Shocker: How SUNY lost more than $100M mismanaging LICH
Failure to ‘credential’ doctors lost major insurance monies
The State University of New York (SUNY) has repeatedly claimed it was forced to shut down Long Island College Hospital (LICH) in Brooklyn and sell the property to a developer because the hospital was losing millions of dollars a month.
Now, public filings, testimony and documents obtained by the Brooklyn Eagle show that SUNY treated thousands of patients at LICH for free for almost two years, losing more than $100 million — at the very least — in revenue that it is now scrambling to recover.
Over the past couple of months, former LICH patients across Brooklyn have received bills for treatment at LICH that go back, in some cases, more than two years.
How did this happen?
Documents show that after taking over LICH in May 2011, SUNY Downstate’s failure to file standard paperwork with insurance companies cost LICH at least $106 million — and likely more.
The process SUNY never carried out is called credentialing. Insurance companies didn’t pay for treating patients at LICH because SUNY never credentialed the LICH doctors under SUNY’s auspices with the insurance companies.
According to hospital administrators and billing companies, carrying out the credentialing process with insurance companies is one of the most basic steps to running any medical practice.
“Credentialing is one of the most important pieces to ensuring hospital revenue remains consistent. Insurance companies only allow doctors to participate if they’re properly credentialed,” a source that does business with SUNY told the Brooklyn Eagle. The company asked not to be identified in this story.
“In May 2011, when SUNY took over, they did not take the time to make sure prior to the [takeover] that the doctors were properly credentialed with the entity SUNY Downstate Medical Center at LICH. They had to be credentialed under SUNY’s umbrella — i.e., tax ID, NPI and the proper services and remit addresses,” the source said.
A Brooklyn physician who was a section chief at LICH for years told the Eagle, “I know for a fact there was never any credentialing.”
“You stand or fall by how good you are at collecting. If you’re not paying attention, you’re going to go broke in a hurry,” he said.
LICH Insurance Reimbursements Plummeted After SUNY Took Over
Throughout this billing failure, SUNY was paying roughly $1.7 million a month to Beth Israel/Continuum Health Partners to obtain, among other services, insurance payments for LICH. The billing arrangement was part of the $59 million Transitional Services Agreement entered into when SUNY acquired LICH from Continuum.
Continuum’s contract allowed it to collect this fee whether it obtained payments for services or not. It has already collected $58 million of this amount.
At least four other outside billing companies handled billing and insurance paperwork for several LICH units not handled by Continuum. These companies, however, were paid only a percentage of the insurance reimbursements they managed to collect.
One of these companies told the Eagle that something peculiar happened to the hospital’s insurance reimbursements they saw after SUNY took over LICH: They dropped by roughly two-thirds.
“We were very consistent in the revenue brought in from the practice,” the source said. The revenue dropped drastically after SUNY took over “not because the number of patients dropped,” but because SUNY never properly completed the doctors’ paperwork.
“If the doctors are not set up properly, the insurance companies will deny insurance payment,” the source said. “They’ll either pay benefits at out-of-network rates or pay the patients directly. We’ve had payments go to the patients and we didn’t get the money back. Patients were paid to come to their physicians.
“From day one we told them there was no credentialing,” the source said. Although this company had handled credentialing paperwork at LICH before SUNY took over, the source said that SUNY refused to allow it to do so afterward.
In many cases, the insurance companies just rejected the bills. In other cases, insurance payments were sent to SUNY Downstate’s Clarkson Avenue address. Other insurance payments were mailed to SUNY “lockboxes” in other states – designated for the “old LICH” — where they were mixed up in a mess of unallocated funds.
SUNY contracted last year with Lazerfiche, an online document management service that the billing companies use to “find payments to unallocated parts of the hospital,” the source told the Eagle. Billing companies have been told to “spend time going through ‘Explanation of Benefits’ (EOBs) on this website to find doctors associated with us. It is a mess.”
