Hopes of quickly selling the hospital to a private company have fizzled, and unpaid bills have mounted to the point where officials say they will need another cash infusion from the city in the coming weeks, adding to the roughly $100 million the city has spent on the hospital since 2007. Meanwhile, turnaround consultants will attempt to transform the hospital into a self-sustaining and salable enterprise.
The ongoing saga of the hospital, formerly known as Greater Southeast Community Hospital, underscores the disconnect between city officials’ commitments to keeping the facility open and their general reticence to either commit to subsidizing its operations or significantly change how it operates.
“The city speaks with many voices, and those voices have not been harmonious,” said Robert Malson, president of the D.C. Hospital Association. “Not every piece is in sync. They are all not in the same place, by a long shot.”
By nonfinancial measures, the hospital is thriving. The bulk of the city funds spent thus far have gone to capital improvements, which have helped drive patient numbers to record highs, up 13 percent in the past year. But with about 90 percent of those patients on government health coverage or uninsured, the hospital’s bottom line is tenuous.
“We’re busier than ever,” said Michael E. Davis, the hospital’s chief financial officer. “Unfortunately, we’re busier than ever with a demographic that doesn’t pay full costs. So any way you slice that, if it costs you a dollar to run the hospital and you’re getting 75 cents, there’s a disconnect.”
A year ago, United Medical Center appeared at least mildly profitable, recording about $2.5 million in net income on revenue of $97.6 million. But that surplus was largely due to a special type of federal funding for hospitals that treat a high proportion of low-income patients who are underinsured or uninsured.
Those funds — known as “disproportionate share” — are split among the District’s hospitals based on the amount of uncompensated care they provide. In June, city health-care finance authorities recalculated the split and determined United Medical Center was getting too much. Under the new formula, it received $10.7 million less, contributing to a $322,000 loss in fiscal 2012 — even after the District infused $7.7 million in cash and forgave a $6 million loan — and city health-care finance director Wayne Turnage said the calculation is unlikely to change soon. The District recently dealt another financial blow to the hospital when it cut reimbursement rates for some Medicaid patients.
Today, Davis said, the hospital has four days’ cash on hand. Significant bills to several creditors, including Pepco and medical suppliers, remain unpaid. “A huge part of management’s time is figuring out which vendors to pay each week,” he said. “It’s a real juggling act.”
Natalie Williams, a hospital spokeswoman, said the board of directors “will be seeking additional funds from the District” to pay bills. Neither Williams nor Davis would discuss how much funding would be sought.
The prospect that city taxpayers will have to pony up yearly to keep the hospital afloat has been the subject of repeated warnings from District Chief Financial Officer Natwar M. Gandhi, who has said that having a public hospital on the city’s books puts its bond ratings at risk. The warnings have struck a chord with several D.C. Council members, who raised concerns during a vote last month on a hospital consulting contract.
Wall Street debt raters “do not like city governments owning hospitals,” said Jack Evans (D-Ward 2). “It has been a commitment on behalf of the administration that we would get out of the business of owning a hospital. So we have to move in that direction, whether we like it or not.”
Getting out of the hospital business has been easier said than done. United Medical Center’s previous two private operators both relinquished their ownership amid spiraling losses. In the most recent case, the city foreclosed on a loan to Specialty Hospitals of America in 2010 and seized the hospital as collateral.
Council member David A. Catania (I-At Large), the former health committee chairman who orchestrated Specialty’s purchase of United Medical Center in 2007 and endorsed the foreclosure, agrees with his colleagues that the hospital is an indispensable part of the District’s health system. Unlike many of his peers, however, he suggests the city can responsibly subsidize the hospital into the future as it searches for a suitable buyer.
Catania has been critical of Gandhi’s handling of the hospital’s finances, most recently accusing him of doing a “less than commendable job” of collecting patient bills. Davis — who reports to Gandhi, not the hospital’s chief executive — said that “very stringent protocols” are in place to collect money owed before it is written off.
Even $10 million a year, Catania said, is a speck in the city’s $10 billion budget — one that he believes will not cause Wall Street the heartburn Gandhi says it will.
“The city does not run its parks department for a profit, nor does it run the police department for a profit,” Catania said. “There are certain services that are incumbent upon a civilized government to provide. Health care is one of them.”
Mayor Vincent C. Gray (D) has been caught politically between the need to support the hospital and his commitment to fiscal rectitude, making it difficult for him to break with Gandhi.
His administration has ordered a “strategic review,” which was delivered in 2011 by the consulting firm McGladrey, and has now engaged the Chicago-based Huron Consulting Group under a $12.7 million two-year contract to get United Medical Center on solid footing and prepare it for sale.
Frank DeLisi, the hospital’s chief executive since 2007, will depart on March 28 and be replaced by Huron consultant David R. Small. As many as 40 other Huron employees have worked on hospital matters preparing for the transition, Williams said.
But weeks after the council approved the contract, the terms of Huron’s engagement remain fuzzy. Under its contract, the firm is to develop a strategic plan for the hospital that is “in consonance with” a particular McGladrey recommendation that would scale down the hospital from 350 beds to 60, close a 120-bed skilled-nursing facility and create a more outpatient-focused medical campus.
The suggestion that United Medical Center should downsize, however, is controversial and has been repudiated by some city leaders, including Council member Yvette M. Alexander (D-Ward 7), the new health committee chairman.
“There is no doubt they all and we all agree we want them to come in and turn around the hospital as a full-service hospital,” she said. “My expectations are not an outpatient facility, and that was agreed on across the board.”
At the contracting hearing last month, a Huron executive testified that the company would not pursue the downsizing recommendation. Yet the McGladrey language remains in the contract, and it is unclear whether Huron will be able to improve the hospital’s management — most crucially, billing and collections — to the point where it can be reliably self-sustaining under the current model.
Asked what will happen if the consultants determine that United Medical Center is not viable as a full-service hospital, Alexander demurred.
“I’m not even going to entertain that,” she said. “I’m confident that Huron is going to do the job, and their job is to make it attractive for another health-care leader to take over the hospital. And then the District will be out of the business of running hospitals.”