AVH in crisis as losses reach $11.7 million | AspenTimes.com

AVH in crisis as losses reach $11.7 million

Eben Harrell

Aspen Valley Hospital officials announced last night that due to faulty billing practices, they will be forced to write off $11.7 million in uncollected hospital bills, a full $5 million more than anticipated.

The loss has dangerously depleted the hospital’s coffers, forcing officials to renegotiate hospital loans, look into significant cuts of hospital staff, put a halt to AVH’s long-term renovation project and spend nearly $2.5 million to fix its billing process.

The hospital treasurer likened the news to the Enron scandal, saying it’s “troubling” that the hospital’s former management and an independent auditing company failed to uncover such a gaping hole in the institution’s finances.

In a detailed presentation last night, hospital treasurer and board member John Jellinek said a recent internal investigation of finances, performed after the forced resignations of the hospital’s CEO and chief financial officer, revealed numerous flaws in the way patients are billed.

Limited billing codes prevented the hospital from charging for all services performed, and outdated software failed to alert officials when a bill had aged past five months, making it impossible to distinguish between bills that were 5 months old and 2 years old. Insurance companies rarely pay for bills sent out six months or more after treatment.

All this adds up to nearly $12 million that officials say they will be unable to collect, although they are in talks with insurance companies to reclaim some portion of the loss.

The former hospital administration team, headed by CEO Randy Middlebrook, should have been aware of the billing problems, according to Jellinek.

Most troubling, Jellinek said, is the failure of AVH’s external auditing company to alert the hospital of the problem. Jellinek compared the annual audits of BK & D, a Colorado Springs-based auditing firm, to some of the oversights that led to the Enron and other corporate scandals. Each year the firm is paid to examine the hospital’s finances.

“It’s becoming my judgment that like other corporate disasters the auditors look the other way,” Jellinek said in a phone interview Saturday.

Asked if anyone will be held accountable, Jellinek said, “Well, Middlebrook and Bartlett don’t have jobs.”

He also said hospital management will meet with its auditing company on April 20 to discuss the institution’s relationship with the firm.

The hospital has gone to great expense to fix the billing process. Approximately $900,000 has been spent on diagnosing its faults, and around $1.5 million to install new, state-of-the art billing software. Officials hope these changes will mean AVH can turn its loss last year into a forecasted revenue of $600,000 for 2004.

Still, such a monumental hit to hospital coffers has put hospital officials in a crisis mode. Any talk of long-term renovations or construction of a new hospital has been put aside, although immediate improvements to the hospital’s most overcrowded areas continue.

Within the next month, the hospital will also announce extensive changes to staffing, including cutting down on overtime, varying employee hours to coincide with Aspen’s tourist seasons, renegotiating lucrative physician contracts and even some layoffs.

Finally, the hospital’s reserves have fallen below the minimal levels set by Vectra Bank in a loan recently issued for hospital renovations. Three years ago, the hospital had $7 million in its reserve. Now it has $1.5 million.

Hospital officials traveled to Denver twice in the last week to ask bank executives to accommodate for the situation.

“There’s been some talk that we are about to default on our bonds,” board President John Sarpa said. “No. That’s crazy. We met with our bankers on Friday and had a very positive meeting with them.”

The mood of the hospital board after the presentation was one of relief and measured optimism. Jellinek said he felt AVH had addressed long overdue issues and was ready to move on.

“This was an extensive process, and I think the feeling is, let’s get down to setting the ship right again.”

Eben Harrell’s e-mail address is eharrell@aspentimes.com