Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

Georgetown University’s Newspaper of Record since 1920

The Hoya

University, MedStar Near Agreement

University, MedStar Near Agreement

By Tim Haggerty Hoya Staff Writer

Georgetown is close to finalizing the principal terms of its partnership with MedStar Health, the health care management company that the university hopes will be able to halt the escalating financial losses that plague the Medical Center, according to Med. Center spokesman Paul Donovan.

These principal terms, which represent “the heart of the deal,” include the hospital lease, the academic affiliation agreement and the asset purchase agreement, Donovan said.

This is the first of the three final steps on the path toward a partnership that began in 1998 amidst steadily increasing losses – in fiscal year 1997, the Med Center reported losses of $57 million, which rose seven million dollars over the next year, and by FY 1999 losses were reported around $80 million.

Donovan said that once this phase is complete, the two parties can consider the details of service agreements covering utilities, mail and grounds keeping. In the last step, the partnership would require regulatory permission from district and federal business and hospital overseers. Donovan did not specify a timetable for the phases of the process.

The entire university has felt the fallout from the Med Center’s financial woes. University Spokesman Dan Wackerman said that the university was forced to dip into its reserves to cover the Med Center losses. These losses left Georgetown strapped for cash in February 1999, forcing the university to borrow $100 million to pay for renovation and technology projects on the main campus and at the Law Center.

In December of 1998, Moody’s Investor Services downgraded the university’s credit rating, citing the Med Center’s financial crisis. Last October, the university announced $32 million in budgetary reductions to prepare for the partnership. The financial problems have also delayed the renovations of Harbin Hall, which will not begin until this summer, Wackerman said.

Last March, the university entered into exclusive negotiations with MedStar Health, a non-profit health care management company based in Columbia, Md., with an operating budget of over $1 billion and control of seven D.C./Baltimore area hospitals.

However, last week, Moody’s placed MedStar on its watch list, indicating that the company has financial woes of its own. A representative from Moody’s said that MedStar’s bond rating could be downgraded after a thorough analysis of the company’s financial situation, including the pending Georgetown partnership.

Donovan believes these concerns should not affect the deal. “MedStar is financially sound, and its credit rating – which is strong – will not affect the partnership,” Donovan said.

An agreement between MedStar and Georgetown would result in a clinical partnership, where MedStar would operate all clinical operations of the Med Center, including the Georgetown University Hospital and the Community Practice Network. The CPN consists of outpatient clinics, acquired physicians’ practices, and the Med Center’s home infusion business, which provides chemotherapy and antibiotics to patients in their homes.

The hospital will remain a teaching hospital, according to the agreement, which will ensure that the Med Center continues full operation. The university will retain the medical school, the nursing school and the research branches of Med Center operations.

Donovan said that under the partnership, MedStar would operate the clinical enterprise under a lease and would control both the management and finances. Under the proposed partnership, the financial liabilities of the clinical operations would become the responsibility of MedStar.

According to Donovan, Georgetown is not alone in facing decreasingly profitable and increasingly deficient clinical operations. The University of Pennsylvania lost $198 million in FY 1999, one of a number of academic medical centers with spiraling finances. Donovan attributes the problems to a changed health care environment. The growth of managed care and declining government reimbursements for patient care have left care providers with decreasing revenues unable to meet rising costs. Further, he said that insurance companies pay less and refer more patients to outpatient clinics.

The partnership, when accomplished, would benefit both Georgetown and MedStar, according to Donovan, by increasing edStar’s patient base and decreasing Georgetown’s financial liabilities.

In a university press release, University President Leo J. O’Donovan, S.J., explained the benefits of the partnership: “It preserves our academic quality, supports our Catholic and Jesuit identity and makes sound financial sense.”

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