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New York hospitals cast an acquisitive eye toward New Jersey


New York hospitals cast an acquisitive eye toward New Jersey
June 3, 2015 Updated 06/03/2015

Wave of mergers shifts market across the Hudson.
By Lisa Ward

More than a dozen hospitals in New Jersey have announced acquisitions in the past two years, a flurry of mergers that has left only a handful of independent hospitals in the state.

But recently, two very large transactions took shape: a merger between Hackensack University Health Network and Meridian Health, and a strategic alliance between Barnabas Health and Robert Wood Johnson Health System. Those two deals could create health systems that rival the scale of their counterparts across the Hudson River—and that threaten current patient-referral patterns to New York hospitals.

“These are heavily advertised to signal to New Jersey consumers that they don’t need to leave the state to get world-class care,” said Katherine Hempstead, a director at the Robert Wood Johnson Foundation.

The New York City and New Jersey hospital markets are similar in some respects. Both have seen their community hospitals gobbled up by mergers. There has been a wave of affiliations on both sides of the Hudson River—some with national brand names, such as the Cleveland Clinic.

But there is a significant difference between the markets. Unlike New York, the Garden State has no prohibition against private-equity or publicly traded companies from owning hospitals. That regulatory framework means New Jersey hospitals have an advantage: much greater access to capital from deep-pocketed parent companies or partners.

For-profit hospitals and investors started bargain hunting in New Jersey in 2002, intent on scooping up struggling facilities. Today they represent about 15% of the market, according to the New Jersey Hospital Association.

For example, Prime Healthcare Services, a California company, completed its acquisition of St. Mary’s Hospital in Passaic for $85 million in August. It is in the process of acquiring St. Claire’s Health System in Dover, Denville and Boonton, as well as St. Michael’s Medical Center in Newark.

Private-equity-backed LHP Hospital Group entered into a joint venture with nonprofit Hackensack University Health to buy Pascack Valley Hospital out of bankruptcy for $147 million in 2008, followed by Mountainside Hospital for $190 million in 2012, according to Fitch Ratings.

The merger activity is driven by New Jersey nonprofit hospitals’ efforts to shore up their market positions and balance sheets.

“Hospital expenses are often growing faster than revenues,” said Lisa Goldstein, associate managing director of the Public Finance Group at Moody’s Investors Service. She added that mergers have become a way for hospitals nationally to add revenue and reduce fixed expenses, including investment in new technology and payment systems required by national health care reforms.

Barnabas Health bought Jersey City Medical Center in June 2014 and now owns seven acute care facilities, making it the largest hospital operator in the state—for now.

Last month, Meridian Health and Hackensack University Health Network signed a definitive agreement to merge. The new system, Hackensack Meridian Health, is forming after nearly seven months of due diligence. The tie-up still requires state and federal regulatory clearance, expected within nine to 12 months. The 11-hospital system will have about 25,000 employees and nearly 6,000 physicians on staff.

One thought on “New York hospitals cast an acquisitive eye toward New Jersey

  1. Only a matter of time before a small hospital like Valley gets gobbled up.

    I have always wondered how this would work with the expansion. Suddenly we will have given the keys to the kingdom to a large hospital corporation. Valley gets poised for expansion and then sells out.

    Transamerican Health Systems will love the fact that we will have housing for their employees.

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