Failing Hospitals Seek New Tax - Taxpayer bailout could be the answer for the Peconic Health Corporation

The chief executive officers of Southampton, Central Suffolk, and Eastern Long Island Hospitals have asked the supervisors of the five East End towns to consider establishing a tax that would help them to avoid closing their hospitals.

At the most recent meeting of the East End Supervisors and Mayors Association, the three C.E.O.s, whose hospitals form the Peconic Health Corporation, said that their hospitals could close if their financial health failed to improve. They have been making the case to the group for the past year.

"What we've been exploring is various ways to make our hospitals more viable and survivable," said East Hampton Town Supervisor Bill McGintee. "What happens to this region if Southampton Hospital shuts down?"

"The state is moving forward with a plan similar to BRAC for community hospitals," Mr. McGintee said on Monday, referring to the base realignment and closure commission of the Defense Department, which has compiled a list of military bases targeted for closure. He said that he and other supervisors hoped to defend the hospitals from such a process operating on a state level.

State Assemblyman Fred W. Thiele Jr. confirmed that a state commission had been formed as part of this year's budget and reiterated that it was "equivalent to BRAC." Its mission will be to recommend the streamlining of health care providers and hospitals and it will present a list of recommendations for closure.

Mr. Thiele said he suspected that, like the military base closure list, the hospital list will be accepted as a whole or rejected as a whole, to eliminate arguments once the list is finalized. Nonetheless, he said he could not imagine that the East End hospitals, given their relatively isolated geographic location, would not be considered essential.

Donna Sutton, a spokeswoman for Southampton Hospital, said that the "purpose of the meetings with the East End Supervisors and Mayors Association was to discuss the operations and the financial challenges the Peconic Health Corporation faced."

Mr. Thiele said he has introduced legislation to allow a local referendum on the matter of a hospital tax, but does not think that it will be voted on this year. If the bill is passed, the towns can hold a vote.

"I do worry about the hospitals' financial health and ways to help them stabilize. . . . It's critical that they be there," he said.

If voters were to agree to a tax, Mr. McGintee thought that it should be unanimous across the five towns. Mr. Thiele's legislation allows a separate taxing district for the distinct region each hospital serves. If East Hampton and Southampton both agreed to the tax, they could go ahead and offer financial support to Southampton Hospital. If one or both of them decided not to support the tax, neither would be liable. Likewise, if Riverhead voted to support Central Suffolk Hospital, their vote would not be affected by the two South Fork towns.

Mr. Thiele said there would be some overlap and not everyone who benefited from the use of a given hospital would be taxed for their support, such as residents of Brookhaven Town who might use Southampton Hospital. "It's rough justice, yes . . . but the way the legislation is drafted roughly mirrors the service areas."

No one interviewed was willing to discuss even preliminary figures or percentages for the tax.

Senator Kenneth P. LaValle, however, said yesterday that he would be reluctant to support a new tax.

The five town boards will discuss the subject at a meeting this summer that is being coordinated by Southampton Town Supervisor Patrick A. Heaney. In February, Mr. Heaney was skeptical of the proposition. Such tax districts would be "extremely difficult to achieve," he said, adding, "I don't think it's politically desirable."

Mr. Heaney said then that Southampton Hospital was losing money because of a "great number of people who use the emergency room and don't pay or don't have health insurance. You'll be subsidizing the emergency room of the local hospital for the benefit of people who are not paying for its services. It's a difficult thing to ask residents to do."

Southampton Hospital has a debt of $40 million it needs to finance in two long-term bond issues at 7.45-percent interest that cannot even be prepaid for another five years and even then with significant penalties. Southampton also had $7 million in uncompensated care costs in 2003.

In addition to debt service and other issues unique to Southampton, all of the hospitals told the mayors and supervisors that managed care and the state's Medicaid structure were causing lasting damage to their financial results as well as their ability to reimburse vendors and get competitive prices from them.

Changes in the state's reimbursement rates for Medicare will cost Southampton $350,000 this year. Hospital executives told the supervisors and mayors that if the state's Medicaid payments were more like those in Connecticut and Massachusetts, they would not have as much of a financial burden. Mr. Thiele said in February that proposed cuts in the state budget would cost Southampton Hospital $814,000 in 2005 and more than $4 million over the next five years.

Southampton Hospital will release its financial results at the beginning of July. The board of directors has already seen them, according to Ms. Sutton, and the annual report is being printed this week.

The mayors and supervisors were warily supportive of the hospital's proposal. Most said that they would wait to see how voters reacted to the idea, adding that the manner in which the new tax was explained would be key to its success.

Although towns can impose taxing districts without voter approval, those involved thought that in this case, a referendum was the correct and indeed the only politically viable course.

Sag Harbor Village Mayor Ed Deyermond said that he had reservations about the issue. "There's still unanswered questions about the data that was presented." A referendum, he said, "is the way to go. Put it out to the people."

East Hampton Village Mayor Paul F. Rickenbach Jr. called the proposal "extremely sensitive subject matter. It's the case throughout the state that a lot of medical institutions suffer dramatic financial losses."

Mr. Rickenbach said that as an official, he would defer to the town board's determination. "The feeling and flavor of the board of trustees is that they would support their recommendation."

Speaking personally, however, he said he would like to see each hospital's mission statement and determine what services might be consolidated among them. If the community were to be taxed for the hospital, it could want to have a greater say in its operation, he said.

Mr. Rickenbach pointed out that the tax proposal is not unique to eastern Long Island. Westchester Medical Center, for example, accrued $200 million in operating deficits over the last four years. Westchester County has reacted by agreeing to give the hospital $25 million a year, and the state will increase its Medicaid disbursements to the hospital. A bill to increase the county's sales tax by one-eighth of 1 percent was introduced in the Legislature. The state will convene an oversight board to keep watch over the hospital's finances.