How to nurse the state's largest public hospital back to health.

Fifth in a series. Today's focus: Quick fixes to save money

Faced with a potential shortfall of $120 million and fears that it might not be able to make its payroll in the last quarter of the year, Grady Memorial Hospital needs to cut its losses quickly.

And while changing the hospital's out-of-date management structure may take a while, Grady's leaders can almost immediately take other steps to improve its financial health.

Drawing on interviews with doctors, nurses, hospital officials and on the recommendations of Grady's consultants, those quick fixes would include:

> End free care for prisoners. Grady provides free medical services to inmates held in the city of Atlanta jail, an arrangement that goes back to 1945. Over the years that deal has been extended to a lesser degree to some Fulton and DeKalb county prisoners as well as those housed by other cities in the two counties. In 2006, treating prisoners cost Grady $9.4 million.

In exchange, Grady gets free water from the city of Atlanta. When hospital consultants tried to gauge the value of that arrangement, they discovered that Grady doesn't have a water meter, making it difficult to determine how much water it uses. The consultants' best guess is that Grady uses between $1.5 million to $2 million annually in city water.

Doctors and nurses at the hospital also voice safety concerns about the arrangement. The outpatient prison-care unit is housed next to the hospital's asthma clinic, often used by children, and adjacent to Grady's always crowded emergency room.

This 60-year-old arrangement no longer makes sense and should be ended.

Potential savings: $8 million-10 million

> Get out of the pharmacy business. Grady operates nine outpatient pharmacies connected to the hospital and several of its neighborhood clinics, dispensing 1.4 million prescriptions a year.

The pharmacies are in financial trouble for a number of reasons, including changes in federal financing for indigent care. As a result, the pharmacies are expected to lose $4.5 million this year.

Grady officials had hoped to recoup some of that loss by attracting new customers who had signed up for Medicare's Part D prescription drug benefit. But those patients have been put off by the hospital's chronic customer-service problems, including long waits, poor service and inconvenient locations.

Other public hospitals have long contracted for pharmacy services. Private companies usually have lower personnel costs, are willing to invest in patient records and information systems and provide a higher level of customer service. Grady should go this route.

Potential savings: $4.5 million

> Take a harder line on outpatient dialysis. Grady has become the dumping ground in metro Atlanta for patients who need kidney dialysis but have no means to pay for it. On any given day, 80 to 90 patients come to the hospital's dialysis unit. Many of them are illegal immigrants; others are patients who have been kicked out of other dialysis centers for bad behavior or other psycho-social issues. The hospital is expected to lose $3 million to $4 million this year providing this essential service for patients whose kidneys would fail without it.

The private market for dialysis patients is highly competitive, largely because Medicare pays for dialysis treatment for patients with end-stage renal disease, regardless of age. However, it takes 90 days for patients to qualify for the Medicare program. Many of the patients at Grady have been referred there by private outpatient centers that refuse to take them until they finally qualify for Medicare reimbursement.

This pattern must stop. Nephrologists and other physicians working with these private clinics should agree to take in more pre-Medicare patients and stop dumping them on Grady. If they don't, Grady should cap the number of outpatient admissions to a level that does not strain its ability to provide other services to indigent patients with other serious conditions that need expensive treatment.

Potential savings: $3 million-4 million.

WHERE WE STAND

Previous editorials in this series have examined trauma funding (July 1), the decisions Fulton and DeKalb leaders must face (July 18), state support for specialty care (July 29) and consolidating care in the community (Aug. 6).

Better management and state financing must top the agenda

A "Grady summit" planned for Monday among Fulton and DeKalb county commissioners, hospital trustees and state officials could provide the breakthrough needed to ensure the survival of Georgia's largest public hospital.

However, those hopes would be dashed if the meeting deteriorates into a session in which the various parties blame one another for the problems at Grady, which sinks $8 million deeper into red ink with each passing month. Trying to save the hospital should be far more important to those at the meeting than trying to save face.

Here's what state officials need to hear from Fulton and DeKalb leaders:

"The hospital authority is ready to fundamentally change the way it does business. It is prepared to accept the recommendation of a special task force of the Metro Atlanta Chamber of Commerce that the Fulton-DeKalb Hospital Authority turn over operations to a nonprofit, nonpolitical hospital management corporation."

That change in governance is necessary for a couple of reasons. First, virtually every other large public hospital in the state went this route 15 to 20 years ago for purely pragmatic reasons.

Among other advantages, it gave those hospitals the legal authority to pursue for-profit programs to offset programs in which it took a loss. Under its current governance, Grady is barred by state law from operating such programs.

Second, over the years some political appointees to the Grady board have participated in contract negotiations with vendors, hiring of middle managers and other administrative tasks that should be left to hospital executives.

That history has given state officials a reason to walk away from assisting Grady in any meaningful way, fearing that whatever funds went to the hospital would wind up misspent.

State officials are looking for a sign that Grady officials understand the need to make this substantive change.

Here's what Grady and county officials need to hear from the state:

"Georgia's trauma network of hospitals needs Grady's Level One trauma center. State government recognizes that one out of four patients admitted to Grady live outside Fulton and DeKalb counties, and that last year unpaid bills for trauma treatment amounted to $42 million. The state agrees to directly subsidize Grady's trauma center and other Grady services."

There's more than enough money in the state's growing budget surplus to assist Grady and the 13 other hospitals providing trauma care. The governor and state legislative leaders should pledge now to appropriate the $70 million to $80 million in subsidies to the trauma network recommended last year by a state-appointed study commission.

Grady also provides other vital services to patients throughout North Georgia. It has one of the state's two burn units; the only poison control center; a regional neonatal unit for severely ill and prematurely born infants; an intensive care obstetrics unit; and the South's only sickle cell crisis unit, as well as expertise in hypertension and diabetes control —- two conditions that plague Georgia's population. All these services need more state funding.

Significantly, 43 percent of Grady's admissions are low-income Medicaid patients, twice the percentage of most other hospitals and far more than any other public hospital in the state. Because Medicaid pays, on average, only 85 percent of the costs hospitals incur to treat patients, Grady loses million of dollars each year on these patients.

The state recognized this years ago and created a way to pay more to Grady and a handful of other public hospitals that take in a large volume of Medicaid patients. But now more than 100 of the state's 160 hospitals qualify for such funding, which reduces the amount Grady can hope to draw.

The most important contribution of all parties to Monday's summit to save Grady should be a willingness to change how the hospital is managed and financed.

—- Mike King, for the editorial board, (mking@ajc.com)