Seeking a return on Memorial

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Colorado Springs could end up making money if it severs ties to Memorial Health System.

That, at least, is the hope of some on the city council, as well as certain members of the Citizens’ Commission who have been exploring the city’s options about what it should do about Memorial.

“I am not going to spin this off without getting some sort of financial return,” said Councilman Sean Paige this week. “We’re not going to deliver the deed to Memorial to someone without compensation. That’s a non-starter.”

Paige’s is just one vote, of course, and others on the council feel differently, especially those unwilling to encumber Memorial with new obligations that might hurt its ability to compete.

Until now, making money in spinning off Memorial hasn’t been as important to the Citizens’ Commission as exploring how best to minimize the potential of a taxpayer bailout in case the hospital system hits tough times.

“It’d be hard to argue that Colorado Springs hasn’t already received a return on its investment,” said commission member Dave Munger. “It paid $76,000 for it, and now it’s worth millions.”

But Paige isn’t alone in believing the city, which has owned Memorial for nearly 70 years, should see a return on its investment.

Others on council think the city is owed cold, hard cash for agreeing to relinquish Memorial.

The city’s general fund won’t benefit from the sale of Memorial to a for-profit hospital system. That much was made clear by Attorney General John Suthers’ opinion that state law requires proceeds from a sale of Memorial to be used for a similar health care purpose.

But the city might still be able to bolster its bottom line. Here’s how:

New taxes

Colorado Springs doesn’t collect taxes from Memorial Health System because, in its current form, it is a city-owned enterprise and non-profit.

If the choice were made to sell the hospital to a for-profit system — and many such companies have expressed interest in the system — then the city could begin to see property and other taxes from Memorial.

Memorial’s assessed market value is $179.3 million, according to the county tax assessor. Of that amount, the city’s share of property taxes from Memorial’s main campus would equal about $222,000 a year, while Memorial North would pay taxes in the amount of $107,000 a year.

While some commission members were ready to jettison the for-profit option at their last meeting, Paige said that decision might not be best. “I’m going to be disappointed if the commission doesn’t bring us that option,” he said. “They’ve been on a nonprofit track, like it’s foreordained. It’s not as cut-and-dry as sell or don’t sell. Some hybrid might be the best idea. There’s a strong case for selling it.”

Leasing assets

Vice Mayor Larry Small hopes to capitalize on Memorial’s financial potential through a lease-back option.

The city, under one of the scenarios considered by the commission, would spin Memorial off into an independent nonprofit or even affiliate itself with an existing nonprofit — but the buildings and equipment would stay in the city’s possession.

“I’m not willing to give up that asset,” Small said. “We need to lease those assets out, with the option to return to the city.”

Small said he didn’t know how much money the city should receive in such a scenario but cautioned against trying to extract too much.

“I am not interested in creating an onerous lease for Memorial,” he said. “No matter what we do, we have to protect health care for the people. We want most of those returns reinvested in the hospital’s mission.”

In Fort Collins, Poudre Valley Hospital is a stand-alone nonprofit system that leases its hospital space from the city. The lease is good for 40 years, and then reverts to city ownership. That system pays the city $300,000 annually for its equipment and buildings, most of which were built after the system became a nonprofit venture.

Uncompensated care

Memorial spends about $70 million a year on uncompensated care to the poor and bad debt — payments for treatments that go unpaid. For many involved in the debate about its future, ensuring that uncompensated care continues is a large enough payment.

“I don’t feel strongly that we need an additional payment,” said council member Randy Purvis. “The citizens have gotten a tremendous return on their investment in terms of indigent care.”

Others share that sentiment.

Commission Chairman Bob Lally said he believes the city should make sure that, no matter what model is chosen, uncompensated care continues “in perpetuity.”

“We need to be sure we set the conditions for success,” he said.

A new foundation

Selling Memorial to a for-profit could net as much as $300 million, most of which would go to build a health care foundation and help put Colorado Springs on the map for health care.

Munger, for one, likes the foundation option. “It could be the go-to place,” he said. “It’s the best way the city can get an additional return, balanced by the primary concern that lets the hospital continue to grow.”

Munger said that ensuring a return on the city’s investment — the commission refers to it as “return on community” — will be part of whatever decision the commission announces Nov. 3.

“We’ve considered it throughout the entire process,” he said. “It’s on all of our radars. We’ve been focused on the best way for Memorial to move forward, and the best way we can provide strong health care. But we’ve also been focused on how citizens can get a return on their investment.”

Paige and others on the council are counting on it.