Campaign Plaintiffs’ Supplemental Reply Memorandum of Law In Support of Plaintiffs’ Motion for Summary Judgment

    SUPREME COURT OF THE STATE OF NEW YORK 
COUNTY OF QUEENS IAS PART 5 

THE COUNCIL OF THE CITY OF NEW YORK, et al. 

Plaintiffs, INDEX NO. 004897-96 

HON. HERBERT POSNER 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al, 

Defendants. 

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS - 

QUEENS COALITION, an unincorporated 
association, et al., 

Plaintiffs, INDEX NO. 10763/96 

HON. HERBERT POSNER 
- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al., 

Defendants. 

CAMPAIGN PLAINTIFFS’ SUPPLEMENTAL REPLY MEMORANDUM OF LAW 
IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT 
  

KENNETH KIMERLING 
PUERTO RICAN LEGAL DEFENSE & 
EDUCATION FUND, INC. 
99 Hudson St., 14th Floor 

New York, New York 10013 

(212) 219-3360 

ELAINE R. JONES 

Director-Counsel 
NORMAN CHACHKIN 

MARIANNE L. ENGELMAN LADO 

RACHEL D. GODSIL 

NAACP LEGAL DEFENSE & EDUCATIONAL 

FUND, INC. 

99 Hudson St., 16th Floor 

New York, New York 10013 

(212) 219-1900 

BARBARA OLSHANSKY 
CENTER FOR CONSTITUTIONAL RIGHTS 
666 Broadway, 7th Floor 
New York, New York 10012 

(212) 664-6464 

 



  

SUPREME COURT OF THE STATE OF NEW YORK 
COUNTY OF QUEENS IAS Part 5 

THE COUNCIL OF THE CITY OF NEW YORK, et al. 

Plaintiffs, INDEX NO. 004897-96 
Hon. Herbert Posner 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al, 

Defendants. 

CAMPAIGN TO SAVE OUR PUBLIC HOSPITALS - 

QUEENS COALITION, an unincorporated 
association, et al., 

Plaintiffs, INDEX NO. 10763/96 
Hon. Herbert Posner 

- against - 

RUDOLPH W. GIULIANI, THE MAYOR OF THE 
CITY OF NEW YORK, et al., 

Defendants. 

CAMPAIGN PLAINTIFFS’ SUPPLEMENTAL REPLY MEMORANDUM OF LAW 
IN SUPPORT OF PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT 
  

PRELIMINARY STATEMENT 
  

Defendants’ plan to sublease a public hospital operated by the 

Health and Hospitals Corporation ("HHC") for the benefit of all New 

York residents and especially the indigent to a for-profit 

corporation to be operated for the economic gain of its 

shareholders violates the HHC Act. 

In response to the fiscal and operational crisis facing New 

York City’s municipal hospitals in the late 1960s, HHC was created 

to provide "high quality, dignified and comprehensive care and 

treatment for the ill and infirm, particularly to those who can 

 



  

least afford such services.! HHC is a public benefit corporation 

and as a public benefit corporation "is in all respects for the 

benefit of the people of the state of New York and of the city of 

New York, and is a state, city and public purpose. "? 

Defendants claim that in turning over the operation and 

control of a public hospital to PHS-New York, a for-profit 

corporation, HHC is not "‘getting out of the hospital business.’ 

It is simply performing that same business in a different way." 

Supplemental Affirmation of Daniel Turbow § 3. [hereinafter Turbow 

Aff. 1. If this transaction takes place, what will Coney Island 

Hospital be? Will it be a public hospital or a private for-profit 

hospital? Defendants have decided not to answer this question and 

to pretend that the only significance of the transaction is cost 

savings for the City. However, if PHS-NY-controlled Coney Island 

Hospital is to be a public hospital, it must guarantee access of 

health care to the indigent. It does not. If-it is to be a 

private for-profit, its purpose is at odds with HHC’s public 

purpose and violates the HHC Act. The City’s attempt to create a 

hybrid public-for-profit hospital violates the HHC Act. It is this 

commingling of its status as a public hospital with its status as 

a for-profit private hospital that violates .the law. HHC cannot 

use its resources including its hospital for a non-public purpose. 

  

1 ee Unconsolidated Laws § 7382 [hereinafter "HHC Act"]; New 

York State Constitution Article XVII, §8 3 & 4; 1970 Lease Between 
the City of New York and HHC [hereinafter "1970 Lease"] Art. II, § 
2.1. 

2? HHC Act '§ 7353. 

