St. Peter's Healthcare System seeks strategic partnership

St. Peter's Healthcare System is looking to partner up rather than go it alone in New Jersey's tightly consolidated healthcare market.

The New Brunswick-based health system's own interim CEO hinted at the move in an interview with Modern Healthcare in January, in which he lamented that it has become increasingly difficult to get by while staying independent in Middlesex County, where the health system is located.

"We are probably one of the most competitive markets in the state," interim CEO Leslie Hirsch said.

St. Peter's—which owns the 111-year-old, 478-bed acute care teaching hospital, St. Peter's University Hospital—is the last independently opened and operated health system in Middlesex County. The county's nine other hospitals are affiliated with Hackensack Meridian Health, RWJBarnabas Health or Penn Medicine.

The health system announced this week it will issue a request for proposals for potential strategic partnerships or affiliations. The announcement follows a year of extensive strategic review by its board of governors and senior leadership in collaboration with the local bishop.

"We have an obligation to be good stewards in planning for Saint Peter's future," Hirsch said in a statement. "Through the RFP process, we will evaluate possible options, with a focus on finding a strategic partner or affiliate that would allow Saint Peter's to retain its Catholic mission and identity, remain competitive in the changing healthcare environment, and yield the best possible outcome for its patients, employees, medical staff and the communities we serve."

The health system was on strong financial footing during the first six months of 2018, in which it reported net income of $4.2 million during the first six months of the year, compared with a net loss of $10.8 million during the same period in 2017. Hirsch wrote in an email that it's better to plan for the future when an organization is faring well financially, noting that St. Peter's has a 2.8% operating margin.

"Saint Peter's is in an excellent position at this time to plan for its future and consider potential alternatives to independence," he said. "We certainly don't have a great sense of urgency about this."

Healthcare leaders in the state will be watching closely to determine what effect a potential partnership would have on care. Linda Schwimmer, CEO of the New Jersey Health Care Quality Institute, noted in an email that St. Peter's flagship St. Peter's University Hospital is an important community hospital in a densely populated part of the state. The hospital provides the third highest volume of obstetrics admissions in the state, with roughly 5,700 such admissions per year, she said.

"It's important that consumer access, quality and the impact on prices be considered as any proposal moves forward," Schwimmer said.

As a Catholic health system, St. Peter's will have to jump through a few more hoops than its non-Catholic peers before it can close on a potential deal. Indeed, before announcing that it is looking for suitors, the health system notified its local bishop, Rev. James Checchio, the bishop of the Roman Catholic Diocese of Metuchen.

If St. Peter's were to identify a suitor, Checchio would perform an ethical due diligence analysis to determine whether the potential partner's values are compatible, said Rev. Charles Bouchard, the Catholic Health Association's senior director of sponsorship and theology.

Bishops tend to study whether the deal would enhance the quality of care, whether the potential partner may be incompatible with the church's values, whether it has unjust employment policies, whether it is perceived negatively and whether it perform procedures or services the church considers immoral. Catholic healthcare providers must abide by a document called the Ethical and Religious Directives for Catholic Health Care Services, which forbids most providers from performing post-partum tubal ligations and contraception, for example.

Bishops ultimately want to see partnerships that promote efficiency, lead to a wider array of services for patients and create a network that will move population health forward, Bouchard said.

"I think every health system today is looking at this," he said. "Everybody's trying to do things better and cheaper."

If St. Peter's tries to partner with a non-Catholic or for-profit provider, it would raise additional questions for the bishop, who might ultimately apply certain conditions to the approval, Bouchard said.

"When you're merging a mission-driven organization and an investor owned one, there's clearly the potential for conflicts there," he said.

Sixteen-hospital Hackensack Meridian Health, also based in Middlesex County, announced in August it plans to merge with behavioral health provider Carrier Clinic to create what would be the state's largest inpatient psychiatric care provider. Hackensack Meridian officially became a 16-hospital system in January, when it cemented its merger with JFK Health. The new system also has a network of 160 ambulatory facilities. Both Hackensack Meridian and JFK are headquartered in Edison, which is in Middlesex County.

RWJBarnabas Health, which runs two of the other hospitals in Middlesex County, finalized a public-private partnership with Rutgers University in July to create the state's largest academic health system. Rutgers currently operates a behavioral health hospital in the county.

Outside of Middlesex County, Marlton, N.J.-based Virtua Health announced in June it plans to acquire two New Jersey hospitals from a Trinity Health subsidiary. Neither of those hospitals nor its three existing hospitals are located in Middlesex County.

Correction: An earlier version of this story misstated St. Peter's finances. This error has been corrected.