The restructuring of Interfaith, the largest employer in Bedford-Stuyvesant, will give it more time to stay afloat while it pursues a likely merger with the Brooklyn Hospital Center, an outcome that was long the preference of the Cuomo administration. It's unclear what a restructuring would mean for Interfaith's 1,516 full-time workers.
Rumors of Interfaith's imminent Chapter 11 filing have circulated for months. Last winter, the hospital hired restructuring counsel from Willkie Farr & Gallagher to explore bankruptcy protection. At the same time, its board of directors repeatedly asked state health officials for aid. Spurned by Albany and faced with an unstoppable flow of red ink, the board spent the past few days debating whether to finally file. The court action is expected as early as Dec. 3. Interfaith and state health officials declined to comment.
The hospital's largest secured creditor is the Dormitory Authority of New York State, which backed Interfaith's bonds.
Interfaith enjoyed some financial stability between 2005 and 2009, when its Medicaid reimbursement was among the five highest in New York City, according to a former Interfaith executive. But in October 2009, the state introduced new payment policies that triggered a 40% drop in Interfaith's Medicaid revenue.
The program covers 65% of Interfaith's patients, and with few commercial insurance contracts to make up for the losses, the hospital began to hemorrhage. By 2010, after ending with a $57 million loss, its net worth was a negative $126 million. Its long-term debt per hospital bed was $517,000—more than double the $210,000 median for Brooklyn hospitals and three times the statewide median, according to a November 2011 report issued by a Brooklyn health care work group convened by the state's Medicaid Redesign Team.
"Interfaith cannot continue to survive even in the short run," concluded the report.
In October 2011, Interfaith Chief Executive Luis Hernandez laid off some 200 workers as part of a plan to cut $10 million. The move was a mere Band-Aid. The hospital ended that year with a $33 million loss and stopped making debt payments to the Dormitory Authority.