 



The sublease and transfer of control of Coney Island Hospital to 

PHS-NY violates the public purpose requirement of the HHC Act. 

This transfer of a hospital is contradistinction to the 

purchase of services. HHC can purchase services from a private, 

and even a profit-making private, corporation. However, it cannot 

consistent with its public purpose turn over one of ics "public" 

hospitals to a private for-profit corporation. Defendants are not 

merely proposing a management contract with a for-profit 

corporation, but the total transfer of control and operation of an 

entire HHC facility to a for-profit corporation for a term of 198 

years. In sum: defendants plan to transfer complete control over 

the provision of health care for tens of thousands of Brooklyn 

residents to a corporation whose mission under state law is to make 

a profit for its shareholders for the next 198 years. This plan 

without any doubt violates the HHC Act. 

Moreover, the proposed sublease requires HHC to reimburse PHS- 

NY for its provision of care to the indigent once a "trigger point" 

is reached.® Accordingly, HHC funds will be used to subsidize a 

for-profit corporation at the expense of other HHC facilities. 

Defendants do not address the illegality of the plan under the 

HHC Act. Instead, defendants contend that the Proposed Sublease 

will result in sufficient care to the indigent to satisfy the HHC 

Act. Turbow Aff. § 4. Defendants are wrong on this score as well. 

The Proposed Sublease does not guarantee that PHS-NY will 

  

3 
Proposed Sublease of Coney Island Hospital to Primary 

Health-Systems-New York, Inc. § 28.05(c) at p. 75 [hereinafter 
Proposed Sublease] attached as Exhibit A to Turbow Aff. 

3  



treat continue to provide access to care without regard to ability 

to pay. The Proposed Sublease does not even require that PHS-NY 

treat a specific number of uninsured patients; instead, it 

establishes a dollar cap on PHS-NY’s obligation to serve the 

indigent .* 

Moreover, if PHS-NY exceeds its dollar cap in any given year, 

the Proposed Sublease allows PHS-NY to "manage access to health 

care in such manner as it may deem appropriate so as to avoid 

"Excess Incurrence’" of indigent care."® HHC facilities cannot 

similarly "manage access to care" to reduce or limit the care 

provided to the indigent. Allowing PHS-NY to do so is clearly at 

odds with the HHC'’s mission of providing care to the indigent. 

The Proposed Sublease also allows PHS-NY to close or greatly 

reduce services that are costly to provide but essential to serve 

the i111 and infirm of New York City.° For example, expensive but 

essential services for the chronically ill, persons living with 

AIDS, asthmatics, and diabetics could be drastically cut by PHS-NY 

to ensure profit for its shareholders. 

Finally, as a newly incorporated corporation with no history 

of operating hospitals, PHS-NY has no history to support its claim 

that it will guarantee access to care.’ It plans to contract with 

  

Proposed Sublease § 28.05 at p. 75. 

Id. at 75, 

Id. at 67-68. 

? Affidavit of Judith B. Wessler, M.P.H., attached hereto, at 
pp. 10-12 [hereinafter "Wessler Aff."]. 

4  



  

Primary Health Services, Inc. ("PHS") to manage the hospital, which 

itself has no experience running a facility with the level of 

indigent care and complexity of patient population of Coney Island 

Hospital.® In fact, PHS-NY’s short history of operations of 

hospitals in Cleveland does not bode well for indigent care. 

Initial reviews of PHS’s operations raise serious questions about 

PHS’s commitment to serving the poor.° 

In sum, defendants’ plan to sublease Coney Island Hospital to 

PHS-NY violates the HHC Act for three reasons: {1) BHC is not 

empowered by the HHC Act to transfer control of an entire HHC 

facility to a for-profit corporation; (2) HHC is not empowered to 

subsidize a for-profit corporation’s operation of a health care 

facility; and (3) the Proposed Sublease does not ensure the 

continued provision of care to the indigent required by the HHC 

  

  

Act. 

ARGUMENT 

I. The Proposed Sublease of Coney Island Hospital to a For-Profit 
Corporation Violates the HHC Act 

A. HHC’s Purely Public Purpose 
  

In 1969, New York City’s municipal health system faced 

"chronic crisis and steady deterioration" in its provision of 

health care to the indigent. Letter of James M. Hester, President, 

School of Medicine, New York University to Counsel to the Governor, 

May 20, 1969, Governor’s Bill Jacket to Chapter 1016, 1969 at 26; 

  

2 51d, 

I 

 



See HHC Act § 7382. In order to restore the municipal health 

system and to protect and promote the health, welfare and safety of 

New York residents, the State Legislature passed the HHC Act. HHC 

Act § 7382. 

