Cook County Health Foundation expansion dropped amid spending questions

Long-held plans to expand the power of the nonprofit entity established to raise money for Cook County’s public health arm have been scrapped “amid questions about its scope and appropriateness,” according to an outside report obtained by the Tribune.

The nonprofit Cook County Health Foundation — established 14 years ago to fund-raise for and support Cook County Health, or CCH, the county’s health division — spent nearly $80,000, entered into contracts and hired attorneys with ties to the foundation’s leaders, sometimes without full foundation board approval, the report stated.

A key piece of the external report, produced by the law firm of Riley Safer Holmes & Cancila, focused on a proposed master services agreement last year in which the foundation would expand its powers to undertake or manage clinical trials for, or in partnership with, CCH. As questions were raised about the proposal, attorneys for the outside law firm sought to interview Cook County Health’s chief executive officer, but he refused to be interviewed and the negotiations over the proposed deal he helped spearhead were abruptly terminated, developments the outside attorneys said “certainly raised red flags.”

After learning the Tribune had obtained the report, the foundation’s executive director, Sylvia Zaldivar, denied any impropriety about the plans and said the report contained inaccuracies.

In addition, Zaldivar said she remained committed to the idea of the master services agreement and added that she thinks it would benefit both the foundation and CCH, which includes Stroger Hospital and other facilities across Cook County that supply health care for patients regardless of their ability to pay.

The master services agreement would have served as scaffolding to more easily take on additional partnerships with the hospital system, she said, where the foundation could serve as the administrator for clinical trials or other grant-funded programs such as Americorps or community doula programs. The board would still get to approve new projects under the master services deal, she said.

But the report said the negotiations took place “without a fully informed and transparent Board decision to expand the Foundation’s scope and purpose” and without amendments to the by-laws to clarify that new scope.

And it said hiring outside attorneys linked to a board member was a “plain violation of the Foundation’s conflict of interest policy” and forewarned of the board’s duty to properly handle donor money. That outside law firm was paid $51,700, according to the report. Another firm was paid $27,800, but it was “not at all clear” what work was done to earn that fee because their invoices were vague, the report said.

It recommended a series of changes to “prevent such serious failures to comply with sound corporate governance practices in the future.”

The board was already aware of the need to update its bylaws as pointed out in the report, Zaldivar said.

The Cook County Health Foundation is a nonprofit separate from CCH. It was launched by the former head of the hospital system’s independent board in 2011 as a fundraising vehicle to supplement the county’s system of hospitals and clinics. Zaldivar is its only paid employee. In recent years, the foundation helped pay for the trauma center and burn unit at Stroger Hospital, toys and books for the women and children’s center at Stroger, COVID-19 prevention efforts and migrant response.

Former CCH CEO Israel Rocha was the original proponent of the master services agreement, according to emails obtained through a Tribune open records request.

The master services deal contemplated an “exponential expansion” of the foundation’s role, according to the report. That would have required new staff; accounting and financial expertise; and because of potential government partnership, legal oversight to ensure compliance with local and federal laws governing hiring, financial disclosures and public access to its records.

County sources familiar with the negotiations said the new role for the foundation would have allowed the county to move away from its partnership with the Hektoen Institute of Medicine.

Negotiations over the master services agreement picked up in January 2023, around the same time the county’s health system was probing Hektoen, a separate nonprofit that for decades had overseen the county’s clinical trials, including HIV research. CCH has not publicized the results of the probe and trials continue at Hektoen, but the hospital system is moving more research operations in-house. Hektoen’s administrator did not respond to requests for comment.

Last summer, according to communications received through a Tribune open records request, foundation board members became concerned about vagueness in the services agreement proposal.

“I know that the board is also very interested in having Israel make a presentation to the board about how he views the relationship and also to provide an example or case study so that they can get a good grasp on how this would work project by project, day by day,” Zaldivar wrote in an email to CCH leadership. “Unfortunately, there are a couple of voices on the board that have been vociferous and have created some fear on the part of other board members that this agreement is adversarial.”

