Some on Council Now Doubt Wisdom of Hospital Deal
Members Say Faith in City Officials Was Shaken by 11th-Hour Notice of Financial Risks in $79 Million Plan

By Nikita Stewart
Washington Post Staff Writer
Friday, November 2, 2007

In the days after the D.C. Council voted to use $79 million in public funds to bail out Greater Southeast Community Hospital, council members began having second thoughts about the deal and about the city leaders they trusted to negotiate the details.

For more than two weeks, some city officials had information explaining that the city's plan to help complete a private purchase of the hospital could expose the city to greater financial risk. But council members did not receive the information until hours before they voted to approve the deal.

The financial risks were outlined in a confidential letter that the city's chief financial officer, Natwar M. Gandhi, sent to Peter Nickles, the mayor's general counsel, on Oct. 5. Meanwhile, the agreement was thrashed out in closed-door meetings attended by Nickles and representatives for the buyer, Specialty Hospitals of America. Even the mayor did not see Gandhi's letter, although his spokeswoman said he was briefed on its contents.

Some council members say that they were not given adequate time to evaluate Gandhi's concerns, contained in a fiscal impact statement slipped under their doors before the vote, and that the council should have been more aggressive in exploring alternatives. Now the members worry that financial questions about Specialty could mean that the $79 million might not be adequate to keep Greater Southeast open.

"We're all keeping our fingers crossed. We're not entirely sure that it's going to work," said council member Mary M. Cheh (D-Ward 3), echoing the sentiments of a majority of council members.

"Somebody owes me an explanation on this one," said the council's chairman, Vincent C. Gray (D).

City officials agree on one point: They sought to prevent the closure of Greater Southeast, the city's only hospital east of the Anacostia River. Medical care in that area has been a major concern for years, and a fierce political debate followed the decision in 2001 by Mayor Anthony A. Williams (D) to close the city's only public hospital, D.C. General.

Some council members said they had relied on Gray, David A. Catania (I-At Large), chairman of the council's health committee, and Nickles to handle complicated negotiations and get the best deal. Instead, they said, the officials were hindered by poor communication and disagreements, including one with Gandhi.

Harry Thomas Jr. (D-Ward 5) said he is most upset that every council member was not privy to talks that shaped the agreement, which Catania initially orchestrated.

"It's one thing to have health committee meetings. It's another to have private meetings about the fate of the hospital, and we weren't included," Thomas said. "I'm trying to give David some respect, but at the same time, we're going to be held accountable."

Some council members said they gave the benefit of the doubt to Catania, appointed in 2004 by the council's chairman, Linda W. Cropp (D), to lead the health committee, which she created.

Since then, Catania's in-your-face approach to oversight has prompted a running joke in the city government that he is the city's health director.

Saving Greater Southeast became his crusade, but some council members said Catania would not consider alternatives or requests to slow negotiations with Specialty.

When council member Marion Barry (D-Ward 8) suggested that the city set up a corporation to buy the hospital and later hire an operator, Catania said there was no time to study that idea. When council member Jack Evans (D-Ward 2) suggested seeking a larger ownership group, Catania said Specialty was the only entity that stepped forward after an extensive search.

"First of all, David did a great job to keep this hospital going. He was sincere," Barry said. "He was fearful that the hospital would be closed. He was against the wall, and he had to act. But David got defensive when I started asking questions."

Catania, who has said the deal was the best the city could get, declined to comment.

Meanwhile, Gray had told his colleagues that Greater Southeast needed immediate attention and that he favored the plan for the city to help Specialty buy the hospital from Arizona-based Envision Hospital.

Under Envision, whose management has been criticized as causing the hospital's problems, vendors were going unpaid and employee walkouts were threatened. A Nov. 7 deadline for Specialty to complete the purchase also was looming.

Gray said the process should not be slowed because Greater Southeast was in dire straits. "Every day that went by led to the path of no return," he said.

But about two weeks before the council took its final vote, Gandhi, in his four-page confidential letter to Nickles, detailed problems with the city's partnership with Specialty and concluded that Specialty was "not in a strong financial position."

Gandhi wrote that the company's five-year operating plan "does not include sufficient detail to provide confidence that the proposed operating model can be realized and the hospital will be viable. Thus, the District is at risk to provide annual operating subsidies."

The letter did not specify an amount for such subsidies, which have been a politically charged issue. A plan to build a $400 million hospital on the site of D.C. General collapsed last year, in part because city leaders worried that the deal could have led to requests for millions of dollars in subsidies.

Gandhi also noted in the letter that the District needed more information about how Specialty planned to repay the $49 million in loans that would be part of the package.

During negotiations, Nickles discovered that Specialty was in default on a $39 million loan used to buy two other D.C. hospitals over the past two years. Nickles added language to the agreement so that the creditor, GE Capital, would not be allowed to seize Greater Southeast as an asset.

George Lowe, a lobbyist representing Specialty, said the company did not purposely hide the default and believed that dealings with GE Capital had been addressed.

Although Gandhi disagrees, Lowe said Nickles was dogged in addressing all of Gandhi's concerns in the negotiations. "They've got the city covered," he said. "Take a chance and see what we can do."

Lowe said audited reports about Specialty's finances will be submitted to city officials in coming weeks.

Much of the information in Gandhi's letter was included in the fiscal impact statement given to the council just before the vote. Gandhi said he shared the information with Nickles earlier to help him in the negotiations.

Nickles, the mayor's legal confidant, said he felt duty-bound to show the letter to no one. "It came to me in a sealed envelope. It was marked confidential," he said. "Well, I'm an honorable person. . . . I honor confidentiality, even to the point that the mayor was surprised" that the letter existed.

Several council members said they were disturbed that Gandhi and Nickles decided not to share the information with them earlier. Evans, who heads the Finance and Revenue Committee, said, "It's critical that we have the information that the CFO and the mayor's office have."

Gandhi said he regretted not including the council. He met one-on-one with members in the days after the final vote to discuss his findings and his actions. He said his letter was not delivered to members sooner because the final legislation was not completed until the evening before the vote.

Barry said appointed city leaders should never keep information from elected ones. He also said that council members ultimately were scared that Greater Southeast would be forced to shut its doors.

"The underlying thing that happened with David and other council members was fear," he said. "When you act out of fear, you sometimes act as you wouldn't. The goal now is to hold [Specialty's] feet to the fire."

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