St. Michael's Medical Center in Newark, N.J., hopes that its bankruptcy filing this week will ease the way for a sale to Prime Healthcare Services.
The Trinity Health-owned hospital entered into a deal with Prime in February 2013 and has been waiting ever since for state approval for the takeover. The sale has been highly contentious as critics of the deal, including insurers and some state political leaders, fear that Prime's entry into the market could raise rates and lead to service cutbacks.
St. Michael's, which employees 1,400 people, has sufficient funds to continue normal operations after Monday's Chapter 11 filing, the 147-bed hospital said in a news release. It argues that its closure would mean less competition in Newark and lead to higher prices as its competitors already command higher rates.
“We are asking for the Department of Health and the Attorney General to act expeditiously to allow the sale of Saint Michael's to Prime Healthcare, so that Saint Michael's, under the ownership of Prime, can emerge as a financially viable, strong institution, maintain jobs and continue to ensure healthcare choice for those we serve,” St. Michael's CEO David Ricci said in a statement.
The two parties recently amended their asset purchase agreement so that Prime is the “stalking horse” bidder—which means it sets the floor for all other competing bids that may emerge.
Prime has agreed to pay about $49.2 million for the hospital, adjusted for certain balance sheet metrics, and invest $25 million in capital improvements over the next five years.
Trinity's financial statements already classify St. Michael's under discontinued operations and the bankruptcy filing is not material to its balance sheet, the system said in a disclosure to bondholders.
Its most recent annual report did not break out operating results for St. Michael's.
Despite the pushback, Prime has already managed to seal two deals in New Jersey. It completed its acquisition of St. Mary's Hospital in Passaic in August 2014, and this summer secured court approval for its acquisition of St. Clare's Health System in Denville from Catholic Health Initiatives.
The New Jersey Association of Health Plans has been critical of for-profit chains that have severed contracts with insurers as part of their takeover of local hospitals. “There's a concern that Prime will follow that path,” said Ward Sanders, the group's president, in an interview last year. “There's a suspicion in the payer community that this is about billing.”
In New Jersey, strong consumer protections prevent health plans from balance billing, or passing along the higher charges when patients go out of network for medically-necessary care. “There's no leverage in this context,” Sanders said. “There's no limitation on what (hospitals) can charge. At least in New Jersey, a number of investors have been attracted to this.”
But hospital chains, including Prime, have argued that it is the insurers that often have the upper hand with struggling hospitals, forcing them to accept rates that are below even Medicare payments.
“The argument from hospitals is that (insurers) are being abusive,” said Joel Cantor, director of the Center for State Health Policy at Rutgers University. Canceling contracts is a “bargaining tool to get the insurers to come to the table to get better rates.”