Cooper University Health Care has dropped plans to buy three Trinity Health hospitals in New Jersey, citing compliance, legal, regulatory and operational reasons.
The health system has refused to elaborate on the issues that soured the proposed sale, with Coopers spokeswoman Wendy Marino saying, "It was multiple things."
The proposed sale, announced in August, would have made Cooper the fourth-largest provider in New Jersey, with combined annual revenue of nearly $2 billion and more than 12,000 employees. Cooper officials spent thousands of hours and millions of dollars reviewing the transaction, CEO Adrienne Kirby wrote in a statement Tuesday.
"Based upon this review, unfortunately, we will not be able to consummate the contemplated transaction," she said. "We are all disappointed, but did not make this decision lightly."
Cooper terminated the letter of intent to pursue the transaction it signed with Maxis Health, a division within Trinity that owns Lourdes Health System and St. Francis Medical Center.
There had been some speculation that the deal could face pushback from regulators due to competition concerns, but that doesn't appear to have been the case.
New Jersey law requires not-for-profit hospitals to get merger or acquisition approval from the attorney general, health commissioner and state Superior Court.
Leland Moore, a spokesman for the New Jersey attorney general's office, said his office effectively never started its analysis on the proposed deal. It sent the systems its customary letter explaining the legal requirements and listing 51 required pieces of information, but did not hear back.
Similarly, the Federal Trade Commission did not file a complaint in connection with the merger, spokeswoman Betsy Lordan confirmed.
While neither system will say what happened, it's clear that Cooper ran into a deal-breaker below the surface, perhaps regarding the financial situation of one of the hospitals, said Kathy Hempstead, a senior adviser with the Robert Wood Johnson Foundation.
"It's kind of analogous to when you make an offer on a house before you get the results of the inspection and then you realize, 'Oh, there's an oil tank in the basement,' " she said. "That's kind of the way it reads."
Our Lady of Lourdes Medical Center, one of the Lourdes hospitals, ended its fiscal 2015 with an excess of revenue less expenses of nearly $26 million and net assets of $234 million. Lourdes Medical Center of Burlington, the other Lourdes hospital, ended its fiscal 2015 with a negative fund balance of nearly $39 million.
St. Francis Medical Center's fiscal 2015 operating revenue was $465 million, up $27 million from the previous year. The Trenton hospital's 2015 excess of revenue over expenses—$44.5 million—was down $49 million from the previous year.
For Trinity, the announcement means it's back to the drawing board in its search for a buyer. In a joint statement, Dr. Reginald Blaber, president of Lourdes Health System, and Dave Ricci, interim president of St. Francis Medical Center, said they were disappointed the systems couldn't reach an agreement.
"We wish Cooper all the best and look forward to serving New Jersey together with them for a long time," they wrote.
New Jersey has seen a flurry of mergers in recent years. In July, RWJBarnabas Health, which has 11 acute-care hospitals, announced it planned to merge with Rutgers University to create the state's largest academic healthcare system. Months earlier, not-for-profit health systems Hackensack Meridian Health and JFK Health signed an agreement to merge.
Cooper's announcement shows it undertook an exhaustive due diligence process, which includes studying both systems' strategic visions and financial and nonfinancial goals, said Rick Gundling, senior vice president for the Healthcare Financial Management Association. It also offers a chance to look for cultural differences that could cause problems if the deal were to move forward.
"When we looked at a lot of mergers that had—quote, unquote—been successful, a lot of times it was the effect of a very effective due diligence process—to look under the hood, so to speak," Gundling said.
The most common reason a merger doesn't go through is simply cultural differences on decisionmaking styles and clinical leadership, he said.
"It sounded like a business decision," he said.
