By Cadence Mertz
Free Press Staff Writer
15-Oct-2002

Fletcher Allen Health Care's massive expansion is running nearly $80 million over the cost approved by the state, according to Vermont's top health care regulator.

Elizabeth Costle, commissioner of Vermont's Department of Banking, Insurance, Securities and Health Care Administration, has asked the Burlington hospital to slow work on the project. She said Monday that even after Fletcher Allen management met with regulators in late September and informed the state of the changes, the hospital's story does not add up.

Costle said she wants the hospital to reassess the size of the expansion and scale it down to match the originally projected price tag of $173.4 million.

She estimated project costs are now hovering about $254.3 million. She based that figure on $26.3 million in cost overruns and a $55 million parking garage that has a permit, but was not included in the original projections. Add in the $15.5 million psychiatric unit Fletcher Allen plans to build to accommodate mental health patients and the hospital is facing nearly $100 million more in costs.

The state issued Fletcher Allen a permit in March 2001 based on the hospital's statements that the expansion would cost $173.4 million.

Costle wrote in a Sept. 27 letter to Fletcher Allen Board Chairman Philip Drumheller and other trustees that hospital management appears to have misled regulators about the real cost of the project. She said hospital management might have known about the cost overruns even while telling state regulators the project would cost $173.4 million.

Hospital management informed state regulators of the inflated costs at a meeting on Sept. 23, according to Costle's letter.

"What we were told at that meeting was most disturbing," Costle wrote in the Sept. 27 letter. "The statements made by Fletcher Allen management on Monday reveal that prior statements by Fletcher Allen were untrue. In addition, based on documents submitted to us in 2000, we have reason to doubt the veracity of even the Monday statements."

Costle's department is responsible for keeping a lid on hospital spending because high hospital costs can affect the patients and insurers who pay for health care.

Fletcher Allen spokeswoman Maria McClellan said Monday that Interim Chief Executive Officer Edwin Colodny and the hospital board are concerned about all issues raised in the letter.

Costle's letter was released Monday by the hospital at Colodny's request, McClellan said. Board members told Colodny when he was hired two weeks ago that his first priority was to address the concerns outlined in Costle's letter, McClellan said.

Vermont Attorney General William Sorrell said the possible misrepresentations of the project's costs are the "heart and soul of what got our attention." State and federal prosecutors in July announced investigations into possible hospital mismanagement.

Chief Operating Officer Thad Krupka, Senior Vice President of Planning and Business Development David Demers and Vice President of Facilities David Keelty attended the Sept. 23 meeting with state regulators. Krupka -- who briefly ran the hospital this summer after the September resignation of former CEO William Boettcher -- told regulators hospital management doesn't know where it will find the money to pay for the ballooning costs, Costle wrote.

Demers and Keelty said they support Colodny's efforts to address Costle's concerns. They declined to discuss the issues further. Krupka did not return a phone call for comment Monday night.

Hospitals must seek state approval before embarking on a major project by proving a need for the project and providing a price tag. Fletcher Allen requested in December 2000, and received, a state permit for a $173.4 million expansion. Costle's letter indicates Fletcher Allen management knew before presenting the project two years ago that parts of it would cost more than management said.

Before the Sept. 23 meeting, Fletcher Allen had not updated the Health Care Administration on the project's progress since October 2001.

Costle said she would have been tougher on the hospital had she known the problems would escalate so far. Fletcher Allen battled her administration for the first half of the year over a $55 million parking garage for which the hospital never sought state approval. Fletcher Allen paid a fine for skirting the permitting process, and the controversy led to Boettcher's resignation and state and federal investigations.

"In retrospect, should I have done more? Yeah, I think so, had I known about it," Costle said Monday. She cautioned, however, that stopping construction on the project could drive up costs to patients and insurers. Costle said she asked the hospital to provide a detailed account of how much the project will cost and how big the project has gotten. She asked the hospital to take immediate action to cut the project back in size.

Costle, the state's lead hospital spending watchdog, should have been more forceful with Fletcher Allen, said Sen. Nancy Chard, D-Windsor. Chard, who is not running for re-election, sponsored an unsuccessful bill this year that called for revamping the state's health care permitting process.

The next governor, to be elected in November, must address the problems in the regulatory system that Fletcher Allen has brought to light, Chard said.

Costle conceded Monday that changes might be needed in the state's permitting and oversight system. Deliberately lying to state regulators might need to carry criminal penalties, she said.

"This process, in all honesty, is not set up for someone who comes in and does not tell you the truth," Costle said.

Contact Cadence Mertz at 660-1847 or cmertz@bfp.burlingtonfreepress.com.

Hospital response


In a response to regulators' concerns about the escalating cost of Fletcher Allen's Renaissance Project, Interim Chief Executive Officer Edwin Colodny replied that the hospital will take the following steps:
-- Provide a full description of Fletcher Allen's capital expenditures and planned capital expenditures from 2000 to 2006.
-- Detailed accounting of all expenditures that are or could be related to the Renaissance Project.
-- A revised financial model for the hospital.
-- An examination of the hospital's debt capacity.
Ballooning costs

Vermont's top regulator outlined in a recent letter how the cost of Fletcher Allen's massive expansion, called the Renaissance Project, has inflated and how the project has changed:
-- An education center was projected to cost $15.1 million. The center is now expected to cost $27.7 million. Hospital management might have known about the cost increase since before applying for a state permit for the project.
-- An additional $5.5 million is being spent on temporary parking and temporary structures related to the Renaissance Project.
-- $3.8 million more than initially projected may be spent on upgrading existing infrastructure, such as electricity and steam lines.
-- $1.8 million may be needed to redesign the project because the hospital has decided not to demolish Smith building, which was supposed to come down next year.
Additionally, the hospital began construction on a $55 million parking garage not included in the permit for the Renaissance Project. The hospital has since paid a fine and received a permit for that piece of the project. The hospital has also projected it will spend $15.5 million on a new psychiatric ward because the building currently housing the unit was slated for demolition.