Taxpayers in Amityville, N.Y., are calling it another horror.
This tiny resort community of 10,000 is witnessing a tax vanishing act. One of its for-profit hospitals was sold to a not-for-profit joint venture, while the other is losing money and is rumored to be selling to a not-for-profit.
Winthrop-South Nassau University Health System and Catholic Health Services of Long Island partnered in 1998 to buy South Oaks Hospital and Broadlawn Manor Nursing Home, a psychiatric hospital and long-term-care facility. Both were formerly owned by Long Island Home Corp.
At the same time another Amityville family-owned, for-profit medical center, 474-bed Brunswick General Hospital, is struggling financially and seeking a buyer, potentially deepening the city's funding crisis.
"This may not be a big deal in some cities," explained Marcia Besserman, president of the Amityville Chamber of Commerce. "But in a village this size, it's a big deal."
The ownership change of South Oaks and Broadlawn Manor alone will cost Amityville and the neighboring town of Babylon more than $1.7 million per year in lost revenues, which accounted for 15% of the municipal budget and 10% of the local school corporation budget.
"We're losing a large portion of our school tax," Besserman said from behind the counter of her Barclay Shades and Blinds store.
Amityville Mayor Peter Imbert said the growing concern is fueling speculation about what will come next.
Brunswick hasn't paid taxes to the village for two years, Imbert said, with arrears exceeding $500,000.
"They're struggling and will have to merge with another organization. We hope it's a for-profit organization to reduce any further tax-revenue loss," Imbert said. "But we haven't been notified of anything yet."
According to HCIA, a Baltimore-based healthcare information company, both hospitals have been financially troubled. South Oaks, a 117-year-old hospital with 334 beds, has lost money for three years. In 1997, it lost $7,305 on total patient revenues of $79.3 million.
Brunswick, with 1997 patient revenues of $116.4 million, has also posted three consecutive annual losses totaling more than $15 million. The for-profit facility was established in 1887.
Both began as sanitariums serving New York City patients.
"They've been paying taxes since the 19th century," Imbert said. "This had to happen while I was in office."
Brunswick Chief Executive Officer Benjamin Stein, M.D., said there has been no sale yet.
"But there's always that possibility," the radiologist-turned-administrator conceded. "We're in and out of negotiations."
Stein, whose family purchased the hospital in 1957 from four physician-owners and still owns and operates it, said the hospital didn't pay its taxes because it didn't have the money.
"But we'll take care of that soon," he said.
Stein said the conversion of proprietary hospitals to not-for-profits is a real and disturbing trend.
"It looks like (the Winthrop-Catholic Health joint venture) is going to be the only game in town," he said. "The small voluntaries are being bought up, and so are all the for-profits. I don't think it's good for medicine."
Stein blamed the crisis on low managed-care reimbursements.
"With the reimbursement rates they're giving, they're eating up our margins," he said. "I hate to see anything bad happen to small communities like Amityville. But Long Island used to be home to a number of proprietary hospitals. Now we're the only one functioning."
Recently, the Winthrop-Catholic Health joint venture purchased two other nearby, financially ailing Long Island for-profits-122-bed Massapequa General Hospital in Seaford, N.Y., and bankrupt 223-bed Mid-Island Hospital in Bethpage, N.Y.
In the Massapequa hospital transaction, current management will continue to operate the hospital as a for-profit, despite the sale of the building and land to the joint venture.
In that venture, the for-profit hospital's management continues to operate independently but pays fees to the venture.
What is this joint venture that's gobbling up small, community hospitals? Observers would need a blueprint to trace the affiliations in the Winthrop-Catholic venture.
Winthrop South Naussau University Health System was formed in 1985 and controls South Nassau Communities Hospital in Oceanside and Winthrop-University Hospital in Mineola.
Catholic Heath Services of Long Island, which is operated by the Roman Catholic Diocese of Rockville Centre (spread over Long Island's two counties, Nassau and Suffolk), operates four hospitals: Good Samaritan Hospital Medical Center in West Islip, Mercy Medical Center in Rockville Centre, St. Charles Hospital and Rehabilitation Center of Port Jefferson, and St. Francis Hospital-The Heart Center in Roslyn. In addition, it operates two nursing homes, three hospices and five home health agencies. The system controls 1,380 beds.
Winthrop and Catholic Health belong to a broader association called Long Island Health Network.
Amityville won't be the only town affected by the tax crunch; the neighboring town of Babylon will feel it too, Stein said. But Babylon is a much larger community and can absorb the blow more easily.
Imbert said that if Brunswick is sold to a not-for-profit, as South Oaks was, "it will be devastating to us. I've reached out to public officials, and we're trying to come up with some solutions dealing with South Oaks and Broadlawn."
Imbert said the village is exploring such options as forming a police-fire district and charging fees to hospitals and others for the service. Amityville also is hoping for state legislative relief.
He said a statewide program for property tax relief will reduce some of the impact on homeowners. But businesses aren't eligible for the program.
"So it will disproportionately hurt our downtown businesses, which are already struggling to survive," he said.
While across the country patients and politicians might be crying out for not-for-profit medicine, "taxpayers aren't," Imbert said.
Kamal Desai, a researcher at Boston University's School of Public Health and the Department of Veterans Affairs, co-authored one of the few studies to explore the effects of reverse conversions on local communities.
The reverse conversion of for-profits to not-for-profits has increased in the past decade to more than 100, the Boston University study showed, but the impact has not been studied widely.
Desai said legislation is needed to resolve a growing problem.
"It doesn't matter in a big place like New York City," Desai said. "But to a small town, it represents a very big hit. There are substantial tax revenues involved. People there are facing some hard choices."
He said many states are bound by laws that prohibit increases in property taxes.
"When those tax revenues can't be replaced, it can cause big problems," Desai said. "States have to step in and help out."
Desai's study, published in the September 1998 issue of Medical Care Research and Review, looked at 15 for-profit California hospitals that were sold to not-for-profit organizations between 1981 and 1993, removing millions of dollars from local tax rolls. The study found that in most cases uncompensated charity care increased in those hospital communities but not enough to mitigate the loss of tax revenues.
"Charity care doesn't come out of municipal budgets," Desai said. "For-profit conversions do not uniformly promote the welfare of the communities where they occur."
Andrew Kraus, a spokesman for the Winthrop-Catholic Health joint venture, said the loss of tax revenues to the communities must be balanced with the potential closures of those hospitals, which would have cost the affected communities access to vital hospital services and more than 1,400 jobs. The lack of hospital spending would have caused economic ripple effects.
"We recognize this (reverse conversion) can cause problems, and we're looking at a variety of options," Kraus said. "The members of the joint venture have met with local officials. There has been discussion about payments in lieu of taxes and payments for services provided by municipalities. But no decision has been reached yet."
Kraus denied a rumor that the joint venture was negotiating to acquire Brunswick Hospital.