In New York, where strategies proliferate as much as hospitals, two of the biggest hospital systems are tinkering with their governance structures, with very different ends in mind.
Three years into a complex merger that brought together two medical schools and four hospitals at five different sites, Mount Sinai NYU Health has abandoned all thoughts of joining its disparate cultures. Plans are nearly complete to decentralize a large governing board and realign each hospital with its respective medical school.
Meanwhile, Continuum Health Partners, an affiliation of four hospitals, including 1,245-bed Beth Israel Medical Center and 715-bed St. Luke's-Roosevelt Hospital Center, is moving in the opposite direction, sources said. On the table is a proposal to create one master governing board; the same group of board members would serve each individual hospital. The restructuring would significantly prune the 200 individuals sitting on the various governing boards. (Continuum's newest partner, 30-bed New York Ear and Eye Infirmary, initially would be excluded from the scenario.)
Continuum's reorganization is designed to better project the image of a fully integrated delivery system, which is the organization's ultimate goal, sources close to the discussions said. The restructuring also may position the system for a full-blown asset merger somewhere down the line.
The proposals at both systems are part of a whirlwind of reorganizations sweeping through the hospital industry in the aftermath of rapid growth and expansion (March 26, p. 22).
But in New York, where governing boards typically read like a who's who of upscale society, weeding through the trustee garden could throw dirt on the bottom line. Indeed, it was the 79 board members at Beth Israel who rode to the rescue last summer when the hospital was teetering on the brink of financial ruin, contributing more than $20 million of their own cash (Aug. 21, 2000, p. 4).
That peculiar aspect of New York hospital philanthropy is behind the reorganization at Mount Sinai NYU Health.
"The trustees were feeling remote from what mattered to them," said Gary Rosenberg, senior vice president of the system. "It's hard to get attached to a holding company when, really, their philanthropy and interests have been in their hospital and school of medicine. You don't endow anything in a holding company."
The proposal, which the board might approve as early as this month, calls for paring the 128 members on the parent board to a manageable 28, Rosenberg said. Representation on the parent board would be split evenly between 986-bed Mount Sinai Hospital and its medical school and 718-bed NYU Hospitals Center and its medical school without changing the composition of the 75 board members at Mount Sinai and the 54 board members at NYU.
Once the governance structure is in place, the system will reconsider its administration, Rosenberg said. Mount Sinai NYU has been holding open the post of president and chief executive officer since September 2000 when John Rowe, M.D., the merger's architect, moved on to head the nation's largest health insurer, Aetna.
When all is said and done, Rowe's successor will probably have less administrative authority as power shifts slightly back to the individual hospitals, Rosenberg said. In light of the restructuring, a search committee was formed three months ago, and a search firm has begun reviewing candidates. Barry Freedman, president and CEO of Mount Sinai Hospital, has taken over Rowe's office in the interim.
Rather than failing at its effort to unify, Rosenberg contends, the system is merely retooling-a natural step in the evolution of any merger.
"It takes four or five years for a merger to get the cultures mixed proficiently, to solidify all the savings and to get all the revenue enhancements," Rosenberg said. "People get nervous every time you make a change in the corporate structure, but these changes are adaptive and don't have much to do with the merger other than trying to refine it and make it better."
Rosenberg acknowledged there will be costs in connection with the decentralization, but the system has "seen some nice gains due to the merger," he also said.
Credit-rating agencies are not so sure. Both Moody's Investors Service and Standard & Poor's last month put the system on their watch lists for a possible downgrade. Moody's has assigned a Baa1 rating to $680 million in debt issued to the obligated group; S&P has assigned a BBB+ rating on $704 million in bonds.
Both rating agencies raised concerns over unexpectedly low levels of cash at the end of 2000. As a result of borrowing and refinancing, the system had 60 days of cash on hand when 120 days of cash was expected, according to Moody's. The obligated group holding the debt on the bonds-Mount Sinai Hospital, NYU Hospitals Center and Hospital for Joint Diseases-Orthopedic Institute-lost $5 million on operations in 2000, or 3%, according to S&P.
Unclear about how Mount Sinai NYU plans to reorganize, the rating agencies also said the restructuring could have implications for the system's credit rating.
"Off the top of my head, it just seems that by having two separate entities with closer ties to the medical schools-that doesn't sound like everybody is all for one," said Pamela Federbusch, a senior vice president at Moody's. "It's more of an `us and them' than a `we' strategy."
Rosenberg said that's the idea.
"No one is going to be threatened by the decentralization. It will strengthen peoples' willingness to work with each other," he said.