Government of the District of Columbia
Office of the Chief Financial Officer
1350 Pennsylvania Avenue, N.W., Suite 209, Washington, DC
20004 (202) 727-2476 www.cfo.dc.gov
Natwar M. Gandhi
Chief Financial Officer
MEMORANDUM
TO: The Honorable Anthony A. Williams
Mayor, District of Columbia Government
FROM: Natwar M. Gandhi, Chief Financial
Officer
DATE: May 5, 2006
SUBJECT: National Capital Medical Care
We have studied various fiscal issues relating to
providing medical care in the District. Since you have appointed a panel
to examine the National Capital Medical Care (NCMC) proposal and explore
various forms it could take, we are providing this analysis to you for
your consideration as the panel begins its work. The Office of the Chief
Financial Officer is willing to assist the panel in any way.
Briefly, the original proposal for a full service
hospital called for capital expenditures of $5.21 million in FY 2006 and
$227.76 million for the period of FY 2006 through FY 2009, for a total
District capital expenditure of $233.76 million. Two potential funding
sources were identified — securitization of anticipated tobacco payments and
capital funding in the Mayor’s FY2007-2010 capital improvement plan. The
final proceeds from a securitization of tobacco payments will be known
when the transaction is finalized this summer; if the market does not
change, it is expected to be approximately $200 million.
We have serious concerns about the operating risks of a
full service hospital. All start-up operations face varying degrees of
risk. Our questions about the future operational viability of the
proposed full service hospital — National Capital Medical Center —
concerned the underlying revenue assumptions, the anticipated payor mix,
the operating cost assumptions, and the level of uncompensated care.
The Critical Impact of Howard University’s Contribution
to the District of Columbia
The Office of the Chief Financial Officer recognizes the
critical contribution that Howard University and Howard University
Hospital have made to the District of Columbia. Since its founding in
1867, Howard University has been one of the premier institutions of
higher learning in the nation and has attracted very talented students
from the all over the nation to live and learn in the District of
Columbia. Howard University Hospital provides important health services
to District residents and has trained thousands of doctors,
predominantly African-Americans, who provide the highest quality health
care to people in this and other communities. These contributions cannot
be understated.
Capital Cost
The original proposal called for an agreement between the
District of Columbia and Howard University for the construction of a
full service hospital on the site of the former DC General Hospital.
Specifically, it would be built on the portion of Reservation 13
identified as Sites B and C. However, as of the date of this analysis,
Howard University has not provided a finalized plan for the proposed
medical center.
The agreement would require the District to pay no more
than 50 percent of the project costs, reaching up to but no more than
$212.168 million. Project costs include a $42.4 million contingency
fund.
The District also is responsible for $21.59 million of
expenditure for public infrastructure that will serve any project
located at this site. The District’s $10.035 million "share"
of costs for switching from above ground parking to underground parking
would be taken from the budgeted contingency. The remaining $32.365
million in contingency represents 14% of the project budget and could
cover soil remediation expenses along with other unidentified
contingencies.
Estimated Capital Cost of Full Service hospital FY | |||||
| Item | FY 2006 | FY 2007 | FY 2008 | FY 2009 | 4-Year Total |
| District share of hospital project cost | 5.40 | 206.77 | – | – | 212.17 |
| Site preparation and infrastructure costs | 5.81 | 15.79 | – | – | 21.59 |
| Total | 11.21 | 222.55 | – | – | 233.76 |
To support the cost, approximately $11 million will be
needed in FY 2006 and approximately $222.5 million in FY 2007. As
previously noted, approximately $200 million is currently expected from
a tobacco securitization this summer. If the District proceeds with the
full service hospital, Council action will be required to close the
remaining funding gap.
In every budget commitment, the District’s decision to
fund one project would mean that resources are not available for
alternative uses. In this case the discussion of opportunity costs would
include the best use of the proceeds from tobacco securitization and the
particular site. See Appendix A for more discussion of the capital
costs. As background, the site belongs to the federal government;
however, use of the site was transferred to the District in 2002.
Pending federal legislation would transfer title of the land to the
District. The District’s Master Plan for Reservation 13 includes a
recommendation by Council that an area of the property be reserved for a
hospital. Under the full-service hospital plan, NCMC would pay D.C. $1 a
year for use of the site; the potential for alternative revenue
production constitutes an opportunity cost of the proposal.
Operational Risks
The OCFO’s concern about the longer term operational
risks of a full service hospital as originally proposed involve several
assumptions:
- 80 percent capacity in year 5 of
operations, above the DC acute hospital average of 76 percent. - 15,000 outpatient surgeries, twice
the District average. - Daily emergency room visits that
exceed all but two other area hospitals. - Lower public insurance payors than
the average of DC area hospitals (49 percent vs. 58 percent). - A payor mix that resembles
Washington Hospital Center. - Salaries and wages to net revenue
ratio of 40 percent, lower than the Standard and Poor’s median ratio for
stand alone hospitals of 51-56 percent.
See Appendix B for an analysis of the operational risk of
the originally proposed full service hospital.
I look forward to working with you to ensure that the
National Capital Medical Care project moves forward in a fiscally
prudent manner.
Enclosures:
Appendix A: Analysis of Capital Costs
Appendix B: Risk
Analysis of Operational Costs
Distribution List
The Honorable Linda W. Cropp, Chairman, Council of the
District of Columbia
The Honorable Carol Schwartz (At-Large) The Honorable
David Catania (At-Large) The Honorable Phil Mendelson (At-Large) The
Honorable Kwame R. Brown (At-Large) The Honorable Jim Graham (Ward 1)
The Honorable Jack Evans (Ward 2) The Honorable Kathleen Patterson (Ward
3) The Honorable Adrian Fenty (Ward 4) The Honorable Vincent Orange
(Ward 5)
The Honorable Sharon Ambrose
The Honorable Vincent G. Gray (Ward 7) The Honorable
Marion Barry (Ward 8)
Robert Bobb, Deputy Mayor and City Administrator