The future of the District's privatized indigent health care system was thrown into doubt yesterday when the company that owns the network's flagship hospital filed for protection in U.S. Bankruptcy Court, the city's biggest hospital quit the program and the D.C. Council chairman urged the District to withhold fees to the network temporarily.

Then, late yesterday, the city agreed to expedite payment of $1.4 million it owes in fees to the network to help meet this week's payroll.

Throughout the day, hospitals and clinics involved in the program continued to provide services, even as lawyers for Greater Southeast Community Hospital and its parent company, Arizona-based Doctors Community HealthCare Corp., sought the safety of bankruptcy protection. They are trying to hold off creditors while they search for new financing.

Their petition ran into a snag late yesterday. Because of a jurisdictional conflict with an Ohio judge in a related case, U.S. Bankruptcy Judge S. Martin Teel Jr. said he could not rule on the request to release operating funds until a 1 p.m. hearing today. Without that money, the hospital could not meet Friday's payroll, officials said, but they said the city's expedited payments could help them over that hurdle.

City Administrator John A. Koskinen seemed unfazed by the hospital's filing last night and praised the move as a smart way to keep operating while a major reorganization continues. He predicted that uninsured patients would not see immediate changes in service because the money to underwrite their care remains available, safe and completely separate from the funding debacle that has struck Doctors Community.

However, Washington Hospital Center, the region's largest hospital, said yesterday that it will cease caring for non-emergency patients in the indigent care network Dec. 1, because it has not received all the money it says the alliance owes it.

At Greater Southeast, which went through a bankruptcy in 1999, workers were bracing for the worst.

"People are despondent," said Michael Richardson, an imaging technician. "They're telling us to bite the bullet and let's see what happens. As of today, they cannot guarantee any employees will be paid Friday because they have no assets.

"There are a lot of people who live paycheck to paycheck," he added. "To go to work and not be compensated is going to be devastating for some people. Some are counting on this check for their rent payments."

There also are physicians who have gone for months without pay.

The cash flow problems have built for several months because Doctors Community's lender, National Century Financial Enterprises, has paid less and less of what it promised, Doctors Community officials said. On Monday, the Ohio firm filed for bankruptcy protection after a month in which Wall Street rating agencies downgraded the company's bonds, and then FBI agents seized documents from the company's headquarters.

At least two other companies that were clients of National Century also have been forced to seek Chapter 11 protection. One is PhyAmerica Physician Group Inc., which provides 2,400 emergency room physicians to hospitals (including Greater Southeast) in 30 states. The other sends nurses to care for homebound patients suffering from chronic conditions or recovering after hospital stays.

The Doctors Community bankruptcy filing caused a furor at the Wilson Building and throughout the city's medical community yesterday. The first public signs that Greater Southeast was in serious trouble had come over the weekend, when the hospital diverted District ambulances from its emergency room, the only full-service ER available to the vast majority of the city's east side.

Because two contractors who provide nurses had severed relationships with the hospital because of nonpayment, the hospital did not have enough nurses and was at capacity. Yesterday, instead of the 220 inpatients it had for much of the year, there were 155, said Greater Southeast Chief Executive Karen Dale.

Greater Southeast says it owes millions to doctors, temporary nurse agencies and other vendors who have begun to withhold services because of the debts. It says it needs the money that its parent, Doctors Community, sought in Bankruptcy Court to continue normal operations until it can settle those debts. Yesterday, PhyAmerica told emergency room doctors it had assigned to Greater Southeast that their contract would expire Nov. 30, raising questions about whether the hospital would be able to find replacements.

Dale said the hospital was trying to negotiate a month-to-month contract with the doctors after their PhyAmerica contract expired, but Bobby Henry, the physicians' lawyer, disputed that and said there have been no such talks.

The network of private hospitals, clinics and doctors -- known collectively as the D.C. Healthcare Alliance -- has about 28,000 members and serves outpatient and hospital needs at a cost of $70 million a year to the city, D.C. officials say.

