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St. Vincent’s Is the Lehman Brothers of Hospitals

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In an effort to centralize control, the hospital’s board was pared down to five members—Campbell, a priest and a bishop from the Diocese of Brooklyn, and two nuns from the Sisters of Charity. But instead of efficiency, that team received a lesson in parochialism. The Brooklyn contingent was fiercely protective of the hospitals in the outer boroughs and was suspicious that the Manhattan facility was hoarding resources. The subject of closing St. Mary’s and St. Joseph’s, which were draining the system of cash at unsustainable rates, was considered off-limits, according to people familiar with the board’s deliberations. Resentment of Manhattan ran high at the community hospitals, whose physicians seemed to express their discontent by neglecting to funnel their patients to St. Vincent’s.

After St. Vincent’s lost $81 million in 2003, Campbell resigned, and the hospital hired a consulting firm from New Hampshire called Speltz & Weis. According to a legal action filed by St. Vincent’s in 2008, the firm’s principals, David Speltz and Timothy Weis, were its only employees. The complaint contends that the pair billed themselves as turnaround experts, having gotten a hospital in Syracuse back on its feet after bankruptcy. Speltz & Weis, the complaint says, immediately began firing members of inherited staff and replacing them with independent contractors, at a cost to the hospital approaching $2 million monthly.

The promised turnaround, however, failed to materialize. In 2004, Speltz & Weis’s first year on the job, the system lost $143 million. By the following year, the system had fallen $240 million behind in paying its bills, prompting some vendors to stop providing St. Vincent’s with supplies, creating disruptions in its operations and driving away patients.

On the Fourth of July, 2005, under intense pressure from its creditors, St. Vincent’s board voted to file for Chapter 11 bankruptcy protection, a move, the claim alleges, Speltz & Weis resisted. The following month, the board fired the consultants, suspecting that they had delayed bankruptcy proceedings in order to continue charging the hospital for their services, according to the complaint. All told, the complaint says, St. Vincent’s paid Speltz & Weis $30.8 million over their less than two-year tenure. Toward the end of that time, Speltz and Weis sold their consulting firm to a company they had retained as a contractor, for an additional $17 million. The complaint accuses Speltz & Weis of fraud, conflict of interest, breach of fiduciary duty, and numerous other misdeeds, and calls the pair’s motives “evil.” (The attorney representing Speltz & Weis did not respond to requests for an interview.)

The bankruptcy proceeding didn’t provide much help. When St. Vincent’s filed for Chapter 11 in 2005, it listed around $1.1 billion in liabilities. It emerged, 26 months and some $63 million in fees to lawyers and financial advisers later, with substantially the same obligation, shuffled into different piles. “We got no debt relief,” says a former top St. Vincent’s executive. “It was ridiculous.”

Early in the proceedings, St. Vincent’s listed some $972 million in assets, of which its real estate was valued at $341 million—a figure that many creditors believed vastly understated its actual value. Approaching the height of the real-estate boom, creditors presented St. Vincent’s with an unhappy choice: The hospital could find a way to make good on its debts, or be forced to close shop, selling off its million or so square feet of property in the West Village and divvying up the proceeds.

Foremost among those with a vested interest in getting paid back by St. Vincent’s was the state of New York, represented by its Dormitory Authority, which had backed hospitals throughout the Catholic system with $193 million in bonds. The state, in its dual role as the hospital’s creditor and regulator, refused to let St. Vincent’s off the hook for the money it was owed.

Out of cash but rich in real estate, St. Vincent’s emerged from bankruptcy by engineering a complex, interconnected series of deals, agreeing to sell its sprawling campus of eight buildings on the east side of Seventh Avenue to Rudin Management for $300 million. The hospital would then knock down its six-story building across Seventh Avenue and build a 329-foot-high facility designed by I.M. Pei’s architectural firm—the tallest building in the Village—at a cost of some $830 million, financed by a half-billion dollars in bonds and an aggressive fund-raising drive. The promise of a new, state-of-the-art hospital, it was hoped, would attract partnership interest from a wealthy academic center, like Mount Sinai or NYU, which would lend its prestige and resources to rebuilding St. Vincent’s.

That move also proved doomed. The prospect of a hulking high-rise, a new condominium complex, and years of closed streets and construction debris sparked vocal neighborhood opposition. Even as it waged a costly fight to win approval for its plans, the hospital remained mired in debt and saddled with expensive obligations left over from the bankruptcy, and its day-to-day operations were as unprofitable as ever. Even with Eli Manning as its new spokesman (at a cost of $600,000), St. Vincent’s couldn’t attract the newer, affluent, well-insured downtown residents it sought. In 2008, 86 percent of those who lived in the eleven Zip Codes around St. Vincent’s made their hospital stays elsewhere. “People became afraid to go to St. Vincent’s,” says one physician who spent twenty years there. “First, we got labeled the AIDS hospital, and that drove patients away. Second, we had a large indigent population, because we treated everyone the same whether they could pay or not. Some people weren’t comfortable being in the same room as those patients.”


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