State Approves Newark Hospital Sale to For-Profit Prime Healthcare

Last major hurdle cleared in multiyear process for acquisition of Saint Michael’s Medical Center

Credit: St. Michael's Medical Center
St. Michael's Medical Center in Newark
After a three-year review that involved scrutiny by a trio of public agencies, a for-profit California company with a growing presence in New Jersey has been granted permission to take over a bankrupt Catholic hospital in Newark.

The state’s approval of Prime Healthcare Services Inc.’s request to purchase Saint Michael’s Medical Center for $62 million drew quick praise from elected leaders in Newark who said the deal will preserve local jobs and critical healthcare options in New Jersey’s largest city. Home to more than a quarter-million residents, the city is also served by University Hospital and Newark Beth Israel Medical Center.

“We have all been waiting a long time for this moment and while there remains much to do before the transaction is completed, we have crossed the most important milestone,” said David Ricci, president and CEO of Saint Michael’s — currently a nonprofit — said in a statement.

Central Ward Councilwoman Gayle Chaneyfield Jenkins, a leader in the community’s effort to secure the sale, and Essex County Freeholder President Britnee Timberlake also lauded the state’s approval.

But the sale, something Saint Michael’s officials have pursued since 2012, had raised concerns for some public-interest groups who feared Prime’s profit-driven focus would reduce access to care over time. Renee Steinhagen, executive director of New Jersey Appleseed, a legal advocacy organization that advocated against the takeover, could not be reached for her reaction Wednesday afternoon.

With the approval of Prime Saint Michaels, as it will be called, there will now be 12 for-profit hospitals in New Jersey. It also means Prime will now own four facilities in the state: Saint Mary’s Hospital in Passaic and Saint Clare’s medical centers in Dover, Denville, and Boonton.

State approves, with conditions

Acting Health Commissioner Cathleen D. Bennett weighed in on Monday to approve the sale, noting that the transfer provides the greatest benefits to the community and patients — particularly poor and elderly patients who have long used the facility. She granted Prime Healthcare permission to operate the hospital for five years.

[related]Her OK coincided with signoff from the attorney general’s office; in early February, the State Health Planning Board recommended the deal for her approval. State regulations require the three levels of review for a for-profit hospital conversion and a state judge must still provide final sign-off.

In her approval, Bennett noted that Prime has plenty of available funding — including some $600 million in credit and loans and more than $100 million cash on hand, as of September — and the widespread community support for the transfer.

She did include 28 conditions, or specific requests for hospital leaders to work closely with residents and local leaders; protect existing staff; and make public details about their governance and corporate structure, finances, and patient revenue — despite requests from hospital officials to relax some reporting standards. Bennett declined to appoint a monitor to oversee the general operation of the facility, as some outside critics had requested.

“I agree that the proposed transfer of ownership, as opposed to closure of St. Michael’s, will preserve appropriate access to healthcare services for the community, including the medically indigent and medically underserved population,” Bennett wrote. Another factor was the two-dozen slots for a state-run addiction treatment program that could have been eliminated if the hospital closed, she said.

Saint Michael’s, established by the Franciscan Sisters of the Poor in 1867, has lost money for years. Although a member of Trinity Health, a hospital group with greater financial stability, the 357-bed Newark hospital has lost nearly $25 million annually in recent years. Last August, Saint Michael’s filed for bankruptcy and Prime emerged as the preferred bidder.

Despite the track record of losses and Prime’s longtime interest, the sale was delayed early on as the DOH called on Prime and Saint Michael’s to submit additional details about the deal. In 2014 the state hired Navigant Consulting to review hospital-use patterns and community needs in Newark. Its report, issued in early March 2015, found that there was an excess of hospital beds in the area, too much duplication of acute care services, and an unfortunate level of fragmentation of care. Navigant concluded that Saint Michael’s should be closed and the remaining facilities restructured — findings strongly dismissed by leaders at Saint Michael’s and Prime.

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