Strapped for cash, Hadassah hospital is on its deathbed
Victim to Madoff and internal disputes, Hadassah Medical Center can't overcome its growing debt.
In the past few years, Hadassah, the Women’s Zionist Organization of America, has struggled with a multimillion-dollar loss from the Bernard Madoff scandal and downsized its operations. Now it faces its greatest challenge yet: saving its flagship program — the Hadassah Medical Center in Jerusalem.
The group’s famous hospital is on the brink of financial collapse.
The medical center has been bleeding tens of millions of dollars in the past few years, and efforts by the American women’s organization to save it have resulted in a rupture with the hospital’s Israeli leadership. In addition, the American group has not been able to increase its funding for the hospital’s daily operation, which now has a $300 million deficit, $80 million of which accrued in the last year alone.
For the storied organization, founded in 1912 by the legendary Zionist Henrietta Szold, last year should have been a celebratory moment: a 100-year anniversary coupled with the opening of the state-of-the-art hospital tower funded in full by a massive American campaign. The building, already partially operating, should have been a monument symbolizing the close cooperation between the Israeli medical center and its American owners and funders.
But this has been overshadowed by the disputes between Jerusalem and New York over how to fund the hospital’s daily operations.
Hadassah’s leadership — which is officially headed by a lay person elected by members — is officially more sanguine about the situation.
“I am more than optimistic that by the beginning of 2014 we will have worked out a move forward for the hospital that will put it on a track for a full turnaround and financial recovery,” Hadassah’s national president, Marcie Natan, said in a November 18 interview. She noted that increasing the cash flow support for the hospital would be “a challenge” for the organization.
Tensions between the American and Israeli leaders of Hadassah surfaced in late October, when all four Israeli members of the hospital board, including Chairman Esther Dominissini, resigned in protest after having been excluded from the negotiations over the future of government funding for the medical center. In their resignation letter to Natan, the Israeli directors stated that discussions held with government officials without the participation of any Israeli board member are not consistent with good governance practices and undermine the responsibility of the board and its chair. The resigning directors also urged Hadassah’s American leadership to inject emergency funding into the hospital’s daily operation. American representatives of Hadassah women’s organization make up 51% of the hospital board and thus control its decisions.
Negotiations between Hadassah and the Israeli finance ministry over a recovery plan have been conducted by Natan and by Avigdor Kaplan, the medical center’s director, who took office earlier this year. Israeli directors who opposed the emerging plan, which includes significant layoffs, were cut out of the negotiations.
Multiple Israeli sources involved with the hospital’s work said that Israeli directors on the board, all of whom are well known in their fields, felt sidelined and would not give their approval to a reform plan that had been discussed behind their backs. These sources said that they were not permitted to discuss hospital matters on the record with the press.
This is just the latest chapter in the hospital’s turbulent relations with its American owners.
Since the beginning of its financial crisis four years ago, Hadassah hospital has seen two executive directors replaced, three board chairs resign and most of the Israeli directors on the board leave their posts. At the core of the dispute is the tension between the women’s organization, which owns the hospital and controls its board, and the Israelis, who seek a greater say in the medical center’s decision-making process.
The two sides have differed on the recovery plan, the amount of cash assistance provided by American owners and whether to allow separate fundraising in Israel.
Now, however, a staggering debt, which is growing rapidly, has increased tensions.
Hadassah’s $300 million debt is increasing every month, Israeli sources say. Hospital employees received only a partial salary in November, due to cash flow distress. In a letter to the ministers of finance and health, Kaplan warned that without an immediate cash infusion, the hospital, which stood as a symbol of Israeli top-notch medical care even before the country gained its independence, will face default and will have to cease operation.
The huge debt stems, at least in part, from Israel’s health care coverage system. Under the system, the government reimburses hospitals for services they provide patients. Hadassah, as the country’s only large privately owned hospital, faces a disadvantage in bargaining over reimbursement levels, and therefore it is now asking the government to change the funding rules. But Israelis and Americans involved with the hospital also point to reports, including by an outside accounting firm, of inefficiency and of the need for deep reforms and cuts.
Beyond the request for Israeli government assistance and the implementation of a reform plan that has already led to the layoff of 200 workers, Israeli hospital officials have also looked to their American owners for direct financial help to get over the crisis. Hadassah issued a $19 million annual operational grant in 2013, less than half of what it provided before the American economic slowdown, and a $10 million loan. These sums, an Israeli official involved in the hospital’s work said, “are a drop in the bucket.”
At the same time, however, the women’s organization has invested $320 million in a new 19-floor hospital tower that formally opened last year but still awaits another $45 million to make it fully functional. The hospital hopes that the new tower, with its added operating rooms and beds, will allow increased income from private medical procedures outside the government-run national health care program. Still, in hindsight, Natan said, the huge project, which was taken on before Hadassah in America ran into difficult times, may have been too much for the organization.
“Could our timing have been a little bit better? Could we have been a little bit more conservative on what we planned on building?” she asked. “Maybe the answer is yes, but we made the commitment, and we are within $45 million from completing the commitment.”
Still, Natan noted that Hadassah faces the same dilemma with every fundraising operation it takes on: donors’ reluctance to provide operational funds, a tendency that has caused an imbalance between the shortage of available resources for treating patients and its relatively abundant cache of funds for long-term projects. “People today are far more comfortable and engaged in giving for something very tangible,” such as research or new equipment and buildings, she said. It is easier to convince donors to give for these causes “than to just write a check and say, ‘Let the hospital use it however they want.’”
Hadassah has been struggling ever since the economic downturn, which by itself brought a drop in donation income. Then, the group was hit by the Madoff Ponzi scam, which cost it $90 million in loses. Later, Hadassah was forced to pay back another $45 million in a “clawback” procedure as part of the fraudulent Madoff profits it received, albeit unwittingly.
The group also suffered from internal disputes and turnover in its top ranks before appointing Janice Weinman executive director/CEO in April 2012. Because of the organization’s unique structure, however, its lay leaders play a role equal to the professional staff, and in some cases they are more influential in running the organization. Hadassah would not make Weinman available for comment.
The income loss has forced Hadassah to downsize much of its operations in the United States. The Jerusalem hospital is, in fact, now the group’s main program.
Within the past two years, Hadassah laid off a quarter of its workers, sold its New York headquarters building, closed 16 offices across the country and shut down its Washington advocacy office. Most significantly, Hadassah has spun off its Young Judea summer camps and has gradually phased out most of its financial support for them.
“They used to have all these great programs, and now they only have a most-of-the-time great hospital,” said a Jewish communal activist who followed the group closely but asked not to be identified, in order not to jeopardize ongoing ties with the group.
Talks among Natan, Kaplan and the Israeli government are still under way. Drastic proposals raised by Israel’s finance and health ministries have included selling the hospital to one of the existing health care companies or having the government take it over. These have been rejected by the American organization.
Other solutions being discussed would include a change in funding roles alongside a large one-time government financial aid package. But for that to happen, the Israeli government would like to see Hadassah’s women’s organization dig deeper into its pockets and help with the rescue effort. At the same time, it would require the Jerusalem hospital to undergo further reforms and face painful cuts. Both are formidable tasks for the 101-year-old organization.