CHAPTER 4

OPTIONS FOR GOVERNANCE CHANGE

Acknowledgement that the public hospital mission deserves preservation, and that the structure and governance of the traditional government-operated public hospital cannot sustain it in the future, leads to an examination of options that can be employed in changing governance. It should be clear that no one option is right or wrong; each must be evaluated in relation to the particular public hospital involved and the social and political realities under which it operates.

Governance Options for Public Hospitals
The most prevalent existing governance options for the public hospital follow.

Direct Operation by State or Local Government. The public health system is directly administered by local governments with or without an advisory board; it has no independent legal existence. Although some prefer this model due to the ability to retain close integration with public health functions as well as local government policies, this model permits the minimum level of autonomy.

Separate Board Within Governmental Entity. The hospital or public health board has authority to manage the daily operations of the hospital. This entails a higher degree of autonomy than direct operation by state or local government, but is often seen as inadequate to the tasks facing a safety net health system today.

Hospital Taxing District. An independent instrumentality of the state government with taxing authority and defined geographic boundaries. A district is typically organized under generic, statewide legislation.

Hospital Authority. A separate public entity existing independent of local government; governed by a separate board, often with the involvement of local government. A hospital authority may be organized under generic, statewide hospital authority statutes.

Public Benefit Corporation. A distinctive public corporate entity providing a benefit to state residents. While several states have a body of law applicable to PBCs, this is generally a “designer option,” with unique enabling legislation drafted to address the needs of the particular health system.

New Nonprofit Corporation. Conversion to a newly created, private, nonprofit corporation. The corporation is typically tax-exempt and often under contractual agreement with the local government to provide safety net health services. The local government may retain a degree of control over the board appointments or other aspects of the corporation.

Management Contract. Management by an existing health system or management company. The degree of ongoing involvement by the local government varies, as does the length of the management contract.

Public-Private Partnership. Transfer to or combination with an existing private health system. For the sake of present discussion, this is distinguished from a simple transfer by a high level of ongoing involvement by and accountability to local government.

Transfer to Existing Private Health System. Sale or long-term lease to, or merger with, an existing nonprofit or for-profit hospital or health system. While the system may undertake obligations to continue certain safety net services, local government does not retain a significant role in governance or operations.17

A listing of public hospitals throughout the United States broken down by category or governance follows.18

Exhibit 7. Public Hospital Listing by Type of Governance

Anne B. Camper and Robert N. Falk, “Options for the Governance of Westchester County Medical Center,” (Atlanta, GA: Powell, Goldstein, Frazer & Murphy, 1994), pp. 6-12.

Governance Options – Advantages and Disadvantages
As can be seen from the NAPH’s analysis of the fifty-two (52) reporting hospitals, the most common options for governance were as follows:

These three options represent the full continuum of governance options. Direct operation by government, with or without a separate board is the most traditional and restrictive governance structure. Operation by an independent government authority addresses many of the issues that compromise the public hospital’s ability to perform efficiently and effectively, but still retains an important element of public accountability. The option of making the public hospital a not-for-profit corporation is the most extreme form of governance relief in that it entirely removes the hospital from any form of governance control.

Before examining each of these options, it is worthwhile to consider the more critical goals to be achieved from governance change, which include the following:

• The capacity to develop and maintain a Board of Trustees with a fiduciary responsibility to the hospital. Such a board should be fully vested with authority to establish hospital policies and provide stewardship for hospital operations. Selection of a board member should be criteria-based and the board should be as free as possible from external political control. There should, however, be an inherent accountability for safeguarding the public mission of the institution.
• New governance must allow the hospital to fully execute business strategies and initiatives. The hospital should have the capacity to joint venture, take equity positions in networks, and develop and operate both for-profit and not-for-profit enterprises.
• The hospital should have the capacity to access capital in the commercial marketplace. This might include the ability of the entity to offer its own tax-free bonds.
• The new form of governance should free the hospital of all operational ties to the parent government. Activities such as financial operations, purchasing, plant operations and legal services must be fully vested with the new entity.
• The new hospital must be permitted to negotiate and conclude its own labor contracts with hospital-specific unions or with hospital-specific bargaining units in existing unions.
• The hospital should be as free as possible from the rigidity of the traditional civil service system. At the very least, key management and technical positions should be exempted from the civil service system employed.
• The hospital must be able to demonstrate a progressive ability to develop a financial structure that is free of local government subsidy. As long as the hospital depends on tax levy as a major component of its budget, local government will more than likely demand and receive a certain level of control of hospital operations. Such a situation significantly compromises the desirable goals achieved through governance change. On the one hand, the parent government must also recognize that the newly organized public hospital is continuing to provide many public purpose services needed or desired by the government. One potential approach to this issue would be for the government and the hospital to jointly identify these services and negotiate specific contracts to allow the hospital to continue these services without financial harm. Such contracts should be performance-based, and accomplished through the same mechanisms that the government would otherwise utilize in contracting for services with private entities.

