County of Union Completes Sale of Runnells Specialized Hospital to Center Management; Leases Back Cornerstone Psychiatric Unit
County receives $26 million payment; saves $52 million over next five years and guarantees continued operation of facility
UNION COUNTY, NJ—The County of Union today finalized the sale of Runnells Specialized Hospital to the Center Management Group of Flushing, NY, in a $26 million cash transaction that would also save as much as $52 million over the next five years, and generate an estimated $500,000 in new property taxes for Berkeley Heights. As part of the transaction, the County leased back the hospital’s 44-bed Cornerstone Psychiatric Unit from an affiliate of Center Management for a period up to ten years.
The sale of Runnells Specialized Hospital marks the first ownership change in the 102-year history of the hospital. The Hospital remains open and will remain open under new ownership. Of the 391 employees impacted by the move, approximately 209 have either been rehired, kept their jobs or been transferred to other positions within the County; and 63 have retired. Center Management is expected to continue to rehire more out of this employee pool in the days ahead.
The County had mandated a number of conditions be met for the completion of sale, requiring that Center Management:
- pay not less than the appraised value of $26 million to the County;
- give current Hospital patients the right to remain at the Hospital;
- protect the Hospital employees, in good standing, by offering the right of first refusal and providing as many employment opportunities as possible at the Hospital and at Center Management Group’s other locations;
- guarantee a five-year capital improvement plan;
- commit to sharing revenue with the County for any new health care related services or facilities Center Management Group adds to the Hospital;
- agree to a deed restriction that will require the Hospital remain a health care facility for long-term patients;
- and agree that a certain percentage of beds at the Hospital shall remain available for Union County residents and to indigent patients.
Hudak noted that the Freeholder Board had set a goal at the beginning of this year to complete the transaction before the end of December.
“This was a comprehensive effort that analyzed every facet of the hospital and every scenario for its continued operations,” said Freeholder Chairman Christopher Hudak, adding the decision “of this magnitude” was “not an easy one and required well over two years of work.”
“The bottom line is that we’ve made the best decision possible toward maintaining the financial viability of the hospital, keeping it open and guaranteeing the continuum of quality care for its patients,” Hudak said.
Since 2006, New Jersey’s Medicaid Program and the Federal government have been underfunding long-term care facilities, and Medicare/Medicaid rates have been reduced each year, making it difficult for any county to operate a nursing home facility.
As a result, the County has paid a total of more than $30 million over the past two years to subsidize the facility. In 2013, the total subsidy amounted to $13.5 million.
Because Counties have in part experienced decreasing reimbursements, several counties in recent years have sold their nursing homes to private operators:
These Counties include: Burlington (2012), Camden (2013), Cumberland (2011), Essex (1996), Hudson (2002), Mercer (2010). Salem County is currently considering a sale.
BACKGROUND AND PROCESS
Facing an uncertain financial future of declining Medicare and Medicaid reimbursements, the County of Union in 2012 retained Complete HealthCare Resources-Eastern, Inc. to independently and objectively analyze and evaluate possible options for the Hospital. The study was to seek ways to reduce costs and enable the Hospital to react to a changing health-care environment by determining if and how Hospital operations could continue in the present environment and the future in light of the anticipated reduction in the Medicare/Medicare reimbursements and increases in the County’s subsidy of the Hospital.
After analyzing the operations of the Hospital, CHR issued a report in January, 2013, which concluded that due to declining reimbursements, decreasing occupancy rates and Medicare census, rising employee and operational costs and capital expense requirements, the County should consider several options for the continuation of the Hospital, such as revenue enhancements, expense reductions and alternative ownership.
Based upon the conclusions and recommendations of the CHR Report, the County determined to explore transferring the Hospital operations to the Union County Improvement Authority for the possible transfer of such operations to a third-party, while simultaneously evaluating methods of revenue enhancement and expense reduction.
The Authority is authorized to cooperate and plan with the County for the acquisition or operations of a public facility such as the Hospital, including the purchase of the County’s rights, title and interest in the Hospital and the possible sale and lease back of the Hospital operations to a third party to provide for the continuous public operation of the Hospital.
Later in 2013, as authorized by their respective resolutions, the County and the Authority entered into a Memorandum of Understanding, pursuant to which the Authority was required to undertake a Request for Qualifications and Proposals (“RFQ/P”) process seeking a private provider that wished to purchase or lease the Hospital.
The Authority then established a Review Committee, which included representatives from the County and the UCIA, for the RFQ/P process, and which received five (5) proposals in December 2013, four (4) of which were for the purchase of the Hospital and one of which offered a lease option, and the Committee determined to proceed to interview four (4) of the proposers having found one (1) proposal incomplete.
The Review Committee interviewed the Proposers at least twice, and has, in compliance with the requests and suggestions of the Board of Chosen Freeholders, sought additional information from the Proposers, and allowed the Proposers to make revised offers.
The Review Committee sought and received an independent appraisal of the Hospital, which appraised value was determined to be $26,000,000 and the Review Committee finally presented the Proposers with a series of questions and also requested that they provide a “best and final offer” to purchase the Hospital.
By the end of February, 2014, the proposers submitted responses and their best and final offers to the Review Committee, and the Committee prepared a report of the proposers, proposals, and a recommendation of one of the Proposers, Center Management Group, with which to negotiate a contract of sale of the Hospital.
In November, the County decided to pursue a lease back of the Cornerstone Psychiatric Unit of the Hospital after the state advertised for private companies to run the psychiatric unit, seeking to lower costs, and Center Management was unsuccessful in obtaining an agreement with the state. State reimbursements for psychiatric care are expected to keep net costs for running Cornerstone at about $700,000 annually, the same amount currently spent for the unit.