Grady Hospital and the Auto Bailout

Last year, I did a lot of coverage of the scandal surrounding Grady Hospital. By the end of 2007, Grady Hospital, much like the automakers, which had also hemorrhaged cash for years, was in need of a relatively massive bailout. Grady Hospital was asking anyone, tax payers included, for about a quarter of a billion Dollars. Defenders of bailing out Grady Hospital pointed out that Grady was vital to the Atlanta area community. They pointed out that it became a fixture in the Atlanta area, and that the community would be devastated without it. The defense for bailing out Grady Hosptial was best summed up by this New York Times piece.

Although the hospital is unique in many ways, the code red at Grady is emblematic of the crippling effect America’s health care crisis has had on public hospitals around the nation. Though Grady is among the most distressed of the country’s 1,300 public hospitals, others have faced similar challenges in recent years, including those in Miami, Memphis and Chicago, said Larry S. Gage, president of the National Association of Public Hospitals and Health Systems. There are 300 fewer public hospitals today than 15 years ago, with hospitals having closed in Los Angeles, Washington, St. Louis and Milwaukee, Mr. Gage said

....

Like other public hospitals, Grady is operating on a business model that is no longer sustainable. A third of the hospital’s patients, including those treated as outpatients, are uninsured, among them a rapidly growing group of immigrants

...

Like tens of thousands of Atlantans over the last 115 years — like Gladys Knight, the soul singer, and Vernon Jordan Jr., the presidential confidante; like more than one in three babies born here in the last decade — Ms. Vaughn entered the world at Grady Memorial Hospital, one of the nation’s largest safety-net hospitals.

...

The hospital, sandwiched between downtown and the neighborhood where MartinLuther King Jr. was born, was the place where victims of the 1996 Olympics bombings and countless other disasters have been treated. It is so intrinsic to the city’s identity that Maynard H. Jackson Jr., the first black mayor, liked to say that Grady babies should be allowed to vote twice.The bearded, middle-aged man was bleeding from a self-inflicted gunshot wound to the left side of his chest. “Don’t let me go out in pain,” he moaned in a drawl to the doctors and nurses treating his injury. “I was born at this hospital.”The patient in Trauma 3 was a Grady baby, though no one could have guessed it when the ambulance pulled in at 1 a.m. that Saturday.

The defense for bailing out Grady Hospital was that it did good work, it was vital to the neighborhood, and the health care crisis its closing would unleash is intolerable. Every argument defenders of bailing out Grady made were technically accurate. Grady Hospital did do a lot of good work in the community, what hospital doesn't. It is vital to the Atlanta area community. Of course it is. It's one of the three largest hospitals in the country. That is the nature of the beast with a hospital that size. It would unleash a health care crisis if it were closed, and I said as much. Grady Hospital is a roughly one thousand bed hospital that serves almost exclusively the indigent, the poor. Without it, the poor would be unleashed on a health care system that has no desire to treat them.

All of these points were also, frankly, beside the point. By the time this crisis had exploded so that Grady was on the brink of running out of money, I had developed contacts with whistle blowers and activists and so I had a unique perch in understanding why Grady Hospital was in a position to need so much cash. Grady was being run for the benefit of those running it at the expense of its own viability. Grady had for years been corrupted so that it became a nearly endless money pit for the corruptors. Grady was hemorrhaging cash because it was being weighed down by a series of contracts and obligations that benefitted the other side far more than it benefitted Grady. Grady paid $50 million to Emory University yearly in order to staff the hospital. (mostly with residents and medical students who also paid Emory for the privilege of being trained at Grady) A couple years back, they signed a massive contract to build a massive new addition with an architecture company run by Robert Brown, who then also served as the Chairman of the board at Grady. These same corruptors were at the center of demanding yet another life line. (Grady eventually received a dubious private infusion)

Grady's problem came down to simple math. If those corrupting Grady benefitted from each and every Dollar that filtered into the Hospital, there wouldn't be any money left for other things like expenses, equipment, viability. For years, contracts had been written to benefit of those that used Grady as their own piggy bank like Emory University, Robert Brown, and the corrupt political class that surrounds Atlanta. None of those supporting the bailout of Grady had any intention of making the sort of systemic changes necessary so that any new injection wouldn't merely prop up a failing hospital but rather lead eventually to a viable hospital. By the end of the year, Grady was injected with cash. A few months later it was announced that State Senator Pam Stephenson orchestrated a scheme to simultaneously name herself both interim CEO (after orchestrating the removal of then CEO Otis Story) and Chairwoman of the board of Grady and gave herself a benefit package worth seven figures. Beyond any shadow of a doubt, the new injection of cash was going to the exact same practices that put Grady in a position to ask for the obscene sum to begin with.

....

What I have seen from those defending the automakers is mirroring from the defenders of Grady's bailout in a very troubling and startling way. Yesterday, I saw the mayor of Lansing, Michigan on Fox News pleading for a bailout of the automakers. He pointed out that the automakers had become a fabric of our society. He said that experts estimate that for every one auto job, the economic effect creates seven more. He said that the automakers had made the difficult transition when the credit crisis hit. He pleaded that the automakers were far too vital to allow to fail. He pleaded that any sort of bank ruptcy proceeding would be far too disruptive to all those that rely on the industry like his own citizens.

He dismissed all talk of restructuring as premature. He pointed out that some contracts had already been renegotiated. The whole thing was far too familiar. The corruption of the automakers by its unions and the cities and states that rely on them is certainly not intentional or as blatant as that of Grady Hospital. It is, however, no less corrosive. Those that want the autos bailed out have no intention of seeing the kind of fundamental changes in the industry necessary to have the industry survive long term. Rather, this bailout will serve their constituencies. The unions will see that their contracts and pensions are fulfilled. Mayors and governors will see that their cities and states won't lose jobs.

None of this, however, benefits the automakers. Much like Grady Hospital, the lack of viability by the automakers is simply a matter of numbers. Because contracts and pensions are so rich, they make operating costs so large that domestic automakers can't compete with their foreign counterparts which have no unions. Because taxes are so high, the automakers can't compete on talent with their foreign counterparts which generally locate in less tax pernicious areas. The unions aren't about to sit down and renegotiate contracts and pensions so that the new deals can create costs that make the big three competitive. The cities with Michigan and the state itself aren't about to talk about lowering taxes so that the big three can locate themselves in business friendly areas. They simply want the big three to continue in the same way that got them to this point.

None of the folks that support the bailout want to change any of these fundamental problems though. They want business to continue as usual at the automakers even though this has no chance of any long term success. Much like those that supported the Grady bailout though, these folks don't have the long term viability of these companies in mind when they demand the bailout. These folks represent interests that benefit from having the autos stay in business, no matter how unprofitable that is (much again like the situation at Grady Hospital), and their only agenda is making sure their constituencies are taken care of. If federal tax payers are ripped off in the process, so be it, and this is also much the same as the agenda of those that demanded a Grady bailout. Much like with Grady Hospital, a bailout, without fundamental changes, will only mean that some point soon we will be in this position again.