Among other things, Chapter 11 stops creditors from taking legal action to recover money owed before the filing was made.
SVCMC is the biggest Catholic system in the state of New York. Its flagship hospital, St. Vincent’s in Manhattan’s Greenwich Village, was founded in 1849 and is regarded as among the city’s best.
Last year, SVCMC as a whole discharged around 92,000 inpatients, dealt with over one million outpatients and made 640,000 home care visits. The system employs about 12,000 people, and over 3,000 physicians are affiliated with it.
In addition to St. Vincent’s in Greenwich Village, it also operates six hospitals within the New York area — Bayley Seton and St. Vincent’s on Staten Island, Mary Immaculate and St. John’s in Queens, St. Mary’s in Brooklyn and St. Vincent’s in Westchester County. St. Mary’s in Brooklyn and Bayley Seton had been slated for closure even before last week’s announcement.
SVCMC also operates four nursing homes and a home care agency. St. Vincent’s Hospital in midtown Manhattan comes under a different umbrella group and is therefore not affected by the Chapter 11 filing.
St. Vincent’s had accumulated debts of about $1.1 billion by the time it came to seek bankruptcy protection. The New York Daily News reported that the move into Chapter 11 protection was precipitated by SVCMC’s defaulting on a $30 million loan repayment last month.
Despite the apparently grim news, SVCMC executives and spokespeople moved to reassure patients, employees and other associates about the system’s long-term viability. They also insisted that patients would notice no difference in quality of service during SVCMC’s time under bankruptcy protection.
SVCMC chief executive David Speltz is also one of the principals in Speltz & Weis, a firm that specializes in turning around troubled medical facilities. Speltz & Weis was called in last year to try to improve SVCMC’s finanial position. Speltz last week acknowledged that the move into bankruptcy protection was made in the face of “ongoing cash flow and accounts payable issues, and a severe liquidity crisis.”
But he also asserted that “SVCMC’s facilities, programs and services will continue their normal operations.”
An additional question and answer document for St. Vincent’s patients and other consumers assured them that they did not need to find another hospital and that “all scheduled surgeries and procedures — both elective and emergency — will proceed as usual.”
Speltz was upbeat about SVCMC’s future.
“The system will emerge from bankruptcy a more efficient, financially sound healthcare system,” he said.
SVCMC spokesman Michael Fagan emphasized similar points in an interview with the Echo.
“Patients won’t be affected. We will continue to provide our customary level of excellent care,” he said. Fagan characterized the bankruptcy protection as a “time out” that would enable SVCMC to “reorganize our debts.”
For all the reassuring words, there is no doubt that the system’s financial state is parlous. SVCMC was formed when seven Catholic hospitals merged in 2000. Although that move was supposed to help stem growing costs, SVCMC has never been financially healthy.
SVCMC made an operating loss of $153 million last year. The system’s total budget is $1.6 billion. Last year’s results were depressed in part by the discovery, during an audit, that revenue from previous years’ revenue had been overstated by some $60 million.
There is uncertainty over what will happen next. On the brighter side, SVCMC can now prepare a plan of reorganization, which will then be submitted to creditors and, finally, to the courts for approval. If that process is successful, SVCMC will then re-emerge from the bankruptcy. Meanwhile, officials have stressed that employees will continue to be paid on time. However, the process of coming out of Chapter 11 can take up to two years.
Many employees worry about the possibility of additional staff lay-offs and hospital closures. In a statement to the Echo, the health care employees union local SEIU 1199, said that it was “deeply troubled” by the decision to avail of bankruptcy protection. The union added that it would “work aggressively to ensure that the network’s obligations to its employees are fully honored.”
The SVCMC statement last week noted that the system was “committed to maintaining nursing levels for high quality care. However, additional lay-offs may be possible, if they are determined to be a necessary part of reorganization.” These lay-offs would presumably be added to any incurred during the planned closure of St Mary’s and Bayley Seton.
Many of the issues that have pushed SVCMC into its current predicament are common in the health care sector.
Kenneth Raske, president of the Greater New York Hospital Association, told the Echo “hospitals in New York are being crushed by a number of common factors.” Raske cited rising costs across a broad range of areas from medical malpractice insurance to pharmaceuticals to labor.
Michael McMahon, a Democratic city councilman who represents the North Shore of Staten Island, laid much of the blame at the door of Republican politicians, especially in relation to cuts in payment under the Medicare and Medicaid programs:
“This city is facing a crisis that is really the result of politics that are in effect in Washington and in Albany,” McMahon told the Echo.
“I think it is all part of the ethos of the Republican Party, whether in Washington or as represented by Governor Pataki,” the councilman continued. “They have dramatically reduced the rates of reimbursement under these programs. So a hospital that might once have been reimbursed $500 for carrying out a certain procedure might now be reimbursed only $210. That obviously creates problems.”
Most Republicans would, of course, dispute this. They argue that systems put in place at national and state level have helped pare down inefficiency in the running of hospitals.
The changing nature of healthcare has also played a role, however. As medical technology and treatments improve, fewer people require inpatient care. This, in turn, means that beds created for an earlier era lie empty.
Back in April, one state official told the New York Times that the state had around 20,000 more beds than were actually needed. The same newspaper also reported that, by April, 12 New York hospitals had closed in the previous 27 months.
The issue of inefficient management of hospitals is a controversial one. Some conservatives, in particular, have argued that the state wastes precious money on poorly managed facilities. Even in the case of St. Vincent’s, where most observers express confidence in the current management, the rates of remuneration give some pause for thought. In accounts seen by the Echo, payments to around 20 “officers and key employees” amounted to more than $8 million per annum in 2001, 2002 and 2003.
For all that, though, defenders of the state’s hospitals contend that complaints about inefficiencies are largely a political tactic to obscure other factors like rising costs and Medicare cuts.
“You can certainly make an argument that some of these hospitals could be managed more efficiently, but the fact is that even the most progressive and efficient hospitals are experiencing real strains at the moment,” said Councilman McMahon.
McMahon also argued that Catholic systems like SVCMC were particularly prone to financial trouble because of their core commitment to help the uninsured and indigent. SVCMC provided more than $104 million last year in “charity care.”
McMahon, whose ancestors came to the U.S. from County Clare, noted that the St Vincent’s had previously been run by Irish nuns and had been committed to serving people of all backgrounds and classes.
“It was very much the Irish healthcare system,” he said.
Now, the question is whether such a system can prosper in the current American climate. No one yet knows the answer.”