Poor planning alleged

Posted: Sunday, January 21, 2001

HOMER -- The man in charge of purchasing at South Peninsula Hospital until his job was recently terminated confirmed that the medical facility is in financial trouble. But he lays blame at the feet of the hospital's top administrators and the board of directors who he says have not done enough to cut costs.

The hospital's chief executive, however, said all efforts are being made to manage costs, and that the dismissals were essential if the hospital was to operate efficiently and reach its goal of a break-even budget while meeting the medical needs of the community.

Materiel Manager Joe Hannigan and his wife, Executive Assistant Debbie Hannigan, were among five top-level managers laid off Jan. 8 as the hospital took steps to counter a predicted $1.2 million deficit in the current budget.

Also sacked for budgetary reasons were Patient Care Services Director Dotty Breeding, Plant Operations Director Tony Parker and Personal Care Attendant Program Manager Sue Shover.

"Shocked and stunned silence" was the reaction of the five as each was told two weeks ago by Chief Executive Officer Charlie Franz they were being let go, Hannigan said this week.

"The cause was nothing personal, we were told, just business." He called the action "ham-fisted."

None of the five was offered incentives for early retirement, nor were there any discussions regarding possible temporary reductions in salary. All in all, it has been a painful experience, he said, but his comments went beyond his personal pain.

According to Hannigan, top administrators have ignored potential cost-saving measures, allowed uncontrolled spending by managers, may have violated hospital procurement procedures, and shifted responsibilities once held by medical professionals to nonmedical administrators.

"Nursing services are now reporting directly to the CEO (Charlie Franz), and most surprisingly, to the CFO (Charlie Button), who has absolutely no credentials in patient-care services," Hannigan said. "One can only wonder at the consequences of this action on retaining the crucial licensing approvals of state and other agencies, as well as the impact on the quality of future care."

Franz said Hannigan is wrong about the new hierarchy and said that changes have not compromised medical decision-making.

"Hospital nurses report to the acute-care manager, who is a nurse. The Long-Term Care Unit nurses report to the Long-Term Care manager, who is a nurse. The Home Health Care Program people report to a nurse. Those nursing managers report to me for Long-Term Care and Acute Care and to (Finance Officer) Charlie Button for community health services," Franz said.

Hannigan said the hospital is ignoring an important cost-saving feature of a software program that would save the hospital money. Called "lost charges," it would track supplies issued and reconcile them with actual patient charges -- if the program were switched on.

It was used during a short period in 1997, Hannigan said. Over three months it found about $70,000 in lost charges, representing lost profits, he said.

"The previous CFO (Ryan Smith) told me it was too embarrassing to explain the losses to the board of directors," Hannigan said. The program feature has not been used since.

Franz agreed, but cited a different reason than embarrassment.

"It wasn't producing accurate information," he said. "The software has been less than 100 percent satisfactory, and this one part did not work particularly well."

Recent software upgrades and a soon-to-be-installed computer are expected to correct the situation and allow use of the "lost charges" program, he added.

The current system requires employees using supplies to remove yellow stickers from them and apply them to patients' records. Later those tags are used to generate hospital charges. Franz acknowledged that the tags sometimes get lost -- a reality of the pace of work and a staff often intensely focused on medical care, not bookkeeping. The new computer will use a bar code reader which should cut down on the losses.

Hannigan said the hospital made what he called a "flagrant violation" of the purchasing policy recently when the company purchased that new computer. He was excluded from the decision, he said, but understands that the hospital received a low bid from and had a contract with IBM for the computer.

Upon learning that the software supplier, Healthcare Management Services of Nashville, Tenn., would not guarantee its software's performance unless it also supplied the computer, administrators sent HMS a copy of IBM's bid. HMS lowered its price and got the contract, Hannigan said.

Franz said that's not precisely what happened. The computer, worth about $80,000, isn't an off-the-shelf item. There are only a couple of suppliers -- IBM and HMS. Both submitted bids. It is HMS' software that is being upgraded. Franz said they did sign a contact with IBM, but then HMS told the hospital it could not guarantee the software's performance unless the hardware was built to its specifications.

"We didn't give them IBM's quote," Franz said. "We gave them a listing of IBM's hardware configuration. They (HMS) found two things needed that weren't on the IBM."

IBM agreed to cancel the contract. In the long run the company had sold one computer anyway. HMS' product was an IBM configured to its specifications, Franz said.

Hannigan went on to say the hospital has spent at least $73,795 so far this year in "unbudgeted capital expenses." Unbudgeted does not mean unnecessary, he said, but it may indicate poor budget planning in some cases.

Franz said such expenditures are not unusual and represent purchases that can't accurately be predicted. In any case, the hospital's budget is scrutinized by borough auditors every year, he said.

Hannigan also said that to his knowledge, the new head of materiel management, Account-ing Coordinator Gregg Fortunato, has no experience in buying medical supplies or services, nor any warehousing experience. That can become problematic.

More than that, the person who orders supplies now also pays for purchases.

"One organization cannot both buy and pay for items," he said. "An auditor will have a field day with this setup."

Franz said it is true that Fortunato is less experienced and that he is being asked to "stretch and grow and learn this area of responsibility." But Franz has confidence that Fortunato can do the job. As for separation of duties, Franz said he's not worried. Currently, the finance director for the Kenai Peninsula Borough also is in charge of purchasing, he said.

Hannigan said he believed Franz when he said the five were let go for budgetary reasons. He does not believe there were any underlying motivations, such as poor performance.

"Everyone was a major contributor," he said. "I don't think there were any performance problems."

Franz said he regretted the way the five had to be let go, but he had no choice. The severance package presented to the five will mean continuing those costs through the fiscal year and beyond. But over time, the hospital will save $548,000 annually in base salaries, bonuses, benefits and other costs associated with those upper-level jobs, Franz said.

Hannigan said the severance package was equal to a week's pay for each year of employment. The hospital personnel manual requires only two weeks total.

"The package was generous," he said.

Franz confirmed that the manual requires only two weeks' pay.

Bruce Turkington, chairman of the hospital's board of directors, has seen a copy of Hannigan's comments.

He said the board would discuss them at its next meeting Wednesday.

Hal Spence is a reporter for the Homer News.

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