President Twomey’s Testimony on the Need for Greater Oversight of For-Profit Hospitals
Photo above: President Twomey testifying before a joint session of the Senate Health and Regulatory Oversight Committees – May 20, 2013
Good afternoon. My name is Ann Twomey and I am President of the 12,000 member Health Professionals and Allied Employees. Thank you, Chairmen Vitale and Gordon and Committee members for the opportunity to discuss the rapid and aggressive incursion of for-profit companies into New Jersey’s health care market in recent years; the impact on our communities and our not-for-profit hospitals and healthcare facilities; and the gaps in laws, regulations and oversight that should provide standards and safeguards for our communities’ healthcare needs and access. HPAE members, nurses and health professionals working in NJ hospitals and health care facilities, are the front-line witnesses to the impact of for-profit conversions on their patients, their communities and on health care working conditions.
In 1997 there were no for-profit companies operating hospitals in New Jersey. Now there are eight: Bergen Regional Medical Center (1998); Memorial Hospital of Salem County (2000); Mountainside Hospital (2004/2010); Bayonne Medical Center (2008); Meadowlands Hospital Medical Center(2010); Hoboken University Medical Center (2011); Christ Hospital (2011) and the about-to-be-re-opened Pascack Valley/HUMC/Legacy. In addition, there are 3 hospital purchases by for profit entities that are pending – St. Michael’s, St. Mary’s and St. Clare’s, and others rumored.
These hospital conversions from not-for-profit to for-profit I believe are at a tipping point – threatening to undermine access to care and affordability of care for our communities. The companies buying up our hospitals are notorious for aggressive ‘billing and coding’ and business models that rely on out-of-network care:, increasing health care costs for consumers and insurers by encouraging inappropriate admissions through the Emergency Room. Downsizing of staff and service cutbacks, along with, in some cases, a focus on specific ‘niche’ services can have the effect of shifting costs and “less profitable” services onto existing not-for-profit community hospitals.
Generally,nurses and health professionals working at a financially fragile hospital learn of an impending sale when everyone else does, after months of rumors and anxiety, when hospital leadership announces that t sale to a for-profit buyer is the only option that will avoid closure. The new owners, privately held companies in all cases but one in NJ, are able to purchase the hospital for ‘pennies on the dollar,’ sometimes through the bankruptcy court. In several instances, the buyers have sold the real estate on which the hospital sits to another group of investors in totally opaque sale-leaseback deals, reaping significant profits that are not necessarily invested in the facility.
The Board of Trustees of a hospital has the fiduciary duty to search for an appropriate buyer, solicit and review bids, select a buyer, and negotiate the sale. Community members, hospital employees and elected officials often wonder how and why Trustees selected a particular company. What we have learned, after reviewing board minutes that are submitted to the Office of the Attorney General (OAG) as part of the AG’s review of the sale under the Community Health Asset Protection Act (CHAPA), is that executive leadership all too often share little information with Board members who make pro-forma decisions with an appalling lack of due diligence. Scant attention is paid to the track record of the applicants and their ’character and competence’ as defined in state regulation. Little or no scrutiny is given to their commitment to preserving needed services and retaining staff, to meeting community healthcare needs and to respecting the rights of the existing workforce.
For example, at both Christ Hospital and Meadowlands Hospital it was always a concern, to us at least, that a company was selected without any public bidding process that would include standards for an acceptable bid. Nor did it appear that a not-for-profit option was searched for first. In the deals involving Bergen Regional Medical Center, Meadowlands Hospital and Bayonne Medical Center, the chosen buyers had a number of significant violations on their track record, either in NJ or in other states, or had no experience running an acute care hospital. In other examples, there was a large disparity between promises made to staff and commitments included in the legal documents provided to NJ agencies.
Hospital staff feels compelled to support any company and any deal, or face their hospital’s closure, with a loss of their jobs and of access to needed services. Under that same pressure, workers with union contracts attempt to reach a new collective bargaining agreement with the buyer. When workers or community residents raise questions and ask for transparency, they are warned that they will be the cause of the hospital’s demise.
At Christ Hospital, for example, hospital executives used flyers and ‘town hall’ meetings to blame the nursing union for raising questions about Prime Healthcare – a company which later withdrew its bid after careful scrutiny by the community and OAG.
Working closely with community leaders and elected officials, our union members have articulated a vision for the hospital they were trying to save, and we have advocated with both the NJ Department of Health and the OAG to place conditions on the sale that would:
· Protect and maintain current services & community access to care;
· Limit the out of network model and cost-shifting to consumers and other healthcare providers;
· Provide safe staffing;
· Protect the collective bargaining rights of the workforce, and their right to safe working conditions, job security and healthcare coverage;
· Hold these for-profit companies to the same requirements for accountability, service provision, and financial transparency as non-profit hospitals;
· Create community oversight and enforcement mechanisms that ensure continued access to safe, effective and needed healthcare services.
