Saint Michael’s Medical Seeks Four-Month Delay in Liquidation Plan

Andrew Kitchenman | November 4, 2015 | Health Care
Situation remains unsettled as different potential bidders would lead to divergent futures for Newark healthcare

St. Michael's Medical Center in Newark
The plan to liquidate Saint Michael’s Medical Center in Newark could be delayed as long as four months as the hospital has made a last-minute request for an extension.

The outcome of the hospital’s bankruptcy sale — which will follow an auction scheduled for tomorrow — could determine whether Saint Michael’s coordinates its services with those of nearby hospitals or remains the last source of hospital competition in the city.

Saint Michael’s bankruptcy attorney Michael Sirota said the sale is going forward as planned and that the liquidation plan would disperse the hospital’s remaining funds after the sale. Hospital executives need more time to craft a plan that would be supported by the hospital’s creditors, according to a filing submitted to U.S. Bankruptcy Court Judge Vincent F. Papalia.

While California-based for-profit chain Prime Healthcare has pursued the hospital for nearly three years, it may face other potential bidders, including regional giant Barnabas Health or another California for-profit chain, Prospect Medical Holdings. In addition, some advocates have called for the state to take control of Saint Michael’s.

Prime has gained support from the hospital’s unions, city officials, and some community leaders with a pledge to keep Saint Michael’s 1,400 jobs. Advocates for Prime also have argued that the city benefits from hospital competition in maintaining services and keeping hospital prices low.

However, critics of a sale to Prime have said that they want all Newark hospitals to coordinate care, which they said would be more difficult if they’re competing.

Bidders still undetermined

If Barnabas doesn’t pursue a bid – a possibility raised by observers of the situation – then Prospect may emerge as a bidder that would coordinate care with University Hospital, which is owned by the state and operates under a management partnership with Barnabas. While bids for Saint Michael’s were due yesterday, it wasn’t clear last night which hospital operators had submitted bids.

Prospect has been moving toward the purchase of East Orange General Hospital, indicating an openness to work with the state on coordinating care at East Orange. This openness helped pave the way for the state Department of Health and Office of the Attorney General to support the sale. A Superior Court judge last week cleared the way for the East Orange sale to Prospect.

Officials with JNESO, the union representing Saint Michael’s nurses and other workers, have supported the sale to Prime. JNESO Executive Director Doug Placa said yesterday that he isn’t in a position to comment on a potential bid from Prospect. He emphasized his stance that Saint Michael’s must remain open as a full-service, acute-care hospital.

“The community needs it. Newark needs it,” Placa said.

A state-commissioned report in March by Chicago-based Navigant Consulting recommended that Saint Michael’s, East Orange General Hospital, and Newark Beth Israel be converted to outpatient centers and no longer serve as acute-care hospitals. Instead, Navigant suggested that University Hospital be expanded to serve as the city’s primary acute-care facility, coordinating care with the outpatient facilities.

Saint Michael’s officials have criticized the Navigant analysis and say that the city can sustain more than one full-service hospital.

Under previous deadlines set by Papalia, Saint Michael’s owners had until December 8 to file a plan for a sale and until April 6, 2016, to reach an agreement with creditors on the plan.

‘Tangible progress’ reported

In yesterday’s court filing, Saint Michael’s lawyers said the hospital has made “tangible progress” toward selling the hospital’s assets, but needs more time.

A 120-day extension for the hospital owners to meet the deadlines is “necessary and appropriate to allow them to complete their sale efforts, gain regulatory approval of the sale from the State of New Jersey, negotiate with other key constituents and develop and seek confirmation of a plan of liquidation,” lawyers Michael D. Sirota and Ryan T. Jareck wrote in the filing.

Before Saint Michael’s declared bankruptcy in August, state Department of Health officials had been reviewing the proposed sale to Prime since it was announced in December 2012. The department has the power to approve transfers in hospital ownership under the certificate of need process. The state attorney general’s office also must weigh in on any sales that lead to nonprofit hospitals like Saint Michael’s converting to for-profit status.

Some healthcare advocates still want to see the state emerge as Saint Michael’s owner. The state is on the hook for some $233 million in tax-exempt hospital bonds issued for the hospital. Under Prime’s $49 million bid, the state would still have to pay off roughly $184 million in bonds.

State takeover best for taxpayers ?

However, the state could essentially take control of the hospital, since the Saint Michael’s building is essentially the collateral on the debt, and ask another hospital system to operate the facility. It could then use the revenue to pay off a portion of the outstanding bonds. Compared with a sale, the state would receive less upfront from such a move, but it could potentially receive more money in the long run.

Renee Steinhagen, a lawyer and the executive director of New Jersey Appleseed Public Interest Law Center, has been the most vocal proponent of such a move.

“It is unconscionable that the state taxpayers would be unprotected by the state and allowed to bear such a heavy tax burden without receiving any benefits,” Steinhagen said. “It is equally inconceivable that the state would be willing to socialize the losses while permitting a for-profit entity to pocket profits to the possible and likely detriment of University Hospital and the residents of Newark.”

Editor’s note: This story was revised after it was first published.