Some board members were also concerned about whether such partnerships complied with Shakman guidelines that bar political considerations from influencing hiring, firing and promotions. Board members wanted more specifics around what the agreement might entail and to assess any risks, liabilities, or needed guardrails for the foundation.

“I am primarily concerned with the response we received regarding Shakman because it didn’t touch on the federal law which I understand it (is) still valid,” board member Danielle Stilz wrote in a July email received via an open records request.

In a closed session in August, board members requested Riley Safer review the negotiations and foundation bylaws.

When Riley Safer began reviewing documents and interviewing officials involved in the potential expansion, Rocha “declined our request for an interview” to discuss the purpose and intent of the agreement, according to the report, and the health system “abandoned” the idea, according to the report.

Rocha has since left the county to go work for Kaiser Permanente. Through a spokesperson, he declined a request for comment.

“Mr. Rocha’s abrupt termination of discussions over the MSA and refusal to be interviewed regarding its terms and potential scope certainly raised red flags regarding potential collaboration with (CCH) over operations and activities as extensive and consequential as those contemplated” by the pending agreement, the report noted.

“Cook County Health ultimately decided not to pursue a Master Service Agreement with the Cook County Health Foundation in late August,” CCH spokeswoman Alex Normington said, and there are “currently no plans” to engage the foundation to help with clinical trials. Current trials with Hektoen continue, she said.

Before abandoning the services agreement plan, the foundation retained both Atlanta-based Kilpatrick Townsend & Stockton and the law offices of Marc J. Lane for help on negotiations, paying $51,700 and $27,800 to them respectively, according to the report.

The hiring of Kilpatrick was problematic, the report said, because following a January merger, foundation board member Gerald Haberkorn was, or was about to be, a managing partner of the firm.

It was an undisclosed conflict of interest that violated by-laws “which required full disclosure of the conflict, investigation of alternatives to avoid the conflict, and waiver of the conflict by the Board or a committee thereof,” the report said. The firm received no evidence a waiver existed.

Haberkorn did not respond to Tribune requests for comment, but Zaldivar said he signed a conflict of interest waiver that was reviewed by foundation attorneys, who said it was sufficient. His statement was discussed during a January 2023 board meeting and others that followed, Zaldivar said. The waiver included provisions that Haberkorn would not be paid to advise and if there would have been a referral fee for the firm’s work, Haberkorn would have donated it to the foundation.

The report also said payments were made to the Lane firm without a board vote, and that Lane had not demonstrated what work it had done. “Lane’s invoices contained wholly inadequate descriptions of services provided by that firm,” the report said.

Zaldivar said the firm in fact did important work. Lane was instrumental in working with the board’s executive committee to help negotiate master service issues in the foundation’s favor and recommended other financial reporting changes. Payments to the firm did not need to be approved by the full board, she said.

Riley Safer recommended several reforms: that the foundation establish dedicated committees to oversee spending, strategic planning, and to manage personnel. It also recommended the board tweak its by-laws to establish “more robust and transparent internal record-keeping practices,” formalize the role of Executive Director and give it specific duties and responsibilities, and clearly define who had the authority to enter into contracts and when board votes were required for payment approvals.

“There should have been a fully informed Board vote — with the required two-thirds approval — before the Foundation embarked upon negotiating an MSA,” the report said. “RSHC was not able to identify any such presentation to the Board to fully inform it of potential risks, costs or obligations before negotiations with CCHHS over the MSA commenced.”

Joseph Flanagan, chairman of the foundation’s board and CEO of Acquirent, declined to comment on the specifics of the report, describing it as an internal matter.

“The members of the Board of the Cook County Health Foundation take corporate governance matters very seriously and are always looking for ways to improve,” Flanagan told the Tribune via email. “We have never lost sight of the people we serve and never will.”

Zaldivar said she was disappointed in the report’s implication because she and board leadership consistently worked to make “sure we’re operating, managing and administering those programs. Being a responsible steward of donor investment is extremely important, it’s paramount.”

It’s similarly “disappointing that progress has slowed,” on completing the master services agreement, which she still supports. “But we’re still out there doing the work,” she said. “Ultimately that report points out deficits in our operational infrastructure which we were already aware of.”

aquig@chicagotribune.com