The Hypocritic Oath
Imagine owning a business that is in cut-throat competition with a similar enterprise across the street. Your rival undercuts you at every turn and ruthlessly tries to steal your customers. And it not only doesn't pay taxes but it benefits from an infusion of near limitless public dollars. While you struggle to break even and can't enrich your anxious shareholders, the boys across the street are paying dividends on profits that don't exist.
It may sound surreal, like an entrepreneur's nightmare -- but it's exactly what Richard Famiglietti has endured since he opened his Weston Medical Pavilion. And his deep-pocketed, merciless competition is paid in part by you and me. It's the tax-assisted North Broward Hospital District (NBHD), the nation's sixth-largest public health system. The gigantic, $800 million-a-year district was intended decades ago to serve as a community safety net but over the decades has morphed into a monopolizing force that uses unfair, possibly illegal business practices to destroy its competition in the private sector.
After opening its Weston Regional HealthPark across North Commerce Boulevard from the Pavilion in 2000, the district began luring away Famiglietti's doctors and offering low rents made possible by its tax-exempt status. But the Pavilion owner charges that NBHD -- which recently raised North Broward's property tax rates to the maximum allowed by law -- is itself a tax cheat. And he appears to be right.
I called the Broward County Property Appraiser's Office last week and found evidence that the district has avoided paying hundreds of thousands of dollars of real estate taxes on HealthPark as well as -- apparently -- other private aspects of its business. County Property Appraiser Rocky Rodriguez has responded by starting an investigation to determine how much the NBHD owes the county.
But the damage has already been done to Famiglietti, whose business lost hundreds of thousands of dollars before finally turning a profit in the latter part of 2003. And he isn't the only one who has suffered financially because of the $28 million HealthPark. So have taxpayers. Though NBHD promised that it would make money after two years, the place continues to bleed cash. By the end of this year, operational losses will total $16 million. Combined with the construction cost, the public is looking at about $45 million in medical waste.
And district officials knew -- or should have known -- they were embarking on a financial disaster before they ever built it.
"The district made false representations, lied to me, and lied to the public to justify building this thing," Famiglietti complained recently in his Pavilion office. "They said there was a need and that Weston pays taxes and isn't getting services, so they sought to establish some presence in Weston. They saw that Weston was developed, and they missed the boat, so they made a big plan in Weston, but private enterprise had already taken control of the situation. It made no financial sense. This was more about politics."
Famiglietti, whose Pavilion deal was completed before HealthPark's approval, tried to warn the district that Weston didn't need two medical centers, especially not within a stone's throw of each other. But the NBHD steamroller was not to be deterred. In July 1997, the district hired the consulting firm Hammes Co., which has done millions in business for NBHD, to conduct a study. The consultants reported in October that the HealthPark was "a highly feasible project." Amazingly, Hammes didn't note the crucial fact that the Pavilion was also being built. District CEO Wil Trower presented the flawed study to the board, and NBHD commissioners approved purchase of the land in October 1997.
During that same year, two other developments made the HealthPark project even more obsolete. The state approved a 150-bed Cleveland Clinic hospital in Weston and NBHD's counterpart, the South Broward Hospital District, announced that it was expanding in nearby Pembroke Pines. In December 1997, Trower wrote a letter to the board about the new competition but still didn't mention the Pavilion. "While these approvals are disconcerting," he wrote, "they emphasize the need for the district to pursue its niche and secure its position in the Weston community."
Talk of niches and positions aside, HealthPark might still have made sense if the clinic would have primarily served financially disadvantaged people. But it wasn't located in a poor area. Like the name says, it's in Weston, the suburb on the edge of the Everglades where well-to-do folks fled to get away from places that really need a public health clinic. The same Weston where the poverty rate is half that of the county and the median household income, at a healthy $80,000, is double the average. I asked the district for the number of uninsured patients at HealthPark, but nothing had been provided by publication time.
When it was completed in 2000, Famiglietti's $10 million, 30,000-square-foot Pavilion couldn't compare with the district's showpiece. After all, he didn't have the luxury, as NBHD does, of $174 million in annual tax dollars. His building is functional and comfortable for patients but looks like a tenement next to HealthPark, which came complete with a giant water fountain, imported marble, wrought-iron finishes, and a brick-tiled veranda on the lake in back.
