The Northshore - Long Island Jewish Health System claims to be the third-largest, not-for-profit secular health care system in the US. It has a $4 billion yearly operating budget, employs 37,000, and claims to be the ninth-largest employer in the New York City area.
The Newsday article recounted a large real-estate transaction between the hospital system and a company lead by a prominent member of its board of trustees.
The North Shore-Long Island Jewish Health System is paying about $300 million to lease a major facility from its own vice chairman's real estate partnership, leading some to question how Long Island's biggest nonprofit handles potential conflicts of interest on its board.
William Mack, a longtime executive committee member of the health system and one of its leading donors, is a general partner of a private-equity real estate fund that owns the former Lockheed-Martin defense plant just across the street from Long Island Jewish Medical Center in New Hyde Park. That plant and its 94 acres, then called i-park Lake Success, were bought for $20.5 million in 2000, in a deal led by Mack's son Richard. Now the Macks' partnership is leasing a third of the plant to the health system for $300 million in base rent over 25 years.
When leases at i-park came under review, Mack disclosed his role as founding senior partner of Apollo Real Estate Advisors, the fund manager behind the deal, and recused himself from the process.
Mack's dual role as one of the health system's most powerful stewards and its biggest landlord has prompted continuing concerns by some current and former health system officials about the propriety of the deal and the integrity of the health system's governance.
There were several aspects of this transaction that seemed unusual.
For one thing, the matter was never brought to North Shore-LIJ's board of trustees, though an attorney general's written opinion says state law requires nonprofits to do so for land deals. Instead, the lease was reviewed by the board's executive committee, which wasn't given copies of two reports on which its decision was based, relying instead on a short memo and one-page summary of the lease terms. North Shore has declined to release the reports, saying they contain confidential business information; it contends the attorney general's opinion doesn't apply to a nonprofit such as North Shore.
In addition, there were complexities in the relationships involved.
Mack was one of several people who had business relationships with those involved in the deal:
[North Shore board chairman from 2000 to 2004 and former Goldman Sachs vice chairman Roy] Zuckerberg, who led the health system's real estate review, has ties to Mack through an unrelated business: He sits on the executive committee of the $2.3-billion Mack-Cali Realty Corp., a real estate investment trust chaired by Mack, and owns 33,500 shares of its common stock.
Newmark & Co. (now called Newmark Knight Frank), hired to keep Apollo at arm's length as North Shore's tenant representative, has done periodic business with that company, and Brian Waterman, one of its two principals handling the i-park talks, has listed Apollo among his leading clients.
Though Mack recused himself from the matter, his son Richard, an Apollo managing partner, signed the preliminary lease term sheet for i-park in November 2004, records show.
Hospital system leaders denied that the conflict of interest was significant.
Mack said his partnership has plowed huge sums into renovating a property that had sat unsold for five years. 'I think it would have been worse of me to say, 'Don't deal with them [the health system] and meet ... the needs of the community,'' Mack said.
Former Goldman Sachs vice chairman Roy Zuckerberg, who led the real estate search as North Shore's chairman from 2000 to 2004, can't understand why anyone would give the deal a second look. 'We need more space,' he said. 'I see this as a pretty simple issue.'
The i-park site was selected by a tenant representative through an 'arm's-length' process, the health system reported in its tax returns, and the lease terms were found reasonable by an independent appraiser.
Generally, spokesman Terry Lynam said, the health system goes out of its way to avoid conflicts of interest with its board members. But the health system is governed by a board of 130 of Long Island's most prominent and wealthiest citizens. Many preside over companies that sell the kinds of goods and services a hospital might want, and North Shore will deliver about $4.6 billion in health care this year -- a budget almost as big as Nassau and Suffolk counties combined.
The health system said Zuckerberg's ties to William Mack through Mack-Cali are irrelevant. Waterman said he won 'a very good deal for the hospital.' Richard Mack said he was 'barely involved' in the lease talks, which he described as lengthy and contentious.
Mack said there was no missed business opportunity for Long Island Jewish, and he made clear he is affronted that any question might be raised about his loyalty to the health system.
On the other hand, some people raised ethical questions about the deal.
'It may not be illegal, but it smells bad,' said Pablo Eisenberg, a senior fellow at Georgetown University's Center for Public & Nonprofit Leadership.
Although federal tax law strictly bars private foundations from doing business with their insiders, public nonprofits such as hospitals face no such restrictions, said Eisenberg, who has advocated for such limits in congressional testimony. 'There was a tradition in nonprofits that board members served for nothing, and they were prohibited from self-dealing. Now ... [doing business with board members] is increasingly popular.'
Manhattan attorney William Josephson, who headed the state Charities Bureau under then-Attorney General Eliot Spitzer, said the i-park lease deserves careful review because of its size alone. But, he said, it also calls to mind the state's 2000 lawsuit that toppled Port Authority chief Robert Boyle, the chairman of a Westchester hospital board who steered a development deal to attorney Albert Pirro in exchange for a secret partnership stake.
Mack never concealed his role, as Boyle did, an omission that led to a civil fraud charge against the latter. But otherwise, 'the facts of this transaction raise the same issues,' Josephson said. 'Under state law, trustees owe their charities a duty of loyalty. If a trustee has a business opportunity, he must offer it to the charity and not make an extraordinary profit in the process.'
Most other current and former health system officials reached by Newsday have declined to speak about the lease deal. But four of them, asking not to be named because they did not want to damage their relationships with the health system or with Mack, expressed discomfort at Mack's being both a senior board member and major landlord, and concern about the decision-making process.
Although the conflicts of interest that most often appear in Health Care Renewal seem to involve physicians' and health care academics' financial arrangements with drug, biotechnology, and device companies, this case illustrates that all sorts of conflicts are now prevalent in health care.
This case is also a reminder of just how big not-for-profit hospitals and health care systems have become. This means that the potential for big conflicts of interest affecting their leadership is increasing.
Yet there seems to be much less disclosure and discusison of such conflicts than of conflicts involving, say, academic physicians and pharmaceutical companies.
Furthermore, these conflicts more often may involve organizational leaders who might reasonably be called members of the power elite. To me, the most striking aspect of this case was how blithely such powerful individuals on the health care system's board dismissed any concerns about conflicts of interest.
As F Scott Fitzgerald wrote, "Let me tell you about the very rich. They are different from you and me." But they now seem to be running health care organizations that are supposed to take care of you and me.
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