To sell or not, the hard decisions ahead

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As the Memorial citizens’ commission deliberates the future of Memorial Health System, it might do well to explore the histories of hospital networks that have already gone through the process.

While it’s difficult to draw exact parallels, the experiences of two systems offer a glimpse into what can happen when a city or county government sets out to remake its relationship with hospitals that serve the community.

Tampa General Hospital: a success story

As a publicly owned hospital, Tampa General was beset by politics, cronyism and a faltering bottom line.

Whether to sell the Tampa, Fla., hospital to a private company became a point of huge debate in the community that raged on for years. In the end, the hospital was turned over to a newly created nonprofit community board that leases the system from the hospital authority for $49 a year.

The authority retains enough control to make sure the hospital is still seeing indigent patients. But day-to-day operations are handled by a new board of trustees and the administrative team.

And after years of multimillion-dollar deficits, the 988-bed hospital now operates in the black. It has regained both the respect and admiration of the community, and charity care has not suffered. The hospital also works as a teaching center for doctors from the University of South Florida. It has won awards for its care, as well.

But it wasn’t easy getting there.

It took several tries to get the idea past community objections. The biggest fear: that charity care would suffer under new management.

As it turned out, the community decided against selling to a for-profit.

Instead, the hospital became a nonprofit. The change couldn’t have come soon enough, said Jean Mayer, senior vice president of strategic services for Tampa General.

“We had a tough few years there, even after the transition,” she said. “It looked like we might have to close, but after the first two or three years, we really turned the ship around.”

The change was needed for a couple of reasons, she said.

Tax subsidies from the county were cut in the 1990s, leaving gaps in the hospital budget.

Also, the hospital authority was made up of appointees of the county commissioners, and some of the commissioners served on the board. The CEO was a former county administrator. That created conflicts of interest.

“It just got to be more about the politics than about the hospital and what it was doing,” Mayer said. “It wasn’t about health care at all. It was just not particularly well-managed.”

The situation became so politically fraught, the system couldn’t obtain managed care contracts.

“We only had 50 percent of the managed care market,” Mayer said. “That should have been easy to fix. But it wasn’t.”

The going got rougher shortly after the transition. The new CEO didn’t communicate well with the hospital authority, which was used to calling the shots. The financial bottom line was still weak, and there were people calling for an immediate switch back to county control.

The hospital board and administration undertook further changes including cuts in staff.

In 2000, a new CEO came on board who began to help set things back on track. Hospital administration now works closely with the authority, Mayer said.

“I’d say all these years later than the transition was necessary to keep the doors open,” she said.

“Could we have done everything without the current governance? Yes, we could have. The changes weren’t that huge. We cut costs, operated more efficiently, started paying attention to things that we didn’t pay attention to before. But it would have been so much harder with the old governance system.”

Positive financial results helped.

“There’s nothing like success to breed success,” she said. “And this really was a cultural change for us. Some departments didn’t have professional leadership and we had to clean up the financial processes — things that hadn’t been looked at in years and years.”

Portsmouth Regional Hospital and the Foundation for Seacoast Health

Not all sales create higher profit margins and better regional health care.

In at least one case, the parties involved ended up in a lawsuit that has been ongoing for almost four years and has cost both sides millions of dollars.

Portsmouth Regional Hospital was sold in 1985 to the company now known as Hospital Corporation of America. And in 2006, the foundation created from the proceeds of that sale took HCA to court, alleging contract violations.

Founded in 1884, Portsmouth Hospital serves Seacoast, New Hampshire, southern Maine and northeastern Massachusetts. The hospital was created by the city of Portsmouth, and for the next 100 years grew from a 10-bed hospital to a system that looked very attractive to the national corporation.

In 1985, the trustees of the hospital decided that the community’s health was “best served by the hospital becoming part of a sophisticated, national health care system,” said the Portsmouth website. That year, they sold the hospital to HCA.

The proceeds of the sale became the assets of a new private foundation, the Foundation for Seacoast Health — which is today one of the largest nonprofit foundations in the state of New Hampshire. The foundation, in addition to making health-care related grants, continues oversight of Portsmouth Regional and appoints eight of the nine hospital trustees.

And that’s where the story gets really complicated.

The issues surrounding the suit involve a 2006 leverage buyout and a transaction in 1999 — both of which the foundation said should have triggered their right to repurchase the hospital. But HCA did not notify them of either.

When the hospital was sold, the purchase agreement gave the foundation the right of first refusal to repurchase the hospital’s assets under certain circumstances.

A state court agreed that the foundation should have been notified and allowed to repurchase the hospital. After the state Supreme Court refused to hear the case, it’s now up to lower court to decide the matter.

That’s where the lawsuit stands today. Neither the foundation nor HCA wanted to talk about the suit. The case will be back in court in May 2011.

Seacoast Foundation board Chair Dan Hoefle said the trustees never questioned the care being provided by the hospital under HCA.

“This trial is not about the quality of care rendered to Seacoast residents. However, we do have some concerns about the operating of Portsmouth Hospital in that they are not reinvesting in the hospital as much as they should. Profits are being taken out of this community and sent to HCA headquarters, Hoefle told a New Hampshire news outlet.

He also said the trustees are concerned HCA is not supporting area charities as much as the hospital did in the past.

HCA officials have noted they are “proud” of the hospital’s record in providing uncompensated care to the poor and its support of nonprofits.

The foundation isn’t expected to ask for control of the hospital alone. It’ll also likely seek monetary damages based on the profits HCA has made from the Portsmouth facility.

One Response to To sell or not, the hard decisions ahead

  1. The Colorado Attorney General has opined that any proceeds from the sale of Memorial Hospital should go to a newly created health care oriented non-profit foundation. In addition, any disbursements from that foundation should go only for health care related causes. Both, he says, are pursuant to existing state law.

    OK, if this is true, then the city will not benefit directly from the sale. So ,now, what is the point of selling it? Proponents allege the citiys budget problems will be solved. The Attorney General (a Colo Sprgs resident, by the way…) disagrees. Sounds like a lawsuit waiting to happen.

    What would be wrong with keeping the hospital, working on the operating issues, with a goal of making it continuously profitable, and taking the profit to the city (where it will , no doubt, be squandered by the present administration…).

    But if, by some miracle of fate, we actually get competant city management, that money could prove beneficial, and could be used for a variety of causes, including debt service on the USOC deal……

    It appears if we sell it, the beneficiaries would be limited, and the city would not be amoung them.

    The resident cynic in me says there would be at least one city council member who like to manage such a foundation, but that’s a whole ‘nother issue.n

    If we need to sell something, lets ditch utilities……that would get rid of a number of issues…..

    John Whitten
    June 21, 2010 at 3:14 pm