PricewaterhouseCoopers hired to consult on drastic cuts to Hadassah Medical Center as it faces $58 million in losses.
In a move to save the financially crippled world-renowned Hadassah Medical Center in Jerusalem, its parent organization secretly gave it a $10 million cash infusion last summer, The Jewish Week has learned.
Now, Hadassah, the Women’s Zionist Organization of America, is hiring the prestigious PricewaterhouseCoopers, the giant professional services firm, to conduct a thorough review of the hospital’s operations and recommend cost-saving measures.
Hadassah officials say the hospital is on track to run a deficit of $58 million this year after depleting its reserves to cover shortfalls over the last several years.
The move to enlist PricewaterhouseCoopers comes just days after a hospital union leader, Manon Brochian, was quoted by the Jerusalem weekly Kol Ha’ir as saying that he had written to Hadassah asking it to intervene to save the hospital “because the financial crisis of the hospital is greater than anything in the past. … If steps aren’t taken with determination and courage, there’s a good chance it will collapse.”
At the time Brochian made those comments, he was unaware of Hadassah’s plans to bring in the turnaround experts.
Officials of Hadassah — which founded, owns and supports the hospital — expect to make another bridge loan in March to keep the hospital operating, according to Marcie Natan, Hadassah’s national president.
Natan disclosed the hospital’s dire financial straits in a conference call Monday with board members of both the medical center and her organization. She also requested permission to hire PricewaterhouseCoopers and its Israel subsidiary, Kesselman & Kesselman of Tel Aviv, to jointly conduct the review; it is expected to cost about $3 million. The Hadassah board is expected to meet this weekend to consider the proposal. If approved, the review would begin next month and take about three months.
The hospital receives no direct government money. About 96 percent of its $500 million operating budget comes from Israel’s universal health system that requires everyone to have insurance. Israelis must join one of four health maintenance organizations and pay 40 percent of their cost; the state pays the rest.
Hadassah had been contributing $40 million annually to the hospital to cover much of the rest of the operating budget. But after the economic downturn in 2008, Hadassah cut back that contribution to $25 million and then to $19 million annually.
That cut, plus health care costs outpacing the state’s reimbursement rate to hospitals, forced Hadassah Medical Center to tap into and then deplete its reserves. As a result, the hospital this year has a deficit of $58 million, according to Natan.
Reports of the hospital’s financial plight have trickled out in recent years. In December 2011, an Israeli publication, Calcalist, reported that the hospital had not been able to pay its suppliers, who were reportedly owed about $2.65 million. The paper attributed the difficulty to Hadassah’s loss of about $90 million in the Madoff Ponzi scam. In fact, Hadassah actually made -- and spent -- $90 million over the years of investing with Madoff, and was forced to give back half to settle claims by bilked investors.
Hadassah officials dismissed the problem with suppliers, attributing it to a cash flow problem. And Hadassah worked out an arrangement with its vendors in which their bills would be paid after 90 days.
Last August, JTA reported that the hospital was operating at a deficit of $49.4 million. It said the hospital was seeking wage cuts of 2 percent for a two-year period as part of a recovery plan the hospital was seeking to institute.
Natan said the hospital is still negotiating for givebacks from its doctors and nurses.
“We’re seeking either a reduction in their salary or deferred compensation,” she said, adding that the talks have been going on for months.
Brochian, the union leader, pointed out also that just a month ago Shaare Zedek Medical Center in Jerusalem beat out the Hadassah Medical Organization in its quest to take over the financially failing 190-year-old Bikur Cholim Hospital in Jerusalem.
Israel’s Finance Ministry reportedly preferred Shaare Zedek over Hadassah because of Shaare Zedek’s sound financial footing compared to Hadassah’s mounting financial deficit.
Also in his letter, Brochian wrote that the hospital’s previous recovery plan failed and that the deficit grew this year by nearly $67 million, according to Kol Ha’ir.
A spokesman for Hadassah said Brochian’s figure is inaccurate and that Hadassah reaffirms the $58 million deficit figure for this year.
The hospital review Hadassah has offered is likely to call for cuts among the hospital’s 3,000 staff, Natan reluctantly conceded. There has already been one casualty of the shakeup — Dr. Ehud Kokia, director-general of the Hadassah Medical Organization since November 2011. Kokia, 62, a physician and health-care executive, has chosen to submit his resignation after being able to find only about $16 million in cuts for this year’s budget. The hospital’s executive board had asked him to come up with $26 million in savings.
Through a spokeswoman Kokia declined comment, but in an interview with The Jewish Week last January he addressed Israel’s public-private health system that many argue doesn’t really work.
“All of the Israeli health system is facing grave financial problems,” he said. “You cannot ignore [seeking money] from anyplace that can help you. We will look at the Israeli market to see if we can get help from Israeli philanthropists.”
Natan said that attempt has thus far failed.
“Fundraising is essentially non-existent among the Israeli population” in Jerusalem, she said. “Big Israeli donors give where they live, and they don’t live in Jerusalem.”
The consulting firms will be sending both American and Israeli teams into the hospital as part of their review, Natan said, adding that it is important to have Israeli experts involved.
“They know the language and the culture and it brings to the hospital a feeling that this is not an American firm imposing something,” she explained.
Natan stressed that PricewaterhouseCoopers has done this type of turnaround work at 19 hospitals in the U.S. — including the Temple University Health System in Philadelphia — and “they say they have succeeded everywhere.”
Based upon its prior experience, the company expects to be able to save the hospital $21.1 million the first year and $60 million over two or three years. Such savings would be enough to keep the hospital operating on a sound footing, Natan said.
Hadassah Medical Center operates two university campuses, one on Mt. Scopus and the other at Ein Kerem. It also runs schools of medicine, dentistry, nursing, and pharmacology affiliated with the Hebrew University of Jerusalem and is the largest non-government employer in the Israeli capital.
Although last year’s urgent call to Hadassah for an emergency infusion of cash came just weeks before 1,800 delegates from around the world gathered in Jerusalem to celebrate Hadassah’s centennial anniversary, Natan said the hospital’s finances were never discussed.
“That was not the time to discuss those issues,” she said.
If the turnaround succeeds, Natan said she would like Hadassah to stop funding the hospital’s operating budget and instead concentrate on raising money for research and specific projects like the $363 million 19-story hospital tower that opened last year on the Ein Kerem campus. She said Hadassah gave the hospital $378 million for health care costs between 2008 and 2012.
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