Excitement over the recent consolidation agreement between Erie County Medical Center and Kaleida Health obscured a potentially inconvenient fact: county taxpayers are still on the hook for ECMC.

If ECMC continues to do well and the county can control rising employee benefit costs, all will go smoothly. But there also are good reasons to sweat:

• The bill for retiree health is big — about $952 million over 10 years for county workers, including more than $200 million at ECMC.


• Michael Young, the ECMC chief executive credited with bringing order to the hospital after years of it losing money and suffering from politically influenced operations, is leaving for a job in Atlanta.


• Most importantly, the method for figuring the county's annual subsidy to ECMC will change in 2010 from agreed-upon amounts to an open-ended commitment equal to revenues minus expenses. If ECMC starts losing money again, taxpayers will be fully exposed to the cost, starting in 2010.

County Executive Chris Collins sees the next few years as key to renegotiating labor contracts to avoid a costly problem.

"We will have to take things a step at a time. Over the next two years, unions will have to open their eyes to resetting the financial table,” he said.

But County Comptroller Mark Poloncarz is skeptical about what will likely prove to be difficult negotiations. He is critical of Collins for failing in the hospital consolidation talks to negotiate a way out of the county's financial obligations at ECMC.

"The greatest opportunity we had has passed us by," he said. "The deal between the hospitals was good for health care but not for taxpayers."

ECMC was operated as a county department for many decades. But at the urging of former County Executive Joel Giambra’s administration, the state in 2004 made the medical center a public-benefit corporation, a business entity with greater management flexibility.

The thinking was that improved finances would reduce the hospital's reliance on an annual subsidy. But the county agreed to act as a backstop by promising to provide annual funding equal to revenues minus expenses; or however much the hospital loses — as well as aid for equipment and renovations.

That promise got postponed when the county and ECMC went to court over the funding. A court agreement specified subsidy amounts through 2009. After 2009, the operating subsidy reverts to what critics see as a potential blank check.

ECMC today is busy and reported surpluses the past two years, without counting its subsidy. ECMC also has $180 million in reserve, although a portion is unspent subsidies the hospital receives for capital expenses.

“We are positioned well with one hiccup — retiree health,” Young said. “But retiree health is not a problem unique to the hospital. It’s a bigger statewide issue that will require the state’s help to resolve.”

Still, there is concern about the hospital’s cost to the county, even though it is the county that created some of the most worrisome expenses.

“ECMC has done a great job. But they’ve warned us that once these expenses start hitting their bottom line they can’t guarantee they won’t come back to us for help,” said Greg Gach, county budget director.

The county in 2004 signed union contracts that provide health insurance for retirees 55 and older. In return, public employees agreed to a one-year wage freeze and a less-expensive single-insurer health plan.

The county and hospital worked out a way to share the costs at ECMC, but now disagree over who owes what. To ECMC, the county owed $8.43 million for 2007 retiree health costs and owes $124.15 million over the next 10 years. That’s a lot, but Young said the county would be paying all the hospital retiree health costs if ECMC still were a county department.

County officials also worry about ECMC’s debt, another cost the county inflicted on itself.

The Giambra administration borrowed $101.3 million in 2004 to avert a budget crisis and placed the debt on the hospital’s books. It did that by selling ECMC to the new corporation for $85 million, which helped cover the county deficit, and using another portion of the money to retire ECMC’s past long-term debt.

The county agreed to pay the principal and interest over 30 years. The 2008 payment was about $8 million.

The debt payment is included in the county’s court-ordered annual support for ECMC operations, which declined from $20 million in 2006 to $14 million in 2007. The subsidy in 2008 and 2009 is enough to at least cover the debt payments.

To the county, there is one other significant hospital cost — federal Medicaid payments to cover losses at hospitals for treating the uninsured.

The county used to be reimbursed for its share of the award to the hospital, which was $8.8 million in 2007. But in 2006, the award started going directly to ECMC after the federal government made changes to stop questionable uses of the money by states and counties.

ECMC contends it should keep the payments because it cares for a large number of poor patients. County officials contend ECMC should return the payments because the hospital is making money and now is a public-benefit corporation. The issue remains unresolved.

Collins wants to end retiree health for new employees and prefund a trust to pay the costs similar to the arrangement between automakers and the United Auto Workers.

Some say the criticism Poloncarz leveled at Collins over the consolidation is unfair because the county had little leverage in the hospital talks. Kaleida Health and ECMC will remain separate institutions for the time being, with a unified “super board” that has authority over major decisions.

Collins did get an agreement that ECMC’s $180 million in reserve will be used at ECMC and assurances from the parent board that the ultimate goal is a true merger. ECMC officials also say they are willing to use one-third of the hospital’s cash to help the county address retiree health with unions.

“We don’t want to be seen as a drain on the county taxpayer,” said Jody Lomeo, ECMC’s interim chief executive when Young leaves next month. Whatever happens will depend on how ECMC changes.

Hospital officials have talked of creating a multicampus system in which ECMC plays a key role, such as a center for orthopedics.

But Collins fears ECMC’s higher labor costs compared with private hospitals, including more days off that mirror work rules for other county workers, will discourage the new board from investing at the medical center. This could also work to ECMC’s advantage, he said, if it encourages public-employee unions to renegotiate retiree health.

Copyright 2008 - The Buffalo News