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Upstate files Certificate of Need with state for acquisition

SYRACUSE, N.Y. — Upstate University Hospital has submitted a Certificate of Need (CON) with the New York State Department of Health that sets forth the formal approval process regarding Upstate's acquisition of Community General Hospital (CGH). Approval of the state health department is needed for the acquisition to take place.

New York's (CON) process governs the establishment, construction, renovation and major medical equipment acquisitions of health care facilities, such as hospitals, nursing homes, home care agencies, and diagnostic and treatment centers.

"The filing of this CON is a significant milestone in this process, as it sets in motion the formal approval process of this project," said John McCabe, M.D., chief executive officer of Upstate University Hospital. "This filing brings us a step closer to make building a unified healthcare system with a unified workforce dedicated to preserving acute care in Onondaga Hill and developing a comprehensive healthcare system for the benefit of patients throughout the region."

Tom Quinn, president and chief executive officer of Community General Hospital said: "The CON affirms that Upstate seeks to build upon CGH's reputation and history and to provide employment opportunities for substantially all of CGH employees. With Upstate as a partner, our physicians and work force will continue to provide the quality care for which we are known."

According to the document, Upstate and CGH will operate as one hospital with two campuses with a total bed size not to exceed 715. Currently Upstate University Hospital has 409 beds and CGH 306. Upstate will operate CGH under the existing license of Upstate University Hospital.

When clinical planning is complete, the total number of licensed beds is expected to decline. "We are talking to many individuals and hearing many ideas of how we might reconfigure the beds between the two facilities to provide the greatest benefit to patients who seek our services," McCabe said.

For example, between both facilities there are 50 inpatient beds for physical medicine and rehabilitation (30 at Upstate, 20 at CGH). "There may be a better way to realign beds in this area to provide greater benefit to patients and better use of resources," McCabe said.

McCabe said the reconfiguration of beds could provide opportunities to explore much-needed space for long sought-after services, such as inpatient pediatric psychiatric care.

The CON outlines key benefits of the acquisition. They are:

• It is a cost-effective solution to Upstate's need for additional space. Construction costs for building new healthcare space are significant and construction of new clinical space seems unlikely in coming years. The acquisition provides Upstate with a viable option to meet the increasing demand for services without a significant increase in capital costs.

• It will improve patient access and reduce emergency department diversion.

Despite efforts to reduce the amount of time its Emergency Department is on diversion, Upstate still must divert ambulances to other hospitals (almost one in four in 2010). Upstate also has had to decline requests to accept patients being transferred from other facilities. With acquisition of CGH, additional beds will be available to Upstate that will improve patient access and allow for decompression of area Emergency Department as greater number of patients are cared for.

• It will further primary care and teaching needs of the region. With the acquisition of CGH, Upstate will pursue the expansion of a variety of educational programs, including its Family Medicine Residency Program. As a community hospital, CGH is a natural fit for the expansion of this program that provides training opportunities for Upstate's resident physicians and students.

• It will ensure that acute care remains on Onondaga Hill. Without the acquisition, CGH faces an uncertain future. With declining revenues, CGH would likely cease operations. Such a move would deprive patient access to needed health services and adversely impact area hospitals, as well as result in a loss of more than 1,100 jobs.

The proposed transaction between Upstate and CGH is structured as an asset purchase agreement (APA). Both institutions have agreed to the terms. Under the APA, Upstate will purchase from CGH almost all of CGH's assets and real property. Upstate will not assume any long-term debt of CGH ($7 million), which CGH will pay off before the acquisition process is complete. Assets that will be acquired by Upstate include CGH's real estate and equipment, including the main hospital building and related structures, including the Physician's Office Building on the CGH campus. Total value of purchased assets is estimated to be $50 million to $138 million.

Upstate will assume some CGH liabilities, most notably accounts payable, assumed employee obligations and net pension plan liability. Estimated total of assumed liabilities is $40 million to $50 million.

Upstate will not assume CGH liabilities, such as: bond, debt and mortgage, post retirement benefit plan, workers' compensation and some excluded employee costs. Estimated cost of excluded liabilities is $16 million to $18 million.

Upstate plans to offer jobs to substantially all CGH employees subject to Upstate's operational needs. The assumed employees will become state employees and most will be represented by public unions in accordance with their job classifications. Based on an analysis of salaries and benefits, this shift from private to public employees is not expected to materially affect the cost structure. Upstate is seeking legislation to allow CGH employees to continue their participation in the CGH Pension Plan. Upstate is currently working on ways to recognize CGH seniority as well as retention of paid time off and sick leave balances.

Support for the acquisition has come from the Central New York Health Systems Agency, Hospital Executive Council, SUNY Board of Trustees, Upstate Council, and the Affiliation Council.

"We've been pleased by the positive feedback this proposal has generated, especially within the healthcare marketplace," McCabe said. "I think we all share the understanding that CGH is a significant piece of the healthcare system. We believe we have found a way to leverage its outstanding care, workforce and tradition with this acquisition and build a more robust healthcare system for the region."

The Office of the State Comptroller and the Office of the Attorney General also must approve the acquisition. It is anticipated that by July 1, all agreements will be signed and approved, enabling the acquisition to take place.