The Department of Health (DOH) and the OAG have adhered to the requirements to share relevant documents, hold public hearings, and listen to the community and worker concerns raised during the public scrutiny of these hospital conversions. What has been frustrating is the limited effectiveness of many of the conditions placed on these conversions and the agencies’ apparent inability or unwillingness to consistently and stringently enforce the standards and conditions set.
And that is why we are here today. I know that you will hear from others with recommendations for changes in our CHAPA law and CN regulations and I have listed ours at the end of my testimony. I will focus my comments on the problems that persist due to these gaps in law and the failures of oversight:
- High costs, driven in part by out-of-network models : The federal government’s release of hospital charges data earlier this month put an unflattering spotlight on NJ, as headlines proclaimed “Jersey’s hospitals are among the highest priced in the nation, ranking second only to California’s” and Meadowlands Hospital and Bayonne Medical Center, were singled out for consistently charging prices that were among the highest in the state. http://www.northjersey.com/news/NJ_among_priciest_for_hospital_care.html?page=all Source: Centers for Medicare & Medicaid . Normally, insurers and patients pay only a fraction of these charges, but when Meadowlands and Bayonne converted to for-profit hospitals, both went ‘out-of-network’ for most insurers, leaving those insurers and patients liable for the full charged amount. The out-of-network model results in limited access for local residents and skyrocketing costs.
- Cuts in services: Memorial Hospital of Salem County, owned by Community Health Services (CHS), a national for-profit hospital chain, asked the DOH to allow it to discontinue maternity services in 2010. This request was made despite conditions placed on CHS by the DOH and the OAG during the 2002 conversion of the hospital that required maintenance of these services. CHS ultimately withdrew the request in response to community and nursing protests. At Bayonne, bed capacity in some services has been reduced, and recent newspaper reports cite clinic closures at Bergen Regional Medical Center . In the first year of ownership, the Meadowlands Hospital owners focused primarily on providing highly profitable, hospital-based pain management services that dominated operating room time at the expense of other surgical services.
- Lack of financial transparency: The public, regulators, and elected officials are unable to “follow the money”, even though the DOH requires financial reports as part of the conditions of purchase in all hospital sales. For example, the DOH has twice fined Meadowlands hospital $6,000 for failure to file its 2011 audited financial statement, which was due nearly one year ago. (DOH letters to CEO Lynn McVey December 21, 2012 and March 26, 2013). Meadowlands Hospital must file its 2012 Audited Financial Statement by June 30, 2013; it has yet to file the AFS for 2011.
- Staffing cuts: Even though CN Conditions usually require the new owners to ‘hire substantially all employees”, there have been profound staffing cuts at Meadowlands Hospital, Bergen Regional Medical Center and Bayonne Medical Center. According to our own analysis, there were 450 full-time nurses, technicians and ancillary staff at Meadowlands Hospital before the conversion – and only 300 in 2013.
- Attacks on Nurses’ and Healthcare Workers’ Rights: Even though the DOH asks (and the bankruptcy court requires) that potential buyers negotiate with unions representing the existing staff, the new owners all too often violate the terms of the contract once the sale is completed. Basic rights to safe working conditions, the ability to speak up for patient care without fear of retaliation, health insurance coverage and job security all have been violated at Meadowlands Hospital. While we are challenging these violations through the National Labor Relations Board, these retaliatory tactics threaten the retention of qualified staff and those willing to speak up for patient care and their profession.
- Hidden Real Estate Deals: At Bayonne, Hoboken and Meadowlands, hospital owners have sold the property out from under the hospital in sale-leaseback arrangements with ‘real estate investment trusts’ or other private investors. Beyond the sale price, the terms of these arrangements are totally opaque to government agencies and the public and are entirely unregulated. The owners of Bayonne Medical Center sold the hospital real estate to Medical Properties Trust Inc (MPT) for $58M in 2011, less than three years after they paid $100,000 in cash and assumed approximately $32M in liabilities to purchase the hospital, a nearly $26M gain. In Secaucus, MHA LLC sold the property where Meadowlands Hospital Medical Center is located to MHR Investments LP, a Montreal-based entity, in December 2012 for $18M.
- No Protections for Public Institutions During the reorganization of UMDNJ and Rutgers, this legislature built in important protections for University Hospital’s mission, staff and community services. These protections were crucial because CHAPA does not cover public hospitals such as Bergen Regional Medical Center and Runnells Hospital in Union County, although there are now some consultant reports recommending that Runnells be privatized, and the current lease at BRMC is up in 2017.
