As a part of the deal with West, on Dec. 8, 2011, Methodist, through its subsidiary for-profit arm, Ambulatory Operations, Inc., invested $7 million into ACORN, which Dr. Schwartzberg founded in 2002 and acted as its President and Chief Medical Officer at the time of the transaction. ACORN’s affiliation with Methodist and West is noted in the vision for the West Cancer Center set out in the attachment to the PSA.
ACORN’s focus was to bring community-based oncologists into clinical trials. In 2006, it set up a contract research organization to directly manage industry-sponsored clinical trials. In November 2011, it partnered with AdeptBio, LLC, to expand its ability to obtain biospecimens for targeted populations. In early December 2011, it partnered with Clarient, Inc. to collaborate around molecular testing of tumor samples. It later announced the divestiture of its ACORN community oncology research network unit to support the research mission of West.
Methodist was aware that West was insistent on the deal including a $7 million investment in ACORN, which Methodist’s former CFO characterized as a “start-up” company.
Under the terms of the deal, Methodist paid $3.5 million in cash as a capital contribution, and a $3.5 million loan.
Methodist was aware that $3.5 million in cash would be used by ACORN to pay back debt owed to Dr. Schwartzberg personally and to West as a company.
I am proud of the work we did, and the care we provided. I am disappointed that the United States has chosen to intervene in the case and believe that the allegations in both the relators’ and United States’ complaints are totally unfounded.
Lee Schwartzberg
In October 2011, Methodist and West obtained a valuation opinion relating to the ACORN investment from Michael Choukas, who had previously worked for ACORN and ultimately became its CEO in 2014.
Choukas did not have significant experience valuing companies and provided an opinion that lacked accurate financial information, as well as support for business projections.
On Nov. 28, 2011, Methodist’s Vice President of Legal Services and Compliance identified multiple concerns with the opinion. She recommended “at a minimum” that the valuation be supplemented or revised. No changes were made to address these concerns.
Not surprisingly, the ACORN investment failed to turn any profit. In the months before and following Methodist’s investment, ACORN sustained ongoing financial losses.
When ACORN sought to reduce Methodist’s percentage of equity, Chris McLean, Methodist’s CFO, was concerned that Methodist’s Board might question this investment. In particular, Mr. McLean expressed concerns that Mr. Choukas had previously presented projections that fell far short and might lack credibility.
Methodist ultimately extricated itself from the ACORN investment at a loss.
The ACORN investment was a means for Methodist to compensate West and Dr. Schwartzberg in particular in exchange for referrals.
Schwartzberg, the physician executive who played a key role in engineering the relationship with Methodist, left West in 2021 to build a cancer program at the University of Nevada Reno.
He has also stepped down from his role as chief medical officer at OneOncology, but continues to serve as a senior advisor to the company, according to the website.