SUNY has demanded that some billing vendors do this grunt work gratis, before they are paid for past services. At least one of these companies is considering legal action against SUNY for non-payment. An attorney for the company told the Eagle, “He’s prepared to exhaust all legal remedies.”
Business Automation Experts, which set up Laserfiche at SUNY, uses the situation at Downstate in its sales literature as a case study. However, despite the software, some of the money in the lockboxes has been lost in a paperwork maze so massive that SUNY may never figure out where it belongs.
SUNY: Credentialing ‘Took Longer Than Expected’
In response to questions from the Eagle about the lack of credentialing, SUNY admitted that the credentialing of LICH’s doctors “took longer than expected” and “interfered with billing.”
“The physicians who previously held privileges at Long Island College Hospital were required to submit new credentialing applications to join the medical staff at University Hospital of Brooklyn to obtain privileges at SUNY Downstate Medical Center at LICH. Credentialing applications are quite lengthy and need to be completed by the physician. Every effort was made to quickly credential the doctors; however, this process clearly took a significant amount of time that interfered with billing and collection,” SUNY spokesperson David Doyle said on Tuesday.
“Any change of ownership of a hospital can create a lag in billing and collection. A six-month lag in collection is not uncommon. The credentialing process requires cooperation and coordination among many parties: the physicians, the insurance companies, the federal and state health programs and the billing entity. It is true that this difficult process took longer than expected upon the acquisition of Long Island College Hospital,” Doyle continued.
While a six-month lag may not be uncommon, an 18-month lag is unprecedented.
“The buck stops with credentialing, period,” the billing company source said.
SUNY Had the Time and the Money to Set Up LICH’s Billing
SUNY Downstate’s acquisition of LICH did not take place overnight. SUNY had the time and the money prior to acquiring LICH to carry out the credentialing paperwork. SUNY even received a $40 million HEAL grant prior to the acquisition meant, in part, to assist “in the payment of costs associated with the integration of clinical and financial operations between SUNY Downstate and Continuum Health Partners,” according to a press release issued in 2010 by former Gov. David Patterson.
Documents show SUNY knew early on that their billing mismanagement was causing a financial crisis at LICH. SUNY Downstate has admitted that it mismanaged its own billing as well.
SUNY Downstate President Dr. John Williams said in Senate testimony that when he took over at Downstate in August 2012 the billing systems “did not work. We had to completely rebuild the revenue cycle. It did not exist; [so] we were unable to actually collect money that we billed for.”
In a Request for Proposals (RFP) issued in the summer of 2013, SUNY acknowledged that after acquiring LICH in May 2011, it “did not have the internal resources to conduct billing and collection activities related to the LICH accounts receivable.”
Yet SUNY never revealed this internal chaos to State Supreme Court Justice Carolyn Demarest, who originally approved the 2011 transfer of LICH to SUNY. Demarest later had harsh words for SUNY for not revealing its own dire financial condition to the court before the transfer.
In May 2012, SUNY again appeared before Demarest — this time asking for $15 million from LICH’s Othmer endowment fund. In its application, SUNY said it was in financial difficulty because the state had failed to provide anticipated funding to support Downstate, resulting in a “financial crisis” that would likely result in a significant loss of jobs at LICH.
SUNY said nothing to Demarest, however, about its negligence in collecting hundreds of millions of dollars owed to LICH and Downstate.
SUNY Begins Credentialing — A Month Before Seeking LICH’s Closure
It was not until December 2012 — 18 months after the acquisition — that SUNY put effort into credentialing LICH’s doctors.
By this point, SUNY’s plans to sell LICH to a developer were already in the works.
The contracts for doctors at LICH had been automatically extended for a year after SUNY’s takeover based on their historical productivity with LICH. So the drop in income to their units didn’t hit most of them until May 2012, when their contracts were renegotiated.
Then they were astounded by the plunge in revenue recovered from insurance companies.
