Whidbey Health Has Been Engulfed in Bad News for 1 ½ Years

In the words of the hospital’s CFO, who’s about to become the permanent CEO, 2018 was a “rough year,“ financially, for WhidbeyHealth. That’s a huge understatement. Below are some of the items that have come to light over the past 18 months.

Construction Cost Overruns of $3 Million

When WhidbeyHealth’s new in-patient wing opened to great fanfare in the Fall of 2017, little was said at the time about cost overruns. Subsequently, however, WhidbeyHealth administrators and board members conceded that they failed to plan for possible construction budget overruns.

It belatedly came out in early 2018, however, that overruns on the nearly $50 million project were “projected” to be around $3 million – the precise amount has never been revealed, though the new wing opened over a year and a half ago. Rather than showing concern for the disappointing news, hospital officials patted themselves on the back when it looked like the project was going to wind up only about six percent over budget.

USDA Loan Application

Near the end of 2017 WH’s leaders quietly began an effort to be selected for a USDA Rural Health loan of $20 million. To date, that effort has been unsuccessful. In explaining the need for these funds, CFO Ron Telles indicated, at public hearing required as part of the loan process that the hospital had around $35 million in “deferred maintenance needs” (such as such as new ventilation and heating systems and electrical upgrades).

Though this loan application was deemed to be an emergency measure, and though a public hearing on the matter took place on March 21, 2018, I’ve just received documentation that the application wasn’t even filed until just over a year after the hearing. 

Whidbey Island taxpayers of course had not been advised that the hospital had put of spending $35 million of needed improvements when the hospital successfully sold the public on financing a $50 million levy. With interest, it will cost taxpayers about $100,000,000 to repay it over a 26-year period.

Pharmacy Code Violations 

In early 2018, the hospital’s pharmacy was found to be out of code, and to such an extent WH had to construct a new pharmacy on a rush basis. The unplanned cost for the construction was about $3.9 million, and the added costs of purchasing cancer-fighting compounds from others, rather than making them in-house, was something like $300,000 per month for almost a year.

Age Discrimination Lawsuit

On March 30, 2018, a Texas orthopedic surgeon filed a complaint for damages against the hospital district in U.S. District Court. The surgeon, who admits to being over 70, claims he is a victim of age discrimination.

As if that weren’t enough, the surgeon’s attorney then sought out documents from WH, through Washington’s Public Records Request regulations, to help support his case. Claiming that WH refused for four months to supply him documents, and even stopped communicating with him altogether, he then filed an additional lawsuit in Washington’s state court system over this alleged violation of law.

Since the filing of the original lawsuit, the hospital board has gone into private session at least a half dozen times, presumably to deal with this potential liability. Given the earning capacity of an experienced orthopedic surgeon, if he is awarded lost wage damages over perhaps a three- to five-year period, those damages could easily add up to around $2 million.  

Excessive Patient Services Charges

In December 2018, WH announced it was decreasing its costs to patients for physical therapy services, MRIs and CT scans. It was reported that CT scan costs were reduced 28 percent, MRIs by 38 percent, and PT costs by 28 per cent. Further information in an article by Patricia Guthrie, however, suggest the cost reductions were much greater. The reasonable deduction to be made is that consumers have been taking their business elsewhere due to the overcharges, and WH is now trying to win them back.

PEBB Communications Disaster

Right around Christmas of 2018, WH advised, out of the blue, retired employees that they would have to find new health insurance, as their existing Public Employee Benefits Board (PEBB) health coverage was ending December 31. CEO Forbes Forbes defended the abrupt move, saying it was recommended after much research by hospital administration, it was approved by the hospital board, and it would actually enhance employee wellness options, and have a potential financial benefit to boot.
The move proved to be such a public relations disaster, however, that a month later a WH spokeswoman expressed regret over the snafu. About 95 affected Whidbey retirees are left to assess whether the sudden change will result in better or lesser coverage for them.

WH Finishes 2018 $6.3 Million in the Red

The New Year got off to a tumultuous start when at the February board meeting CFO Ron Telles relayed that unplanned expenses in 2018 caused WH’s expenses to outrun revenue by about $6.3 million for the fiscal year. He cited a decline in surgeries and expenses associated with the pharmacy crisis as prime contributors to the losses.

Patient Statistics Are in a Steady Decline 

Throughout most of the last 18 months, CFO Telles reported that many of the monthly statistics relating to key revenue sources for the institution were trending poorly. Here are some examples from recent board meeting minutes:

• (12/10/18)  ER visits were the lowest they have been in 4 years. Surgeries were the lowest in two years. CT had a catastrophic drop in October   
•  (2/11/19)  5 year trend on surgeries, MRI, CT scan, ER visits, clinic visits, discharges and patient days the trend has dropped nearly every year since 2013. . .Surgeries have dropped catastrophically over the last year
•  (3/11/19) In and Outpatient surgeries are both low. . .ER visits are down in January. MRI dropped again this month

For added perspective, the 8/13/18 board minutes stated: “The Navy will be bringing 100% of surgeries back to WhidbeyHealth, which will include Orthopedic and OBGYN services. Our expected date for surgeries to begin will be October 15th.” WH should be doing well with an influx of patients, and at a time of national and local prosperity. Instead, they are drowning in a sea of red ink. It appears that naval consumers are going elsewhere for their medical services.

PH’s Bond Rating Free Falls

On March 26, Moody’s Investment Service posted the news that the bond rating of one of two of WhidbeyHealth’s bonds (with 13.3 million in debt) fell to a “Ba1” rating, a two-notch drop.  Moody’s Ba1 rating is categorized as speculative, AKA high-yield, AKA junk bonds. The other PH bond, for $47.5 million, is associated with the 2013 levy approved by voters. For both bonds Moody’s issued a revised “Credit Opinion” of “Outlook Negative.”  Bond ratings are one of the most accurate ways of assessing the financial health and viability of a business.

CEO Forbes Departs in Mid-Contract

On March 13, CEO Geri Forbes abruptly announced she was retiring, effective July 1. She was less than halfway into a 3-year contract that, counting bonuses, paid her approximately $450,000 annually. The news led many to suspect this was another case of a CEO being forced out in mid-contract, as happened with Forbes’ predecessor, Tom Tomasino. The timing of the news also allowed little time to recruit a qualified replacement.

Forbes Resigns 2 ½ Months Prior to Her Retirement Date

Less than a month after Forbes’ retirement announcement, however, the hospital board went into executive (secret) session, and came out saying that Forbes was instead resigning as CEO that very day – March 12. Furthermore, Board president indicated that Forbes would be retained as a consultant until July 1 – and at her same annual base pay ($390,000, as when she was CEO.

This same type of payoff was attempted when Tomasino departed, but it caused such an outcry that the Board reversed itself and did not retain him as a consultant. I believe Forbes will gross around $81,000 during the 3 ½ months she is said to be serving as a consultant to WH.

Without Public Input, WH Board Decides on a Permanent CEO

Still more shocking news was related at that special session of the hospital board: CFO Ron Telles was named interim CEO, and Board President Wallin indicated the board intended to name him permanent CEO at the May 13 board meeting.

All of these critical decisions were discussed and decided upon in closed Board sessions, and without any search being conducted for Forbes’ successor. No public input was sought or received prior to the Board’s announced plans to hire a permanent replacement for the outgoing CEO.