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Interfaith and Brooklyn Hospital merger unravels

A state-engineered deal to shore up the finances of two Brooklyn, N.Y. hospitals is in jeopardy.

Brooklyn Hospital Center and Interfaith Medical Center, which filed for bankruptcy in December, signed a nonbinding memorandum of understanding in February in which they agreed to negotiate a merger.

The merger standstill was revealed in a court document filed last week in Interfaith's Chapter 11 case, and confirmed yesterday by a hospital spokeswoman.

Since the signing of the MOU "there has not been any further movement" on the merger, and the deal "may have reached an impasse," said the document. That could spell trouble for Interfaith: the Bedford-Stuyvesant hospital has only enough cash to operate through July, and has a closing plan ready in case in does not get funding through the state or through Chapter 11 proceedings.

One reason for the roadblock is that the state has not given Brooklyn Hospital the $1.6 million it needs to investigate the hospital's finances and its worthiness as a potential merger partner. Interfaith's board and management met last week with the state Department of Health and with the Dormitory Authority of New York State, which was $12.2 million by Interfaith at the time of its bankruptcy filing. The hospital's officials were told there would be no state funding for Brooklyn Hospital to conduct its due diligence.

Interfaith has been working on alternative strategies—everything from drawing up a closure plan, seeking debtor-in-possession financing, and sending a letter to Gov. Andrew Cuomo seeking his "personal intervention," said the document. Interfaith "repeatedly requested direction" from the state and but got none from Mr. Cuomo or any regulatory agencies in his administration.

The governor is widely expected to release a report this week that will broadly address healthcare in Brooklyn, which is home to a number of financially struggling hospitals.

With the state legislative session slated to end tomorrow, Albany lawmakers have been finalizing a bill to authorize a bailout of SUNY Downstate Medical Center. The final bill has not been made public yet. Lawmakers have agreed to let Downstate end its ownership of Long Island College Hospital, and will fund downsizing of University Hospital. The bill may address the state's plan to develop an integrated health care system in Brooklyn.

If there is a glimmer of financial hope in that package, Interfaith will need it. Patient volume and revenue are falling. The hospital laid off about 45 workers in recent weeks. Demand for inpatient services at Interfaith fell 9% since April.

One reason for the drop in inpatient volume is that Interfaith had to shut down a busy psychiatric ward after one patient murdered another on March 19. Interfaith submitted a plan of correction to DOH and the Office of Mental Health in the hope that with changes in protocols the unit could reopen. According to the court document, state officials never gave the hospital guidance or direction on whether the plans to reopen the ward were sufficient. Interfaith management, it said, had no idea if the psych unit could ever reopen.

When Interfaith filed for bankruptcy in December, its liabilities outstripped assets by nearly $200 million: the hospital listed total assets of $142.4 million and total liabilities of $341 million. Interfaith has struggled financially since late 2009, when the state introduced new payment policies that triggered a 40% drop in Interfaith's Medicaid revenue.

"Interfaith and Brooklyn Hospital merger unravels" originally appeared in Crain's New York Business.

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