County finalizes sale of Runnells

UNION COUNTY — On Monday the county finalized the sale of Runnells Specialized Hospital for $26 million in cash, but the move will end up saving the county $52 million over the next five years.

Although the county handed over the keys to Runnells to Center Management Group of Flushing, New York, this week, the group leased back the hospital’s 44-bed Cornerstone Psychiatric Unit. The leaseback agreement was part of a deal made with Center Management after they were unable to obtain an agreement with the state to operate the unit.

“This was a comprehensive effort that analyzed every facet of the hospital and every scenario for its continued operations,” said Freeholder Chairman Chris Hudak, adding “a decision of this magnitude was not an easy one and required well over two years of work.”

“The bottom line is that we’ve made the best decision possible toward maintaining the financial viability of the hospital, keeping it open and guaranteeing the continuum of quality care for its patients,” Hudak said, mentioning that the county set a goal at the beginning of 2014 to complete the transition before the end of December.

According to the lease agreement made with Center Management, although it will cost the county $14 million a year to operate the unit, after state reimbursements of $13.3 million, net costs for running Cornerstone will run about $700,000 annually, the same amount currently being spent for the unit.

Noteworthy in the lease agreement obtained by LocalSource is that once Center Management obtains the proper certification from the state, Cornerstone will be turned over completely to the group.

The finalization of the sale of Runnells marks the first ownership change in the hospital’s 102-year history; however, the transition went smoothly.

Although the facility is operating under new ownership, it is open and of the 391 employees impacted by the change in ownership, 209 were either rehired, kept their jobs, were transferred to other positions within the county or retired.

According to county officials, Center Management is expected to fill additional positions from this employee pool.

The sale was contingent upon several conditions, including that Center Management pay not less than $26 million for the facility; give current patients the right to remain at the facility; give employees in good standing the right of first refusal for their positions; a guarantee of a five-year capital improvement plan; a commitment to sharing revenue with the county for any new health care related services or related facilities the group adds to the hospital; a deed restriction that requires the hospital remain a health care facility for long-term patients; and that a certain percentage of beds will remain available for Union County residents and indigent patients.

Hudak explained that the county had to consider selling the hospital because of the overriding cost of operating the facility. Since 2006, he said, New Jersey’s Medicaid Program has continued to under fund long term care facilities and coupled with Medicare and Medicaid rates dropping every year, this made it difficult for any county to operate a nursing home facility.

As a result, Hudak added, the county has paid a total of $30 million over the last two years to subsidize Runnells. Last year alone the county subsidy for this hospital came to $13.5 million, but that number was expected to climb to $17 million.

Other counties also experienced decreasing state and federal reimbursements and had no other option but to sell to private operators. Among those counties making this move included Camden County in 2013, Burlington County in 2012, Cumberland County in 2011, Mercer in 2010 and Hudson in 2002.

The county began considering the sale of Runnells in 2012 when it became apparent state and federal reimbursements were only going to continue to go down. At that time county officials brought aboard Complete HealthCare Resources-Eastern, Inc. to look at Runnells “to independently and objectively analyze and evaluate possible options” for the hospital.

The study was conducted to find ways to reduce costs and enable the hospital to react to a changing healthcare environment by determining if and how operations at the Berkeley Heights facility could continue as it was or if changes had to be made.

In January 2013 the county issued a report which concluded that due to declining reimbursements, decreasing occupancy rates, Medicare reductions, rising employee and operational costs and capital expense requirements, the county had to consider several options. Among the options were revenue enhancements, expense reductions and sale of the facility.
Runnells, though, had been a financial thorn in the side of the county for at least ten years.

According to figures obtained from the county at the time, the county was only receiving $222 per patient per day, but that number was expected to fall another 10 percent to $190. In order for Runnells to break even the county would have had to realize reimbursements of more than $300 a day for each patient using Medicare or Medicaid.

Based on this and the recommendations of the CHR report, county officials believed their only viable option was to look into sale of the facility while also still looking for ways of increasing revenue and reducing expenses.

It was at this point the county decided to explore transferring Runnells operations to the Union County Improvement Authority.
There was no denying that even if the county could cut costs, it would be impossible to find revenue that would eliminate the millions the county was spending to subsidize the hospital.

In 2013 the county and UCIA entered into an understanding whereby the authority would put out a request for proposals from private companies that wished to lease or purchase Runnells. In December 2013 four proposals were received for the purchase of the hospital, and one offering a lease agreement. An appraisal of the hospital came in at $26 million and by the end of February 2014 Center Management was selected as the company best suited to buy the facility.