Half of Brooklyn’s Hospitals on Life Support

The chief executives of three ailing Brooklyn hospitals are finalizing a de facto merger proposal that they expect to submit to state officials as early as this week. Their plan, which calls for a “northern Brooklyn health care alliance,” could include a major restructuring, closure or repurposing of at least one of the hospitals.

Interfaith Medical Center, Wyckoff Heights Medical Center and Brooklyn Hospital Center say the aim of the suggested alliance is to strengthen their bottom lines and to command higher reimbursement under federal and state Medicaid reforms.

The first two hospitals have carried large losses and crippling liabilities for years. The third, which emerged from bankruptcy in 2007, faces a major debt payment next year.

Five of Brooklyn’s 10 private hospitals have financial problems. Long Island College Hospital would be No. 6—its most recent financial statement showed a $39 million loss in 2009—had it not been merged with a state institution, SUNY Downstate Medical Center’s University Hospital of Brooklyn. The $62 million deal was brokered during the Paterson administration and finalized last month.

The financial instability of Brooklyn’s hospitals has attracted the attention of state Department of Health officials, who have been meeting with facility executives in the past few months.

“Brooklyn is on the radar because there are facilities that are challenged,” said Dr. Linda Brady, president and CEO of Kingsbrook Jewish Medical Center, which she says is not in danger of closing.

The precarious situation of so many Brooklyn institutions is the result of years of government cuts, during which they’ve acted as so-called safety-net hospitals to poor communities and the uninsured. These facilities have few commercially insured patients. At Wyckoff, for example, about 84% of net patient revenue comes from Medicaid and Medicare, the public health care programs for the poor and the elderly.

In the past, New York bailed out troubled hospitals, but deficits have ended such handouts. After grudgingly approving the SUNY-LICH merger, the Cuomo administration now insists on a long-term solution for safety-net hospitals.

The governor’s Medicaid Redesign Team has called for an “orderly” revamping of health services in communities “with struggling essential providers.” State officials want hospitals to restructure—even close—as part of a regional plan rather than in a chaotic bankruptcy. In other words, no repeat of St. Vincent’s Hospital on Gov. Andrew Cuomo’s watch.

John Gupta, who became president and CEO of Interfaith in February, says he appreciates the more realistic approach. “Whatever we design will meet the MRT’s goals,” Mr. Gupta said last week, speaking about the alliance.

Separately, the Greater New York Hospital Association has been pushing the state to form a task force to create a regional plan for Brooklyn, similar to the former statewide Ber-ger commission. Its recommendations included closing five hospitals in the city, with the loss of 1,368 beds. The trade group declined to comment.

For now, the hospitals are trying to survive without a bailout. Interfaith recently eliminated the equivalent of 150 full-time jobs. Its board brought on Mr. Gupta, along with a new finance and operations team, to limit the hemorrhaging. The executives halved month-to-month losses in their first three months.

ADAPTING TO 40% CUT

Even so, Interfaith must adapt to a recent 40% cut to its Medicaid rates—”a tough pill for anyone to swallow in a short time,” Mr. Gupta said. He predicts a loss of about $20 million for this year but hopes to be breaking even on a cash-flow basis by year-end. “There’s a long road … for Interfaith to get to financial stability, that’s clear,” he said.

Interfaith has companions on that road. The formerly bankrupt Brooklyn Hospital faces a significant commercial debt payment. President and CEO Dr. Richard Becker declined to discuss specifics but said, “There are a number of hospitals in Brooklyn with significant debt issues.”

According to its audited financial statements, Brooklyn Hospital had a $45 million loan as of December 2010 that was due to be paid in October 2012. “We’re not ruling out any options,” Dr. Becker said, referring to discussions with Interfaith and Wyckoff.

Wyckoff’s deficit and lack of working capital led its auditors to include a “going concern” warning in 2009 on its latest financial statement. President and CEO Rajiv Garg arrived at Wyckoff in 2008, a year in which the hospital lost about $30 million. “Since then, we’ve kept our head above water and made a little surplus,” he said.

DISCUSSING A “VIRTUAL MERGER”

But Wyckoff is unlikely to survive on a stand-alone basis, which is why Mr. Garg is looking to align with Brooklyn and Interfaith hospitals. He said the three chiefs met last week to discuss a “virtual merger … to restructure northern Brooklyn health care delivery.”

Consolidation would reduce the hospitals’ costs, and allow them to focus on improving patient access, care and outcomes, Mr. Garg said. Their proposal could ultimately include, for example, a repositioning of Interfaith as a behavioral health facility. It could also lead to the formation of an accountable care organization under the federal health care reform law. Mr. Garg says a consultant will be hired to construct a detailed plan once the alliance has formalized its request.

Brookdale University Hospital and Medical Center was also asked to join the proposed group but has demurred for now, according to Mr. Garg. “For a Brooklyn-wide solution, it would be immensely helpful to have other hospitals thrown into the mix,” he said.

Brookdale, which has lost money for a decade, is $23.4 million in arrears to the benefit fund of 1199 SEIU United Healthcare Workers East. A Brookdale spokesman told Crain’s last month that the hospital was losing “tens of millions of dollars a year” and could not afford a $6 million June payment into the benefit fund.

“It’s not doable,” he said. “There is no $6 million to hand to them.”

In addition, Brookdale is part of the MediSys Health Network, whose longtime corporate CEO and president, David Rosen, was indicted in March on bribery charges. He pleaded not guilty.

Other Brooklyn hospitals also see salvation in cooperation. At Kingsbrook, Dr. Brady cites three years of surpluses through 2010.

“We are really open to an alignment with our neighbors,” said Dr. Brady, whose institution is within five blocks of Kings County Hospital Center and SUNY Downstate. “[Hospitals] probably need the state for a carrot-or-stick [offer]. What makes sense for a regional strategy? There has to be a larger entity to engage discussions on a rational consolidation of services and resources.”

But hospital restructuring takes money. With so many hospitals in Brooklyn on—or approaching—life support, executives want the state to formally guide them.

State Health Department officials declined interview requests, but a spokesman said in a statement: “As a number of hospitals in the Brooklyn market … are facing financial challenges, DOH officials are monitoring these situations and will take actions as appropriate.”