County commission’s control identified as major source of UMC problems

Kyle Gillis

As long-standing revenue and management problems at the University Medical Center of Southern Nevada approached crisis levels last year, Clark County commissioners hired expensive national experts to tell them what to do.

But when the experts identified the commission itself as a major source of UMC’s problems, commissioners blinked — and balked.

Representatives of FTI Healthcare officially presented the report to commissioners, sitting as the hospital’s board of trustees, on Feb. 2, 2011. That same day, however, the Las Vegas Review-Journal reported that most commissioners were reluctant to part with power over the massive, but always-struggling, county hospital.

Yet the consultants appear to have considered their recommendations modest. They focused primarily on stopping commissioners from micromanaging hospital operations. 

“Given the UMC situation,” says the FTI PowerPoint presentation, “we recommend the County consider most carefully the 501(c)(3) ‘public benefit corporation’ model.

“In this model, the County government transfers direct management of the public hospital to an independent, self-perpetuating Board. But the County also retains specific powers to ensure the public service mission is met.”

Those powers, said FTI, could include:

  • Approving an annual “health service plan”
  • Approving appointment of the Health System CEO
  • Requiring certain services via a funding agreement based on what finances the government can support
  • Requiring quarterly or annual reports on the level of services, costs, quality and patient satisfaction

“Without significant changes in governance structure …UMC will be forced to significantly reduce clinical scope or close within 3 years,” FTI’s consultants concluded.

According to a UMC representative, the cost of the FTI assessment and eventual report — $589,500 — was split between UMC and the Nevada System of Higher Education.

As trustees governing UMC, county commissioners control payroll for roughly 3,500 employees, nearly all of them members of Local 1107 of the politically powerful Service Employees International Union. The local frequently brags of its political clout, citing its influence getting federal moneys promised to UMC, and boasting of its ability to install members of the county commission.

Corruption scandals — some of them political — have long dogged Clark County’s public hospital. Just one day before FTI’s official report to commissioners, a law-firm manager pled guilty to “participating in a conspiracy to receive and disclose University Medical Center hospital patient records in order to solicit business and clients for personal injury attorneys.”

In 2008, NPRI reported on audit warnings as far back as 2001, which warned commissioners that UMC’s expenses were increasing faster than revenues. Then-UMC board chairman Erin Kenney — who would later go to jail following conviction in the commission’s “G-Sting” scandal — shrugged off one audit, claiming, “The taxpayers should feel comfortable and confident that their money is being handled well and in a professional manner.”

However, audits continued to show taxpayer money has not been “handled well.” From 2007 through 2009, UMC’s operating losses were $56.3 million, $55 million and $82.5 million, respectively. According to the Clark County Auditor’s office, 2010 numbers will be released later this year.

As recently as 2007, then-UMC CEO Lacy Thomas was fired after Las Vegas Metro Police raided his office and later indicted him on 10 felony charges, the largest of which accused Thomas of funneling millions of dollars to ACS Consulting, a firm run by one of his friends, for a no-bid contract.

Thomas was hired from Chicago’s John H. Stroger Jr. Hospital — a hospital named for the long-dominant figure in Chicago’s political machine, Cook County Board President John H. Stroger, Jr. Despite Chicago’s reputation for political corruption, county commissioners had claimed Thomas’ hire was a “smart move.”

It turned out not to be.

Political-corruption issues at UMC go far back into the county commission’s history. According to FBI files recently obtained by Nevada Journal, the late former county commissioner and convention-authority head Manny Cortez was the subject of a federal grand jury investigation in the 1980s, when the county hospital was still named Southern Nevada Memorial Hospital.

“The investigation into the activities of Commissioner Cortez have focused on a company known as Revenue Management Incorporated of Las Vegas, Nevada,” reads a 1985 report from the Las Vegas FBI field office to the bureau’s white-collar crime and political corruption unit in Washington, D.C.

“RMI … entered into a contract in October of 1982 with Clark County … to conduct chart audits at Southern Nevada Memorial Hospital,” identify non-billed items and then bill insurance companies for moneys due. “RMI was to receive 50 percent of moneys recovered,” but during the first two years of the chart audits, “RMI received payments in the vicinity of $580,000,” although its work on the chart audit only returned about $40,000 to the hospital.

