Herald News

Hospital Clears Key Hurdle

For-profit is closer to buying St. Mary's


Herald News — Saturday, February 22, 2014

St. Mary's Hospital in Passaic is one step closer to being bought by a for-profit company after the state Health Planning Board voted to approve the sale Friday.

Prime Healthcare Services wants to purchase the financially struggling hospital for $25 million, plus a commitment to put $5 million toward the hospital's underfunded pension system and spend another nearly $40 million in capital improvements. It has already spent $5 million toward those upgrades, hospital leaders said.

"Prime is an answer to a prayer," Sister Elizabeth Cahill of the Catholic Sisters of Charity of St. Elizabeth, which founded the hospital, told the board prior to the vote. "I looked into Prime's history and they maintain care to the poor and respect the call to healing."

All eight members of the board who attended the meeting voted in favor of the sale. The vote came two days after staff members in the state health department recommended California-based Prime buy the city's lone remaining hospital. In a city of 70,000, a quarter of St. Mary's patients are uninsured or underinsured.

Health Commissioner Mary O'Dowd, the state Attorney General's Office and a Superior Court judge must also approve the purchase.

Hospital leaders, employees, residents and local officials all expressed their support for the sale during a series of public hearings. On Friday, a spokesman for the union representing health care workers at St. Mary's addressed the board.

"More than half our workers live in the community," said Doug Placa, executive director for the union. "They've seen their share of purchases and bankruptcies and they're nervous and have been holding their breath. Approving Please see PASSAIC, B6 this sale will let them come up for air and St. Mary's can thrive."

The health department's 21-page recommendation that Prime purchase the hospital noted Prime's solid financial base — it projected revenues of more than $1.6 billion in 2012 and regularly has $100 million in cash reserves. But it also listed a host of conditions that Prime must meet, above and beyond what the state typically requires of a hospital sale.

Among the obligations Prime must fulfill: an active physician recruitment effort; a community outreach program to meet the primary care needs of patients and reduce emergency room visits; and the creation of a local governing board with deep interaction in the community. Prime must also submit to the Department of Banking and Insurance any plans for out-of-network cost sharing with patients.

Other for-profit hospitals, especially in New Jersey, have not been honoring prior contracts with insurance companies after taking over non-profit hospitals. This has allowed them to boost revenues by charging higher out-of-network prices for care.

Susan Olszewski, a member of the state Health Planning Board, said she "was very concerned" about hospitals' going out of network. She said the difference in her family's deductible for an in-network hospital compared with an out-of-network one is $2,500 to $15,000.

Luis Leon, Prime's president of operations, told the board that he is "confident we will be able to negotiate" with insurance companies.

Not everyone is smitten with Prime, which is under two federal investigations for its billing practices and has a years-long dispute with a labor union in California. Employees at one of Prime's hospitals said the company made significant staff cuts, changed services and reduced health insurance.

Based on these complaints, several patient advocacy groups requested that a monitor be appointed by the state but the health department refused the suggestion, saying that the expense of a monitor outweighs the benefit.

"Strong monitoring is essential," said India Hayes Larrier, a spokeswoman for New Jersey Citizen Action. "While our coalition is very pleased that St. Mary's Hospital will remain open and available to the communities it serves, we are frustrated that the Department of Health staff recommendations omit conditions on the license transfer that would protect safety, access to care and the rights of hospital employees."

Taxpayers are also on the hook for $22 million owed to bondholders if the sale is approved.

Renee Steinhagen, director of the New Jersey Appleseed Public Interest Law Center, which represents the public in for-profit takeovers of non-profit hospitals, said the sale should not happen.

"Based on Prime's track record, the decision to allow them the privilege of buying St. Mary's is arbitrary and capricious," Steinhagen said.

Prime has made a concerted effort to get a foothold in New Jersey. It is also awaiting approval to buy St. Michael's Medical Center in Newark and the three hospitals in the Saint Clare's Health System.

Edward Condit, president of St. Mary's, had pushed hard for the sale and said he was "very pleased" after the vote. He told the board the hospital "didn't have much time" and hoped for expediency in the process.

"I was skeptical at first," Condit said. "But 14 months later I'm not skeptical anymore. Not all for-profits are the same and Prime puts patients first."

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