The five-year contract also requires Greater Southeast to run a large multispecialty outpatient facility on the grounds of D.C. General Hospital.

It was necessary last year to have that contract in place before the city could decommission the 195-year-old public hospital and remove 2,000 workers from the District payroll. Mayor Anthony A. Williams (D) and the D.C. financial control board considered that move a significant step toward stabilizing the city budget.

A recent city audit concluded that the health network was $10 million under budget last year.

But activists and all 13 D.C. Council members called the privatization a huge mistake and questioned the financial stability of Doctors Community and its principal backer, National Century. In a testy exchange with reporters yesterday, Williams said the privatization was well worth the risks because it had expanded and improved health care services to the uninsured.

"We entered into this arrangement with the alliance recognizing there were these financial questions," he said. "We're in a sub-optimal world. The only optimal world is heaven, and none of us are there yet. . . . Now that we've gone this route, we have to monitor the situation very closely."

But council members were agitated.

"This is unbelievable," said Adrian Fenty (D-Ward 4). "This thing is spiraling out of control. Every day there are more allegations that [National Century] is involved in some type of financial impropriety that could, of course, undermine the stability of two hospitals in D.C. that are vitally important to health care for poor people and for everyone on that side of the city."

Doctors Community is the largest private employer in Ward 8, with about 1,200 workers at Greater Southeast and 350 at nearby Hadley Memorial Hospital, a long-term care facility. The privately held firm also owns Pine Grove Hospital in Canoga Park, Calif., Michael Reese Medical Center in Chicago, and Pacifica of the Valley Hospital in Sun Valley, Calif. Each has a large payroll and significant patient populations.

D.C. Council Chairman Linda W. Cropp (D) sent an urgent letter to Williams yesterday asking him to halt payment of funds to Doctors Community under the contract until there are assurances that the money will not be diverted to help alleviate the company's debt problems.

"While I certainly do not want to exacerbate Greater Southeast's current financial crisis, we need assurance that the District's payments for indigent health care are not funding a national bankruptcy sinkhole," she wrote, a few hours before the mayor agreed to expedite payments owed to the alliance.

Koskinen said Chapter 11 bankruptcy should be viewed as an effective device to turn around problems before it's too late.

"Companies historically have run for months or years in bankruptcy and functioned effectively," Koskinen said. "Kmart is in bankruptcy, and people are shopping there. Greater Southeast itself operated in bankruptcy for eight months in 1999."

Even if the hospital emerges from bankruptcy, the alliance will be under the gun from other quarters. Officials at Washington Hospital Center, the region's largest hospital, yesterday said that the institution has not been able to collect millions of dollars the alliance owes it and that it will turn away alliance members seeking non-emergency care, effective Dec. 1.

Washington Hospital Center President Myles Lash said the dispute has lasted for months but became critical last week when the alliance refused even to accept bills for 1,211 patients treated by the hospital center and its clinics from June 1 to Oct. 31.

"We're obviously not happy with the timing of the events that have transpired," he said, referring to the bankruptcy proceedings. "Our decision was reached several days ago."

Greater Southeast officials and Koskinen said the hospital center is trying to collect payments for patients who have not yet been shown to be alliance members.

Lash dismissed that assertion. "If they want to suggest that it's a simple billing dispute, that's a bit of a stretch," he said.

City officials have continued to say that the indigent care program itself is fiscally sound because it is funded by the District and pays for services after they are performed, not in advance.

Koskinen said that in the unlikely event that Greater Southeast fails, the city's other hospitals, doctors and clinics can be reconfigured into a new alliance without uninsured patients missing any care.

Staff writers Karlyn Barker, Sylvia Moreno and David Nakamura contributed to this report.

Greater Southeast CEO Karen Dale holds a news conference after the hospital's parent firm began bankruptcy proceedings.Dell Harvell, clinical manager at Greater Southeast, and other workers attend a news conference held to announce the bankruptcy proceedings.