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A prescription for Grady Hospital

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POSTED: September 4, 2007 5:03 a.m.
Grady Memorial Hospital is a vital community asset used by residents throughout metropolitan Atlanta, a safety-net hospital for hundreds of thousands of uninsured Georgians that admits tens of thousands of patients a year. All this takes place on an annual budget of $700 million.  
Among Grady’s attributes: It is one of the nation’s largest trauma centers and the only Atlanta-area Level One trauma center, offering a 20 percent higher chance of survival for severely injured patients. It's also one of the world's leading AIDs clinics, a regional burn unit, a world-class cancer center, and a leader in treating Sickle Cell disease.
The hospital has a checkered management history. In the late 1990s, a series of deficits placed Grady in a precarious financial position. Contracting abuses led to prison terms for several people, including a leading state legislator. The Grady board of directors responded by hiring a world-class CEO, Dr. Andy Agwunobi, who took the hospital from a $40 million deficit in 2003 to a surplus in 2005 and gained widespread community support of the hospital.  
Since Dr. Agwunobi'’ departure — for a lucrative position in the public sector — Grady has regressed rapidly. Budget deficits run $50 million to $60 million a year. The hospital faces both a $120 million operations deficit and a $200 million capital shortfall and is hemorrhaging red ink at the rate of $1 million a week. The board recently hired CEO Otis Story, who is assembling a management team.  
At least four separate sets of issues need to be addressed regarding Grady: hospital governance, county funding, the structure of state programs, and drawing down additional federal funds.
After Dr. Agwunobi left, a move to elect businessman Inman Allen as board chairman failed by one vote, leading directly to the current financial meltdown. The board has refused to build a new children’s hospital with $30 million in privately donated funds, because it wants greater control over Children’s Healthcare of Atlanta, which raised the money. Children’s Healthcare currently manages the run-down Grady children’s facility and is rated one of the nation’s top child health care providers.  
To improve Grady’s management and long-term outlook, a Metropolitan Chamber of Commerce task force recommended changing the structure of the board and reconstitution as a non-profit hospital. The chamber believes such a change would improve the finances of the hospital. No one has tried yet to cost out this proposal.
Fulton County has four different health units — Grady, the county health department, the county mental health unit and the jail (which administers $14 million annually in health care). Fulton and DeKalb counties have more than two dozen overlapping and duplicative clinics scattered throughout the two counties. These clinics are not structured to maximize their level of federal financing.  
Metropolitan Atlanta counties pay a wide range of reimbursements for Grady — Fulton pays 75 cents for each dollar of indigent care, DeKalb pays 40 cents, and the remaining counties pay nothing (on $24 million in unreimbursed care, according to Grady figures). A Grady study also reports its annual financial impact on the Atlanta metropolitan area is $1.5 billion, $350 million of which benefits the counties surrounding Fulton and DeKalb.
State funding of Grady increased about 70 percent between 1995 and 2005, reaching $150 million annually (including the state portion of Medicaid). During the past two years, however, state funding has dropped to its lowest levels in eight years. The switch to managed care cost Grady more than $10 million annually.  
The rapid increase in uninsured patients in the metropolitan Atlanta area meant that many more hospitals qualified for funding from the Indigent Care Trust Fund, the largest financing mechanism for Grady. The pot of money did not increase, so Grady had to share the funding with these other hospitals, “losing” more than $20 million annually.  
Grady also puts up the funding for the Intergovernmental Transfer (IGT) for the state, totaling more than $100 million annually. These funds are currently turned back over to the state. Unlike most other states, Georgia does not make sure that its major indigent care hospitals are taken care of through this mechanism.
Georgia isn’t maximizing federal funding, which provides almost half of Grady's financing. The state leaves tens of millions of dollars on the table because of the structures of its managed care program. Unless the state sets up a separate indigent care trust fund account for private hospitals, Grady can’t pull down additional federal dollars.
Metropolitan areas including Denver and Charlotte have indigent care hospitals that are financially sound. Grady can be financially viable and a truly great hospital, but there's no easy cure for this long-term ailment. This institution needs bold leadership committed to a steadfast vision.

Loughrey, a former member of the Grady Hospital Board of Directors, wrote this commentary for the Georgia Public Policy Foundation. The Foundation is an independent think tank that proposes practical, market-oriented approaches to public policy
 

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