According to an email obtained by the Eagle, it was not until December 2012, that John Byrne, who was at the time the chief operating officer at LICH, was “charged to work on the issue of UHB/LICH practice physicians not enrolled/not on par with insurance plans that are critical to LICH operations.”
In an email blast to 27 department heads, managers and doctors, Byrne asked supervisors to let him know which doctors were not credentialed.
“Please add, correct, identify as necessary physicians whose practices are being badly impacted because they are not enrolled in the right insurance plans or enough insurance plans,” it reads in part.
Byrne said in the email that the effort would proceed along several tracks, including informing the appropriate Downstate managers of priorities and quantifying the financial opportunities associated with credentialing the physicians.
“We will track this as part of the LICH Recovery Plan,” he wrote.
One month after this email, in January 2013, SUNY submitted a plan to the state Department of Health to close LICH, claiming financial difficulties.
SUNY then took additional actions — withdrawing residents, closing units, turning away patients and halting ambulance deliveries — that would further cripple the hospital financially.
Dr. Alice Garner, former chief of the Neonatal (newborn) Unit at LICH, told the Eagle in May, “If you don’t collect the money I bill, you don’t want a hospital. Last year I billed $1.6 million in the Neonatal unit. They collected $204,000. The year before I billed $1.4 million. They collected $200,000. Imagine that same pattern in every department.”
No insurance company pays the full amount billed. Payments are determined by a complex formula which encompasses a host of factors, and reimbursement rates are negotiated between the service provider and the insurance company for the physicians participating.
Regardless of the negotiated rate, in least one LICH unit, reimbursements dropped by roughly two-thirds after SUNY took over LICH. And in other units, such as the emergency room fast-track area, as came out in Senate testimony, patients were not billed for at least the first 18 months after SUNY took over.
Now that LICH is closed, SUNY appears to be getting serious about credentialing its own Downstate doctors. On June 22, SUNY Downstate posted want ads seeking two “Medical Board Credentialists.” Additionally, on June 24, SUNY issued an RFP seeking “a qualified firm to provide hospital staff credentialed staffing services, on an as-needed basis, at the facilities of its component University Hospital of Brooklyn.”
An Open Secret: The Senate Knew, the SUNY Board Knew, the Unions Knew
SUNY Downstate’s slow-motion billing disaster, the subject of SUNY board of trustees meetings and Senate testimony, was not a secret.
The lack of a billing system was not only undermining LICH, it was devastating Downstate. By mid-2013, SUNY was leaving uncollected on the table $6 million to $6.5 million a month at Downstate, and $4.5 million to $5 million a month at LICH, according to SUNY Downstate President Dr. John Williams.
Six months after Byrne’s email about the lack of doctor credentialing at LICH, faulty billing at Downstate and LICH was the topic of a June 4, 2013 joint hearing before the New York State Senate Standing Committees on Health and Higher Education.
In his testimony, SUNY Chairman H. Carl McCall spoke about “the desire to get rid of or change the current billing system and its financial difficulties.”
When asked by senators how much money SUNY was losing every month due to the faulty billing system, Dr. Williams testified, “Yeah, the number right now is approximately $11 million a month. $4.5 to 5 million a month at LICH, and the rest being at University Hospital of Brooklyn [Downstate].” Saying it would take about 18 to 24 months to see significant savings, he added, “But we are collecting, we are billing, and our charges are getting in.”
At the same hearing, then-Sen. Eric Adams (now Brooklyn borough president), complained to SUNY President Nancy Zimpher, “You know, we went through almost 12 months of this problem, and all those professionals we had there didn’t realize that something was wrong? There’s just something that’s just not sitting right with that, you know?”
Ms. Zimpher told Adams SUNY was fixing the problem through “administrative turnover.”
“Senator, I think the severity of the problem did engender a major administrative-management turnover, that we got to as fast as we could get [to] once we understood the hemorrhaging,” she said. “It was a difficult decision, but it was a top-to-bottom exodus, over our concerns about management . . . But we agree; we didn’t get to it as quickly as we might have wanted to, but it is what it is, and we took the actions we did.”
