The Star-Ledger

Seeing Healthy Profits From Ailing Hospitals, 2 Groups Have Big Plans For N.J.

The Star-Ledger — Sunday, April 21, 2013

By Dan Goldberg / The Star-Ledger

The competition to dominate the state's health care market is intensifying, with two major players vying to move into the western New Jersey market.

Hudson Hospital Holdco and Prime Healthcare Services have submitted bids to purchase St. Clare's Health System, which owns three hospitals in Morris County, according to multiple sources familiar with the deal. The sources spoke on condition of anonymity because these are confidential negotiations.

Prime has already agreed to buy St. Mary's in Passaic and St. Michael's in Newark and the deals are awaiting state approval. The California-based for-profit group has sought a foothold in New Jersey since 2011 when it made a play for Christ Hospital in Jersey City. Prime withdrew after the bid sparked community backlash.

Christ was forced into bankruptcy and then purchased by Holdco, a for-profit group that also owns Bayonne Medical Center and Hoboken Medical Center.

The fevered interest in New Jersey hospitals provides a glimpse into how lucrative for-profit companies believe the state's landscape might be. St. Mary's and St. Michael's are on the verge of bankruptcy, according to their respective CEOs, but Prime believes both can be profitable with an infusion of cash for capital improvements, renegotiation of some health insurance contracts and a change in culture.

"This will lead to patients seeking care at St. Mary's," Prime officials wrote in a statement to New Jersey's Department of Health. Prime is also betting that as more people buy health insurance under the Affordable Care Act, they will seek medical care more often. "This change in dynamics will contribute more patient volumes, especially for elective care and elective procedures," the statement said.

Prime began its expansion nearly three years ago, acquiring four hospitals in Texas, one in Nevada, two in Pennsylvania and two in Kansas. It owns 14 in California.

"In New Jersey, Prime Healthcare has two acquisitions pending with plans to acquire more, which will allow for more efficiencies, cost effectiveness and a better quality of patient care," said Edward Barrera, a Prime spokesman. "Health care reform demands this and that's why Prime Healthcare, which was just nationally recognized among the 15 top health systems — the third time in five years — is in the perfect position to accomplish this."

Saint Clare's operates hospitals in Denville, Dover and Boonton, an outpatient facility in Sussex, an imaging center in Parsippany and a continuing care facility in Denville.

The current owner, Colorado-based Catholic Health Initiatives, would not discuss any possible sale of the 436-bed system except to say it is in "productive discussions with several major health organizations regarding the transfer of ownership."

Holdco would not comment on any potential acquisitions or its growth strategy, but animosity toward Prime, a potential competitor, was laid out last month in court.

Prime is suing Vivek Garipalli, partial owner of Holdco, alleging he is using political muscle to keep Prime CEO Prem Reddy out of New Jersey.

Holdco's attorney, Thomas Ajame, wrote a blistering letter, accusing Reddy of "spreading lies and pointing fingers."

The lawsuits, the lobbying and the trend of for-profit companies attempting to acquire failing not-for-profit hospitals have stirred legislators.

Sen. Joe Vitale (D-Middlesex) plans to hold hearings on for-profit hospitals in May. Assemblyman Gary Schaer (D-Passaic) has endorsed Prime, while several others, including Assembly Speaker Sheila Oliver, have urged the Department of Health to proceed with caution and closely examine Prime's record.

Nationwide Trend

"Recognizing this as a trend nationwide ... for-profit hospitals that maintain missions and commitments to these communities may need to be examined as an option to hospital closings, but only if the focus is not on making money but on quality," Oliver said. "I do not want to see hospitals more focused on making money than on providing quality health care."

Prime's play for market share has caused consternation among many advocates and politicians. A coalition of citizen action groups and unions that represent Holdco employees met Thursday night in Newark to explain to the community the problem with Prime taking over St. Michael's.

"We need to fight this," said Assemblywoman Cleopatra G. Tucker (D-Essex). "We don't need a private hospital that won't service the community. They will treat you and put you out the door."

David Ricci, CEO of St. Michael's, said Prime is the best bet if the community wants to keep the hospital out of bankruptcy court.

"Saint Michael's currently employs more than 1,400 doctors, nurses and staff and, if this deal were to fall through, it is unclear if the hospital could support these jobs and continue its ministry," Ricci said. "Prime Healthcare Services is the right partner to build upon our healing mission and provide excellent patient care to the residents of Newark for many years to come."

Prime announced Thursday night that the union representing St. Mary's nurses ratified an agreement that Ed Condit, the hospital's CEO, called "a major step forward."

"Now that every section of our team is unified behind the agreement and acquisition," he said, "we will all work toward joining Prime Healthcare's award-winning health system."

Though the Newark meeting focused on Prime's pending acquisitions, the news that for-profit companies were looking to expand into Morris and Sussex worried members of the group. Any profit should be reinvested back into the hospital or community, not split among shareholders, they argued.

Under Scrutiny

"In Prime's case, they come along with some extra baggage," said Phyllis Salowe Kaye, executive director of New Jersey Citizen Action. "The concerns are the same, the baggage is a little heavier."

That includes a federal investigation into the company's Medicare billing practices. Prime representatives have denied any wrongdoing and said the company "looks forward to working with the Department of Justice to resolve this matter."

Prime's application to acquire St. Mary's is being reviewed by New Jersey's attorney general and the department of health, which has asked the multibillion-dollar company dozens of specific questions to determine whether it is fit for New Jersey.

A similar process in Rhode Island, where Prime is seeking to purchase Landmark Medical Center, was delayed because, according to state officials, "several" answers are not clear.

"Of note, the volume of the additional documents filed in response to deficiencies was over 1400 pages more than what was filed originally," Rhode Island officials wrote to Prime's attorneys on March 29. "As we have stated in the past, the initial application process should not be used to force the departments to perform work that should have been done by the transacting parties in the first place."

Prime filed new paperwork yesterday , according to a company spokesman, and the acquisition is moving forward.

"To suggest that there is a reason for any such suspension in New Jersey is absurd," Barrera said, "and is against the best interests of both St. Michael's and St. Mary's, whose boards of directors have after due diligence determined Prime Healthcare to be an excellent choice."

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