Muhlenberg 2010 Financial Issues

Muhlenberg Regional Medical Center

Financial Statement Issues

For the Year Ended December 31, 2010

 

Issue 1

The closing of the Muhlenberg Regional Medical Center’s (MRMC) acute care hospital by Solaris Health Systems in August of 2008 violated the original Articles of Incorporation, which clearly state that the sole purpose of the organization was “to provide a hospital for the residents of Plainfield, New Jersey.”

A conclusion can be reached that the actions of the MRMC’s Board of Governors did not protect the interest of the 13 communities serviced by the Muhlenberg Regional Medical Center, when they stood silent and allowed the Muhlenberg Hospital to close.

The MRMC Federal Tax Return 990 for the year 2010 now changes the mission statement which reads:

“Muhlenberg Regional Center is committed to excellence in providing quality and compassionate healthcare services to diverse communities.”

Not only was the mission statement changed, it appears that Solaris Health Systems, the Muhlenberg Regional Medical Center and/ or the Muhlenberg Foundation did not notify the New Jersey Attorney General or the Surrogate Court of the hospital’s closing and seek direction(s) as to the disposition of its many assets. A cy pres proceeding before the courts may have been warranted.

 

MRMC December 31, 2010 Financial Statements – page 6 paragraph 1

Notes to Financial Statements

December 31, 2010 and 2009

1. Organizational Structure and Nature of Operations

Muhlenberg Regional Medical Center, Inc. (“MRMC”) is a not-for-profit, controlled entity of Solaris Health System, Inc. (“Solaris”).

MRMC was a 355-bed acute care medical center located in Plainfield, New Jersey. MRMC was established and is operated for the promotion of health.

On February 21, 2008, the Solaris Board of Directors voted to immediately authorize the filing of a certificate of need (“CON”) application to close MRMC. The CON application was approved on July 29, 2008 and MRMC was closed on August 13, 2008, without a needs assessment or impact study ever being done, which was required by the state.

 

Issue 2

On the 2008 Muhlenberg Hospital Form 990, the Statement of Program Service Accomplishments indicated that the two main sources of revenue were from the School of Nursing and Home Health Care. The 2009 Form 990 for the Muhlenberg Regional Medical Center indicated that the JFK Medical Center (a corporation in Edison, New Jersey) took over the operations of the Harold B. and Dorothy A. Snyder School of Nursing, which includes Radiology, Nuclear Medicine Technology, Radiation Therapy and Diagnostic Medical Sonography. The net income from the Nursing Schools and its related Radiology activities on the 2008 Form 990 was $1,043,762 ($4,960,571 revenue, less expenses of $3,916,809).

Thus, it appears $1 million in net profits from the Nursing School were transferred unilaterally without the approval of the New Jersey Attorney General, since Solaris Health Systems or the Muhlenberg Regional Medical Center did not request a cy pres hearing before the Court. The nursing school was established to benefit the Plainfield area public. The net profits from the School were transferred to an Edison, New Jersey Corporation. Were these material transactions approved by the independent Board of Governors of the Muhlenberg Regional Medical Center? Did directors from outside the Plainfield community make decisions that were and are detrimental to the Plainfield public?

 

MRMC December 31, 2010 Financial Statements – page 6 paragraph 1

Notes to Financial Statements

December 31, 2010 and 2009

Organizational Structure and Nature of Operations

“The Community Hospital Group, Inc .d/b/a JFK Medical Center during 2008, and then the School of Nursing and School of Radiology were transferred to The Community Hospital Group, Inc. d/b/a JFK Medical Center during 2009. As of December 31, 2010 and 2009, only the Home Health Department remained operating under MRMC.”

 

 

Issue 3

A review of the Muhlenberg Regional Medical Center’s, Form 990, Statement of Program Services indicated that Home Health Care made large profits in the 2009 and 2008 tax years. The 2009 profit was $1,023,558 ($7,157,616 revenue less expenses of $6,134,058).

In 2008, the Home Health Care profit was $2,001,864 ($7,093,553 less expenses of $5,091,689).

In 2010 a 50% interest in the Muhlenberg Home Health Care was sold to Meridian Health. Meridian At Home formed a new affiliate corporation called JFK Home At Home to operate the Muhlenberg Home Healthcare. It appears that this transaction will leave MRMC with very little operating income.

Was this transaction completed unilaterally without the approval of the New Jersey Attorney General?

 

 

Issue 4

MRMC December 31, 2010 Financial Statements – page 6 paragraph 2

Notes to Financial Statements

December 31, 2010 and 2009

Organizational Structure and Nature of Operations 

“On December 31, 2010, MRMC formed a joint venture with Meridian Healthcare to establish the new organization, JFK Meridian Home Care Services LLC d/b/a JFK at Home. JFK at Home is a Home Health Care provider. The operations of Muhlenberg’s Home Care Department ceased as of that date. In connection with the formation of the joint venture, MRMC transferred property and equipment at its carrying value of approximately $258,000 to the joint venture for 50% ownership in the joint venture for $5,000,000, and a gain on sale of the Home Care business of $4,619,185, net of closing costs, was recorded in the consolidated statement of operations as of December 31, 2010. The investment in the joint venture is accounted for on the equity method of accounting and included in other assets on the consolidated balance sheet.”

