January 17, 2013
DiNapoli: SUNY Downstate Medical Center Faces Insolvency
The State University of New York Downstate Medical Center (Downstate), which includes the University Hospital of Brooklyn, faces insolvency as early as May if immediate actions are not taken, according to an audit assessing the hospital’s financial condition released today by New York State Comptroller Thomas P. DiNapoli.
“SUNY Downstate’s fiscal condition is dire and it needs all hands on deck if it is going to survive,” DiNapoli said. “Management has made poor financial decisions that often times weren’t justified by economic conditions. As a result, the hospital is hemorrhaging millions of dollars every week. This hospital is a key part of the health care delivery system in the city and is a major employer in Brooklyn. The time to act is now if Downstate is going to achieve fiscal stability.”
Downstate serves a population of more than 2 million New Yorkers and employs about 8,000 faculty and staff, making it the fourth largest employer in Brooklyn. It reported expenses for the year ended June 30, 2012 totaling $853.2 million. The hospital provides services at the following three facilities: University Hospital of Brooklyn located in East Flatbush; University Hospital at Long Island College Hospital located in Cobble Hill; and SUNY Downstate at Bay Ridge (formerly known as Victory Memorial Hospital).
From 2007-2011, Downstate consistently lost money. The hospital’s balance sheet during this time period went from a cumulative surplus of $116.2 million to a net deficit of $165.6 million. From May to September 2012, Downstate experienced cash shortfalls averaging nearly $3 million each week. Its aggregate loss for 2011 was $275.8 million and its losses for 2012 could exceed $200 million.
Between May-September 2012, Downstate drew down $65 million from the SUNY Hospital Operations Fund to subsidize its daily operations. In June 2012, the SUNY Board of Trustees authorized a $75 million line of credit to replace and repay the draw down from this account. Without these loans and Disproportionate Share Hospital (DSH) payments, the hospital would likely be insolvent today.
A major cause of Downstate’s fiscal stress is due to its partnership with and acquisition of two hospitals-Victory Memorial Hospital in July 2008 and University Hospital at Long Island College Hospital (LICH) in May 2011. Victory Memorial was acquired despite its underutilization trends. LICH had operating losses dating back several years before its acquisition and consultant studies used as justification for the purchase were based on flawed and unrealistic business assumptions.
Auditors found that external forces have also had significant impacts on Downstate’s finances:
Auditors found financial management problems as well. In 2011, the hospital had or shared 15 senior administrators with annual salaries in excess of $200,000. These salaries have remained constant even as the hospital sent layoff notices to 469 employees with an average salary of $63,000 at Downstate and $41,500 at LICH.
The SUNY Chancellor directed SUNY System Administration in March 2012 to analyze and cooperatively manage financial and operational issues confronting the hospital and develop an action plan to re-establish its financial stability. While actions have been taken, auditors found no timetable for when these actions would restore financial stability or when operating losses would end.
In 2011, Downstate engaged a consultant, Pitts Management Associates at a cost of $3.1 million, to analyze several aspects of the hospital’s operations. Pitts identified measures to enhance revenues and reduce costs by $70 million annually. Hospital officials said that they were in the process of implementing the steps, but were unable, as of October 2012, to provide any documentation and analysis to track the savings achieved on an ongoing basis. In December 2012, the state approved another contract with Pitts for 9 months of service at Downstate, at a cost of $5.6 million.
DiNapoli recommended Downstate:
The hospital agreed with some of the findings. Its response to the audit is included in the final report.