Turnaround or Bust – How Jackson Health System Avoided (at least, so far) Drowning in Red Ink; a Fate Suffered a Decade Earlier by DC General

March 6, 2015

Having lived through the closure of one public health delivery system – DC General in the District of Columbia (DC) – I can easily say, Jackson Health System (JHS) in Miami’s transition certainly made it easier to sleep at night. Interesting enough, both transitions were stewarded by individuals with little experience heading health delivery systems. Both came from extensive backgrounds in finance: Mayor Anthony Williams had been a Comptroller and Chief Finance Officer, prior to becoming DC’s Mayor, and Carlos Migoya had spent 32 years in the banking industry before taking over as Jackson’s President and CEO in May of 2011.

After years of red ink – Jackson closed its 2014 fiscal year with an estimated $50.7 million surplus and with more than 41 days Cash-on-Hand http://jacksonhealth.org/releases/14-11-18-year-end-surplus.asp/. For any hospital system, let alone a public hospital, this represents a pretty substantial change, especially when you consider that at its low point in 2012, Jackson had only 8.8 days of Cash-on-Hand. In 2013, Becker’s Hospital Review recognized JHS as a system to watch given its extensive network comprised of: six hospitals (including a rehab hospital, a behavioral health hospital and a children’s hospital) two long-term care facilities, as well as, clinics and specialty centers which operate in affiliation with the University of Miami’s Miller School of Medicine and FIU’s Herbert Wertheim College of Medicine. To upgrade Jackson’s physical plant, Miami-Dade voters approved an $830 million bond in 2014. This Bond was on top of an earlier Bond totaling more than $700 Million which previously funded the expansion of Jackson’s emergency response capacity and outpatient facilities. Jackson’s 2014-2015 budget included a plan for additional capital improvements which, over time, will add another $600 million to the planned capital improvement budget bringing the total to $1.4 billion in new expansions and improvements http://www.bizjournals.com/southflorida/news/2014/06/18/jackson-health-system-unveils-1-4b-makeover.html?page=all/.

In contrast, at the time of its closure in 2001, DC General operated the only public hospital serving the poor and uninsured in Washington DC. The shuttering of its doors as a health system capped literally almost two centuries of physical neglect, deferred maintenance, understaffing and overutilization. The National Library of Medicine details the road to DC General’s establishment: “The Washington Infirmary, the first public hospital was established in 1806, (the hospital) was moved to this site in 1846. By then it was called the Washington Asylum and housed the city’s indigent patients. It also served as a work house for people convicted of minor crimes. Later, a smallpox hospital, quarantine station, disinfection plant, and crematory were also located in this area. With the construction of a new building, the health-care facility became the Gallinger Municipal Hospital in 1922, and was renamed District of Columbia General Hospital in 1953” http://www.nlm.nih.gov/hmd/medtour/dcgeneral.html/. In common with many public hospitals, prior to the 1900s, only poor people, who couldn’t afford to have a doctor treat them at home, came to DC General. In the 1960s, like many urban public hospitals, DC General was understaffed, under-supplied and so overwhelmed with patients that it regularly turned away all but the sickest patients. Between 1975 and 1978, the hospital operated without accreditation. http://wamu.org/programs/metro_connection/14/05/30/from_public_hospital_to_homeless_shelter_the_long_history_of_dc_general/. The Public Health Service estimated that renovations to make DC General a better functioning hospital would total more than a $100 million. By 1995, the District’s finances were in such desperate shape that Congress established the DC Financial Control Board to oversee the District’s financial decision-making and expenditures. When Mayor Williams took office in January 1999, the District had regularly written multimillion dollar checks to keep DC General’s doors open. Like Jackson Health System, DC General’s dedicated and hardworking staff had little accountability for revenue and expenditures, however, unlike Jackson, no new staff were brought in to provide effective leadership to turnaround the hospital. Prior to DC General’s closure as a full-service hospital, an RFP to find a Hospital Turnaround Team led to Doctors Hospital Group taking over responsibility for DC’s indigent care through its newly purchased Greater Southeast Community Hospital (GSCH) located in Anacostia. Through an annual contract for $90 million, DC General’s Trauma Center was transferred to Greater Southeast Hospital who also committed to maintaining, at least initially, a stand-alone Emergency Room/Community Access Center with dedicated transports – at DC General. The ER, which saw fewer and fewer patients later became an urgent care center. Under the contract, GSCH helped coordinate the delivery system that included clinics and other participating hospitals. The public resources previously used to maintain DC General, beyond that provided GSCH, were combined to fund the DC Healthcare Alliance. The Alliance, which was operated by the DC Department of Health, provided health insurance-like coverage to low income District residents (under 200 FPL) through the GSCH-led network of contracted providers that included Unity Healthcare. When DC General closed, Unity, the District’s only FQHC, took over operations of the Hospital’s former primary care clinics.