HHC is created for "the benefit of the people of the state of 

New York and of the city of New York, and is a state, city and 

public purpose." HHO: Act § 7382, The Act provides that "the 

exercise by such corporation of the functions, powers and duties as 

hereinafter provided constitutes the performance of an essential public 

and governmental function." HHC Act § 7382 (emphasis added). 

Under the State Constitution, the HHC Act, the Lease between 

HHC and the City, and HHC’s by-laws, HHC is obligated to provide 

care to all the residents of the City of New York, regardless of 

ability to pay. New York State Constitution, Article XVII, §§ 3 & 

4; HHC Act § 7382; HHC Lease, Article II, § 2.1; HHC By-Laws, 

Article II (B) (attached to Supplemental Reply Affirmation of Rachel 

D. Godsil Esq. as Exhibit A [hereinafter "Godsil Aff."]). HHC'’s 

purpose is to "[elxtend equally to all we serve comprehensive 

health services of the highest quality in an atmosphere of human 

care and respect." HHC By-Laws, Article II (B). The Lease between 

the City and HHC provides that "the hospitals under [HHC’s] 

jurisdiction and the services that it will render are particularly 

for those who can least afford such services." 1970 Lease, Art. 

11, 38 2.2. 

Moreover, since the purpose for which a for-profit corporation 

operates 1s antithetical to the purpose of a public benefit 

:  



  

corporation, such a transfer runs directly contrary to the purpose 

of the HHC Act. A for-profit corporation is created to provide an 

economic benefit to its shareholders. PHS-NY was incorporated on 

June 25, 1996 in the State of New York. As a for-profit 

corporation with general shareholders, PHS-NY has the "direct 

object of promoting private ends." 14 N.Y. Jur.2d Business 

Relationships § 23. The courts have recognized the "ultimate goal" 
  

of any corporation under state law is to "provide maximum economic 

returns to its shareholders." Alpert v. 28 William Street Corp., 
  

124 Misc.2d 512, 478 N.Y.S.2d4 443, 449 (N.Y. Co. 1983); see also 1 
  

J.D. Cox et al., Corporations § 1.2 (1995) (defining business 

corporation as an association of persons "in a business enterprise 

with the object of economic gain"). Under New York law, the 

directors of PHS-NY, who are charged by law with managing the 

corporation’s affairs, N.Y. Bus. Corps. Law § 701 (McKinney’s 

1986), owe their duty to the corporation and its stockholders in 

their quest for economic gains. See Cohen v. Cocline Products, 
  

‘Inc., 308 N.Y. 119, 123, 127 N.E.2d 206 (1955). 

It is inimical to the purposes of the HHC Act to suggest that 

the statute contemplates the transfer of an entire HHC. health 

facility to a for-profit corporation with the core purpose of 

seeking profits for its shareholders as the appropriate mechanism 

for pursuing HHC’s corporate purpose. Surely, had this been 

intended, the Legislature would have made an express provision for 

 



such a step. 

B. HHC’s Operational Mandate 
  

In fact, the HHC Act provides a very specific mandate to HHC: 

to provide health care to the citizens of the City of New York. 

While the HHC Act grants HHC broad authority to carry out that 

mandate, it explicitly enumerates those powers. HHC is empowered 

to "operate, manage, superintend, and control any health facility 

under its jurisdiction." HHC Act § 7385(7). It may "exercise and 

perform all or part of its purposes, powers, duties, functions or 

activities through one or more wholly-owned subsidiary public 

benefit corporations." HHC Act § 7385(20). HHC may also provide 

health and medical services through affiliation and other 

agreements or leases with "any person, firm or private or public 

corporation or association." HHC Act § 7385(8). HHC may borrow 

money and issue negotiable notes or bonds. HHC Act § 7385(4). 

The HHC Act very specifically sets forth HHC’s authority to 

acquire or dispose of entire health facilities in sections 7385(6) 

and 7387(4). Under § 7385(6), HHC is empowered to acquire and to 

dispose of real property, including health facilities, "for its 

corporate purpose," provided that it holds a public hearing and 

obtains the consent of the board of estimate. HHC Act § 7385(6). 

