| Why a California company would buy a Jersey City hospital -- and what it means for the state's health insurers |
 The Jersey Journal reports that a California hospital management company is angling to take over Christ Hospital in Jersey City.
There is a back-story here that has significant implications for New Jersey's hospital industry and maybe more so for the state's health insurers.
The surface story (link provided below) is that Prime Healthcare Services Inc. of Ontario, Calif., is seeking to buy Christ Hospital and convert it to for-profit status. Is it curious to anyone why a California company would skip over 48 other states and pick a hospital in Jersey City to invest in?
Prime has built a fortune for its controversial founder, cardiologist Dr. Prem Reddy, the brother-in-law of Lex Reddy quoted in the Journal's report. Dr. Reddy has a track record of buying struggling hospitals and making them profitable. It is the way he has done this that has raised eyebrows.
As of 2010, Prime owned and operated 14 hospitals in Southern California. From its beginning with a single hospital in Victorville, Calif., Prime attracted attention immediately by canceling contracts with insurance companies, claiming that their low level of reimbursements were responsible for driving California hospitals out of business. This defied conventional wisdom, because most hospitals believed they needed those contracts to maintain a steady flow of patients.
But Dr. Reddy saw it differently. Because California law requires insurance companies to pay 100% of charges for any subscriber who enters an out-of-network hospital through its emergency room. So if a patient comes to the emergency room with chest pains and is admitted, undergoes surgery and remains hospitalized for days, the entire hospital bill would be covered at 100%. With a deal like that, why should the hospital negotiate lower-level reimbursements that would only pay a fraction of those charges?
There were other business strategies employed by Prime that all together resulted in substantial profitability and expansion. Some of these other strategies, along with some of the personal beliefs expressed by Dr. Reddy, have made him a controversial figure. At the same time, he has enabled many hospitals to stay open that otherwise would have failed.
And he has made a fortune in the process. A glimpse into the lifestyle and personal wealth of Reddy was provided by the L.A. Times in a July 8, 2007 story (link provided below), which included this paragraph:
"Reddy's 15,000-square-foot mansion, a local landmark, has become a way station for politicians. Valued at between $3 million and $5 million in estimates by local real estate agents, the Mediterranean-style house is in the former neighborhood of cowboy star Roy Rogers. It features gold-plated toilets and expensive collectibles such as a nearly 4-foot-long model of Cinderella's horse and carriage made of expensive Spanish Lladro porcelain. Another home in Beverly Hills is valued at more than $9 million."
California is only one of two states in the country that requires insurers to pay 100% of charges originating in the Emergency Room. The other state is New Jersey.
Prime Healthcare Services' success was not lost on the owners of the Bayonne Medical Center, who bought that failing hospital and converted it to for-profit status in 2008. Shortly afterward, the owners cancelled insurance contracts because they failed to cover the cost of care. At the same time, the owners improved their Emergency Room and other services throughout the hospital. Their success is evident in their current progress in buying Hoboken University Medical Center.
So it is not surprising that New Jersey, the only other state that can support its business model, would attract Prime Healthcare Services to Christ Hospital.
And what is the implication for health insurers in New Jersey if suddenly there were three for-profit hospitals -- in Hudson County alone -- that all canceled their insurance contracts?
My speculation is that: First, it would ramp up lobbying activity in Trenton to change the current law. And second, it might even lead to more realistic reimbursement rates that are currently imposed on hospitals already struggling to provide quality care to their local communities.
Sources:
Bill Carlos President |
