That next $10 million…

It costs Metro more than $35 million for Nashville General Hospital to operate. The average annual cost to Metro to operate NGH has been more than $35 million per year for more than a decade.

I understand that the Hospital Authority was created in March 1999 and had a $15 million cash deficit that year. I believe that, through fiscal year 2007 (so, before the Dean administration even), that cash deficit grew to $62 million. Even though the formally budgeted contribution from Metro was in the mid-$30 million per year range at that point, there was average additional cost of at least $5 million per year through those years due to the deficits. If you dig through the Metro audits for these years, you can find all of this.

For me, it is important to note that the public’s perception about cost focuses on the idea that “it costs Metro $35 million per year to run NGH.” I would guess that political pressures on all involved going back to the early days of the Hospital Authority contributed to a popular impression that it costs Metro $30-35 million per year to operate NGH, when really – all-in – it was more.

The fact is that, for whatever reasons, more than a decade ago, the seeds were planted that created the impression that it costs Metro about $30-35 million to operate NGH. The more precise perception would have been that the formal operating subsidy was $30-35 million per year and that Metro spent more than that on average over the years once you took deficits and unpaid payables into account.

I am more interested in having the “all-in” number be the one that gets discussed publicly. I believe the Barry administration feels the same way. I think the Hospital Authority and Dr. Webb agree too. But the long-standing political ground rule that “it costs $30-35 million” is persistent.

With that as background, let me give my answer to each of the questions raised in David Plazas’ editorial yesterday.

Question: Why do we need another bailout?

My perspective is that the use of the word “bailout” is an unfortunate downside to the perception that was created more than a decade ago about the supposed cost to Metro to operate NGH. The average cost over many years has been higher than $35 million. And much of that time was before the most recent, well-documented challenges in medical reimbursement nationally.

NGH needs more than $35 million this year because it historically costs more than $35 million from Metro to operate the hospital, and because medical reimbursements are as challenging now as they have ever been.

That doesn’t mean NGH gets (or wants) a blank check. Obviously, we have to look at how the money is being spent. But I don’t think the traditional notion of “bailout” applies.

Question: Why did Dr. Webb say early this year that the last $10 million was a one-time event?

I can’t speak for Dr. Webb. But my sense is that there were at least two things he had in mind. First, I believe that it was his goal to make it a one-time event. Second, since long before Dr. Webb took over at NGH, one of our local political ground ground rules has been that “it costs Metro $35 million to operate NGH.”

I have shared with Dr. Webb that I am more interested in knowing a realistic all-in number for what it costs Metro to operate NGH – even if the number violates a long-standing ground rule by being higher than $35 million.

Question: Why did Dr. Webb say during the budget process that $35 million would be enough for this fiscal year?

I have the same response to this one. Dr. Webb will need to answer this, but I suspect that the NGH budget for this year was what I would call aspirational.  I think it was likely built to reflect what the results would be if everything broke just the right way – especially with reimbursements for medical services provided. I suspect that Dr. Webb and his team, in an effort to meet the long-standing political expectations that it is supposed to cost $35 million for Metro to operate the hospital, set budget goals that were aggressive.

Question: Why was Metro was surprised by the request? Why were Metro officials caught unawares? Why were hospital administrators not forthcoming?

On this one, I think the Finance Director can best answer the question for Metro.  For me, there was no surprise. It cost Metro $45 million to operate the hospital last year.  And the running average over more than a decade is higher than $35 million.  And lots of hospitals are having reimbursement issues. I was sure there would be a supplemental appropriation request at some point.

I understand that Metro and NGH have had regular, frequent meetings or calls to discuss budget and cash forecasting throughout this fiscal year. I think both Metro and NGH have seen the possibility of the supplemental request coming.

I suspect that NGH, through the first quarter of the fiscal year, was fully committed to the budget I am calling aspirational. I think that, after NGH closed its books for the first quarter (which would have been late October or early November), they saw the handwriting on the wall, and let Metro and the Hospital Authority know that they would need a supplemental appropriation.

Question: Why did NGH brief the Hospital Authority before the Mayor or the Council?

Two things here.  I understand that NGH did talk to Metro Finance in the days before talking to the Hospital Authority. But also, that’s the way the governance structure works.  Dr. Webb and his team report to the Hospital Authority.  As for the Council, Metro Finance let the Council know within a week or ten days about the situation.

Put all together, the NGH management team worked their budget for the first quarter. Those results show trending that will require a supplemental appropriation.  They let Metro Finance and the Hospital Authority know.  Metro Finance let the Council know.  All of that seems to have happened in a matter of several weeks.

Let me wrap up with two final points.

First, don’t lose track of some positives.  I understand that NGH has successfully dealt with all of the Joint Commission issues raised last year. I am told that, over the last two years, NGH has dramatically decreased infection rates, and the rates are now better than national averages. I believe that the medical staff morale is in a good place. These positives matter, and I think the newly re-formulated Hospital Authority will help continue the push in a good direction.

Second, and I’ll be trying to write more about this in the coming weeks, NGH needing more money isn’t the story.  That’s consistent with historic costs. The more important issue is for us (NGH, the Hospital Authority, the Mayor, the Council) to get rid of the long-standing political ground rule that it costs $35 million for Metro to operate the hospital. It’s arbitrary…it gets in the way of proper management and governance. We all need to know the actual all-in cost to Metro, and we need to be able to know that NGH has a realistic budget and can meet that budget.

(You can see what I wrote about NGH earlier in 2016 here.)

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.