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Bid for Saint Michael’s Could Let State Reshape Future of Newark Hospitals

Backers of sale to for-profit Prime Healthcare see state bid benefiting regional giant Barnabas Health

st michael's hospital
Saint Michael's Medical Center in Newark.

In the span of three years, the number of hospitals that the state owns could go from zero to two -- both in Newark, potentially allowing it determine exactly what healthcare in that city will look like for decades to come.

The New Jersey Health Care Facilities Financing Authority has emerged as a potential bidder for Saint Michael’s Medical Center in Newark, just two years after the University of Medicine and Dentistry of New Jersey handed over University Hospital to the state.

The state authority, which provides tax-exempt financing for hospital construction, was identified as a potential bidder in an email between attorneys involved in the hospital’s bankruptcy proceedings. Additional bidders include two California for-profit hospital chains -- Prime Healthcare, which has pursued Saint Michael’s for nearly three years, and Prospect Medical Holdings, which recently bought East Orange General Hospital – as well as Barnabas Health, a nonprofit regional healthcare giant.

City Councilwoman Gayle Chaneyfield Jenkins and local ministers, including the Rev. Ronald Slaughter of Saint James AME Church, denounced the state’s emergence as a potential bidder. They say that the state could serve the interests of Barnabas by paving the way for the hospital’s closure.

“Nobody can think of why the state is stepping in, but for one reason -- and that’s to assist Barnabas,” Slaughter said.

But the state could see other benefits from purchasing Saint Michael’s.

If Prime were to buy the medical center, the state would be responsible for paying $190 million in Saint Michael’s debt that the financing authority issued. (While Prime has offered to pay $43 million of that hospital’s total of $233 million in bonds, as a for-profit company it wouldn’t be responsible for the balance.) However, if the state were to take ownership, it could hire a nonprofit company to operate the hospital, and use the resulting revenue to continue to pay off at least a portion of the bonds.

In addition, supporters of a state bid say that owning Saint Michael’s would give the state a strong hand in reshaping the future of healthcare in Newark, perhaps along the lines of what a state-commissioned report by Chicago-based Navigant Consulting recommended. Navigant said that the state should convert Saint Michael’s, Newark Beth Israel, and East Orange General Hospital to outpatient centers, and expand University Hospital.

Saint Michael’s filed for Chapter 11 bankruptcy on August 11, with hospital executives expressing hope that the move would ease the sale to Prime. State officials have been reviewing Prime’s offer to buy the hospital since it was announced in December 2012.

Slaughter noted it that it would be unprecedented for the state to buy a hospital. University Hospital was transferred to state control as part of the legislation merging UMDNJ with Rutgers University.

“Barnabas calls on its big brother the state of New Jersey to give it to them, or to hand it over to Rutgers,” Slaughter said.

Slaughter said he preferred Prime as the buyer due to three commitments the company has made:

  • to adhere to Saint Michael’s mission of serving marginalized and poor residents;

  • to employ 1,400 hospital workers; and

  • to fund local charitable activities supported by Saint Michael’s.

He added that Prime would maintain a community member on the hospital’s executive and policy committees. He added that neither he nor his church are personally profiting from Saint Michael’s or Prime.

But Renee Steinhagen, executive director of New Jersey Appleseed Public Interest Law Center, said that the state would protect its rights by pursuing a bid. She’s advocated for the state taking an active role in protecting the assets that it’s helped to finance, testifying against a series of proposed sales of nonprofit hospitals to for-profit operators.

Steinhagen said a sale to Prime would mean that the state would take a loss on the bonds, which among other things allowed the hospital to build a new emergency room, while allowing Prime to profit.

Steinhagen added that if the state became the owner, it would likely request proposals from other hospitals to operate Saint Michael’s.

“I don’t think the state exercising its right as a creditor bidder can be seen as just quote-unquote to help Barnabas,” Steinhagen said, adding that the state is in the best position to ensure that hospitals in Newark work together for the benefit of the city’s residents. She added that that could mean following the blueprint suggested by Navigant: converting Saint Michael’s to an outpatient center. She added that if the state does plan to expand University Hospital in the future, how it handles the Saint Michael’s sale could be the first step in that process.

India R. Hayes Larrier, an organizer for New Jersey Citizen Action, also expressed an interest in the state becoming a bidder. However, she would like to see the purchaser commit to Saint Michael’s remaining open. She is the spokeswoman for the Campaign to Protect Community Healthcare, which opposes Prime’s bid.

Hayes Larrier emphasized that Prime isn’t well-positioned to cooperate with other city hospitals.

“Ideally, you’d think that the state would have that concern,” she said of cooperation. “Prime doesn’t seem to have that as a core goal. Their business model doesn’t necessarily include working in such coalitions that we believe are necessary in healthcare delivery.”

Prime executives have said that residents would benefit both financially and in services from continued hospital competition in the city.

Chaneyfield Jenkins said in a statement that Barnabas is only interested in eliminating competition.

“Barnabas is stretched so thin creating a healthcare Goliath around New Jersey, that they don’t have the funds to purchase Saint Michael’s,” she said. “So now they get their prize without having to pay for it, courtesy of the state. There’s something underhanded and illegitimate about this that needs to be fully exposed in the light of day.”

Barnabas, which owns Newark Beth Israel Medical Center and nearby Clara Maass Medical Center in Belleville, has a management consulting agreement with the state to assist it in operating University Hospital.

Barnabas spokeswoman Ellen Greene sent a one-sentence response to Chaneyfield Jenkins’s statement: “Barnabas Health cannot respond to isolated third-party statements that are not based on fact.”

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