Hospital Closings, Nonprofit Corporations and Unregulated Asset Transfers

The closing of the Muhlenberg Regional Medical Center (MRMC) by Solaris Health System (Solaris) may have violated the Articles of Incorporation of the MRMC and the Muhlenberg Foundation (MF). The MRMC was founded “for the purpose of care, cure, and nurture of sick and injured persons” which “are to be carried out in the City of Plainfield and its vicinity.” The Muhlenberg Foundation was formed to be operated exclusively for the benefit of the Muhlenberg Hospital and was the principal fund raising arm of the hospital.




In 1997, John F. Kennedy Hospital (JFK) of Edison, New Jersey was merged with the Muhlenberg Regional Medical Center (MRMC) of Plainfield, New Jersey, which formed Solaris Health System. It was called a pooling of interests on the Consolidated Financial Statement of Solaris Health System. After the merger, Solaris gained $44 million in assets. Prior to the merger, Solaris had net assets of $109 M. After the 1997 merger, Solaris had $153 M in net assets. Included in the assets that were acquired by Solaris was the Comprehensive Health and Educational Corporation, a for-profit corporation.



At the time of the merger, Solaris told the employees that it was a kind of partnership and that no one partner took the other over. But soon after the merger, assets started to be transferred to JFK Hospital or sold. As early as 1997, Associated Radiology was replaced by the radiology group affiliated with JFK.



 1998 - The Diabetes Center was moved to Talmadge Road in Edison, NJ.

 2000 - SurgiCare of Central New Jersey was sold by Solaris in.

 2001 - The Dialysis Center, located at the Kenyon House, was sold.



Since 2003 Solaris Health System has moved a number of very successful operations from Muhlenberg to JFK Hospital. Some of the functions transferred to JFK include: Pediatrics, Out-patient Physical Therapy, Orthopedics and in-patient Oncology.



Did Solaris Health System misrepresent the financial condition of Muhlenberg Regional Medical Center in order to win the approval of the State Commissioner of Health and Senior Services to close the Hospital? The Federal Exempt Organization return (Forms 990) filed under the penalty of perjury with the Internal Revenue Service shows a much stronger financial picture than the one reflected on the MRMC Consolidated Statement of Operations for the years 2005, 2006 and 2007. Profit/ (Loss) before Depreciation and Interest were:



 $9.9 M Profit in 2005

 $4.7 M Profit in 2006

 $4.6 M Loss in 2007



As of December 31, 2007, the MRMC was a solvent corporation and had net assets of

$ 5.2 M. Even after MRMC was stripped of many profitable assets by Solaris, it was still a financially viable corporation. At the New Jersey State Health Planning Board meetings in Plainfield, New Jersey pertaining to the closing of the MRMC, a number of speakers questioned the losses reflected by the MRMC. At least one speaker suggested that an independent CPA firm be appointed to evaluate this matter before a decision was reached on the Certificate of Need for closure. The pleas of the speakers were ignored. Below is a summary of the difference between the numbers reflected on the IRS Form 990 return and the MRMC Financial Statements:



Year Financial Statement IRS Return

2005 1.5 M Loss 2.3 M Profit

2006 2.9 M Loss 2.5 M Loss

2007 16.7 M Loss 11.9 M Loss



IRS Profit/ Loss before Depreciation and Interest

Year Profit/Loss Depreciation/ Profit/ Loss

Interest

2005 2.3 M Profit 7.6 M 9.9 M Profit



2006 2.5 M Loss 7.2 M 4.7 M Profit



2007 11.9 M Loss 7.3 M 4.6 M Loss



In 2007 the Muhlenberg Foundation transferred the stock of Midtown Shops Corporation, a firm that has extensive holdings of commercial real estate, to the Muhlenberg Region Medical Center. 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 $4.7 million, which included $200,000 in cash. Prior to the stock being controlled by the Muhlenberg Foundation, the Snyder Foundation received a yearly dividend of $109,000 from 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 within months after the Foundation received the total pledge, which was settled over a period of three years? Also, the value of the real estate holdings of the Midtown Shops Corporation must be determined by an independent appraiser. In addition, the Muhlenberg Foundation is the majority owner of the Comprehensive Health and Education Corporation (CHC). The value of this for profit corporation must be determined. In 2008, MRMC assets were transferred to JFK Hospital even before the closing of the Muhlenberg Regional Medical Center was approved by the State Commissioner of Health and Senior Services. These items included hospital beds, computers, nursing and operating room equipment.



A review of the 2007 IRS Form 990 for the MRMC indicates that a $150,000 loss on the sale of property and equipment needs to be reviewed and verified. Was it a bonified loss? Finally, MRMC restated its previously issued financial statements in 2007 to correct errors made in 2006 and in prior years that related to interest in perpetual trusts that were not recorded on the books in earlier years. These perpetual trusts have a value of $2.4 million. The trust covenants need to be reviewed to ensure that the endowments restricting the funds for uses in Plainfield are being followed.



Solaris Health System controlled the Board of Directors of the MRMC and the Muhlenberg Foundation. When you review all the transactions over a period of years that were directed by Solaris, it appears that Solaris might have orchestrated actions between the related corporations that are considered prohibited transactions. The Board of Directors of the MRMC and the Muhlenberg Foundation may not have acted independently. They allowed Solaris to close the hospital without conducting their own needs assessment or impact study. The Board of Directors never considered operating the Hospital independently. Thus, the tax exempt status of Solaris Health System is in question. Should it be revoked?