Final Agreement Is Reached on Sale of Hospital

Investment Protected, Leaders Say

D.C. leaders said yesterday they have reached a final agreement to spend $79 million on a plan to save financially troubled Greater Southeast Community Hospital after lawyers for the city worked out eleventh-hour assurances that its investment would be protected.

Under the funding plan, which will come before the D.C. Council for final approval Tuesday, the District will invest the public money to complete a private sale of the medical center from Envision Hospital Corp. to Specialty Hospitals of America.

Greater Southeast, in Ward 8, is the city's only hospital east of the Anacostia River. It has been in financial straits for years, and conditions are so dire that the hospital could soon lose its national accreditation. City leaders said the public funds will be used to pay Greater Southeast's debts and invest in equipment and infrastructure.

The funding agreement, several months in the making, was nearly derailed late last week after the council had approved the plan on a first vote. That's when District leaders learned that Specialty was tied up in a dispute with GE Capital, which had lent Specialty $39 million to buy two other D.C. hospitals over the past two years.

Under Specialty's agreement with GE Capital, the hospital company was required to get permission from the lender before seeking to purchase another hospital, D.C. and Specialty officials said yesterday. But Specialty had not received that permission before negotiating the deal with Envision and the D.C. government. GE Capital declared the company in default of its loan agreement, the officials said.

Several D.C. Council members, including David A. Catania (I-At Large), Marion Barry (D-Ward 8) and Chairman Vincent C. Gray (D), were angry that they had not been told of the problems earlier.

"It should have been disclosed," said Catania, chair of the Committee on Health, who helped negotiate the sale of Greater Southeast.

Attorney ElChino Martin and lobbyist George Lowe, both representing Specialty, said yesterday that the company did not intend to hide the dispute with GE Capital. After being declared in default, Specialty had paid a fee of several hundred thousand dollars to GE that Specialty believed would allow it to pursue Greater Southeast, Martin and Lowe said.

When GE continued to object, Specialty was as surprised as anyone, Lowe said.

"It was not deliberate," Lowe said of Specialty's failure to disclose the default notice. "Our guys acted in good faith."

D.C. officials and Specialty representatives stressed that Specialty has not had any problems repaying its loan to GE.

Peter Nickles, general counsel to Mayor Adrian M. Fenty (D), was outraged, council members said. Nickles feared GE was interested in securing the right to try to seize Greater Southeast as an asset if Specialty were to fall behind on its loan payments -- even though no GE money is involved in the Greater Southeast deal, council members said.

Nickles met with GE and added language to the city's funding legislation that would make such a scenario virtually impossible, officials said. And Specialty is trying to find another lender to buy out GE's loan.

"We've met with the lender and satisfied ourselves," Nickles said. "We've obtained the appropriate verification to ensure that the District's money is protected."