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Deficits Cast a Pall Over D.C. General
Hospital's Spending Practices and Accounting Problems Are at Heart of District's Health Care Debate

By Avram Goldstein
Washington Post Staff Writer
Tuesday, February 1, 2000; Page B01

The agency that operates D.C. General Hospital has spent far more than it has received in revenue in the past two years, forcing the District government to pay at least $36 million to cover unplanned deficits and keep it from collapsing.

The money is in addition to appropriations from the District and contracts with D.C. agencies that totaled $61 million in 1998, and millions of dollars more in Medicaid payments.

The cash transfers raise questions about the financial viability of D.C. General as the public hospital's leaders are trying to fend off complaints from some health officials that the facility, whose staffing far exceeds U.S. averages, is spending extravagantly.

D.C. General's financial situation and questions about whether the city government should continue propping up the hospital are at the heart of a District commission's debate about how to reshape the city's health care system.

The commission is confronted with conflicting images: Hundreds of hospital beds across the city go unused, while 81,000 uninsured, low-income residents have little or no access to basic medical care. Its discussions have led to debates on matters of race, who should treat the poor, and how long frustrated city officials should give D.C. General to get its financial act together.

D.C. General officials say the additional cash they received from the city will be repaid as soon as another arm of D.C. government--the Medicaid program--pays the rest of what it owes the hospital from the past six years.

"We are in the black," said D.C. General Chief Executive John Fairman during a Jan. 6 public hearing. "In fact, this year we will be better than in the black."

But many health care specialists and city officials say they doubt D.C. General will ever see the additional Medicaid money because the hospital has had enormous difficulty proving it is entitled to it.

Fairman's spin on the hospital's finances has annoyed some of the 11 members of the D.C. Health Care System Development Commission, which was appointed by Mayor Anthony A. Williams (D) and the D.C. Council to find ways to improve the health status of the uninsured. Its report is due soon.

"It's crazy," Gilbert Hahn Jr., a former D.C. General board chairman who is a commission member, said of Fairman's claims that the hospital is financially viable. Hahn says Fairman often tries to distract attention from D.C. General's soaring cost to taxpayers by emphasizing its role as hospital-of-last-resort for low-income residents--and particularly African Americans.

"They sing a beautiful song," Hahn said. "Their song is, 'We're the safety net. Who's going to take care of the poor if you do anything to us?' "

Meanwhile, Williams's administration is struggling to understand D.C. General's true financial picture. Audit reports and interviews with several officials, including Fairman and hospital board members, indicate that D.C. General's record-keeping has been so bad that it cannot reliably document basic information about its operations.

"I don't have any confidence in what the real numbers are," said D.C. Health Department Director Ivan C.A. Walks.

D.C. General is operated by Public Benefit Corp., a quasi-independent nonprofit that also runs eight satellite clinics and provides nurses at D.C. public schools. PBC provides about a third of the care for uninsured D.C. residents. The rest is rendered on an ad hoc basis by private clinics and hospitals with widely varying degrees of public support.

The financial pressures on PBC have increased in recent years. The number of patients staying at D.C. General declined 24 percent from 1995 to 1998, but the number of full-time employees at the hospital has increased by 13.4 percent since 1996.

Rising costs, along with the hospital's questionable accounting, have led Hahn and other analysts to conclude that the District could save millions of dollars a year by cutting its future Medicaid payments to D.C. General and instead paying it the same fees private hospitals receive to care for the uninsured. The city could use the savings to provide medical coverage to uninsured residents.

But D.C. General supporters fear such a plan would doom the hospital by drastically cutting PBC's income and encouraging residents with the new medical coverage to choose other hospitals.

"You cannot solve your primary care issues by gutting a hospital," said PBC board member Victor G. Freeman, a physician.

While expanding Medicaid coverage would allow poor residents to choose health care providers other than D.C. General, many private hospitals do not favor such a plan if it could undermine D.C. General. The existence of the public hospital relieves them of having to care for thousands of poor people, jail inmates, drug addicts and people with severe social problems.

Many commission members and top D.C. officials are nervous about promoting a plan that would weaken D.C. General, Hahn and many others say, because they fear offending people who regard the public hospital as a symbol of black self-determination.

"They're afraid," Hahn said of D.C. General's critics. "Fairman is so confident he can come into a meeting and say he's going to make a profit--and nobody says boo. I know what he said at the [Jan. 6] hearing was a lie."

Fairman and his aides say those who doubt his financial claims are misguided.

"There is no sound business basis whatsoever for Mr. Hahn, who has no working knowledge of the inner financials here, to say we will not be in the black," Fairman said. "Mr. Hahn has never had one single discussion with me . . . and given us the opportunity to sway his position. And given that opportunity, I'm certain we could sway even Mr. Hahn."

