Publisher's Note: We've been a bit short of staff this week, so we here at BCN do very much appreciate this excellent submission from the staff of the Beaufort Observer.
During the past year we have published more articles on the Hospital than any other local subject. We've sat through dozens of meetings, and spent hours and hours watching and editing video from these meetings. During that time we have attempted to reserve judgment and mostly to simply report what we saw and heard. But we have decided that the time has come to offer our perception of what the problem with the Hospital is.
The reason the Health System is in its current predicament is because of poor management and a board that has been unwilling to make the hard decisions to cut expenses. They took on eighteen doctors' practices and affilitates without knowing what kind of fiscal condition they were in, failed to find out once they took them on and still don't know. Until recently they have been recklessly negligent in collecting what they are owed and have maintained staffing patterns when patient counts have plummeted. And as a ratio of patients to staff they are still grossly over staffed (i.e. have failed to reduce staffing proportionate to the decrease in patients).
That is the problem. No other business (for-profit or non-profit) in Beaufort County (or anywhere that we know of outside of the Federal government) could stay in business operating like that.
And it still continues. Last week was a perfect example as detailed below.
Yes, it appears to us that we need to sell or lease this Health System to someone because we have not had and still do not have either the management or the board leadership to operate it correctly. And that is irresponsible to, and sad for, the people of Beaufort County who have millions of dollars invested in this system as patients and taxpayers (some have estimated over $50 million dollars) and are on the hook for millions of dollars in debt. But there again, they are considering conveying the system without even having an expert valuation of the assets. The only other viable alternative would be to turn the management over to a "turn-around" outfit, but that would not solve the problem of an ineffective board.
Here's just the latest example in a long list of what has brought us to the conclusion stated above:
The Beaufort Regional Health System's Finance Committee met Friday (10-29-10), the day following the full board meeting in which the board voted to impose a 5% payroll "deferral" on all staff making more than ten dollars an hour and to ask all contract employees (i.e. doctors etc.) to forego 5% of their pay. However, the board's action was worded such that the rescission was for a 90 day period in the "hope" that by that time a partner might be obtained that might enable the deferred money to be paid to the employees and contractors.
The Finance Committee the next day then took up a discussion of how the rescission would be implemented and what its implications may be. As you listen to the discussion it will be helpful to understand that the original discussion in the Finance Committee was to simply make a 5% reduction in payroll expenses. Then when the issue was presented to the full board the idea was presented that it would only be "temporary" and hopefully could be refunded to the employees, presumably by someone else.
Finance Chair and Hospital Treasurer Hood Richardson opened the Finance Committee meeting by reading into the record a statement of what he said was what he viewed to be the responsibility and duty of the Finance Committee, the board and each member thereof. You can listen to his statement here:
After Richardson's reading the statement, you heard Board members Grace Bonner and Dr. Brenda Peacock argue that they felt what Mr. Richardson had suggested has been done. At that point Board Member Howard Cadmus disagrees and Richardson elaborates that the effect of the board's action to make the 5% a rescission and not a payroll reduction had done nothing more than create a liability for the Health System, while depriving employees of the money, without any assurance that the 5% could or would be returned to the employees at the end of ninety days. After much discussion the committee voted 2-2 on a motion to ask the full board to reconsider the action of 10-28-10. The tie vote killed the motion, with Richardson and Cadmus voting yes and Peacock and Bonner voting no.
So what started as an idea to reduce expenses to help the hospital's bottom line and cash flow turned into effectively a "loan" by the employees to the system that no one has any way of knowing how that loan will be paid back.
You will also hear the Chief Finance Officer project that the amount of money involved here in payroll expenses is approximately $350,000 for the 90 days. That number was furnished after the meeting by the CFO after some refinement following the discussion. So what has happened is that the system will now have an encumbrance of $350,000, plus or minus, and the employees won't have the money or any idea if the promise to return the cut to the employees will be kept.
While we realize this is a complicated situation for the casual observer, we would suggest that in this action we see precisely what is wrong with the situation with our hospital. Here's the simplicity of the matter:
The Health System is losing money at the rate of approximately $2 million per year. But that number bounces around, most recently by a million dollars, almost every time they put out a financial report. That in and of itself should be alarming to the board that it does not have solid financial data. One of the largest expenses in the budget is payroll costs. A 5% reduction in payroll would make up more than half of the projected loss for the year. It has been established that improved billing and collection practices could reasonably be expected to produce at least an equivalent amount, if not twice as much. Thus, in terms of operating income the Health System could survive for months, and perhaps years, with just those two adjustments. So why have they not done so? Read on for an illustration.
