UNION COUNTY, NJ - The Union County Board of Chosen Freeholder approved two measures for completing the sale of Runnells Specialized Hospital to Center Management Group, LLC of Flushing, NY, for $26 million. The measures passed, 8-0. This decision follows a two-year study and review process for the sale.
The sale is expected to save the county $50 million over the next five years. In addition, the property will return to the tax rolls, generating an estimated $500,000 in new property taxes per year to Berkeley Heights and Union County.
During its more than 100-year history as a county facility, Runnells Specialized Hospital earned a reputation for high quality nursing care and other services. However, in recent years the fiscal stability of county-owned facilities in New Jersey and nationwide, including Runnells, has been undermined by changing state and federal health care policy.
In 2006, federal and state governments began to move funding from nursing homes to community-based agencies and home care options, resulting in a decline in Medicare and Medicaid reimbursements.
As a result, the county has been providing millions of dollars per year in subsidies to Runnells. The subsidy at year end for 2013 was approximately $13.5 million. That imbalance is expected to increase in the coming years as managed care for Medicaid is implemented.
Several other county-run hospitals in New Jersey have already been sold into private ownership in recent years. These include Burlington (2012), Camden (2013), Cumberland (2011), Essex (1996), Hudson (2002), Mercer (2010), and Salem (2009).
“The primary concern of the Board has been, and will always be, that Union County residents have access to high quality health care services for nursing care and other specialized needs,” said Freeholder Chairman Christopher Hudak. “The bottom line is that Runnells will continue to serve the community.”
Approval of the sale to Center Management Group caps a process that began in 2012, when Union County retained Complete HealthCare Resources-Eastern, Inc. (CHR) to study ways to enable Runnells to operate on a sustainable footing.
CHR completed its report in January 2013. The report concluded that due to declining reimbursements along with other significant factors including decreasing occupancy rates and Medicare census, rising employee and operational costs, and capital expense requirements, the County should consider options for the continuation of Runnells. These options include 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.
In 2013, as authorized by their respective governing bodies, the County and the UCIA entered into a Memorandum of Understanding; pursuant to which the UCIA undertook a Request for Qualifications and Proposals (“RFQ/P”) process seeking a private provider that wished to purchase or lease the Hospital.
The UCIA established a Review Committee for the RFQ/P process, which received five proposals, and the Committee determined to proceed to interview four of the Proposers, having found that one proposal was incomplete. The Review Committee obtained an independent appraisal of the Hospital which appraised value was determined to be $26 million.
In February 2014, the Proposers submitted their responses to the Review Committee. Based on the information provided, the Committee recommended Center Management Group as the Proposer with which to negotiate for a contract of sale.
The Freeholder Board mandated that the following be met as conditions for completing the sale:
- 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;
- Commit to sharing profit with the County for any new health care related services or facilities Center Management Group adds to the Hospital;
- Agree to a 99-year deed restriction that will require the Hospital remain a health care facility for long-term care patients;
- And agree that a certain percentage of beds at the Hospital shall remain available for Union County residents and to indigent patients.
With Freeholder Board approval completed, approval by the state is required in order to finalize the process.