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SECRET REPORT: Control board knew Greater SE hospital’s funding was shaky

CFO: Cost of indigent health care to exceed

original fiscal 2003 budget by $44 million

(Published June 16, 2003)

By KATHRYN SINZINGER

Staff Writer

A long-secret report prepared for the District’s now-dormant financial control board reveals that board members knew Greater Southeast Community Hospital’s finances were shaky when they overruled a unanimous D.C. City Council and signed a five-year multimillion-dollar contract with the hospital to administer health-care services for the city’s indigent population.

The still-controversial action by the congressionally imposed control board, supported by Mayor Anthony A. Williams, closed D.C. General Hospital two years ago and replaced the District’s only public hospital with a network of private doctors and private hospitals.

Greater Southeast – which, along with its parent company, sought Chapter 11 bankruptcy court protection last November – was recently replaced by the D.C. Department of Health as the contract’s administrator but remains part of the network.

That network, the Health Care Safety Net Administration – which D.C. Chief Financial Officer Natwar M. Gandhi estimates will overspend its original $71 million fiscal 2003 budget by about $44 million – is now being assailed by some city council members for requiring taxpayers to sign a "blank check" for its financing. The council recently approved, at Gandhi’s request, the use of $33.5 million from the city’s reserve funds to cover the projected shortfall.

"How do some of these people maintain any credibility? I want to laugh out loud when I hear [former control board chairman] Alice Rivlin talk about the District’s budget having a structural imbalance," Councilman David Catania told The Common Denominator after many council members complained they had no choice but to approve the use of reserve funds during a June 3 legislative session.

Rivlin, a former Federal Reserve official who is now a senior fellow at the Brookings Institution, is among proponents of a "structural imbalance" being largely to blame for the D.C. government’s ongoing financial problems. The argument is being used by the Federal City Council, a private business group, and the mayor’s administration to lobby Congress for revival of an annual federal payment to cover some of the D.C. government’s operating expenses.

"Alice Rivlin knowingly signed a contract with a company that was, according to the report that [the control board] paid for, highly leveraged, had three days of operating cash and had unaudited reports," Catania said during the council’s June 3 debate. "She knowingly signed an agreement [with Greater Southeast Community Hospital] … that obligated this city for five years."

Catania blamed Rivlin during the council session for "a structural imbalance which her own malfeasance has created." The contract, estimated to cost taxpayers about $500 million during its five-year life when it was signed, was characterized in 2001 as the largest single contract ever awarded by the D.C. government.

Rivlin, whose secretary said she is recuperating from recent surgery, did not respond to a request for comment. The other three members of the control board who voted in favor of the contract – Constance Newman, Eugene Kinlow and Robert Watkins – also did not respond to requests for comment.

The dire picture of Greater Southeast’s finances that was painted in the "due diligence" report, prepared at taxpayer expense for the control board by the accounting firm of PricewaterhouseCoopers, echoes some of the research on the hospital and its financing structure that was done by Catania and his staff prior to the closing of D.C. General Hospital. Catania’s research became part of the public debate.

A copy of the full PricewaterhouseCoopers report, while provided by the control board to the mayor’s office, has never been given to the council or to the public. Catania recently obtained a redacted copy of the report from interim D.C. Corporation Counsel Arabella W. Teal and provided a copy to The Common Denominator. Teal said the withheld portions contain primarily proprietary information and their redaction was dictated by U.S. District Court Judge Gladys Kessler at the conclusion of a recent court appeal of a denied Freedom of Information Act request for the report.

PricewaterhouseCoopers noted in an executive summary of its April 2001 report that Greater Southeast had only $1.2 million cash "on hand," which it called "three days of expenses," and had net "intercompany receivables" totaling $16 million on its books. The accounting firm recommended an audit of the hospital’s fiscal 2000 books be required within 60 days of closing. Catania said that audit was not performed.

Francis Smith, former executive director of the control board, told The Common Denominator during an interview on June 13 that the control board followed the recommendation of PricewaterhouseCoopers to close D.C. General and award the contract for indigent care to Greater Southeast.

