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Hospital audit likely before start on Cancer Center

STORY BY MEG LAUGHLIN (Week of October 10, 2013)
Photo: hospital CEO Susi and board member Dr. Hugh McCrystal (right)

A majority of the seven-member elected Hospital District Board appears poised to delay approval for building a new Cancer Center at Indian River Medical Center until an independent auditor clears up questions over hospital finances.

That’s the upshot of a heated debate between hospital executives, board members, district trustees and doctors at an emergency meeting called last Thursday by the Hospital District, which set a vote for next week on whether to delay the Cancer Center until more is known about hospital money.

Hospital District Trustee Burton Lee told those at the meeting that he was very conflicted about whether to proceed with the Cancer Center, but, he said, that District Trustees feel a “terrific obligation to the people who elected us.

“I have told those at the hospital, including (CEO) Jeff Susi, that as close as I am to them, I cannot guarantee I’ll go along with what they want. If we don’t have a good, financially strong hospital in this community, we don’t have anything.”

But District Trustee Alma Lee Loy expressed hope that the Cancer Center would “move ahead at this time as it meets the ingredients of a big winner for all involved.”

The Hospital District owns the hospital land and building and directs millions of taxpayer dollars to the hospital every year.

At the meeting two starkly contrasting points of view emerged: Some said IRMC finances were healthy and a current internal audit would likely show that. Others said the numbers didn’t add up, kept shifting and an independent audit was necessary to figure out the real state of finances.

Hanging in the balance is whether plans for the new Cancer Center will proceed or be delayed.

All of those who spoke on both sides made it clear that they want a strong hospital in Vero Beach and an excellent Cancer Center, but repeated concerns were voiced about getting to the bottom of hospital finances before forging ahead with a new costly building.

The hospital’s new Chief Financial Officer, Greg Gardner, told everyone: “The cancer program income is $1.4 million today. It’s profitable and the Cancer Center will strengthen the hospital’s financial position.”

Hospital District Trustee and Treasurer Trevor Smith disagreed: “The Cancer Center will be a service to the community. But, even with significant support from the foundation, it will not be a profit-making enterprise.”

In an unprecedented move, foundation donations of about $2.9 million a year, which previously could not be used for operations, will subsidize operations of the Cancer Center for the next five years, according to a hospital report.

Smith quoted from a hospital report which projects that it will be five years before the Cancer Center makes a profit equal to the $1.4 million profit a year the current program at the existing hospital is netting.

After five years, according to a hospital report, the new Cancer Center has a projected income of $4.2 million. If the center is not built and the hospital continues with its current cancer program, the projected net income over the five-year period would be $7 million.

The meeting began with Hospital District Chairman Tom Spackman saying the hospital had an operating budget shortfall of $4 million to $6 million this year, but the CFO who presented those numbers was suddenly terminated (by hospital CEO Jeff Susi) and new CFO Gardner produced a more favorable set of numbers.

“That’s a red flag,” said Spackman. “It causes a concern that it’s time to hire an independent, outside auditor to look at reports and the financial health of the hospital. If I were a major donor, I’d like that.”

District Trustee Loy said she thought hiring an outside auditor was “jumping the gun.”  She wanted the hospital’s internal auditors to do their work, but Trustee Lee said internal auditors “always make the numbers come out the way the company hiring them wants.”

“It’s very important to have someone on the outside,” said Lee. “Sudden big red flags have appeared.” Among them, he said, were Susi’s “brutal firing” of two people in senior management, including CFO Dan Janicak; a revolving door for CFOs at the hospital – “three in six years”; and “very low morale” among staff.

An email from hospital CEO Susi sent to over 200 doctors on Sept. 20 and then to the foundation board on Sept. 30 – and referenced at the meeting – is one example of how the mingling of “operating money with foundation money” is used to improve the perception of hospital finances.

In that email, Susi wrote the “hospital is financially solvent and strong.” As proof, he gave what he called “our cash position” of $55.5 million, implying that the amount was cash on hand reserves for operations.

But in hospital reports, the hospital’s cash on hand reserve for operations is only $29.8 million. To get the additional $23.2 million, Susi added in foundation donor money, which is restricted and can only pay for “plant and equipment,” not operations.

A number of doctors who received the email on Sept. 20 complained the numbers were misleading. Ten days later, Susi authorized the foundation chief to send it to the foundation board.

“There’s a lot of parsing of words, playing games,” District Trustee Mike Weiss told Susi at Thursday’s meeting. “We need a totally unbiased view.”

Two more trustees weighed in: “An outside audit is very expensive. Let’s look at the inside hospital audit first,” said trustee Harris Webber.

“With an inside audit, we wouldn’t get an appropriate overview that answers questions about cash reserves and bottom-line performance,” said trustee Trevor Smith.

Weiss asked Susi how much the hospital is paying for the Cancer Center contract with Duke Medicine, which paves the way for the hospital to market the affiliation with Duke, enter into a revenue-sharing agreement and set up clinical trials.

“It’s $300,000,” said Susi.

But according to a hospital document, the amount for the Cancer Center agreement with Duke is over $500,000, which is one more reason the majority of District trustees want an outside audit.

“We need to see that the information we’re getting is honest,” said Weiss.

As the debate progressed, it appeared that a majority of Hospital District Trustees – Spackman, Lee, Smith and Weiss – favored an independent audit, which, unless one of them is persuaded differently, will be approved at the next District meeting.

Hospital Board Chairman Tom Segura agreed with the four trustees, saying he wanted “openness and transparency: I’m all for the District taking a look. You have my complete support to do an independent audit.”

But Segura said he thought it was important to proceed with the Cancer Center, too.

Loy agreed: “The road ahead will be full of bumps and curves. Other areas of operations will need to be addressed, and I believe they will be.  I believe the best interest of our residents, our patients, and our medical community will be served by moving forward with the IRMC Cancer Center.”

Hospital board member Paul Nezi, whom Trustee Lee described as “someone who has done yeoman’s work, asking the right questions ... while taking a lot of heat,” said he wanted the Cancer Center too. But Nezi said there was something he wanted more: “A financially secure hospital with enough cash on hand to sustain itself in these financially unstable times.”

Nezi said Segura’s comment about transparency had disappointed him because he had received no support when questioning cash on hand reserves, which were listed as $29.8 million with former CFO Janicak, then suddenly increased to $30.8 million with new CFO Gardner, to become $55.5 million in Susi’s email to doctors and the foundation board.

“I do not believe these communications demonstrate transparency,” said Nezi.

Hospital board member Dr. Hugh McCrystal, who was chief of staff of the hospital for more than two decades, agreed with Nezi, saying he had seen “a problem with reporting finances in dire straits for a long time.”

He told Gardner and Susi: “You include investment funds and foundation amounts as hospital money. It’s how you present the money that’s a problem. It’s creative finances.”