Jackson Health System: 2009 bond sale becomes 2010 SEC investigation

At most hospitals, a bond sale brings in a much-needed infusion of capital--and regular debt-service payments. At beleaguered Jackson Health System in Miami, debt is not the only burden wrought by an $83.3 million bond sale conducted last September to finance infrastructure improvements, including fire alarm upgrades and elevator renovations. The Securities and Exchange Commission (SEC) is formally investigating the public health system to determine whether Jackson Health violated federal securities laws by misleading investors about the true status of its financial condition, reports the Miami Herald

In February, Jackson Health stunned the Miami-Dade County community when it revealed that its losses for fiscal year 2009 ended Sept. 30 would total $244.6 million, five times its original estimate of $46.8 million. The system attributed most of those losses to a $50 million write-off of accounts receivable and accounting changes involving how doubtful accounts are treated.

The SEC has subpoenaed Jackson Health seeking all documentation, including communications between Jackson Health officials and outside auditors, related to net patient service revenue, doubtful accounts, accounts receivable, cash on hand, and the bond offering, reports the South Florida Business Journal.

"The SEC is trying to figure out how did this train wreck happen and whether or not the financial statement issued to investors fairly represented the condition of the Health Trust,'' Thomas Tew, a Miami financial litigator not involved in this case, tells the Miami Herald. The Public Health Trust is Jackson Health's governing body. The Health Trust's gross revenues, including Miami-Dade County appropriations, secured the bonds, and Miami-Dade also pledged non-ad valorem tax dollars to back up the debt-service fund, resulting in an A-plus rating with a stable outlook from Fitch Ratings.

Jackson Health became aware of problems last July through September, but didn't begin to grasp their magnitude until late fall, says former Chief Financial Officer Frank Barrett. "There wasn't any falsification of documents."

Jackson Health also is under investigation for gross mismanagement by a Miami-Dade grand jury. Both investigations come amid an ongoing restructuring that includes negotiations with employee unions regarding job cuts and payment concessions.

To learn more about the SEC investigation:
- read this Miami Herald article
- read this South Florida Business Journal article

To learn more about the bond sale:
- read this Miami Today article

To find out more about Jackson Health's ongoing restructuring:
- check out these articles from the Miami Herald: article1, article2, article3

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