NUMC: Former leaders failed to set aside adequate funds for malpractice claims

For years, the former leadership of Nassau Health Care Corp. failed to set aside enough money to cover malpractice claims — causing a deficit between payouts and reserves to balloon to $110 million — the latest financial blow to the cash-strapped public hospital system, current hospital officials told Newsday this week.

About 100 cases went unreported in budget documents, with the liabilities building up in an offshore insurance account since 2020. Those cases are now at the heart of a probe by the current state-appointed leadership team responsible for course-correcting the deeply indebted public benefit corporation, which runs 530-bed Nassau University Medical Center in East Meadow, the A. Holly Patterson nursing home, inmate care at the county jail and several community health centers.

The findings raise fresh questions about how an institution with various local, state and federal financial monitoring systems in place could let its medical malpractice projections go unchecked for so long, an accusation the former CEO has denied. 

"The liability is real, the path forward is real too, and we're going to manage our way through it — honestly and in the open," NHCC CEO Thomas Stokes said.

Stokes, who started in January, has said the new deficit, on top of the more than $1.4 billion in debt the hospital already carries, will not impact patient care. 

Unreported claims

Since 1999, NHCC has relied on a captive insurance company in the Cayman Islands, a popular location for offshore accounts for large healthcare systems that self-insure against claims brought against them. While captives allow for less expensive coverage than domestic commercial insurance companies, they also come with more risk and fewer regulations.

Hospital executives in 2020 fired the independent company that managed its malpractice claims, and the work of overseeing those claims — including which ones to settle, which ones to bring to trial, and how much they'd ultimately cost — became the responsibility of hospital officials.

But for years they didn't keep track of open malpractice claims, took longer to settle cases and made fewer settlement payouts even as lawsuits piled up, current hospital officials said. The deficit between malpractice payouts and budget reserves went unreported.

"I've been in healthcare a long time," Stokes said. "Through this process, I've spoken with people who have deep expertise in captive insurance, and not one of them has ever seen a Cayman captive underfunded at this level. It's unheard of."

In response to Newsday's questions, Kenneth Abell, attorney and spokesman for former CEO Megan Ryan, rejected allegations of mismanagement as "wildly off base." He said the captive, NHCC, Ltd., was managed by the CFO and the finance department and has always had independent auditors.

"The results of audits performed by those auditors were shared with the Board of Directors and the Audit Committee," Abell said on Ryan's behalf.

Actuaries were retained during the entire period to monitor reserves, he said.

"There were never any adverse findings. The captive also has an independent board of directors, which Meg was never on. To Meg’s knowledge, financial consultants going back to at least 2020 looked at the captive and its reserves and never found that there was a deficit," Abell said. 

Resolution unclear

While Stokes has said the new financial loss won't impact patient care, he did not minimize the new strain on the budget. He indicated this week that he would put out a new request for proposal for new vendors to manage medical malpractice cases.

Stokes said the $110 million loss would be folded into long-term planning but did not say whether there would be program closures or employee cuts. 

 "We considered three paths: doing nothing, which is effectively what happened for years and would likely have cost us our malpractice coverage; seeking $65 million from the state, which wasn't feasible on this timeline since we were outside the state budget window by the time we fully recognized the extent of the liability; or taking on the liability ourselves, which is what we chose," Stokes said. 

Stokes and current leadership, as part of a state requirement, are tasked with creating a master plan for the hospital's future by December. 

 Newsday made several attempts to reach spokespeople at the four private firms involved in the hospital's claims process: Marsh, the captive’s manager; Oliver Wyman, an actuary; Grant Thornton, the auditor; and Honigman LLP, legal counsel. Requests to Wyman and Honigman LLP were not answered. Spokespeople for Marsh and Grant Thornton declined to comment.

Spokespeople for New York Attorney General Letitia James and Gov. Kathy Hochul's reelection campaign declined to comment.

Attorneys at three firms representing plaintiffs in several lawsuits against NUMC — Silver & Kelmachter, Dell & Dean and Danzi Law Partners — said the hospital paid out settlements in full. Those attorneys declined to disclose the settlement amounts their clients received from those lawsuits.

 It was unclear this week how Hochul would respond to the new financial crisis and whether the health system would get more state aid. Hochul restructured the health system's governance in a 2025 budget resolution, transferring power from county to state appointees. 

Hochul spokesman Gordon Tepper in a statement said the governor's priority for NUMC "remains making sure patients continue receiving the care they depend on." 

"The people of Nassau County deserve transparency and responsible leadership. We expect those responsible for these failures to be held accountable, and we will continue supporting efforts to put NUMC on a stronger financial footing," Tepper said. 

 State Health Commissioner Dr. James McDonald also said his department would "continue to work with the hospital as the facility works under new leadership to restore financial stability."

The state Health Department this month gave $19.4 million from a program for financially struggling hospitals, officials said.

Newsday's Bahar Ostadan contributed to this story 

By Candice Ferrette

candice.ferrette@newsday.comcandiceferrette

Candice Ferrette covers Nassau County government and politics on Long Island. She has been a reporter at Newsday since 2011.