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Controversial Sale of Passaic Hospital Wins OK from Top State Officials

But opponents still seek monitoring of Prime Healthcare takeover of St. Mary’s and hope to block acquisition of second hospital in Newark

st mary's hospital passaic
St. Mary's Hospital in Passaic.

A controversial for-profit hospital chain has cleared a major legal hurdle in its bid to acquire St. Mary’s Hospital in Passaic.

But opponents still hope to at least attach conditions to the sale and to block Prime Healthcare from acquiring a second New Jersey hospital, Saint Michael’s Medical Center in Newark.

Acting state Attorney General John J. Hoffman recommended giving the sale the go-ahead. State Health Commissioner Mary E. O’Dowd said the sale isn’t likely to hurt the quality of healthcare at the hospital. But the final decision rests with state Superior Court Chancery Judge Margaret Mary McVeigh.

Those in favor of the sale of St. Mary’s to Prime say it will prevent the hospital from closing and will save jobs. Opponents question for-profit Prime’s business practices and want the state to appoint a monitor.

Hoffman did suggest placing a number of conditions on the St. Mary’s sale, including:

  • Empowering the attorney general to force the resale of the hospital if it is determined that Prime misrepresented itself or if Prime’s ability to operate the hospital is impaired;

  • Requiring Prime to disclose any actions or resolutions related to an ongoing federal investigation into how the hospital handles the coding and billing for its services;

  • Stipulating that St. Mary’s foundation would have seek court approval for any change in its stated mission or how it spends its money, report its financial activities for two years, and force any board members who take positions with Prime to resign. In addition, any hospital officials that receive compensation from Prime would have to first submit details of the arrangement to the attorney general for approval and hospital trustees and senior managers would be barred from investing in Prime for at least three years.

Prime wants to buy St. Mary’s for $30 million, but critics note that would still leave more than $20 million in outstanding hospital bonds that New Jersey taxpayers would have to pay off.

The state should have required Prime to maintain contracts with a minimum number of health insurers, said India R. Hayes Larrier, spokeswoman for the Campaign to Protect Community Health Care, a coalition of labor, community and health-advocacy organizations. Larrier also is an organizer with New Jersey Citizen Action.

That became an issue in February, when St. Mary’s moved to cancel two insurance contracts. Critics warned this was a prelude to Prime using an “out-of-network” business model in which it would rely on billing for emergency-room traffic to maintain revenue, driving up the cost of care in the process.

Hospital officials have denied this, saying that the cancellations were in response to unreasonably low reimbursement rates from those insurers. Prime also has denied practicing an “out-of-network” business model.

Progress in the St. Mary’s sale was hailed by Douglas A. Placa, executive director of JNESO, the union representing roughly 500 nurses and technical professionals at the hospital as well as about 500 workers at Saint Michael’s.

“Since Prime is looking to purchase both St. Mary’s and Saint Michael’s, there would be a lot of similar questions asked of Prime of which the state already has answers to,” Placa said.

But opponents of the Saint Michael’s sale to Prime say Newark’s situation is very different from circumstances in Passaic – there are several other hospitals in or near Newark -- and argue that Saint Michael’s owner, CHE Trinity Health, should be able to find a different buyer.

Explaining her opposition to Prime’s takeover of Saint Michael’s, Larrier cited shortcomings in the St. Mary’s deal:

  • That the hospital’s buyer should be required to commit to keep the hospital open longer than the five years being required of Prime;

  • That the hospital should have to keep its contracts with insurers;

  • That the new owners should be required to cooperate with other healthcare providers, through entities such as the Greater Newark Health Care Coalition;

  • That Prime should have to adhere to proper billing and coding practices.

“To us, it’s a huge red flag that this company is under an ongoing investigation,” Larrier said of Prime.

Saint Michael’s has “an owner and they do have time to go back to the drawing board and find someone who’s going to be a better steward of community health than Prime,” Larrier concluded.

Another potential complication in the Saint Michael’s acquisition is a request by the New Jersey Health Care Facilities Financing Authority that a consultant study healthcare in Newark, possibly recommending consolidation or regionalization of services if there is duplication or overcapacity in the city.

Under that scenario, Saint Michael’s could be required to shift its focus to preventive and outpatient services, which might not appeal to Prime.

Placa, the union official, expressed concern that the consultant report could delay state approval of the Saint Michael’s sale – he noted that the St. Mary’s sale process has already taken more than two years.

One factor that further complicates the proposed Saint Michael’s sale: The medical center has more $200 million in outstanding state-backed bonds. Prime has offered $43 million for the hospital, but cut its offer by $22 million after reviewing the hospital’s operations.

Prime and hospital officials expressed their gratitude to the state for advancing the sale of St. Mary’s and reaffirmed their commitment to the hospital, but declined yesterday to respond to criticism of state approval of the sale.

Prime has repeatedly defended its financial and operating practices, blaming an ongoing dispute with the Service Employees International Union in California, where the company is based, with allegations and investigations related to its finances. They also have noted that none of the hospitals that Prime has bought has closed, including some that faced dire financial situations when they were purchased by Prime.

Still on the horizon is a third proposed acquisition by Prime – of St. Clare’s Health System’s hospitals in Denville, Dover and Sussex. That possible sale hasn’t yet drawn much attention from critics of Prime.

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