that HMS overbilled for management fees in the approximate amount of $122,240.43.
The district says it suffered damages as a result of HMS’s breaches. As well as requesting that the claims from HMS be dismissed with prejudice, the counter-claim asks the court to award CCMSD damages, as well as interest on the amounts that were overbilled by HMS.