Explainer: In Seeking to Become For-Profits, NJ Hospitals Must Satisfy Law

Andrew Kitchenman | February 3, 2015 | Explainer
CHAPA ensures attorney general considers public interest in deciding whether conversions occur

St. Mary's Hospital in Passaic.
What it is: The Community Health Care Assets Protection Act (known as CHAPA) spells out the rules that the state government must follow in determining whether to approve the sale of a nonprofit hospital to a for-profit operator.

How it works: Under the law, the attorney general must review whether the sale would serve the public interest. It specifies that the attorney general must consult with the state health commissioner on the decision. The AG can make the sale conditional on the buyer meeting certain requirements.

Why it’s important: New Jersey is undergoing a wave of sales of nonprofits to for-profit companies. For example, California-based Prime Healthcare Services is in the process of trying to buy five New Jersey hospitals: St. Mary’s Hospital in Passaic; Saint Michael’s Medical Center in Newark; and the three-hospital St. Clare’s chain. Opponents of these sales have sought to use CHAPA to block them — thus far, without success.

Defining the public interest: Under the terms of the law, the public interest is served when the state safeguards the charitable assets of the hospital and ensures that proceeds from the sale are irrevocably dedicated to appropriate charitable healthcare purposes. These assets must be placed in a charitable trust dedicated to serve the community’s health needs. In addition, the law says the health commissioner must determine that the sale isn’t likely to result in the “deterioration of the quality, availability or accessibility of healthcare services in the affected community.”

What prompted the law: While for-profit hospitals were fixtures of many other states’ healthcare systems, New Jersey had never had a for-profit hospital operator until 1998, when county-owned Bergen Regional Medical Center began to be run by a for-profit. Lawmakers wanted to ensure that future sales were conducted in a fair and open manner.

What’s happened since the law passed: The state has moved from having no hospitals owned by for-profits when the law was passed in 1999 — Bergen Regional is privately operated, not owned — to there being a rapidly growing list today, including Memorial Hospital of Salem County; Meadowlands Hospital Medical Center; and the three CarePoint facilities: Bayonne Medical Center, Christ Hospital, and Hoboken University Medical Center.

Whether it’s made a difference: While conversions continue, it’s not an easy process. In the case of Saint Michael’s, the sale has been under review by the state since January 2013, and Prime Healthcare officials’ hope that the review would be quickened by the state’s approval of St. Mary’s sale hasn’t been borne out yet. So even if the law hasn’t stopped sales, it’s raised the bar that for-profit purchasers must clear.

Time for a change: Some opponents of the sales to for-profits have called for the law’s requirements to be tightened. For example, New Jersey Appleseed Public Interest Law Center Executive Director Renee Steinhagen has said that the assets protected under the law should be expanded to include hospital real estate — an issue that’s been in the public eye at Meadowlands, where the owners sold the land and leased the facility back. Steinhagen also would like to see the law require that the state appoint a monitor for all for-profit conversions under CHAPA.

In addition, the Health Professionals and Allied Employees union has also called for changing state law to make for-profit conversions more difficult. The union’s proposals call for disallowing the sale of hospitals to operators under state or federal investigations (a proposal that appears to be aimed at Prime Healthcare, which has been investigated for its billing practices); expanding CHAPA to cover proposed hospital closures; and requiring new hospital operators to maintain current staff levels and insurance contracts after sales.