Too big to fail: Memorial offers only one option now

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What happens if the Memorial Health System ballot initiative fails Tuesday?

There’s really no Plan B. Organizers of the lease agreement say that leasing Memorial to University of Colorado Health is the available option. And while failure to approve the lease wouldn’t be completely catastrophic, it would be damaging for the hospital and for staff.

“This is the plan; the only plan,” said City Councilor Jan Martin, who served on the task force that chose UCH from five bidders. “If it fails, we go back to the drawing board and try again.”

Martin doesn’t know what form another plan would take. She is certain, however, Memorial shouldn’t remain in city hands.

“I think that much is clear from the past two years,” she said. “Everyone realizes that the city shouldn’t be in the hospital business. But if this fails — I just don’t know what we’d do next. Maybe another round of RFPs? Selling it outright this time? We just haven’t gone there, because we really want this to succeed.”

The lease agreement resulted from years of meetings, hearings and debates from multiple commissions, task forces and citizens’ groups. Besides annual payments, it will provide $185 million up front for the city to resolve issues with the Public Employees’ Retirement Association. The city also keeps $330 million in cash and investments to pay off Memorial’s debt.

Still, the election outcome is in doubt — and that’s an uncomfortable place to be.

“We couldn’t have picked a better partner, or a better plan,” Martin said. “Still, there is opposition. It’s concerning to all of us.”

Hospital employees have waited through years of uncertainty, the CEO’s exit and an outcry over his $1 million severance package. They’ve heard hundreds of voices, sat through dozens of meetings and are still trying to maintain their focus.

“We’ve always been on the outside of the lease discussion,” said Brian Newsome, Memorial spokesman. “We’re focusing on the strength of our health care.”

Failure of the lease agreement could mean trouble for Memorial, Newsome said.

“There are national health care trends, national issues, that make it important to partner, to collaborate,” he said. “Those won’t go away. Poudre Valley (in Fort Collins) and UCH recognized that need. That’s why they’re already collaborating.”

Continued uncertainty won’t be good for Memorial, its employees or its bottom line, he said.

“We’ve done a great job of managing our costs, and it’s gone as well as we can hope,” he said. “We’ve had some off-and-on benefit from the stock market. But volumes are still low, and the uncertainty is the underlying issue why they’re low. … Patient volume is the main concern.”

Recruiting high-quality doctors and nurses also is a challenge when the future is murky. And Memorial has struggled to make needed partnerships with individual physicians and doctors groups required by the Affordable Care Act.

“It’s hard to retain and recruit doctors and other staff members in the current situation,” Newsome said. “We need to be able to hire, to partner with doctors, and we just can’t as long as the ownership is uncertain.”

If the lease doesn’t pass, continuing that uncertainty could mean losing skilled doctors, nurses and administrators to lead the hospital into the future.

And Memorial could lose its firm financial footing if the delay and indecision continue. Moody’s Investment Services recently lowered Memorial’s outlook because of the indecision surrounding the health care system. Moody’s kept its A3 bond rating in place, but said that the lease agreement needed to occur to keep it financially secure.

“…failure to receive voter approval in August would likely increase short-term organizational instability,” the report said. “We believe this extended period of uncertainty has lead to the disruption of longstanding physician referral patterns and was a significant driver of the poor operational performance achieved in 2011.”

Opponents think the lease gives away more than the city would receive. One group wants more local control and believes that exiting PERA will cost other retirees. Another group, known as No Hospital Scam, issued a flyer countering that another bid — an upfront payment of $500 million, offered by HealthOne — provided a better financial payoff.

While both groups are anonymous, and opposition seems limited, the negative publicity has some supporters nervous about Tuesday’s outcome. Memorial Health System’s finances and its staff might not be able to withstand another two years of discussions and debating.

“We really believe we are offering the best solution,” Martin said. “I think, though, it’s crossed everybody’s mind that this could fail before the voters. Then, we’re back to where we started.”