DEL.ICIO.USConsultants cashed in during Grady chaos
One contract tied to savings; another for management work
The Atlanta Journal-Constitution
Sunday, December 21, 2008
When Grady Memorial Hospital hired PricewaterhouseCoopers to stanch financial losses last year, officials said the consultant’s multimillion-dollar fee would be tied to the amount it saved the hospital.
Yet PricewaterhouseCoopers reached a separate agreement with Grady as well, records show.
Don Heupel / AP
Michael Young, CEO of Grady Memorial Hospital, hopes the need for consultants is ending.
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Under that, the consultant would collect about $2.8 million more with no savings requirement, for tasks such as helping staff offices, improving the handling of grants, and choosing an information services vendor.
PricewaterhouseCoopers employees would charge as much as $330 an hour for their services, documents obtained under the Georgia Open Records Act show.
The agreement illustrates how reliant on consultants the financially strapped hospital had grown after years of frequent leadership turnover and poor management practices left it struggling to keep its doors open.
The public hospital, which serves a large number of uninsured patients, has run a deficit every year since 2000. It will do so again in 2008.
New CEO Michael Young said he hopes Grady will no longer need the services of PricewaterhouseCoopers when its contract ends in 10 months. But he said the company helped the hospital to continue treating patients even as it bled money and some of its better managers.
“Without them we’d have been dead,” he said, of the consultants.
When he arrived in September, Young said, Grady had neither a business office manager nor billing manager.
“We saw attrition and depreciation not just in the building, but of people,” he said. “There were few people left who knew how to cut bills. There were fewer people left who knew how to manage.”
PricewaterhouseCoopers served as interim management in many cases, Young said.
Under its primary contract, PricewaterhouseCoopers collects a fee equal to roughly 20 percent of what it saves Grady, up to $26 million.
That contract puts the consultant in the top tier of hospital vendors, behind companies providing large-scale essentials such as medical supplies and pharmaceuticals.
Young said he generally is not a fan of such paid advisers, which are expensive and can signal a management failure.
“I hate consultants,” he said in an interview earlier this fall. “But I have no choice.”
With Grady on track to finish the year $40 million to $50 million in the red, however, Fulton County Commissioner Lynne Riley said she is still waiting for the hospital’s bottom line to reflect a tangible benefit from the consultants.
Grady finished last year with a deficit of about $55 million.
“We need to see evidence of the savings that have occurred,” Riley said.
A decline in revenue because of a drop in patient volume this year ate up a significant part of the savings achieved by PricewaterhouseCoopers, Chief Financial Officer Michael Ayres said in a statement through a Grady spokeswoman.
Without that savings, Grady would face an even bigger deficit, he said.
Hospital and consultant officials said PricewaterhouseCoopers has brought in millions of dollars by providing help on labor-intensive tasks such as straightening out billing practices.
The hospital’s error-ridden bills have for years led to regular rejections by insurers. Sometimes bills weren’t submitted at all.
The consultant’s work to fix billing alone has reaped more than $40 million in revenue, Young said. “That actually has paid for them,” he said.
The consultants have also allowed Young to move more quickly to implement changes, as he works toward his target for the hospital to break even for the year 2011.
PricewaterhouseCoopers was only the latest group of consultants to take on Grady’s woes.
When the company began last year, Grady was still paying off its bills from another turnaround specialist, Alvarez & Marsal, whose more than $2 million contract last year caused controversy after the company proposed cuts.
PricewaterhouseCoopers’ work, however, has proved far more extensive, officials say, involving implementing suggestions as well as presenting them.
The consultant’s staff has ranged from 38 workers to 76 at Grady, partner Bill Luallen said. They are spread across the hospital, from the emergency room to the clinics to the call center.
Evaluating the treatment
Earlier this year, the consultant warned that setbacks, including a lack of cooperation from some Grady staff and worker shortages, were threatening to derail efforts to hit targeted savings of $65.5 million by the end of the year.
Luallen said work has picked up since Young arrived and, as of late November, PricewaterhouseCoopers had slightly exceeded the overall goal.
Squeezing money out of operations has been difficult, though Luallen said Grady is beginning to see results in that area. Length-of-stay – a key measure for hospitals trying to heal patients and move them through the tests and paperwork so another patient can use the bed – has dropped from 8.4 days to about six days, he said.
Young said Grady is hiring senior executives, lining up a new information technology system and training middle managers so it will be on more solid footing when the consultants leave.
“We’re trying to get them finished up …” Young said,”so the money can be put back in patient care.”
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