Sole bidder at foreclosure sale, D.C. pays $20 million for Southeast hospital

Washington Post Staff Writer
Saturday, July 10, 2010

The city now owns United Medical Center, the only hospital serving residents east of the Anacostia River, after bidding $20 million for the beleaguered facility at a five-minute foreclosure auction Friday that drew no other bidders.

The move plunges the District back into the business of owning a financially struggling hospital nearly a decade after city-run D.C. General Hospital was forced to close because of similar troubles. No cash changed hands Friday, but the proceeding reduces the estimated $55 million debt that the previous owner, Specialty Hospitals of America, owes the city, Attorney General Peter Nickles said.

The city took immediate possession of the 184-bed hospital, formerly Greater Southeast Community Hospital, met its $2.2 million payroll and started the process of transferring Medicaid and Medicare numbers and various licenses, officials said.

For months, the city and Specialty have wrangled over the hospital's finances. A judge rejected Specialty's attempt this week to stop the foreclosure, part of the city's plan to seize control of the medical center from the company and put it under the authority of a District-appointed board.

The city named five acting board members Friday: Chief Deputy Attorney General Eugene A. Adams, Department of Mental Health Director Stephen T. Baron, Chief Procurement Officer David P. Gragan, Office of Risk Management Interim Director Andrew T. "Chip" Richardson and Leon J. Swain Jr., chairman of the city's Taxicab Commission.

The D.C. Council has scheduled a hearing Monday on the hospital.

Chief Financial Officer Natwar M. Gandhi has pointed to the fiscal risks of taking control of the facility, warning city officials about the "negative impact on the District's budget and financial plan."

Council member Marion Barry (D-Ward 8), the only vote against the creation of the city-appointed hospital board, said that he knew of two private buyers who were interested in the facility but that Nickles rejected an offer from one of them. Barry declined to identify them.

Nickles said that two private buyers expressed interest but that neither provided the necessary documentation.

He also said Barry has declined at least 15 invitations to visit the hospital to talk about solutions. "He has zero interest in a project that is of utmost importance to his constituents," Nickles said.

D.C. Council member Jack Evans (D-Ward 2) said he was deeply troubled by the potential for additional debt. "You cannot close this hospital. But the best financial structure for this hospital is for the D.C. government not to own it," he said. "This could burden the city with substantial payments way into the future."

Nickles said the city is looking for ways to boost revenue and cut other city expenses. The District funded a grant to build and equip a pediatric emergency ward expected to open in September and to be operated by Children's National Medical Center, he said. The city is also considering plans to treat some mentally ill children and adults at United Medical Center, but Nickles did not elaborate.

Jennifer Lav, a lawyer for the advocacy group University Legal Services, said there has been talk of the city setting up a pediatric psychiatry ward at the hospital. That could be a step toward providing local care for some of the hundreds of youths who have been placed in out-of-state residential treatment centers, she said. Many have specialized medical or mental health needs that cannot be addressed in local residential facilities. But Lav said that any shift can't be undertaken as a money-saving measure in the short term.

Specialty's chairman, Jim Rappaport, said in a statement: "We hope that Attorney General Nickles and his people care as much about turning around the clinical care and the physical facilities and equipment as the team at SHA and the wonderful professionals at UMC who we worked with to make the tremendous improvements that we accomplished over the last three years."

Specialty gained ownership of the hospital in 2007 under a deal engineered by D.C. Council member David A. Catania (I-At Large). The deal kept the facility from closing and called for Specialty's managers to co-manage the hospital.

The city has spent tens of millions of dollars to modernize the facility in the past 2 1/2 years, and city officials said in recent court filings that Specialty led them to believe that the long-troubled hospital had stabilized financially. But according to the city filings, the hospital had been losing about $1 million a month and had run up at least $20 million in debt.

Staff writer Henri E. Cauvin contributed to this report.

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