Despite the need for more oversight, the DOH is doing less in its ongoing oversight of hospitals:
1. Since February 2011 the DOH no longer conducts hospital license renewal survey inspections, relying instead on accreditation inspections by the Joint Commission or DNV Healthcare, and Regulatory Compliance Statements (RCS) signed by the hospital CEO attesting to their adherence to NJ laws and regulations. Joint Commission inspections take place only once every three years; DNV inspections occur annually. Unlike the DOH’s inspection reports which were publicly available through OPRA, the Joint Commission/DNV reports are considered “proprietary” and are not available to the public. Although the accreditation reports are not routinely submitted to the DOH, regulations give DOH the authority to request a copy of the accreditation inspection report. We do not know if the DOH has ever exercised this right.
2. The Regulatory Compliance Statements are the only assurance that hospitals are complying with those NJ hospital licensing laws and regulations that have no equivalent requirement in the accreditation inspections. DOH regulations state that the DOH “shall not renew a license if the Department does not receive a facility’s RCS”. Nevertheless, DOH twice renewed Meadowlands Hospital’s license without obtaining their Regulatory Compliance Statement. The first time, the Hospital filed its 2011 RCS in July 2011, four months after the DOH renewed the hospital’s license, and the same month that the DOH cited the hospital for serious violations of state and federal licensing standards. The hospital filed its second RCS in December 2012, nine months after the DOH issued the hospital its 2012 license renewal.
3. DOH no longer puts complaint inspection reports online, and it takes months to receive a copy of the outcome of a complaint.
4. Fines and Penalties: As of May 2, 2013, Meadowlands Hospital still has not submitted its 2011 Audited Financial Statement (AFS) to the NJDOH, which was due June 30, 2012. This is a requirement of both NJ hospital licensing regulations and a Condition of the Meadowlands Hospital Certificate of Need. This would be the first audited financial statement for the hospital since the conversion from not-for-profit to for-profit ownership by MHA LLC in December 2010. After repeated promises by the owners to submit their 2011 AFS went unfulfilled, the DOH finally fined the hospital $6,000 ($1,000 per month) for violating its CN on December 21, 2012. When the violation continued, the DOH fined MHA LLC another $6,000 ($2000 per month) on March 26, 2013. NJ healthcare facilities licensing regulations at 8:43E-3.4(a)(12) require the DOH to levy a fine of $1000 per day for violating a CN Condition.
5. Hospital Monitoring Law: Early Warning System and Interventions, S1796/A2608, enacted in 2008, created an “Early Warning System” to alert the DOH to hospitals that are in financial distress or at risk of being in financial distress and gives the DOH the authority to appoint a monitor with wide-ranging powers when financial distress triggers are reached. The law requires the DOH to develop regulations that would specify the financial triggers for the “financial distress” designation and the potential interventions the DOH could implement, based on the recommendations in the report of the Commission on Rationalizing Health Care Resources (“Reinhardt Report”). This law is especially important because it gives the NJ Healthcare Facilities Financing Authority (HCFFA) and the DOH clear authority to intervene with hospitals even if they do not have bond debt through the state. Unfortunately, the implementing regulations have never been promulgated. Hospitals do submit a monthly “dashboard” of five financial indicators (not subject to OPRA) to the NJHCFFA. As far as we know, the DOH has not exercised its intervention authority beyond sending DOH/HCFFA staff to attend board and/or finance committee meetings of some financially distressed hospitals (eg Meadowlands; Christ Hospital-prior to sale to Hudson Holdco).
You might notice that Meadowlands Hospital figures prominently in most of my examples of failed oversight and limited enforcement. Nevertheless, despite numerous and repeated citations for significant patient safety, licensing, and CN violations, including for failure to file audited financial reports, the DOH has fined Meadowlands Hospital only three times for a total of a mere $15,000.
Beginning in June 2011, HPAE has repeatedly written to and met with DOH officials requesting the appointment of a monitor or a temporary manager to review and oversee patient safety and financial integrity at Meadowlands Hospital. Elected officials, including Senators Vitale and Weinberg; healthcare advocates, including NJ Appleseed Public Interest Law Center and NJ Citizen Action, and individual community members have joined us in making this request. To the best of our knowledge, the DOH has never formally responded to any of these calls for help.