If the corporation determines that the use and occupancy of a 

health facility or any other real property is no longer required 

  

1" The root of the problem here is that instead of having the 
privatization issue debated properly by the State Legislature by 
suggesting an amendment to the HHC Act, defendants chose to amend 

the statute by fiat.  



for its corporate purposes and powers, HHC may "surrender its use 

and occupancy to the City" or otherwise dispose of the facility 

"and ite the proceeds derived from the sale, lease or other 

disposition thereof for its corporate purposes." HHC Ach .§ 

7387 (4) . 

Given the specific delineation of the scope of HHC’s 

authority, at issue here is not whether HHC can, within its state 

mandate, permissibly contract with a for-profit corporation for a 

discrete set of services. It clearly can. The issue presented is 

whether the HHC Act permits HHC to turn over complete control of 

the operation of an entire HHC facility to a for-profit 

corporation. The practical significance of the distinction is 

considerable. In a contract for services with a for-profit, HHC 

establishes the parameters of the provision of health services with 

HHC’s public purpose underlying those decisions. By contrast, if 

HHC transfers control, the for-profit makes decisions about the 

parameters of the provision of health services with the purpose of 

economic gain underlying those decisions. No provision of the 

Act permits HHC to transfer an entire health facility that is needed to 

provide health care to the indigent to a for-profit corporation. 

Defendants argue that they are empowered to close hospitals 

under the Act, and therefore, that they are empowered to sublease 

  

" As is discussed infra in Part II, PHS-NY is empowered by 
the Proposed Sublease to cut services that are essential to 
indigent New Yorkers. Particularly troublesome examples include 
services to persons living with AIDS, asthma care, and care to the 
chronically ill. See Infr Part II(B). 

  

9  



hospitals to a for-profit corporation.'?Turbow Aff. at 6-7. 

However, § 7387 (4) of the HHC Act, the provision that allows HHC to 

close a hospital, states that "[i]f the corporation determines that 

the use and occupancy of any real property is no longer required 

for its corporate purposes and powers, " it may either "surrender 

its use and occupancy to the city" or have the power "to sell, 

lease or otherwise dispose of said real property at public or 

private sale or as part of a contract, lease or other agreement 

entered into under the terms of this act and to use the proceeds 

derived from the sale, lease or other disposition thereof for its 

corporate purposes." HHC Act § 7387(4). In other words, if HHC 

determines that a hospital is no longer necessary for it to provide 

health services to the people of New York City, and particularly, 

the indigent, it may either return the hospital to the city or 

dispose of the hospital, and use the funds to provide health care 

to the indigent. 

Here, as defendants admit, defendants propose to provide the 

health care they are statutorily and constitutionally required to 

provide by transferring Coney Island Hospital to a for-profit 

corporation to operate and manage. Turbow Aff. at 2. They have 

not decided that health care is not needed in Coney Island. The 

HHC Act does not empower HHC to carry out its purposes by turning 

  

2 The federal cases defendants cite for this proposition, 
Bryan v. Koch, 627 7.24 612 (24 Cir. 1980, aff'g 492 F. Supp. 212 
{(S.D.N.Y.) and Jackson v. HHC, 419 F. Supp. 809 (S.D.N.Y. 1976) are 
inapplicable. Both involved challenges under the Fourteenth 
Amendment to the United States Constitution and Title VI of the 
1964 Civil Rights Act, not the HHC Act. 

  

  

10  



  

over its assets to a for-profit corporation. 

C, The Proposed Sublease Results in HHC Subsidizing a For- 
Profit Corporation in Violation of the HHC Act 
  

The possible diversion of funds allowed by the Proposed 

Sublease to an HHC facility controlled by a for-profit entity for 

reimbursement of care to the indigent also clearly contravenes the 

terms of the HHC Act. Specifically, the Proposed Sublease provides 

for HHC to reimburse PHS-NY for the provision of care to the 

indigent for any year in which the cost of that care exceeds a 

"Trigger Point." Proposed Sublease § 28.05 at p. 75. 

Accordingly, HHC funds are promised to an HHC facility operated by 

a for-profit corporation. This violates the HHC Act. 

The Act provides that: 

The city shall . . . enter into an agreement . . . with the 

corporation . . . whereby the corporation shall operate the hospitals 
then being operated by the city for the treatment of acute and 
chronic diseases . . . the city shall include in its expense 
budget an appropriation of tax levy for the services provided 
by the corporation 

HHC Act § 7386(1) (a) (emphasis added). HHC is reimbursed by the 

City for HHC’s operation of the hospitals consistent with HHC'’s 

corporate purposes. HHC is not empowered to use City funds to 

reimburse a for-profit corporation for providing those services in 

a facility managed by the for-profit corporation for its 

shareholders’ profit. If defendants are correct and economic gains 

are realized from increased efficiency or superior management, 

  

This provision does not, however, require PHS-NY to provide 
access to care to the indigent. For a more complete description of 
this provision of the Proposed Sublease, see infra Part II (A). 

