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Saint Michael's hospital files for Ch. 11; hopes move will hasten sale to Prime

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Saint Michael's Medical Center in Newark has filed for Chapter 11 bankruptcy protection.
Saint Michael's Medical Center in Newark has filed for Chapter 11 bankruptcy protection. - ()

Saint Michael's Medical Center in Newark has filed for Chapter 11 bankruptcy protection, in a move that it hopes will expedite the long-awaited sale of the facility to Prime Healthcare.

Executives announced the filing Monday, calling it “a prudent and necessary action to preserve the medical center’s financial viability and the jobs of more than 1,400 employees, as well as a continued choice of health care for the greater Newark community.”

In a conference call, David A. Ricci, chief executive officer and president of Saint Michael’s, said, “We decided that, in order to move forward, we would use the federal courts to help us with telling the story in a very public way to get to a conclusion that we hope is the sale to Prime.”

The 357-bed hospital said it has sufficient liquidity to remain fully operational during the reorganization process, and patients will see no disruption in services.

Ricci emphasized during the conference call that the hospital has no plans to close or conduct mass layoffs, although it must legally acknowledge the possibility.

The filing comes as Prime Healthcare, a for-profit operator, awaits state approval to acquire Saint Michael’s. The two entities since February 2013 have had an asset purchase agreement, which was recently amended to facilitate a sale to Prime.

In a conference call, Ricci expressed frustration with the lengthy approval process.

“Now, after two and a half years, it would appear that we’re no further than where we were when we started,” he said. “It’s very difficult to keep the organization’s morale and the commitment to the community going, and provide the kind of care that we would like with the shroud of uncertainty being cast over us.”

Under the Chapter 11 filing, Prime would serve as the “stalking horse” bidder, setting the standard that would have to be exceeded by any rival bidders.

Saint Michael’s officials said they were not aware of any other potential bidders at this time.

“We recognize the urgency of completing this transaction with Saint Michael’s,” Luis Leon, president of operations for Prime Healthcare, said in a prepared statement. “We are hopeful that after hearing from the community and the employees at Saint Michael’s, and in light of this most recent development, the state will act quickly to approve the sale and preserve this vital Newark institution.”

Meantime, Saint Michael’s has had to contend with the recommendations of a state-commissioned study, which found that it and two other Newark-area hospitals should cease to operate as an acute care facilities and instead be converted into modern ambulatory centers to relieve an oversupply of hospital beds. Saint Michael’s has come out against those findings.

In Monday’s announcement, Saint Michael’s said it will file a series of motions with the court to ensure the continuation of normal operations including, but not limited to, meeting all employee payroll and benefit obligations, and maintaining physician privileges. The hospital said it had distributed so-called “WARN” notices — as required under for the federal Worker Adjustment and Retraining Notification Act — prior to the filing because a sale outcome is not guaranteed.

"We have responded to the numerous rounds of questions submitted by New Jersey’s Department of Health,” Ricci said in a statement with the announcement. “We are asking for the Department of Health and the attorney general to act expeditiously to allow the sale of Saint Michael's to Prime Healthcare, so that Saint Michael’s, under the ownership of Prime, can emerge as a financially viable, strong institution, maintain jobs and continue to ensure healthcare choice for those we serve.”

Cole Schotz P.C. is serving as Saint Michael’s legal adviser and EisnerAmper LLP as financial adviser.

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