Early last summer Beth Israel Medical Center in New York was slipping rapidly toward financial ruin.
The 1,245-bed hospital was facing a volume decline caused in part by an infection outbreak, a stall in services because of new construction and the high-profile firing of an obstetrics group involved in a malpractice case. Receivables were mounting. Standard & Poor's and Moody's Investors Service both observed with alarm that by the end of the first quarter of 2000, Beth Israel had less than a week's worth of cash on hand to cover its operating expenses-about $16 million.
The credit-rating agencies each assigned a junk rating to about $243 million in Beth Israel debt-S&P downgrading by four notches and Moody's by six notches. Analysts gave a negative outlook and indicated that further downgrades were a very real possibility. They said they doubted that Beth Israel would be able to generate enough cash flow to service its debt, pay operating expenses and invest in capital during the remainder of 2000.
Morton Hyman, chairman of the board of trustees, recalls feeling helpless in the face of such challenges. That feeling lasted about 12 hours. Then he vowed to himself that the 110-year-old hospital, founded as a dispensary on Manhattan's Lower East Side to care for poor Jewish immigrants, wasn't going down without a fight.
First, he says, the hospital had to come up with some quick cash. He established what he called a millennium fund. To prime the pump, the shipping magnate dug into his own pocket and scraped together a cool $1 million.
Then he personally called each of the 79 members of the board and asked them to do the same: Dig deep for a one-time-only contribution on top of their usual annual gift to the hospital. Not one of them refused, he says.
In less than a month's time, the fund accumulated more than $20 million. By August 2000, in a breathtaking turnaround, both rating agencies stabilized Beth Israel's credit outlook and took the hospital off their watch lists. Moody's upgraded the rating by a notch to B1 from B2.
The fund now stands at close to $30 million and will be spent as needed on general operating expenses. The hospital has not trudged out of the woods yet, but it has a much-needed cushion. Hyman promises that within the first six months of this year, the hospital will refinance its debt, generating as much as $100 million in free cash.
Those who know him say you can take that to the bank.
"His word is better than any piece of paper," says Matthew Fink, M.D., the hospital's newly appointed president and chief executive officer.
For mustering the flagging troops and setting the hospital on the road to financial recovery, Hyman has earned Modern Healthcare's 2001 Trustee of the Year award for hospitals and health systems with more than 250 beds and revenue of more than $75 million. Beyond Hyman's personal donation, the symbolism of the millennium fund sent a powerful message to the rating agencies as well as the Beth Israel community.
"Clearly, what Mort Hyman did was pretty unusual and pretty extraordinary," says Liz Sweeney, a director in public finance ratings at S&P.
"It clearly showed us that at the highest levels of the organization, they were obviously very, very concerned," says Bruce Gordon, senior vice president of healthcare finance at Moody's. "He was personally involved in conveying to us his understanding of the situation and his understanding that the institution would be turned around."
Such deep-rooted trust in a chairman of the board was not built overnight. Colleagues describe him as a one-man dream team: a leader who takes an active but unobtrusive interest at every level of the hospital's operations, who inspires other board members to do the same and who challenges the executive team to be the best they can be. Tall, lean and youthful-looking, Hyman, 65, is in many ways the hospital's closer, a charismatic leader who is always sent in to seal the deal, whether it be to recruit a high-profile clinician or court a potential partner.
"At many places, I think, if the chauffeur is ill, the chairman of the board couldn't find his way to the hospital," says Stephen Baum, M.D., chairman of Beth Israel's department of medicine. "I can't imagine an institution that has its chairman of the board's fingerprints all over it the way this institution does."
Baum spearheaded Hyman's nomination by gathering the endorsements of all the hospital's clinical chairs. "It was the easiest sell in the world," he says. Hyman's donation to the millennium fund inspired Baum to contribute $10,000.
Hyman joined the Beth Israel board of trustees in 1973 and has served as chairman for the past 15 years during a time when the once small community hospital grew into an academic medical center and one of the state's largest providers of inpatient and ambulatory care. In addition, Hyman concurrently has served as chairman of the board of trustees of Continuum Health Partners, a 4-year-old affiliation between four New York hospitals: Beth Israel, St. Luke's-Roosevelt Hospital Center, Long Island College Hospital and New York Eye and Ear Infirmary. Beth Israel and St. Luke's alone command about 20% of the Manhattan market's inpatient admissions.
