OFTEN MIRED in political controversy, the PacMed Clinics now face a bigger threat than negative press coverage—the steady drip of red ink.
PacMed, which runs seven clinics throughout the Seattle area, lost $11 million in 2001, bringing its deficit for the last five years to a whopping $48.4 million. The reason for public concern is twofold: first, PacMed is part of Seattle city government, one of our nine public development authorities [PDAs], which are self-sustaining entities that run things as differently as the Pike Place Market and the Seattle Indian Commission; second, in 1999, in a much criticized deal to stem its financial woes, PacMed leased the rights to a public asset—its historic hospital building on Beacon Hill that ended up as headquarters for Amazon.com.
While the Amazon.com deal gives PacMed a $743,000 annual direct subsidy for charity care (rising to $1.5 million annually in 2010), the survival of the organization itself is no longer a sure thing. According to documents filed with the city, PacMed’s once-massive reserve fund has been severely depleted, going from $65.7 million at the end of 1996 to an estimated $17.3 million after 2001 losses are absorbed.
In the past five years, PacMed’s efforts to stabilize financially have involved a revolving-door set of CEOs, rounds of staff cuts, elimination of services, and closure of clinics. Last year, the PDA cut some 190 employees; 50 more went out the door in the last two months (bringing its employment total to about 645 people). Now PacMed has another new CEO, Rick Skillman, who is overseeing a complex shift, taking the clinics from a health-plan concept to a fee-for-service approach. PacMed predicts this change will reduce annual losses to $1 million by next year. Skillman did not respond to Seattle Weekly‘s request for comment.
If PacMed can’t right itself, the city will be left to pick up the pieces. The current economic climate is hardly ripe for a major PacMed bailout by city government. The city’s major power over PDAs is the death penalty—as former Mayor Norm Rice imposed on the Central Area PDA in 1993 when severe financial irregularities were found during an audit of its housing renovation program.
SO WHY is the city running a string of medical clinics anyway? The original idea was to make sure that poor people had access to health care. In 1981, then-President Ronald Reagan was looking to cut costs by scrapping the federally run Public Health Service Hospital system, including the one on Seattle’s Beacon Hill. Local activists such as Tom Byers, who is just finishing four years as deputy mayor to Paul Schell, and Nick Licata, now a City Council member, feared low-income residents would lose access to medical care. “We were picketing the hospital because we did not want the hospital given away,” Licata says.
In a sense, the hospital was given away—but to the public. Activists persuaded the feds to turn over the Beacon Hill hospital building and $26 million in federal start-up funding to let Seattle city government spin off PacMed.
Somewhere along the way, PacMed’s mission became muddy. It now operates very similarly to for-profit health care providers. It’s hard to determine what percentage of PacMed’s budget goes to serve the poor, but 1999 estimates ranged from about 2 percent to 5 percent—fairly similar to that at many for-profit hospitals.
PacMed also continues to function as Seattle’s military hospital. As recently as 1999, almost 45 percent of the system’s operating revenues came from Department of Defense reimbursements for medical care provided to retired military personnel and the dependents of active-duty soldiers and sailors.
PacMed’s financial troubles led it to try to expand its clientele well beyond veterans and the poor—with disastrous results. That strategy, similar to other major medical facilities, built on establishing a health plan and creating a growing web of community clinics, has since proved to be a huge money loser. Ask the folks at Providence, who established the largest health plan in the state, then had to arrange a merger with Swedish Medical Center after a series of crippling financial losses.
Dennis Braddock, now secretary of the state’s Department of Social and Health Services, was one of the biggest critics of PacMed’s decision to lease its historic hospital building to Amazon.com. He thought PacMed should sell the building, and put the proceeds into health care for poor people. “My conclusion was that [PacMed] didn’t have a good business case for surviving,” he says. “I think my greater concern was that they were getting away and would eventually not continue their original mission, which was to provide access [to health care] for lower-income people.”
While the last few years have not changed Braddock’s mind, PacMed’s financial losses should put City Hall on notice that it may need to take action soon.