The chief battle between the two businesses has been waged by their surgery centers, which are both large, for-profit facilities owned jointly with shareholding doctors. Famiglietti says the district immediately tried to persuade his doctor-partners to move across the street.
Then, in the beginning of 2003, NBHD began trying to snare more physicians by offering dividends to investors. "We are excited and pleased by the continued development and progress of the Surgery Center of Weston and the payout of dividends in the last two quarters," a district official wrote to potential investors this past August.
That is an exciting development to be sure, especially since the surgery center was losing money. How could the district pay out dividends when there were no profits?
"The surgery center is a separate entity from the HealthPark," district spokeswoman Sara Howley explained in an e-mail. "Volume for the Surgery Center is up 30 percent and is making money. Therefore, we were able to give dividends to the investors due to the profit."
Although it sounds like a good explanation, district records contradict Howley. Seven months after the dividends were first dispersed, an NBHD private offering memorandum to physicians stated, "The Company has not operated profitably since opening in July 2000 and may continue to operate at a loss for the foreseeable future."
In fact, the surgery center lost $424,393 in 2001, another $300,000 in 2002 and was projected to lose $200,000 in 2003, according to NBHD records. When Howley was confronted with these facts, she adjusted her story. Surgery volume, she wrote, is up 23 percent -- rather than 30 -- during the "current period" and has recently "generated a positive cash flow."
Whatever the truth, it's clear that the place wasn't running in the black in early 2003. And Famiglietti charges that dividends paid on phantom profits violate state and federal antikickback laws that forbid remuneration to be paid doctors for referrals of patients and medical services. In other words, he's alleging that the district was paying physicians a little extra to bring in more business.
The district's most egregious act was to try to steal the doctors who rent offices in a small building that Famiglietti owns nearby. District employees solicited those physicians by offering them cheaper rents at HealthPark. "At least half a dozen tenants I had -- doctors I struggled to bring into Weston -- went to the district because they offered lower rents," he complained. "They called my doctors and stole them."
How could NBHD offer lower rents? First, administrators have shown no qualms about losing millions of dollars. Second, they, unlike Famiglietti, don't pay property taxes on either the office space or the surgery center.
The district, however, is supposed to pay the county on property that is used by private physicians or businesses. For instance, the South Broward Hospital District shelled out $685,000 in property taxes last year. And every year, it sends the appraiser's office a detailed report on its nonexempt real estate, even including names of doctors who rent space. No such report comes from the North District, which paid only about $5,000 in property taxes last year, according to county records.
It pays nothing on the HealthPark.
I questioned Ron Gunzburger, a spokesman for the property appraiser's office, about the matter last week. "It piques our interest that the numbers are so divergent between the North and South districts," Gunzburger said. "We're going to ask [NBHD] to give us documentation on all its facilities, and we will send appraisers out to look at all of its facilities. We need to find out why there is such a difference. If they are leasing out space to businesses or private doctors, that square footage is taxable. Everyone needs to pay their fair share."
The district might legitimately have to pay fewer taxes than its southern counterpart since it has contractual agreements with many more doctors, who can use NBHD space on a tax-exempt basis. But it also rents space to numerous private physicians who have no such contracts. The portion of the surgery center owned by doctors also appears to be an obvious nonexempt property.
The appraiser's probe could also affect an already controversial plan to build a $30 million medical office building near Broward General Medical Center. That project, which is under investigation by a federal grand jury for possible insider dealing, hinges on the idea that the district won't have to pay property taxes. According to the law, in the case of outside doctors, that's not so.
One wonders if district administrators -- who wouldn't respond to my questions on the issue -- willfully neglected to pay taxes. We may never know that answer, but one thing is certain: The district must be forced to pay up on its private ventures, if for no other reason than to help curb its already abusive business practices. And when the appraiser requires the district to sign a check, the burden shouldn't be placed on Broward's taxpayers but rather on the private entities that have benefited for so long from the district's wrongdoing.
Then Famiglietti, along with other business owners and doctors who must compete on NBHD's lopsided playing field, might finally get a fair shake.
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