One of the nation's prominent rehabilitation providers abruptly converted to a for-profit corporation just days before the New Jersey Legislature passed legislation that would require any not-for-profit that converts to for-profit status to maintain at least the same level of charity care.
Kenneth Aitchison, president of West Orange, N.J.-based Kessler Rehabilitation Corp., said the conversion grew out of the need for access to capital to expand Kessler nationally, not fear of the new law.
"For me, I've been wrestling with the issue for the better part of three years, but the board addressed it and completed its conclusions in April 1996," he said.
Kessler received Superior Court approval to consummate the conversion in November but waited until January to announce the deal.
Meanwhile, a state bill on hospital conversions that was introduced in September 1996 began picking up steam late last year. The measure unanimously passed both houses of the state Legislature this month and awaits the governor's signature.
The bill would require converted not-for-profit hospitals to maintain at least the same level of charity care. It also would require public hearings on such conversions and the creation of a foundation for the hospitals' assets.
But state policywatchers said Gov. Christine Todd Whitman is likely to veto the measure and propose her own version of the bill.
The former not-for-profit system operates a 284-bed inpatient rehabilitation hospital, two nursing homes, a durable medical equipment company and an assisted-living firm.
Under the conversion, which took effect Jan. 1, a new for-profit holding company operates the system's facilities. The system's assets, estimated at about $150 million, are controlled by a new not-for-profit corporation. And the foundation controls 100% of the holding company's stock.
Kessler's public announcement of the completion of the conversion caught New Jersey officials and consumers off guard. That's because there's no state requirement for public hearings on conversions.
"We never tried to keep it a secret or make it a secret," said Aitchison, adding that he doubts the value of a public hearing. "The naysayers to for-profits . . . essentially say you can't mix the two (structures). But we're driven by an environment that's driven by cost."
Said Anthony Wright, program director for New Jersey Citizen Action: "A lot of people didn't know that this deal was taking place. Key legislators didn't know."
Citizen Action, a consumer group that has criticized not-for-profit hospital conversions nationwide, cited several concerns about the deal's structure and is seeking clarification from the state attorney general's office, which approved the conversion last April.
Citizen Action worries that the legal structure of the new Kessler system links its for-profit and not-for-profit arms too closely.
"There may be overlap on the board," said Kessler's outside attorney, Jeffrey Becker. "But I don't think that should be of concern."