  

11 

 



those gains go directly to the PHS-NY shareholders’ pockets -- not 

to the HHC system. Under the Proposed Sublease, HHC may well be in 

a position of transferring much-needed funds to PHS-NY when PHS-NY 

shareholders are taking home considerable profit. 

The illegality of mingling the assets of a health facility 

with the sole purpose under state law of providing care with a for- 

Crofit corporation with the purpose under state law of providing an 

economic benefit to its shareholders has been addressed elsewhere. 

In Michigan and California, mergers of for-profit hospitals and 

not-for-profit hospitals were found to violate those states’ not- 

for-profit laws. See Kelley wv. Michigan Affiliated Healthcare 
  

  

System, Inc., No. 96-8384B-CZ, September 5, 1996 Court Ruling, 

Michigan Circuit Court (attached as Exhibit B to Godsil Aff.) ; 

Decision of Daniel E. Lungren, Attorney General for the State of 

California, November 8, 1996 (attached as Exhibit C to Godsil Reply 

Aff.). While these cases involved not-for-profit hospitals and the 

states’ not-for-profit laws, and not public benefit corporations, 

the legal principles involved are similar. 

tn Michigan. ons mosion Lot summary judgement, the Court held 

that a local not-for-profit hospital would be committing an ulira vires 

act by entering into a partnership with a for-profit health care 

conglomerate. The Court found that the partnership would violate 

the Nonprofit Corporation Act because "no one is entitled to profit 

from [the] operation" of a not-for-profit hospital. Michigan 

Ruling at 5. The Court noted that a sale of the hospital to the 

for-profit conglomerate would be permitted if the proceeds were 

2  



  

used purely for charitable purposes and that a management contract 

with a for-profit may be acceptable, but concluded that a joint 

venture would be prohibited because it would result in 

impermissible commingling of charitable assets with for-profit 

assets generating profits to the for-profit and its shareholders. 

Michigan Ruling at 8. 

Similarly, in California, the Attorney General determined that 

a provision of the Articles of Incorporation of a not-for-profit 

health organization would be violated if it merged two of its 

hospitals into a for-profit entity. The Articles of Incorporation 

require that the assets of the two hospitals be used for the 

purpose of "acquiring and operating a non-profit charitable 

hospital and medical center in the City of San Diego." Attorney 

General Letter at 2. The Attorney General stated that "the 

transfer of these hospitals into the for-profit LLC constitutes an 

abandonment and breach of that trust." Id. at 2. The Attorney 

General plans to initiate legal proceedings if the merger is not 

halted. Id, at 6. 

The issue at bar involves a public benefit corporation rather 

than a not-for-profit and thus is even more compelling. The 

Michigan court and the California Attorney General both found that 

the commingling of the assets of a not-for-profit with a for-profit 

was impermissible because the not-for-profits were required by 

state law or their internal corporate documents to use their assets 

solely for their charitable purposes -- and not for the economic 

gain of another corporation’s shareholders. Here, HHC was created 

13 

 



to fulfill a vital public purpose, HHC Act § 7382, and must use any 

  

assets to fulfill that purpose, see, e.g., HHC Act § 7387(4). It 

is clearly impermissible for HHC to commingle its assets with PHS- 

NY, a for-profit corporation. 

ITI. The Proposed Sublease to PHS-NY Endangers Health Care to the 
  

Poor 

Contrary to defendants’ characterization of this transaction, 

Turbow Aff. at 3, the Proposed Sublease departs drastically from 

HHC’s mission to provide indigent New Yorkers adequate access to 

health care regardless of ability to pay. The Proposed Sublease 

fails to guarantee access to care for the poor, does not ensure 

that necessary services will be available to the indigent, provides 

for insufficient monitoring of access to care, and may impede the 

ability of HHC as a whole to fulfill its mission. Moreover, there 

is no evidence to suggest that PHS-NY is qualified to operate so 

complex and important a hospital. 