With the above criteria in mind, it is possible to examine each particular option to determine the advantages and disadvantages of each one.

Direct Operation by State or Local Government (With or Without Separate Board). This governance model represents the most traditional form of public hospital governance. The presence or absence of a board is a relatively subtle distinction and therefore, for purposes of this analysis, they have been placed under one category. The reason for this is that the Board, under this model, has very circumscribed authority and most often it is little more than advisory in nature.

This form of governance meets virtually none of the governance objectives discussed above.

• The Board, if one exists, lacks any true authority to operate the hospital or establish policy for the hospital. At best, the Board can serve as an advocate for the hospital in its interaction with the parent government. Such boards are most frequently politically appointed and subject to significant political influence.
• These facilities are constrained by all the legal requirements that affect a government, thereby limiting their ability to do business and compete.
• These institutions can usually only access capital through the capital budget of their parent government. Therefore, access to capital is limited.
• Many of the important operational activities of these hospitals are vested with the overhead agencies of the local government. Consequently it is difficult, if not impossible, to operate an effective and efficient organizational structure.
• Labor agreements for these hospitals are usually negotiated by the local government for all government employees, including those who work within the hospital.
• The hospital is fully subject to the rules and regulations of civil service. Frequently this includes management, up to the chief executive officer.
• These public hospitals rely heavily on local public subsidies.

Direct operation by government is, in fact, the form of governance that is least desirable for public hospitals. Those that continue to operate in this manner are the ones most vulnerable to losing the competitive battle in the years to come. On the other hand, this is also the form of governance that most directly ensures that a public mission is maintained for the hospital.

Operation by a Hospital Authority, Tax District, or Public Benefit Corporation. For purposes of simplicity, these three governance models are being considered together. All three are, in effect, independent components of state or local government. Each may have features that are peculiar to it and may vary in form from state to state depending on legislative enactments. Hospitals operated under these models of governance would tend to meet many of the criteria for successful governance.

• These organizations have independent boards with the authority and responsibility for the operation of the institution. However, the boards are appointed and reappointed through what is frequently a political process. This feature can subject the board to political influence and pressure, and there is little that can be done to avoid this situation.
• These entities are, for the most part, free of the government restrictions that would impede the hospital in pursuing an aggressive business agenda. It is, however, possible that under some circumstances the restrictions imposed on the state may, in fact, flow to its independent instrumentalities. This would be an important consideration in selecting these options. In the case of the public benefit corporation, which is a designer option corporate entity, the enabling legislation can be structured to ensure that limitations of this type do not exist.
• These governance models permit the entity to independently issue tax-free debt. Since such debt does not rely on the full faith and credit of the state, public referendum is not required.
• These entities are rarely operationally tied to any parent government. As independent state instrumentalities there would be no reason to tie them to existing government operating departments.
• Authorities, districts and public benefit corporations can negotiate and conclude their own labor contracts.
• Authorities and districts are almost uniformly subject to the state civil service system. Public benefit corporations can receive substantial relief from civil service. Some public benefit corporations, like the New York City Health and Hospital Corporation, operate their own civil service system, which must only be consistent with the state civil service law. This can represent a major operational benefit to the hospital.
• These organizations generally do not rely disproportionately on tax levy. The tax district form of governance is, of course, unique in that it can levy its own taxes as a source of revenue. This form of governance is extremely difficult to achieve given the predictable response of the electorate. Authorities and public benefit corporations must often contract with local government to provide healthcare services that the government needs.
• Preservation of a public purpose mission for these organizations is generally achieved through the legislation that created them and through the appointment process of the governing board.

The structure of these governance organizations, particularly the public benefit corporation, is quite flexible. It allows the hospital considerable freedom in meeting objectives associated with business development and the capacity to compete. In some cases, it offers privileges not available to private sector hospitals (i.e., the capacity to issue tax-free debt, limits on liability, and the right to exercise eminent domain). This is balanced by the fact that it continues to be a quasi-government entity and does continue to impose limits on administrative flexibility.

