Cathedral and Catholic Health East
Approve Transaction

NEWARK, N.J. (January 11, 2008) — As part of a comprehensive hospital transition plan that will preserve Catholic health care in Newark, the boards of Cathedral Healthcare System (Cathedral), Cathedral Health Services, and Columbus Hospital have approved a transaction with Catholic Health East (CHE). In addition to bringing strong new sponsorship to Saint Michael’s Medical Center, the hospital transition plan includes the phasing out of acute-care services at Columbus Hospital and at a remissioned Saint James Hospital. In addition, CHE will participate with city officials in conducting a needs assessment to determine what health services are needed in neighborhoods city-wide, particularly the North Ward and the Ironbound.

Cathedral Chairman and CEO Rev. Msgr. Ronald J. Rozniak said that the Cathedral hospitals’ chronically poor financial performance, inability to access capital, and stagnant utilization prompted the development of the hospital transition plan. He explained that the regulatory portion of the plan involves filing a Certificate of Need (CN) application for the transfer of Saint Michael’s Medical Center to CHE, as well as CN applications for the closure of acute-care services at Columbus Hospital and Saint James Hospital.

“Financial projections show that, without implementation of the plan, all three of our hospitals will fail by mid-March,” said Msgr. Rozniak. “Cathedral simply cannot overcome the tremendous financial hurdles it now faces. Our operating model, which values the availability of ‘neighborhood-level’ acute care, served the community well for most of the past 140 years, but a variety of changes in recent decades now make the model fundamentally unsupportable. The financial condition of Cathedral is critical.”

Columbus Hospital posted losses of almost $68 million for the period 1999 to year-end 2007. Saint James Hospital’s losses total $38.9 million over the past five years, with its losses in 2008 projected to reach $14 million. Combined losses at the three hospitals — now growing at the rate of $6 million per month — are expected to exceed $134.6 million for the period 2004 through year-end 2007.

“Our hospital transition plan embraces the reality that small urban hospitals with overlapping service areas simply cannot survive in today’s market,” said Msgr. Rozniak.

Having explored in recent years a number of opportunities for potential partnerships with other providers, Cathedral approached CHE, which sponsors Lourdes Health System in Camden and Willingboro and St. Francis Medical Center in Trenton. CHE proffered a letter of intent in June 2007, and the due-diligence process that followed revealed a poor and deteriorating financial picture of the three-hospital system. The hospital transition plan then began to develop.

“To ensure the survival of Saint Michael’s Medical Center, CHE will borrow approximately $250 million through a bond sale,” explained CHE Chief Transition Officer Alexander Hatala. “Approximately $130 million of the borrowed funds will be devoted to capital and information technology improvements. The balance would be used to refinance existing Cathedral hospital debt and provide working capital.”

“From the start, we have known that any agreement would need to address the community’s needs and be consistent with the State’s health-care rationalization goals,” explained Hatala. “Months of discussions with State officials and other stakeholders led to the understanding that closure of acute-care services at the two community hospitals would be necessary if we were going to take advantage of the New Jersey Health Care Facilities Financing Authority’s Hospital Asset Transformation Program (HATP) to complete the transaction. We are now poised to take decisive steps to bring new life to New Jersey’s oldest Catholic hospital.”

The bond financing will be issued through HATP. This permits the Health Care Facilities Financing Authority to offer the bonds at a lower interest rate than would normally be available to a borrower with the financial track record of Saint Michael’s Medical Center and also makes it possible for some principal and interest payments to be forgiven under certain limited circumstances.

In exchange for the use of HATP bond financing, without which this transaction could not happen, the enabling statute requires the borrower to advance health-care rationalization goals of the State — i.e., the closure or remissioning of acute-care hospitals to reduce excess bed capacity. In this case, the statute requires the continued operation of Saint Michael’s Medical Center and the closure of acute-care services at Saint James Hospital and Columbus Hospital.

“Using the essentiality measurement tool included in the Reinhardt Commission’s interim report, we believe Saint Michael’s Medical Center to be an essential safety-net hospital that must be maintained, and the preservation of Catholic health care in Greater Newark remains our top priority,” said Msgr. Rozniak. “We are very pleased that Saint Michael’s Medical Center and its rich tradition of top-quality, compassionate care will continue under the sponsorship of Catholic Health East — a robust organization with a proven record of commitment to urban Catholic hospitals. Despite the imminent closure of acute-care services at Saint James Hospital and Columbus Hospital, CHE has also agreed to assume responsibility for all three hospitals’ liabilities — important news for employees, vendors, and bond holders. Funding will be sought through the Hospital Asset Transformation Program for the servicing of the system’s bond debts, vendor debts, and certain employee expenses that will be incurred during the transition process.”

Saint Michael’s Medical Center, Inc. — the newly established affiliate of CHE — has committed to work with city officials in addressing health-care needs of Ironbound residents following the phase-out of acute care at Saint James Hospital. Plans call for primary care — including prenatal care and urgi-care — to continue uninterrupted through the establishment of a walk-in family-care center with extended hours. Other services, such as a PACE program and a long-term acute-care hospital (LTACH), will be deployed in the service area after government approvals are obtained.

The closure of Columbus Hospital had originally been planned to coincide with the March 15 completion of the remissioning of Saint James Hospital. However, Cathedral has committed to delay closure for at least 30 days beyond that date, but not later than June 1, 2008, to allow CHE to work with city officials, Councilman Anibal Ramos, and Dr. Bart DeGregorio in a collaborative effort to ensure the smooth transition of health-care delivery in the North Ward and to determine what services may remain at the site.

In addition, representatives from CHE, the Newark Mayor’s Office, and the Newark Department of Health will work with Councilman Augusto Amador and Councilman Ramos as members of a health-care needs assessment task force. They will be soliciting public input to help identify what additional health services are needed in neighborhoods city-wide, particularly the Ironbound and the North Ward.

“We will be encouraging patients now served by our community hospitals to discover for themselves why Saint Michael’s Medical Center has long enjoyed its reputation for patient care and compassionate service,” said Msgr. Rozniak. “Doctors associated with Saint James Hospital and Columbus Hospital have been invited to seek expedited privileging at Saint Michael’s Medical Center, and employees displaced by the changes at our community hospitals will be given preference in applying for open positions there. Throughout the weeks ahead, we will be keeping all Cathedral employees apprised with respect to the transition schedules and assistance available to affected employees.”

Catholic Health East, a multi-institutional Catholic health system co-sponsored by 12 religious congregations and Hope Ministries, is based in Newtown Square, Pennsylvania. Catholic Health East provides the means to ensure the continuation of the Catholic identity and operational strength of the sponsors’ health ministries, which are located in 11 eastern states from Maine to Florida. The system includes 33 acute-care hospitals, four long-term acute-care hospitals, 36 freestanding and hospital-based long-term care facilities, 12 assisted-living facilities, five continuing-care retirement communities, seven behavioral-health and rehabilitation facilities, 25 home health/hospice agencies, and numerous ambulatory and community-based health services. More information is available online at www.che.org.

Saint Michael’s Medical Center, a 337-bed regional primary-care, teaching, and research center in the heart of Newark’s main business and educational district, has served the Greater Newark community for more than 140 years. More information is available online at www.cathedralhealth.org.