Healthcare Business News
Michigan Attorney General Bill Schuette

Prime Healthcare enters Michigan, looks to Jersey next

By Bob Herman
Posted: July 3, 2014 - 1:45 pm ET

Prime Healthcare Services has closed on its acquisition of Garden City (Mich.) Hospital, its first facility in Michigan.

The deal marks another step eastward for the Ontario, Calif.-based for-profit hospital operator. Several hospitals in New Jersey are on the brink of joining Prime as well.

“There was always the intention of expanding nationally,” Prime spokesman Edward Barrera said. “It's just where the best opportunities come.”

A majority of Prime's hospitals are based in California and Texas, but the system has gradually expanded east of the Mississippi River. Five hospitals in New Jersey—three within St. Clare's Health System in Denville, St. Michael's Medical Center in Newark and St. Mary's Hospital in Passaic—are expected to become part of Prime by the end of the year. Barrera said the St. Mary's deal is likely to be complete by the beginning of August.

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In the Garden City transaction, Prime paid $48.8 million for the 167-bed hospital's assets and liabilities. Prime also agreed to invest $35 million over the next five years in capital improvements and maintain Garden City Hospital as an acute-care facility for at least five years. Garden City Hospital is now a for-profit entity.

However, the sale did not create a not-for-profit foundation. Michigan Attorney General Bill Schuette said in his final report (PDF) that Prime was paying fair market value for the hospital, and all proceeds from the sale were going to cover the hospital's debt. He called this a “fair result.”

“With past hospital transactions, cash proceeds were used to satisfy the hospital's liabilities; anything left then went to a local foundation,” Schuette wrote. “With Garden City, the cash generated from the sale will go to payoff the hospital's sizable bond debt; after the debt is paid, there will be nothing left.”

Garden City Hospital has been actively looking to sell for the past decade. In June 2013, the hospital's board considered filing for bankruptcy or making draconian cuts after two of three bidders bowed out. Prime was the sole remaining buyer, but officials thought Prime's price was too low. The board eventually persuaded Prime to raise its bid.

Barrera said Prime and its not-for-profit foundation now own and operate 27 hospitals. The system has been involved in several controversies. Most recently, last month, California state legislators asked Truven Health Analytics to strip award designations from two Prime hospitals because of sanctions from the state health department. In response, Prime said it was “proud of the clinical and operational excellence” at the hospitals in question.

Follow Bob Herman on Twitter: @MHbherman

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