"I asked Pricewaterhouse ‘What should we do?’ and they said ‘You don’t have a choice – D.C. General shouldn’t stay open under any circumstances,’" Smith said. "Pricewaterhouse said this contract would make a more viable [Greater Southeast] hospital, and the [control board] thought it was important to have a viable hospital east of the river."

Smith, who said he currently is unemployed, was named a vice president of Doctors Community Healthcare in October 2002 but said he left the company on Jan. 17.

Federal authorities began investigating the financial structure of Greater Southeast’s parent company, Doctors Community Healthcare Corp., after the Arizona-based company and its five hospitals all sought bankruptcy court protection from creditors last Nov. 20. The Chapter 11 filings followed closely on the heels of the fraud-tinged financial collapse of Ohio-based National Century Financial Enterprises Inc., which partially owns Doctors Community and purchased its receivables to provide the hospitals with fast cash. Hadley Memorial Hospital in Ward 8, now operated as an extended care facility, also is among the five hospitals owned by Doctors Community Healthcare.

In January, the D.C. government filed a claim in federal bankruptcy court for $353,298.52 in back taxes that Greater Southeast and Hadley Memorial hospitals have failed to pay. The claim against Greater Southeast, totaling $187, 482.06, includes employee withholding and sales taxes that predate the control board’s awarding of the health-care contract. The claim against Hadley, totaling $165,816.46, is for unpaid personal property taxes that were due in June 2000 and June 2001.

Karen Dale, who heads both Greater Southeast and Hadley Memorial, said the hospitals continue to operate on 13-week cash budgets that must be approved by the bankruptcy court judge. Funding for the hospitals currently is approved through the end of July. Greater Southeast also is facing the possibility of being declared ineligible to receive Medicaid and Medicare funding, after the hospital failed a recent hospital accreditation review. The hospital is appealing that ruling and remains accredited while the appeal is pending, Dale said.

Doctors Community Healthcare purchased Greater Southeast Community Hospital for about $21 million at the end of 1999 in a bankruptcy-forced sale that the control board and city officials supported to keep the facility open. Greater Southeast, located on Southern Avenue, is the largest employer in Ward 8 and is now the only hospital in the District that is located east of the Anacostia River. In May 1999, Mayor Williams and the control board committed $8.5 million in city funds to help stabilize the financially troubled hospital.

Councilman Catania is among those who now question what promises were made in the many closed-door meetings that resulted in the eventual purchase of Greater Southeast by Doctors Community Healthcare.

"Do I think there was a quid pro quo? Absolutely," Catania told The Common Denominator on June 13.

Councilwoman Sandra Allen, D-Ward 8, said she also wonders if undisclosed promises were made in the city’s 1999 negotiations with Doctors Community Healthcare.

"The control board was very hellbent on giving Doctors the [indigent care] contract regardless," she said.

Critics of Mayor Williams continue to question the mayor’s acceptance of nearly $100,000 in contributions to his re-election campaign from Doctors Community Healthcare, some of its affiliated companies and numerous individuals associated with the company. The mayor’s campaign reported receiving the contributions between August 2001 and Jan. 31, 2002, shortly after the deal with Greater Southeast to replace D.C. General’s services was finalized.

"We’re paying more than we did when we had D.C. General," Councilman Kevin P. Chavous complained during the council’s June 3 debate. As part of the District’s budget process, Congress barred the D.C. government from providing in excess of $45 million to subsidize operation of the quasi-public Public Benefit Corp., which operated D.C. General Hospital, its eight satellite clinics and the school nurse program.

Chavous, D-Ward 7, and Catania, R-At Large, went to federal court in 2001 in an unsuccessful attempt to block the closing of D.C. General and the awarding of the private health-care network contract.

Councilwoman Allen, who chairs the council’s health care oversight committee, has repeatedly complained that city officials have not been forthcoming with details of how money budgeted for indigent health care is being spent. Allen has scheduled an oversight hearing at 10 a.m. June 25 in Room 412 of the Wilson Building, 1350 Pennsylvania Ave. NW, to review the expenditures.

Copyright 2003, The Common Denominator