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For-Profit Hospitals, a Transformative Trend for New Jersey

Operating near the breakeven point and facing large capital expenditures, many nonprofits are struggling to keep their doors open.

Most of New Jersey's 72 acute care hospitals are nonprofits, with just a handful owned by for-profit companies. But the for-profit trend could spread as many hospitals continue operating near the breakeven point while facing the need for capital to modernize their aging physical plants and invest in medical technology.

William Conroy, acting deputy commissioner of the state Department of Health, told a conference on healthcare sponsored by the Council on State Public Affairs Tuesday in Trenton that since Memorial Hospital of Salem was acquired by a for-profit 11 years ago, about a dozen New Jersey hospitals have followed suit or are in the process.

In some cases, hospitals in financial trouble have been rescued by for-profits: Bayonne Medical Center filed for bankruptcy in 2008 and was acquired by a for-profit company that has since acquired the ailing Hoboken University Medical Center and is now taking over bankrupt Christ Hospital in Jersey City.

"For the hospitals that struggle with their finances, it becomes more and more difficult to stay afloat and also to modernize. The industry is constantly evolving with the technology," Conroy said. "So to the extent that for-profit organizations can come in and assist in the hospital's modernization and redevelopment and also pay taxes -- we feel that is a positive development." Robert Wise is chief executive of the nonprofit Hunterdon Medical Center, which he said operates in the black by adapting to the decline in hospital admissions and patient length of stay.

Last year, 60 percent of Hunterdon's revenue came from outpatient, ambulatory services. Wise said New Jersey hospitals as a group ranked 44th nationwide by profitability in 2010, when the average margin was 2.4 percent compared to about 5.5 percent for the U.S. He said one option for nonprofit hospitals is to compete with for-profits by becoming more like them, and emphasizing services with a better financial return. That could mean a reduction in public clinics and more emphasis on inpatient services with more lucrative margins.

The Dartmouth Atlas, which for the past 20 years has been comparing the cost and quality of healthcare around the nation, has found that New Jersey is high-cost state for hospital care, but isn't achieving commensurate health outcomes. Wise said for-profit hospitals may view this as an opportunity to come into the state, implement efficiencies, and reduce cost.

E. Stephen Kirby, former chief executive of LibertyHealth, parent of the nonprofit Jersey City Medical Center, is now a partner in Community Healthcare Associates, a for-profit that acquires former hospitals, renovates them, and leases the space to healthcare tenants like physicians, labs, skilled nursing facilities, imaging centers, and pharmacies.

In 2008, CHA purchased the bankrupt Barnert Hospital in Paterson and now operates it as a medical mall. Kirby suggested that some provisions of the Affordable Care Act may discourage for-profit hospitals from acquiring nonprofits. In 2014, the ACA will significantly increase eligibility for Medicaid, and is expected to add more than 200,000 to the Medicaid rolls in New Jersey, which currently has 1.3 million members. Medicaid reimbursement is less generous than either Medicare or commercial insurance; thus the Medicaid expansion could be a disincentive to the for-profit trend, he said.

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