For example, I wrote to Commissioner O’Dowd earlier this month after I filed an OPRA request for and received copies of several documents submitted by the Meadowlands Hospital owners to the DOH as required in the Conditions to their Certificate of Need. Some of the submissions were long overdue, some presented confusing data, others were not timely or not relevant or both. In my letter to the Commissioner, I pointed out that the Meadowlands Hospital owners had failed to provide the required data documenting that they are providing outpatient and preventive services to medically indigent patients; they had failed to provide reports from their Community Advisory Group; they had failed to provide an assessment of their outreach to the community, and they provided “utilization statistics” that are difficult to reconcile with Cost Reports and other data they have submitted to the DOH.
And now, as we meet here today, the NJ Department of Health and Office of the Attorney General are considering the sale of two not-for-profit hospitals to Prime Healthcare of California. More than 30 organizations and elected officials have written to the DOH and OAG asking that the process be suspended due to a U.S. Department of Justice investigation into Prime Healthcare over allegations of fraudulent billing practices and a U.S. Department of Health and Human Services’ Office for Civil Rights investigation over alleged violations of patient privacy laws.
We once thought that if we set strong enough standards and protections, we could maintain quality, services and safe staffing and working conditions. But, we now know that we need to strengthen our laws and strengthen our oversight.
Along with NJ Citizen Action, NJ Appleseed Public Interest Law Center, I support a series of recommendations to strengthen the existing CHAPA law and enforcement mechanisms by the DOH, which are listed in my testimony here:
· Codify the common law’s mandate that a charitable corporation remain a charitable corporation rather than changing its mission, including converting to a for-profit entity, unless it is impossible to remain a nonprofit health facility;
· Make clear that the CHAPA process applies even after a bankruptcy court approves the sale of the license and facility in that process;
· Strengthen the CN track-record requirement to disallow transfer of hospital licenses to owners under current federal/state investigation, with a pattern of state violations – in NJ or other states where owners have held licenses, regardless of the type of facility at which the violations occurred, or who employ business practices that are incompatible with state health policy.
· Conduct a health impact study/analysis of the sale to determine its likely impact on the quality, affordability and access to care and require DOH undertake such analysis as set forth in CHAPA, rather than relying solely on its CN process.
· Expand the CHAPA law to cover public hospitals and hospital closings; and, in the event of closure codify a preference that the facility remain a healthcare facility.
· Require full disclosure and OAG and DOH review of all sale-leaseback plans and contracts, whether prior to, during or post-license transfer, and to permit the Attorney General to condition any sale to a for-profit entity on a claw-back if the facility is sold for more money than purchased (less capital improvements).
· Require purchasers to make a 10-year commitment to maintain the hospital as an acute care hospital that is directed to providing the medical and public health services that are actually needed by the community the hospital serves, and to collaborate with other area hospitals and state officials to ensure coordination of care on a regional basis, especially for government insured patients.
· Require purchasers at the time of sale to maintain staff at current levels, and thereafter, at appropriate levels to assure patient safety; to abide by workplace safety requirements; to honor any collective bargaining agreements; and to uphold workplace rights.
· Require purchasers to maintain existing insurance contracts and continue to negotiate insurance contracts to assure coverage for local residents; and amend state laws so as to eliminate any incentives for hospital providers to employ an out-of network business model.
· Require financial and governance transparency of all hospitals regardless of corporate status; that is, for-profit entities must provide quarterly unaudited financial statements, annual audited financial statements, current list of investors, transfers of funds to other related entities and lists of board members and business relationships among or with board members to the NJ Department of Health – which will be available for public review subject to OPRA. This requirement ensures parity with the reporting requirements of nonprofit hospitals.
· Require all buyers to maintain outpatient care and charity care services necessary to serve local communities, not just maintain the same services and charity care levels as the seller. The NJDOH should evaluate prior levels of these services over a reasonable window (5 years), since distressed hospitals often reduce or eliminate needed services prior to a for-profit conversion.
· Establish best practices for Board governance and establish a Community Oversight Board that may include physicians and other providers not employed by the hospital, local elected officials, and community service providers and other local organizations. The Board shall not be chaired by the hospital and it must be is independent of the purchasing hospital. This Board must approve any significant change of hospital services prior to requesting DOH permission to do so.
· Amend CHAPA to require DOH to hire a monitor for each conversion to oversee compliance with state laws and regulations generally, not just charity care, and require the monitor to attend Board meetings and meet with community leaders, the Community Oversight Board and employees or representatives of employees for at least three years following conversion.
· Increase fines and enforcement actions for a continuing pattern of non-compliance with
CN/CHAPA conditions, and makes available for public review the result of complaint inspections on the NJDOH website and to complainants following the inspection and any NJDOH citation but prior to acceptance of the Plan of Correction.
 Medical Properties Trust 2012 10-K available at http://phx.corporate-ir.net/phoenix.zhtml?c=185765&p=irol-sec
 Bargain and Sale Deed available at Hudson County Register’s Office.