THE SEVEN Pacific Medical Clinics from Lynnwood to Renton have thousands of needy patients like Larry Johnson, who braced his hand on his bad back


Terminal condition?

City Hall frets while PacMed Clinics lose an average of $1 million a month.

THE SEVEN Pacific Medical Clinics from Lynnwood to Renton have thousands of needy patients like Larry Johnson, who braced his hand on his bad back as he walked into the PacMed medical clinic on Beacon Hill last week. "This is convenient for me," he says. "And they're good people. Oh, I'd hate to see them close."

Think positive, says PacMed spokesperson Janine Berryman, whose nonprofit company is losing an average of $1 million a month. "There's no danger of us going out of business," she insists in the wake of a state audit suggesting that PacMed's long-worsening condition may now be terminal. For one, she says, there's that dramatic management change in January, bringing aboard a "turnaround" firm from Chicago at $160,000 a month to blaze a new business strategy for the clinic chain. PacMed CEO Rick Skillman and his executive team now report directly to the outside firm, Wellspring Partners, which in turn reports to the clinics' governing public development authority (PDA)—which reports ultimately to City Hall. PacMed is also cutting overhead and workforce—almost 90 employees last year—and revamping its patient billing system, shifting from health-plan coverage to fee-for-services cash payments. Officials hope that will cut down on insurance hassles and lighten a bogged-down auditing process, currently eight months behind.

City Hall prays it all works. Mayor Greg Nickels' office, recently made aware that PacMed suffered more than $90 million in operating losses over the last seven years, is quietly warning City Council members of PacMed's worsening financial problems. A state auditor's report (See "Bad Medicine," Feb. 21) concludes that, "The ability of [PacMed] to continue in operation is unclear," leaving City Hall to wonder if it will end up holding an empty medical bag. Its options range from a bailout to taking over the PDA's duties. Nickels and the City Council want to balance the interests of PacMed with those of taxpayers. They're mulling whether to step in and exert some control over the quasi-public PDA council or back away to avoid deeper legal liability. "One of the concerns we have," says City Council member Nick Licata, "is we don't want to be in a position of being responsible for them per se, so we're looking at figuring out what our response should be."

FOR THE MOMENT, City Hall's strategy is to watch anxiously from the sidelines. The seven clinics are remnants of a health delivery system formed by the city and King County in 1981 to mainly serve the poor (the U.S. handed over the old Public Health Services hospital and $26 million in start-up funds to begin PacMed). Its direction began to change in 1997 as some clinics were closed and the money-losing hospital was shut down, then mostly leased in 1998 to developer Wright Runstad & Co. The developer subleased space to, bringing $995,000 annually into PacMed's coffers.

But that money is dedicated to charity health services, and general revenues have steadily receded as some major clients switched to other providers. As of December 2000, PacMed reported it had just a $19 million reserve fund, down from $65.7 million in 1996. It lost $83 million from 1994 through 2000, says the state auditor, and last year, according to company reports, predicted it would lose another $11 million. Turmoil at the top has also been a constant: PacMed's management has been replaced three times in six years by the PDA, whose own membership has constantly evolved. Two members that Seattle Weekly contacted chose not to comment; a third responded, "All I can say is we have a lot of options for our future."

WILL ANY OF THEM stop the bleeding? Last year alone, six small clinics and five on-site pharmacies were shuttered to reduce costs; in three years, PacMed has laid off almost 400 of its workers (it now employs about 650 people, some 125 of them doctors, nurses, and medical aides, with an operating budget near $150 million). Its current condition is difficult to diagnose since an internal financial audit is now eight months late from Arthur Andersen, the private auditing firm that is also busy dealing with its role in the Enron scandal (though spokesperson Berryman notes, "This Andersen unit is, of course, separate from the Houston unit involved in the Enron case.").

Officials have their fingers crossed that Andersen's year 2000 financial review will be completed this month, if not this week. PacMed's outside audits have shown up late every year since 1994, due mostly to insurance-settlement disputes that commonly delay industry audits. But previous audits have always arrived no later than September. PacMed says the billing changes added to the backlog this time.

"As we're converting from managed care to fee-for-services," says Berryman, "this kind of delayed settlement process happens. [Insurance carriers] are not motivated to get work done as fast when they don't have a continuing contract with us anymore."

Wellspring, the Chicago consulting firm, intends to show PacMed how to clear out those delays and maybe even cut its losses to a break-even point "in a reasonable amount of time," according to officials. The consultants have so far earned $320,000 for work in January and February. Despite a bank account running on low, PacMed thinks the expense is worth it. "Wellspring is a turnaround firm," Berryman says. And "this is a turnaround year for us."

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