Portland psychiatric hospital’s own faulty forecasts help explain financial crisis

From The Oregonian, February 15, 2020

READ – Mentally ill patients wait days for room at Portland psychiatric ER, as leaders say it’s in ‘crisis’
READ – Legacy’s Pro Forma, or initial financial budget for Unity, created for OHSU (PDF)
READ – Petition of Brad Schmidt seeking documents related to Unity Center, MCDA 2 10 2020 (PDF)

Something was missing when Unity Center for Behavioral Health officials recently laid out why they faced dire financial straits and needed a state bailout.

They blamed their reported $21 million annual operating loss on several factors. They had to hire more employees and spend money on building improvements after a damning federal investigation into patient safety. The hospital also had a backlog of patients in its inpatient wing awaiting transfer to the Oregon State Hospital.

But Unity failed to mention one crucial factor.

Newly disclosed documents obtained by The Oregonian/OregonLive reveal that Unity Center officials initially projected nearly 18,000 patient visits a year to their psychiatric emergency services unit in Northeast Portland.

In reality, the real number topped out at just under 11,000 last year, according to data provided by Unity, or about 40 percent lower than projected.

In other words, Unity’s lauded psychiatric emergency room — a central piece of its treatment model — has proved dramatically less popular than expected and is well below its designed capacity much of the time.

That patient shortage means a lot less money than Unity planners presumably counted on. Unity would have collected as much as $11 million more in annual revenue had it achieved its rosy patient projections, a rough analysis by the newsroom found.

The mismatch between Unity Center’s hopes and reality emerged from its five-year financial forecast, a key document that hospital officials fought to keep secret until the Multnomah County District Attorney ordered it disclosed this week.

The newsroom’s analysis undercuts claims by hospital administrators about why Unity was in financial distress and needed a taxpayer bailout. It shows that projections about how many people would walk in the door were wildly flawed, creating a shortfall of Unity’s own making.

Unity’s projections appear to have almost no basis in reality. Hospital officials forecast that Unity would record thousands more psychiatric emergency room visits than the number of behavioral health patients previously seen by every participating hospital ER in the Portland area.

The Oregonian/OregonLive shared its detailed calculations with Unity officials, who did not dispute them. Hospital officials would not address why Unity’s forecasts in its so-called “pro forma” document were so high or why the actual number of patient visits is so low.

“The calculations provided are based upon an early pro forma that is over five years old,” Brian Terrett, director of public relations for Legacy Health, which operates Unity Center, said in a statement. “A lot has changed since then in terms of our staffing, our costs, and forecasted patient volumes and revenue and our current budgeting forecasts for Unity Center reflect the new numbers.”

Rather than address why Unity’s psychiatric emergency room suffers from not enough patients, Unity officials in public statements have focused on an entirely separate part of the center’s operations. They have pointed to a backlog in the inpatient wing, which offers patients overnight care in separate rooms for what was expected to be about a week at a time.

In December, Unity asked the Oregon Health Authority for a significantly higher reimbursement rate for inpatients awaiting transfer to the Oregon State Hospital — money that would ultimately flow from the state general fund.

Health authority officials said Friday that a planned, comprehensive examination of Unity’s financial situation hasn’t happened yet because Unity asked to cancel a scheduled meeting with them.

In a written response to questions, spokesman Robb Cowie said state officials “do not have enough information to understand all the particular factors Unity is facing, or to determine the drivers affecting Unity’s financial issues.”

But issues with Unity’s emergency room did not come as news to the health authority, which also reviewed the newsroom’s calculations. Cowie said agency officials believe that Unity is focused on its psychiatric emergency room “as their immediate financial concern.”

History of problems

Opened in 2017, Unity is a joint effort between Legacy Health, Adventist Health, Kaiser Permanente and OHSU Hospital. It was billed as a more compassionate, humane place to treat people in mental health crisis rather than local emergency rooms or jails.

Unity introduced to Oregon the model of a single psychiatric hospital intended to steer patients to one location instead of clogging hospitals across the region, where patients sometimes endure long waits for specialized care. Unity has a designated psychiatric emergency room attached to an inpatient facility with 85 adult and 22 adolescent beds.

The low numbers at Unity’s emergency room come even as the need for inpatient services appears to be increasing, with most beds full at Unity, as well as at similar facilities run by competitors, Providence Health & Services and Universal Health Services.

It’s not clear why the emergency room hasn’t attracted more patients.

A patient safety investigation in 2018 forced Unity to effectively halt transfers from other hospitals for several months, and occasionally the Unity ER turns away patients because it’s at capacity. But those periods were not extensive enough to fully explain the shortfall.

Advocates and patients who have gone through Unity’s emergency room have reported negative experiences and say some refuse to go back. A prominent consumer website even warned people not to go because of persistent patient safety issues in Unity’s first years of operation.

Some people also find the environment more traumatic than therapeutic.

Patients sit in reclining vinyl chairs, pushed close together in groupings of about four throughout in a large space similar to a bus station. The lights are on 24 hours a day.

“When you have just one gateway in any part of behavioral health, whether it’s addiction or mental illness, it begins to close down on people who are unsteady about entering the door,” said Jason Renaud, a mental health advocate.

But trepidation about Unity likely also doesn’t account for the entirety of the shortage of ER clients, because not all patients have a choice where they are treated. Some of Unity’s patients are sent by ambulance from a medical emergency room or on an involuntary hold.

