One of the largest creditors of a foundering Queens, N.Y., hospital stands to gain the most in a proposed reorganization of the troubled facility, critics charge.
That irony came to light as part of Flushing Hospital Medical Center's recent Chapter 11 bankruptcy filing (June 8, p. 16). It is one of several troubling facts that add up to a pattern of conflict of interest, critics say. Hospital officials deny any conflict.
But their denials run counter to facts that prompted a bankruptcy court judge to issue a temporary restraining order against layoffs at Flushing and to question the incursion of the creditor hospital, New York Hospital Medical Center of Queens, or New York Hospital-Queens.
It's something of a tangled web, as the following facts show:
New York Hospital-Queens has managed 250-bed Flushing since July 1. As of March 31, Flushing had total assets of $75.7 million and liabilities of $134.1 million.
The two hospitals share key personnel, including Steven Mills, president and chief executive officer; Kevin Ward, vice president and chief financial officer; and Brian Salisbury, vice president for public affairs.
Flushing and 449-bed New York Hospital-Queens are sister facilities, each belonging to the 27-hospital New York Presbyterian Healthcare Network.
Six of Flushing's 22 trustees, including Chairman Michael Russo, sit on the board of New York Hospital-Queens. The board also includes three ex-officio members: Mills, who also holds a seat on the board of New York Hospital-Queens, and two Flushing physicians, who are said by union leaders to have admitting privileges at the sister facility.
As part of the Chapter 11 filing, Flushing submitted a statement detailing payments made to creditors who are "insiders." In the year prior to the June 1 filing, Flushing paid New York Hospital-Queens nearly $1.9 million and its parent, New York Hospital, another $1.1 million. The statement does not give a reason for those payments. Mills said the payments were related to outstanding loans and services provided to Flushing.
In many respects, critics charge, the two hospitals have acted as one, even sharing some chairmen. Yet there's been no formal merger of assets.
If the board allowed the two hospitals to operate as one, New York Hospital-Queens has exposed itself to potential litigation, says an attorney not involved in the case, who asked not to be identified. By failing to maintain "corporate separateness," the managing hospital could be on the hook for Flushing's debt, the attorney said.
Meanwhile, Flushing continues to bear the financial consequences of management's actions. And those actions, critics say, show that neither management nor the board has much interest in preserving Flushing as an individual facility.
Indeed, hospital officials say they always intended to merge Flushing into New York Hospital-Queens. But Flushing's $84 million debt-particularly $41 million of unfunded medical malpractice exposure-stands in the way. Unloading the debt through bankruptcy would allow a merger to proceed.
Opponents of New York Hospital-Queens' takeover of Flushing argue that, in effect, such a merger would be done on the backs of creditors. New York Hospital and its Queens affiliate list themselves among the hospital's largest creditors, having sunk some $21 million into Flushing since 1996. Flushing also has a $15.8 million mortgage loan outstanding. The obligation is backed by the U.S. Department of Housing and Urban Development.
Mills, who recently spoke with MODERN HEALTHCARE, denies any conflict of interest. "It's easy to point out the potential for one," he acknowledged. But a close reading of the facts shows otherwise, he said. "Flushing clearly is a better institution today than it was two years ago."
Since 1993 the state has deemed Flushing to be "financially distressed," entitling the facility to receive enhanced Medicaid payments. Still, Mills said the facility suffered from chronic underinvestment.
Flushing lost about $33 million in 1996 but managed to reduce 1997 losses to $11 million.
When Flushing joined New York Hospital's network in 1996, it received $10 million to stem the tide of red ink. New York Hospital and its Queens affiliate have invested nearly $22 million in clinical programs and facility improvements, Mills said.
Salisbury said those improvements included a new pediatric emergency room, an expanded ambulatory surgery suite and a new eye center jointly run by the two sister hospitals.
But New York's largest union, whose contract for 700 Flushing employees lapsed July 31, offers a contradictory view.
A July 27 suit brought by the 1199 National Health and Human Service Employees Union and its affiliated pension fund says Flushing has "engaged in a pattern of conduct designed to dismantle its operations, close its facility as an acute-care hospital and transfer or otherwise direct the debtor's patients to (New York Hospital-Queens)."
Labor leaders have asked New York-based Beth Israel Medical Center, which leads a network called Continuum Health Partners, and neighboring Jamaica Hospital Medical Center in Queens to consider running Flushing. Both have acknowledged those talks.
Meanwhile, U.S. Bankruptcy Judge Conrad Duberstein granted a temporary restraining order to block a layoff of some 200 people at Flushing. The judge also directed Flushing's legal counsel to ask the hospital's board of directors to reconsider its reorganization plan in light of union concerns.
"I think that the people running this hospital are going to be hearing that there's something rotten in Denmark . . . and something has to be done," he said.
Both sides are due back in court Sept. 11.