If the city had fulfilled its promise to let PBC operate with independence instead of placing legal and financial limits on it, things would be better, Freeman and other board members say. PBC cannot issue bonds on its own, and its finances are still controlled by the city.

The debate over D.C. General's future isn't new, but anxiety over the hospital is cresting as the commission prepares its report, which could significantly affect the city's budget for years.

Several commission members say the rising costs at D.C. General represent the biggest obstacle to the mayor's goal of improving access to preventive care in the District, where the life expectancy of African Americans, particularly males, approaches that of some Third World nations.

D.C. General supporters have criticized those who suggested cutting public contributions to the hospital as racially insensitive. That makes D.C. General's future a touchy issue for Williams, who during his first year in office was criticized by some residents as out of touch with the concerns of people in poor neighborhoods. The mayor has said he wants to reduce the public subsidy to D.C. General and expand Medicaid coverage, but also knows that some hospital supporters will see that as an example of insensitivity.

Williams declined to comment, but his chief of staff, Abdusalam Omer, said the mayor is committed to empowering low-income patients.

"Everybody should have insurance, and we can afford it with existing resources," he said. "Let these patients vote with their feet."

D.C. General 'Flying Blind' As the debate about redefining D.C. General's role in the District's health care system continues, one thing is clear: The hospital's books are a mess.

In a scathing audit of the hospital's books for fiscal 1997, the accounting firm KPMG Peat Marwick reported that D.C. General was hampered by patient billing errors, unreliable and obsolete hardware and software, tardy filings of Medicaid claims, uncontrolled costs and an absence of any systematic effort to uncover fraud.

A D.C. Health Commission analyst, Mark W. Legnini, reported recently that D.C. General failed to record in its computers the diagnoses or the specialty categories of its nearly 5,000 uninsured hospital patients in 1997. That means PBC has no precise data on which diseases forced poor people into the hospital and what treatments they received.

"D.C. General Hospital is flying blind," Legnini wrote.

He said D.C. General improperly billed uninsured patients for charges beyond what the city paid--and then classified those unrecoverable losses as "accounts receivable," falsely improving the hospital's financial picture.

Hospital officials agree they have had serious data and billing problems, but promise improvement.

In September, a national hospital billing firm began a $25 million, 10-year contract to take over PBC's financial record-keeping, but that process has been rough.

"We are having the standard start-up problems when you go from a Stone Age system to a new system," said Fairman, who has run the hospital for six years. "We're putting old wine in new bottles."

Payroll Spending Increased One of the biggest areas of spending growth has been the payroll, which has 1,913 workers. In October 1996, when the city spun off the hospital and clinics from its Health Department and recast them as the new PBC, the payroll was $71.4 million. Last year, labor costs were $108.6 million.

PBC officials say those increases were caused by raises, new grant-funded positions, overtime and business office overstaffing necessitated by the inadequate billing and accounting system.

D.C. General is one of the most heavily staffed public hospitals in the nation, according to a database of 5,800 U.S. hospitals. Median employment at government-owned hospitals nationwide in 1998 was 5.74 full-time workers for each occupied bed. Based on its 1998 average of 171.7 occupied beds a day (down from 228 three years earlier), D.C. General now employs 9.7 full-time workers for each patient.

Every year, the D.C. budget includes direct appropriations for PBC, as well as millions in Medicaid reimbursements, including payments to help care for uninsured patients. Other public money goes to D.C. agencies that hire PBC to provide health services to employees, jail inmates and wards of the city.

Then there is the deficit bailout money. City officials acknowledge that they have continued to sign off on the payments to D.C. General even though they are unable to cite a legal basis that allows them to do so. The money--$36 million and counting--is not appropriated by the D.C. Council or authorized by an executive order.

When he was the District's chief financial officer, Williams used city money to cover PBC's monthly cash deficits, and now D.C. Chief Financial Officer Valerie Holt is doing the same. Holt said that under the city's current health care system, she has little choice but to continue.

"It comes down to this: To exercise our authority and prevent the spending of cash, it would mean [closing] the hospital."

Former D.C. Medicaid chief Paul Offner recalled that the hospital's Medicaid reimbursement claims were so rife with basic mistakes--wrong names, addresses and other problems--that U.S. officials threatened to penalize his agency if he honored faulty D.C. General claims.

Offner left D.C. government in October; now Fairman wants his successor, Herbert Weldon Jr., to be more lenient in dealing with the hospital's Medicaid claims.

Weldon and Walks, the Health Department director, pledge to be fair in deciding how much to reimburse D.C. General, but said they are waiting for better paperwork from the hospital.

Andrew Schamess, a physician and member of the D.C. Health Commission, believes PBC needs to clean up its paperwork--and then learn to live within its means.

"If they were a private institution, they would be bankrupt," he said. "They have to bring their level of spending into line with what the District can afford."

© Copyright 2000 The Washington Post Company

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