The Adventures of the Purloined Bequest, the Resident Heiress, and the Hidden Hospital System

The game is afoot again.  A series of recent articles in the media described a series of cases whose mysterious interrelationships Sherlock Holmes might have appreciated.

The Purloined Bequest

A singular article in the Wall Street Journal, entitled "Judge Rules in Case of Fortune Tied to Buffett," first made this case explicit, but some background is required to understand it.

The story focused on Long Island College Hospital, in Cobble Hill, Brooklyn, New York.  [Full disclosure: this story got my attention particularly because I grew up nearby in Brooklyn, and was born at that hospital, which was also the local hospital my parents often used.]   LICH has long been the major community hospital for downtown Brooklyn.

The story appeared to begin in 2011, per the WSJ,

 In 2011, Judge [Carolyn] Demarest approved the merger of LICH and SUNY Downstate on the condition it would keep the charitable hospital going. As part of the deal, the hospital transferred properties to Downstate estimated to be worth as much as $1 billion collectively, according to a previous court order.

The merger was supposed to keep LICH in operation as a community hospital and provider of acute care to the poor.  However, things did not work out.

 This year, however, Downstate announced plans to shut the hospital, leading to protests from Brooklyn residents and local politicians.

'It is clear that the premise upon which this Court authorized the transfer of assets has been defeated,' Justice Demarest wrote in her Aug. 20 decision, adding that Downstate had breached its contractual obligations. She cited a 'legal and moral responsibility' to correct her earlier error in approving the merger.

She directed Downstate to return all assets to the hospital's previous owner, Continuum Health Partners Inc., which subsequently said it couldn't take the reins. The court is expected to review other proposals.

The judge also discovered that hospital management had been raiding an large endowment fund intended for other purposes,

A New York state judge ruled this week that a struggling Brooklyn hospital must repay tens of millions of dollars it borrowed from an endowment set up by early investors with billionaire Warren Buffett.

The ruling aims to rectify the previous use of the money by Long Island College Hospital, which is hurting financially and was scheduled to close. Mr. Buffett in July told The Wall Street Journal that his late friends, Donald and Mildred Othmer, would have felt 'betrayed' at the way the funds were spent.

Apparently,

 The Othmers, natives of Omaha, Neb., who later lived in Brooklyn, were longtime friends of Mr. Buffett's, and each invested $25,000 with the billionaire in 1961.

When they died—he in 1995 and she in 1998—they gave away a fortune estimated at $780 million, including the $135 million permanent endowment for the hospital. The Othmer wills stipulated the interest on the endowment could be used for operating expenses but the principal should be held 'in perpetuity.'

In a series of court-approved transactions that began in 2000, the hospital borrowed from the funds repeatedly to meet short-term obligations and cover debts.

The hospital argued that the money was necessary to keep the hospital afloat, which it said the Othmers would have wanted. The transfers depleted most of the endowment, a result that came to light after the Journal wrote about the situation in July.

New York Times and Brooklyn Daily Eagle articles focused on the question of whether SUNY/ Downstate intended to close the hospital so it could sell its apparently valuable real estate assets in a now fashionable neighborhood, but not on how the hospital fell into these dire straits.


There seem to be some lingering questions -

-  If the losses and borrowing began in 2000, or earlier, who was responsible for them, given the current owners have only been in place since 2011?

Note that the phrasing in the article above ("the hospital argued that the money was necessary to keep the hospital afloat") suggested that before SUNY took over, the hospital was independent.  However, the article mentioned, albeit only briefly in passing, that the hospital had a previous owner, Continuum Health Partners Inc.

-  How were the losses explained when they occurred, and what was the rationale for  borrowing from restricted endowment as a response, instead of, for example, direct efforts to minimize losses or increase capital and revenue?

Note that the article implied that when SUNY acquired LICH, it acquired some very valuable real estate.  Why did the previous management of LICH not consider selling off some of this real estate to resolve its debts?

-  Did mismanagement of the hospital lead to excess losses, and did borrowing funds from the principle of the hospital's endowment to offset these losses amounted to more mismanagement?
 

Meanwhile, a second even more bizarre story about another New York City hospital almost simultaneously got media attention.

