More than money behind Atlantic Health-Morristown deal

Two Morris County municipalities are about to collect millions of dollars in new revenue due to significant changes in how the major healthcare organizations within their borders conduct their business.

The benefits of the new landscape in healthcare, however, go beyond dollars and cents, according to the architects of a historic agreement announced this week between Morristown and Atlantic Health, the parent organization of Morristown Medical Center.

“I think everybody focused, appropriately, on the numbers, but what I think what’s really important going forward is how we’re going to work together,” said Atlantic Health President and CEO Brian Gragnolati.

“This is something you can’t put a price tag on,” said Morristown Mayor Timothy Dougherty, who spoke exclusively along with Gragnolati to the Daily Record about the agreement this week to settle years of litigation regarding the hospital’s municipal property-tax exemption.

Gragnolati is right about the significance of the financials to the town and the Morris School District. Under the terms of the agreement — negotiated over the five months since Gragnolati took over for the retiring Joseph Trunfio — Morristown Medical Center will pay the town $15.5 million, including $5.5 million of penalties and interest that will be paid in annual installments over the next 10 years. In addition, beginning in 2016 and through 2025, about 24 percent of the hospital property will be taxed at an assessed value of $40 million, representing an annual tax payment of $1.05 million.

The agreement, passed unanimously by ordinance at a Morristown Council meeting on Tuesday, follows a landmark 88-page decision issued June 25 by New Jersey Tax Court Judge Vito L. Bianco that rejected Atlantic Health's challenge to the Morristown tax assessor's 2008 decision to deny a municipal property tax exemption for certain operations at the hospital — then known as Morristown Memorial — for the tax years 2006, 2007 and 2008.

Dougherty, though, says settlement talks began before Bianco’s decision, and soon after Gragnolati arrived on the scene with a refreshing desire to settle a dispute between the hospital and the town goes back 30 years.

“You really have to go back several decades with Morristown Hospital,” Dougherty said. “I’ve only been mayor five years but it was clear from the very beginning when I met (Gragnolati), that there was a different attitude and a different willingness to have a conversation about where we are with these issues.”

"I’ve been doing this for a long time in the role that I’m in here,” said Gragnolati, who came to Morristown from a position as senior vice president, Community Division, at Johns Hopkins Medicine in Baltimore, Md. “This is the first time I walked into a situation with such acrimony between the town and the health system, and it was surrounding, obviously, this litigation and this issue.”

Gragnolati said he sensed the same opportunity to synergize a healthcare organization and its host community that he experienced while serving as president of York Hospital in Pennsylvania. Conversations with a York council member led to the hospital performing a community health-needs assessment.

“We put together a coalition driven out of the town, but supported by the health system, and boy, did it open our eyes,” Gragnolati said. “We found out we had the highest teen pregnancy rate in the state. We found we had highest incidence of low birth-weight babies in state, and higher-than-normal issues of breast cancer and prostate cancer in the African-American population.”

The hospital was equipped to deal with those issues, but the health-needs assessment dug beyond the ability to treat patients and deeper into the delivery of treatment to those who needed it most.

“The thing pointed out to me was access,” Grarnolati said. “I was asked, ‘Have you ever seen what it’s like for somebody to get to your hospital?’ Somebody from the city who is 16 years old, already has a kid, is pregnant again and she’s all by herself. That’s why they don’t go. We literally watched. The bus stopped at the bottom of the hill. You have a baby, with a baby, trying to figure out how to navigate to our clinic.

“Long-story-short, fast-forward a year and a half and we moved that clinic into a building right in the center of where the issues were, and almost immediately we saw that transform, because the mothers could get to that care.”

“That will be something that will be music to many people’s ears when we perform this,” Dougherty said of a similar health-needs assessment for Morristown that was negotiated directly into the settlement. “Previous mayors and administrations before me have hoped for this for a long time, that a hospital of this magnitude would be a partner in the community, not just an 800-pound gorilla, as people used to call them. What happened here is a veil has been lifted.”

“(The health-needs assessment) is a small example,” Gragnolati said. “The question is, what can we do here? What would we find out when we actually look at this in a very deep way? How do we organize the community around this, and how do we make it easier for people to be healthy? There are so many social determinants in health that drive the outcomes that we get, so let’s try to assess that.”

Gragnolati stressed two more benefits of the new relationship between the hospital and Morristown. One is working with municipal police and emergency services to help them do their job. Another is Atlantic Health recognizing its status as the town’s largest employer and an associated responsibility to support the town’s economic development.

Atlantic Health has about 5,909 employees in Morris County and ranks second to Picatinny Arsenal as the largest employer in Morris County.

Tax benefit for Denville

The tax revenue, of course, will also improve the town’s financial health. A similar windfall is coming to Denville, although under different circumstances.

With Prime Healthcare’s purchase of the St. Clare’s Health System going into effect on Oct. 1, St. Clare’s was officially reclassified from a principally not-for-profit entity to a for-profit entity and therefore subject to municipal property taxes.

According to Township Administrator Steven Ward, the 2015 assessed value of the transferred properties is $33,303,900, which at Denville’s equalization ratio of 68.62 percent results in an equalized market value of $48,533.809. Based on those figures, St. Clare’s in Denville will generate $1,038,750 in total annual taxes.

The split of that revenue would award 39.24 percent to the township board of education, 29.05 percent to the Morris Hills Regional School district, 17.05 percent to the township, 11.19 percent to the county and smaller amounts to the municipal library and township and county open space funds.

Previously, only portions of St. Clare’s were taxable, all located at 16 Pocono Road, which are professional doctor’s offices. The total assessed value of that facility is $1,521,800, which generated a total of $47,464 of taxes in 2015, according to Ward.

Ward added that the Franciscan Oaks senior living community, located next to the hospital’s Denville campus, was the largest tax payer in Denville before the hospital became taxable, but was its own legal entity not owned by the hospital.

Staff Writer William Westhoven: 973-917-9242; wwesthoven@GannettNJ.com.