Hospital officials from top to bottom boast that under Hyman's stewardship, the institution has never lost sight of its original mission as a provider of care for those who have nowhere else to turn. They brag that Beth Israel opened one of the state's first AIDS residences in 1993 despite strong neighborhood opposition. Robert Newman, M.D., the legendary former president and CEO of first Beth Israel and then Continuum Health, takes special pride in the fact that the hospital administers the largest methadone program in the world, another controversial service that Hyman both "supported and lauded," the staff says.
Newman worked intimately with Hyman for 15 years until Jan. 1, when Newman retired-although he will stay on as a lifetime trustee. Hyman followed an impossibly tough act, Newman recalls. Charles Silver, who had made his fortune in the garment industry and was known as "Mr. Beth Israel," had been head of the board for 50 years when he died.
But Newman says the relationship that developed with the new chairman of the board was truly unique in the hospital industry. Whether Hyman's business took him to Tokyo or Geneva, Newman and he spoke to each other three or four times a day. While other CEOs are all too happy to have trustees who give money when needed but have neither the time nor inclination to get involved, Newman says he never felt threatened by Hyman's involvement. Indeed, he welcomed it.
"A lot of CEOs feel a knowledgeable board can be a nuisance-to put it crassly," Newman says. "I always felt the more knowledgeable Mr. Hyman was, the more I could count on solid advice."
Although Hyman and Newman frequently began discussions with a difference of opinion, they always finished on the same page, Newman says. Hyman then would take the matter to the board, explain the issues and win its support. Unanimous consensus at the highest level made for an adroit institution capable of turning on a dime, he says.
As president, CEO and chairman of the board of Overseas Shipholding Group-a director and officer since it was formed in 1969-Hyman has a clear understanding of the delicate lines of demarcation separating a corporate leadership team. With shares trading on the New York Stock Exchange, Overseas Shipholding owns and operates one of the world's largest fleets of ocean-going vessels, which transport bulk commodities, primarily crude oil and petroleum products. Sales in 1999 topped $394.7 million, and the company earned $37.9 million, a 9.6% profit.
Hyman, a product of Cornell University and Cornell Law School in Ithaca in upstate New York, says his entry into healthcare was in some ways accidental. In 1971, as a bachelor and reasonably successful businessman with some time on his hands for pro bono work, he decided he wanted to give something back to the community as long as it had nothing to do with business, he says. He consulted a mentor, an attorney who happened to be a close friend to then-Gov. Nelson Rockefeller. Three days later Hyman was asked to accept a position on the New York State Public Health Council, the authority that approves, among other things, all certificate-of-need applications. Hyman says he quickly discovered an alarming amount of "waste by the government in reimbursing capital costs of hospital and nursing homes." That spurred him to help write new capital-cost reimbursement rules for the state's Medicaid program that still stand today.
Since married with two teen-age children, Hyman ultimately served 25 years on that council as well as on other healthcare task forces for Govs. Hugh Carey and Mario Cuomo, both Democrats. Two Beth Israel stalwarts-Herbert Singer, a director at Overseas Shipping whose family's name is renowned at Beth Israel, and Richard Netter, a former alumni adviser to Hyman's fraternity at Cornell-subsequently recruited him to the hospital board. As treasurer of the fraternity, Hyman says he was always asking Netter for money to pay the fraternity house's fuel bills. "I kid (Netter) today because I still beg him for money," Hyman says.
Hyman says he harbors vivid memories of his first Beth Israel board meeting. He was by far the youngest trustee, and the others all had hallowed names at Beth Israel and in the New York business community. At one point at that meeting, Seymour Phillips, whose family name stretches back to Beth Israel's founding, emphasized a point he was making to other board members by saying, "I love this institution," Hyman recalls.
"I left thinking, `What kind of nuts are these-to love an institution?"' Hyman says. "But what I learned over the years was that that group of people did indeed love Beth Israel. And I have come to love Beth Israel, and others on the board have come to love Beth Israel for what it is: a truly caring institution that has a single purpose-to provide care with true compassion and concern for each patient."