The Resident Heiress

The case first made it into the media in 2012, when the tabloid New York Post reported,

Beth Israel Medical Center milked reclusive copper heiress Huguette Clark for more than $13 million in fees, donations and even a priceless painting during her 20-year stay as a patient — and greedy executives angled for $125 million more, her relatives allege in shocking new court filings over Clark’s estate.

The alleged shakedown was illuminated in an e-mail in which hospital board member and former CEO Dr. Robert Newman referred to Clark as 'the biggest bucks contributing potential we’ve ever had,' according to court papers.
He told a colleague her 'potential has been overwhelming[ly] unrealized.'

At one point, he suggested to Clark that she pay nearly one-third of her estimated $400 million fortune to keep the now-shuttered Beth Israel North on the Upper East Side open so she could keep living in the room she had refused to leave for 15 years despite being in good physical health, the papers allege.

But instead of addressing Clark’s crippling anxiety, hospital honchos played on her fears, engaging in 'a concentrated effort, orchestrated at the highest board and executive levels,' to get her money, court documents obtained by The Post allege.

Clark’s death last year at age 104 set off a battle over her estate. Her distant relatives claim lawyer Wallace Bock, accountant Irving Kamsler, private-duty nurse Hadassah Peri and the Beth Israel administrators manipulated the feeble Clark for her money.

The nurse, who received cash and gifts from Clark, stands to inherit nearly $34 million and Clark’s priceless doll collection in the now-disputed will. Beth Israel is to get $1 million.

The Paris-born Clark inherited her money from her father, William, a rail and mining baron and former US senator whose wealth rivaled the Rockefellers’.

She went to Beth Israel North in 1991, when she was 85, after a doctor found her emaciated and ill in one of her three sprawling Fifth Avenue apartments.

She spent the last two decades of her life in dismal hospital rooms with the shades drawn and door shut even though there was 'no medical basis for keeping her' past the first few months, documents show.

Clark was 'the perfect patient' for the hospital, her relatives charge, noting, 'She required no medical care, possessed enormous wealth, paid over $800 a day for her room, and became progressively more dependent on the hospital.'

'Beth Israel had a plan to subtly, but ever so persistently, court Huguette for the purpose of garnering gifts and ultimately do a will in favor of the hospital,' court papers claim.

This case also seems to be about wealthy donors and hospital executives.  Yet what makes it most bizarre are the circumstance of Ms Clark's hospital stay.  As a former intern, resident, fellow, and teaching hospital attending, I can attest that most hospital administrators are concerned, if not obsessed, with discharging patients quickly.  Hospital stays are currently paid by most insurers according to the patients' diagnoses, but not their length of stay.  Long stays cost hospitals money.  Furthermore, unnecessarily long stays use up resources that could better serve acutely ill and injured patients.  Yet Ms Clark stayed an astounding 20 plus years, without any obvious medical rationale.  No hospital official contested the fact that Ms Clark stayed that long in the NY Post article.

Furthermore, in a 2013 New York Times article, the hospital's lawyer, defending a parallel attempt to recover the money donated to the hospital, wrote

 Beth Israel had provided Mrs. Clark with 'a well-attended home where she was able to live out her days in security, relative good health and comfort, and with the pleasures of human company.' Besides, he said, the amount of money she gave to Beth Israel was “not very large considering her vast wealth.”

Furthermore, a member of the Beth Israel fund-raising staff wrote in a memo disclosed during litigation,

 She was well enough by then to go home to her spacious apartment at Fifth Avenue and 72nd Street, overlooking Central Park, Ms. [Cynthia L] Cromer said, but 'she asked if she might stay in the hospital longer: she feels comfortable and safe, and her apartment is being renovated.'

Never mind that the fundamental mission of the hospital is to provide acute care for the sick and injured, not to provide comfortable retirement housing. But hospital managers are apparently on record acknowledging that the hospital was basically providing Ms Clark with services that are normally available in a retirement community, not services that acute care hospitals normally provide anyone   There is no evidence that the hospital ever provided similar services to any other patients. 

The obvious mystery, then, is

- why no one at the hospital, no doctor, nurse, or manager, or no visitor, regulator, accrediting agency, insurer ever questioned why the hospital was providing a long-term residence to a former patient?

