Hoboken University Medical Center (HUMC) Presentations write-up by Adrienne Choma
The financial health of the Hoboken University Medical Center (HUMC) should be of high interest to all Hoboken taxpayers since three years ago, at the urging of the Mayor Dave Roberts, the City Council approved a $52 million bond for initial capital guaranteed by the City of Hoboken (i.e., the taxpayers).
Recently, HUMC released the conclusions of an independent audit that found that poor financial practices at HUMC led to overgenerous financial predictions, resulting in a $22 million loss in fiscal 2008, significantly higher than budgeted. As a result, HUMC CFO, Ron DeVito, resigned.
Kevin Kramer, Chairman of the Municipal Hospital Authority, and Spiro Hatiras, CEO of HUMC, appeared before the City Council on November 16th to explain the poor financial performance and address questions from the Council on how the hospital administration will ensure better fiscal performance going forward.
If you have not had a chance to hear the presentations by Chairman Kramer and Mr. Hatiras, you may find the following summary of their presentations interesting. If the hospital fails, Hoboken taxpayers will, as always, be the ones to pay.
Kevin Kramer, Chairman, Municipal Hospital Authority
Chairman Kramer reviewed the progress made at HUMC in the last three years. He reported that cutting edge technology, such as new MRI’s and ultrasound equipment, has been acquired. He reported that there are more births at HUMC than ever before (but no specific statistics provided) and that HUMC is truly a “learning” institution, justifying the “university” name (but also without any substantiation of this claim). He presented no information on the financial position of the hospital.
In response to a question from the council, Chairman Kramer described the relationship between HUMC and Hudson Healthcare (HH). He explained that State law requires municipal hospitals to be managed by independent, not-for-profit organizations. HH was created to fulfill this state mandate. All employees at HUMC are employees of HH. Chairman Kramer did not address the questions regarding how HH was selected to be the managing body of HUMC and which other healthcare managing organizations were considered at the time.
Councilwoman Beth Mason asked for financial information on the hospital. 2008 losses are estimated at $22 million, with $17.5 million of that total in cash and $5 million in depreciation expense. The budgeted loss for the year was $5 million. The hospital has cash on hand of only $94,000. HUMC and HH are hopeful of receiving state aid to reduce these losses.
Chairman Kramer could not confirm Councilwoman Mason’s statement that the City of Hoboken is required to totally indemnify HH for all HUMC losses. He indicated that he would need to review the contract with the City.
Chairman Kramer could also not explain why the audit results were not reported in a timely way. When asked to share the corrective action plan (CAP) from the audit and all financial information on the hospital, Chairman Kramer said that HH will provide access to any information “allowed under the law”. Kramer confirmed that the HUMC CEO and CFO are responsible for finalizing and implementing the CAP.
Chairman Kramer bristled when requested to come before the Council to present the CAP, indicating that he was too busy to attend council meetings every two weeks.
Spiro Hatiras, CEO, Hoboken University Medical Center
Mr. Hatiras began his presentation by reminding the Council that he has been in office for only 4.5 months. He was taken by surprise by the magnitude of losses reported by the auditors. Auditors concluded that approximately $9.5 million of booked accounts receivable will not be collected. Also, the hospital booked $3.5 million in state aid that was not received in the fiscal accounting year, resulting in a total cash loss of $17.5 million versus the $9 million that he expected when taking office.
When asked about the reasons for the high losses, Mr. Hatiras offered the following factors:
1) The State of New Jersey pledged financial support through a five year strategic plan, but started cutting back support in year two. The Council commented that further cut backs can and should be expected under the new Christie administration.
2) HUMC has poorly negotiated managed care contracts with the major insurance companies. HUMC collects $7 million less than the average of peer hospitals in the region. Partially, this is due to inadequate leverage in the contract negotiations.
3) 17,500 Hudson County residents seek and receive their medical care outside the county. Retention of 50% of these patients would make all Hudson County hospitals profitable. The lack of resident confidence in the quality of care in Hudson County is a key issue which needs to be addressed.
4) The hospital was a failing proposition even as it was being transferred to municipal ownership. The Franciscans gave Hoboken the hospital and provided $13 million in cash. This was still a great deal for them because it would cost $100 million to shut the hospital down.
Mr. Hatiras placed high reliance on receipt of State aid to get through this financial crisis. He was asked on several occasions during the meeting whether there was a contingency plan in the event State aid does not come through, or if such aid is in an amount lower than projected. Repeatedly, Mr. Hatiras indicated that there was no contingency plan, to which Councilwoman Mason called for the termination of Mr. Hatiras and the entire hospital board. Mr. Hatiras responded that he does not care if his employment is terminated and that although he is not obligated to give the City Council any information, he will cooperate in providing information permissible under law and which, in his judgment, will not place HUMC at a competitive disadvantage.
In a final request for a contingency plan, Mr. Hatiras reaffirmed that there is no short-term plan other than fighting for the anticipated State aid, but offered the the following actions should help stem the losses and bring HH to profitability in 2010:
1) Affiliation of HUMC with another (unidentified) major regional hospital which could entail a take-over of the management contract from HH. Discussions are currently underway. Councilman Michael Russo cautioned that care should be taken in such negotiations since similar proposed collaborations with the hospital he believes is involved ended without consummation.
2) Renegotiating the managed care contracts, even if termination of coverage is necessary to get negotiating leverage (similar to Bayonne).
3) Reduction in expenses, not through lay-offs, but through better management of overtime and use of temporary agency workers.
Responding to inquiries, Mr. Hatiras confirmed that Harvey Holzberg (the former CEO of HUMC) and Ron DeVito (former CFO) are both still on the payroll of HH. Holzberg will be paid through year-end and DeVito will be on the payroll until April 2010. There has been much criticism of the high salaries drawn by Holzberg ($800,000) and DeVito and whether the compensation packages are consistent with not-for-profit organizational standards.
Assemblywoman Joan Quigley helped Mr. Hatiras explain how HH came to manage HUMC. She indicated that when St. Mary’s Hospital was being transferred to municipal ownership, it was deemed that there were no qualified not-for-profit management companies to run the hospital, as required by State law. At the request of Mayor Dave Roberts, Mr. Holzberg was recruited to create HH to manage HUMC. ◦
