Carte blanche from New York led to $100 million deficit, but leaders say spending spree wasn’t disclosed by administrators; Israel prepared to lend $50 million.
As a court Tuesday gave Hadassah Medical Center a 90-day reprieve from creditors and appointed trustees to develop a bailout plan, Hadassah, the Women’s Zionist Organization of America, which owns the hospital, blamed the mounting debt on administrators who were not forthcoming.
“We were not getting full disclosure,” insisted Marcie Natan, Hadassah’s national president, in an exclusive interview with The Jewish Week. “We would ask the questions and we were not getting a full response.”
She told The Jewish Week that the hospital began running a deficit in 2006 and that its administrators did not reveal it no matter how often they were asked.
Janice Weinman, executive director of the Manhattan-based women’s organization, said: “We can’t assume they were concealing it — we don’t know that for a fact.”
Asked if her organization’s leaders believe they had failed to ask the administrators the right questions, Weinman replied: “We don’t know why we didn’t get the information. We asked the questions but did not get the answers.”
Natan recalled that at one board meeting, trustees appointed by the women’s organization — which holds a majority of the board seats — inquired about the hospital’s finances and “the board chair said it would be looked into. But at the end of the board meeting, we did not have a clarification.”
After three years of mounting debt, Natan said her organization hired outside auditors who discovered the extent of it.
“They were using available funds to cover it and were reporting an amount that included those funds,” Natan said. “Our consultant showed us the real cash flow deficit before funds were transferred to cover it. Both sets of numbers were legitimate, but ours showed a red flag.”
The reason for the mounting deficit, which Natan said now totals $350 million, is that hospital administrators had a carefree attitude when it came to expenses and looked upon the women’s organization as a cash cow that could cover shortfalls, Natan explained.
“The director general would come to the board of HWZOA and say I need more money and our board would say, ‘How much?” Natan recalled. “So we have a hospital with a culture of — instead of trying to be fiscally conservative, prudent, it felt it could just come back to HWZOA and say how much was needed and what it was needed for. We were told the MRI needs to be replaced or the computer system needed to be replaced and we gave them the money. …
“It was a hospital that was run without worrying. If they could buy a pen for $1.50 or pay hundreds for a pen, they would pay hundreds and say it was needed. … We allowed it and they benefitted by it. There came a point that our organization could not allow the hospital to continue spending without a high level of fiscal responsibility. So we now find ourselves with a significant deficit.”
Natan added: “We do not believe any funds were ever used for personal gain; everything was used for the benefit of the hospital -- not even a shekel was misappropriated.”
But money flowed like water, according to Nehemia Shtrasler in the Israeli newspaper Haaretz: “The result was a large personnel surplus and absurdly high salaries. A stock keeper earned a monthly salary of 20,000 shekels [$1 equals 3.5 shekels], a worker in the housekeeping department earned 27,000 shekels, a supply worker earned 17,000 shekels and a cleaning supervisor earned 19,000 shekels. …
“When the Hadassah women’s organization got into an argument with [Director-General] Shlomo Mor-Yosef and tried to dismiss him in 2010, the workers took his side and stopped it from happening. Of course they did. Who wouldn’t want a manager like that?”
Mor-Yosef could not be reached by The Jewish Week for comment.
Israeli Prime Minister Benjamin Netanyahu accused Hadassah management of a “serious failure” and said the public would pay and “we must ensure that the deficit will not return.”
Health Minister Yael German said the problem stemmed from inflated manpower, bloated salaries and the failure of their private medical services to generate substantial revenues.
Asked if there was any hint of financial problems before the outside audit was conducted, Natan, who became president in 2011, replied: “Before there was any crisis our internal investment committee said, ‘Ladies, you cannot continue to operate this way. If you continue along this same path, you will spend your endowment out of existence. You must reign in expenditures.’ We had been giving them millions of dollars from our unreserved funds. That has been the culture for at least 20 years.”
In the last nine years, she said, the women’s organization has given the hospital $875 million. In the last several years, the hospital has operated with an annual deficit of nearly $100 million.
Asked about reports that some of the hospital’s more than 850 doctors had been earning salaries in excess of $1 million a year, Natan replied: “I have never seen the actual salaries of our physicians.”
Dan Brown, who has watched the Hadassah debacle unfold as editor of eJewishPhilanthropy, said he is troubled by the fact that the women’s organization isn’t “willing to admit they have any responsibility for anything that’s happened in the past.”
“I think their mistake is that they were allowing things to happen under their watch,” he said. “It was bad management on their part. Ultimately, as owners and bosses, they’re responsible.”
In the meantime, the hospital’s director general, Dr. Avigdor Kaplan, said hospital employees will see, on average, 10 percent reductions in their salaries. Doctors launched a strike last week to protest a cut in their pay, and the hospital’s administrative staff and nurses followed this week. One nurse said they had received only half of their January pay.
The strike virtually paralyzed the hospital, which has campuses at Ein Kerem and Mt. Scopus, with all but maternity, emergency and intensive care units shut down. There were no new admissions, and all non-emergency procedures and surgeries — including clinics, overnight hospitalizations that are not oncology-related — were suspended.
Jerusalem residents who depend on the hospital for everything from childbirth to serious illness reacted viscerally to the walkout. Late last week, Joanna Chen posted an open letter to Hadassah Hospital on her Facebook page that detailed her son’s cancelled medical procedure:
“Next time you decide to strike, please do not do it at the expense of my son, or any other child who is suffering and needs treatment,” Chen wrote. “When you call me on my mobile as I am driving up to the hospital and tell me we must go home because there is a strike, you are knowingly increasing my son’s suffering. And mine as his mother.”
Orit Elgavi, a former cancer patient who requires frequent check-ups, said she is “very, very worried” about the prospect that Hadassah could close, or reduce its level of care.
“I’m postponing tests that I should be doing and looking at other options to do those tests,” she said.
Jerusalem District Court Judge David Mintz said he ordered a 90-day protection from creditors in order to “prop up the corporation and rebuild it for the benefit of creditors, the workers and the company as a whole and lead to a reasonable and balanced compromise that most creditors can accept.”
As part of the hospital’s reorganization plan, the women’s organization has turned to the government for help. Under the reorganization plan now being finalized, the women’s group would agree to continue providing the hospital with $19 million in operating expenses for the next four years; would forgive a $10 million loan made in 2012, and would loan another $25 million without collateral or interest. In addition, it would continue to fundraise for the new $363 million tower (about $50 million of which has still to be raised) and another 300 employees – 30 of them doctors – would be cut through attrition or layoffs by the end of next year.
“The board of HWZOA has approved this,” Natan said. “We have assets in Israel that we are prepared to either put up as collateral or actually give to the government to help fund the recovery. And the government is prepared to loan the hospital about $50 million.”
The value of the land the women’s organization owns in Israel is reportedly about $17 million.
“The government does not want to own the hospital,” Natan stressed. “We will continue to be the majority on the board. I anticipate that in the end the hospital will come out of this … stronger for having reigned in excesses.”
Stewart Ain is a staff writer; Michele Chabin is Israel correspondent.
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