The City Council discussed several issues at its monthly meeting Monday night, but the most important was the dire financial straits of Hoboken University Medical Center.

The CEO of the hospital also talked about the situation in a private interview later in the week with the Reporter.

HUMC, formerly known as St. Mary, was saved from closure in 2006 when the City Council voted to back $52 million in bonds to keep it open. It was transferred from a non-profit called Bon Secours to the quasi-governmental ownership of the Hoboken Municipal Hospital Authority (HMHA), and plans were made for a new Emergency Room to lure more patients.
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“The state has to pay up.” – Spiros Hatiras
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The decision to back the bonds was politically contentious. Many people wanted to keep the hospital in town, as it employs scores of residents and treats low-income people. But the taxpayers did not want to support the institution if was failing.

In the last few months, a financial audit revealed that the hospital is still in poor financial condition.

The audit revealed losses of $22 million from 2008, roughly one-third of all of its assets. Some of the losses were attributed to over-reported payments in past years. HUMC’s relatively new CEO, Spiros Hatiras, who was formerly the facility’s chief operations officer, spoke to the City Council about the situation on Monday night.

He told the council that in order to halve those losses this year and aim for a break-even budget in 2010, they must receive $10.7 million in stabilization grant funding from the state. The state awarded no money to the hospital from that fund last year.

Over the past few years, the hospital has borrowed $12 million from the bonding that was supposed to be used for capital improvements to keep its operations going and has laid off 5 percent of the workforce.

$10M or bust?

The state has funded the Health Care Stabilization Funds program in this year’s state budget, but applications from hospitals are still being reviewed. Department of Health and Senior Services spokesperson Dawn Thomas said last week that 12 hospitals have already requested a total of $133 million from the $40 million available. She gave no indication as to when the money might be awarded, or to which hospitals.

And Governor-elect Chris Christie has asked for discretionary funds such as unawarded grants to be frozen until he takes office in January.

It was only last year, under Gov. Jon Corzine (who lives in Hoboken), that the legislature enacted the grants for the first time. In 2008, six hospitals received some portion of $44 million, including $22 million for Jersey City Medical Center.

The grant is awarded based on five criteria, according to the state: possible closure or significant reduction of services; extraordinary circumstances creating the need to stabilize health care services in the community; service of a significant number of uninsured, underinsured and/or Medicaid patients; demonstration of efforts to make efficiencies and improve facility management and governance, and a description of how services will be maintained after the end of this fiscal year, June 30, 2010.

Several hospitals already have closed in Hudson County over the last 10 years.

Backup plan?

Hatiras, who took over as CEO in June, told the City Council that the hospital has no contingency plan should they not receive the grant. He said he has been promised the money from state officials and is meeting with Gov. Corzine’s chief of staff to lobby for the funds. However, Corzine leaves office in January.

Hatiras also asked for the support of the city.

“If we can’t put pressure on the state to give us the $10.7 million, I don’t think we’ll ever be successful,” Hatiras said. “The state has to pay up.”

“Good luck,” Council member Beth Mason responded. Mason has for several years questioned the hospital’s hesitancy to disclose financial information. She also has looked at the city’s $52 million backing of the hospital and the state legislation that enabled it.

Most of the people accountable for the poor accounting practices revealed in the audit have been relieved of their duties, but two of the top administrators are still being paid by the hospital.

Although he stepped down in June, ex-CEO Harvey Holzberg will receive $800,000 per year as a consultant until Dec. 31, 2009. Chief Financial Officer Ron DeVito resigned this month, but Hatiras said his resignation is not effective until April 30, 2010. That means DeVito, relieved of his duties, will be paid his $400,000 salary until then without any responsibilities.

In an interview last week, Hatiras said terminating the contract of either Holzberg or DeVito would be difficult to litigate, with little chance of success. It would likely end up being more costly than the alternative.

At Monday’s meeting, Mason called for Hatiras to be terminated on the spot. Hatiras stood his ground and said that this would not solve the problem, even if it was in her power to terminate him.

The legislation that governs the municipal backing of the hospital prohibits City Hall from making direct decisions about the hospital. They can be made through the HMHA board, some of whose members are appointed by the city. So neither Mason nor the council has the power to hire and fire at the hospital.

“I didn’t expect to deal with a $22 million problem. I expected to deal with a $9 million problem,” Hatiras told the council.

He also alleged that former hospital owners Bon Secours allowed the city to take over the hospital, because actually closing the institution would have been more costly than giving it away.

“Why would they walk away?” he asked rhetorically.

The council plans to schedule meetings to discuss the future of the hospital. The HMHA board will hold its next meeting on Tuesday, Nov. 24 at 7 p.m., at Assumption Hall, 308 Willow Ave.

Followup interview: what if the hospital closes?

Hatiras sat down later in the week for a follow-up interview on the future of the hospital and the possible reverberations in the community if it faces closure.

