Statement From Fletcher Allen President and Chief Executive Officer Melinda L. Estes, M.D., Outlining the Impact of the Renaissance Project Controversy on the Organization. 

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April 19, 2005

Honorable William K. Sessions
Chief United States District Judge
United States District court
Federal Building
Burlington, Vermont 05401
 
Dear Judge Sessions:
 
At the request of the United States Attorney for the District of Vermont, I present this statement regarding the impact on Fletcher Allen of the criminal offenses charged in this proceeding.

Before making my comments, let me first say that I have no direct personal knowledge of Mr. Boettcher's conduct.  I came to Fletcher Allen in October 2003, more than a year after Mr. Boettcher left the organization.  During my tenure, I have focused on moving Fletcher Allen forward with integrity and transparency, and I believe we have made tremendous progress. I have had no interest in looking back on Mr. Boettcher's activities or trying to assess what he did. What I know about Mr. Boettcher comes only from what I have read.

I am familiar with the charges against Mr. Boettcher - that he conspired with other former executives to deceive the State of Vermont and our Board of Trustees about the true costs of the Renaissance Project.  I am also aware that Mr. Boettcher has admitted that these charges are substantially true and has entered a guilty plea to a federal fraud charge.  On that basis, I will assume that the charges against Mr. Boettcher are substantially accurate, and my statements will focus on the impact of this conduct on our organization.

Stated simply, the impacts of Mr. Boettcher's admitted conduct on our organization have been profound.  His efforts to conceal the full costs of our Project triggered far-reaching criminal and civil investigations that ultimately resulted in this proceeding and are still ongoing.  The initiation of the investigations placed a dark cloud over Fletcher Allen that seriously affected us in many ways.

For nearly three years, our organization has made an enormous commitment of time and resources to respond cooperatively to the investigations.   Our cooperation has been voluntary and complete, but the resources we have spent responding to prosecutors could have been much better spent caring for our patients. 

Because the Project costs were concealed, we have also had to conduct our own internal investigations to determine the true costs of the Renaissance Project and the implications of these costs.  This has required extraordinary amounts of time by our management and staff and extraordinary expenditures for outside consultants

The monetary impact of these investigations has been staggering.  Outside legal and consulting costs alone have been close to $3 million, and ultimately, in order to settle the investigations of our organization, we were required to make payments to the state and federal government totaling $1 million.

Until that settlement in October 2003, the dark cloud created by the investigations prevented us from moving forward to issue the bonds we needed to complete the Renaissance Project. It was simply not possible to enter the bond market while there were open criminal investigations involving the organization.  Faced with these investigations, all three of the Wall Street rating agencies down-graded our credit rating, citing the uncertainty and management distractions resulting from the investigations as a major factor in their decisions.  The lowered credit rating made our borrowing costs go up, so that even after settlement, the costs of our bond financing in April 2004 were higher than they otherwise would have been.

This dark cloud also had a severe impact on charitable giving to our organization, particularly our Renaissance Project Capital Campaign. Once the investigations started, our Campaign solicitation essentially stopped.  The Campaign had been on track towards its $30 million goal before the investigations started, but eventually closed out about $9 million short.   We've worked hard to regain the confidence of our donors in the past two years, and I think we're now back on track.  But there is no question that we were stalled for quite some time.

Although my comments have emphasized the impact of the investigations, the impacts of all this have been felt in other areas. First, by concealing the true Project costs, Mr. Boettcher also prevented our Board and our regulators from exercising proper oversight over the Project.   If the full costs had been fully disclosed and the implications of these costs fully understood, I believe this Project might have had very different dimensions.  Please do not misunderstand my comments. This Project will provide our community with a vital resource.  I believe the community will be proud of these facilities when they are fully open this fall. But the overall cost of the Project - close to $400 million - is at the absolute limit of what our organization can afford.   By investing so much of our resources in this Project, we do not have available funds for other needed projects.  If there had been full disclosure, analysis and review, I believe things could have been different.

Second, and perhaps most important, by engaging in fraud at the highest levels of leadership in our organization, Fletcher Allen violated our trust with our community, our regulators, our employees, and those we serve.  The primary focus of my own efforts in the past year and a half has been to regain this trust.  It has been a very big job.

From the viewpoint of our regulators, regaining trust has meant that virtually all information about the Project and our finances has required independent verification by outside consultants.  While we understand the need for this, the costs of tighter regulation have been extraordinary.  The added costs of outside consultants required by our regulator have alone amounted to more than $2.5 million. The internal costs have been at least as great.

The most serious impacts of this breach of trust, however, have not been monetary.  They are the impacts on the morale of our employees and the support of our community. For nearly two years, our employees had to live under the dark cloud I mentioned earlier - with periods when there were almost daily news stories casting our organization in the blackest light.  This did not make for a joyous work place, though our employees have remained steadfast throughout in their commitment to our patients.  We have extraordinarily good employees at Fletcher Allen - an amazingly talented and dedicated group of people.   But our employees were understandably demoralized when I reported for duty in October 2003, and it will take continuing effort to get out from under the cloud.

Similar things can be said about our community.  With continuous adverse publicity about the Renaissance Project over extended periods, it was very hard for our community to take pride in our organization - even though there is so much to be proud of. After all, Fletcher Allen is the largest health care resource in our state and region.  A good share of Vermonters are born in our facilities, and many come to us in their times of greatest crisis.  Together with the University, we are Vermont's academic health center. We provide the highest levels of care; we are a leading research center; and we are training the next generation of medical professionals.  Without all that has happened, it would have been hard not to take pride in Fletcher Allen.

But all that changed - at least for a time -- when it became clear to the public that our organization, under Mr. Boettcher's leadership, had violated its public trust.  We were given some very black eyes, and it will take a very long time to heal.

In focusing my comments in this statement on Mr. Boettcher's conduct, I do not intend to attribute everything that went wrong solely to him.  Fletcher Allen has acknowledged organizational responsibility for what went wrong and we have worked very hard to make changes to our governance and compliance structures to assure that this will not happen again.  We are a very different organization today.  I am very proud of what we have achieved in the short time I have been here. I also must give enormous credit to what my predecessor, Ed Colodny, accomplished in the year before me.

In the end, therefore, what should be done?  Fortunately, the decision on that issue is in your hands, not mine, and I would not presume to substitute my judgment for yours.  I know next to nothing about criminal matters.  I will simply say this.  The consequences of the fraudulent conduct admitted by Mr. Boettcher have been severe for Fletcher Allen and for our community. Speaking for our Board of Trustees and all of our employees, I believe the consequences for him should be proportionate.

Thank you for providing us the opportunity to offer these comments.

Sincerely,

Melinda L. Estes, M.D.
President and CEO