D.C. moves to control failing hospital in SE

By Tim Craig
Washington Post Staff Writer
Friday, April 30, 2010; B01

United Medical Center, formerly known as Greater Southeast Community Hospital, is in such financial distress that it has been unable to pay its electrical bill and taxes, has failed to meet retirement plan obligations, and has defaulted on its employee life insurance plan, according to newly released documents.

In a filing Wednesday in D.C. Superior Court, city officials asked the court to seize control of the medical center from Specialty Hospitals of America, citing alleged fiscal mismanagement and concerns that the parent company is "draining resources" from the hospital.

UMC owes Pepco $1 million on electric bills, the Internal Revenue Service $3.9 million in back taxes and Maryland and Virginia $1.7 million in payroll taxes, according to the documents. At the same time, several hospital executives have been making $1 million annually for what appeared to be little work, Attorney General Peter Nickles alleges.

"This is the tip of the iceberg," said Nickles, who is investigating the hospital's finances and management.

In 2007, D.C. Council member David A. Catania (I-At Large) put a deal together that prevented the closure of the only hospital in that part of the city east of the Anacostia River. The arrangement called for Specialty, a for-profit company, and the city to own the hospital jointly and for the hospital to be managed by its own board of directors.

The city has invested $100 million to modernize the facility in the past 2 1/2 years, but city officials now say the arrangement with New Hampshire-based Specialty has failed. They plan to have the city operate the hospital until a new owner can be found.

Although hospital officials said in early 2008 that the long-troubled hospital was on the verge of turning around, it has been losing about $1 million a month since last year, according to the documents.

"UMC is in imminent danger of financial insolvency and its continued operations will be placed in jeopardy unless a receiver is appointed," according to documents, which also assert that the hospital is at least $30 million in debt.

On March 11, the hospital ran out of money to pay for basic supplies, according to the court documents. To keep the 184-bed hospital open, the city gave it a $120,000 grant March 12 to "ensure" that it had "adequate patient supplies."

The hospital has been struggling to meet its employee retirement obligations. It was depositing employee 401(k) contributions at the last possible moment under Department of Labor guidelines, a practice the city characterized in court documents as an "interest-free loan from UMC employees of over $100,000 per month." This month, it missed the deadline.

In addition, the employee life insurance plan was canceled this month when the hospital failed to make outstanding payments of $80,000.

Jim Rapport, chairman of Specialty, declined to comment on the specifics of the city's allegations.

"All of us involved with the UMC turnaround and with our operations at Specialty Hospital Washington look forward to letting people know the truth, and it will be laying it out to the public in the very near future," Rapport said. "Mr. Nickles's public filing bears little correlation to the truth of the facts."

The court documents state that some Specialty executives were drawing salaries of about $1 million annually without the knowledge of city officials.

"There were three or four Specialty folks who were paying themselves as managers," said Nickles, who said they city stopped their paychecks a few weeks ago. "Most were only coming to board meetings every three or four months. These were senior members of Specialty who were sitting on the board and paying themselves significant salaries."

In the city filing, Nickles alleges that part of the company's operating loss occurred after the hospital misstated $4.2 million in income because of "poor financial controls" or the "lack of an accurate . . . billing process."

The city moved three weeks ago to seize control of the hospital building, but Nickles said that officials affiliated with Specialty continue to have a majority of board members so he decided to go to court to gain control of hospital operations.

If the court grants the city's request, hospital spending decisions will be turned over to Frank G. DeLisi III, the hospital's chief executive, and John M. Pierro, a specialist in turning around troubled hospitals, so they can operate independently of the board.

"It removes any legal ambiguity about who is in charge," said Catania, who has worked in recent months to increase Medicaid reimbursement rates for the hospital and put together a $5.9 million bailout. "Had the city not stepped in recently, the hospital would be in very bad shape."

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