Conversion to Not-for-Profit Corporation. This is the most extreme form of governance change for the traditional public hospital. It is also the option that is least appealing to government officials who are deciding on the options for governance change. Nevertheless, this option meets all of the objectives expressed. From the standpoint of the hospital, it is unquestionably the best and most effective form of governance because it places the public hospital on an absolute even playing field with its competitors. The major problems with this form of governance are twofold. First, it is an option that is often least attractive to the external and internal constituencies of the hospital. Second, a real question exists as to whether utilization of this not-for-profit model will, in fact, eventually erode the public purpose mission of the hospital.

With respect to the first issue, the not-for-profit structure is often politically unpalatable to elected officials who regard it as a pure privatization. It also is perceived, and correctly so, as the option which affords the government the least control. In Westchester County, this option was immediately discarded at the onset of the governance planning process. Hospital employees and their unions also tend to view this option as least acceptable because it offers the least job security and often may open the door to new bargaining units coming into the hospital. It must be remembered that civil service protection can be lost under this structure. Additionally, other competing hospitals in the community may advocate against this option because they view it as adding to the competitive strength of the hospital, which is again a correct observation. Regardless of the quality of motivation, the preponderance of negative opinion with respect to this option creates obstacles that are often insurmountable.

With respect to the issue of mission preservation, the problems are more philosophical in nature. When a public hospital is converted to a not-for-profit, any feature that distinguishes it from its competitors is lost. In the end, it can be anticipated that the public purpose mission of the hospital will not be able to sustain itself. Many will argue that the public purpose mission can be preserved through language in the operating agreements with the respective government or in the service contracts that are entered into with that government. This is to some degree true. However, I would argue that contracts and operating agreements are necessarily time-specific in nature, and over time they may disappear from the landscape of the relationship. It would be my position that although the not-for-profit form of governance is the most appealing from a management standpoint, it also is extremely risky from a public policy perspective. In the case of the Authority, the District, or the Public Benefit Corporation, all are instrumentalities of governments that are essentially public in nature. Preservation of mission is guaranteed through intrinsic qualities of public governance. Public purpose is imbedded in its structure, not artificially appended to it by way of tangential agreements.

There are other mechanisms for governance that are considered in the literature (i.e., sale, lease and contract management). I did not, however, visit these options for governance change as I would consider them pure privatizations.

In selecting an option of governance change, the public hospital must not only find an option that fits its own needs and goals, but it must lay a foundation for change. This process must include at least the following steps:

1. The hospital must develop a board based community and hospital education program so that there is a shared reality as to why governance change is in fact necessary. Without this step the process of change is significantly slowed if not totally thwarted. Where the hospital is arguing the need for change from the standpoint of an existing “burning platform,” the case for change is often more compelling and more easily sellable. Under these circumstances, the hospital is in major financial and operational jeopardy and is losing ground quickly. Government officials are usually in search of an alternative that will allow them to distance themselves, politically and financially, from the hospital without taking the difficult and unpopular step of closing the hospital. Internal shareholders in the hospital (i.e., employees, unions, and medical staff) are ready to adopt any reasonable approach that will protect their job security. Even community hospitals will often support this approach out of concern that the demise of the public hospital will shift the burden of providing care to populations served by the public hospital to them.
         The “burning platform” argument does not always exist, and in such cases the educational component becomes even more important. A strong case must be developed as to how the changing healthcare environment will make it impossible for government-operated public hospitals to survive without increasing reliance on tax funding. Hard data must be employed to demonstrate rising costs and the eroding revenue base. This case must be taken to the internal and external hospital community in an open and inclusive forum.
2. Once there is a shared reality with respect to the need for change, hospital officials must begin working with community leaders and representatives of the government to outline principles that will guide the selection of a governance model. This is an important step that if done correctly will save significant time later on. For example, if the principles expressly mandate that the new model must be public in nature, a not-for-profit conversion would be ruled out. If the principles mandate no new taxes, that would eliminate examination of a Tax District form of governance.
3. Upon selection of a governance option that receives the approval of all major parties, it is appropriate to begin creating enabling legislation. This requires intense local and state negotiations.
4. Enactment of the legislation then requires the hospital and the government to negotiate an operating agreement that will set the financial and programmatic terms of their relationship, and a ground lease or sale document, that will convey real property and movable capital items to the hospital.
5. The hospital must develop detailed workplans to restructure its organization in relation to the withdrawal of the government from hospital operations. New operating and financial structures must be developed as demanded by the new form of governance.
6. If applicable, a Board of Directors must be appointed and a structure for their activities must be developed.

