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Executive shake-up exposed rifts in management at ECMC

The departure of Erie County Medical Center’s top executive came after months of conflict – and was capped by a controversy over his flying to London on a plane chartered by Terry and Kim Pegula for suite holders and sponsors to see the Buffalo Bills play.

ECMC terminated CEO Richard C. Cleland for cause Nov. 3, the same day it accepted the resignation of chief operating officer Mary Laski Hoffman.

The messy shake-up has raised questions about the management and decision-making at one of the region’s biggest and busiest hospitals. The 602-bed hospital provides key services in orthopedics, behavioral health and trauma care among other specialties.

The stakes are high.

Cleland, 52, slated to earn $600,000 this year, had a contract that ran through the end of 2018. He gets paid nothing if fired for cause, but would receive $1.2 million if otherwise let go.

Now, legal talks are underway to reach a settlement with Cleland. He said he resigned for cause.

The two sides offer different perspectives of what led to the exits. But through interviews with hospital officials and others knowledgeable about what happened, a clearer picture has begun to emerge.

Cleland was just five months into his tenure as permanent CEO when three ECMC board members, among them Jonathan A. Dandes, called him into a meeting on Election Day.

The three men, speaking on behalf of the board, informed Cleland that if he wanted to remain at ECMC, he would have to fire Hoffman and, from then on, report to Thomas J. Quatroche Jr., the hospital’s president.

The board members offered Cleland little explanation and just one hour to agree. Cleland balked at the demands, touching off a tense standoff with the board.

It ended with the abrupt resignation of Hoffman and with Cleland either exercising his right to terminate his employment agreement for cause – his version – or board members voting unanimously to fire Cleland — their version.

Paying for Bills trip

A board member and others said the hospital’s governing group became disenchanted with his performance as CEO, but it was the overseas trip that finally triggered the firing or resignation.

Cleland and his wife on Oct. 21 embarked on a Boeing 747-400 with other local VIPs, many of whom brought spouses, on an all-expenses-paid weekend that included afternoon tea, a Tower of London reception, three nights at a five-star hotel and the Bills game Oct. 25 against the Jacksonville Jaguars.

Cleland realized immediately after receiving the invitation from the Bills that, as an employee of a state public benefit corporation, he would not be able to accept the free excursion, according to a person familiar with Cleland’s version of events and who spoke on condition of anonymity.

The team sent him a bill for $8,000, which Cleland paid, but there’s disagreement over the value of the excursion.

ECMC insists it is required to pay fair-market value, which it determined to be $16,000 after a review by an accounting firm. Cleland refused to pay the difference, according to several ECMC officials who asked not to be named.

The board members brought up the money in the meeting that preceded Cleland’s ouster, according to an associate of the former hospital executive.

Dandes did not return a message seeking comment. Richard T. Sullivan, Cleland’s attorney, declined to comment and said his client would not comment.

But the conflict over the trip was about more than money. Cleland also failed to alert other hospital executives or board members of his plans to take in the London game, said a member of the business community familiar with the situation. The board considered his actions “willful conduct injurious to ECMC,” the person said.

However, the Cleland associate said the former CEO informed ECMC board chairman Kevin Hogan and ECMC’s corporate compliance department that he was planning to accept the trip invitation several weeks before leaving on the trip, which served as a 25th wedding anniversary celebration for Cleland and his wife.

Hogan sent Cleland a note saying, “Have a good time,” according to the associate.

Came ‘out of nowhere’

Quatroche now serves as acting CEO of ECMC.

Cleland became chief operating officer in 2012 after serving in other management positions since 2008. The ECMC board appointed him permanent CEO in May, following an unusually long 13-month period as interim CEO, when his predecessor, Jody L. Lomeo, took the top job at Kaleida Health. ECMC and Kaleida Health operate under the parent organization known as Great Lakes Health.

Hoffman, 53, was named chief operating officer by Cleland in June. Her salary was $350,000. Before that position, she had served as ECMC’s senior vice president of operations since July 2014. Prior to coming to ECMC, she was chief executive officer of Kenmore Mercy Hospital and then chief operating officer for Lawley Benefits Group.

In interviews, other health care and business officials described her as professional and respected in the medical community. But they said board members, influenced by criticism of her management style, asked Cleland to fire her. He refused.

Hoffman referred questions to Julie Bargnesi, her attorney. Bargnesi said she could not comment because of an agreement with the medical center.

ECMC is no longer a county department, but the county provides an annual subsidy to ECMC that in 2016 will total at least $18 million.

That’s why the recent events have drawn the attention of Erie County Executive Mark C. Poloncarz. He said he has spoken to Hogan and Quatroche, as well as other board members, but still doesn’t know for sure why Cleland and Hoffman were ousted.

“I was surprised,” Poloncarz said. “I had no reason to believe that there was anything that would have led to either of them being removed, considering they just were appointed a few months ago.”

He voiced concern over the way the hospital board handled the situation.

“I’m not certain if all the board members felt they were provided the information that they needed to make a sound decision,” Poloncarz said. “I know it’s been said that it was a unanimous decision of the board. But I talked to some of the board members, who I will not identify, and they felt like it kind of came out of nowhere. And while they may have supported the decision, they were a little surprised at how fast it happened.”

