Audit of Lincoln Medical and Mental Health Center’s Affiliation Agreement with the Physician Affiliate Group of New York

Executive Summary

The objective of this audit was to determine whether the Physician Affiliate Group of New York (PAGNY) is complying with the terms of its affiliation agreement with the New York City Health and Hospitals Corporation (HHC) for providing services at the Lincoln Medical and Mental Health Center (Lincoln Hospital).

HHC is a public benefit corporation created in 1969 by the New York State Legislature to operate the City’s municipal hospitals. To provide care and manage its medical staff and medical support services at its facilities, HHC has entered into contracts, known as “affiliation agreements,” with medical schools, teaching hospitals, and physician-owned professional corporations (PCs), known as “affiliates.”

In 2000, HHC entered into an affiliation agreement with Downtown Bronx Medical Associates (DBMA), a not-for-profit PC created by physicians who work at one HHC facility, Lincoln Hospital, to provide and manage the medical staff and medical support services at Lincoln Hospital. In an effort to consolidate a number of affiliation agreements, improve efficiencies, and ease negotiations, HHC solicited DBMA to create PAGNY in 2010 to function as an HHC affiliate in additional hospitals beyond Lincoln. Subsequently, in November 2011, HHC assigned to PAGNY its DBMA affiliation agreement for Lincoln Hospital. PAGNY took over providing and managing physician and support services to the hospital as well as performing payroll and timekeeping functions. However, DBMA remained a separate entity and retained responsibility for billing for physician services under the Faculty Practice Plan (FPP).

According to the affiliation agreement, for Fiscal Years 2013, 2014, and 2015, HHC was required to pay approximately $80 million annually to PAGNY for its management and operations responsibilities at Lincoln Hospital and PAGNY was required to contribute $17 million annually toward the medical service providers’ salaries, which was to be collected by DBMA through the FPP billings. In addition to its responsibilities for employing in-house medical staff at Lincoln Hospital, PAGNY arranged with subcontractors to provide medically-needed professional specialty services, such as orthopedic surgical services and neurosurgical services. In Fiscal Year 2014, PAGNY paid $8,821,432 for these medical services. These funds come from HHC’s annual payments of $80 million to PAGNY.

HHC provides semi-monthly payments to PAGNY to cover most of the services required by the affiliation agreement. Following the end of each fiscal year, PAGNY is required to submit a Recalculation of Affiliate Payment document (Recalculation) to HHC that records the difference between services budgeted and delivered and how much either PAGNY or HHC owe based on those revisions. HHC uses the Recalculations to establish future budgets and the semi-monthly payments that HHC provides to PAGNY to cover contract services at the hospital.

Audit Findings and Conclusions

PAGNY generally complied with its HHC affiliation agreement to provide services at Lincoln Hospital. However, we found certain financial control weaknesses in subcontractor payments and services. Specifically, we found that over one fourth of subcontractor payments during Fiscal Year 2014 lacked sufficient documentation to support the appropriateness of those payments. In addition, five of the 30 subcontractors paid for services in Fiscal Year 2014 did not have current service agreements in place.

The audit also found a number of other weaknesses. Specifically, PAGNY did not have a formal agreement in place to cover the change in the timing of the transfer of net FPP collections from DBMA’s bank account to PAGNY’s account; PAGNY did not ensure that financial statements for Fiscal Years 2012 and 2013 were audited in a timely manner; PAGNY and HHC took more than a year to complete the Recalculations for Fiscal Years 2012 and 2013; and PAGNY made some payments to a number of physicians for extra work performed that were not in accordance with the established collective bargaining agreement.

Audit Recommendations

Based on our findings we make six recommendations to PAGNY, including:

• PAGNY should ensure that its payments to subcontractors are made in accordance with existing written agreements and that any amendments to those contacts are made in writing.
• PAGNY should ensure that all subcontractor invoices have the documentation to support payments made.
• PAGNY should ensure that all subcontractors have a service agreement as required by the affiliation agreement to ensure that the responsibilities for both PAGNY and its subcontractors regarding the provision of needed contracted services are clearly defined.

We also make four recommendations to HHC, including:

• HHC should ensure that DBMA and PAGNY formalize a regular schedule for DBMA’s transfer of net FPP collections to PAGNY.
• HHC should ensure PAGNY maintains a separate FPP Lincoln bank account as stipulated by the affiliation agreement.
• HHC should ensure that PAGNY and HHC continue finalizing the Recalculations in a timelier manner and that audited financial statements be issued within 120 days.

Agency Response

In their responses, HHC and PAGNY did not dispute the audit’s findings and generally agreed with the audit’s ten recommendations. The full texts of the HHC and PAGNY responses are included as addenda to this report.