Once the above steps have been taken, the new entity can become operational. With this outline of process in mind, we can now explore in detail the way the process was accomplished at Westchester County Medical Center in New York State.

CHAPTER 5

THE WESTCHESTER COUNTY MEDICAL CENTER CASE

On January 1, 1998, the Westchester County Health Care Corporation became the second public benefit corporation in New York State and the third in the United States to take over the operations of a governmentally operated public hospital. In New York State, it was preceded by the New York City Health and Hospitals Corporation, which operates New York City’s public hospital system, and, in the rest of the United States by the Dade County Public Health Trust, which operates Jackson Memorial Hospital in Miami, Florida.

This chapter will trace the development of this corporation from the point where the concept was developed through the point where the Corporation became operational. The hospital’s history and characteristics will be examined, as well as the complex political, social, and administrative dynamics associated with changing the governance of a public hospital.

History
The roots of what is now Westchester Medical Center can be traced to its origin in 1918 as a United States Army Base Hospital. Its major purpose at that time was treating returning troops from World War I who were victims of the Spanish influenza epidemic. In 1920, the United States government returned the facilities to Westchester County and the County reopened the institution under the name of Grasslands Hospital. Over the next sixty-six years, the hospital grew significantly as Westchester County’s only public hospital. During the 1920’s and 30’s it specialized in treating patients with tuberculosis and polio. During the 1950’s and beyond it developed many specialized services, including dialysis and cardio-thorasic surgery. Regardless of the services provided, it was always viewed as the institution that cared for the poor and disenfranchised; it was the County’s hospital for the poor.

In the 1970s the county government decided to change the nature of the institution from a prototypical public hospital to a tertiary care hospital and academic health center. New York Medical College, which was located in New York City, was convinced to relocate its educational facilities to the grounds of the hospital and a new 670-bed acute care hospital was constructed. Grasslands Hospital was then closed and replaced by the new Westchester County Medical Center. The plan was for this new facility to be transferred to the Medical College which would operate it as a private institution. At the time this was to happen, however, the Medical College experienced serious financial problems resulting in an abrogation of the agreements to transfer the hospital. The County, therefore, continued to operate the hospital until 1998 when a change in governance was effected which vested control of the hospital in the Westchester County Health Care Corporation, a New York State Public Benefit Corporation. This corporation renamed the hospital Westchester Medical Center.

Hospital Characteristics
Westchester Medical Center is located on a 130-acre suburban campus in Westchester County just north of New York City. Its facilities include a 670-bed acute care hospital which includes a 100-bed psychiatric hospital, a 400-bed long-term care facility and the university affiliated Institute for Human Development which focuses on research and training in the area of developmental disabilities. The hospital employs 3,500 staff and has an operating budget of just over $400 million, and it is among the twenty largest hospitals in the New York metropolitan area, as ranked by Crains Business Magazine.

The hospital is the designated academic health center of New York Medical College, which is located on county land immediately adjacent to the hospital campus. The hospital’s graduate medical education programs include 32 approved training programs that train over 300 residents each year. Additionally, there are over 130 third and fourth year medical students in clinical clerkships at the hospital each year. All teaching and supervision of students and residents is accomplished under a comprehensive affiliation contract with the medical college and is directly provided by the geographic full-time medical staff of approximately 400 physicians and surgeons who are the full-time faculty of the College.

• Although the hospital offers a full array of medical/surgical and behavioral health services, concentration of effort is focused on six Centers of Excellence. These Centers are Heart, Oncology, Trauma, Pediatrics, Neurosciences and Transplant. In this regard the following is notworthy:
  • The hospital performs over 1,500 procedures and over 9,000 invasive cardiology procedures annually for both adults and children.
  • The Oncology Center is focused on research protocols and performs over 175 allogeneic and autologous bone marrow transplants each year.
  • The hospital is the only Level I Trauma Center and Burn Center in the Hudson Valley Region, performing over 2,400 multi-system trauma admissions per year.
  • The hospital is the largest Renal Transplant Center in the state of New York. The liver transplant program was initiated in 1997 with over 45 liver transplants having been performed to date. An application for heart transplant is currently pending before the New York State Department of Health.
  • The hospital has an approved Certificate of Need to construct a 120-bed Children’s Hospital, scheduled for completion by the year 2002.
  • The hospital operates an advanced critical care transport system that includes two helicopters, a fixed-wing craft, and four ground units.

