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Hospital’s Sale Would Complete State’s First-Ever Return to Nonprofit Status

Acquisition in Salem County by nonprofit affiliate would broaden New Jersey footprint of controversial California-based for-profit chain, Prime Healthcare

salem memorial hospital
Memorial Hospital of Salem County

Thirteen years after Memorial Hospital of Salem County became New Jersey’s first for-profit hospital, it could become the first to switch back to nonprofit status.

Hospital owner Community Health Systems yesterday announced the sale of the 126-bed facility to Prime Healthcare Foundation, the nonprofit affiliate of a California-based company that’s been rapidly expanding in North Jersey and has been criticized by some healthcare advocates. The sale price was not disclosed.

The sale also comes in the midst of a long-running battle over whether the Salem County hospital’s nurses will be allowed to form a labor union. A union official said she hopes that Prime Healthcare Foundation recognizes the union.

Since Memorial Hospital of Salem County was bought by CHS in 2002, the growth of for-profit hospitals in the state has been controversial.

For example, Prime Healthcare Services’ proposal to buy Saint Michael’s Medical Center in Newark has been delayed by three years as state officials review whether the acquisition would benefit or hurt the public.

Opposing for-profit trend

Some healthcare advocates – including leaders of the nurses’ union, Health Professional and Allied Employees -- have called for the reversal of the for-profit hospital trend. In Bergen County, the HPAE has supported having a nonprofit takeover of county-owned Bergen Regional Medical Center, which is operated by a for-profit company whose contract is ending.

But the emergence of the nonprofit Prime Healthcare Foundation in Salem may not be what these for-profit opponents had in mind. Dr. Prem Reddy, the founder and chairman of the for-profit company, also provided the funding to launch the foundation.

Prime Healthcare spokeswoman Elizabeth Nikels said the foundation wanted to buy the hospital because it fits into Prime Healthcare’s overall goals.

“Our mission is to save and improve hospitals so they can deliver quality care to patients and better healthcare for communities,” Nikels said. “The Memorial Hospital of Salem County is recognized for its exceptional care and would be a welcome addition to our growing network of hospitals in New Jersey.”

The reconversion to nonprofit status faces a lower bar for state approval than the original conversion to for-profit status, since it will be reviewed by only one state agency – the Department of Health.

For-profit conversions require scrutiny from both the health department, through the certificate of need process that regulates all major changes in hospital services, and the state Office of the Attorney General under the Community Health Care Assets Protection Act (CHAPA)..

“We expect nothing of concern, as we will only have to go through a limited regulatory approval process,” Nikels said.

HPAE Chief of Staff Jeanne Otersen noted that the union has been waiting for a resolution to what she described as CHS’s “final appeal” of the vote certifying the union to represent the hospital’s nurses.

Union wants state to set conditions

With the sale, Otersen said the HPAE is asking the state Department of Health to require the same commitments that it’s asked for in other hospital sales, including requiring Prime to maintain or expand its services. The union also wants Prime to “honor the collective bargaining rights of the nurses,” and to remain in health insurers’ networks.

“We would intend to monitor the process and those are the issues we would bring to the Department of Health and to Prime,” Otersen said. “We would hope that Prime would reach out to us to discuss the rights of the nurses there.”

Nikels said Prime Healthcare is committed to keeping the hospital open and has never closed or sold a hospital.

“Prime Healthcare is also committed to maintain and expanding services at The Memorial Hospital of Salem County, hiring substantially all employees, and (maintaining) existing insurance contracts,” she wrote in an email. “We look forward to working with the nurses and giving them the support, tools, and education necessary to succeed. We welcome anyone’s input, and we look forward to building upon the legacy of quality care that The Memorial Hospital of Salem County is known for.”

Otersen said the union is unsure whether Prime’s for-profit business model and the nonprofit foundation’s business models are different.

Controversy over North Jersey takeovers

The union has been harshly critical of Prime Healthcare Services’ expansion in northern New Jersey, which has included the acquisition of St. Mary’s Hospital in Passaic and the Saint Clare’s Health System, which has three hospitals in Boonton, Denville, and Dover.

“What really matters to us is, are they going to focus on maintaining the services rather than the bottom line,” Otersen said. “That’s what will really determine what kind of a hospital this is, rather than the status” as nonprofit or for-profit.

Of Prime Healthcare’s 38 hospitals, seven in Texas and California are currently operated through the nonprofit foundation.

Nikels didn’t explain why the foundation was buying the Salem hospital -- and not the for-profit company -- other than to say the hospital “aligns well” with the foundation’s mission.

Foundation may resume previous role

One potential benefit to the hospital of the reconversion to being a nonprofit is that it could acquire the assets of the Salem Health and Wellness Foundation, which was separated from the hospital when it became a for-profit. While the sale agreement doesn’t include the Salem Health and Wellness Foundation, a law enacted last December lays out a process by which a reconverted nonprofit could seek to regain control of the local foundation.

Law sponsor Assemblyman John J. Burzichelli (D-Cumberland, Gloucester, and Salem) said yesterday that he wasn’t in a position to say whether the foundation – currently managed with the assistance of the Community Foundation of New Jersey – would be reunited with the hospital. But he said that the law could allow that to happen.

“I’m very optimistic that the sale is going to be in the best interest of the residents of Salem County,” Burzichelli said.

Burzichelli said he hopes that the Salem Health and Wellness Foundation does support the hospital’s mission, as was intended under the law.

“The whole idea was to make that hospital vibrant, to make sure that hospital had resources it was entitled to, and if they meet the criteria to move those resources back to the hospital at the appropriate time,” Burzichelli said.

If the hospital does seek the return of the foundation funds, the law would require approval from a Superior Court judge, a recommendation from the attorney general, and at least one public hearing.

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