Related Story: Emory Says Audit Vindicates Its Position On Grady; Shafer Sees It A Little Differently

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(8/31/07) That mysterious Grady-Emory audit we described earlier this week was released late Thursday under an Open Records Act request by Sen. David Shafer, R-Duluth, and minutes after Shafer left Grady with the report in hand, Emory distributed a press release asserting it had been vindicated. Shafer saw things a little differently, he said in his blog.

The statement from Emory, which provides most of Grady’s doctors, said the 2005 audit concluded that Emory and Morehouse “are operating at Grady Health System in compliance with their contract with the Fulton-DeKalb Hospital Authority.”

On the other hand, the university declared, the audit found that Grady was “not meeting the payment provisions spelled out in its contract with the two medical schools.”

Shafer, who had to pay $82 to get his copy of the audit, wrote on his blog:

"I have not fully digested the couple hundred page report, but I was quickly able to reconcile the seemingly conflicting accounts offered by Loughrey and Emory. They are not contradicting each other as much as they are talking past one another.

"As Emory contends, the audit shows that the medical schools have met what are described as the 'minimum compliance requirements' of the contract. But the audit repeatedly criticizes those minimum requirements as 'inadequate' for Grady to 'accurately monitor' whether the work is actually being done. The auditors recommend a number of changes, but I have no idea, at this point, whether any of those changes have been implemented.

In any event, it is little comfort that the 'minimum requirements' have been met, if the requirements themselves are inadequate to the task. It is analogous to saying the Titanic had the legally required number of life boats. True, but.

Also, it is not clear to me that the report I was given is the same report that Loughrey is talking about. Grady’s general counsel, Tim Jefferson, told me today that an early draft of the audit may have been circulated at a Board meeting, and then collected back from the Board members, as Loughrey described to me. I asked about obtaining copies of any early drafts, but he says they almost certainly no longer exist.

Here is the complete text of the Emory press release:

A 2005 study by the accounting firms Cherry Bekaert & Holland and Horne LLP affirms that the Emory University School of Medicine and the Morehouse School of Medicine are operating at Grady Health System in compliance with their contract with the Fulton-DeKalb Hospital Authority.

The formal contractual review also found, however, that Grady was not meeting the payment provisions spelled out in its contract with the two medical schools. Together, Emory and Morehouse provide all the physicians to Grady under contract with the Hospital Authority. The contract calls for payment of invoices received from the medical schools within ten days, but at the time of the independent review, the average time to payment was five months and the average debt to the medical schools was $25- $29 million, according to the report. At the same time, the report noted that the compensation paid by Grady to the two schools was reduced by $8 million in 2003 due to cash flow problems.

Several years later, the situation has worsened substantially. The amount owed the two medical schools, as of the end of August, has grown to more than $54 million and the average time to payment is seven to nine months. A July report from the Greater Grady Task Force of the Metro Atlanta Chamber of Commerce warned that Grady will face a shortfall of $120 million by the end of this year, threatening the hospital with closure. The Task Force urged the Authority to support formation of a 501[c]3 nonprofit board to run hospital operations as the first step in a major turnaround.

Although the March 2005 “strategic assessment” of the relationship between Grady and the medical schools, which covered the 2002 and 2003 calendar years, has been described as an audit, it was a contractual review, not an audit in the legal sense of the term. The report is being released today by Grady pursuant to the Open Records Act with the full support and encouragement of the medical schools.

The executive summary of the 2005 report notes that the study was occasioned by dramatic changes in the healthcare system and the political environment during a 30-year contractual period, which began in 1984 and runs until 2013.

In the end, the report concluded, each of the three stakeholders raised “valid issues,” and “while this assessment began with resistance it has concluded with open communication and coordination between the stakeholders.”

Among the report’s specific findings were:

• The medical schools met the contractual requirements for documenting faculty time and effort at Grady, including time spent by faculty physicians in the supervision of medical residents (young MD’s who are pursuing specialty training). Nevertheless, the consultants said they would like to see the schools implement a VA-Hospital style system of reporting. Subsequent to the study, Emory enhanced its process in the Fall of 2005 by converting to a new School-wide electronic system of physician record-keeping that is used by all its faculty, including those at Grady.

