St Vincents Hospital Medical Center in New York - Essay Example

St Vincent’s Hospital Medical Center in New York closed due to Financial Crisis Case Study Ironic that in the 80s, the establishment in New York that was serving the gay community the most was the flagship hospital of the Catholic Church’s city health-care network called St Vincent Catholic Medical Center. Achieving this role was unintended, of course and was rife with discomfort and dissension. However, as AIDS patients from the gay community began making the highest number of admissions to the hospital and the biggest source of funds, the hospital accepted its unique position of service (France 2010). Ironic even more that the success of AIDS medications led to fewer admissions and contributed to the financial distress of the hospital. In 2010, St Vincent Medical Center closed its doors. The Legacy St. Vincents Hospital was a nonprofit charity-funded hospital in New York which provides, according to hospital mission, complete general acute health care services inclusive of medical, surgical, psychiatric inpatient, emergency care and other outpatient services. St Vincent’s represented an iconic place for being one of the third oldest hospitals in New York and for sharing so much historical events. It has treated victims of calamities: the cholera epidemic of 1849, the sinking of the Titanic in 1912, the 9/11 attack and, just few years , the Hudson River landing of US Airways Flight 1549. On a per year average, the hospital was serving thousands of patients in its consultancy clinics and outpatient facilities and was treating over 50,000 people (Levine 2010). The Troubles Begin Creating a budget is often one of the most challenging tasks when creating a nonprofit organization. A budget is the expression, in financial terms, of the plan of operation designed to achieve the objectives of an organization. It lays out where the money is coming from and where it is intended to be expensed. There are many reasons why St Vincent’s Hospital should have had a stringent budget in place - including its obligation to spend conscientiously as it was somebody else’s money - and very few for it to have inefficiency in this practice. Why it chose the latter is anybody’s guess. Or maybe there is more to the story. St. Vincent’s has a long history of financial troubles dating back far before the problems of the last few months came to light. It filed for Chapter 11 in 2005 and emerged from bankruptcy in 2007. One would have thought the troubles were over: Far from it actually. By the time 2010 rolled in, it was $700 million in debt and losing $10 million a month. The lucrative location of the hospital – on the West Side of Manhattan on 59th Street – could not save it. After closings its doors in 2010, St Vincent is survived by 3,500 jobless employees and more than 200,000 New Yorkers who do not have a close hospital to go to anymore (Levine, 2010) The Woes (Underlying Problems) To many in New York, it came as a shock when the hospital first filed for bankruptcy in 2005. To them, St Vincent for the stalwart provider of care and health and would remain so for years and years to come. However, the actual situation was quite different and to many insiders, inevitable. In retrospect, all the underlying problems, which will be covered in detail in this section, all pointed to the fate of St Vincent. It is sad an unfortunate that not enough could be done to salvage the salvageable and hitherto, what was done have no effects. In the end, New York had to witness another tragedy and that was the closing of this over one hundred year old legacy. Financial Analysis On the one hand, the hospital has been lauded for its services to the community, especially the poor and its unending support to AIDS patients in the LGBT community – on the other, the hospital has been blamed for very inept management of finances, with huge amounts being paid in consultancy and fundraising fees, exorbitant salaries to the top medical staff and preposterous other expenses such as golf vacations running in thousands of dollars. The bottom line was almost always ignored because in essence, the hospital was nonprofit. However, even a bit of financial acumen could point out that even for the longevity and survival of a not-for-profit organization, continuously incurring losses is exceedingly detrimental. Someone has to pay the cost: whether it is the taxpayers’ money that is used or assistance from the government or any NGO, the bottom line must stay positive. Looking at the financials reported by the St Vincent in its tax return for income tax exemption, it can be seen that the hospital has had its expenses growing progressively year after year. The return filed for 2009 shows the following: Salaries and Employee Benefits: These figures increased year after year. The hospital was paying $408 million in salaries and other benefits to its employees in the year 2008, which moved on to $446 million the next year. When times are tight, employee benefits are almost the first thing to go; not in the case of St Vincent, however, which continued to pay not just big salaries, but also expensive benefits to the staff. All of this was bound to come tumbling down on their heads. The company’s compensation policy is based on market trends and places the number between the 50th and 75th percentile1 of the market. These are established, says St Vincent, by outside consultants. Any compensation over and above this needs prior approval by the Committee. That said, the hospital could not afford expensive doctors and medical practitioners. Retaining them and continuing to pay them highly did not serve anybody’s best interest. The management should have been bold