Hailed by healthcare industry leaders as the inner-city hospital that works, Greater Southeast Community Hospital may be going broke.
Greater Southeast, which operates 300 beds in one of the poorest sections of the District of Columbia, has been touted as a national model of community service. It's where the American Hospital Association's future board chairman has served as a trustee for some 20 years.
But a scathing new report issued by Moody's Investors Service depicts a healthcare system rocked by a lack of leadership and teetering under the weight of a $33.9 million operating loss for the nine months ended in September. Moody's said the financial decline of the hospital's parent became apparent in 1997, yet Greater Southeast Healthcare System's fiscal health has continued to deteriorate.
The strongly worded report calls the situation "dismal" and cites concerns about the system's future viability. That depiction raises questions about why the system's 19-member board failed to intervene sooner.
In an interview last week, hospital trustee Carolyn Lewis, the AHA's chairwoman-elect designate and MODERN HEALTHCARE's 1993 Trustee of the Year for hospitals with more than 250 beds, defended the board's involvement and contested Moody's assessment.
"The board was where it should have been. It was out in front," she said.
While acknowledging that the system is having an off-year financially, Lewis said it is in a "rebuilding" mode as part of a turnaround plan that began to take shape late this summer. Board Chairman Virgil McDonald was unavailable for comment.
In addition to its flagship hospital, Greater Southeast Healthcare operates a 37-bed hospital in Fort Washington, Md., two nursing homes and two home-care companies. The system is discontinuing a PPO for employees but remains a one-fifth owner of Capital Community Health Plan, a hospital-sponsored Medicaid managed-care plan.
According to the latest available figures from the District of Columbia's Department of Insurance and Securities Regulation, Capital Community posted a net loss of $43 million from its inception on Sept. 18, 1995, through Dec. 31, 1996.
The system's district hospital-its largest asset-has posted declining revenues and net income in recent years, although profit margins topped 5% each year.
According to HCIA, a Baltimore-based healthcare information company, net patient revenues dropped to $114.2 million in 1996 from $124.4 million in 1994. Net income slid to $6.8 million from $8.8 million in the same period. HCIA would not release 1997 data, because the numbers reported in the hospital's Medicare cost report seemed inconsistent with previous years and couldn't be confirmed at deadline.
Paul Porter, the system's vice president for corporate planning and development, said the flagship lost $2.5 million in 1997 on net patient revenues of nearly $129 million. He said 1998 financial data are still being examined and intimated that the rating agency's view is unfounded.
"Moody's can write what they want, but we're here, and we understand our environment and the community we serve," Porter said.
In recent months, a slew of top managers, including President and Chief Executive Officer Dalton Tong and Chief Financial Officer Tom Knight, have left the organization. Lewis and Porter said top brass left for other opportunities or personal reasons, but local observers, including District of Columbia Hospital Association President Robert Malson, said the departures were board-driven.
George Gilbert, M.D., the system's chief medical officer, was tapped to succeed Tong late this summer.
Tong, reached at his home, said he resigned to pursue personal interests and seemed surprised that the organization's financial condition had deteriorated so far.
"The system was in fairly decent financial condition. We've had some problems, but I wouldn't characterize it as dismal," Tong said.
Knight was unreachable for comment.
Thomas Chapman, Tong's predecessor, now president and CEO of Washington-based HSC Health System, said he suspects Greater Southeast is the victim of the market's rapid managed-care development. The flight of residents out of the district to the suburbs also is a factor. "We know . . . utilization has been dropping."
Porter didn't have exact figures on the drop in utilization. Average occupancy is running at about 70%, he said.
Although Lewis and Porter claim that Greater Southeast has a plan for righting the system's financial ship, Moody's analyst Mimi Park said the plan is being revised again. Since June, the organization's debt rating has been lowered three times. It currently carries a "junk" rating of Caa3 on $46 million of outstanding debt.
"Our expectation is that the losses are going to mount," added Dennis Farrell, director of the agency's public finance group.
Moody's said a portion of the system's operating losses are related to a write-off of $6.8 million in uncollected prior-year settlements from the district's Medicaid program. But a larger portion stems from insufficient reserves for contractual allowances, which resulted in a $10 million overstatement of revenues.
With just $6 million, or 12 days of cash on hand as of Sept. 30, the system is in danger of depleting its cash reserves.
In 1989, Greater Southeast won the Foster G. McGaw Prize for Excellence in Community Service awarded annually by the AHA and the Baxter Allegiance Foundation.