Hospital de-mergers are complex enough affairs, but a divorce from a Roman Catholic-sponsored system can be an especially difficult experience, an Episcopalian hospital in New Jersey has learned.
After two years of litigation, 402-bed Christ Hospital in Jersey City, N.J., last week took a significant step in its hard-fought battle to disengage itself from Bon Secours Health System and 401-bed St. Mary Hospital in Hoboken, N.J. In a lawsuit filed in early 2002, Christ Hospital charged that from the start of the courtship, Bon Secours had defrauded it by withholding key financial information that would have painted a picture much worse than had been represented.
The settlement reached last week in the midst of a weeklong battle in Jersey City Superior Court will allow the partnership to dissolve provided that a court-appointed expert determines that Christ Hospital and its parent, Canterbury Health System, can remain viable as a standalone hospital. If not, Canterbury and Bon Secours will return to court and resume the trial. The settlement agreement also will require the approval of a judge and state health officials.
Three years ago Bon Secours merged its two-hospital regional system with Canterbury Health System, which owned Christ Hospital. The joint venture was called Bon Secours & Canterbury Partnership for Care and became operational on March 2, 2001. One month later, officials announced plans to lay off more than one-third of the staff at the former 161-bed St. Francis Hospital in Jersey City in a move to shut down acute-care services there. St. Francis was subsequently converted into a long-term-care facility.
About the same time, barely a month into the marriage, a new chief financial officer at the joint venture discovered "that there were significant problems with the finances," said Robert Goodman, a lawyer with Greenbaum, Rowe, Smith, Ravin, Davis & Himmel in Woodbridge, N.J., who represented Christ Hospital. Bon Secours failed to provide "accurate information regarding accounts receivable and profitability," he said. Canterbury officials learned of a report done at the request of Bon Secours on the state of the receivables at its two New Jersey hospitals in the summer of 2000. The report concluded that the accounts receivable had been overvalued by millions of dollars, Goodman said. That report was never shared with Canterbury during the due diligence period before the merger.
"There were numerous collectibility issues with regard to the receivables on the books because of general endemic problems in the accounting offices at the two hospitals," Goodman said.
As soon as Canterbury became aware of the problems, it tried to persuade Bon Secours to voluntarily unwind the merger, Goodman said. Frustrated on that end, Canterbury eventually initiated the litigation, he said.
Canterbury "strongly believes" the expert will find no problems, Goodman said. "The Christ Hospital side of things was significantly profitable for 2003. It's my understanding the other side of the business was not profitable, but I don't have those numbers," he said. Christ Hospital earned $23.1 million on $168 million in revenue in 2002, the most recent year for which data were available according to GuideStar, a database of financial information for not-for-profit hospitals.
Officials at Bon Secours did not respond to numerous requests for an interview.
Bon Secours and Canterbury Partnership for Care officials would not comment beyond a news release approved by the judge, said Michael Sniffen, interim president and chief executive officer of the two-hospital system. He said it was premature to speculate about who would lead the hospitals once the merger unwinds.
Goodman said it could be several months before "Canterbury gets its hospital back."