enough to take these tough decisions and should have displayed more prudence and economy is the retention and compensation of the personnel. Revenue: The revenue generated by the hospital was $813 million and $864 million, for FY08 and FY09, respectively. It is shocking to see that employee salaries and benefits make up about half of the overall revenue. Net Profit or Loss: The hospital reported a loss both years. From $66million in 2008, the hospital reported a loss of $125million in 2009. While it is understandable that a company incurs a loss when the economy is undergoing a recession, such a trend needs to be controlled on the outset. However, it is observed that no such concrete measure such as cutting cost and staff expenditure was noted. The major costs to the hospital other than HR costs include Asset/Liabilities: The hospital had staggering liabilities amounting to $1.1 billion in FY08 and $1.2 billion in FY09. The year before that in 2007, when it was on the verge of bankruptcy also, the company’s liabilities were reported to be $30 million. It is very easy to see now and unbelievable to note that nobody saw it a couple of years ago: You can’t lose $80 million in one year – which St Vincent did in 2009 – and have an additional legacy debt of $700 million -- and still survive. This becomes too big an empty bubble with nothing to persevere it and carry it; it is inevitable that it would burst disastrously. Management Inefficiency It does not matter that the organization is a nonprofit one. Its policies must not try to swindle people out of money, or even make additional bucks on them, but the practices of economy and business responsibility must be implemented even in this context. The management at St Vincent did not display responsibility when they placed the mission of the hospital over the hospital itself: this means that for any organization to be a going concern, it needs to be breaking even. Nobody and no organization can survive making a loss year after year. The management should have displayed boldness and shrewdness in tackling issues of overcompensation, waste of resources, overburdening debt and liabilities and cost inefficiency. They didn’t, however, and thus the organization suffered as a going concern. Losing Patients Inpatient Any hospital is dependent on the number of patients entering in and staying. For whatever reason, such as losing confidence in the hospital or preferring to go to another one, once a patients stops coming to a hospital, he is very unlikely to return. And this costs the hospital in the long-run. As can be seen from the chart2, the hospital kept losing patients continuously to competition, which should be the first sign of imminent disaster. Another point to note is that the average time the patient spent in the hospital was also decreasing, which means that inpatient clients were falling. There have been reports that the emergency room of the hospital was always flooded with people from crimes and gunshot wounds – more so than in any other hospital. Hartocollis (2010) writes that for having more emergency patients and fewer in patients, management blamed a number of things like more poor and uninsured patients preferring St Vincent and cuts in Medicaid and Medicare; Charity Philosophy, Rather than Business It is understandable that the hospital was working on a nonprofit basis and was meant to help people. But that implies that it should have run like one as well and spent like a charity too. You cannot hold a charity philosophy but expense everything like a profit making business. That just is not sustainable. Hartocollis notes that during the time when most hospitals, which can be considered to be competition for St Vincent, were investing in high technology, research and modern solutions, St Vincent stuck to the philosophy of “compassionate care” for everyone, much like its rooted origins of being run by nuns. On the scale and size St Vincent had reached – thousands of patients and over three thousand employees – that is just not financially feasible. The hospital matched its pay scale with that of other hospitals, which paid an arm and a leg to renowned doctors who attracted high income customers. In order to do that, the business model of the hospital should have matched the other profit-making hospitals as well. This proves to be self-defeating. Failure to Garner Support When it first filed for bankruptcy, there was speculation that some sort of favorable relationship would be formed between the hospital and others in the community or some company – which would eventually manage to bail St Vincent out. However, this did not happen. Moreover, St Vincent was unable to “implement fiscal controls” (Lysiak & Goldsmith, 2010) by cutting spending and increasing returns which would somehow control the financial catastrophe created by the hospital. There have been reports that some potential relationships with Mount Sinai Medical Center and Continuum Health Partners were in the making. They had approached the hospital with plans that would prove mutually beneficial: for example, Mount Sinai recommended partnering with St Vincent in keeping the acute care hospital but later withdrew offer as no agreement could be reached (Otterman 2010). Insiders at the hospital believe that the deal could not come through due to lackluster decision making. The other hospitals demanded the restoration of inpatient services and thus no decision or conclusion could be reached among the parties and the deal was left at that. (Lysiak & Goldsmith) Furthermore, the management was also unable to foster any productive relationship with insurance companies, due to which their fees were as much as 30% below market rate (Hartocollis). These