For some officials in Bayonne, the recent announcement by the Hoboken Municipal Hospital Authority Chairwoman Toni Tomarazzo that a private entity affiliated with Bayonne Medical Center is the final bidder in the process to purchase Hoboken University Medical Center is a bit of déjà vu.
“To tell you, I was a little alarmed when I heard it,” said former Councilman Gary La Pelusa, who was instrumental in providing city funds to help in the rescue of Bayonne Medical Center three years ago.
The Hoboken Municipal Hospital Authority, according to a member of the BMC transition team, entered into a non-binding agreement with HUMC Holdco LLC, one of the principal owners of BMC, late last week, beginning the process that could result in the purchase of the ailing Hoboken hospital, making it into a for-profit hospital modeled after BMC.
“To tell you, I was a little alarmed when I heard it.” – Councilman Gary La Pelusa
Not the same deal as a few years ago
The Hoboken Municipal Hospital Authority unanimously voted to sign a letter of intent during a special meeting on Jan. 3, marking an important step in the process of privatizing the hospital. HUMC Holdco LLC, one of eight bidders that responded to the hospital’s Request for Proposals, is also in charge of the Bayonne Medical Center.
While some people connected with BMC see this as a very positive step, La Pelusa and others were a little concerned because of the outcome of a similar action the Bayonne hospital itself took in 2006 before HoldCo took it over. At the time it turned out that BMC was covering up financial difficulties.
“At that time, BMC was close to being insolvent, even though no one seemed to know it except for Rob Evans [former CEO of BMC],” a source said. “Staten Island, I think, was [excited] at possible income from an overflow of their patients and perhaps cooperative initiatives. Evans even talked about creating a teaching center, which would help for visibility and also physician insurance, very pie in the sky with no reality.”
The new BMC ownership is in a much better position to make this purchase, this source said.
“Vivek [Garipalli] has the cash necessary, and I think there might be some property in the deal that he can sell. But they are definitely making money,” the source said. “The yes portion could be, how long will they be able to hold off on [contracts with insurance companies]? before the state Department of Health reins them in, and then how will the bottom line be affected?”
BMC Chief Executive Officer Daniel Kane said during the annual report last month that the owners have made significant investments in BMC, and it is an extremely healthy institution.
Another source formerly associated with the current management said if the purchase goes through, the two hospitals will not likely merge.
“This is a real good deal for BMC,” this source said. “But the new hospital will be its own entity.”
Bayonne insurance wars will go to Hoboken
Several sources said the model will be the same, which means the new hospital, like BMC, will seek better financial arrangements with insurance carriers. If they cannot get better terms for reimbursement, they will likely phase out contracts with those carriers.
BMC is one of the first hospitals in the country to challenge reimbursement rates offered by major insurance companies. This has had a significant local impact since this makes the community hospital an out-of-network provider, and raises the cost to patients who might seek services there.
In an ongoing battle, insurance companies have been steering their customers away from BMC.
“The reason many hospitals are going out of business is because of inadequate reimbursements by insurance companies,” Kane said, defending the policy.
A contract with a hospital sets specific charges the insurance company will pay for various services. In exchange for including a hospital in its network, insurance companies seek discounts from the original charges for services. Without a contract, the insurance company will be billed the full price of the hospital bill. This has had an impact on local institutions such as the Bayonne school system, whose premiums for school employees have gone up because the insurance company pays more to BMC.
Other hospital officials said the insurance companies do not pay enough to sustain the hospital and routinely deny legitimate claims, forcing hospitals to go to court.
If the BMC model is used in Hoboken, patients there will also likely get caught between the hospital and the insurance company, said one official.
But this tactic is only part of a long-term negotiating strategy with the insurance carriers, said one official connected to BMC, adding that there will be a deal with the major insurance carriers, but that owners will try to stall as long as possible.
Holdco, according to several sources, has been looking to purchase another hospital for some time, and was first interested in a hospital in Passaic.
“When that didn’t work out, they started looking at Hoboken,” a source said.
Both BMC and the Hoboken hospital went into crisis about the same time around 2006-2007. The city of Hoboken stepped in to rescue St. Mary, redubbing it Hoboken University Medical Center, while BMC was taken over by new ownership, including Holdco. BMC declared Chapter 11 bankruptcy a short time afterwards, and eventually worked out agreements with unions and some creditors to earn a profit for each year since.
Negotiations for the Hoboken hospital are expected to take about two months, after which there will be public hearings in Hoboken.
La Pelusa said local officials in Bayonne need to keep a close eye on these negotiations, noting that Holdco’s agreement in Bayonne only calls for the company to keep the facility operating as a hospital for seven years.
“After that, they can do whatever they want with that property,” he said. “They could redevelop it into housing or anything else. BMC also won tax appeals in Bayonne and got an abatement on its property. Now it is bidding on another hospital. This concerns me.”