State Approves Sale Of St. Mary's Hospital In Passaic To For-Profit Chain

The Record ( — Saturday, June 14, 2014

The Record

The sale of St. Mary's Hospital in Passaic to a for-profit chain from California won approval on Friday from two top state officials, setting the stage for the deal — the first of several New Jersey acquisitions proposed by Prime Healthcare Services Inc. — to be finalized by a Superior Court judge.

Health Commissioner Mary E. O'Dowd said the financial condition of the 264-bed hospital, the last survivor of three that once served the city of Passaic, is "so precarious that its closure ... is a real possibility." Its sale to Prime, O'Dowd said, was the only option she was presented to avoid a complete disruption of health care service in the city and surrounding towns. The hospital also serves Garfield, Wallington, Carlstadt, Rutherford, East Rutherford and Clifton.

The state has spent nearly $40 million to shore up St. Mary's since it emerged from bankruptcy in 2010.

The state's approval could be revoked, however — and a resale of the hospital ordered — if it becomes clear at any time over the next five years that Prime misrepresented its ability to operate the hospital or other facts in its application, according to a letter from acting Attorney General John J. Hoffman.

The Attorney General's Office "supports the proposed transaction," Hoffman wrote to Judge Margaret Mary McVeigh, with conditions that include:

Prime also must keep St. Mary's open for a minimum of five years as a full-service hospital, O'Dowd said, and any cuts in services must be approved by the state.

Prime is to pay a total of $30 million for the hospital, which includes $5 million in working capital that it provided during the state's 18-month review and $10 million for employee pensions, documents show.

State taxpayers will be responsible for about $22 million in long-term debt that was guaranteed by the state Treasury, once the deal goes through.

"This acquisition will allow St. Mary's to stop struggling financially and instead dedicate all of its resources to providing even better community care," Edward J. Condit, St. Mary's president, said in a statement.

Luis Leon, Prime's president of operations, said the company looks "forward to working with the attorney general and Department of Health in a totally transparent and effective manner." The company will invest $30 million in capital improvements over the next five years, he said. And, he said, it will continue to uphold Catholic guidelines regarding reproductive health care.

Prime, which operates 26 hospitals in six states, had hoped that approval of the St. Mary's purchase would pave the way for its acquisition of St. Michael's Medical Center in Newark and St. Clare's Health System, which has two acute-care hospitals and a behavioral-health hospital in Morris and Sussex counties.

But earlier this week, the state requested proposals from consultants to do a study of hospital services in the Newark area, delaying action on the St. Michael's sale until next year. A Prime spokesman said the company "remained committed" to the purchase.

Prime also must hire "substantially all" of the 1,200 employees currently working at St. Mary's, a commitment it already had made, O'Dowd said.

"It's good news," said Douglas A. Placa, executive director of JNESO, the union representing 500 nurses and others at the hospital. "It's been a long time coming. Now St. Mary's can move into the next phase of its existence."

Passaic Mayor Alex Blanco also welcomed the news. "As a doctor, and more importantly as a father of four boys, a son to elderly parents and mayor of Passaic," he said, he understood the importance of the hospital to give residents access to medical services.

But critics of Prime's track record said the conditions imposed upon the sale give them little confidence.

"There's not a whole lot here that's going to slow them down if they choose to go in the wrong direction," said India Hayes-Larrier of New Jersey Citizen Action and the Campaign to Protect Community Healthcare, a coalition of other unions and advocacy groups. She said the Health Department's enforcement of conditions at other for-profit hospitals in New Jersey has been weak.

St. Mary's, which was founded more than a century ago by the Sisters of Charity of St. Elizabeth, will lose its tax-exempt status with the sale. That conversion — from a non-profit institution to a for-profit one — required the review by the Attorney General's Office, including an extensive look at Prime's track record and allegations involving the business practices at some of its California hospitals.

The federal investigation of Medicare billing, still under way, is "unlikely to be resolved anytime soon," the attorney general wrote, calling that "a difficult dilemma." If the investigation were to result in heavy fines or the exclusion of Dr. Prem Reddy — Prime's president, chief executive officer and board chairman — from participation in federal programs, that could place the hospital at risk, the letter said.

But no violations have been proved at this time, Hoffman wrote, so he asked the judge to give the state the right to force the resale of the hospital if Prime's ability to operate it is impaired.

Prime also paid $95,000 last year to settle alleged violations of federal confidentiality laws.

Concerns had been expressed by the New Jersey Association of Health Plans about the cancellation of the hospital's insurance contracts, a strategy Prime has used in California to charge higher out-of-network prices to its patients. St. Mary's announced earlier this year that it was renegotiating its contracts with two major insurers, and that, if unsuccessful, it would no longer participate in their managed-care networks.

O'Dowd said the hospital will be required to post information on its website about the status of all its insurance contracts and to tell patients about the charges they will face if they receive care on an out-of-network basis. The hospital must keep the state Insurance Department informed about its negotiations with insurers, she said.

Hayes-Larrier, a critic of the sale, said that condition will not assure the "affordability of health care for the people that St. Mary's serves. Rather, it simply lets them know publicly that health care is unaffordable."

The fact that Prime is a for-profit company "is of no particular relevance," O'Dowd said. All of the state's health care rules and regulations are enforced equally, no matter what the ownership status of a hospital is, she said.

Copyright 2014 North Jersey Media Group Inc.

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