N.J. takes slow, steady approach to for-profit hospitals [NJBIZ (NJ)]

For-profit hospitals first appeared on the health care scene in New Jersey in 1998, when a private health services group in Colorado took over management of Bergen Pines County Hospital, in Paramus. But it took four years before another one appeared, when Memorial Hospital, in Salem, changed ownership.

But since then, it's become more routine, if no less controversial. Four other nonprofit hospitals have turned for-profit since 2002, and two more are pending.

"It took a while for the New Jersey market to stabilize and find its legs," said Kerry McKean Kelly, spokeswoman for the New Jersey Hospital Association. "Clearly, for many years, New Jersey wasn't attractive."

The "maturing" of the health care market in the state began in 1993, when hospitals were forced to negotiate their own reimbursement rates for medical services with private insurers, Kelly said. Financial uncertainty gripped the competitive market, and it took many years for the anxiety to calm. Though hospitals across the country were converting from nonprofit to for-profit ownership in small and slowly growing numbers, private equity and management companies were sitting on the sidelines when it came to setting up shop in New Jersey.

"We expected growth to continue, but it didn't," said Mahmud Hassan, professor of finance and economics at Rutgers Business School, who has been tracking the health care industry for decades. "It hasn't grown as much as people thought it would."

He cited opposition by the public, local governments, competing hospitals and other factors as causes. "The public has the wrong impression," he said, referring to the misconception that patient care and services suffer in the pursuit of profit.

The question of perception was only part of a drawn-out effort by Hackensack University Medical Center to reopen the former Pascack Valley Hospital, in Westwood, into a for-profit hospital. Pascack closed in 2007, and Hackensack now runs a satellite ER on the site, though its bid to reopen it has been vigorously opposed by Valley Hospital, in Ridgewood, and Englewood Hospital and Medical Center. Executives at Valley and Englewood have argued Bergen County is overbedded, and Pascack's reopening would financially devastate them, but Hackensack's effort has cleared every regulatory hurdle it's faced, and the commissioner of the Health Department is expected to issue her final ruling by the end of the year.

Hackensack UMC, a nonprofit, has partnered with LHP Hospital Group, a hospital management company in Texas, to reopen Pascack Valley as a 128-bed for-profit acutecare facility. The $40 million investment would convert all rooms to private and ereate an "entirely new and upgraded look," said Dan Moen, LHP CEO. "We'll re-equip and renovate and bring it up to code."

Next on the list could be Christ Hospital, in Jersey City, which appears poised to become a for-profit institution with the help of Prime Healthcare Services, in California. If the sale is approved, the 381 -bed facility would become the fourth in Hudson County to switch to for-profit since 2008.

Three years ago, the 278-bed Bayonne Medical Center was purchased by IJKG Opeo LLC. Just last month, the partners in that group, as HUMCO Holdco LLC, purchased Hoboken University Medical Center, adding 384 more beds to its inventory. That takeover caused consternation because, following its conversion to a for-profit, Bayonne Medical went out of network, meaning it didn't negotiate rates with insurance carriers. Prior to the sale, Bayonne's owners announced an agreement with Horizon Blue Cross Blue Shield, which put the hospital in Horizon's network.

A year ago this month, LibertyHealth sold Meadowlands Hospital Medical Center, in Secaucus, to MHA LLC investment group. Since then, the new owners have pumped millions of dollars in new improvements into the 230-bed facility.

Even though there's been a recent flurry of activity, it's difficult to predict the future of for-profits in the state. "In my opinion, it's the way to go," Hassan said. "Hospitals need money to invest and grow ... modernize and compete in the marketplace."

Mountainside Hospital, in Montclair, got such a financial infusion in 2007, when Kentucky-based Merit Health Systems took over ownership of the 365-bed hospital.

Kelly acknowledges that "there seems to be a lot of discussion going on with mergers and acquisitions," but predicting the future is still "hard to say."

As for partnerships, "the for-profit and not-for-profit niche fills an important need," said Robert Glenning, chief financial officer at Hackensack. "It's been a natural evolution for that."

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By the numbers

73 Hospitals in New Jersey.

1998 First nonprofit hospital gets a for-profit owner.

3 Number of for-profit hospitals in Hudson County.

3 1/2 Years the Pascack Valley reopening has been in the works.

$40 million Planned invest ment in reopened Pascack Valley site.