Aurora Healthcare, Inc.
A nonprofit corporation started by Dr. Soon K. Kim in April 1997. Over the next four years, it would pay at least $23 million to companies affiliated with Kim.
Michigan Mental Healthcare Network (MMHN)
In April 1997, the for-profit Michigan Mental Healthcare Network purchased the 140-bed Aurora mental hospital on Detroit’s west side for $4.2 million. Kim created the company. According to his financial statement, he’s also a shareholder. Metro Times was unable to document the extent of his ownership. After purchasing Aurora, MMHN leased it to the nonprofit for $200,000 per month. The nonprofit leased the facility for about 30 months, bringing total payments to more than $6 million. In December, the nonprofit borrowed $11.8 million through a bond issuance, $8.4 million of which was used to purchase the facility from MMHN. In addition, MMHN holds an $8.8 million interest-bearing subordinate note (or second mortgage) on the property, bringing the total sales price to $17.2 million. In October 2002, after the nonprofit had lost its contract with the county and closed its doors, Aurora defaulted on the bond agreement. Bondholder Finova Capital initiated foreclosure proceedings. Finova is attempting to find a new buyer for the property. MMHN is still owed $8.8 million by Auora. According to a 2001 financial statement Kim filed with state regulators in Illinois, where one of his companies was attempting to buy another mental hospital, MMHN had a net value of $10 million.
Salem Services
A management company created at the same time as MMHN and controlled by Kim. It provided the nonprofit Aurora with a chief executive officer, chief financial officer, risk manager and other management services. According to its contract, Salem was paid $100,000 per month plus an annual bonus based on a percentage of Aurora’s revenues. According to IRS disclosures made by Aurora, it paid a total of $5.4 million in management fees between April 1997 and March 2001. According to board member Mel Ravitz, the combined salaries for the four executives contracted to Aurora totaled no more that $500,000 per year.
Salem Pharmaceutical
Incorporated in June 1998 as part of the Salem network, it is described on Salem’s Web site as a “full-service hospital pharmacy” and lists Aurora as one of its three customers. From mid-1998 until March 2001, Aurora paid approximately $3 million for pharmaceutical services, according to its IRS filings.
Salem Transportation
Formed the same day as Salem Pharmaceutical and listed on the Web site as part of the same network with the same customers, Salem Transportation is described as a “full transportation company, currently providing transport services for mental health patients.” Between mid-’98 and March 2001, Aurora paid approximately $940,000 for transportation services, according to IRS forms.
Marbella Management
According to Ervin Johnson, the CEO of Aurora at the time it closed, Marbella — which has as its president Soon K. Kim — leased at least two outpatient clinics to the nonprofit. According to the nonprofit’s IRS filings, Aurora paid as much as $580,000 a year in rental fees for its outpatient clinics. It is unclear how much of that money went to Marbella.
Stone defended the contracts, saying Kim and his companies “were entitled to the money based on services they provided.” Had they not contracted out for these services, said Stone, the nonprofit hospital would have had to hire additional staff.
Methodology
Metro Times based its analysis on Aurora’s IRS filings covering the period from April 1997 to March 2001.
Information regarding the remainder of 2001 and the first quarter of 2002 was not available. According to Stone, because of Aurora’s financial difficulties, Kim and his companies were not paid during much of that time.
“He wasn’t paid for the last nine or 10 months of 2001,” said Stone. He added that, as a result, Kim and his companies are owed “$7 million or $8 million” by Aurora. That figure is significantly higher than the average annual amount Metro Times found. In compiling our analysis, we excluded information that could not be verified, so, if Stone’s numbers are correct, it is possible our calculations underreport the revenue companies related to Kim were receiving from Aurora.
Curt Guyette is the Metro Times news editor. E-mail [email protected]