Others voiced support for the board and stressed that, despite the tumult, the hospital is doing well.

“From a physician’s standpoint, the institution is operating normally and is quite strong. The institution is well-managed, and the physicians support the board of directors,” said Dr. Samuel Cloud, president of the medical-dental staff.

“Health care is at its most complex point in decades,” said John Bartimole, president of the Western New York Healthcare Association. “The board probably felt a new dynamic was needed at the executive level.”

Rifts exposed

Still, the removal of Cleland and Hoffman exposed rifts in the top management at the hospital, according to officials familiar with operations at ECMC.

Some board members were never entirely sold on Cleland taking over as CEO. As one sign of that, several veteran health care administrators pointed to how long Cleland served as interim chief, from April 2014 until May 2015.

The board split duties between Cleland and Quatroche, hoping that their skills would mesh. Cleland brought much experience in day-to-day operations. Quatroche, also experienced in aspects of hospital operations, brought considerable contacts in the political and business community, and he has been a key external advocate for the hospital.

By fall, it was apparent things were not going well.

Cleland had forged a close working relationship with Hoffman but the two had little support on the ECMC board and few allies within hospital management, according to Poloncarz. Others said that it was Cleland and Hoffman who didn’t collaborate as well as had been hoped.

“I’ve also heard that there were disagreements with regards to the management of the facility and who was basically making the final decisions on behalf of the hospital,” Poloncarz told The News. “And I think Mr. Cleland as well as Ms. Hoffman felt they were the CEO and the COO, and that they were empowered by the board to render decisions. And I heard they were running into obstacles with other people.”

Asked for the names he’s heard, Poloncarz cited unidentified board members and the hospital’s general counsel, Anthony J. Colucci III.

Colucci, who is paid more than $400,000 a year by ECMC, became a part-time employee of the medical center in 2011 at the request of the board.

With Cleland’s departure, questions have been raised about Colucci serving as general counsel and additional legal work being referred to his firm, Colucci & Gallaher, and whether the hospital should seek bids for the outside work instead.

Colucci said his arrangement with ECMC was cleared as an outside activity by the state Joint Commission on Public Ethics. Another person from the firm, based at the hospital, farms out the additional legal work to Colucci & Gallaher. He can’t share in the outside revenues and can’t do work for Colucci & Gallaher and bill ECMC for it, he said.

Colucci said he gets paid by the hospital for the hours he works, spends about 70 percent of his time on ECMC issues, and charges reasonable rates. He also said that it was he who took the initiative earlier this year to recommend that the hospital examine ways to reduce its legal costs.

“It’s an incredibly insulting thing to the 17 well-intentioned volunteers on the board to suggest that they made a decision on the basis of anything other than what was appropriate,” he said.

ECMC, in a statement, reported that in July it initiated an independent evaluation by an outside attorney and found no problems.

“Currently, under a plan started by the general counsel in August, legal services provided to ECMC are being restructured with the goal that full-time, employed counsel will replace outside counsel and reduce costs,” hospital officials said.

‘Business is sound’

The board action came as a surprise to current and former ECMC employees, elected officials and others with ties to the hospital.

Dennis Robinson, a former chair of the union chapter that represents the more than 900 nurses who work at ECMC, said rank-and-file workers he’s talked to don’t know why Cleland and Hoffman were forced out.

“I had people call me the next morning, starting at like 6:15 in the morning, Hey, what the hell’s going on?” Robinson said. “I have no idea.”

Some observers say the shake-up raises questions about board governance. Publicly, the ECMC board has offered little explanation.

The abrupt decision to change direction so soon after promoting the executives indicates something else is at play, said one veteran health care executive, who spoke on condition he not be named. The Bills trip served as a pretense to fire Cleland, the executive said.

“I think it’s infighting on the board,” he said. “The whole thing doesn’t make any sense to me. There was something else festering.”

High-level executives at companies and institutions have employment contracts that spell out the terms under which the executive will work and the circumstances under which the board of directors can remove the executive from office, said attorney Robert L. Boreanaz, who was speaking generally and not about the ECMC situation.

Boreanaz said that when executives are terminated, it’s typically for cause or without cause, and termination for cause cuts off or limits the severance pay to which an executive would otherwise be entitled.

The employment contract spells out the reasons for which an executive can be terminated for cause, and it can include gross misconduct, deviation from job responsibilities or failing to follow directions from the board, he said.

If the board fires an executive for cause, it has the burden of proving the executive’s conduct met the standard as laid out in the contract because the executive can pursue legal action to challenge a for-cause termination, he said.

If an institution terminates an executive without cause, it must pay severance, but it doesn’t have to show wrongdoing, he said.

ECMC officials declined to comment on talks about a settlement with Cleland, saying it was a confidential personnel matter. However, they continued to stress that the events of recent weeks have not affected patient care.

“We again want to reiterate that the hospital’s business is sound, and that physicians, nurses and other staff continue to care for their patients as they always do,” officials said in a statement.

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