Asleep at the switch as Hoboken University Medical Center was spending money it did not have and incorrectly assumed the city would pick up the difference.

September 20, 2011 – by Ed Mecka – edmecka.com

The September 19, 2011 nj.com published story said it all “Lawyer from Hoboken Hospital Authority says critics are wrong about events that led to hospital's bankruptcy filing.” 

A lawyer with the Hoboken Hospital Authority says critics are purposefully mischaracterizing the events leading up to the bankruptcy of the city’s hospital to further their own agenda.

In the most detailed defense of allegations that the city-backed authority pushed the hospital into bankruptcy, the authority’s attorney Ken Rosen said the hospital was spending money it did not have and incorrectly assumed the city would pick up the difference.

“Advice apparently was given to the hospital that it had an unlimited source of funding from the authority and from the city.” Rosen said in an email Saturday. “When the Authority members discovered the extent of the Hospital's losses, they directed that the hospital live within its budget."

Rosen, a lawyer with Lowenstein Sandler, said “The Authority did what was necessary. They should be commended rather than criticized.“

A joint motion of the Hoboken Healthcare, Inc. Debtor (represented by TRENK, DiPASQUALE, WEBSTER, DELLA FERA & SODONO, P.C.)  and the Hoboken Municipal Hospital Authority (represented by LOWENSTEIN SANDLER PC) was filed August 1, 2011 with the Federal Bankruptcy Court (Doc 13 - Case 11-33014-DHS).

The document stipulates the financial safeguards and controls governing the relationship between Hoboken Healthcare, Inc and the Hoboken Municipal Hospital Authory. 

HHI (Hoboken Healthcare, Inc.) Debtor

The Debtor is a not-for-profit corporation organized under the laws of the State of New Jersey, with its executive offices located at 308 Willow Avenue, Hoboken, New Jersey. The Debtor manages the Hoboken University Medical Center (the "Hospital" pursuant to a Master Manager and Operator Agreement by and between the Debtor and the Authority dated February 1, 2007 (the "Manager Agreement"), as required by State law. See N.J.S.A. 30:9-23.20(a). 

AUTHORITY (Hoboken Municipal Hospital Authority)

The Authority is an autonomous municipal hospital authority, a body corporate and politic created by the City of Hoboken, New Jersey in 2007 pursuant to the New Jersey Municipal Hospital Authority Law, N.J.S.A. 30:9-23.15 to .23 (the "Hospital Authority Law") for the purpose of acquiring the Hospital from Bon Secours New Jersey Health System, Inc.

The Manager Agreement

The Manager Agreement sets forth the rights, duties, and responsibilities of the Debtor and the Authority with respect to the Hospital. The Debtor's responsibilities pursuant to the Manager Agreement include, inter alia, performing all duties necessary to supervise, direct, and control the day-to-day operations of the Hospital; negotiating and entering into contracts with vendors and suppliers; entering into collective bargaining agreements; preparing policies and procedures; billing and collecting for services provided by the Debtor; hiring professionals to perform services for the Debtor; preparing and maintaining accounting and budget cycles, including the Annual Business Plan and Budget of the Debtor; maintaining the Hospital's physical facility; and coordinating the payment of all reimbursable expenses.

Budget Management Procedures

At the beginning of each year, the Debtor is required under the Manager Agreement to submit an Annual Budget and Business Plan (the "Budget") to the Authority for review and approval. The Manager Agreement requires HHI to update the Budget each month, and requires the Authority's approval of any variance in excess of $250,000. The Authority, in turn, advances to HHI the agreed-upon amounts set forth in the Budget each month. In recent months, HHI has begun updating its Budget on a weekly basis to better manage its operating cash flow.

It appears that there was an administrative breakdown in following the requirements of both the MANAGEMENT AGREEMENT and the BUDGET MANAGEMENT PROCEDURES.  Inconsistances include;

HHI, Inc. Debtor was responsible for negotiating and entering into contracts with vendors and suppliers.  In court papers filed September 13, 2011 in Federal Bankruptcy Court, Olympus America, Inc. asserted a valid, binding claim directly against the AUTHORITY, a non-debtor who signed the contract.  If the Court agrees, the City of Hoboken may be responsible for payments in excess of $ 372,861.08.  The MANAGEMENT AGREEMENT directed that HHI sign contracts.

The Manager Agreement requires HHI, Inc. to update the Budget each month, and requires the Authority's approval of any variance in excess of $250,000.  The Authory's lawyer said "when the Authority members discovered the extent of the Hospital's losses, they directed that the hospital live within its budget."  You have to admire such decisive action! 

Less than three weeks before filing for bankruptcy, HHI, Inc., negotiated a package in which the hospital's chief executive received a six-figure payout.  Spiros Hatiras, 46, resigned as chief executive on July 16 after two years on the job and was given a severance package that includes $600,000 in compensation and full medical benefits for a year, according to records obtained under the Open Public Records Act.   The AUTHORITY agreed to pay the ex-ceo's legal costs if the agreement is challenged.

The Star Ledger reported that Donald Scarinci, a partner in the influential law firm of Scarinci & Hollenbeck, was the general counsel for the hospital and its board from 2009 until July 16, about two weeks before the facility filed for bankruptcy.   He says he resigned in July because he feared the city was committing fraud by engineering the bankruptcy of its hospital." "During the period of retention, which ended on July 15,2011, I was a firsthand witness to a pattern of conduct by HMHA members to intimidate, threaten, control, abuse, and attempt to force the CEO of HHI and members of the HHI Board to take actions adverse to its charter and otherwise to violate the laws of the State of New Jersey."  Imagine, an "Officer of the Court" said this in a Federal Court filing.

Unfortunately, this may be the tip of the iceberg.  N.J. State Sen. Loretta Weinberg (D-Bergen) sent letters to U.S. Attorney Paul Fishman and state Attorney Paula Dow asking them to probe charges by Donald Scarinci, who resigned as the hospital’s attorney two weeks before it filed for bankruptcy on Aug. 1.

At the end of the day, it will be the Hoboken Municipal Hospital Authority that will have to answer some tough questions.