A. Proposed Sublease Fails to Provide Access to Care for the 
Uninsured and Underinsured 
  

The Proposed Sublease does not guarantee that PHS-NY will 

treat everyone who needs care regardless of ability to pay. See 

Affidavit of Judith B. Wessler, M.P.H. §§ 15 - 19. The Proposed 

Sublease does not even require that PHS-NY treat a specific number 

of uninsured patients. Instead, Article 28 of the Proposed 

Sublease establishes a cap on PHS-NY’s obligation to serve the 

indigent and defines PHS-NY’s level of obligation in terms of 

dollar amounts. Proposed Sublease § 28.01 at pp. 74, 75. These  



  

provisions represent a complete departure from HHC’s practice of 

seeing all patients without regard to insurance status or ability 

to pay and contravene HHC’s mission. 

In particular, PHS-NY is required to absorb the costs of care 

only up to a specified "trigger point." The trigger point will be 

established annually based on HHC’s audited charity care expense 

for Coney Island Hospital’s most recent fiscal year inflated 

annually and multiplied by 115%. Proposed Sublease § 28.01 at p. 

75. After the "trigger point" is reached, HHC will be obliged to 

reimburse PHS-NY for costs incurred above the trigger point 

("excess incurrence") for one year. ‘Proposed Sublease § 28.01 at 

p. 75. Although the City has represented that it will reimburse 

HHC for such outlays, there is no provision detailing how such 

expenditures will be budgeted and what impact they might have both 

on HHC’s annual budgeting process and on the allocation of funds 

among HHC’s other facilities. 

After the first year of reaching the trigger point, the 

Proposed Sublease explicitly permits PHS-NY to "manage access to 

health care in such manner as it may deem appropriate so as to 

avoid ‘Excess Incurrence’" of indigent care if the costs of 

providing services to the poor exceed PHS-NY’s cap in any given 

year. Proposed Sublease § 28.01 at p. 75. HHC facilities cannot 

similarly "manage access to care." This provision is clearly at 

odds with the mission of the public hospitals. 

The Proposed Sublease also explicitly states that after the 

first year that PHS-NY reaches the trigger point, HHC cannot 

15 

 



  

require PHS-NY to provide indigent care beyond the trigger point: 

"[N]Jothing herein shall give Landlord [HHC] the right to require 

Tenant [PHS-NY] to provide Indigent Care in excess of such amount." 

Proposed Sublease § 28.01 at p. 75. 

While defendants assert that the 115% cap will be sufficient 

to provide indigent care until well after the year 2000, see Turbow 

Aff. at 3, defendants current projections of the number of 

uninsured patients reliant on Coney Island Hospital for care and, 

thus, its analysis of the likelihood that HHC will be required 

under the Proposed Sublease to reimburse PHS-NY for indigent care, 

are erroneous. Wessler Aff. at 10. Among other things, they 

drastically underestimate the impact of recent changes in federal 

Medicaid eligibility. For example, Appendix A of the SEQRA Report, 

attached to the Turbow Aff., states that 66% of the immigrants in 

Coney Island Hospital’s primary catchment area are refugees and 

thus remain eligible for Medicaid under the Personal Responsibility 

and Work Opportunity Reconciliation Act of 1996. Appendix A at 10. 

Yet the analysis fails to calculate the impact of the Act on the 

one-third of immigrants who might no longer be eligible. 

B. PHS-NY Is Authorized to Drastically Reduce Services 
Accessible to the Indigent 
  

The Proposed Sublease would allow PHS-NY to significantly 

alter the number and types of services available to the indigent at 

Coney Island Hospital and does not require either that such 

decisions comport with community health needs or that PHS-NY 

guarantees continued access to these services. 

In particular, the Proposed Sublease distinguishes between 

16 

 



  

"Core" services and "Non-core" services. Under Article 28 of the 

Proposed Sublease, PHS-NY would continue to provide core services, 

including "Emergency Medicine, Medicine, Obstetrics/Gynecology, 

Pediatrics, Psychiatry, Rehabilitation Medicine and General 

Surgery," "to substantially the same degree as provided by Coney 

Island Hospital on the day prior to Commencement Date." Proposed 

Sublease § 28.01 at 67-68. By contrast, the Proposed Sublease 

would allow PHS-NY to change the ways and means of delivering "non- 

core" services (which include dental care, cardiology, urology, 

endocrinology, ophthalmology, orthopedic surgery, podiatry, 

anesthesiology, oral surgery, cardiac cath, pharmacy, surgical 

subspecialties and all other services not listed as "core") at PHS- 

NY’s "reasonable discretion." Proposed Sublease § 28.01 at 68. 