“Investigation to date disclosed that Cortez was instrumental in RMI obtaining their contract with the hospital,” reported the bureau’s Las Vegas field office. “Unsubstantiated allegations indicate Cortez was receiving payment from [whited-out] and [whited-out] and possibly was considered a hidden owner in RMI.”

In another part of the file, unnamed accountants were cited as sources of the allegations that Cortez was a hidden owner of RMI, whose primary owner was also known to be a long-time personal friend of the commissioner.

The federal grand jury investigation of the hospital, RMI and Cortez did not result in prosecution of Cortez by the U.S. Attorney for Nevada.

Despite the hospital’s history of scandals, commissioners express reluctance to end their control. Nevertheless, most acknowledge UMC would suffer “substantial losses” if they stay with the “status quo” option.

“We’re not against any one proposal but one of the extremes of a 501(c)(3) would be transparency,” argued Commissioner Chris Giunchigliani. “If [Clark County] has control, we can be more transparent with hospital decisions than a 501(c)(3) would be, and I’d always err on the side of transparency.”

RTI, however, told commissioners that they could require — as a condition of the non-profit takeover — that the hospital publicly report each quarter on the level of services, costs, quality and patient satisfaction.

UMC’s current level of transparency has not prevented its accelerating financial slide. According to county audits, since 2001 UMC expenses have outpaced revenue, and since 2006, UMC has suffered operating losses of at least $30 million.

If business as usual continues, FTI projected an operating deficit exceeding $100 million by Fiscal Year 2014.

While Giunchigliani cited the recession and the large number of uninsured patients as reasons for UMC’s shortcomings, auditors have sounded alarms over UMC’s finances for the past 10 years.

Nevada statutes restrict some, but not all, of the commission’s options. NRS 450.175 allows county commissioners to appoint a “hospital advisory board,” which would report directly to the county, keeping the county attached to the hospital.

The privatization option, an option UMC CEO Kathy Silver said UMC and the commission viewed as “not palatable,” is restricted by NRS 450.490, which states a hospital may be sold to a corporation at an appraised value if it’s the only hospital in the county.

Even if the commission were on board with privatizing, UMC’s high debt load would not make it appealing to many corporate buyers, according to Christopher Cochran, associate professor of Health Care Administration at the University of Nevada, Las Vegas.

“Teaching hospitals are expensive to run and any change would have to examine that relationship,” said Cochran.

The not-for-profit option identified in NRS 450.500 was selected by Washoe County in 1984, when ownership of Washoe Medical Center was transferred to the newly created Washoe Health System, a private, not-for-profit corporation. In the fall of 2006, Washoe Medical Center became Renown Health. 

According to Robert Larkin, Washoe County commissioner (District 4), Renown does not receive general county funds and no longer reports to the commission.

Kitty Jung, Washoe County commissioner (District 3), said Renown is able to provide quality service without the commission’s governance or interference.

“It’s much more important that the hospital is operated by an independent board,” said Jung.

Along with an independent board, Public Employee Retirement System (PERS) costs are another factor in the proposed transitions. According to Clark County, 3,472 UMC employees are in PERS and 56 percent of employees are vested in the system.

In Washoe County, Renown’s 3,200 employees were given the option to move to a 401(k) plan. While the process was expensive, ultimately the 401(k) plan reduced Renown’s costs.

Silver, while not a fan of comparisons to other cities, acknowledged UMC will be making choices similar to those that Washoe Medical faced.

“Each situation is so unique it’s not worth citing examples,” Silver said. “There’s not a lot of low-hanging fruit to cut down. At the end of the day, revenue keeps falling short of costs.”

While a not-for-profit transition is not a cure-all, said Cochran, getting UMC out from under the commission’s thumb would be the biggest advantage for the hospital.

“Commissioners have to look out for too many things — the bottom line, their interests, the hospital, their constituents,” Cochran said.

“The hospital’s board should have the hospital’s best interest” as its priority.