Judge Approves Sale Of St. Mary's Hospital In Passaic

The Record ( — Wednesday, July 23, 2014

Staff Writer
The Record

A state judge approved the sale of St. Mary's Hospital to a for-profit chain from California on Wednesday, guaranteeing the survival of Passaic's sole hospital and providing a foothold for Prime Healthcare Services Inc. in New Jersey.

The deal — which had already received the approval of the state health commissioner and attorney general — requires Prime to operate the 264-bed facility as a full-service hospital for at least five years. Prime has committed to spend $30 million in capital improvements at the hospital, which was at risk of closure.

Prime paid $30 million, which includes $5 million in working capital that it provided during the state's 18-month review, and $10 million for employee pensions, an issue under debate at Wednesday's hearing.

"I really haven't received what I would call a strenuous objection to the approval of sale," said Superior Court Judge Margaret Mary McVeigh in Paterson.

Health Commissioner Mary E. O'Dowd, in approving the sale last month, said it was the only option she was given to avoid a complete disruption of health care in the city and surrounding towns. The hospital also serves Garfield, Wallington, Carlstadt, Rutherford, East Rutherford and Clifton.

Prime looks "forward to partnering with St. Mary's to continue providing quality, affordable health care for the people of Passaic and the surrounding communities," said Fred Ortega, a company spokesman.

Since the hospital emerged from bankruptcy in 2010, the state has spent nearly $40 million to shore up St. Mary's, which was founded more than a century ago by the Sisters of Charity of St. Elizabeth. State taxpayers will be responsible for about $22 million in long-term debt that was guaranteed by the state Treasury, once the deal is completed in mid-August.

St. Mary's had looked for a buyer or capital partner since emerging from bankruptcy, said Frank E. Velocci, an attorney representing St. Mary's. The hospital even tried to maintain its Catholic identity in a deal with the for-profit Ascension Health Care Network of St. Louis, but the sale never proceeded, Velocci said.

"We were left stranded at the altar literally and facing closure," Velocci noted.

Under Prime's ownership, St. Mary's will continue to uphold Catholic guidelines regarding reproductive health. Velocci said the chain has never closed or sold a hospital in 15 years of operation.

Prime, which operates 28 hospitals in six states, plans to expand beyond St. Mary's in New Jersey. It is awaiting approval to purchase St. Clare's Health System, which has two acute-care hospitals and a behavioral-health hospital in Morris and Sussex counties. The State Health Planning Board conducted hearings Tuesday and Wednesday and is expected to make a recommendation Aug. 7, said Jeffrey S. Brown, an attorney representing Prime.

The company has also committed to purchase St. Michael's Medical Center in Newark. Last month the state requested proposals from consultants to review hospital services in the Newark area, delaying action on the sale until next year.

In reviewing the potential sale of St. Mary's to a for-profit institution, the Attorney General's Office examined Prime's track record and allegations involving the business practices at some of its California hospitals. A federal investigation of Medicare billing at the company's hospitals in California is ongoing, the results of which must be reported to the state as a condition of the sale.

India R. Hayes Larrier, an organizer for New Jersey Citizen Action, requested that a monitor be appointed to oversee and report on financial operations, staffing and services as the hospital converts to a for-profit enterprise.

McVeigh noted that the hospital is required to appoint a local governing board and a community advisory board to oversee operations.

One issue that concerned McVeigh and two members of the public was the unfunded non-union pension that covers about 950 former and current employees, according to Velocci. Employees were at risk of receiving nothing, but the hospital negotiated with Prime to obtain $10 million, which will provide 43 percent of workers' expected pension, the attorney said.

"Your Honor, if I as a citizen do not pay my debts to the IRS or the Department of Treasury, they would garnish my salary or place me in jail," said Armantina R. Pelaez, a former employee who had worked at the hospital for 20 years. "How come the CEO, the board of trustees, the Sisters of Charity and the Archdiocese of Newark are not accountable?"

Joan Derramas has it even worse. A social worker who was laid off in December 2008 after 20 years of service, she will receive a partial pension, but it will be taxed at 20 percent because of an issue that will affect her and about 140 others. "Instead of 43 percent, I might get one-third," she said.

About 500 nurses and other employees at the hospital have pensions provided through their union, JNESO, which has supported the sale.

Copyright 2014 North Jersey Media Group Inc.

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