Many hospitals across the country have attributed their financial woes to the still-stalled national economy. However, the recession only brought to light the decades of mismanagement and bad governance that led to the financial meltdown of Jackson Health System (JHS) in Miami, according to a Miami-Dade County Grand Jury report released by the Miami-Dade office of State Attorney Katherine Fernandez Rundle. Opening its report with the words "What a colossal mess!," the grand jury had plenty of blame to spread among JHS management, its governing body The Public Health Trust (PHT), and county officials who collectively "have been irresponsible, complacent and reckless, and blindly relied on financial misstatements."
But two issues in particular stood out: financial reporting and labor. On the financial side, the testimony from some JHS employees demonstrated "such a lack of knowledge, expertise and a grasp of the subject matter at hand" that it appears these employees "are working in positions for which they are not qualified," said the grand jury. The testimony was so lackluster that the grand jury expressed "no confidence in the numbers presented in the internal financial reports provided by JHS and ostensibly reviewed by the PHT, which also includes elected and county officials."
For example, witnesses were unable to explain why JHS's monthly internal financial statements used a mechanism called a "Net Patient Revenue Adjustment" to skew revenue figures, said the grand jury. For fiscal year 2009, this adjustment "had the cumulative effect of increasing projected revenue by $155 million while at the same time concealing $155 million of deficit. The bottom line result was...a masking of one of the indicators that could have warned of the upcoming 'financial trainwreck.'...[I]nstead of giving a realistic estimate, the adjustment actually created a fictitious 'net income figure,' one that could be adjusted by JHS financial management to be whatever they wanted it to be."
The grand jury's financial findings could have implications in an ongoing Securities and Exchange Commission investigation into JHS' 2009 bond sale, reports the Miami Herald. "I think they were probably being nice by saying it was fictitious....It's more like fraud," Miami accountant Tony Argiz told the paper.
The grand jury also had a lot to say about JHS' labor costs: "We learned that successful hospital systems running at a profit have labor costs of approximately 40 to 41 percent. We have also heard that public safety-net hospitals can survive and run with labor costs as high as 50 percent. Our review of...financial statements for the last six years revealed that JHS's labor costs are between 54 and 56 percent of its total operating expenses. This is unacceptable as a sustainable business model."
To learn more:
- read this South Florida Business Journal article
- read these Miami Herald articles: article 1 and article 2
- access the grand jury report here