New Jersey’s hospitals, like acute care centers in many states, are facing an increasingly difficult future. This is especially true for the state’s urban hospitals, where the payor mix is skewed toward charity care patients instead of those who are fully insured. Medicaid and disproportionate share hospital (DSH) payments, which help partially to compensate hospitals for services provided to uninsured and underinsured patients, are huge state budget items in New Jersey. To balance annual budgets, however, appropriations for Medicaid and DSH payments in the state have been shrinking, while the number of patients without insurance who use hospital emergency rooms for primary care is increasing. Medicare reimbursement for services to older patients likewise is being reduced through federal budget cuts. Competition from large academic medical centers in Philadelphia and New York places an additional squeeze on New Jersey’s hospitals.
A troubling cyclical effect makes a negative financial outlook a reality for many of these facilities. Hospitals need to make capital improvements in order to attract more physicians, who in turn will refer more patients. Yet, in order to borrow money to make the improvements, a hospital needs more patients so that its credit rating is strong enough to make a creditor comfortable with the solvency of the institution. The result is a frustrating conundrum for a struggling hospital: It needs to improve its equipment and facilities so that it can attract more patients, but it needs more patients in order to finance the improvements.
The seriousness of the problem has not been lost on New Jersey’s governor, Jon Corzine. On Oct. 12, 2006, he issued Executive Order #39 creating the Commission on Rationalizing New Jersey’s Health Care Resources. The commission is tasked with examining, among other issues, whether closure is appropriate for any struggling hospital and whether underutilized hospital assets can be redeployed for health care or other purposes. The commission is scheduled to report its findings this fall. A report issued by Standard & Poor’s on March 19, 2007, underscored the financial stress New Jersey’s hospitals are facing. Standard & Poor’s found that the state’s hospitals have credit ratings below national averages and that as many as a dozen hospitals may close over the next several years. One acute care center in Northern New Jersey, however, which was on the brink of closure a year ago has rebounded to become profitable again.
In 2006, St. Mary Hospital in Hoboken, N.J. appeared destined for closing. The 143-year-old hospital, which is New Jersey’s oldest and was founded in 1863 to provide care for soldiers wounded in the Civil War, was losing between $2 million and $3 million per month. Bon Secours Health System, the Maryland-based health care system that had operated the hospital since 2001, actively sought suitors to take over the facility. When negotiations for a partnership plan between Bon Secours and the University of Medicine and Dentistry of New Jersey disintegrated, Bon Secours filed a certificate of need to close acute care services in Hoboken.
However, a bill introduced in the New Jersey Senate on June 12, 2006, and signed into law by Gov. Corzine a month later enabled St. Mary to remain open. The “Municipal Hospital Authority Law” permits a city to create a municipal hospital authority to own and function as the governing body of a hospital. Among the powers the law grants to an authority are the ability to issue bonds, establish hospital-wide policy, provide institutional management and planning, and employ its own executive director, legal counsel, accountants and financial advisors. Such an authority is an instrumentality of the city establishing it, but remains an autonomous entity. The authority is governed by an 11-member board comprised of (i) the city’s mayor, (ii) two members designated by the hospital’s medical staff executive committee, (iii) six public members, at least four of whom must be residents of the city, and (iv) as non-voting members, the hospital’s CEO and an appointee of the commissioner of the state department of community affairs. Board members receive no compensation for their service. The law also requires the authority to enter into an agreement with a nonprofit management company to run the hospital’s day-to-day operations.
Following the legislation’s passage, the newly-formed Hoboken Municipal Hospital Authority negotiated an asset transfer agreement with Bon Secours that included transferring title to the hospital’s land and improvements, along with certain other parcels in Hoboken belonging to clinics related to the hospital. The hospital was acquired debt-free and the agreement provided for a $13 million cash payment from Bon Secours. Concurrent with the agreement’s negotiations, the Hoboken Municipal Hospital Authority worked toward the issuance of two series of bonds totaling $51,635,000. The bonds were guaranteed by the City of Hoboken and sold in February after the asset transfer agreement was executed.
Under the leadership of CEO Harvey Holzberg, hospital patients and Hoboken residents are already seeing tangible changes to the facility that not long ago almost closed its doors. Most obvious is the hospital’s name change to Hoboken University Medical Center and the prominent signage throughout town. Further, proceeds from the bond financing are being used to revamp patient rooms to be more like hotel suites, construct a new emergency room, purchase a new CAT scan machine, and remodel the obstetrics and gynecology wing with a new ultrasound machine and labor delivery recovery room. While early in its existence, the Hoboken Municipal Hospital Authority and the hospital’s executive team led by Mr. Holzberg have reversed the dire financial outlook for the state’s oldest hospital. Whereas once this facility lost millions of dollars per month, Hoboken University Medical Center currently stands as a profitable acute care center.