PHS-NY can thus make changes, including the closure of a non- 

core service or the transfer of the non-core service to another 

site or provider, without any effective limitation. Before closing 

or transferring the department, PHS-NY must ‘only give HHC notice, 

providing HHC with the opportunity to provide input. The Proposed 

Sublease grants HHC no recourse should PHS-NY reject HHC'’s 

recommendations. 

The Proposed Sublease would allow PHS-NY to transfer 

responsibility for performing inpatient and outpatient "non-core" 

services off-site to other providers, including its affiliates, 

Brooklyn Hospital and New York University Hospital, without any 

assurance that these providers will accept referred patients 

without regard for ability to pay. Neither the Proposed Sublease 

17 

 



  

nor any other publicly available document provides any assurance 

regarding the accessibility of services to the uninsured if 

patients are referred to private providers (eg, for lab work or 

private practices for follow-up patient care). 

PHS-NY could, therefore, close or greatly reduce "non-core" 

services that are crucial to community health but costly to 

provide. Such services might include, example, care for the 

chronically ill, for diabetics, asthmatics or persons living with 

AIDS. Such decisions would be inconsistent with HHC’s orientation, 

which prioritizes the provision of public health services and 

places emphasis on primary care. | 

Moreover, the list of "core" services contained in the 

Proposed Sublease specifies the categories by department, not 

services. Available documentation contains no list of services by 

department. Thus, it is unclear, for example, which of Coney 

Island Hospital’s 90 out-patient clinics (including allergy, 

asthma, diabetes, cardiac rehabilitation, out-patient surgery, 

hearing, geriatrics continuing care, pre-natal, alcoholism, and 

family planning clinics, for example) PHS-NY will continue to 

provide. 

The Proposed Sublease would allow PHS-NY to change the ways 

and means of delivering even "core" services and to alter the 

services offered within the enumerated departments. PHS-NY could, 

after proceeding through a notification and arbitration process, 

even close a "core" department without getting HHC'’s approval for 

reasons related to changes in government reimbursement mechanisms, 

18 

 



  

for example. Proposed Sublease § 28.01 at 68. 

C. Proposed Sublease Inadequately Provides for Monitoring 
Access to Care 
  

Despite defendants’ protestations to the contrary, Turbow Aff. 

at 4, the Proposed Sublease does not provide for effective outside 

monitoring or the involvement of other city agencies. It instead 

puts monitoring in the hands of a new community advisory board and 

HHC. Proposed Sublease § 28.01 at 69-72. These bodies do not have 

the capacity to perform effective oversight to ensure that PHS-NY 

continues to provide access to care. 

In addition, community advisory boards at HHC facilities 

currently have responsibility for oversight over planning and 

budgeting, areas that affect access to care and the types of 

services provided. Wessler Aff. at 16-17. These responsibilities 

are not included under the Proposed Sublease. 

D. Proposed Sublease May Impede the HHC System as a Whole 
From Fulfilling its Mission 
  

The Proposed Sublease and publicly available documentation 

fail to address the impact of the loss of Coney Island Hospital to 

the HHC system and to HHC’s ability to carry out its mission 

throughout the City. Id. at 15-16. The City has stated that HHC 

will benefit from PHS-NY’s payments for the purchase of Coney 

Island Hospital, due at the time of closing. Turbow Aff. at 4. 

The City has offered no analysis, on the other hand, of the costs 

of withdrawing Coney Island Hospital from the HHC system. In the 

past three to five years, HHC has been reorganizing to take 

advantage of the benefits of its position as a multi-site system 

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with purchasing power and multiple points of entry. With the 

health care financing and delivery system experiencing tremendous 

change and, particularly, with the growth of managed care, the 

viability of HHC as a whole may be affected by the disposition of 

HHC’s Coney Island facility. Already, following the announcement 

that Coney Island would be privatized, Coney Island was removed 

from HHC’s Brooklyn/Staten Island Network and has realized little 

benefit from HHC’s networking, or regionalization, efforts. 

Wessler Aff. at 16. 

The Proposed Sublease also fails to specify whether PHS would 

participate in HHC’s managed care program, Metroplus, and, thus, 

whether low-income Metroplus enrollees would maintain continuity of 

care should they require services in Southern Brooklyn. 

E. PHS-NY’s and PHS, Inc.’s Track Records in Service to the 
Indigent Bodes I11 for Indigent Care in Brooklyn 
  

Finally, the track records of PHS-NY and PHS, Inc. do not 

provide any basis for concluding that this transaction will ensure 

continued access to care for the indigent. Wessler Aff. at 10-12. 

