Fearne recalls clashes with Mizzi over Vitals/Steward hospitals concession

Former Health Minister Chris Fearne told a court on Monday that Vitals and Steward Healthcare CEO Armin Ernst once bluntly told him:  “I do not negotiate with you, I negotiate with minister [Konrad] Mizzi.”

Fearne was testifying in criminal proceedings against himself and former finance minister Edward Scicluna.

In testimony lasting over two hours, he strongly denied ever favouring individuals from VGH or Steward. He also spoke about repeated disagreement with decisions taken by Mizzi without his knowledge.

Fearne recounted that some time after he was appointed parliamentary secretary for health under Mizzi, he was informed by Mizzi that a call for tender would be issued for a Gozo hospital project, but it would also cover St Luke’s Hospital and Karin Grech Hospital. At the time, there was an issue with a shortage of hospital beds, and it seemed like a good idea for him at the time.

A request for proposals was issued in March 2015, and there were a number of bidders. The evaluation board then chose VGH for the concession.  

Fearne said he got to know about VGH only after they were chosen by the evaluation committee. He was not involved in their appointment or work.

The concession was signed by Mizzi in 2015, and Fearne said he and permanent secretary Joseph  Rapa only saw the contracts after they were signed.

The concessionaire had to pay for the construction, renovation and structural works,  while the government paid for the services. In the first year, the government paid €51 million divided in four payments. The bills they received from VGH were not itemised bills but a lump sum.

Fair price

A private auditor was appointed by the government to assess the amount being paid to VGH, and it transpired that the government was paying a “fair” price for the services received, Fearne said, adding that the €51 million included the staff salaries.

Fearne recalled that after he became health minister, two healthcare-related unions called for more clarity and transparency about the concession agreement. They requested a National Audit Office investigation into the contract but this was denied.

Fearne said he saw no reason why such an investigation should not take place, and requested one himself.

Months into the concession, he started having problems over payments.

One such problem related to the reconciliation of employees.

“From the €51 million, €30 million would go to salaries and €21 million would go towards to the concession. However, VGH would disagree on the number of employees,” Fearne said.

“We would be discussing certain payments and services and then they would tell me ‘we’ve agreed with Mizzi'," Fearne recalled.

Fearne recalled that towards the end of 2017, while seated near then prime minister Joseph Muscat in parliament, the latter told him:“I’ve got news: the concessionaire will change and instead of VGH we will have Steward Health Care.”

Fearne said he looked them up and discussed briefly with opposition MP and shadow health minister Stephen Spiteri and saw that it seemed like a “serious company”.

The witness then referred to testimony by former VGH director Ram Tumuluri in which the latter allegedly said that when Muscat was in New York, there were talks with the new concessionaire and that Fearne was present for them.

“I was not present for those discussions,” the former health minister insisted. Nor was he present for the share transfer from VGH to Steward Health Care, which happened in Boston in February 2018. 

Payments withheld from Steward Health Care

Fearne outlined the issues with Steward Health Care, including disagreements on the amount to be paid to them. He said he felt the annual increase in the fee should be stopped because milestones were not being met.

However, the time for the milestones to be met would have started to elapse when the planning permits were in hand, which was not the case yet, meaning that they were not in default of the agreed terms.

“We withheld the money because the government did not get the new hospitals,” Fearne said, adding that then permanent secretary within the finance ministry Alfred Camilleri, who is also facing criminal proceedings, was being kept in the loop.

One such issue related to the reconciliation of staff salaries. While Steward Health Care claimed some €40 million, the government withheld the money. Following advice from the AG and a Cabinet meeting, in the end €25 million were paid in full and final settlement.  

Another issue related to the performance guarantee. While VGH had a performance guarantee with Deutsche Bank, Steward Health Care wanted to have its performance guarantee with its parent company.

“I did not want this because it weakens the government position,” Fearne said, adding that he was then told that this had been agreed to with Mizzi.

Fearne informed Cabinet and Steward Health Care were given two months to regulate its position. Mizzi eventually issued a waiver, and finally, he resigned.

Another issue mentioned by Fearne was that the government was informed by Eurostat that private investment should appear on the government’s books.