factors all contribute to the inability and (inadvertent) unwillingness of the hospital to run efficiently. Teaching Hospital – Financially Impossible St. Vincent’s continued efforts to try to operate as a stand-alone hospital, and also as a major teaching hospital in which it carried all the costs and programs associated with being a major teaching hospital, are obviously most futile. They failed in both counts, as a standalone hospital or as a teaching one. They also did not carry any significant market share for a teaching hospital. Not Adaptive to Change and Changing Times The demographics of the region, that is, Greenwich Village, changed over time. The hospital, sadly, did not do that same. If St. Vincent’s were to be saved, it had to save itself by adopting a different business model many months, even years ago, before its financial condition went from bad, to worse, to catastrophic. The organization needed to sit on the table and rethink what it was trying to achieve and in which economy; who was it trying to cater to and for how much. These questions needed answering. Any competent CEO who was determined to turnaround a company would ask these questions and find answers to them. The combination of an inefficient management, the unprecedented recession and the factors mentioned here, were too much for the hospital to withstand. For whatever reasons they held, the hospital leadership has not been able to take the steps that other hospitals have taken in New York City to adopt a different business model, strengthen its competitive edge, and remain financially solvent in a changing health care market. The hospital’s business model as a stand-alone community hospital just doesn’t work for most hospitals in today’s competitive health care market. If you are the only stand-alone hospital in a community, you might be able to operate that way. But that model doesn’t work in a large city where there are other hospitals competing for the same patients. Conclusion Management must keep the interest of the organization at the forefront and not make decisions – or refuse to take tough ones conversely – that would affect the status of the organization as a going concern. The CEO must run the organization like a company, rather than a charity organization if they wanted to keep the existing pay and benefit structure in place. Charity organizations run on money donated by other people or support of the government, and thus cannot misuse the funds in paying ‘partying’ benefits to its employees. There has to be sound reason behind any such spending and the Board must actively question any such expenditure, rather than lying in wait for the expenses to run so high that making a profit seems a faraway dream. There must be a proper business plan in place for the organization which elucidates clearly the business model: it should show where the funds are coming from and prioritize the spending of these funds as well. With St Vincent, the finances were so ludicrously skewed with almost half of them going into employee expenses that there is no clear determination of the management’s budgeting. There is no indication about how the organization planned to spend the money – if there was, it failed to manifest on paper and in their financial reporting. New York has recently seen talks of launching another hospital that would replace the vacuum left behind by St Vincent. Amanteau (2011) reports that Former City Council member Alan Gerson and Arthur Schwartz, who happens to be a lawyer and member of Community Board 2, are leading a group into establishing a “full-service, acute-care hospital and emergency room in Greenwich Village to replace the bankrupt, shuttered St. Vincent’s Hospital”. The St Vincent was catering to the population of Lower West Side and now that neighborhood is left with no obvious choice for a hospital to fill this gap, Gerson and company are working on a plan for a hospital. We all sit in wait for such a plan to come to conclusion and see a well-run, efficiently-managed hospital establish roots in West Side New York. References Amateau, Albert (2011). “Gerson leads group saying it can restore full-service hospital”. The Villager. Retrieved from http://www.thevillager.com/villager_415/gersonleads.html France, David (2010). “The Shrine of St. Vincent’s: The doomed hospital was ground zero for the AIDS epidemic. And now it’ll be condos?” New York. Retrieved 28 April 2011 from http://nymag.com/news/intelligencer/65370/ Levine, Mark (2010). “St. Vincent’s Is the Lehman Brothers of Hospitals”. New York. Retrieved from http://nymag.com/news/features/68991/ Hartocollis, Amanda (2010). “The Decline of St. Vincent’s Hospital”. The New York Times. Retrieved from http://www.nytimes.com/2010/02/03/nyregion/03vincents.html Hartocollis, Amanda (2010). Out of Cash, St. Vincent’s Is Set to Close. The New York Times. Retrieved from http://www.nytimes.com/2010/02/06/nyregion/06vincents.html Hartocollis, Amanda (2010). Offer to Take Over Ailing Hospital Stirs Outcry. The New York Times. Retrieved from http://www.nytimes.com/2010/01/27/nyregion/27vincents.html?_r=1&scp=1&sq=%22St.%20Vincent%27s%20Hospital%22&st=cse Lysiak, Mathew & Goldsmith, Samuel (2010). “St. Vincents Hospital in Manhattan closed; on verge of bankruptcy”. New York Daily News. Retrieved from http://articles.nydailynews.com/2010-04-10/local/27061401_1_emergency-room-inpatient-services-safety-net-hospital Otterman, Sharon (2010). “St. Vincent’s Votes to Shut Hospital in Manhattan”. New York Times. Retrieved http://www.nytimes.com/2010/04/07/nyregion/07vincents.html?partner=rss&emc=rss Return of Organiztaion Exempt from Income Tax 2008 Return of Organiztaion Exempt from Income Tax 2009 Read More