Testimony of the Health Professionals and Allied Employees (HPAE)
in Support of S. 1468 Before the Senate Health, Human Services and Senior Citizens Committee
July 19, 2010

Good afternoon Chairwoman Weinberg and members of the Committee. Thank you for the opportunity to speak with you this afternoon in support of S1468 requiring hospitals owned or operated by for profit companies to publicly disclose certain financial, operating and governance information. My name is Jeanne Otersen and I am the Public Policy Director for the Health Professionals and Allied Employees, AFT, AFL-CIO (HPAE), representing 12,000 Registered Nurses and health professionals in hospitals and other healthcare facilities across New Jersey.

For-profit owned or operated hospitals are unlike other for-profit businesses in very significant ways. At our most vulnerable, we turn to our hospitals, needing to know that providing safe and effective care is their #1 priority. We count on an overarching commitment to the health, safety and welfare of patients and the communities they serve to dictate how the hospital uses its financial resources. For-profit hospitals draw on the very same public sources of funding - Medicare, Medicaid, Charity Care, Family Care - to provide care as our non-profit hospitals, with the advantage of being able to raise private capital as well. And as we know from the recent budget debate, those public funding sources are increasingly scarce. But the leadership of for-profit hospitals, whether privately-held or publicly traded, are accountable first and foremost to their owners and investors.

This difference in accountability matters. Even with NJ’s laws on charity care, non-profits are held to a higher standard for meeting the health needs of the community, and are accountable to the IRS and state Attorney General that they are acting in the public interest, with Boards of Directors that are held to at least minimum standards for disclosing and avoiding conflicts of interest.

Currently there are four for-profit owned or operated hospitals in New Jersey.

• Bergen Regional Medical Center in Paramus, the former Bergen Pines, has been managed by Solomon Health Group LLC, an out of state, privately-held company, under a 19-year lease and operating agreement with the Bergen County Improvement Authority which is the license holder.
• Memorial Hospital of Salem County is owned by Community Health Systems Inc, a publicly-traded for-profit corporation based in Tennessee with 123 hospitals in 29 states.
• Bayonne Medical Center in Hudson County has been owned and operated by IJKG LLC, a privately held, NJ-based company since February 2008.
• Mountainside Hospital in Montclair, Essex County has been a part of privately-held, Kentucky-based Merit Health Systems LLC since May 2007. Merit’s only other facilities are located in San Antonio, Texas.
• Even as we speak, Liberty Health System in Jersey City is seeking approval from the DHSS and the Attorney General to transfer its license to operate not for profit Meadowlands Hospital and Medical Center in Secaucus, Hudson County, to MHA LLC, a privately held for-profit company with a complex and changing organizational structure that currently includes 59 affiliates, many of them based in Florida and other states.

HPAE represents nurses and health care workers at BMC, BRMC and Meadowlands, and RNs at Salem are seeking to be represented by HPAE.

Existing Law and Regulation

Both not for profit and publicly-traded for profit hospitals are subject to reporting and oversight requirements that provide the public with some degree of financial, operating, and governance transparency. Again, however, non-profit hospitals are held to a higher standard of transparency.

Non-Profit

The Internal Revenue Service requires not-for-profit hospitals to annually disclose a wide range of financial and governance information on the IRS Return of Organization Exempt from Income Tax, referred to as the IRS 990, available free of charge to anyone. Required disclosures include: compensation paid to current and former officers, directors, key employees, and five highest paid employees; financial transactions with related entities; names of governing body members; business relationships that current and former officers, governing body members, key employees and their family members have with the hospital and with one another; loans, grants or other financial assistance paid to officers, directors and key employees; any interest in a financial account in a foreign country; fees paid for legal, accounting, investment and management services; amounts spent on advertising and payments to affiliates, and amounts paid to the five highest paid independent contractors.

For-Profit: Publicly Traded

The federal Securities and Exchange Commission requires publicly-traded for profit hospitals to annually file their Form 10-K and proxy statement with the SEC. Available free of charge to anyone in the public, these documents include an audited financial statement and information on executive compensation, related party transactions and board governance. The Form 10-Q quarterly report is less comprehensive than the Form 10-K and includes unaudited financial information, but is more current.

Minimal Transparency for Privately-held For-profit hospitals and Local Affiliates of Publicly-Traded For-profit Hospitals

Hospitals, such as Bayonne Medical Center and Bergen Regional Medical Center, that are owned or managed by privately held for-profit entities, on the other hand, have far more limited reporting requirements. DHSS regulations require only that they, like all NJ hospitals, file their audited financial statements and quarterly unaudited financials and utilization data with the Department. And there are even fewer requirements for Memorial Hospital of Salem County, which submits only unaudited quarterly financials.

