MI - Numbers error delays Bay Med projects

Wednesday, September 27, 2000

By Rob Clark TIMES BUSINESS EDITOR

A multimillion-dollar accounting error at Bay Medical Center will result in a postponement of several capital improvement projects at the hospital.

In all, the hospital miscalculated expected reimbursements for procedures by $10.6 million for 1999 and 2000. That amounts to about 4 percent of hospital gross revenues during that period.

Officials said the financial write-off for the error will not lead to layoffs, pay cuts or increased fees to patients at the hospital, 1900 Columbus Ave.

"This error will not affect our current operations," said Anthony W. Armstrong, president of Bay Health Systems, the parent company of Bay Med.

Of the $10.6 million loss, $7.6 million - or nearly 3 percent of the hospital's annual gross revenues of $267 million - will be reflected as a loss on Bay Med's 1999 financial statements.

The remaining $3 million - slightly more than 1 percent of annual gross revenues - will be reflected as a loss on Bay Med's 2000 financial statements.

Armstrong said the fiscal year 1999 financial statements will be restated to show a $10.5 million loss as a result of the error. The hospital had previously stated a $2.9 million operating loss for 1999.

In addition, the fiscal year 2000 financial statement will be restated to show a loss of $3 million, money the hospital now expects not to collect after re-examining it's operating numbers. The hospital had planned to break even this year, Armstrong said.

The error was discovered during the normal process of reviewing accounting records prior to audit, said Bay Med President Robert N. Wright.

The error was in the financial model used to estimate the amount of payment the hospital expects from various insurance companies and state and federal governments for procedures performed on patients.

"Quite simply, this model indicated that we would receive more payment from these sources than we would in fact receive," Wright stated in a letter sent to all employees this morning.

Wright said meetings with all employees began at 5 a.m. today to explain the situation.

"This was a significant error representing a total of about 4 percent of our annual gross revenues," Wright said. "It is important to understand that our accounting error, although serious and unfortunate, did not create the loss; it only made it more difficult to discover."

Wright and Armstrong said they think it will take the hospital two to three years to recoup the money, but said rates for medical service will not be raised to do so.

Added Wright: "Patient care services will not be affected, as we have adequate cash on hand to meet our current operating needs and replace existing equipment."

Wright said the hospital spends between $8 and $10 million on new equipment each year, and will continue to do so.

Bay Med will delay plans to build a $30-35 million medical office and ambulatory care facility on the site of the hospital's current service building, Wright said. Also, construction of a new $8 million obstetrical unit at Bay Medical Center will be put on hold, he said.

Wright said he met with union representatives Tuesday to explain the situation and ensure them that measures have been taken to make sure such an error cannot happen again.

Similar explanations and assurances will be given to employees today, Wright said.

Bay Med has the equivalent of about 1,500 full-time jobs.

M.J. Gorney, president of Professional R.N. Union Staff Council Local 79, declined comment.

"We are pretty much reserving our comments until we see what the general union populace says," Gorney stated.

Wright said union representatives were concerned that the accounting error would affect wages and benefits. He reiterated it will not affect either.

"It will take some time to rebuild our cash position, but it won't be done by cutting wages or benefits," Wright said. "In fact, we are still trying to fill some vacant positions."

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-- Doris (groomlk@bellsouth.net), September 28, 2000