No answer to the question has appeared in any coverage I have seen of this case, including a September, 2013,.NY Times followup article on the occasion of the case nearing trial. 

In the absence of a creditable explanation for this strange distortion of the hospital mission,

- is there any other conclusion than that its purpose was to extract a large amount of money from a vulnerable, rich, but no longer acutely ill former patient?

This would suggest an unusual but monumentally unethical kind of hospital mismanagement.

So we have two recent stories about major, unusual, apparently severe mismanagement by hospital executives.  These stories were reported as if they were independent.

However, buried in the original NY Post article, but unmentioned in either of the major NY Times articles, however, was a hint of how this case and that above of the purloined inheritance appeared to be linked.

The Hidden Hospital System

The NY Post article referred thus to the Beth Israel CEO who allegedly pushed Ms Clark for contributions,

 Newman, former CEO of Continuum Health Partners, Beth Israel’s parent organization, took the unusual step of offering to help Clark complete a will so 'some faceless bureaucrat of the government' wouldn’t get his hands on her estate, court papers say.

Quick Watson, did you see that?

Continuum Health Partners was the "parent organization" of Beth Israel Hospital during at least some of the time Ms Clark was in residence there.  Continuum Health Partners also was the "previous owner" of Long Island College Hospital during at least some of the time it apparently was suffering large losses and its endowment was being depleted.  So were both these stories really about the same organization, the same hospital system?

Digging a little further, per its own LinkedIn page,

 Continuum Health Partners, Inc. was formed in 1997 as a partnership of three venerable institutions — Beth Israel Medical Center, St. Luke's Hospital, and Roosevelt Hospital.

So while the hospital system did not exist when Ms Clark first entered Beth Israel Hospital, the heiress' "care" was under the control of the organization apparently from 1997 to the day she died.

Furthermore, as noted in a 2011 Chronicle of Higher Education article, available from Innovative Resources Group Inc,

 If there was a honeymoon after the merger of Long Island College Hospital, in Brooklyn, with Continuum Health Partners, in New York in 1998, few remember it. The bickering began early and dragged on for years, but divorce didn’t seem inevitable until the doctors went public.

So the hospital system called Continuum Health Partners took over Long Island College Hospital in 1998 and held it for 13 years.  Furthermore, apparently LICH was part of Continuum Health Partners during the time when its losses rose and the Othmer bequest was depleted.  For example, from the CHE article,

  Several physicians told a crowd gathered outside the hospital’s entrance in 2008 that Continuum had withheld money from the 150-year-old institution, needlessly cutting patient services and endangering the hospital’s future.

Also in 2008, the Brooklyn Heights Blog reported this response to a question about finances from the Continuum Health Partners CEO, Stanley Bazenoff,

 LICH faces an immediate fiscal crisis. Unless action is taken quickly, he said, LICH will not have cash on hand to meet payrolls and other current expenses. He ascribed LICH’s problem to three factors. First, the hospital carries a heavy debt burden–approximately $150 million in long-term bonds financed through the New York State Dormitory Authority and $25 million in short-term commercial paper–which results in annual debt service (including interest and amortization) cost of approximately $22 million. Second, LICH has an operating deficit, presently about $40 million on an annual basis,...

Denis Hamill, a columnist for the New York Daily News, made this accusation in a February, 2013, editorial:

Under Continuum, the once-profitable LICH ran up $300 million in debt from pure administrative malpractice. And then Brezenoff brokered the smelly SUNY Downstate merger, with state taxpayers absorbing the $300 million debt.

So it certainly looks like there is an argument that Continuum Health Partners, under its CEO, Stanley Bazenoff, was responsible for the manipulation of pseudo-patient and rich heiress Hughette Clark to secure a large donation, and the nearly simultaneous depletion of Long Island College Hospital's finances, including a large bequest that was supposed to be untouchable.

