State certificate-of-need applications have always been cumbersome, expensive and time-consuming-the first big headache in any hospital-construction project. Yet that typically tortuous procedure was a cakewalk compared with the interminable hurdles faced by one New Jersey hospital whose opening two weeks ago took place 17 years after its certificate of need was first approved by state regulators.
The CON application process itself is ancient history for 366-bed Jersey City Medical Center, which will stand forever as a symbol of pluck and perseverance in the wake of an unending string of financial, legal, regulatory, political and technical snafus that nearly swallowed a project initially proposed while Ronald Reagan was serving his first term as president.
For leaders of the newest hospital in the second-biggest city in New Jersey, the $220 million facility is also a symbol of boundless faith and firm resolve.
"It's a miracle-an absolute miracle," says Jonathan Metsch, president and chief executive officer of the hospital's owner, Jersey City-based Liberty HealthCare System, which opened the facility to its first patients on May 16, nearly two decades after the hospital's board of trustees initially approved plans to build a new facility in the spring of 1985. "At one point, it became such a numbing experience that you wondered if you'd ever actually get it done. It was an exhausting experience. In the end, when I went into the new building and saw the view-a view of the Statue of Liberty-it was the most thrilling experience of my professional life."
The prolonged process could serve as a textbook study of the perils and pitfalls of a major hospital construction project. Of course, few hospitals involved in the nation's current healthcare building boom have experienced the myriad minefields that delayed-but ultimately could not deter-Metsch and his colleagues.
"I knew it would take a long time to get this hospital built," says the Rev. Jim Reilly, a Catholic priest who has served on the hospital board since 1985 and is now chairman of Liberty's board of trustees. "But almost 20 years? I never dreamed it would take this much time."
It all began in 1983, when hospital officials first began considering plans to replace the existing Jersey City Medical Center, a bankrupt and outdated facility that was dedicated by President Franklin Roosevelt in October 1936 and evolved into the state's first academic medical center two decades later. Officials needed about two years to complete plans for the seven-story, 366,000-square-foot hospital and its adjacent 43,000-square-foot ambulatory-care center. It took two more years before the state's planning board finally gave its blessing in May 1987.
One year later, the medical center underwent a controversial conversion from a public hospital to a not-for-profit, emerged from a two-year-long bankruptcy and pushed ahead with plans for a new facility several blocks north of its 10-acre campus. The conversion, which stirred local passions on both sides and took about three years to complete, was approved by a single vote of the City Council. Then came the hard part.
"We faced a series of, well ... overlapping impediments," Metsch says in classic understatement.
Looking for a home
Metsch, hired in 1989 as the not-for-profit hospital's president, grappled for several years with the initial hurdle: where to build the new hospital, a state-designated Level II trauma center that is affiliated with Mount Sinai Medical Center in New York.
That dilemma, which began even before Metsch arrived, continued well into the early 1990s as officials considered as many as 20 sites within a 10-mile radius of the old campus, coming up empty as a result of issues involving everything from environmental concerns to access problems. Finally, in 1995, the state was forced to step in and begin condemnation proceedings through an economic development authority to carve out a 14-acre site contiguous to Liberty State Park, just a half-mile from the old medical center and a short walk from the Hudson River.
That site, ironically, was the original choice of hospital planners years earlier. Local politics in heavily Democratic Hudson County also played a role as hospital officials struggled with a search that ultimately would take nearly a decade to wind up right where it began.
"The site was a great difficulty," Reilly says. "Public officials in Jersey City have their own thoughts as to how-and where-the community can be best served. Each (mayoral) administration had its own thoughts about that. They were all very cooperative. They just had different visions."
At the same time hospital officials were exploring potential sites, they were facing perhaps their most daunting challenge: the quest for funding.
Done in by deregulation
In 1993, the state deregulated healthcare rate-setting, moving to a system in which hospitals negotiated their own rates with many payers. That left some facilities, particularly safety nets such as the Jersey City Medical Center, struggling to find ways to underwrite everything from capital construction to graduate medical education. Although state funding under the old guidelines included allocations for capital spending, that extra funding disappeared after deregulation, Metsch says.
"That instantaneously, abruptly, ended our access to capital," Metsch adds.
