Cooper University Health Care is suing Maxis, the Pennsylvania-based holding company of Trinity Health, for the $15 million that was held in escrow — along with interest accrued and the cost of the litigation — as part of a potential merger of the entities that was canceled last week.
The suit was filed Monday in Camden County Civil Court.
On Dec. 15, Cooper canceled a planned merger with Maxis, which would have resulted in Cooper taking over Lourdes Health System (in Burlington and Camden counties) and St. Francis Medical Center (in Trenton).
The merger would have made Cooper a $2 billion system.
Documents obtained by ROI-NJ show the planned merger was canceled by Cooper because of “due diligence issues.”
In August, a Letter of Intent between the parties indicated that either side could end the agreement if any of seven potential scenarios of financial obligations — from either a government entity, third-party action or potential violation of law — would create an exposure to or actual liability in the range of $1 million to $10 million.
In a copy of a letter emailed Dec. 15 from Cooper to Maxis, Cooper described five issues it had with the transaction:
- An ongoing lawsuit, “which includes an uninsured potential exposure in excess of $20 million”;
- Compliance issues with a Medicaid drug rebate program that has a “(federal) audit still on the horizon” and has already resulted in reclaiming of funds by the federal government;
- Issues with “alteration of time records and background checks” for a program funded by federal grants;
- “Financial terms of the management agreement” between St. Francis and Central New Jersey Heart Services;
- Potential problems with the hospitals’ eligibility for federal charity care dollars.
On Dec. 18, Trinity told Cooper it did not agree with the terms that Cooper was citing to cancel the deal, and would not agree to let go of the $15 million in escrow.
The deal, had it been completed, would have cost Cooper hundreds of millions of dollars, according to the letter of intent the sides signed in August:
- Cooper had agreed to pay $150 million to Maxis (Trinity), which would be used “to pay debts and obligations owed by Lourdes, St. Francis and their affiliates”;
- Cooper had committed to spending $135 million in capital expenditures over five years at Lourdes and St. Francis. That included a plan to move Cooper’s cardiac care to Lourdes to create a regional center, as well as leveraging its relationship with MD Anderson to elevate St. Francis’ oncology capabilities;
- Cooper had committed an additional $12 million to St. Francis for capital improvements.
Cooper also had committed to upholding the hospitals’ Catholic tradition and mission, as well as keeping their names, according to the Letter of Intent.
In September, Cooper Chairman George Norcross III said Cooper was aware of the financial standings of the hospitals prior to pursuing the merger.
In an exclusive interview with ROI-NJ in September, Norcross discussed the deal.
“Trinity decided they were going to transition their remaining assets in New Jersey, which was principally Lourdes and St. Francis,” he said. “Their investment bankers contacted us to gauge our interest, because we would be a natural interested party given the geography, given our community interests, given the marketplace that we are in together. Lourdes and St. Francis present unique opportunities for us.
“Obviously, Lourdes and St. Francis have been struggling the last couple of years, and we think we would be able — between Cooper and MD Anderson and the medical school — to complement and redefine what their current missions look like and be able to grow both at a substantial pace.”