The hospital has built its strategy around tertiary care. Its Medicare case-mix is 2.35 and its non-Medicare case mix is 2.21. While the hospital is a public hospital with a No Turn Down Policy, its location and service mix have created characteristics that distinguish it from other public hospitals. The following exhibits, drawn from the findings of the 1996 NAPH Hospital Characteristics Survey, display these differences for several important characteristics.

Exhibit 8

	Stated Beds	Discharges	Inpatient Days	Births	Occupancy Rate
Westchester Medical Center	664	21,713	216,115	1,211	89%
Average Public Hospital	433	17,919	117,227	3,301	74%

Exhibit 8 shows a dramatically higher inpatient occupancy rate for Westchester Medical Center and a much smaller maternity volume, which is accounted for by the Medical Center’s concentration on high risk obstetrics, as compared to normal deliveries.

Exhibit 9

Total Uncompensated Care Costs as a Percent of Total Costs – 1996

Exhibit 9 demonstrates that the Medical Center, in comparison to the average public hospital, has a dramatically lower percentage of uncompensated care costs in relation to total cost. This does not suggest a failure of mission, but merely reflects back on the hospital’s service area population and its service mix.

Exhibit 10

Exhibit 10, a comparison of discharges by payor source, demonstrates that the Medical Center is again in a more favorable position than the average public hospital. This pattern is also attributable to service area and service mix.

Exhibit 11

With respect to outpatient visits by payor source, Exhibit 11 shows the Medical Center is in a less favorable position than the average public hospital. The Medical Center’s hospital-based outpatient services are a more traditional reflection of its public hospital mission. There is a relatively heavy emphasis on primary care clinics that draw patients from service areas throughout the county. Also, New York State restrictions on outpatient Medicaid force many of these patients into a self-pay category.

The final comparison worth drawing at this point is the level of local subsidy for the Medical Center in relation to the average public hospital. The medical center’s local subsidy represents 5% of net revenues; for the average public hospital it is 12% of net revenue.

The Westchester Medical Center is located in a county where per capita income is among the highest in the United States. The hospital patient mix is also different from the average public hospital. Its concentration on highly specialized tertiary care services draws a very heterogeneous population of patients. Despite this unique position, the need to change governance was, almost from its inception, a goal of hospital leadership.

Laying the Foundation for Governance Change
As was pointed out earlier, a key element in achieving a successful process for governance change is consistent educational efforts aimed at major stakeholders, such as government officials, community leaders and internal hospital constituencies, and designed to create a shared vision of the value of governance change. Any initiative that neglects or underestimates the importance of this step is doomed either to failure or to a host of difficult obstacles. In the case of Westchester County Medical Center, this stage of the process was initiated in the early 1980’s. In June of 1980, consultants from the law firm of Rosenman, Colin, Freund, Lewis and Cohen issued a ground-breaking document entitled “Report on Alternative Management Structures for the Future Governance of Westchester County Medical Center.” This report examined in detail the public policy issues, legal and financial, associated with governance change. The report arrived at the following general conclusion:

At a more specific level, the report also concluded that the most appropriate governance options deserving consideration were a public benefit corporation or a not-for-profit corporation. The report made the following observation:

“If either of the proposed alternative corporate entities [public benefit corporation or not-for-profit] is created with broad authority over policy, operations and management, WCMC will have as a direct consequence of this change alone the opportunity to proceed with the implementation of an efficient organization and management.”20

This report was widely circulated among county officials, legislators, and the internal hospital community and became the subject of major policy and strategic planning initiatives between hospital officials and Westchester County leaders. In June of 1984, a detailed policy analysis of the Westchester County Medical Center, undertaken by Dr. S. David Pomerinse, former President of the Greater New York Hospital Association, also concluded that governance change was indispensable to the future success of the Westchester County Medical Center.21 Finally in December, 1988, the Westchester 2000 Commission formed by Westchester County government to create a vision for government operation in the year 2000, concluded that the existing organizational structure of WCMC, as an arm of county government would make it impossible for the Medical Center to achieve its potential.22

In addition to all of the above, county officials were taken on nationwide tours to visit public hospitals that had undergone governance change and to meet and exchange ideas with officials of these respective governments and hospitals.

