Newark Hospital Gave CEO Raise As Finances, Ratings Sank: Report

NEWARK, NJ — An embattled, taxpayer-supported Newark hospital that recently saw a NICU bacterial outbreak gave its CEO a raise at the same time its finances and industry ratings were plummeting, a report says.

On Monday, the New Jersey Department of Health released a 38-page report that cites a need for an overall shakeup at University Hospital in Newark, the state’s only public hospital. Read the full report here.

The report – which came on request of an executive order from Gov. Phil Murphy – was released a week after president and CEO John Kastanis announced that he will be resigning from his post, effective Dec. 14.

• See related article: CEO At Beleaguered Newark Hospital Resigns Amid Outcry

Kastanis' impending departure from the helm of the beleaguered hospital comes after repeated calls for change at the facility, which has garnered “F” and “D” ratings on several Leapfrog Group surveys.

In addition, the hospital recently had its bond rating downgraded four notches due to “financial difficulties,” and attempted to reduce the number of pediatric beds without state approval, the Department of Health stated in its report.

• See related article: Newark Hospital No Longer Plans To Outsource Pediatrics

Despite mounting issues at the hospital, in June of 2018, the Board of Directors of University Hospital renewed the CEO’s contract for an additional three-year term commencing on July 1, 2019 and concluding on June 30, 2022.

As part of the deal, Kastanis got “an increase in base salary,” the report states. No information about the amount of the raise was given.

Five months later, Department of Health officials announced that four premature infants caught a bacterial infection while in the care of the hospital's NICU. Three of the babies died, although officials said that it wasn't clear if the infection was the cause of death.

• See related article: 3 Babies Die After Bacterial Outbreak At Newark Hospital

The report said that the hospital’s board members “must hold the CEO and executive team accountable for quality/safety outcomes.”

The board itself must undergo change, too… including its diversity, the report charges.

“The board, although committed to University Hospital, are not representative of the community the hospital serves. There is not a broad mix of skills and competencies, gender and diversity necessary support UH’s role in the community and to exercise its fiduciary responsibilities of foresight, oversight and insight.”

Patch reached out to the University Hospital Board of Directors seeking comment about the state report. We received the following reply:

"As University Hospital transitions to new leadership, we are focused on ensuring the hospital takes the steps needed to provide the highest quality care for the residents of Newark and Northern New Jersey. We know there is work to do in building a culture of quality and safety, and we will be working closely with state leaders to address the issues identified in the report immediately."

HERE’S WHY NEWARK NEEDS UNIVERSITY HOSPITAL

The report notes University Hospital is “an indispensable asset to the vulnerable populations of Newark and the surrounding community.”

According to the report, the hospital:

• Serves 17,000 inpatients and 250,000 outpatients in its campus-based clinics each year
• Employs 3,300 staff
• Has a $670 million budget

In addition:

• Two-thirds of its patient revenues are Medicaid, charity care or self-pay, giving it the lowest percentage of commercially insured patients in the state.
• It serves as a Level 1 Trauma Center
• It is one of only two hospitals in the state performing liver transplants

According to the report, University Hospital receives more than $150 million a year from the state for charity care, Graduate Medical Education, mental health and reimbursement for employee pension expenses and fringe benefits.

“University Hospital is in a unique position among all acute care hospitals in New Jersey,” the report states. “By the Newark 1968 Agreements and New Jersey Restructuring Act its position as an acute care academic medical center, with state support, is codified. During a time of radical change in healthcare while many hospitals are struggling with future sustainability, the state of New Jersey has assured University Hospital that it has an invaluable role in serving the healthcare needs of Newark and the surrounding community. It has been five years since the separation and University Hospital has not leveraged its unique position to focus on developing a culture of high performance.”

UNIVERSITY HOSPITAL: 12 UNIQUE CHALLENGES

According to the report, here are some unique challenges that University Hospital faces.

1) The case mix index (CMI) of University Hospital is over 1.7, which is one of the highest in the state

2) The payer mix is significantly weighted to self-pay, charity and Medicaid and is the highest in the state at 67.5%

3) The hospital employees are represented by seven unions

4) The medical staff are all members of the faculty of NJMS and Dental School and Rutgers/Robert Wood Johnson (RWJ)/Barnabas with appointments and credentialing requiring all parties to be in agreement

5) The medical staff are members of the University Physician Associates (UPA) which serves as the Faculty Practice Plan

6) Based on the merger of RWJ and Barnabas, and most recently Barnabas and Rutgers Health, the role of the physicians as serving all entities in the enterprise along with the role of University Hospital within these arrangements is not clear

7) In addition to the state’s charity care subsidy of $46 million, University Hospital also receives a grant in aid of approximately $43 million for institutional support and additional GME funding of $5.6 million. GME, Mental Health and DSRIP funding totals $48 million in this fiscal year. In short, State support totals approximately $143 million.

8) The state is responsible for the organization’s pension liability

9) The state also pays the fringe benefits of employees transferred to University Hospital at the time of the separation, up to an Full Time Equivalent (FTE) count of 2963

10) The Clinical Services Agreement (CSA) with the medical and dental schools amounted to approximately $46 million at the time of separation in 2013 and has increased to approximately $62 million in 2018, an increase of approximately 35%

11) The front door of the hospital is the emergency room, with approximately 80% of the admissions coming through the ER. The ER served approximately 80,000 patients in FY 2018.

12) University Hospital is bound by New Jersey state procurement laws, which hinders effective decision making. Although the Restructuring Act established University Hospital as an “independent instrumentality” and gave the board authority to oversee the hospital’s operations, these procurement laws still apply.

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