Michelle Green, associate director of the New York State Nurses Union (NYSNA), testified at the hearing that LICH, with more patients enrolled in private insurance plans than other Brooklyn hospitals, should be financially viable.
“We have one-third [with private insurance] — the highest private patient-payer mix in the borough of Brooklyn,” she told the Senate.
Julie Semente, long-time intensive care nurse at LICH, told the Senators, “For the first 18 months, since SUNY took over in 2011 . . . no patient in our [urgent care] emergency room fast-track was billed for a service.”
“None of our doctors were recognized by Medicaid, Medicare, insurance companies. And for 18 months, the emergency room was providing [basically] free service,” Semente said. “They weren’t credentialed.”
Green also testified that the accounts receivable at LICH stretched to 104 days. According to Standard & Poors, the median accounts receivable at hospitals is roughly 48 days.
Green said that SUNY Downstate had never supplied a business plan to the state comptroller despite being asked for one. “We saw no indication that there was a clear business plan to run this hospital, to collect money, to plan services. To change services, for that matter. There was nothing. Nothing out there.”
Now, SUNY Dunning LICH Patients
Now that LICH is closed, SUNY is making an all-out push to collect millions of dollars. A Request for Proposal (RFP) shows that SUNY is contracting with billing companies to collect $106 million owed from insurance companies just for LICH accounts. That figure represents only what SUNY considers collectible. Other SUNY data suggests that additional, uncollectible amounts would significantly increase that figure.
RFPs show that SUNY is also trying to collect on bills rejected by Medicare and Medicaid because of improper paperwork, and is sending unpaid patient accounts to collection agencies.
Over the past couple of months, former LICH patients across Brooklyn have received, for the first time, bills for medical services carried out more than a year ago at LICH. Some bills date back several years.
When patients call their insurance carriers about these bills, in some cases they are told that they have already been paid. Others are being told that the bills are too old and there is no obligation to pay.
Concern is growing that billing companies hired by SUNY have been giving out false information to patients who call with concerns, and patients may be pressured to pay bills out of the very real fear of damaging their credit ratings.
Patient Barbara Gartner told the Eagle via email on June 19, “This week I got a bill from SUNY — for a co-payment for emergency services provided at LICH in April 2013 . . . SUNY had never previously billed me.” Gartner said when she called the number on the bill to find out why it was being sent out more than a year after the service, “I was told two different amazing lies by two different representatives. It was easy to verify with the insurance that they were not true.”
The bills had a “Continuum” watermark on the paper. However, the name of the billing company was not Continuum.
“There are a lot of implications — for SUNY claims re LICH losses, for patients’ rights, for SUNY’s responsibility for public funds,” Gartner said.
Alicia Ramos said her mother, Rosa Ramos, was billed this year on May 29 for a co-payment for services that took place in the first quarter of 2013.
LICH volunteer Josefina Novarro said, “I received [a bill] from 2012 and when I called them they told me that my insurance just processed the claim. When I call the insurance [company] they told me that claim was paid in Nov. 2012.”
New York state’s Public Health Law limits what hospitals in New York can charge patients with limited incomes and no health insurance coverage. Patients have until at least 90 days after they receive the medical service to apply for a discount on the bill.
But bills recently received by LICH patients are long past the 90-day limit, and they lack this required information. A phone number on the back, for patients having difficulty paying, links callers to a LICH answering machine. Callers leaving messages on this machine have not received any response.
Former LICH physician Pinar Atakent received a notice of a past due bill for service received sometime before Jan. 12, 2012. She said she received a statement this year on June 14 that she had a $3,600 overdue balance, even though she had never been billed for the service.
“We have a lot of evidence of how SUNY financially failed our beautiful hospital, and told everybody that LICH is losing money every month,” Dr. Atakent said. “In my opinion, not LICH, [but] SUNY failed the operation of LICH.”