Despite these very energetic and consistent efforts, Westchester County officials remained politely cool to any suggestion that governance change be considered. The reasons for passive resistance were simple.

• The hospital was doing relatively well financially and consuming only a small component of tax levy.
• The institution was growing in stature and reputation, and government officials took pride in it and credit for it.
• There was a clear reluctance to relinquish control of such a large component of government operations. The Medical Center accounted for 45% of all county employees and 40% of the entire county operating budget.
• The only governance change that had occurred in New York State was the conversion of the New York City public hospital system to a public benefit corporation and there was significant concern about that particular experiment being a failure.

Efforts to create consensus for the need for governance change continued into the early 1990’s when a new set of variables began to emerge and interact with the foundation that had already been laid. Managed care began to emerge as a significant feature of healthcare financing and reimbursement. Additionally, Medicaid and Medicare reductions began to erode the hospital’s revenue base. Competition from New York City hospitals became pervasive. Finally, as a result of the above factors, in combination with some negative trends in hospital utilization, the county tax subsidy to the institution began to grow at an alarming rate, this after many years of progressive decline.

This situation, combined with the government’s pre-existing awareness of issues relating to governance, gave a focus to the initiative that this, in fact, might be the appropriate time to reconsider governance change as a mechanism for allowing the hospital to organize more efficiently and move forward without creating a potentially serious risk to the county tax base.

This concept crystallized and moved forward in earnest with the passage of the Westchester County Board of Legislators Resolution No. 247-1993, which read as follows:23

1. The Westchester County Board of Legislators hereby finds that WCMC, its providers and patients, would be better served by an autonomous, policy-making Board of Directors, with authority independent of the Office of the County Executive and the Westchester County Board of Legislators under the following guidelines:

2. The Board of Legislators hereby directs the County Attorney, together with such additional outside consulting services as the Chairman of the Westchester County Board of Legislators deems necessary, to prepare the necessary resolutions and laws to implement this resolution.

3. Sufficient funds be allocated in the 1994 Budget to retain such consultants as necessary to implement the within resolution.

While the Board of Legislators had taken this important first step, it took several more months of work to convince the County Executive that he too should support this initiative. It was early 1995 before both branches of government were in accord as to direction and the following was agreed to:

• The law firm of Powell, Goldstein, Frazier and Murphy was retained by the County to select options and develop a plan for governance change.
• The County Executive would authorize the County Board of Legislators to develop a set of policy guidelines that would form the basis of his legislative submission to change the governance of Westchester County Medical Center.

Anne B. Camper of Powell, Goldstein, Frazier and Murphy, which was also counsel to the NAPH, led the government and the hospital through a detailed process of understanding the Medical Center’s existing position, understanding the public policy issues involved and analyzing the various governance options in relation to these issues.

This initiative concluded with the determination that, based on the need to retain public employment and ensure the continuation of a public mission, the most appropriate form of governance would be to form a public benefit corporation. It was felt that this gave the hospital the greatest flexibility without compromising the essential public nature of the institution. It was also clear that powerful county unions would not support the plan without the continuation of the civil service system and existing collective bargaining units. The initiative also resulted in the formulation of a Home Rule Message contained in Resolution No. 150-1995 which set forth the guiding principles for the public benefit corporation which would then be translated into enabling New York State Legislation. These principles covered the following areas:

• Conveyance of assets to the new corporation
• Establishment of an operating agreement
• County funding
• Transfer of employees to the new organization
• Collective bargaining
• Civil service
• Board of Directors
• Access to county capital bonding
• Transfer of existing self-insurance pools for general and malpractice liability and for Worker’s Compensation
• Transfer of accounts payable and accounts receivable
• Assignment of contracts

These issues were translated into draft legislation and Carol McCarthy, Esq., former President of the American Hospital Association, was retained to review the documents and make final policy recommendations. This being accomplished without major change to the body of the legislation, sponsors for the bill were identified in both the Senate and the Assembly of the New York State Legislature. The bills were introduced during the 1996 legislative session and the arena of negotiations moved from the county to the state.

