Bad news mounts at public hospital

By Marshall Allen, Tony Cook

Wednesday, Feb. 14, 2007 | 7:08 a.m.

Lacy Thomas is gone, but he still is casting a shadow at University Medical Center, which announced Tuesday losses of $29 million in the first half of fiscal 2007 - twice the budgeted loss for the entire year.

That discouraging disclosure comes as a draft report from a national health care consulting firm shows that UMC will face ongoing obstacles as it attempts to climb out of its financial hole.

The report, obtained by the Sun, notes that Clark County's population is growing and aging rapidly, and the number of uninsured patients, who primarily go to the public hospital, has jumped 12 percent since 2000.

The revelations are simply the latest bad financial news for the troubled hospital, still reeling from the announcement last month that red ink totaled more than $34 million in fiscal 2006, which ended June 30. And although the latest data show mounting losses, they also reflect a more conservative accounting approach at UMC.

County officials took the first corrective steps Jan. 16 by firing Thomas as chief executive. That same day, police raided UMC looking for evidence that Thomas illegally steered contracts to his Chicago friends. Since then, two of Thomas' top administrators - also subjects of the investigation - have accepted county severance packages.

Hospital officials plan to present the bad news to county commissioners next Tuesday. That briefing will be the commissioners' first comprehensive look at the hospital's current financial condition since Thomas was ousted.

"It's disappointing, but it's not surprising," commission Chairman Rory Reid said. "I was expecting the worst given recent events."

The news of this year's skyrocketing losses is another example of Thomas' mismanagement and an omen of the difficulties ahead for the hospital.

"I think it is just another example of how we were misled," Reid said.

In November, for example, then-Chief Financial Officer Richard Powell was asked by commissioners about UMC's financial health.

"I think we're doing quite well," Powell said. "We're probably operating under about a break-even level right now, and I expect there is a reasonable opportunity to even make a surplus by the end of the year."

Such hopes are now dashed. And Powell, who since has accepted a severance package, now is a subject of the criminal probe.

George Stevens, the county's chief financial officer and acting chief administrator at the hospital, questioned how Powell could have arrived at such an optimistic forecast. Powell had not given commissioners a monthly financial statement since May.

Thomas recommended projecting 2007's budgeted loss at $15 million, which was "just not realistic," Stevens said.

Floyd Stevens, UMC's controller, said the $29 million loss, while severe, reflects a more conservative accounting approach - in particular, being more cautious about how much money the hospital expects to collect from unpaid bills - than that used in the years under Thomas.

The hospital wrote off $223 million in outstanding bills in the first half of fiscal 2007, compared with $205 million in all of 2006, he said.

That reduced the hospital's net income by $21 million. If the old accounts had been cleared as they had been in 2006, the loss of net income would have been $10 million, he said.

Payroll represents about half of UMC's expenses, and it contributed to the losses by climbing $10 million in the first six months of fiscal 2007, Stevens said.

County officials said the priority until now had been to simply get accurate financial numbers. But they promise that changes are on the way.

Like public hospitals elsewhere, UMC, which serves many indigent patients, always has struggled with bringing in revenue. But in UMC's case, "a lot of the challenges are on the expenditure side," County Manager Virginia Valentine said.

Stevens said UMC also needs to enhance revenue by attracting paying patients or expanding services that generate money.

Last month the hospital increased the rates it charges for many services, but that change's effect on revenue is not clear yet.

Whatever is done to stem the losses, there will be significant barriers, according to a Dec. 20 draft report from health care consultants the Lewin Group. The group was hired in August to assess UMC's financial performance.

Commissioners will receive a final version of the report Tuesday. County officials said the draft has been changed, but would not provide a copy to the Sun.

UMC's uncompensated charity care nearly doubled to $69.1 million between 2001 and 2005, and is likely to increase, according to the Dec. 20 report. And even though full-time salaries increased by 18.4 percent between 2003 and 2006, they could grow further as a physician shortage gives providers improved bargaining power.

In addition, although the draft report significantly underestimated UMC's operating losses in 2007, it projected that if nothing changes at the hospital those losses will more than double by 2011.