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Creating public corporation was ‘recipe for disaster’

By Emmanuel T. Erediano

SAIPAN, CNMI (Marianas Variety, March 6, 2012) – Representative Froilan C. Tenorio says the law that created the Commonwealth Healthcare Corp. (CHC) created the predicament the hospital is facing now.

He said Public Law 16-51 is "laced with recipes for disaster."

P.L. 16-51 abolished the Department of Public Health and turned the Commonwealth Health Center into a public corporation.

The measure was introduced by then-Rep. Heinz S. Hofschneider, a Republican, signed into law by Gov. Benigno R. Fitial, who is a Republican again, and is now "miserably implemented" by chief executive officer Juan N. Babauta, another Republican.

A former Democratic governor who is now with the Covenant Party, Tenorio said the law has disastrous provisions.

He said he brought this up with Babauta last year, adding that they had a heated argument.

He said he warned Babauta of the consequences of implementing the law.

Lofty, inefficient, problematic

The Commonwealth Healthcare Corporation Act of 2008, according to Tenorio, has a very lofty purpose: to develop "a high quality, efficient, and market oriented public healthcare delivery system in the CNMI... that is as financially self-sufficient and independent of the commonwealth government as possible."

But, he added, H.B. 16-51 was "unlikely to achieve that purpose."

One major problem was the organization itself, he said. The division of authority between the board of trustees and the CEO is completely "jumbled," he added.

In all other corporations, the CEO works for the board.

But in the case of CHC, "for the most part, it is the other way around," Tenorio said.

P.L. 15-51’s Section 2805 says "all the corporation’s powers are vested in the CEO."

This, Tenorio said, contradicts the provision that follows: "the board is merely advisory to the CEO, except as provided elsewhere in the section."

Tenorio said the board is supposed to have "substantive duties" rather than just advising the CEO. It is required to recruit and retain someone to fill that position and to recommend to the governor a candidate and a salary level. The board evaluates the CEO’s performance and its recommendation to remove the CEO must be accepted by the governor.

Tenorio said the law does not permit the governor to reject the board’s recommendation.

But technically the board’s recommendations, especially on finances and management, are only advisory.

However, the ability to fire the CEO gives the board considerable power to enforce its "advice."

This "jumbling" of authority makes the corporation’s organizational structure "exceedingly muddy," Tenorio said.

He said the question, "Who is in charge here?" is not really answered by the law.

Another major problem, Tenorio said, is the "unprecedented step of making the government liable for the torts of the contractor."

He said there is nothing wrong with contracting functions to private sector since vendors can provide services at less cost than employees being hired, but if a contractor negligently injures a patient or other person, the contractor pays nothing to the injured party.

According to Tenorio, taxpayers will pay because P.L. 16-51 treats contractors as if they were government employees by including them in laws meant to protect civil servants and other government employees acting in the course of their official duties.

"Why shouldn’t a private healthcare contractor be as liable as any other government contractor for the damage it does?" Tenorio asked, adding that contractors certainly can purchase insurance to protect themselves and those they may injure.

He said although tort reform may be needed, especially in the area of medical malpractice, this is not the way to go about it.

The most "glaring fault" of the law, Tenorio said, is that it carries the seeds of its own failure.

"A major purpose of the law is to put healthcare on a businesslike basis and minimize the system’s reliance on government funding. Instead, the corporation’s budget is designed to produce a deficit, which will require a subsidy of government appropriations. This fiscal structure is more government-agency than corporate in nature," Tenorio said.

This is a recipe for disaster, he added, as there is no guarantee that the appropriation will be sufficient to balance the budget.

"How will the corporation pay its bills?" he asked.

He said it will have to go bankrupt or raise its rates, effectively requiring paying patients to subsidize those who cannot afford to pay for their own healthcare. Insurance companies and the government health insurance program may refuse to go along with this or would have to increase premiums to cover the increased costs, he added.

Instead of subsidizing the corporation, the government should instead subsidize low-income patients, paying for their care at established rates or buying them insurance that will do that.

This would still be an expense, he said, but it would keep the cost of medical care down and permit the corporation to balance its budget without having to charge unfair prices for its services.

[PIR editor’s note: Meanwhile, Lt. Governor Eloy S. Inos has insisted that the House "deliberate" on the credit line bill and the Medicaid measure so that progress can be made to the hospitals benefit. Inos’ calls have yet to move the House to action, and no sessions have been called since the CNMI Senate passed the substitute bills in February.]

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