Probe finds NUMC in $110M unreported shortfall

The parent company that runs Nassau University Medical Center on Monday announced it found a $110 million shortfall that went unreported by hospital officials for years, after a probe of the hospital’s medical malpractice insurance plan.

News of the newly discovered shortfall — the result of what hospital officials say is years of undisclosed legal settlements — marks yet another hurdle for the county’s only public hospital, which already reported more than $1.4 billion in debt last year. The newly found shortfall was uncovered just over a month ago, said NUMC CEO Thomas Stokes, who revealed the news at a public meeting Monday. 

“Nobody wants to inherit a problem like this,” Stokes, who became CEO on Jan. 15, wrote in a statement to Newsday. “But the worst thing we could have done is what was done for years — look away. We put the real number on the books, we fixed our standing with the regulator, and we’re going to do the hard work of managing this the right way.”

Hospital services, Stokes said, will not be impacted from the findings.

Like many hospitals, Nassau Health Care Corp., , which operates NUMC, insures much of its malpractice risk through NHCC Ltd., a captive insurance company established in the Cayman Islands. Captive insurers are subsidiaries created to cover the risks of their parent organizations.

In 2020, then-hospital executives fired the third-party company that managed malpractice claims and started overseeing those claims internally at the hospital. In the years that followed, as more patients sued the hospital, current hospital officials found NUMC didn't keep track of open malpractice claims, took longer to settle cases, and made fewer settlement payouts even as lawsuits mounted. The widening gap between malpractice payouts and remaining budget reserves went unreported.

Throughout the alleged disarray, the insurance company’s board — which is required to meet annually in the Cayman Islands — did not meet between 2020 and 2025, Stokes said. It finally met last month, reaching compliance with regulatory body Cayman Islands Monetary Authority, he said. 

The hospital is evaluating what went wrong, he said, reviewing the role of four private companies involved in the malpractice claim process: Marsh, the insurance company’s manager; Oliver Wyman, an actuary; auditor Grant Thornton and Honigman LLP, legal counsel.

“Each firm’s role is distinct, and each is being reviewed as part of understanding how the gap went undetected for as long as it did,” a statement from NHCC read.

Attempts at reaching out to the named firms were unsuccessful. 

Newly installed NUMC board chair Richard Kessel accused the prior administration of concealing the problem, though hospital officials have not publicly released evidence showing whether the liability was deliberately hidden or went undetected because of accounting, actuarial or management failures.

Last year, NHCC hired a new third-party company to figure out how much money it owed in malpractice cases by speaking to attorneys suing the hospital. A few weeks ago it was revealed the insurance company understated its liability by $110 million, according to Stokes. 

“The hole was a little bit deeper than we expected,” he said.

Stokes is restructuring the malpractice insurance program to buy the hospital more time to make payments, he said. He raised NHCC's per-claim deductible from $1 million to $5 million, shifting $65 million in liability from the insurance company to NHCC, he said. Such a move allows NHCC to keep the captive active, giving the hospital time to pay settlements. 

“It’s probably going to be a year and a half, two years, maybe even beyond that, that we’ll have to pay out this $110 million,” he said.

As Stokes spoke to board members, hospital employees and members of the county’s financial watchdog group, someone in the crowd exclaimed, “Jeez!”

NUMC is Nassau’s only public hospital for low-income and uninsured patients that for years has faced financial woes. Last year, Newsday reported former hospital executives spent nearly $1,500 on a lobster and steak dinner on Park Avenue in Manhattan. Earlier this month, Newsday reported NHCC’s nonprofit arms spent more than $150,000 on parties.

Just last week, the hospital closed  its maternity ward. Stokes on Monday said state health officials gave the hospital 60 days to make necessary changes in order to re-open, but he was not confident those changes could be made in time.

The maternity ward’s issues had “nothing to do with finances” but staffing and patient care, Stokes said.

“We have residents doing their own thing without much supervision,” he said. “The time to get a patient in for an emergency C-section shouldn’t take 20 minutes, or 40 minutes, or even 50 minutes … It should be 3 to 5 minutes as is the case anywhere else.”

Stokes said, “The fact of the matter is, the service that I would expect my family to receive … We’re not providing in some cases.”

Newsday's Candice Ferrette contributed to this story.