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‘Chronic underfunding’ compounded by misappropriation, debt

By Fili Sagapolutele

PAGO PAGO, American Samoa (The Samoa News, March 14, 2012) – In American Samoa, LBJ Medical Center chief executive officer Mike Gerstenberger and board chairman Moananu Va were sworn in yesterday to tell the truth, and nothing but the truth, during Day One of the Senate Select Investigative Committee probe into the finances and operations of the medical center.

LBJ chief financial officer Viola Babcock, who was subpoenaed for the hearing, was unable to attend because she was ill, said Moananu, who has been serving on the board since 2007.

Besides accepting verbal testimonies from witnesses, the investigative panel has also subpoenaed and received financial documents from LBJ, which has been facing some serious financial woes — issues which have been the subject of several House and Senate hearings since the beginning of this year.

Responding to committee questions, Gerstenberger repeated what he has said in Fono hearings before — the LBJ facility has a "chronic underfunding" problem; government subsidies were not paid to the tune of $3 million in FY 2011; and it is still paying off an overpayment by Medicaid, which is a monthly expense of about $220,000.

He also noted however that federal requirements and patient needs have added to LBJ’s financial bottom line.

For example, it is a federal requirement for LBJ — as a federally certified facility— to have nine pharmacists, but LBJ has only two. They are currently pushing to get more.

Another requirement LBJ faces is to increase the number of nurses and physicians — which are all at the higher end of the pay scale, increasing personnel costs.

Moananu reminded the committee of the high number of dialysis patients for the hospital, which has since reached 114 and the hospital needs funds to provide medical services and care for these patients.

During the hearing, Sen. Velega Savali Jr. focused on when the hospital realized it was facing financial woes and what measures were being implemented to reduce expenditures.

Gerstenberger, who joined LBJ in May of 2010, said the hospital first realized its financial woes in the early part of fiscal year 2011 or between November and December 2010, heading into January 2011.

These woes were compounded by the lack of the required subsidy payments from the government in some of the months of FY 2011, which lead to the medical center losing out on over $3 million in Medicaid funding – further exacerbating the situation.

As to cost saving measures implemented at the time, Gerstenberger said there were several, which included a freeze on travel, no purchase of capital equipment, and fewer purchases of medical supplies.

However, he said in-patient volume was high, which meant the hospital had to continue to provide all necessary medical services and medicines.


Raised during the hearing, certain long term outstanding debts were discussed.

The Medicaid overpayment, according to Moananu, is repayment plus interest. He said the final payment for this year is around $1.7 million and LBJ had requested and the federal government approved an extended payment schedule for about $64,000 a month.

However, he said the hospital would like to still pay off this amount this year so that no additional interest is imposed on LBJ.

A new expenditure for LBJ that surfaced last year following a review of their records by an official with the U.S. Department of Labor deals with incorrect calculation of overtime for certain employees.

Gerstenberger explained that about $800,000 needs to be paid back to the affected employees, per agreement with the Labor Department, who didn’t impose a penalty on LBJ. He said the hospital is looking at making the final payment by this summer.

In the LBJ first quarter performance report for FY 2012, Gerstenberger said DOL determined that "we had been incorrectly accruing and reimbursing for overtime since at least 2009."

"Although we were not accessed any penalty, we were required to make whole those employees who were paid less than the law requires," he said. "As a result, we will experience higher-than-budget overtime figures for the remainder of FY 2012."

The LBJ CEO noted that the Medicaid and overtime repayments are both funded with any revenues collected by the hospital.


SSIC chairman Sen. Lualemaga Faoa inquired into the total loss of money to LBJ over the allegations of misappropriation of funds last year, to which Gerstenberger said that four individuals were confronted about these funds that total around $200,000 and the incident occurred over a period of years.

Because the hospital receives federal funding, including Medicaid, the LBJ contacted the FBI and the Office of Inspector General at the U.S. Department of Health and Human Services but both "declined" to pursue this case, said Gerstenberger, adding that the matter was also referred to local authorities.

Since this incident, said Gerstenberger, the business office where the alleged misappropriation of funds occurred has been reorganized under Babcock‘s leadership to ensure similar incidents will not occur in the future.

As previously reported by Samoa News, four employees were terminated in August over this case and they have since appealed their termination with the Office of the Administrative Law Judge.


During his testimony yesterday, Gerstenberger noted that the hospital has a "chronic underfunding" problem, saying that a facility in the mainland similar to LBJ’s size, would have an annual budget of $200 million.

According to Samoa News budget archive records, LBJ’s budget for the current fiscal year 2012 is $37.56 million, while it was only $29.94 million in FY 2011 and $26.37 million in FY 2010.

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