Wednesday, Jan. 17, 2007 | 7:01 a.m.
Here is a lesson in how not to handle a financial crisis: conceal, spin, mislead, get fired.
It's a lesson University Medical Center CEO Lacy Thomas learned Tuesday, when the public hospital's house of financial cards came crashing down.
An independent auditing firm revealed to county commissioners that UMC lost more than $34 million last fiscal year - not the $18.8 million that Thomas told commissioners in November.
Simultaneously, Metro Police raided the hospital Tuesday to gather information about contracts that police suspect might have been favors for Thomas' friends.
Despite the Metro investigation, Thomas might have been able to weather the hospital's financial woes if he had not consistently concealed information and misled commissioners, who oversee the hospital.
Instead, he got fired Tuesday, with police helping to clean out his office.
Some of the earliest signs of trouble arose last year, when Thomas stopped providing the county with monthly financial reports. The last came in May, and that statement was for January.
Hospital administrators blamed the delay on a snafu with new county software, even though the system went online in the fall of 2005 and the hospital had provided a statement for January.
But UMC's own controller, Floyd Stevens, who had traditionally prepared the reports for commissioners, told police that at no time after January was he told or asked to complete financial reports, according to a police affidavit filed Friday. Stevens said although it was time consuming, UMC could have produced the reports that county officials wanted.
When the hospital finally gave commissioners some financial information, it showed a loss of $18.8 million for the fiscal year ending June 30, 2006 - more than $6 million beyond its budgeted loss. Those were draft numbers, pending the completion of a financial audit.
Commissioners asked Thomas for another update Dec. 20.
Stevens told police that the information he prepared for that meeting "was a very sanitized and brief statement that would not hurt Thomas and that he prepared the document at the direction of (Richard) Powell," the hospital's chief financial officer, according to the affidavit.
"(Stevens) felt the statement would be of very little help in actually determining the true financial state the hospital was in, but he did as he was told," the affidavit said.
At the Dec. 20 meeting, County Commission Chairman Rory Reid asked Richard Powell whether anything had changed since the previous month's financial report.
"Nothing major that I can report today," Powell said.
"Your expectations about the year-end performance and current performance of the hospital is as it was a month ago?" Reid asked.
"Yes, I don't see anything deviating from that," Powell said.
On Tuesday the auditor told commissioners the hospital knew at that time that there would be adjustments, although the amount was still being determined.
Meanwhile, the media was digging up information that revealed the dire financial conditions at the hospital, including the fact that the hospital had fallen millions of dollars behind in paying vendors for goods and services.
The hospital used its public-relations department to stall and spin stories.
UMC took more than two weeks to fulfill one basic information request made by the Sun. When the hospital did provide information, it was often incomplete.
Even when Thomas realized he would have to give commissioners the $34 million figure Tuesday, he tried to soften it, according to the police affidavit.
"(Stevens) said that Thomas was going to try and call this a 'paper loss' rather than an actual loss ," the affidavit said.
Eventually, it was not the hospital's financial loss but Thomas' lack of forthrightness that cost him his job.
"It's important that we make transparency and responsiveness a priority," County Manager Virginia Valentine said.
Reid added: "We all know that the taxpayers have to subsidize UMC since it must shoulder the burden of providing health care to the indigent. For me, it was based on a lack of transparency and accountability and a need to have better information flow from the hospital to the board."
Valentine replaced Thomas with Kathy Silver, the hospital's associate administrator of managed care, business development and planning.
Valentine also appointed George Stevens, the county's chief financial officer, to be the hospital's acting chief administrative officer. Silver and Stevens will assess the management team and UMC's financial situation and make recommendations back to the county manager and County Commission, Valentine said.
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