Later in the meeting Richardson brings up the other "biggie" that has been the 900-pound gorilla in the room all along that nobody has been willing to address: The doctors' practices that have been losing money. Eighteen practices and affiliates have been acquired since 1997. The previous administration did not know when they acquired the practices which ones were making money, breaking even or losing money and the current administration still does not even know which ones have been losing money and which have been carrying the others' losses. There is not even a bookkeeping system set up to track that information. But the number used is that the practices all together are losing $2 million a year. So if that were corrected, that in and of itself would bring solvency to the System. Payroll cuts, improved billing and collections and plugging the losses in the practices would not only achieve cash flow solvency but it would come close to also covering the debt service, which is what the Beaufort County taxpayers are on the hook for.
Here's the point in all that: Those who say the System cannot operate sufficiently are simply wrong. It could with the right management systems functioning properly and sound policy decisions by the Board.
In addition to the faulty decision on the payroll there is another gross example of bad decision-making by this Board. The System has not been funding the employer's match of the employee's contributions to the retirement plan for the last two years. It has simply been recording it as an unfunded liability. Yet in the board meeting Thursday the full board voted to fund the employer contribution this fiscal year, incurring an additional expense of $750,000 that is not currently budgeted. Just those two actions alone (payroll and retirement) amount to over a million dollars off the bottom line.
And if you watch the video of the full board meeting you will see that they voted to obligate $750,000 without even knowing if it was in the budget. It was not. That expenditure is off-budget.
So to review, a payroll reduction of merely 5%, improved billing practices and plugging the holes in the doctors' practices that are losing money would be more than enough to cover the current operating deficits and make the hospital solvent (note, we said "hospital" not all the practices).
Yet the System Board voted to not cut expenses but rather to increase the liability. That is what set Mr. Richardson off. What they did was precisely the opposite of what they should be doing. In essence they are taking a position to continue to spend and put it on credit cards rather than cutting spending. But don't miss this point. Their actions dump the liability on the taxpayers of Beaufort County, assuming they do not have enough cash to meet their debt service payments to the County.
The idea that University Health Systems or anyone else is going to bail the Beaufort System out is equally irresponsible until such time as there is at least a tentative deal to lease the System to someone else and we know the specific terms and conditions of that deal.
Moreover, to allow Beaufort County to be put into a position of negotiating a takeover without leverage is even more irresponsible of these board members, community leaders and former board members. That's like telling your Realtor to sell your house for anything he/she can get for it and then the Realtor telling the only potential buyer the buyer can get it for whatever he/she wants to pay. It is truly absurd what the Hospital board has created when a solution was available to them...cut expenses, collect what's owed and fix the practices.
Every time we sit through one of these meetings we leave thinking: Surely this is a bad dream and we're going to wake up.
That is why Hood Richardson made his statement about how he views his responsibility. For two board members to argue that they have been acting fiscally responsible simply defies reality. We think they, the board majority and the previous board leadership and majority, have done just the opposite. With things as critical as they are at this point in time it is inconceivable that these people would not cut expenses and would take on more liabilities (debt) that they have no way of knowing how it can be paid for; and to do it to their employees just blows our mind.
No, Dr. Peacock and Mrs. Bonner. We beg to differ. Your actions Thursday and Friday were fiscally irresponsible. They were reckless and in the extreme we would suggest. They are alarmingly deceptive to employees and they continue to fail to address the obvious real fiscal problems plaguing this enterprise.
Thus, we see little hope this management and board has either the ability or the will to do what is necessary to fix this problem. Beaufort County may as well get rid of the hospital but this board should be ashamed of themselves for letting it come to this.
And those who have led the charge to debilitate what negotiating leverage we might have had should be even more ashamed of themselves. Those who have claimed the Hospital cannot survive, at least short term, simply are wrong, as witnessed by the numbers above. But for them to campaign to convey the System to one particular suitor before they even knew what the proposals would be is just incredible. Even if one accepts all of the abstract arguments of the efficacy of partnering with UHS, that does not justify completely debilitating the negotiating position of Beaufort County prior to a deal being struck, much less before the negotiations even began.
We suspect the prime reason Community Health Systems, which offered a better deal by the numbers, backed out was because they saw this UHS campaign as making the competitive bidding process irrelevant. Who would want to play that game? It is astounding to us that any responsible board member, commissioner, candidate or community leader would have put Beaufort County and the taxpayers in that position given that it is the taxpayers who are on the hook for over $20 million in debt the Heath System owes that is guaranteed by the taxpayers of Beaufort County.
Let us hope the County Manager and County Commissioners can salvage some of this mess the Hospital Board, and champions of UHS, have created.