How did Jackson do it? In three short years, how was Jackson Health System able to come back from life support to not only simply break even, but instead to generate both a profit while additionally justifying the current and future investment hundreds of millions in government bonds? According to CEO Migoya part of the answer is to “never waste a crisis.”   http://www.healthleadersmedia.com/page-2/LED-300258/CEO-on-Safety-Nets-Turnaround-Never-Waste-a-Crisis/ At the time he was hired, Miami-Dade Commissioners were debating whether to accept a buyout offer from Cerberus Capital Management, L.P. who owns Boston hospital group Steward Health Care. The proposal would have basically transferred Jackson’s debt to Steward in exchange for ownership of JHS. In contrast, while Migoya came from outside South Florida’s healthcare delivery system, he was certainly well connected within Miami’s business community. Migoya promised not only to bring effective management to Jackson he also committed to gaining hundreds of millions in investment. To cut losses, Jackson Health System laid off nearly 1,000 employees while increasing opportunities for part-time staff http://www.huffingtonpost.com/2013/07/02/jackson-health-bond-referendum_n_3536355.html/. Most strategic, Magoya brought in an experienced hospital management team – many from the private health sector – who focused on building a strong platform predicated on accountability and outcomes. “When I got here, there was little accountability, and little control over what was going on,” he says. “Frankly, sad to say, very few department managers knew their budgets, much less where they stood against them” http://www.healthleadersmedia.com/page-2/LED-300258/CEO-on-Safety-Nets-Turnaround-Never-Waste-a-Crisis/.“ Jackson also became much more adept at collecting on unpaid debt. In the health system’s FY2014 Financial Report Migoya noted that they had successfully reduced their Accounts Receivable to 28 days and had “cut spending on contracts and services beating budget (estimated reductions) by more than 6 percent” http://www.miamiherald.com/news/local/community/miami-dade/article4014923.ece/binary/. As the turnaround progresses, Jackson’s leaders and hospitals continue to receive recognition – among other awards given, Mark Knight, JHS VP and CFO, was named “Turn Around Deal of the Year Winner” by the South Florida Business Journal and Jackson’s Holtz Children’s Hospital was ranked among the nation’s top children’s hospitals, according to U.S. News & World Report. Despite its recent revenue and capital stability, Jackson still faces a possible tsunami with the potential to upend its successful turnaround. With the federal emphasis on the implementation of ACA, and its associated Medicaid expansion, Florida’s Low Income Pool created through its 1115 Waiver had provided $1.3 Billion (with Federal Match) in support for the hospitals and special programs which serve the State’s poor and uninsured. Jackson projects that the elimination of LIP could remove as much as $147 million in funding from their budget. The State’s LIP program under its current Waiver expires June 2015. How to address this threat, both for Jackson and other charity care providers throughout the State, is an issue being discussed within Florida’s legislature as I write.

Questions remain — Will Florida’s House entertain this year, when it hasn’t the past two years, a possible State Senate-proposed plan that would use Medicaid-expansion dollars to enable qualified individuals to purchase private insurance. Alternatively, can both Houses unite to find a “fix” for the LIP issue? Would either a Medicaid expansion or a LIP-like Waiver program have saved DC General?

Footnote – in 2007 GSCH’s successor – United Medical Hospital (UMH) also went in to bankruptcy. With no other bidders and having sent over $100 million of public funds to modernize the hospital (which had become known by some in the community as the “place you come to die”), the District purchased the hospital system at public auction for $20 million. Having lost accreditation from 2007-2008, the District joined in partnership with Paladin Healthcare Capital (health investment and turnaround firm) to improve and operate the hospital. In 2014, UMH’s acting CEO announced that the hospital was out of the red. In early 2015, District together with Paladin Healthcare Capital signed a Letter of Intent with Howard University Hospital to operate and provide medical care at UMH. Since 2011, DC General has been used as a homeless shelter. In 2014 it housed more than 300 families. Since nearly the beginning of DC General’s new role, as what was to be a temporary homeless shelter, there have been increasing calls for the shelter’s closure. Many of the same physical plant problems that helped sink DC General have never been fixed and together with other risk factors – what had initially been the public’s source of critical health care has instead become a ‘health hazard.’