Saturday, May 21, 2011

Financing The UConn Health Center Boondoggle

Continuing a policy of picking winners and losers, the Malloy administration has decided to throw dollars it does not have at the UConn Health Center, a losing proposition described in a news story written by reporter Chris Keating of the Hartford Courant in less than flattering terms.

Concerning UConn's continuing fiscal problems,” Mr. Keating wrote, “a longtime Capitol insider described the health center as ‘a burning tire around the state's neck.’

“The health center has had chronic financial problems, and the legislature has bailed out the Farmington institution four times since 2000. The huge infusion of funds often comes on the last day of the legislative session, which this year is June 8.”

Upon hearing that Mr. Malloy intends to spend $864 million on the health center, $136 million short of the $1 billion surplus Mr. Malloy and Democrats in the legislature furtively tucked into their budget, Republican Party Chairman Chris Healy, admittedly a partisan, said, “The UConn Health Center has long been a disaster for taxpayers and patients. It should be shuddered, not rewarded with millions and threaten community hospitals that do a good job providing quality health care. If Democrats shower millions on the UConn Health Center, it will lead to more of the same - a waste of tax dollars while under-cutting health care providers that are hanging on for dear life. Fresh from his fiscal shell game on the budget, Gov. Malloy thinks he can break out another credit card to reward the unions who work at that facility."

The “other hospitals” mentioned by Mr. Healy will be facing additional taxes when the budget has been finalized. State unions have yet to ratify the deal arranged between agents of the governor and union negotiators. The fine print on that deal involves a pledge made by the governor to refrain from using private companies to displace work the governor believes may better be done at greater costs by unionized state workers. The privatization tool that Mayor John DeStefano of New Haven wishes to utilize to cut costs in his city was one of the first victims of Mr. Malloy’s union concessions.

In mid- March Josh Kovner of the Hartford Courant examined in some detail a no-bid-no-contract arrangement between the UConn Health Center (UCHC) and the state that was designed to provide mental-health and medical services to the state prison system under a “memorandum of agreement” with no expiration date.

Sen. Rob Kane of Watertown, the ranking Republican member of the legislature's appropriations committee questioned whether it was “plausible to have a private, for-profit, provider perform these services," perhaps at a lower cost.

As a general rule, a contractual bid is necessary when the state does business with a private entity, but since the health center and the state are both government bodies, the $864 million business deal was concluded through what is called “memorandum of agreement” rather than the usual bidding process. The memorandum agreement, operative since 1997, provides no transparency, and it is virtually impossible to determine whether the work might have been done at a lesser cost because competition is thwarted when multiple bidders have not been permitted to offer competing cost estimates.

The cost of doing business in entities heavily subsidize by the state tends to increase because such institutions may rely upon easily tapped tax resources to cover unmonitored expenses, and readily available public funds mitigate effective cost saving incentives. Competition IS the gun held to the temple of competing entities that keeps costs in check. The ceiling on costs in private enterprise is set by competitors who may offer the same products and services at a lower price. The UConn Heath Center, heavily subsidized by the state, needn’t worry about such things.

"They're in horrible financial shape,” said Ben Barnes, Mr. Malloy’s budget guru in mid-March. “We already heavily subsidize them. It's money one way or the other.”

We may hope that someone in Mr. Barnes’ past, perhaps his mother, may have whispered in his ear that it cannot help to throw good money after bad. In the private sphere, failed enterprises not artificially supported by government facilitators can and should go out of business. But even if Mr. Barnes were disposed to lower the escalating costs incurred by the UConn Health Center by parceling out some work to private competitors, his effort to recoup any part of the $864 million Mr. Malloy now recklessly proposes to throw in the direction of the health center would be frustrated by a policy decision made by the governor in concert with state unions that discourages such practices. The governor, state unions and the health center all prefer to tap into the dwindling resources of taxpayers to support cost increases and inefficiencies that would never be permitted in a private, reasonably regulated free marketplace.

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