• Grady officials said they were concerned about the increasing cost of malpractice liability which amounted to $17 million in 2002 and $15 million in 2003. The health system said it would like more control over physician schedules and services, and more tools to measure the quality of physician services, including the quality of supervision. (Emory officials note that the total liability exposure of the hospital includes claims directed at nurses and hospital staff as well as physicians; a breakdown of losses by category was not available.)

• Grady paid substantially less for faculty physician services than called for by contract, which keys payments to the Veterans Administration physician salary level. “On average the Medical Schools are absorbing almost $60,000 per faculty member FTE [Full Time Equivalent] versus the level of compensation called for by the contract,” the report said. “Because of resource limitations, the Authority has been unable to increase the budget for TSAP [Teaching, Supervision, Administration and Professional] services and has made cuts in other areas of the budget.”

• For each of the 2003 and 2004 budget years, the report found, the cumulative difference between the VA salary rate – called for by contract-- and the compensation actually paid by Grady to the schools amounted to more than $6 million for Emory and more than $2 million for Morehouse.

“The medical schools have provided a greater number of FTEs than those for which it [sic] is compensated for many years, in keeping with its mission to contribute to indigent patient care,” the report said. “However, resources for Grady and the Medical Schools are increasingly limited, and Emory has indicated that they cannot afford to continue its [sic] subsidization at the current levels.”

After reviewing the growing debt owed by Grady to the schools, the report states that “All of this points to the fact that the [Fulton-DeKalb Hospital Authority] is experiencing a crisis in under funding. All parties have been working hard to provide vitally needed healthcare to the poor and underserved of Fulton and DeKalb Counties without the required level of financial support needed to effectively manage the arrangement.”

Dr. Thomas J. Lawley, dean of the Emory University School of Medicine, said, “The report released today substantiates the extraordinary contributions made by our two schools to the thousands of patients served by Grady Health System. It also abundantly documents the fact that three to four years ago, we were already feeling the growing strain of carrying a large debt on behalf of the governmental entities that own and operate Grady. At the end of the day, Grady’s troubles are due to massive under-funding, just as the report said. No one has a greater interest than Emory and Morehouse in seeing Grady get back on its feet and regain its financial viability, along with its ability to carry out its vital public health mission on behalf of all of Georgia. We strongly urge quick adoption of the governance change recommended by the Metro Chamber Task Force before a situation that is already dire, becomes truly desperate.”

In addition to the Cherry Bekaert & Holland study, an October 2005 financial review by Huron Consulting Group, commissioned by Emory, reviewed the same data and came to the same conclusions as the CB&H study.

“We at Emory engaged Huron Consulting Group, a nationally recognized firm with a renowned specialty practice in healthcare consulting, to give us a ‘second opinion’ on how well we were complying with our obligations at Grady,” said Dr. Michael M.E. Johns, Emory’s executive vice president for health affairs. “This report, which was delivered about half a year later than the CB&H report, also validated our compliance with the Grady contract and with accepted national standards of physician record keeping and time and effort reporting.”

Among the specific findings of the Huron report were:

• “Grady is not in compliance as to the timeliness of payments or payment of the full amounts due as specified in the contract. This study did not address whether Grady is in compliance with the required provision of equipment, supplies, and support personnel.”

• “Emory is in compliance with the contract.”

• “While the contract states compensation for faculty TSA [Teaching, Service, Administration] is to be paid by Grady at the VA rate, Grady only paid at the rate of $125,000, not the present $185,000 per FTE. This creates a major subsidy that has been covered by Emory.”

• “Emory must pay the faculty physicians sufficient salaries to retain them. Grady does not compensate Emory for the indigent care it provides. Because a large percentage of Grady patients are at or below the poverty level, Emory cannot obtain reimbursement for this care through EMCF [Emory faculty practice] billings and collections. This obligates Emory to provide substantial subsidization to keep its faculty at Grady.”