SUNY Issues Billing-Related RFPs
By August 2013, the LICH accounts receivable balance stood at $106 million, according to an RFP issued by SUNY. About 40 percent of this amount was greater than 90 days overdue. And 58 percent of that was for bills worth more than $10,000 — hospital bills likely handled by Continuum, a source told the Eagle.
As SUNY shut down LICH, it issued RFPs for billing and debt collection services.
In an RFP with a September 2013 deadline, SUNY sought hospital billing and debt collection vendors to “resolve assigned components of the LICH legacy Accounts Receivable at an accelerated pace…”
In December 2013, Advanced Reimbursement Management LLC was awarded a five-year, $5.1 million contract to file appeals “for claims denied by government and commercial payers.”
On June 19, 2014, Aergo Solutions LLC was awarded a $3 million contract for “debt collection services for LICH” with a start date of June 1, 2014.
On June 12, 2014, another RFP was issued for “Revenue Integrity Audit Services.” SUNY was “Seeking a qualified firm to provide services that identify and correct deficiencies in charge capture and coding procedures for Downstate.”
While SUNY was issuing RFPs for billing and debt collection, it was still requesting that the vendors doing the current billing work for free. “They would pay me every four or five months,” one source said. “They’re paying millions, but neglected to pay the people in the trenches trying to fix this mess.”
SUNY’s Response to Billing Questions:
On Tuesday, SUNY spokesperson Doyle answered Eagle questions about billing issues:
“There was a discrepancy regarding payment of the vendor that was responsible for self-pay billings and resulted in a three-four month delay beginning in October 2013. The issue was resolved and billings started back up earlier this year (Jan./Feb. 2014) and payees were afforded additional billing notifications.
“As Downstate has transitioned from Continuum’s vendor to its own, an effort is underway for remittance on all unpaid bills,” he added. “Downstate is unaware of any systematic issue that would result in the billing companies providing incorrect information.
LICH had been losing money for years before SUNY took it over — again, exacerbated by faulty billing carried out by Continuum — but its situation appeared to be improving markedly. According to the state Comptroller’s audit, LICH’s operating losses for all of 2010 were just $4.7 million.
After SUNY took over, LICH lost more than that amount every month simply because SUNY never filled out the credentialing forms.
At a December 2013 meeting of SUNY Trustees, Chairman McCall presented a slide entitled “LICH Liabilities,” which claimed, without support, that LICH’s liabilities totaled $513 million and therefore justified the fire sale of LICH to developer Fortis Property Group.
This total included liabilities from PIT bonds ($118 million), a SUNY loan ($75 million), “Cost to exit LICH” ($180 million) and the Othmer Endowment ($140 million).
In January 2014, six Brooklyn community associations called McCalls’ use of these figures “disturbing.”
The $75 million SUNY loan, according to SUNY’s records and state Comptroller Thomas DiNapoli, was a line of credit for Downstate Medical Center, not LICH.
The $180 million exit cost “is a mystery without documentation or explanation,” the community groups said.
The Othmer Endowment should be a $140 million asset, not a liability. “It is a liability only if the money is gone,” the groups say, calling for SUNY to “account for this money before making any further representation of LICH’s liabilities.”
The PIT bonds obligation may magically disappear as well. On June 25, SUNY’s Counsel Ruth Booher told the SUNY board that DASNY (Dormitory Authority of the State of New York) was bending over backward to help Fortis avoid repaying the PIT bonds.
“We have worked to avoid that payment,” Booher said. “DASNY is giving Fortis nine months from the start of the NYU lease to come to closing so we think the defeasance issue will not be there.”
In sum, SUNY may never be held to account for the liabilities it caused at LICH.
The End of a 156-Year-Old Hospital
SUNY’s LICH debacle did more than bring down a 156-year-old community hospital and exacerbate Brooklyn’s growing healthcare crisis.
SUNY’s misrepresentation of LICH’s finances coupled with an apparent lack of oversight paints a troubling picture of state government’s fiscal and ethical deficiency.
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