Not surprisingly, Mr Bazenoff, described by Mr Hamill as

a ruthless powerbroker ... whose nickname at LICH is Darth Vader 

and

a quintessential member of what muckraker Jack Newfield called The Permanent Government of New York  

also seems to have gotten rich in his position as leader of Continuum Health Partners, along with his other top managers.   The blog LICH Watch found these results from the system's 2009 IRS 990 report,

here are some highlights, figures for Continuum employees who, hm, earned more than a million dollars for the year:

Chandra Sen, MD, $2,109,204
Stanley Brezenoff, $2,014,413
Kathryn C. Meyer, Esq. $1,049,807
John Collura, $1,307,556
Gail Donovan, $1,365,354

 A 2011 New York Post article stated,

 Stan Brezenoff, CEO of Continuum Health Partners, overseeing such hospitals as Beth Israel, St. Luke’s and Roosevelt, pulled in about $3.5 million. 

 So this leads to yet more mysteries, first about the individual cases when viewed as occurring within one large hospital system:

-  Why were Long Island College Hospital's finances addressed as if it were an independent entity, when it was in fact just a subsidiary of Continuum Health Partners? 

-  Why was Continuum Health Partners role in the hospital's enlarging debt and depleting endowment not discussed?

Similarly,

-  Why was the bizarre treatment of Hughette Clark attributed to "Beth Israel executives," but not Continuum Health Executives, when Beth Israel was also just a subsidiary of Continuum Health? 

Then there is the larger mystery,

-  Why have these two cases been discussed as completely independent, when they appear to be part of a pattern of conduct by Continuum Health Partners management?

Summary

While we continue to see cases, some amazingly bizarre, suggesting mismanagement and unethical management of hospitals and hospital systems, there seems to be an amazing lack of curiosity about how they occurred and what their implications may be.  This lack of curiosity is so profound that no one seems to have noticed that two vivid and strange cases getting prominent media notice in the same city and the same time involved the same large hospital system. 

Health care organizations seem to become ever larger.  Such enlarging organizations can concentrate their power, dominate their "markets," and hence increase their revenues and the compensation of their top hired managers.  Without any countervailing force, they push seemingly inexorably towards oligopoly and then monopoly.

Furthermore, the cases of the purloined bequest and the resident heiress show that ever larger organizations with ever more complex structures are ever better at hiding the accountability of their top hired managers.  We have previously noted, e.g. a case in which a subsidiary of GlaxoSmithKline pleaded guilty to crimes involving production of adulterated drugs, thus shielding GSK and its management from responsibility, how subsidiaries of large corporations may plead guilty to crimes, thus absolving their parent organizations and its managers of any blame.

In the current cases, it seems that somehow a large health care system was able to avoid accountability by letting its component hospitals appear to be independent.  Yet it is the larger system that was booking the revenue and making millionaires out of its hired managers.  This seems to show how concentration of power into ever more complex organizations can be used to enhance the anechoic effect, making mismanagement and those accountable for it ever more obscure.

As we have said until blue in our collective faces, if we do not hold the real leaders of health care accountable for their actions and the actions of their organizations on their watches, we can expect continued misbehavior, and hence continued health care dysfunction.  

It's appropriate to conclude with this, a video of Jeremy Brett in A Scandal in Bohemia, from the first season of the show as first shown on PBS.

The Push Back Continues: the Mayor of Pittsburgh Sues UPMC Claiming it is No "Public Charity"

There is another indication that push back against the power of large health care organizations is getting more significant.

In February, 2013, we noted that the Governor of the state of Connecticut publicly criticized lavish executive compensation at a small regional hospital system, compensation partially fueled by government funded health insurance payments, and in contrast to hospitals' claims that insufficient reimbursement was driving them to poverty.   

The Suit Challenging the Charitable Status of UPMC

Now the outgoing Mayor of Pittsburgh has launched a lawsuit challenging the status of huge, nominally non-profit health system UPMC as a public charity.  A summary of the arguments comes from an article in the Pittsburgh Post-Gazette.  First, in the state of Pennsylvania, a Supreme Court description set out a test to determine if a particular organization is a public charity, the status the UPMC currently claims:

The Supreme Court's 1985 ruling involving the Hospital Utilization Project (or HUP) set out a test that requires that a purely public charity must fulfill all five of the test's points that it: advances a charitable purpose; donates or renders gratuitously a substantial portion of its services; benefits a substantial and indefinite class of persons who are legitimate subjects of charity; relieves the government of some of its burden; and operates entirely free from private profit motive.

