Responding to a crisis in hospital care for New York City's poor and uninsured residents, the New York Legislature in 1969 enacted the New York Health and Hospitals Corporation Act, N.Y. Unconsol. Law §7381 et seq., establishing the New York City Health and Hospitals Corporation (HHC). The HHC was authorized to fund, operate, and manage the City's municipal hospitals for the benefit of the residents of New York City (the "City"). The Act requires the City to lease its municipal hospitals to the HHC at a nominal rate, "for so long as [HHC] shall be in existence." N.Y. Health & Hosp. Act §7.1, N.Y. Unconsol. Law §7387.
Today, the City's public health care system is again in crisis. In 1994, attempting to improve the situation, the City and the HHC requested bids on a contract that would allow a private health care provider to manage and operate Coney Island Hospital under a long-term sublease agreement. Plaintiffs, including the City Council and some community action groups, feared the consequences of privatization for poor and uninsured residents. City Council and the Campaign to Save Our Public Hospitals ("Campaign") commenced separate declaratory judgment actions to force broader public review of the new sublease policy by the City and HHC, citing a violation the Uniform Land Use Review Procedure (ULURP) (New York City Charter §197-c). All parties moved for summary judgment.
While the action was pending, the City entered into an agreement to sublease Coney Island Hospital to PHS New York, Inc. ("PHS-NY"), a private healthcare company. The term of the renewable lease was to be ninety-nine years. Plaintiffs amended their complaints and motions to include the sublease agreement, arguing that the lease was ultra vires. The Supreme Court granted summary judgment in favor of Plaintiffs, declaring that the sublease was subject to ULURP conditions and Common Council approval, and that the HHC lacked statutory authority to sublease the hospital. The Appellate Division, its scope limited to HHC's statutory authority, affirmed. The New York Court of Appeals granted leave to appeal the order of modification from the City Council's declaratory judgment action and allowed the pending claims in the Campaign's declaratory judgment to be treated as final, bringing them up for review.
Whether the Health and Hospitals Corporation Act precludes New York City from subleasing Coney Island Hospital and turning over its operations and service obligations to a private entity.
Yes. The Health and Hospitals Act specifically states that New York City must lease municipal hospitals to the HHC for as long as the HHC is in existence. In addition, the legislative history of the Act reveals that the public service purpose of the HHC would be compromised if a for-profit firm replaced the HHC in operating a municipal hospital.
Prior to this decision, the bounds of the Health and Hospitals Corporation Act had not been tested before the Court of Appeals. The language of the act, and its legislative history, suggested that the City could not lease or sell public hospitals to any entity other than the HHC, so long as the HHC remained in existence. Rather than seek legislative approval to privatize municipal hospitals, the Giuliani administration effectively sought to privatize some municipal hospitals through a sublease arrangement apparently believing that the act authorized such arrangements.
The Court of Appeals, in a case of first impression, interpreted the statutory language of the act to prohibit the HHC from subletting its hospitals to private parties. Without a legislative fix, the Giuliani administration will likely be unable to deal with the City's public health crisis by privatizing City public hospitals, actually or effectively.
Due to the highly localized nature of this case, there are not many cases on point in other jurisdictions. However as explained in Memorial Hospital-West Volusia, Inc. v. News-Journal Corp., 1999 WL 20562 (Fla. 1999), Florida faced a fact pattern almost identical to City Council. The Florida legislature had established public corporations (called tax districts) to manage and fund municipal hospitals. Each municipal hospital had to treat all patients, regardless of whether or not they could pay. As costs rose, tax districts began to look into the possibility of leasing the hospital operations to a non-profit private company. The Florida Attorney General decided that the tax districts needed legislative approval to do so. See Op. Att'y Gen. Fla. 80-18 (1980). In response, the Florida legislature enacted a statute that allowed the taxing districts to enter into leases with private non-profit entities.
Barring any legislative action, would the New York Court of Appeals decide differently if the leasing corporation were a private not-for-profit entity or a charitable religious organization? It seems that the Court read the act as stating that no entity other than the HHC could run a City public hospital. Therefore, the City would be unlikely to evade the holding of the instant case by subletting to a not-for-profit private organization.
In light of the continuing crisis in health care, how will the New York State Legislature react to this decision? To the extent that the legislature views the 1969 statute establishing the HHC as an out-dated big-government attempt to deal with the problem of healthcare for the City's poor, it may revise the statute to allow privatization under certain circumstances. On the other hand, it may be politically difficult to advocate privatization of public hospitals because it may be seen as an attempt to deprive poor City residents of decent healthcare. Recent public outcry with respect to HMOs in the state may also indicate that the public would not support a change that relied upon privatization to correct problems associated with the City's public healthcare system. If privatization is permitted, it is unclear how the legislature would assure a balance between the potentially conflicting goals of charity health care and profit.