The Legislation
The process of getting the new legislation passed at the state level was politically and technically complex. It took months of negotiation with the Assembly Ways and Means Committee, New York State Senate Health Committee, Labor Committee, and Insurance Committee to finally craft legislation that addressed the myriad of issues raised to the satisfaction of the dozens of constituencies represented. Some of the more difficult issues faced are outlined below.

• State and local officials were in contention over whether the new corporation would be a state entity or a local entity. This issue had major implications for how the Board of the Corporation would be selected.
• Labor leaders raised concerns with respect to the potential for layoffs occurring, which would be directly associated with the transition. They were also concerned with the status of civil service and how bargaining units would be addressed in the legislation.
• Legal associations raised issues with respect to the legislation containing any provisions that would limit the liability of the Corporation. This issue, in fact, caused the legislation to be stalled on the day it was to be passed.
• Other hospitals in the Westchester community raised concerns that the new corporation might have powers that would give it a competitive advantage. The chart displayed in Exhibit 12 was prepared at that time to compare the advantages and disadvantages of public benefit corporation status.
• During the very last week of negotiation, another county in the state introduced legislation to create a public benefit corporation for its public hospital. The legislation was modeled after the Westchester legislation, but contained a provision that would have required major policy changes. This faction almost caused the entire Westchester negotiation to break down.

Exhibit 12

Comparison of WCHCC to Voluntary Not-for-Profit 24

At the end of the process however, the legislation as crafted and essentially conforming to the original Home Rule Message of the Westchester County Board of Legislators, was passed by the State Legislature. The bill then went to the Governor and was signed into law. The law is contained in Article 10C, Title of the NYS Public Authorities Law.

As was pointed out earlier, the public benefit corporation is a designer option that is, within general parameters, a new entity that has whatever powers or limitations as established by the legislation that created it. There is no set model. The critical issues embodied within the legislation may be summarized as follows:

• It was originally the position of Westchester County that the new entity would be a local public benefit corporation. This meant that the Board would be appointed by local officials and that the entity would be local in nature. For example, the New York City Health and Hospitals Corporation is a local (New York City) entity with the Board being appointed by the mayor and city council. Partly because of problems with the Health and Hospitals Corporation, the State Legislature would not accept another local public benefit corporation and after much negotiation, the new corporation was structured as a State Public Benefit Corporation.
• The Board of the Corporation is to include fifteen voting members and four non-voting representatives. With respect to appointment; eight board members are appointed by the Governor; three of these come from the County Executive, three from the Board of Legislators, one from the Majority Leader of the Senate and one from the Speaker of the Assembly; seven members are appointed by the County Board of Legislators with the approval of the County Executive. The four non-voting representatives are the President of the Corporation, a representative of the Minority Leader of the County Board of Legislators, a representative of the County Executive, and a representative of the Majority Leader of the County Board of Legislators.

• The legislation gives the Board the authority to employ and dismiss the Chief Executive Officer. This ensures that this position is not a political appointment and is not a tenured civil service position.
• With respect to procurement, the legislation does make the Corporation subject to competitive bidding. It does, however, provide some relief in that it allows an RFP (Request for Proposal) process to be used in instances where a “major medical project” is involved. This allows the hospital to solicit proposals and make vendor selections based on criteria other than strictly low bid. This relief is actually an extraordinary help in achieving economies and efficiencies in purchasing and related capital projects.
• The New York State Wicks Law is regarded by many as a significant obstacle to achieving efficiency and economies in public capital projects in New York State. It requires that when a public agency bids out a construction project, each of the prime contracts must be bid separately from each other and from the general contractor. There can also be no guaranteed maximum price. This means it is virtually impossible to effectively coordinate work and make contractors accountable for meeting time requirements.

• Freedom of Information and Public Meetings Laws continue to apply to the Corporation. Once again, however, significant relief is afforded to the Corporation, through legislative provisions which add trade secrets to those issues that are immune from FOIL and which may be the subject of executive session during public meeting. Trade secrets were defined to include such things as:

• Marketing Strategy
• Strategic Planning
• Pricing Strategies
• Business Development

• The legislation provides that employees of the Westchester County Department of Hospitals will transfer to the Corporation without change in status or loss of benefits. In their new capacity, they will continue to be public employees and public officers.
• The legislation requires that there be no layoffs in the first two years after the Corporation is in effect for reasons that are attributable to the transition in governance. This would not apply to situations where unfavorable financial circumstances required layoffs. This was an essential provision in securin