Saint Michael’s Ramps Up Attack on Report That Says It Should Scale Back

Andrew Kitchenman | May 8, 2015 | Health Care
Hospital questions consulting firm data, notes more Newark residents would seek care elsewhere

Click to expand/close
It’s increasingly clear that if Saint Michael’s Medical Center in Newark closes or is transformed into an emergency and outpatient facility, it won’t go down without a fight.

The hospital released its second blistering report countering recommendations from the consulting firm Navigant, which the state had hired to help it plan for future healthcare needs in Newark.

Saint Michael’s officials said yesterday that Navigant used faulty data and skipped over crucial points in making its case for turning Saint Michael’s, East Orange General Hospital, and Newark Beth Israel Medical Center into outpatient centers while expanding University Hospital.

Key points made by Saint Michael’s officials yesterday include: closing three hospitals as full-service acute-care hospital would lead to thousands of city residents receiving healthcare outside of the city; Saint Michael’s is in a stronger financial and operating position than Navigant gave it credit for; and University Hospital has larger losses than Navigant acknowledged, so if any hospital should be subject to “resizing,” it should be University.

But at various points during a phone call with reporters yesterday, Saint Michael’s President and CEO David Ricci, Chief Operating and Financial Officer Dennis Pettigrew, and lawyer David Ettinger were rejecting even more fundamental points, including the entire concept of the state using central planning to make decisions about hospitals, and whether it’s fair to assume that a long-term trend away from inpatient admissions will undermine Newark hospitals.

Ettinger, a Michigan-based antitrust specialist, noted that at least 3,500 more Newark patients would seek healthcare outside of the city if three acute-care hospitals were to close. He added that even if University Hospital expanded, it wouldn’t be able to accommodate all of the patients from the other facilities.

Saint Michael’s officials said the Navigant report was “just wrong” in describing how much of Saint Michael’s capacity is used. While Navigant said that the hospital was at 47 percent capacity based on the 2010 total of 248 available beds, Saint Michael’s officials said the hospital is actually running at 77 percent capacity based on an updated number of beds.

Ettinger also pointed out that Navigant said that University Hospital receives a $90 million subsidy from the state, but didn’t consider the full impact of that subsidy in making its recommendations.

Ettinger, who cowrote the report released yesterday with Pettigrew, also questioned Navigant’s projection that the need for inpatient beds in Newark would decline at a faster pace than the state. Navigant based this projection on the fact that inpatient demand in the city had fallen at a faster pace than nationally.

“They cannot be relied upon and cannot be trusted,” Ettinger said of Navigant’s projections for the hospitals.

Ricci said he doesn’t intend to attack the other hospitals in the city.

“We don’t see the need to close any institution in this city,” he said.

Although the report that Saint Michael’s released yesterday said “any solution should involve the resizing of University Hospital” because it’s losses are the greatest of any Newark hospital.

But this proposition is complicated by the fact that the state owns University Hospital and has a historic commitment to operating it as part of the 1968 “Newark Agreements,” as well as the 2013 law that merged the University of Medicine and Dentistry of New Jersey into Rutgers University.

Ricci said “we’re not advocating the closure of anyone, including ourselves.”

[related]Rutgers Center for State Health Policy Director Joel Cantor said it’s timely to remember the context in which the state made its commitment to University Hospital, in the wake of 1967 riots that started over concerns over police treatment of a black cab driver.

“It was part of the commitment to make the community whole and that kind of resonates with what is going on in other cities” today, Cantor said.

Pettigrew questioned the assumption that demand for services would decline, noting that emergency department visits at Saint Michael’s have grown 10 percent to 15 percent in recent months over a similar period last year.

But Cantor said that while some of Navigant’s assumptions can be questioned, the overall direction of healthcare that’s the basis for the consulting firm’s recommendations is clear.

“There is a long-term trend toward less utilization of inpatient services nationwide and, because of changes in healthcare financing and delivery, it’s almost certain that that trend will continue and certainly not reverse,” Cantor said, adding that improved medical technology has driven demand for outpatient procedures that is also likely to continue to grow. “To not take expected trends into account when exercising what is in fact a legal obligation of the state when regulating hospital capacity would be foolish.”

“Even when every projection is going to be wrong on some level — they do a competent job of projecting” where things are headed in Newark, Cantor said of Navigant.

Saint Michael’s officials questioned the entire concept of central planning for healthcare, saying that competition will lead to lower prices and better-quality care. Ricci acknowledged that the state has a responsibility to consider local health needs under its Certificate of Need process.

Cantor noted that the state has a significant financial stake in the fate of the hospitals, including paying for the construction and renovation of hospital buildings.

Cantor added that it’s difficult to rely on free-market competition in an area in which the government bears much of the costs of the patients (through Medicare and Medicaid) and providers (through various subsidies). In most market services, customers can look up the cost of services, which can be difficult to impossible to do in healthcare.

“One can’t expect market forces to work where there’s no clear price signal and the producers of the service aren’t bearing the full price of production,” Cantor said. “Healthcare is the poster child for market failure.”

And Ettinger reiterated a point made in Saint Michael’s first report responding to the Navigant recommendations, that the closure of Saint Michael’s could cost as much as $180 million to Newark patients and employers.

Ettinger added that it’s “bad to make decisions that are based on reports that are full of errors.”

The stakes for Saint Michael’s are particularly high, since Prime Healthcare is seeking state approval to buy the hospital. The for-profit California-based hospital chain was recently approved by state Health Commissioner Mary E. O’Dowd to buy the three-hospital St. Clare’s Health System, but O’Dowd has said the state needs more information from Saint Michael’s before making a decision. Acting Attorney General John Jay Hoffman still must approve St. Clare’s sale.

Saint Michael’s workers, city residents, and local politicians have rallied to support Saint Michael’s, noting the potential loss of more than 1,000 jobs and the fact that the city has been hit with other hospital closures in recent years. Mayor Ras Baraka originally expressed concern about Prime’s plans last fall, but has since endorsed the sale.

Cantor noted that the need for nonhospital healthcare jobs in Newark would likely grow.

“Unfortunately changes like this involve a lot of tradeoffs and there will be winners and losers,” he said. “ It’s painful and unfortunate but it’s also true that if you maintain hospitals that are undercapacity and under distress, it’s very hard to achieve high-quality care. There’s no easy answer.”

Navigant suggested that all of the Newark-areas hospitals face worsening finances if there is no consolidation. If Saint Michael’s were to be sold to Prime, it’s not clear how that would affect the other Newark hospitals, Cantor said.

“It’s safe to say that if excess inpatient capacity is maintained in Newark in the long run, there will be significant weakness system in the hospital system,” he said. “Whether another hospital closes, I don’t know, but there will certainly be significant financial distress that could affect quality of care. Rightsizing the system in the long run has got to be good for the health of the system.”

Ricci addressed another contentious point — the quality of Saint Michael’s as measured by the nonprofit Leapfrog Group hospital safety scores, which gave the hospital a “D,” the lowest letter grade in the state. Ricci attributed this to the hospital being unable to provide Leapfrog with more updated information, since it has delayed upgrading its information technology to track such data. He said this delay is due to delays in the hospital’s proposed sale.

In newly released scores, Newark Beth Israel and East Orange both received a “B,” while University Hospital received a “C.”