After a bankruptcy filing, a controversial allocation of state funds, and a five-hour hearing in Trenton last week all made headlines across the state, the Hoboken Municipal Hospital Authority (HMHA) moved a step closer to selling Hoboken University Medical Center to HUMC Holdco, a private group that also owns Bayonne Medical Center.
The state Health Planning Board unanimously voted in Trenton on Thursday to recommend to the Commissioner of Health that a Certificate of Need be issued and the sale be approved. The issuing of a Certificate of Need is essentially the final step in a hospital transaction.
The sale became more complicated on Monday when Hudson Healthcare, Inc. (HHI), the company that operates the hospital, filed for Chapter 11 bankruptcy, listing between 1,000 and 5,000 creditors and somewhere between $10 million and $50 million in liabilities and assets.
Mayor Dawn Zimmer said the sale would give the hospital “it’s only opportunity for success.”
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The bankruptcy will also allow the new owners to start with a clean slate financially. Zimmer said the HHI couldn’t pay the creditors.
The 1199J union briefly lost their health benefits because of the bankruptcy, but was able to recover them until at least September.
Meanwhile, also last week, Hoboken found out it would receive $11 million in aid from the state to help pay for the hospital’s debts. The money was controversial for a number of reasons, including the fact that many programs for the poor and elderly were cut from the governor’s budget – but for some reason, this line item remained. Zimmer has expressed support of Gov. Chris Christie in the past.
The gift is also controversial because Hoboken-based Assemblyman Ruben J. Ramos Jr. (D-33rd Dist.) sponsored the legislation to get the money for the hospital. State campaign finance filings reveal he received two $2,600 contributions from family members of a partner in HUMC Holdco.
Holdco is also a major supporter of Christie, donating $25,000 last year to Reform Jersey Now, a political action committee supporting the Republican governor.
A statement from Ramos’s office last week indicated that Ramos had sought aid for the hospital, but had no idea that the hospital would declare bankruptcy and the money would be used to help the city.
The statement said Ramos “has been vehemently opposed to the process by which the hospital negotiations have taken place.”
“Nonetheless, when the Assemblyman was first informed of the need for this appropriation, he offered to help with the intention of preserving jobs and maintaining a valuable service to the city of Hoboken,” said Alex Habib, Ramos’s chief of staff. “Since he was not privy to the sale of the hospital or had any knowledge whatsoever regarding the negotiations at play, he had no way of knowing about the hospital’s financial condition or the hospital’s intention to file for bankruptcy. Had he known that the hospital was going to file for bankruptcy, he undoubtedly would have fought for $11 million for any other worthy project in the district.”
Zimmer said on Thursday, “I appreciate support from the governor and the legislature. I’m proud we have support on the municipal level all the way to the governor’s office.”
Insurance discussions
The city took over the hospital in 2007 because its owners, Bon Secours, were threatening to close it for financial reasons. The City Council voted to guarantee $52 million in bonds in order to keep it open. But over the years, critics have worried that the taxpayers would be liable if the hospital collapses.
Mayor Dawn Zimmer wanted the hospital to be sold to private owners who would keep it as a hospital. Holdco has pledged to maintain it as a hospital for at least seven years. The proposed transaction totals $91.7 million in deal considerations, including a $51.6 million cash payment to extinguish the city’s bond guarantee.
Some union members and residents have been concerned about the sale because the potential owners have said they will look to re-negotiate insurance contracts, which could ultimately cause the hospital to go “out of network.” If a hospital does not have a contract with the insurer setting certain prices for treatments, the prices increase exorbitantly for patients. Hospitals charge lower rates for “in network” patients.
Proponents of the deal say the rates are the reason why the hospital has been financially unviable.
The hospital experienced a $21.7 million net loss in 2008 and a $16.3 million net loss in 2009. HUMC has relied on funds from the state to keep the hospital afloat.
Conditions of sale
Before the hearing on Thursday, the Department of Health and Senior Services issued a staff report recommending the Planning Board approve the sale with certain conditions. One of the conditions is that the new owners keep current contracts with insurance providers for 12 months.
Before the board could vote on that condition, Phillip Schaengold, the chief transition officer for HUMC Holdco, told them that if they required the group to keep the current insurance contracts, the potential owners would walk away from the deal.
Zimmer has said that if this specific deal falls through, the hospital will close.
Geoff Teed, the founding partner and president of Paradigm Physician Partners in Connecticut, a bidder who ultimately did not receive the nod, has disputed the statement. Teed said at the hearing that his offer remains on the table.
Hospital Authority Chairwoman Toni Tomarazzo said Teed’s offer didn’t have the financing for the sale.
Schaengold told the board that the new owners are in negotiations with insurance providers, and the requirement would disrupt the ongoing discussions.
Sarah McLallan of the New Jersey Association of Health Plans said the owners and providers are actually not close to a resolution of the negotiations. She asked that the recommendation be that the new owners keep existing insurance contracts for 18 months rather than 12.
Ultimately, the board voted not to recommend to the commissioner that the 12-month requirement remain, instead asking that the owners just take part in “good faith negotiations.”
Officials have said that since Holdco will own two hospitals in Hudson County, they could have leverage to secure insurance contracts.
A recommended condition of the sale is to hire at least 75 percent of the current workforce, as Holdco has promised to do. Schaengold said that based on what the prospective owners are seeing; they will be hiring “significantly more than 75 percent” of the current workers.
Virginia Treacy, the head of JNESO, the nurse’s union, said she wants to see a review of the details of the sale. Treacy presented over 3,000 signatures from residents in Hudson County to the board at the hearing, calling for a review. Since the hospital is municipally owned, a review by the Attorney General’s office is not legally required.
Joseph Scott, the Chief Executive Officer of Jersey City Medical Center, also spoke at the hearing, adding that he needs to be prepared in case all insurance contracts are cancelled in Hoboken because his hospital may see a migration of patients.
Ramifications
The new deal will extinguish the city’s $52 million bond guarantee, and remove the city from the hospital’s operations.
The new owners have pledged to put $20 million in capital improvements in the hospital.
Zimmer said after the hearing on Thursday that the sale will give the hospital “it’s only opportunity for success.” she added that when the city took over the hospital, it was meant as a “bridging strategy,” and the goal has always been to transfer ownership to a private buyer.
Ray Smith may be reached at RSmith@hudsonreporter.com