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Regulator: D-H Handling of Prouty Donations Was Legal



Valley News Staff Writer
Saturday, February 04, 2017

Lebanon — A New Hampshire regulator has ruled that Dartmouth-Hitchcock acted legally in 2015 when it tapped donor-funded accounts at the Norris Cotton Cancer Center for $6.1 million, including hundreds of thousands of dollars raised in the annual Prouty, to pay operating expenses.

Health system executives’ use of the funds to pay “salary, equipment and occupancy costs” wasn’t precluded by the pledge in promotional materials that donations would be used for cancer research and patient support services, according to a Jan. 27 letter by Thomas Donovan, director of the New Hampshire Charitable Trusts Unit.

“(C)ancer research and patient support service are expansive terms and fairly include the salary, equipment and occupancy costs associated with those activities,” Donovan wrote, noting that the cancer center spent money on such activities well in excess of the money in question.

On Friday, D-H Chief Executive James Weinstein sent out an email to employees reaffirming his previous assertions that the use of the funds in the disputed accounts “complied with the spirit and letter of all applicable laws and regulations governing the use of those philanthropic funds.”

His email also noted that as “a demonstration of our good faith, Dartmouth-Hitchcock provided an additional $6 million in funds to the cancer center for cancer research, patient support services and faculty recruitment.”

Mark Israel, the former director of the Norris Cotton Cancer Center, which is a unit of D-H, objected at the time to the use of funds from four cancer center accounts to pay operating costs. He filed a lawsuit in September alleging that D-H retaliated illegally by forcing him from the center’s top job and violating state laws that protect whistleblowers. D-H has moved to dismiss the case, arguing that the issues should instead by subject to arbitration. The lawsuit is still pending in Grafton Superior Court,

Donovan said that D-H informed his office of Israel’s lawsuit at the end of October. The Charitable Trusts Unit began a review because Israel’s complaint “questioned the use of donated money to a charitable organization, and that’s something we pay attention” to, he said.

“For the 15 years that I was director of the cancer center, we promised Prouty donors that their money would be used for only two purposes: cancer research and services for cancer patients that were not reimbursed by insurance,” Israel said in an email on Friday. “Now there can be no doubt that in 2015, Dartmouth-Hitchcock administration used the Prouty money for hospital operations rather than these purposes.”

The Charitable Trusts Unit of the New Hampshire Justice Department noted Israel’s objection to use of funds that he viewed as “a quasi-endowment and a source for the purchase of equipment and services above and beyond budgeted items” but wasn’t persuaded.

“We are disappointed that Dartmouth-Hitchcock sought and received the blessing to use Prouty money to fund hospital operations including administrators’ salaries and the occupancy costs for the cancer center,” said Geoffrey Vitt, the Norwich attorney who represents Israel.

But Donovan said in an interview that unless individual donors earmarked their contributions for an endowment, or that use of the funds was spelled out in publicity or promotional materials, the accounts were not intended to function as long-term assets or to be out-of-bounds for spending on operations.

Weinstein’s email quoted two of the 10 paragraphs of “analysis and conclusions” in Donovan’s letter, including his decision to “take no further action with respect to the reclassification of temporarily restricted funds at D-H in 2015, including the reclassification of accumulated funds from The Prouty.”

Israel pointed to the passage of Weinstein’s email noting that D-H had provided an additional $6 million in funds to the cancer center as “a good first step. I hope there will be a commitment from D-H that Prouty money will not be used for hospital operations in the future.”

Weinstein’s letter made no mention of Donovan’s criticisms of D-H’s financial and accounting practices, including the retention of funds in accounts that “never should have been allowed to accumulate year after year” and the use of confusing labels on accounts which contained and mixed funds with different restrictions. Donovan credited D-H with “making good progress to track its classification and use of restricted funds.”

Donovan’s eight-page letter invoked esoteric accounting and legal standards to stake out the state’s position in a controversy that has enshrouded an annual event that has raised millions of dollars — $3.1 million in 2016 — and become a public demonstration of support for D-H as the region’s premier medical provider.

Vitt said that Donovan’s letter had not, in his opinion, lifted that shroud: “Using the Prouty money to pay the inflated salaries of Dartmouth-Hitchcock administrators and the costs to heat and maintain the building is not the same as cancer research.”

But Donovan said his office reviewed the materials used to solicit Prouty donations, and those materials were consistent with short-term accumulations of funds raised rather than the creation of a long-term or permanent endowment. That obligated D-H and the cancer center to use those funds “within a reasonable amount of time,” he said.

Donovan said the Charitable Trusts Unit’s review showed that the reallocation of the funds was the result of a process that began in 2013, when D-H created a committee. Accounting changes were made in 2015, he said: “That affected how that money got used.”

D-H’s estimates that $770,000 of the disputed funds were raised in the Prouty, while Israel put the amount accumulated from the annual event at $1.6 million.

Jean Brown, the Prouty event director and executive director of the Friends of the Norris Cotton Cancer Center, referred a request for comment to D-H’s media staff.

The friends’ organization operated as an independent corporation from 1982 until 2004, when it dissolved itself and got a Probate Court order that allowed it to transfer its accumulated assets of $758,000 to D-H, according to Donovan. The organization continues to operate as an “adjunct” to D-H, he said.

On Jan. 24, the Prouty, which is scheduled to occur this year on July 7 and 8, announced the launch of its new website. That website includes a pie chart that shows that 74 percent of funds raised in the 2016 event were spent on research and research-related activities, 15 percent on patient support and clinical education and 11 percent on event expenses.

Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.