Cobble Hill

LICH – SUNY deal OK’d with addition: Brooklyn judge retains jurisdiction over Othmer Endowment

Justice Carolyn Demarest stays in the game to the end

February 25, 2014 By Mary Frost Brooklyn Daily Eagle
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The deal clearing the way for a new operator for Long Island College Hospital (LICH) in Brooklyn moved closer to the finish line on Monday, as the settlement gained the signatures of all the key parties, including state Supreme Court Justice Carolyn Demarest.

While the historic agreement was brokered under the oversight of state Supreme Court Justice Johnny Lee Baynes, Justice Demarest has been overseeing other proceedings concerning SUNY’s stewardship of LICH since it acquired the hospital in 2011.  These include the murky status of millions of dollars borrowed from the $140 million Othmer Endowment Fund at LICH.

Sources told the Brooklyn Eagle on Monday that before signing the LICH – SUNY settlement papers, Justice Demarest made two handwritten changes, which all parties agreed to in her chambers.

The most important change, sources say, makes clear that Judge Demarest retains jurisdiction over the trust-related issues — so that SUNY must go back to her to complete any transaction, allowing her to examine the disposition of assets as she sees fit.

Late on Monday, several LICH supporters expressed relief that Justice Demarest retained this jurisdiction.

Jeff Strabone, spokesperson for the Cobble Hill Association, one of six community groups that has been battling SUNY’s closure of LICH, told the Eagle, “The community looks forward to greater disclosure regarding the Othmer endowment. We’re delighted that Justice Demarest has retained jurisdiction over this set of issues. We know she’ll make sure the ‘i’s’ are dotted and the ‘t’s’ crossed, and the last pennies of the Othmer funds are accounted for.”

Justice Demarest’s oversight of the trusts has been considered crucial by LICH supporters hoping to recover the funds, donated to the hospital by Brooklyn Heights residents Dr. Donald and Mildred Othmer, who made a fortune investing in Berkshire Hathaway stock.

The Othmers bequeathed the money to LICH upon their deaths in 1995 and 1998 to be held “in perpetuity,” with the income used for LICH. But in 2000, 2006 and 2011, the Charities Bureau in the New York Attorney General’s Office allowed first Continuum, then SUNY to borrow money from the endowment.

In the Asset Purchase Agreement that governed SUNY’s acquisition of LICH from Continuum Health Partners in 2011, SUNY agreed to repay $24.6 million that Continuum owed to the Othmer Endowment. Millions of dollars from the endowment have been used to guarantee capital expansion loans or were funneled into two trusts. $85.7 million from the endowment was used to set up a malpractice trust, in case money was needed to settle pre-SUNY malpractice cases. More Othmer money was combined with other LICH funds into a LICH liability trust. SUNY has said in court that it believes that any money left over in the liability trust would transfer to SUNY Downstate.

A source told the Eagle on Monday that only a portion of the money in the malpractice trust had gone to pay malpractice claims. Millions of dollars of the Othmer’s money “is sitting in a malpractice trust which doesn’t file any of the required paperwork with the New York State Charities Bureau,” the source said.

Signed deal removes uncertainty

The signed deal removes a great deal of uncertainty and smoothes the way for sale of LICH to a hospital operator who might have been hesitant to get involved when a “cloud of litigation” was still hanging over the hospital complex, lawyers said.

In return for a new, open bidding process with community involvement, the deal calls for LICH supporters to drop the two lawsuits against SUNY overseen by Justice Baynes, and the third overseen by Justice Demarest.

The settlement’s structure insures that bidders proposing a hospital will jump to the top of the pack in a new RFP (Request for Proposals) process. The agreement also gives the coalition of community groups, unions and elected officials working to save the hospital a significant voice in determining which proposal wins the bid – a first in a state RFP.

SUNY will issue the new RFP three business days after the agreement’s final approval by Justice Baynes. Attorney said they are expecting him to sign off on Tuesday.

The bidders will then have 15 business days to submit a proposal. Evaluators will have seven business days to consider and rank the proposals.

The deal does not guarantee a hospital, however. If there are no suitable bids by May 22, LICH will close. Already, 241 nurses at LICH have received notices that they could be furloughed on April 10 if no buyer is found.

The agreement also doesn’t address the situation of doctors and businesses left hanging by SUNY Downstate’s failure to collect payment for many of the procedures performed by doctors at LICH.

The president of a medical billing company told the Eagle that his company is owed hundreds of thousands of dollars because SUNY never filed the proper paperwork necessary to “credential” LICH doctors with insurance companies, a step necessary to collect payment for services performed at LICH.

 “My company is all but insolvent,” he said. “I’m looking at the same situation, and as a result will have trouble putting my daughter through college. She’s a straight A student who was just accepted at six universities – and I can’t look her in the eye.”

Those who worked day and night to produce the settlement, however, agree that it represents the community’s “best chance to keep a hospital at LICH.”

Attorney Jim Walden, of Gibson, Dunn & Crutcher, representing six community groups, said he expected hospital operators would submit proposals, “given the fact that of the current proposals, there are already one hospital, and one near-hospital.”

John Catsimatidis, owner and CEO of the Red Apple Group and Gristedes Foods, and Rudy Washington, a private real estate developer, submitted a proposal during the last round of bidding which would develop LICH as a smaller, but full-service hospital side-by-side with ambulatory medical services and commercial, retail and residential facilities. The developers are partnering with The Chinese Community Accountable Care Organization (CCACO) in collaboration with the Eastern Chinese American Physician IPA (ECAP) groups, which have a strong managed care record.

According to recent reports, Brooklyn Hospital center is considering beefing up the medical offerings in its proposal as well.

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