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Subsidy to ECMC upheld Appellate Division rules that Erie County has an obligation

Erie County is obligated to subsidize Erie County Medical Center, even though it was spun off to a new public benefit corporation in 2004 to make it self-supporting, according to a new court ruling.

The decision by the Appellate Division of State Supreme Court in Rochester affirms a 2005 ruling by State Supreme Court Justice Joseph G. Makowski.

"Erie County shall maintain and provide an operating contribution to ECMC in an annual amount that is the difference between the corporation's total revenues minus total expenses," Makowski wrote in the ruling that was upheld.

The appellate ruling has no immediate effect, because the county and ECMC reached an agreement after Makowski's decision that defined annual subsidies for operating and capital expenses through 2009.

But the new ruling means the county is obligated to subsidize any hospital shortfalls after 2009. It also means that once the subsidy is determined for a particular year, the county can't reduce the amount, as it did in 2005, when it was experiencing a budget crisis.

"If we have to live with the ruling, we will have to be clear about its implications beyond 2009," County Attorney Laurence K. Rubin said.

There is little to worry about so long as ECMC continues to build on its improved financial status in 2006.

"It's gratifying that the court agreed with Judge Makowski. But as a practical matter, the medical center corporation has operated with a surplus. We hope the effect of the ruling is minimal," said ECMC attorney Anthony J. Colucci III.

However, there is reason for taxpayers to worry if ECMC doesn't do well financially.

The medical center inherited county labor agreements with relatively generous paid days off and other benefits, including retiree health insurance coverage, that make labor costs significantly higher than at other hospitals.

Many people, including past and current ECMC executives, have warned that the hospital's labor expenses must be addressed to avert future financial problems.

ECMC posted a $7.5 million profit in 2006 and saw losses decline from $28.4 million in 2004 to $18.1 million in 2005. The year-end results do not include the medical center's annual subsidies from Erie County -- $12.7 million in 2004, $19 million in 2005 and $17 million in 2006.

The medical center became a target for budget cutters trying to close the county's huge deficit in 2005. The hospital filed suit after county officials cut ECMC's originally agreed-upon subsidy for 2005 from $29 million to $19 million during the budget crisis.

The county's lawyers argued that ECMC should be treated like other county departments that were expected to tighten their belts.

Makowski saw it otherwise, , ruling that the Public Authorities Law obligated the county to pay the hospital what it had agreed to pay.

The county could appeal the Appellate Division ruling. , which was announced Friday. However, it was a 5-0 decision, making the odds slim that the State Court of Appeals would take up the matter.

What's unclear is what the ruling means to the talks between ECMC and Kaleida Health over a possible consolidation. The state, as part of health reform efforts, threatens to close ECMC or Kaleida's Buffalo General Hospital if the two organizations don't reach a consolidation agreement by the end of the year.

One perspective is that the decision makes the medical center a more financially stable consolidation partner. But, depending on how the consolidation is structured, it also may mean that county taxpayers are left responsible for funding ECMC shortfalls in the future.


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