Time to Strengthen Rules on Financial Disclosure for Hospitals, Lawmaker Urges

Lilo H. Stainton | November 13, 2019 | Health Care
Assemblyman proposes a trio of bills that would increase transparency, demand more detail, alert local leaders to fiscal red flags
Credit: NJTV News
Under the measures from Assemblyman Nicholas Chiaravalloti (D-Hudson), there would be increased transparency of fiscal operations in acute care hospitals.

Hospitals in New Jersey would have to meet stronger financial disclosure and transparency requirements under a new legislative proposal. As part of an effort to strengthen the state’s existing financial disclosure requirements for healthcare facilities, acute care facilities would be required to submit federal tax forms to state regulators and detail their spending on consultants and management contracts.

The proposals come from state Assemblyman Nicholas Chiaravalloti (D-Hudson), who plans to formally introduce a trio of bills later this week to increase transparency of fiscal operations in acute care hospitals, expand what state officials can consider as they assess their financial health, and ensure local leaders are informed when regulators identify fiscal red flags at their community hospital.

Chiaravalloti said the measures were prompted by fears voiced by local officials about the potential sale or closure of Bayonne Medical Center, a century-old hospital in his district. He also said his response was informed by a State Commission of Investigation report in May that raised concerns about the spending practices of CarePoint Health, which owns three Hudson County hospitals including the Bayonne facility. The SCI also questioned the state’s ability to effectively monitor the fiscal health of acute care facilities, especially those with complicated ownership and financing arrangements.

In October, CarePoint signed an agreement with the massive health system RWJBarnabas Health, which calls for the other two facilities — Hoboken University Medical Center and Christ Hospital in Jersey City — to become part of RWJBarnabas.

The parties did not specify any details of what has been framed as a sale of these hospitals, but they said they expected a deal to be finalized this year. It must also be approved by state and federal regulators, CarePoint said.

CarePoint has stressed that Bayonne Medical Center is not part of this agreement and that a “separate process” is underway to determine who will lead that hospital in the future. One source said multiple health systems have expressed interest.

“The Bayonne Medical Center is quite literally vital to the people of this city,” Chiaravalloti said. “If we had known sooner about a planned merger that could leave residents without access to healthcare, we could’ve had conversations with CarePoint Health to try to determine a better approach. This is why better communication between hospitals and elected officials is so critical.”

Hudson County hospitals

In announcing the two-hospital agreement with RWJBarnabas, which already runs 11 hospitals of its own, including Jersey City Medical Center, CarePoint said the transaction seeks to “enhance health care services” for residents of Hudson County and the region. CarePoint said Bayonne is not connected to this negotiation, but Bayonne Mayor Jimmy Davis said he has heard that his peninsula city could lose its century-old community hospital in the ongoing shuffle.

(Ironically, RWJBarnabas opened a freestanding emergency room in Bayonne in 2017 as a satellite to its Jersey City hospital, a move that touched off a battle between RWJBarnabas and CarePoint over who should serve patients in the isolated city of 65,400 residents. Now the two entities appear to be working together to bolster the future of two other acute care facilities in Hudson County.)

According to draft bills shared with NJ Spotlight, Chiaravalloti wants to build on a decade-old law that requires hospitals to provide the state Department of Health with regular financial updates to help it monitor their fiscal health. Labor leaders have also urged the DOH to enhance its oversight of hospitals following reports this summer that CarePoint was preparing to lay off dozens of workers at the three sites.

In addition to the cash-flow reports and other information already required, Chiaravalloti’s proposal calls for hospitals to submit certain tax information — including an IRS Form 990 for nonprofits and other filings for for-profit entities. They would also need to reveal spending on management, consultants and other third-party contracts; details of payments, leases and other rentals provided to hospital officials and family members; a chart of legal entities affiliated with the hospital; a list of investors, trust interests and joint-ventures involving the facility; and details on any planned expansions, among other things.

Management and consultant payments

Another measure empowers the health department to consider the impact of management and consultant payments and also consider the benefit of the service these third parties actually provide; the proposal would also enable the state to add other filing requirements if it chooses.

A third proposal would allow the state to alert local officials and state lawmakers from that district about a financially distressed hospital in their area; it would require the DOH to inform these officials if it appointed a fiscal monitor to oversee a hospital’s operation. Monitors were already an option under state law, but regulators were not required to disclose their role.

CarePoint may have prompted the latest proposals, but the company said it welcomes additional disclosure requirements. “While we haven’t seen the specifics of this legislation and cannot comment on it directly, as we have said before we fully support increased transparency and the recommendations of the SCI report,” CarePoint spokeswoman Jennifer Morrill said.

While the SCI did not allege any illegality or impropriety, its May report found that between 2012 and 2016 CarePoint paid $157 million in consulting and management fees to a handful of third-party companies that essentially funneled much of the money to several of the company’s principal owners. These third-party companies appeared to have few employees or expenses of their own and appeared to be providing duplicative services to the hospital chain.

The report also noted that CarePoint principals took financial risks in investing in the three once-bankrupt facilities, a commitment that helped ensure they could continue to provide care in the region. The health department has been strengthening hospital reporting requirements in recent years, but the SCI also used its report to urge the state to adopt additional regulations governing transparency and beef up its own capacity to track the financial health of the hospitals it monitors.