Document reveals dubious numbers

The number of patients that Unity originally was banking on became clear thanks to the release of a crucial planning document area hospital systems compiled when creating the psychiatric treatment facility.

The newsroom last month asked Legacy Health, which operates Unity, to voluntarily hand over Unity’s pro forma financial forecast, as well as the joint operating agreement that the four participating hospital systems signed in August 2015.

Under Oregon public records law, The Oregonian/OregonLive also filed a request for the documents Jan. 10 with OHSU, a public institution that was part of the Unity joint venture.

Legacy declined. OHSU said the pro forma and operating agreement were “sensitive business records” and their release would cause “competitive harm.” The newsroom appealed OHSU’s refusal and OHSU, under order from the county district attorney, released the pro forma Wednesday.

The three-page, undated document offers previously undisclosed details about planners’ initial expectations for Unity.

Unity projected revenue of nearly $55 million in its first year, rising to about $60 million by year five. That money was more than offset by expenses, resulting in projected losses of about $2 million a year.

The number contained in the document is at odds with what Unity told the state in December, when officials said they had originally anticipated $6 million annual losses.

The pro forma also shows that Unity’s financial calculations assumed 17,775 psychiatric emergency room visits every year for five years, or the equivalent of about 49 people each day.

In reality, Unity’s emergency room has an average of 30 visitors a day occupying the facility’s 40 recliner seats, records provided by Legacy show.

The gap costs Unity a lot. The hospital can collect up to $1,718 a day from the state for each ER patient it sees.

After accounting for the average hours and billing rates for patient stays that Unity has reported, The Oregonian/OregonLive estimated that Unity could have collected an additional $11.2 million in revenue last year had it hit its initial projections.

Terrett, Unity’s spokesman, issued a 193-word statement Friday that did not address how much the miscalculation has cost Unity.

Terrett once again pointed to backlogs at the Oregon State Hospital as creating a logjam at Unity. He said Unity loses money when people who need care in Unity’s inpatient facility wait unnecessarily in the psychiatric emergency room.

“We continue to treat all patients with the highest quality of care while they wait,” he said.

It remains unclear how Unity arrived at its overly optimistic patient forecasts.

Records show Unity’s early projections shifted even before it opened. In March 2015, Unity told the state it would have only 15,400 ER visits in its first year — 2,000 fewer than the estimate provided in the pro forma.

Even those more tempered projections appear extraordinarily high. A Unity public presentation, from December 2015, listed comparable visits to all hospital emergency rooms in the partnering system at just 13,366 — thousands fewer than Unity projected for its ER under any scenario.

Unity officials on Friday would not address the shifting forecasts.

Hospital leaders last month did appear to privately acknowledge the psychiatric emergency room as the source of financial problems, according to health authority emails previously disclosed under a public records request.

In one exchange, the state’s behavioral health director, Steve Allen, quoted Melissa Eckstein, Unity’s president, as telling him that she sees the hospital’s psychiatric emergency room “as being their biggest area of losses.”

Lynnea Lindsey, director of behavioral health services for Legacy Health and a member of the oversight board for Unity, told the newsroom in an interview earlier this month that she had not seen the email and did not know what Eckstein was referencing.

Asked directly how much of Unity’s $21 million loss came from the psychiatric emergency room, and how much of a loss Unity had anticipated there, Lindsey would not say.

“When we project losses, we project them for the facility as a whole,” she said while pointing to a “flow” issue moving patients from the emergency room to the full inpatient facility, where many patients were awaiting transfer to the state hospital.

When pressed whether Unity has looked into losses distinctly tied to inpatient versus psychiatric emergency services, she said: “We have line items and we do our budget responsibly.”

Lack of scrutiny

Many players public and private contributed to Unity’s launch, including Oregon Health Authority officials who granted its license and county officials who kicked in money to renovate the facility.

It appears that none have ever scrutinized the financial forecast that Unity prepared, much less questioned the assumptions that went into it.

Private benefactors and health organizations contributed more than $30 million toward building renovations. But John von Schlegell, whose family gave an undisclosed gift toward the capital campaign, said he never personally saw a pro forma from Unity, although his wife may have.

As co-founder of private equity firm Endeavour Capital, von Schlegell said he supported the project and didn’t feel compelled to dig into the operating expectations.

“I know how to look at financials and projections, but unless you know what goes into them and go deep, you can make anything look good,” he said.

Regional governments also contributed nearly $4 million to Unity’s building budget, with $3 million of that coming from Multnomah County. For weeks, county officials have been unable to provide records showing whether they reviewed Unity’s pro forma or provided due diligence.

“The hospital and the hospital systems that were involved in the original construction all are multi-million — if not billion– dollar organizations that have been running their own programs for years,” said Multnomah County Chairwoman Deborah Kafoury, who was in office when the funding was approved. “So this was their idea for how to better serve people in the community and not an area of county expertise.”

The Oregon Health Authority also could find no evidence that its officials reviewed Unity’s pro forma or joint operating agreement, said Cowie, the state spokesman. Unity appears to have provided only high-level projections, although officials are searching to see if they received a three-year budget.

Cowie said the state focuses instead on two main topics: reviewing plans for design and construction, and a health and safety review.