That ruling was reaffirmed by the Supreme Court in April in a case involving an Orthodox Jewish summer camp in Pike County that was found to not deserve its property tax exemption.

The city's lawyer, E.J. Strassburger of Strassburge Mckenna Gutnick & Gefsky, argued that UPMC does not pass that test:

Mr. Strassburger wrote, first and most strongly, that 'it seems virtually certain that UPMC would fail to carry its burden of proving that it satisfies the fifth prong of the HUP test by 'operating entirely free from profit motive.''

He cited UPMC's nearly $1 billion surplus over the last two years and $3 billion in reserves as evidence of this, and that UPMC 'is carefully structuring its operations to prioritize profits-generation over charity.'

Also, 

In addition, Mr. Strassburger wrote that UPMC does not 'advance a charitable purpose' in part because UPMC 'maintains an 'open admissions policy' in name only' and it does not make all of its health care available to everyone, regardless of ability to pay.

Furthermore,

the review says UPMC fails to provide sufficient charity care, operates far-flung international operations that are losing money, and has closed operations in poor communities only to open or expand into richer ones.

But it also cites what it terms 'excessive' benefits of UPMC executives, including CEO Jeffrey Romoff's $5.9 million salary; the fact that more than 20 employees are paid more than $1 million; UPMC's corporate jet; Mr. Romoff's 'lavish'  Downtown headquarters (which it claims includes a private chef, chauffeur and private dining room).

The Post-Gazette also sought the advice of experts,

Nicholas Cafardi, dean emeritus and professor at Duquesne University's Law School, said he believes the argument that UPMC is not free from a private profit motive is the strongest one in Mr. Strassburger's review, in part because of how far-flung UPMC has become.

'The more they do that gets them away from their core purpose, the more they open themselves up to the argument that they aren't doing charity,' he said.

In addition, Mr. Cafardi said, UPMC's extensive advertising campaign --sometimes directly against rival Highmark -- makes it look like the organization is operating for profit.

'A lot of things like that make them look like they're operating for a private profit,' he said. 'You advertise because you're in competition. That's the private profit motive.'

Gary M. Grobman, former head of the nonprofit Pennsylvania Jewish Coalition and author of 'The Pennsylvania Nonprofit Handbook,' said UPMC would have a fight on its hands.

'Based on what [Mr. Strassburger] has written, which may or may not be true, it seems some staff at the hospital are paid quite well and some decisions are made based on achieving as much revenue as possible instead of providing as much charity as possible,' he said. 'And if all of that is true, they don't deserve their not-for-profit status.'

So the main issues brought up by the city are similar to issues we have raised about numerous nominally non-profit health care organizations.  We have shown that many particular organizations appear not to act like charities when they appear to put short-term revenue ahead of the organization's mission, a process sometimes called financialization, and put lavish compensation of top hired managers ahead of the organization's general financial well-being; and when their leadership appears to subvert the organization's mission.

The UPMC Response versus Anger in the Community

Of course, UPMC public relations disagreed with the premises of the lawsuit:

'We think the 13-page memo that a local law firm wrote for the City is very weak and reaches its conclusions entirely based on opinion, not fact,' UPMC spokesman Paul Wood wrote. 'Rather than responding to partisan politics and blatant union pandering by the Mayor, UPMC looks forward to demonstrating in a court of law that we meet all five prongs of the HUP test and that our hospitals easily qualify for the tax-exempt status they unquestionably deserve. Interestingly, by hiring an outside law firm the City is prepared to waste millions of dollars of taxpayer funds on an unsuccessful attempt to pursue this case.'

Note that the unsubstantiated allusions to "partisan politics" and "pandering" appear to be an appeal to ridicule, "a fallacy in which ridicule or mockery is substituted for evidence in an 'argument.'"  We have noted before how public relations flacks working for top executives of health care organizations seem to be very good at using such logical fallacies.

Mr Wood also scoffed at the naive notion that having a $1 billion surplus and $3 billion in reserves means the organization operates like a business:
 

Mr. Wood wrote that 'numerous people have tried to distort the meaning of that component to attain a political result.'

