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November 10, 2015 11:00 PM

Prime Healthcare wins bid for struggling New Jersey hospital

Melanie Evans
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    St. Michael's Medical Center in Newark, N.J., has backed a bid from Prime Healthcare Services to be bought out of bankruptcy from Trinity Health.

    The 147-bed hospital's board of directors said they favored the $62.2 million bid from Prime, a for-profit hospital operator based in Ontario, Calif., over a competing bid from Prospect Medical Holdings.

    Separately, a hospital in East Orange, N.J., that's poised to be acquired by Prospect announced Wednesday that it filed for bankruptcy protection.

    St. Michael's officials will ask a bankruptcy judge on Thursday to approve the deal. The agreement—which includes $50 million for capital investment and a pledge to maintain hospital services—must also win approval from state officials in a market with growing excess capacity and significant duplication of services, according to a March New Jersey Health Care Facilities Financing Authority report.

    “Every hospital plays a pivotal role in providing the care that is needed to the members of their communities,” St. Michael's spokeswoman Cathy Toscano said. The deal must also be approved by the New Jersey Health Department and the state attorney general.

    Prime specializes in buying foundering hospitals and turning them around, often generating backlash from labor unions and communities because of its cost-cutting strategies. The company has agreed to operate the hospital under the Catholic Ethical and Religious Directives and provide similar amounts of charity care with the same eligibility rules. Prime first agreed to acquire St. Michael's from Trinity Health, one of the nation's largest Catholic health systems, in 2013.

    Prime raised the price of its original $49.2 million bid by $13 million, which the St. Michael's Medical Center boards said in a statement was the result of a “competitive auction.”

    Efforts to reach Prospect Medical Holdings officials were unsuccessful at deadline. The Prospect bid was $63 million, NJBIZ reported.

    Toscano said the hospital faced a breakup fee with Prime and other costs that put Prime's bid ahead of Prospect's offer.

    Separately, East Orange (N.J.) General Hospital filed for Chapter 11 bankruptcy protection, hospital officials announced on Wednesday. Prospect Medical Holdings previously won necessary approval to acquire the struggling hospital. To close the deal, the hospital is seeking bankruptcy to “renegotiate some contracts and emerge stronger,” said Martin Bieber, East Orange General's interim CEO.

    “The organization's liquid resources have been depleted to a point that it is unable to complete the transaction without having the ability to financially restructure its operations,” Bieber said.

    East Orange General could run out of cash as early as December, the hospital said in court filings. The lack of capital to operate and invest in the hospital has limited the volume of patients it can see. "The lack of simple equipment (including a sufficient number of beds and gurneys) as well as limitations in the current information technology environment, other related technology, as well as critical staff vacancies prevents the Hospital from servicing additional volume at this time," the court records said.

    Prospect officials said they remain interested in acquiring East Orange. “We believe Prospect is the best solution for EOGH in this rapidly changing healthcare environment, and we look forward to successfully concluding the transaction and becoming part of the East Orange community," officials said in a written statement.

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