By Polly Keary, Editor
A state audit of Valley General Hospital’s 2011 books found that in that year, the hospital was in serious financial trouble, made costly bookkeeping mistakes, and was not careful enough to keep funds secure.
The audit resulted in the most serious outcome the state auditor’s office gives; that of a finding.
“We have three levels of reporting. An exit item is verbal; a management letter is more significant – we put that in writing; and a finding is significant enough that we put it in writing and publish it,” said Matt Miller of the Auditor’s Office.
Last week, new Valley General CEO Eric Jensen talked about the auditor’s findings, and what steps the hospital will take to improve.
In 2011, the upper management of the hospital was in considerable disarray, consisting of a large number of temporary or recently-hired managers.
Since 2009, there have been a total of five CEOs, beginning with Mark Judy, who left in March of that year. He was followed by an interim CEO, and then by Mike Liepman, who came on board in 2009. At the time of the audit, Liepman had been CEO for about a year and half. He is currently the CEO of Skagit Valley Hospital in Mount Vernon.
He was followed by Interim CEO Michael Fraser, and Jensen took over Jan. 31 of this year.
There have also been three chief financial officers in that time, and four chief nursing officers.
At the time of the audit, the business office manager had been laid off the prior year, and the position was vacant for most of a year.
The audit checked for compliance with state laws and for financial responsibility and stability.
The findings were serious.
The district showed a net loss of $3.4 million that year, and only enough cash-on-hand to cover operating costs for 24 days.
The hospital dropped a couple of its money-losing services, including the birth center and inpatient psychiatry, but it wasn’t enough, the state found.
Below are the state’s findings, and Valley General’s response.
The hospital didn’t bill patients in a timely way, didn’t have a way to make sure patient receivables could be collected, didn’t maintain adequate documentation to support adjustments to patient accounts, and didn’t adequately segregate duties, meaning one employee was able to receive and deposit payment and also process adjustments on accounts. In all, the district wrote off nearly half a million dollars because patients weren’t billed in a timely manner and didn’t monitor past-due accounts well enough.
The numbers there actually reflect several years’ worth of patient accounts, said Jensen.
“A new business office manager came in, and they initiated a clean-up of old patients accounts from 2003-2010,” he said.
Hospitals have complex billing, he said, with each insurance company having its own rules about payment.
“We fight with insurance companies about if they have paid or should have paid, and there were lot of old unresolved accounts,” said Jensen. “They did collect money on some of them. Most of the accounts were from 2009 and 2010, for insurance and self-pay, and they all got written off at the same time.”
A new billing procedure was put in place in 2011, Jensen added.
“New management has been hired for the hospital billing function and staff has received extensive training in billing and follow-up procedures,” the hospital reported. “Performance expectations have been established and progress is regularly measured. The Patient Financial Services Manager monitors accounts receivable aging on a regular basis.”
The district didn’t provide credit card receipts to show the purpose of expenditures on multiple transactions; made payments late, racking up $1,441 in financing and late charges in a year; paid $6,500 for turkeys without maintaining a receipt to show the public purpose of the purchase; paid $9,300 for a banquet, including $1,400 in alcohol, which district policy doesn’t allow; and gave $3,700 in sponsorships but couldn’t show how they benefitted the district. It also gave away $1,328 in employee recognition, exceeding the district’s policy.
The credit cards in question were gas cards, Jensen said.
“That process has been tightened up,” he said. Now there are detailed logs in use, the hospital reported.
And the hospital once delayed credit card payments as a means of keeping within the budget, he said. That practice has been stopped, he added.
As for the turkeys, they were employee recognition gifts given out at the holidays, he said. The problem was that the employee recognition policy hadn’t been modified to allow for the gifts. The same was true for other employee recognition gifts.
The banquet wasn’t actually paid for by the hospital, Jensen said. Rather, the specialists with privileges to practice at the hospital have their own group, and they pay dues into it. They used those dues to pay for a banquet. But the dues had been held by the hospital, and deposited into the hospital account.
“These were intended to be private funds of the medical staff,” said Jensen. “They should have been deposited in a separate account than the hospital, but because they were included in the hospital bank account, the auditors considered them hospital funds.”
The hospital made a mistake handling the money, he said, but the banquet didn’t cost the hospital any money.
Jensen said, had he been on site during the audit, he might have argued about the sponsorships.
The state has strict laws about how taxpayer-supported hospitals can advertise. They can’t, for example, sponsor a little league team in exchange for their name on the dugout.
“We have to advertise a specific hospital service, we can’t sponsor events for name recognition,” Jensen said. “People here didn’t know that.”
The hospital had a booth at Kla-Ha-Ya Days in Snohomish in 2011, giving free blood pressure checks and handing out brochures.
The auditor didn’t see that as an allowed form of sponsorship.
“I would have argued it,” said Jensen. But the hospital has started developing a policy about sponsorships.
And the hospital has segregated duties so that the same person doesn’t handle both payment adjustments and deposits.
Because the hospital didn’t keep adequate records of when raises were given, the hospital overpaid three employees $5,900.
And the audit found that the hospital hadn’t made payments into the employee retirement funds in 2011.
Response: In fact, the hospital employees union had agreed not to take an employer match to the retirement plans that year, said Jensen. And the hospital still has time before the retirement contributions are due in October of this year, he said.
In addition to responding to each of the items mentioned in the finding, the hospital also addressed concerns over its overall financial stability.
According to the hospital, the hiring of permanent department heads will cut the cost of expensive interims and will stabilize the management staff. A turnaround plan is in the works, and will soon be presented to the board. The three unions have made concessions in wages and benefits for 2013. Those concessions also apply to non-represented staff. A labor productivity monitoring system will be put in place this year.
The district is looking for ways to use the affiliation with Evergreen to cut costs, including buying in bulk, resourcing relationships with Evergreen’s business contacts and more.
New primary care doctors from Evergreen are expected to bring more patient referrals to Valley General. One doctor is already in practice with a nurse practitioner and a physician’s assistant, and another will come this summer, and Evergreen specialists are expected to reduce the number of patients who need to go elsewhere for care.
“We appreciate the steps the District is taking to address this issue. We will review the condition during our next audit,” the auditor responded.
Because of the seriousness of the finding, there will be another audit next year.