Top executives of the firm that owns Greater Southeast Community Hospital spent heavily on loans to themselves, on political contributions and on corporate perks last year, while the District hospital struggled with shortages of nurses, drugs and even paper clips -- until the company landed in bankruptcy court.
Documents filed recently in the case of Doctors Community HealthCare Corp., of Scottsdale, Ariz., also show that Chief Executive Paul Tuft and other executives in the privately held firm placed family members in high-paying jobs and that corporate expenses swelled to $21 million a year.
The outcome of the bankruptcy case, which has another hearing today, is likely to affect the city's entire health care system. When inpatient services at D.C. General Hospital were closed amid controversy in 2001, Greater Southeast won the lead in a newly privatized, $70 million-a-year indigent care system. It is the only hospital serving the District's southeastern quadrant.
The stakes are high for D.C. Mayor Anthony A. Williams (D), the D.C. Council, the city's hospitals, the emergency medical system and thousands of east side residents. If Greater Southeast closes, emergency patients would have to travel farther to other hospitals, where executives say their facilities are already crowded.
Yesterday, Sharon Baskerville, executive director of the D.C. Primary Care Association and a member of Greater Southeast's board of trustees, said she was appalled by the spending.
"I am extremely upset," she said. "The city is faced with the devastating loss of a hospital that's fighting for its life every day. The bankruptcy has had an impact on the entire health care system in D.C. No one would consider [such expenditures] any kind of good business practice." She said the matter warrants investigation, although there have been no allegations of criminal conduct.
Because the company is a closely held entity, the expenditures only became public because of the bankruptcy filings.
Last night, Tuft said: "In retrospect, things that I have done which are now under the microscope . . . I might do differently. I'm sure I look stupid and greedy, but that wasn't my intent."
Erich Mounce, the company's executive vice president, addressed creditors last week and acknowledged later that the corporate spending was in some instances excessive. He described the presentation of the financial report as a six-hour "bloodbath."
"There are some weird-looking things in there," Mounce said of the expenses detailed in the reports. ". . . Privately held companies are privately held for a reason."
According to the papers, Tuft borrowed $3.02 million on top of his $2.05 million wage and benefit package last year; chief operating officer, Melvin Redman, borrowed $1.45 million in addition to total compensation of $1.92 million; and chief financial officer, Steve Dietlin, borrowed $1 million along with $826,572 in compensation. Some of those loans were repaid, but much of the debt was forgiven, according to papers. Company officials said the loans were typically used to help executives purchase new homes when relocating.
Redman and his son, Scott, the vice president of operations, left the firm in September. The father claims $2.08 million in severance pay and the son $315,000, according to documents.
Tuft and Melvin Redman traveled around the nation on a time-share private jet that cost $4.3 million, according to the documents.
Doctors Community owns five hospitals in Illinois, California and the District, where, in addition to Greater Southeast, it owns Hadley Memorial Hospital, a long-term care facility.
Tuft was trying to acquire Prince George's Hospital Center and Laurel Regional Hospital, and his plan ended with the bankruptcy filing. To facilitate political support for that in 2001 and 2002, he said, he and his wife Lori wrote 46 checks totaling $155,630, mostly to District and Maryland candidates and organizations. That figure does not include thousands of dollars contributed by the company's extended family of employees and their relatives.
The Arizona firm has cut its corporate expenses from $21 million last year to about $5 million now, Mounce said, adding that figure will keep dropping.
Sam Alberts, attorney for the creditors, declined to comment. A spokeswoman said D.C. Health Director James Buford was not available to discuss the hospital's finances.
Daniel P. McLean, chief executive of George Washington University Hospital and chairman of the D.C. Hospital Association, declined to discuss questionable spending by the firm and said his primary concern is the survival of Greater Southeast.
"Greater Southeast is a significant and integral part of the delivery of health care in D.C.," he said.
After the indigent care system was privatized, Greater Southeast and a network of providers was awarded a five-year city contract to care for uninsured residents. No other health care institution bid on the contract.
Tuft said he expected the city to act on Buford's idea to remove Greater Southeast as prime contractor of the system, the D.C. Healthcare Alliance, which consists of hospitals, private physicians and several city health clinics. The city would take over that role, at least temporarily, under Buford's proposal.
The alliance program has been well received by patients and primary care providers, but hospitals complain that it is hurting them. Everyone agrees that Greater Southeast's woes pose a serious threat to the entire system's stability.
"Advocates and organizations fighting to deliver health care to the most vulnerable in the city have just seen the devastating impact of this entire bankruptcy," Baskerville said. "Those millions that were taken as loans may not have saved our system, but it certainly doesn't give much credence to a company that says it had an investment in the city."
For years, Doctors Community's main lender, National Century Financial Enterprises, of Dublin, Ohio, supplied reliable cash despite slow payments from health insurers -- but the cash flow came after the firm collected interest rates that, in effect, exceeded 25 percent, Doctors Community officials say. National Century filed for bankruptcy protection in November after allegations that billions of dollars was unaccounted for. Within days, Doctors Community filed for protection, too. The FBI and the Securities and Exchange Commission are investigating National Century.
Doctors Community had 10 current or former relatives of top officials on the payroll. Since the bankruptcy, seven have left their jobs; those who remain had 50 percent pay cuts, Mounce said.
The days of the corporate jet are over. "I fly commercial," Tuft said. "When I'm lucky, I'm upgraded to first class."