How Will Sale of Saint Michael’s Transform Healthcare in Newark?

Source: NJ Spotlight
Gov. Chris Christie’s administration has put off for nearly three years deciding what it should do about the future of healthcare in Newark. But the scheduled sale of the bankrupt Saint Michael’s Medical Center, one of five Newark hospitals, should force a decision.rm. But if were to decide to take over the facility, it could realize a greater payback over a longer period.
For nearly three years, California-based for-profit hospital chain Prime Healthcare has sought to buy Saint Michael’s for $49 million. Saint Michael’s executives tried to force the state’s hand and push through the sale to Prime by pursuing Chapter 11 bankruptcy. The deadline to submit bids to buy the hospital is November 3. If there’s more than one bid, there will be an auction, scheduled for November 5, with the bidding opening at Prime’s offer of $49 million. The hospital board would then meet to choose what best offer and notify U.S. Bankruptcy Court Judge Vincent F. Papalia of its decision. But the state could pursue ownership of the hospital and ask another hospital chain to operate it.
The outcome is important for the financing authority. If the hospital were to be sold, then the authority would be able to use the money to pay off a portion of the remaining $233 million in debt – or $49 million if Prime wins. But the benefits of this cash infusion would be short-lived. If Prime wins with its current offer, the bond payments would be roughly $16.75 million annually beginning in roughly three years, until the approximately $184 million to $190 million remaining is paid off in 2039.
Consider this: If no changes are made to Newark hospitals, their annual operating losses are projected to reach to $191 million by 2019, according to a report from Chicago-based Navigant Consulting that was commissioned by the financing authority.
But Navigant recommended an alternative scenario, in which Saint Michael’s, Newark Beth Israel Medical Center, and East Orange General Hospital are converted into outpatient facilities — essentially closing as full-service, acute-care hospitals. In-patient services would be consolidated in an expanded University Hospital. This would translate into a $64 million profit in 2019.
The state could pave the way for such a scenario by taking control of Saint Michael’s, according to Steinhagen. Once it did so, it could issue a request for proposals to lease the facility to another hospital operator, such as one of the several nonprofit systems that operate in North Jersey.
“The bill comes due after he’s out of office — but from the taxpayers’ perspective, the taxpayer is still bearing the brunt,” said Steinhagen, who said she intends to convey her concerns to the administration.
Saint Michael’s executives reject Navigant’s findings. They say that maintaining hospital competition actually keeps costs down and ensures more services than if a regional giant like Barnabas Health were operating nearly all Newark hospitals.
They also question the projections that Navigant made that went into the report, saying that it assumes steep declines in the need for inpatient beds that haven’t yet materialized.

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