Montefiore Medical Center, New York, is expected to buy bankrupt New York Westchester Square Medical Center when the Bronx community hospital puts itself on the auction block next month for about $14 million.
The hospital will be in bankruptcy court today to ask a judge to approve the proposed auction. The hospital filed a notice with the state Department of Labor that it will lay off 586 unionized workers by the end of March. But Montefiore plans to make job offers to hundreds of union members.
The Bronx community hospital has been fighting for its life since the state's Berger commission mandated its closure—slated for December 2008 but delayed by a lawsuit and a bankruptcy filing six years ago. Now the hospital wants to close on a sale by March 31 to avoid a "liquidity crisis" that could cause it to shutter for good. The hospital "no longer has the financial wherewithal to return the facility to financial stability," according to the sale proposal.
Westchester Square hospital's real estate assets recently were appraised at about $12.9 million. Montefiore is willing to bid $14 million, using a $20 million state grant to fund the purchase. New York Westchester Square revealed in court papers that it held talks with New York-Presbyterian, St. Barnabas, Mount Sinai and Sound Shore hospitals, but only Montefiore made a realistic offer.
As a condition of the sale to Montefiore, Westchester Square will either close all inpatient services at the 140-bed hospital. It will reconfigure as an ambulatory care facility with an urgent care center, outpatient surgical facilities and comprehensive primary care services. Montefiore's primary care services will use a patient-centered medical home model, which focuses on prevention and coordinating care among a patient's doctors.
But the deal with Montefiore nearly unraveled last month as the hospital's board clashed with its largest creditor—the union representing many of its front-line health care workers.
On Nov. 8, Westchester Square's board abruptly voted to end talks with Montefiore. It told state officials it was negotiating with a hedge fund to keep the hospital open as an inpatient facility, according to court documents.
But creditor 1199 SEIU Healthcare Workers East pushed back, calling the board's actions in court documents a "blatant breach of… fiduciary duties." In a motion filed on Nov. 20, the union asked the court to intervene by naming a Chapter 11 trustee who would have the power to run hospital—displacing its board and executive team.
The majority of the hospital's board members are doctors who practice at the hospital. The union suggested that the physicians on the board were protecting their livelihoods, because their practices would take a financial hit when Montefiore shut down inpatient services.
The union said the hospital's board and executives failed to stop the flow of red ink. In the first eight months of 2012 alone, accounts payable rose by $3.5 million while net operating losses totaled $3.5 million—a whopping $442,000 a month, according to 1199 SEIU in its court filing. The hospital's executives were budgeting for a projected positive cash flow of $9 million. Instead, cumulative operating losses at the hospital hit nearly $15 million since it filed for bankruptcy, according to the union's court documents.
"In the face of wildly inaccurate financial projections [the hospital] is bleeding cash and stockpiling additional debt," added the union.
Ultimately, the state stepped in late last month to save the Montefiore deal. A top Department of Health official in a motion filed with the bankruptcy court said that the state had a use-it-or-lose-it 50% federal matching contribution to the $20 million state grant. Montefiore had to use the money by the beginning of 2013 or the state would give it to "other needy providers," wrote Lora Lefebvre, deputy director of DOH's Office of Health Systems Management, on Nov. 20. The federal offer expires April 1, 2014.
Shortly after, Westchester Square's board caved to pressure from the state to sell the hospital to Montefiore.