In a letter accompanying the report, Gray (D) told the hospital’s board that it “must immediately begin the work to build a sustainable business model as prelude to the later sale of the hospital,” including the creation of an “immediate action plan” to implement the findings of consulting firm RSM McGladrey.
Gray’s embrace of the report represents his most definitive statement to date on the future of United Medical Center, which has been in city hands since then-Mayor Adrian M. Fenty (D) ousted its prior operator, Specialty Hospitals of America, in July 2010. The Southern Avenue SE facility, formerly known as Greater Southeast Community Hospital, has lurched through a series of financial crises for more than a decade as it has struggled to provide care to a disproportionately poor and uninsured clientele.
The hospital’s fiscal picture has improved significantly since its last crisis, showing an $8 million accounting profit for the fiscal year that ended Sept. 30. But it has had difficulty collecting the revenue it is owed and remains reliant on the District for cash, leading to concerns about its ongoing effect on the city’s bond ratings.
Shifting the facility toward outpatient care, the McGladrey report said, would “stabilize UMC and provide a pathway for sustainability, regardless of the shape healthcare reform takes moving forward.”
While complimentary of the progress the hospital has seen in recent years, including its upgraded facilities, the consultants criticized a lack of internal operating procedures, subpar accounting operations and excessive compensation for its staff physicians. They also highlighted some critical problems that could threaten the hospital’s accreditation. But they concluded that, with a change of focus, the facility could be sustainable enough to be sold or leased to a private operator within three years.
It will fall to the hospital’s 11-member board to decide how to proceed. In a statement Wednesday, the board said it was reviewing the report and had no immediate comment. The eight-week review cost the city $428,000.
“It’s a vital decision the board has to make,” said a Gray administration official, speaking on the condition of anonymity because he was not authorized to discuss the matter publicly. “The hospital is at a turning point; it’s at a crossroads.”
Since the city takeover in 2010, the hospital has been roiled by a political struggle pitting Gray and Chief Financial Officer Natwar M. Gandhi, who expressed support for a quick sale to a private owner, against D.C. Council member David A. Catania (I-At Large), who has wanted the city to undertake a longer-term stabilization of hospital finances before a sale.
That dispute now appears to be settled. While acknowledging that the “[c]ore competencies of governmental entities usually do not include operation of an acute care hospital,” the McGladrey report counsels against a “premature” sale that could result in “continued instability” or loss of a $79 million city investment in facilities and equipment upgrades made as part of the 2007 deal in which Specialty acquired the hospital.
“In our experience, it is uncommon for such a transition to occur in three years or less,” the report said.
Catania said he agreed with the report’s three-year timeline, adding that he considered that to be the maximum period the city should remain as the hospital’s operator. “They are definitely siding against a precipitous transfer or sale,” he said of the consultants. “I think that’s wise.”
This month, the city settled litigation with Specialty that threatened to complicate or obstruct any future transaction. Washington Business Journal reported that the city paid $6 million and forgave $900,000 in debt to end the dispute.
The hospital’s chief executive under Specialty, Frank G. DeLisi, has remained at United Medical Center since the city takeover. He has enjoyed the support of Catania, who has taken an intensive role in overseeing the hospital since he took over the council’s Health Committee in 2005. But DeLisi has clashed at times with some members of the hospital’s board, including its chairman, Bishop C. Matthew Hudson Jr., pastor of Matthews Memorial Baptist Church.
The consultants’ report could be seen as prelude to a management shake-up, but the Gray administration said the board would have a free hand.
“They are not without skills,” the administration source said of the current managers. “But . . . that’s a decision the board has to make.”
In his letter, Gray urged the board to hire “hospital turnaround specialists with a proven track record” to assist with the transformation. DeLisi declined to comment Wednesday.
Catania agreed with Gray that outside turnaround specialists might be necessary but warned against a “premature shake-up,” saying it would have a destabilizing effect.
He added that the hospital is, in many ways, already making the transition Gray and the consultants are suggesting. About half of the hospital’s beds, he said, are devoted to a skilled nursing facility.
Should the hospital board choose to pursue a partial or wholesale transformation of the hospital, it will take place amid the uncertainties of national health-care reform. The hospital relies on about $15 million of yearly federal payments to compensate for the cost of treating an unusually high number of uninsured patients. Under the federal overhaul passed last year, those payments would be significantly reduced starting next year.