Information that would help communities, elected officials and employees understand where and how for-profit hospitals are spending public funds meant for patient care is generally unavailable to the public. For example:

• Is the privately-held for-profit company that owns or manages the hospital hiding excessive profits to its principals by contracting with its own affiliates for goods or services?
• Are compensation levels for executives excessive?
• Who are the investors in the hospital?
• When one of these hospitals claims operating losses, does that claim accurately reflect their total financial picture?
• Are inflated management fees being paid to the corporate parent or an affiliate?
• Are charity care and other community services being accurately reported?

The Track Record of For-Profits in NJ

• At Bergen Regional, the Solomon management company has a long track record of contracting with its own affiliates for a variety of services. Between 1998 and 2004, the hospital paid fees totaling more than $154 million to several of its affiliates for a variety of services to the hospital. Medicare guidelines have compelled the hospital to acknowledge that $114 million of these payments are excess payments above their fair market value. In addition, in 2008 and 2009, the auditor for the hospital admonished the managing partners for failing to disclose the fees paid to affiliates, in violation of generally accepted accounting principles. At the same time, management has repeatedly made cuts in staffing, services and supplies, including at one point reducing food for long-term care residents and reducing supplies for occupational therapy programs.
• At Bayonne, the 2009 Audited Financial Statement for IJKG’s Operating Company ( Opco) shows that $24.4M was transferred from Opco to IJKG Holdco, the parent company, for “general and administrative services” and “other costs”. The principals in IJKG invested $1.25 million to buy the hospital in February 2008 and since that time their equity in the hospital has risen to close to $12 million. We have no idea how much of the $24.4M transferred to the parent in 2009 alone represents profit to the owners. Meanwhile services and staff have been cut, contracts with insurance companies cancelled, and unlike a nonprofit entity, Bayonne’s owners have little obligation to meet the needs of the community they serve, no limits on excessive executive compensation and every incentive to maximize profits.
• Memorial Hospital of Salem County is owned by Community Health Systems Inc, a publicly-traded for-profit corporation based in Tennessee with 123 hospitals in 29 states and revenue in 2009 of $12 billion. . MHSC provides no audited financial information to the public; and its finances are combined with the other 122 CHS hospitals. Nevertheless, it has applied to the NJDHSS to terminate inpatient obstetric services and related HealthStart services, based in part on the alleged financial hardship of providing these services to a patient population that is overwhelmingly dependent on Medicaid and charity care for obstetric services.
• In the pending sale of Meadowlands to MHA LLC, both the DHSS and the AG have had to ask repeatedly for an explanation of the ownership structure of MHA and a description of where the money is coming from to purchase the hospital and how the money will be used. To date, the principals of MHA have refused requests by elected officials, the DHSS and the AG to commit in writing to maintain hospital services and to honor current staff contracts for a specified time period.

Key Provisions of S1468

The bill requires for-profit hospitals to disclose:

When the DHSS and other regulatory agencies are evaluating care at New Jersey hospitals, or considering a transfer of license to a for-profit, or reviewing a for-profit’s track record, they should have the full picture at hand. When a for-profit hospital claims a service is underutilized, or a bleak financial picture demands staff or service cuts, the community deserves the full picture. When, in these dire financial times our NJ Legislators cut health care funding, or when our local Mayors look to a for-profit to ‘save’ their hospital, they deserve the full picture. We may not be able to impede the trend of for-profit hospitals, but we should at least be able to see what’s behind the closed doors.

Thank you for taking the most important step to opening those doors.

For profit companies own or operate several hospitals in New Jersey and more are on the way. All hospitals, whether not-for-profit or for-profit, receive millions of dollars in federal and state funding, through the Medicare, Medicaid, NJ Family Care and Charity Care programs.

Budget cuts and a struggling economy mean patient care dollars are increasingly scarce. Our community hospitals are cutting back on services and staff; some are at risk of closing and our communities’ access to needed health care services is in jeopardy.

Accountability and transparency to public payers and to the communities our hospitals serve is now more important than ever. Not-for-profit hospitals are subject to a variety of reporting and oversight requirements that provide the public with some degree of financial, operating, and governance transparency.

That’s why HPAE has been working with state legislators on passing S1468/A1523, a bill that requires companies that own or manage for-profit hospitals to disclose to the public how they are spending precious health care dollars, including:

• Details on executive and board member compensation;
• Board and executive self-dealing, where a hospital buys goods or services from businesses related to the for profit hospital’s owners, board members, executives or their relatives;
• Plans to cut or expand programs and services, launch construction projects, take on more debt, introduce new technologies or buy up other facilities;
• Tax abatements requested;
• How profits are spent;
• Financial reports for all related companies that do business with the for-profit hospital, and
• Joint ventures with investors.

(Read the full bill here)

Let your legislators know that you want to be able to follow the money, to be sure that taxpayers’ health care dollars are being spent to protect and promote the health of our communities and not the pockets of for profit hospital owners and their buddies. Please fill out our petition form below!