“We were asked by the finance ministry to speak to Steward and instead of automatically buying an amount of beds, we would buy  beds according to need. These discussions were taken care of by Mizzi. When we got to the drafting of the Memorandum of Understanding there were two clauses which irritated me: one related to Barts Medical School being sold to a US property company and then leased out to Barts and an automatic fee increase by 9 per cent,” Fearne said.

Barts paid its lease yearly for the medical school, however, Steward Health Care wanted to sell the building to a property trust in the US and have a lump sum for liquidity purposes.

“This annoyed me very much because we had a piece of land and I did not want the government to lose it to someone with whom we had no contact,” Fearne testified.

On the 9 percent automatic fee increase per year, Fearne said that this ‘signalled abandoning medical tourism’.

“I did not accept those clauses but Mizzi forged ahead. There is a cabinet minute regarding this, adding that cabinet had agreed that the medical school and government properties were not to be sold to the trust,” Fearne recalled.

He said that he was in Austria when Mizzi presented a memo in which he reversed what he (Fearne) had raised and what had been decided by Cabinet, with the Cabinet agreeing to the 9 percent increase, however, this was non-binding and Mizzi had to come back to Cabinet with two contracts. He did so in November, but there was a strong objection in cabinet, with Fearne referring to a minute in which the prime minister to intervene. A week later, Mizzi resigned.

Fearne then informed Steward that the MoU signed with Mizzi had been withdrawn at Cabinet. A delegation from the property trust and Steward Health Care due to visit Malta cancelled its  flights.

Fearne gets to know about €100 million penalty

Fearne said that after Robert Abela was appointed prime minister in January 2020,  he suggested to him that the concession should be terminated, but Abela wanted some time to understand the situation. An interministerial group was set up.

Attorney General Victoria Buttigieg and the government lawyers presented their advice, with Fearne saying that it was then that he got to know about a €100 million penalty if the contract was rescinded.

“The only way to rescind the contract was through a mutually agreed termination,” Fearne said recalling the legal advice given at the time.

The government and Steward Health Care started discussing the mutually agreed termination, with Fearne saying said that Steward “were not happy”.

Then the pandemic hit, which took their focus away.

He recalled that negotiations went on for months, at the end, they arrived at a point where the State Advocate and the Department of Contracts told the government that there were so many changes being proposed that they would not be allowed under procurement law.  

Fearne said they sought other ways to terminate the contract. It was observed that Steward Health Care was not paying its taxes and the Inland Revenue issued a demand order which was contested by the company. A rectification notice on the lack of a performance guarantee was also issued, so that if Steward Health Care did not rectify its position, this could lead to termination.

This was close to when the First Hall of the Civil Court was due to issue its judgement in the case initiated by then Opposition leader Adrian Delia. The court rescinded the contract and the side agreement on the €100 million penalty. The government did not appeal, seeing that the judgement favoured its position.

In March 2023, the government handed Steward Health Care the termination notice after declining to accept the one issued by the company and thus avoiding to pay the €100 million penalty.

Steward Health Care smear campaign

Fearne testified that when he was in Geneva, he got to know about reports appearing in local media quoting Pakistani outlets about alleged bribery involving individuals close to him.

The police were asked to investigate the person concerned and myself,” Fearne said, adding that ‘no traces of an offence’ was found after the investigation was concluded.

“They did not find who was behind these attacks,” Fearne said.

A year later, journalist Matthew Caruana Galizia put him in touch with Khadija Sharife from the Organised Crime and Corruption Reporting Project (OCCRP). He was informed that OCCRP had emails, documents and voice notes that showed that Steward Health Care engaged in a systematic smear campaign against him and had private spies at two London-based intelligence firms called Audere International and CT Group.

Sharife published an article revealing the Steward-funded smear campaign, saying that “millions were spent because he was the number one foe” to the company. Fearne said he went to the police again because there was no doubt that Steward was behind this.”

The case continues later this month.

Magistrate Leonard Caruana presided.

AG lawyers Francesco Refalo, Rebekah Gatt and Shelby Aquilina prosecuted.

Lawyers Stephen Tonna Lowell and Alex Sciberras appeared for Fearne and Scicluna.