He had said at the council meeting that the hospital had no contingency plan if it did not get a $10.7 million grant expected from the state.

On Thursday, he clarified by saying that while HUMC is hoping for the money, they are still seeking to plug the budget shortfall from other angles. The hospital is facing a $1 million per month shortfall in the coming year, and Hatiras is looking under every rock for savings or revenue, he said.

He is convening an action committee comprised of Hoboken Municipal Hospital Authority board members; officials from Hudson Healthcare, the management firm that runs the hospital; and city and state representatives to monitor the ongoing situation.

The committee will explore options concerning salary savings, he said. For instance, Hatiras will continue to fill the CEO and COO roles, and the finance director will continue to serve as the acting CFO, both without further compensation.

They are closing clinics and borrowing from future state funding. They also will most likely sell 14 bed licenses that aren’t being used, to other hospitals for $1.2 million.

They also may discuss the possibility of getting concessions from labor unions and consider severing their “poorly negotiated” contracts with private insurance providers like Horizon/Blue Cross/Blue Shield.

Hatiras has assured his employees that no benefit losses or job losses would be part of the plan, no matter what.

If it had to close

If these stopgap measures don’t work and HUMC needs to close, the hospital would first apply for closure to the state, which the state does not always grant, said Joan Quigley, who is both HUMC vice president for external affairs – her private full-time job – and a state assemblywoman.

Assets like the buildings cannot be sold off, Hatiras said, because they have been used as collateral on the $52 million in bonds that the city staked. So if those bonds came due, which Hatiras believes they would if the hospital were to apply for closure, the city would have to pay the bondholders roughly $65 million, which includes the bonds and interest.

They have not yet determined whether the city is liable for labor contracts, but Hatiras said the potential process of severing those agreements would “at the very least be ugly.” The roughly 800 employees represented by the two unions would obviously be opposed to the closure.

The state would have 90 days to review the application for closure, and in the meantime, “losses would skyrocket,” Hatiras said. “You would lose volume [and employees] without being able to shut the doors.”

Both Hatiras and Quigley said the state promised a certain amount of funding every year when the city bailed out the former St. Mary Hospital, and they haven’t followed through.

“If the state had no intention of following through on a five-year plan, they should have pulled the plug back then,” Hatiras said.

Quigley, who worked with then-state Assemblyman Albio Sires and then-state Sen. Bernard Kenny to craft the bailout legislation, said she could not have foreseen this possible outcome at the time.

City Council rejects doggie day care, salary cuts

Also at Monday night’s City Council meeting, after a heated debate, council members denied a zoning change that would have allowed a “doggie day care” facility to move to the upper northwest corner of town.

Now, the owner is saying that he will have to move his business to Jersey City.

The council has been trying to pass legislation since the summer to allow dog day care as a permitted use in an uptown zoning district. The ordinance has appeared on the agenda several times, but had been removed to be re-examined.

A few residents complained that the dog day care would be a detriment to the residential communities in the northwest portion of town.

“Would you want a kennel across the street from your house?” resident Curtis Crystal asked the council.

“Explain to me please how this will not effect the quality of life,” asked Deno Bogdanos.

The dog day care owner, Mike Stigliano, explained that the business at 15th and Grand streets would be surrounded almost entirely by businesses, not residential buildings.

The biggest issue is whether Stigliano should be asking the Zoning Board for an exemption for his business, or whether the council should amend the entire zoning code to allow the use in that area.

Sixth Ward Councilman Nino Giacchi said even though Stigliano is planning to move his business away from residential areas, allowing this type of business in the zone would let other dog centers pop up. There would be no guarantee that it wouldn’t be next to a residential building next time.

The measure failed to get a majority vote, ending in a 4-4 tie.

Stigliano returned at the end of the meeting to ask for reconsideration after new Councilman Mike Lenz was sworn in.

However, none of the dissenting members agreed. Giacchi and others who voted against the measure recommended that Stigliano seek a use variance from the Zoning Board.

“I’m sure the Zoning Board is not going to have a problem with his opening a kennel at 15th and Grand [streets],” Councilman Michael Russo said.

Other items

Also at the meeting, the council elected 5th Ward Councilman Peter Cunningham as the new council president. Councilwoman-at-Large Carol Marsh was elected vice president. Michael Lenz, the ex-Board of Education president and former city CFO, was appointed to serve out the remainder of Dawn Zimmer’s term until June 30, 2013, which was vacated when she was elected mayor.

Meanwhile, Beth Mason said it wasn’t enough that at its last meeting, the council finally passed an ordinance cutting salaries of city directors and the mayor by 10 percent.

She proposed another 10 percent salary cut for city directors and a 15 percent salary cut for the mayor. But she failed to get the full support of the council.

The ordinance failed on first reading, 3-6. Only Russo and Councilwoman Theresa Castellano voted in favor of the measure. – TJC

Timothy J. Carroll may be reached at tcarroll@hudsonreporter.com.