'It does not mean a nonprofit shouldn't strive to have a positive operating margin -- organizations that don't do that go out of business,' he added.

Note that Mr Wood seems to be arguing that the only alternative to a very large surplus and a very large reserve is a deficit.  By ignoring another obvious alternative, having a small surplus and a small reserve, his argument thus is derived from the logical fallacy known as the false dilemma.  He also seemed to be arguing that a deficit inevitably leads to bankruptcy.  Of course prolonged deficits might lead to bankruptcy, but a single deficit would not necessarily do so.  Thus he also employed the logical fallacy known as the slippery slope. 

On the other hand, a Post-Gazette columnist showed the depth of community concern over the role of UPMC:

Someone in power is taking official action against the biggest corporate bully in town. Can I get an Amen?

In fact, I can get many Amens, and that says a lot about the behavior of the region's dominant hospital system.

Has there ever been a 'charity' so disliked and mistrusted by the people it's supposed to serve and the people it employs? You rarely hear anyone say 'I cannot stand CARE,' or 'I despise Doctors Without Borders.' But you hear it all the time about UPMC, notwithstanding the jobs it creates, the medical innovations it advances, the life-saving care its doctors deliver and its commitment of $100 million for the Pittsburgh Promise scholarship fund. With all that to its credit it should be beloved, but the opposite is true.

Not helping matters is its corporate public relations, which is increasingly tone deaf. In an emailed response to the mayor's announcement, UPMC spokesman Paul Wood said the lawsuit 'appears to be based on the mistaken impression that a non-profit organization must conduct its affairs in a way that pleases certain labor unions, certain favored businesses, or particular political constituencies.'

No, Mr. Wood. It's based on the correct impression that a nonprofit hospital's top priority should be the patients, not building a monopoly. And that a $10 billion system with a billion-dollar surplus and $2 billion to $3 billion in reserves should be taking care of many more indigent sick people than UPMC has been treating -- especially when it owns land that a Post-Gazette investigation valued at $1.6 billion, even as it enjoys a $20-million tax break every year, underwritten by the good citizens of Pittsburgh and Allegheny County. You can try blaming the SEIU organizing campaign or your arch-enemy, Highmark the insurer, or politics, but this is so much bigger than any of those things. And the public knows it.

Keep in mind that the current discussion of UPMC in the media focuses on very recent events.  On Health Care Renewal, we have posted frequently over the last eight years about problems with the leadership of UPMC.  We started in 2005 with their inability to prevent a fraud  perpetrated by some UPMC middle managers. In 2008, we discussed the apparent mismanagement of the highly touted UPMC liver transplant program.    Starting in 2009, and continuing through 2013, InformaticsMD chronicled how the leadership has presided over health care information technology so problematic that it has been blamed for patient deaths.  In 2009, we noted sanctions against UPMC's public relations.   In 2010, we noted conflicts of interest and apparent self-dealing and nepotism affecting the UPMC board of trustees and UPMC executives. 

Summary

For at least a generation, health care leaders and health policy makers have been pushing for consolidation of health care organizations in the name of efficiency.  We now have a health care system dominated by fewer, larger organizations, and whatever efficiencies have been produced mainly seem to have benefited organizational insiders.  Maybe now, though, some are beginning to remember that monopolists - starting at least with John D Rockefeller, I believe - have historically touted their ability to improve efficiency and rationality.  The results, however, have been higher prices and poorer results for everyone else. 

Hospitals and hospital systems have been particularly good at getting away with the efficiency argument despite the fact that health care prices in the US have been soaring ever since the "vertical integration" craze in the early 1990s.  I believe such organizations have been getting away with this nonsense because of their revered status within their communities.  Now, however, as huge hospital systems drive up prices and make their top executives rich, maybe we will remember Theodore Roosevelt's warnings about trusts and malefactors of great wealth.

There is no good evidence that large hospitals and even larger hospital systems take better care of patients, or provide better teaching and research.  Not only should we question whether huge hospital systems like UPMC are public charities, we should wonder how we ever let them get so big, and proceed to break up these new sorts of "trusts."