East Orange General Hospital filed for bankruptcy Wednesday in the midst of a plan for it to be acquired by a national for-profit chain of health facilities.
TRENTON -- Buckling under nearly $26 million in debt, East Orange General Hospital has filed for bankruptcy protection - just as it is on the verge of being acquired by a national for-profit hospital chain.
This is the second hospital in Essex County to declare bankruptcy in three months. Saint Michael's Medical Center in Newark is scheduled to be in bankruptcy court Thursday to accept a $62.2 million bid from Prime Healthcare Services, another for-profit chain based in California.
East Orange General Hospital officials filed for bankruptcy Tuesday, according to an announcement from Interim CEO Martin Beiber Wednesday. The move was necessary, according to his statement, because "the organization's liquid resources have been depleted to a point that it is unable to complete the transaction without having the ability to financially restructure its operations."
Prospect Medical Holdings in Los Angeles signed an $84 million deal to buy the 211-bed independent community hospital in May 2014. The legally required review of the sale by the state Attorney General, the state Department of Health and a Superior Court judge was completed on Oct. 28, according to the hospital.
The operating losses are still sizable but have greatly diminished in the last year since Bieber became interim CEO, by hiring a financial consultant, cutting "unnecessary contracts with vendors and renegotiating contracts with physicians" among other measures, court records said. The hospital lost $200,000 last month, compared to the $1.1 million monthly in November 2014, according to court records.
Prospect emphasized its continued interest in buying the hospital.
"Prospect has invested in East Orange General Hospital for more than two years while we jointly went through the regulatory approval process. We believe Prospect is the best solution for EOGH in this rapidly changing healthcare environment, and we look forward to successfully concluding the transaction and becoming part of the East Orange community," according to Prospect's statement.
RELATED: For-profit company to buy East Orange General Hospital for $84 million
The hospital's attorney, Kenneth Rosen of Lowenstein Sandler, agreed.
"Although there has been much progress in the preceding year it was determined that the best way to successfully and rapidly address the financial difficulties of EOGH -- and to assure that the hospital would continue to provide uninterrupted critical care for the community -- was to commence a reorganization bankruptcy case," Rosen said.
"Mission number one is preserve the health care asset for the community, get creditors paid, and job preservation," Rosen said. There are 860 employees.
A national hospital consultant hired by the state issued a report earlier this year saying there were too many hospital beds in the Newark region. The consultant, Navigant, recommended that Saint Michael's and East Orange be closed and turned into same-day care and surgery centers. Community and labor union leaders have fought to save these hospitals, however. Prime and Prospect have remained committed to the acquisitions.
The hospital has been struggling "old debt," including about $13 million loaned byNew Jersey Health Care Facilities Financing Authority, the Bank of New York Mellon and PNC for capital improvements projects, the records said.
Vendors are owed at least $10.6 million, including lawyers, energy companies, an information technology firm, and managed care company.
"This filing will enable the hospital to remain current with its ongoing obligations while we renegotiate some contracts and emerge stronger," Bieber said.
East Orange is Essex County's only independent acute care hospital, and a recognized "as a leader in behavioral health services, renal dialysis, wound care, diagnostic services, emergency services and family health care," Bieber's statement said.
Linda Schwimmer, president and CEO of the New Jersey Health Care Quality Institute, a consumer advocacy and research group, said the bankruptcy filings "makes a whole lot of sense" based on the court filings.
"They can keep the lights on; literally -- they are seeking a "utility" order requiring that the power be kept on" Schwimmer said. "They can use their cash on hand without their secured creditor taking it. They can enter into staffing contracts to keep the place running. And it gives them the breathing room they need to complete the sale -- which they say they will do in 60 days or so."
Health care experts have said the the turmoil in New Jersey's hospital industry has been created largely by the passage of the Affordable Care Act -- with its reliance on Medicare funds from hospitals to help pay for the program, and its overarching strategy of trimming costs by providing more preventive and outpatient care.
Susan K. Livio may be reached at slivio@njadvancemedia.com. Follow her on Twitter @SusanKLivio. Find NJ.com Politics on Facebook.
