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Trend in Hospital Mergers Reflected in Palisades-Hackensack Partnership

Economic pressures, clinical advantages cite as community hospitals steadily combine facilities and services

Theresa de Leon (palisades)
Palisades Chairwoman Theresa de León, Palisades CEO Bruce Markowitz, Hackensack CEO Robert Garrett and Hackensack Chairman Joseph Simunovich sign a letter of intent.

Standalone community hospitals – once the foundation of healthcare across New Jersey – have been disappearing steadily for decades, with many institutions propelled by economic pressure to join up with larger networks, while others have closed.

Some of these mergers have sparked concerns among some healthcare, community and labor activists about patients’ access to medical services -- especially those that involve the rising number of nonprofit hospitals being converted to for-profit entities.

But others have cited the prospect of wider access to medical procedures and experts as a result of affiliations with larger hospitals.

Executives with Palisades Medical Center and Hackensack University Health Network said that their announcement yesterday of Palisades’ decision to join Hackensack will lead to a merger that benefit patients.

The news of the merger was also received a tentative welcome from health policy advocates who want any hospital mergers in the state to involve nonprofit operators.

Sounding a theme that has become familiar as other mergers have brought smaller hospitals under the umbrella of larger systems, Palisades executives highlighted the “instant access” and continuity of care that patients with more complicated diseases will receive through treatment by providers in the network.

Palisades President and CEO Bruce J. Markowitz said the agreement will enable that hospital to offer higher-level treatments for a wide range of patients, including those with cancer.

“The healthcare world has changed more quickly, more rapidly than ever before,” he said. “There’s a need for local community hospitals to link up with academic medical centers, where you can offer the full range of services to the community. There are things that we would not be able to do on our own, not be able to afford to do on our own and I would say maybe should not do.”

He also said more patients would be able to stay in New Jersey for treatments as a result of the partnership, rather than seeking care in New York City.

“Through our combined efforts, we’re focused on keeping New Jersey residents in- state, where they can get the finest care, where their families are there to support them, and this is an opportunity,” Markowitz said of the partnership.

Hackensack President and CEO Robert C. Garrett noted that the new partnership builds on a more limited clinical affiliation announced on the same day in 2012 that the U.S. Supreme Court affirmed the constitutionality of the Affordable Care Act, which has been cited as a factor that’s hastening hospital mergers by linking federal payments to increased efficiency.

“What’s happened since then, is there’s been a lot of hospital partnerships, a lot of consolidation in our industry,” Garrett said, adding: “We were really at the forefront of what has followed in our industry over the past couple of years.”

Garrett added that Hackensack patients could benefit from Palisades’ Harborage nursing home, since the network currently doesn’t own any nursing facilities. In addition, current Hackensack patients who live in Hudson County may choose to receive treatments at Palisades.

“To the extent that we can strengthen Palisades, I think that they would be very comfortable using these facilities,” Garrett said, also noting that it would keep more patients inside New Jersey. “We never want to want to be in the shadow of Philadelphia and Manhattan. We have great healthcare we can offer in the state of New Jersey.”

While Garrett said the business details of the merger still must be finalized, he said the two hospitals will share the same board, that Hackensack will make a “major investment” in technology and facilities at Palisades, and that the hospital will be renamed “HackensackUMC Palisades.”

Other hospitals in the Hackensack network, including Mountainside and Pascack Valley, have separate boards and are run with for-profit operators.

Palisades is one of two nonprofit hospitals remaining in Hudson County, which also has for-profit Meadowlands Hospital Medical Center and CarePoint Health’s three for-profit hospitals: Bayonne Medical Center, Christ Hospital and Hoboken University Medical Center.

“It really gives residents an alternative,” Garrett said. “I think there is a place for for-profit hospitals, where hospitals wouldn’t be able to survive, perhaps. But where Palisades is already a very viable, very successful hospital, the fact that they are going to remain nonprofit under Hackensack University Health Network is a tremendous benefit to our community.”

One potential problem with the increase in hospital mergers is the consolidated negotiating power than hospitals gain, which can allow them to charge higher prices. Garrett downplayed that issue.

“We talk about very specific areas where it’s going to increase quality of care and access to care -- that’s going to be our focus. It’s not going to be about pricing,” he said.

Renee Steinhagen, executive director of New Jersey Appleseed Public Interest Law Center, said that maintaining Palisades and other community hospitals in nonprofit hospital networks is important. Steinhagen has criticized for-profit conversions for changing hospitals’ purpose from benefiting their communities to benefiting their owners, and has questioned whether for-profit business practices will undermine local access to some hospital services.

“From a clinical point of view I don’t have concerns,” with nonprofit mergers, Steinhagen said, adding that they can still raise antitrust concerns by concentrating hospitals’ power to negotiate wit,

Steinhagen said it’s possible that the competition in Hudson County between two large nonprofit hospital chains -- in addition to the Palisades-Hackensack merger, Jersey City University Medical Center is merging with Barnabas Health -- will keep prices competitive.

A variety of economic forces have combined to make these mergers attractive. For example, smaller hospitals are at a disadvantage in negotiating with insurers. At the same time, the Affordable Care Act encourages programs like Accountable Care Organizations, which attempt to link payments to more efficient, better coordinated care and which have systems that have made it easier for larger numbers of affiliated doctors to join them.

“I think that economically this is sort of inevitable,” said Raymond J. Castro, senior policy analyst for New Jersey Policy Perspective. “There’s a lot of pressure under the new healthcare system – the Affordable Care Act – to be as efficient as possible and to demonstrative positive outcomes. I think this is a trend that we’re going to continue to see.”

The pace of mergers has been steady this year.

In recent years, a new split has emerged among hospital mergers – while some hospital boards have looked to join for-profit corporations, others have decided to link up with larger, New Jersey-based nonprofit chains.

This year has seen a steady stream of nonprofit mergers. In January, Morristown-based Atlantic Health system completed its addition of Chilton Medical Center and announced the addition of Hackettstown Regional Medical Center. In June, Somerset Medical Center completed its union with Robert Wood Johnson University Hospital in New Brunswick, while Jersey City University Medical Center announced its decision to join Livingston-based Barnabas Health. In addition, officials at Raritan Bay Medical Center said in May that they are seeking a nonprofit buyer for its hospitals in Old Bridge and Perth Amboy.

But for-profits have also made gains, with East Orange General Hospital signaling in April its intent to join with California for-profit Prospect Medical Holdings. Meanwhile, the conversion of St. Mary’s Hospital in Passaic to for-profit status under Prime Healthcare of California was approved by state officials, who are currently reviewing Prime’s conversion plans for Saint Michael’s Medical Center in Newark and St. Clare’s Health System’s hospitals in Denville, Dover and Sussex.

In general, the hospitals that have sought for-profit status have been among the more financially troubled institutions, although critics of the conversions say the hospitals’ boards haven’t made enough of an effort to seek nonprofit buyers.

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