After having made several recent hospital acquisitions in neighboring Pennsylvania, rural hospital chain Community Health Systems is moving into New Jersey, Modern Healthcare has learned.
New Jersey has no for-profit acute-care hospitals and has traditionally been considered hostile to the concept. If successful, the CHS acquisition may open up parts of the Northeast-historically against for-profit healthcare-to deals involving investor-owned companies.
CHS, a for-profit chain based in Brentwood, Tenn., has signed a letter of intent to purchase 108-bed Memorial Hospital of Salem County, in Salem, N.J. Denise Williams, president and chief executive officer of the hospital, could not be reached for comment, and a hospital spokesman did not return calls.
Officials at CHS would not comment on the pending deal. Sources close to the negotiations said the company is expected to conclude its due diligence on the facility by the end of the month, although the deal is not expected to close until early next year.
New Jersey has 81 acute-care hospitals, all not-for-profits, and the state's regulatory environment and tradition may render the acquisition process more lengthy and cumbersome than most for CHS.
"The hospital environment in New Jersey has been traditionally not-for-profit, and as a result of tight rate and planning regulations that were in place until 1992, it hasn't been a very attractive environment for investor-owned hospitals," said Ron Czajkowski, vice president for the New Jersey Hospital Association.
After the state-mandated rate regulation ended, several investor-owned companies looked into New Jersey as a potential marketplace, Czajkowski said.
"None of them did anything, so that tells you something right there," he said. "Historically it has not been a friendly state for investor-owned hospitals because of the volatile nature of the hospitals' financial status and the burdens of state regulation." The state still is tightly regulated for planning, with strong certificate-of-need laws, he said.
The Salem hospital is in a relatively rural area of southern New Jersey, close to the borders with Pennsylvania and Delaware, and is the only hospital in its community, which fits CHS' typical niche. The hospital is operated by a not-for-profit corporation called South Jersey Health Corp. In 2000, the hospital lost $200,000 on revenue of $45.6 million, according to the New Jersey Health Care Facilities Financing Authority.
Late last month, the hospital's former president and CEO, Joseph Michael Galvin Jr., was sentenced to five months of jail, five months of house arrest and a $5,000 fine for tax evasion, after confessing he failed to report and pay taxes on $310,000 in personal expenses drawn from hospital funds between 1992 and 1995.
Also last week, CHS announced it completed its $36.7 million purchase of 369-bed Easton (Pa.) Hospital, 55 miles north of Philadelphia. CHS also has agreed to spend another $42 million at the Pennsylvania hospital. The hospital is the chain's fourth in Pennsylvania. The company owns 55 hospitals nationwide.