First, PHS-NY is a for-profit corporation established in June, 1996 

for the purpose of subleasing Coney Island Hospital, PHS-NY has 

never operated any other hospital and it has no institutional track 

record. Id. at 10. PHS, Inc., itself only incorporated two years 

ago, and its reputation thus far is largely based on two hospitals, 

St. Alexis and Deaconess, acquired in Cleveland within the past two 

years. Id. at 11. The little documentation available indicates 

that PHS, Inc. is, at best, ill prepared to accept responsibility 

for Coney Island Hospital’s indigent patient population. Id. 

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Coney Island Hospital is 450 bed facility operating with an 

‘occupancy rate of nearly 90%. Id. The Hospital annually receives 

more than 300,000 outpatient department visits, and discharges 

17,000 to 18,000 patients from its inpatient beds. Id. It serves 

a diverse, multi-lingual community and maintains residency programs 

in internal medicine, general surgery, orthopedics, urology, 

pediatrics, obstetrics, gynecology and anesthesiology, 

ophthalmology, and osteopathy. Id. PHS, Inc., has never operated 

a comparable institution. Id. St. Alexis and Deaconess are both 

relatively small hospitals with much lower occupancy rates, few 

salaried physicians, and no residency programs. Id. Neither St. 

Alexis nor Deaconess offer the type of extensive clinic system 

relied upon by Coney Island patients. Id. Coney Island Hospital 

receives more than 60,000 emergency room visits per year, a figure 

almost twice as high as that at St. Alexis and Deaconess combined. 
= ; 

PHS, Inc.’s performance in Cleveland also raises substantial 

questions about its commitment to providing access to care for the 

uninsured. According to data provided by PHS for the years 1993 

through 1996, total levels of uncompensated care have dropped 

significantly since PHS, Inc., assumed control of St. Alexis and 

Deaconess. Id. at 12. A report by New York City Comptroller that 

relies on figures supplied by PHS shows significant declines in the 

amount of care provided to the uninsured working poor and the total 

uncompensated care after PHS assumed control of St. Alexis and 

Deaconess. See Report of the Comptroller of the City of New York, 

21 

 



Attached to Wessler Aff. as Appendix A. 

Documentation provided by PHS and HHC'’s own initial reviews of 

PHS’s current operations in Cleveland raise a number of additional 

unresolved questions about both PHS’s commitment to serving the 

poor and the degree to which PHS diverts resources to 

administrative costs and profits. Wessler Aff. at 12. According 

to Dr. Walid Michelen, HHC’s Senior Vice President for Medical & 

Professional Affairs, who visited PHS hospitals in September, 1996, 

he had been informed that these two hospitals "subtly" turned away 

indigent care patients. See September 16, 1996 Memorandum from 

Walid Michelen, Attached to Wessler Aff. as Appendix B. In 

addition, HHC staff have raised concerns regarding PHS’s practice 

of discontinuing and outsourcing services, its policy in Cleveland 

of taking 30% of net revenues for profit and overhead, exclusive of 

systems, and the possibility that PHS, Inc., plans to transfer 

Coney Island Hospital after consummating the transaction with HHC. 

Wessler Aff. at 12. 

* * * 

In sum, the Proposed Sublease with an untested for-profit 

corporation fails to guarantee access to care for the poor, does 

not ensure that necessary services are delivered, provides for 

insufficient monitoring, and may impede the ability of the HHC as 

a whole to fulfill its mission. 

CONCLUSION 
  

For the foregoing reasons, it is respectfully requested that 

defendants’ motion for summary judgment be denied, and plaintiffs’ 

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cross-motion for summary judgment be granted, together with such 

other and further relief as the Court shall deem just and proper. 

Dated: New York, New York 
November 29, 1996 

RESPECTFULLY SUBMITTED, 

KENNETH KIMERLING 
PUERTO RICAN LEGAL DEFENSE & 
EDUCATION FUND, INC. 
99 Hudson St., 14th Floor 

New York, New York 10013 

(212) 219-3360 

ELAINE R. JONES 

Director-Counsel 
NORMAN CHACHKIN 

MARIANNE L. ENGELMAN LADO 
RACHEL D. GODSIL 
NAACP LEGAL DEFENSE & EDUCATIONAL 
FUND, INC. 

99 Hudson St., 16th Floor 

New York, New York 10013 

(212) 219-1900 

BARBARA OLSHANSKY 
CENTER FOR CONSTITUTIONAL RIGHTS 

666 Broadway, 7th Floor 
New York, New York 10012 

(212) 664-6464 

ATTORNEYS FOR PLAINTIFFS 

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