Was this transaction completed unilaterally without the approval of the New Jersey Attorney General?

 

Issue 5

In 2007, the Muhlenberg Foundation made payments to the Muhlenberg Regional Medical Center of $5,571,490. This included the transfer of stock of the Midtown Shops Corporation, a firm that has extensive holdings of commercial real estate. The Muhlenberg Foundation received the Midtown Shops stock as a pledge from the Harold B. & Dorothy A. Snyder Foundation in 2007 and valued it on their books at $4,712,976, which included $208,570 in cash. Prior to the stock being controlled by the Muhlenberg Foundation, the Snyder Foundation received a yearly dividend of $109,000 from the Midtown Shops Corporation.

The purpose of this transaction needs to be questioned. Was it done in good faith? Why was Midtown Shops stock transferred from the Muhlenberg Foundation to the Muhlenberg Regional Medical Center within months after the Foundation received the total pledge, which was settled over a period of three years? Wasn’t it necessary to notify the State Attorney General about this transaction? The income from the Midtown Shops is now reflected on the Muhlenberg Regional Medical Center return for the years ending December 31, 2010.

 

MRMC December 31, 2010 Financial Statements

Notes to Financial Statements

December 31, 2010 and 2009

Financial Statements – page 34 – last paragraph

“21. Subsequent Event

Subsequent to December 31, 2010, an offer was made to purchase Midtown Shops. As of the date of the report, the sale was still pending.”

***According to land records in Union County, New Jersey, on 06/28/2011, Deed Book 5867, page 0607, a deed was recorded which transferred ownership of Midtown Shops, Inc., real estate property in the amount of Four Million Ten Thousand Dollars ($4,010,000.00).***

 

Issue 6

Are Beneficial Interest in Perpetual Trusts and Endowments protected? Based on the Financial report statement, it appears that theses Trusts and endowments are being handled correctly. However, the Attorney should be informed of any material changes to the Trusts and Endowments.

MRMC December 31, 2010 Financial Statements 

Notes to Financial Statements

December 31, 2010 and 2009

Financial Statements – page 29

 

14. Temporarily and Permanently Restricted Net Assets

 

Temporarily restricted net assets are related to, or restricted for, the following:

                                                                                                                    

                                                                                                                 2010          2009

Assets held for betterments to plant facilities and

Purchases of equipment                                                                  $ 243,516      $ 196,728            

 

Beneficial interest in temporarily restricted net assets                                                    

of the Muhlenberg Foundation                                                           5,802,381    5,842,547                                                                                                                                                                

 

Total                                                                                              $ 6,045,897     $6,039,275

 

 

 

 

Permanently restricted net assets are related to the following:

                                                                                                                       

                                                                                                                 2010           2009

Investments to be held in perpetuity, the income from

which is generally available for MRMC operations                                  $1,328,059         $1,328,059

and programs

                                   

Beneficial interest in permanently restricted net assets of

Muhlenberg Foundation, Inc.

                                                                                                                    3,863,421           3,725,375

Beneficial interest in perpetual trust                                                            2,351,775           2,205,965

 

Total                                                                                                        $ 7,543,255     $ 7,259,399

                 

MRMC December 31, 2010 Financial Statements

Notes to Financial Statements

December 31, 2010 and 2009

Financial Statements – page 9 paragraph 2

Beneficial Interest in Perpetual Trusts

2. Summary of Significant Accounting Policies (Continued)

Beneficial Interest in Perpetual Trusts

“Pursuant to the terms of the instruments creating such perpetual trusts, MRMC and Muhlenberg Foundation have no legal right to direct the application of the assets and even though these assets are reported in the accompanying consolidated balance sheet, they are subject to the jurisdiction of the court. With the closure of MRMC’s hospital, the perpetual trusts are all being reviewed, however, the possible future financial effects, if any, are not presently determinable.”

 

 

 

Issue 7

Did Solaris Health Systems, the Muhlenberg Regional Medical Center and/or the Muhlenberg Foundation notify the New Jersey Attorney General or the Surrogate Court of the hospital’s closing and seek direction(s) as to the disposition of assets? A cy pres proceeding before the courts may have been warranted.

MRMC December 31, 2010 Financial Statements – page 6 paragraph 2

Notes to Financial Statements

December 31, 2010 and 2009

Financial Statements – page 17 last paragraph

“During 2009, equipment including an MRI machine with an original cost of approximately $2,200,000 and accumulated depreciation of $2,040,000 was transferred from MRMC to JFK Medical Center. The transfer was made at book value with no gain or loss recorded.”

 

Conclusion

Has the New Jersey Attorney General ever addressed the issue of violating the original Articles of Incorporation, which clearly state that the sole purpose of the organization was “to provide a hospital for the residents of Plainfield, New Jersey?  Did Solaris Health Systems, the Muhlenberg Regional Medical Center and/or the Muhlenberg Foundation notify the New Jersey Attorney General or the Surrogate Court of the hospital’s closing and seek direction(s) as to the disposition of assets?  Was a cy pres proceeding commenced?

 

 

2/20/2012 -  revised 5/15/12 – 5/29/12