D.C. Council creates nonprofit to take over SE hospital

By Tim Craig
Washington Post Staff Writer
Wednesday, June 30, 2010

The D.C. Council voted Tuesday to establish a nonprofit corporation to seize control of United Medical Center at a foreclosure auction next week, even though the District's chief financial officer warned members that the city might not be able to afford it.

After months of wrangling between the city and Specialty Hospitals of America, the hospital's owner, Attorney General Peter Nickles plans to auction the Southeast Washington hospital on the steps of the John A. Wilson Building on July 9.

Nickles has accused Specialty, a for-profit company that took over the hospital then known as Greater Southeast in 2007, of defaulting on its loan agreements with the city.

Officials do not expect any bidders, and Nickles and council member David A. Catania (I-At Large) have drawn up plans to convert the long-troubled hospital into a quasi-city-managed facility until a new owner is found.

"The District believes it's in its best interest to foreclose to protect the District's substantial investment," Catania said, noting that the city has spent more than $70 million on the facility over the past three years. "I believe, and this council believes, we have a special obligation to continue the operation of a de facto safety-net hospital in the District."

Attorneys for Specialty will be in court July 6 to try to block the foreclosure. Company Chairman Jim Rappaport predicted that city officials would fail in the hospital business if they wrestle control. Rappaport noted that the city-run D.C. General Hospital closed in 2001 after myriad problems.

"The District of Columbia did such a great job with D.C. General, I am surprised at the process they are undertaking," Rappaport said. "They can't run it well because they haven't run it well. . . . It's a very complicated process to run and manage a hospital."

Under the emergency legislation moved by Catania on Tuesday and approved by a vote of 12 to 1, the city wants to create a 14-member board to oversee the Not-for-Profit Hospital Corp. The corporation "would receive the land, improvements on the land, equipment, and other assets of United Medical Center" and "operate and take all actions to ensure the continued operation of the hospital."

Catania, chairman of the Health Committee, said the move would not cost the city money. But before the council voted on the legislation, Chief Financial Officer Natwar M. Gandhi issued a memo saying that he foresaw "a negative impact" to taxpayers if the city took over the hospital.

"Because the hospital cannot meet its operating expenditures, given its current streams, it is likely the city will have to continue to subsidize the hospital into the future," wrote Gandhi, noting the city is near its debt limit.

Gandhi had warned that Specialty was not in a strong financial position in 2007 when Catania fashioned an agreement to have the company run the hospital. "In 2007 we raised objective concerns about the financial viability of the plan to have Specialty take over the hospital, which unfortunately became reality," said Gandhi spokesman David Umansky.

Despite those concerns, Catania persuaded his colleagues to go along with the deal. He concedes that the city's arrangement with Specialty failed. But he appeared dismissive of Gandhi's concerns Tuesday, saying his focus was keeping the only hospital east of the Anacostia River in business.

Council members Marion Barry (D-Ward 8) and Jack Evans (D-Ward 2) tried to get the vote delayed to give members more time to examine the financial impact. "There are so many unanswered questions," Barry said. "We are talking about millions of dollars."

In an interview after the vote, Nickles said the council had needed to take immediate action to ensure "a smooth transition" to new management.

"After five months of negotiation, it appears to us the only alternative is to foreclose on the asset and take control of the hospital," Nickles said. "Our mission is to save the hospital."

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