The financial perils of taking over the Southeast's hospital

Monday, July 5, 2010

DISTRICT OFFICIALS say that they are moving to take control of United Medical Center because they need to protect the city's investment and ensure the hospital's continued operation until a new buyer can be found. One has to wonder, though, if officials really know what they are getting the city into by trying to acquire Southeast's only hospital. Not only has the District's chief financial officer warned about the likely fiscal risks, but the city's nightmarish experience of running D.C. General -- and getting out of that arrangement -- should serve as a cautionary tale.

Alleging that Specialty Hospitals of America, the hospital's owner, has defaulted on loan agreements with the District, officials are moving to foreclose. Unless Specialty is able to block that effort, an auction of the hospital is set for Friday. No bidders are expected, so last week the D.C. Council approved emergency legislation to establish a nonprofit corporation to take over the hospital. Officials said that this is necessary to protect the city's $100 million investment in United. They stressed that it is not their long-term plan to run the hospital, only to stabilize its operations and make it more attractive to a new buyer.

The big question is whether it is reasonable to expect that such a buyer will materialize. There wasn't much interest three years ago when the city -- despite warnings from Chief Financial Officer Natwar M. Gandhi -- struck the deal for Specialty, backed with city loans, to take over the hospital then known as Greater Southeast. Mr. Gandhi is raising similar alarms about the city acquiring the facility, telling the council that such a move "is likely to have a negative impact on the District's budget and financial plan." With only 10 percent of the hospital's patients covered by third-party insurance, its expenditures outpace revenue. And that means, as Mr. Gandhi wrote: "It is likely the District will have to continue to subsidize the hospital into the future."

Mayor Adrian M. Fenty (D) and city officials are right to feel the special obligation to maintain the only hospital in Southeast. Allowing it to close would severely rend the safety net of care for some of the city's most vulnerable people. It's also true that the city's investment has greatly improved the hospital's facilities, staff and services. Nonetheless, there's been a disturbing tendency by the council, particularly council member David Catania (I-At Large), who helped engineer the agreement with Specialty, to forge ahead without a clear-cut idea of where the city will end up. How else to explain that the council is holding a hearing on the acquisition plan three days after the planned July 9 auction. Instead of being, as The Post's Tim Craig reported, dismissive of Mr. Gandhi's concerns, Mr. Catania needs to acknowledge and address them. After all, Mr. Gandhi made it clear that his job is not to challenge the policy decision by the mayor and council to take over the hospital, only to ensure that their eyes are open to all the facts.

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