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County Connivers

The Conniver Corps: David Smith

Maricopa County Administrator David Smith was named best county leader in the nation by Governing Magazine in November 2001.

Now Smith deserves to lose his job.

The publication, which is read by practically every high-level bureaucrat in the nation, had gushed that Smith performed miracles in leading Maricopa County out of a $65 million deficit he inherited when he took over as the county's top gun in 1994.

The glossy magazine stated that a key part of Smith's success was the amazing financial rebound he engineered at the Maricopa Medical Center, which had been a financial black hole for years costing the county untold millions of dollars.

In its glorification of Smith, the magazine stated that the county hospital turned an $18 million profit in 2001.

Smith, who is virtually invisible to the public and rarely submits to interviews, revealed his management secret to Governing Magazine:

"The first thing we had to do was impress on people the importance of fiscal responsibility and budget integrity."

What a guy!

What a bunch of bull!

County records I dug up reveal this: At the same time Smith was getting hailed for his financial wizardry, he knew that the county hospital was facing Armageddon -- that its books were chock-full of errors.

At the time, a private firm, Quorum, was managing the Maricopa Integrated Health System that includes the county hospital, 13 clinics and four health-insurance plans.

Rather than the hospital being flush with profits, Smith knew it was actually losing tens of millions of dollars a year, forcing the county to transfer cash from the general fund to keep its doors open.

Not only was Smith facing steady ongoing losses at the hospital, a new crisis was fast approaching.

Figures in Quorum's financial reports were not matching records kept by the county treasurer. County auditors discovered in March 2002 that Quorum overstated the health system's cash flow by $100 million over the previous four years.

Whoops! This meant the county would have to pour in even more money from its general fund to prop up the health system.

Then, yet another major problem cropped up.

A new computer system purchased for $4.2 million in October 2002 was fouling up hundreds of thousands of bills. The county struggled with the system, could never get it fixed and finally decided last month to abandon it.

Rather than come clean in 2002 that there was a major financial crisis in the making, Smith and the Maricopa County Board of Supervisors kept the public in the dark.

Only now is the extent of the damage becoming apparent.

Earlier this month, the county announced that the accounting and software mess together will cost taxpayers an estimated $82 million to $129 million.

This is in addition to the massive ongoing operating losses suffered by the hospital that have averaged $35 million annually over the last five years.

Smith and the county supervisors had a prevailing reason for keeping the health system's financial meltdown secret. The county desperately wanted to unload the ailing Maricopa Integrated Health System on the countywide health district that the Legislature created in July 2003, pending voter approval.

In November, voters endorsed the health district without knowing that it was in such a serious financial bind. Further, the new district isn't allowed by law to raise anywhere near the money needed to shore up the massive health system.

Thanks to David Smith and the county supervisors, the health-care safety net for hundreds of thousands of poor and uninsured county residents is seriously threatened. The county's health system receives more than 300,000 outpatient visits a year, 80,000 emergency room visits and admits another 20,000 patients into the county hospital.

But it's not only the unwashed masses who risk losing access to a hospital that won't turn them away because they don't have insurance. The well-off, too, are jeopardized. Maricopa Medical Center has the best burn unit in the Southwest, is a topflight trauma center and has a first-rate neonatal unit.

The screw-ups that led to the $82 million to $129 million accounting and software black hole are of such a magnitude that it appears they could have been done on purpose.

"The sense I get from people who are close to what is going on is that there was some criminal activity," a state health-care regulator tells me. "A forensic audit will uncover [what happened] pretty easily."

It's obvious that we can't rely on the county supervisors to bust open this scandal.

State and, if necessary, federal authorities must dispatch a team of bloodhound accountants to determine whether this gargantuan loss of taxpayer money occurred because of a huge mistake -- or whether the funds were pilfered.  

County supervisors Max Wilson and Andy Kunasek dismiss any suggestion of wrongdoing, blaming the mess on bad management and a lousy computer program.

It's true that there have been problems with the software system. Because of it, thousands of bills were not paid on time.

At the same time some suppliers were shortchanged, duplicative payments were sent to other vendors, who apparently have received a massive windfall at taxpayer expense.

"There may be a couple hundred thousand duplicative payments," says Al Macias, the county's chief spokesman.

Sweet! I asked Macias just how much money has been sent out in the county's version of the Publisher's Clearinghouse Sweepstakes.

"Don't know," Macias says.

It's not enough for county officials to blame an inanimate software program for this screw-up. Someone designed and operated the software system and must explain what went wrong and -- more to the point -- why nobody employed by the county discovered the problem early on. Without a convincing explanation, the next logical question is whether the software was rigged to loot the county treasury.

Whatever caused this mammoth problem, Smith is ultimately responsible.

"He should lose his job," one former county supervisor says flatly.

Smith couldn't be reached for comment. He canceled an interview on Friday, May 14, citing a family medical emergency.

The two county supervisors who had a direct role in overseeing the health system the last few years, Mary Rose Wilcox and Don Stapley, did not return repeated calls seeking comment.

Neither did Mark Hillard, the former health system chief executive officer who played a key role in this sorry affair. Hillard was the CEO for Quorum when it managed the county's health-care system. The supervisors terminated Quorum's contract in June 2002 after Quorum's accounting problems were uncovered.

But the county hardly severed ties. Amazingly, it made Hillard its highest-paid employee at $281,000 a year, hiring him to run the county health system.

If it wasn't bad enough that the county hired the CEO of a company that apparently screwed up the finances of its hospital system, it was under Hillard's watch that the health system purchased the software program that's never worked properly. Hillard resigned his county post in February.

Since Hillard wouldn't call me back, I left a letter for him at his beautiful $1.25 million, five-acre estate in the heart of an exclusive Scottsdale subdivision. Perhaps Hillard was too busy riding one of his Arabian horses stabled next to his sprawling 4,000-square-foot home to talk about the crisis gripping a health-care system that provides life-and-death services to the poor.

Smith, Hillard, Wilcox and Stapley form the conniver corps that obviously hopes the health-care scandal blows over quickly.

The county promises it will cover the loss generated by the accounting and software problems before turning the health system over to the new district next year. Officials say $50 million in cash reserves and $58 million earmarked for other projects will go to cover the contraction.

But huge operating losses remain deeply embedded in the health-care system, particularly when it comes to the hospital, which lost $110 million over the last two years.

The new district -- whose board of directors will be elected in November -- will inherit this ongoing problem and have little hope of solving it without huge cuts in services.

The Legislature capped what the district can raise from property taxes at $40 million a year. Without additional funding, the county health system will have to be drastically reduced in the near future, predicts Bil Bruno, an insurance broker and a candidate for the health district board.

What seems evident is that Smith and the county supervisors have made their lives easier by foisting off the county health system's chronic financial problems on the newly created district. In fact, bond rating houses have applauded the county's move by upgrading its bond rating one notch to AA+.

Taxpayers, meanwhile, are being stuck with the $82 million to $129 million tab for the accounting and software mess dating back to 2002.

This entire fiasco was engineered by Smith and the compliant supervisors. As I said earlier, Smith must be fired.

But that's not enough. We need to know what caused the crisis.

Don't look for the county to do the right thing and untangle this web of deceit. All we'll get is a whitewash.

It's up to Attorney General Terry Goddard to determine whether those running the county health system were unbelievably incompetent or whether skullduggery was at play.

"This is something I'm interested in looking at," Goddard assured me.

We're waiting anxiously to see what he turns up.  

E-mail john.dougherty@newtimes.com, or call 602-229- 8445.


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