In the mid-1990s, with the advent of a Medicaid managed-care plan, the odds grew even longer that the new hospital would ever be built. The retooled state-federal healthcare funding plan led to a reduction of inpatient reimbursement rates by about 20% on just one month's notice in 1996, Metsch says, costing Jersey City Medical Center almost $10 million a year and sinking the facility into the red for a three-year period that ended in 1999.
After losing as much as $9 million in 1997 and shedding about 500 jobs, the hospital has turned a modest profit in each of the last three years, posting about $577,000 in net income on revenue of $203 million in 2003, Metsch says. Depending on issues like the wage index and the level of Medicaid HMO payments for emergency room visits, he says he hopes to "break even or do a little better than break even" in 2004.
As Jersey City struggled financially through the mid- to late-1990s, state policymakers devised a formula that was aimed at providing safety net hospitals with approximately the same level of Medicaid funding for capital construction that they would have received under the old system. Under this initiative, Metsch says, Jersey City Medical Center will begin receiving an additional "several millions of dollars each year" in Medicaid funding-an infusion of cash that allowed officials to move forward with the federal insurance necessary for the New Jersey Health Care Facilities Financing Authority to sell about $190 million in tax-exempt bonds.
Jersey City's mortgage commitment from the Federal Housing Administration wasn't secured until 2001. The bond sale and closing took place that same year, finally allowing construction to begin on the long-delayed project.
Under the new state funding, Metsch says, Medicaid will pay its proportionate share of servicing about $190 million in tax-exempt bonds through a $250 capital add-on per day for each Medicaid or charity-care admission to the new hospital. He says officials must now negotiate that same add-on with other payers. "(The new Medicaid regulation) became the critical element in the feasibility study," Metsch says. "It allowed us to go to the FHA and HUD and get insurance on the project."
The medical center's financial picture also became a lot brighter when it received a retro-active, lump-sum payment of about $6 million in disproportionate-share funding in 2000. At about the same time, the city finally came through on its pledge to provide Jersey City with a $12 million payment as part of the conversion agreement that took place almost a dozen years earlier.
Yet for star-crossed Jersey City Medical Center, even the FHA process had its pitfalls. The medical center was supposed to receive its FHA commitment during the latter stages of the Clinton administration. Even given the hospital's location in a Democratic stronghold, Metsch was unable to secure the insurance, forcing him to essentially start over with the Bush administration. The final approval was secured with the help of Rep. Robert Menendez, the powerful chairman of the Democratic Caucus in Congress, who made a personal appeal to Mel Martinez, secretary of the federal Housing and Urban Development Department, Metsch says.
"Secretary Martinez called up Menendez and asked him to come over to the Capitol to talk about Cuba, which was very important to him," Metsch recalls. "Menendez told him, `Let's talk about Cuba after we talk about this new hospital.' It took five minutes (to secure the FHA commitment). That was the key."
More than a few dollars short
When the FHA conducted its feasibility studies, it capped the project at about $200 million-or at least $15 million to $20 million less than hospital officials expected the hospital to cost. Even so, Metsch took the money, betting that he would ultimately pry the extra funding from other sources. A more conservative administrator might have balked, holding off until more favorable loans in keeping with the project's total cost could be negotiated.
Metsch, tired of delays, decided to move forward, closing the deal in August 2001.
One month later, terrorists struck across the Hudson River. About 175 victims were treated at Jersey City Medical Center, whose staff was one of the lead responders to the tragedy, treating and triaging thousands of people at the waterfront, Metsch says.
"If we hadn't taken the money then, we probably wouldn't have a new hospital because of the dramatic change in priorities (after Sept. 11)," Metsch says.
As he feared, Metsch found himself almost $20 million short at a time when construction was just about winding down in the summer of 2003. The hospital collected $16 million in a second round of FHA financing, and then received $5 million-the final piece of this long, complicated puzzle-from New Jersey's Democratic Gov. James McGreevey, who, it just so happens, was born at the old Jersey City Medical Center 46 summers before he provided the cash necessary to complete its gleaming new home.
"It's been an amazing process," Metsch says. "I think there was a certain destiny, a certain inevitability to getting this job done. This whole series of events would have forced most hospital boards to give up. But not this one. I guess we don't do things easy here in New Jersey."