Memorial lease battle ends, legal fight looms

Organizers are celebrating the overwhelming voter support to lease Memorial Health System to the University of Colorado Health, ending years of uncertainty and debate.

But there is a raincloud looming over the party — an upcoming legal battle with the Public Employees’ Retirement Association.

PERA says the takeover will mean Memorial owes it about $190 million. Memorial filed a lawsuit last week to counter the claim.

“We’ve paid every penny that they’ve asked us to pay, over the years,” said City Attorney Chris Melcher. “We consider that these employees don’t work for the city any longer, so we won’t owe them any money. Memorial as an enterprise still exists, we’re leasing the assets, but it doesn’t have any employees.”

Melcher said the city had engaged PERA in negotiations about what he calls an “exit fee,” but said PERA signaled that it would not discuss the issue further.

“They said that they were going to file a suit in the near future,” he said. “So they really forced our hand. We didn’t want that looming over the city, so we filed first. We’re asking for a judgment about whether we’re right, and our obligations are ended.”

For instance, Melcher said, PERA isn’t responsible for benefits to laid off or fired employees.

“And in fact, over the years, we’ve unfortunately had to do that,” he said. “Last week, we had some very difficult layoffs, and PERA never asked us for money for those people. So our stance remains: We don’t owe PERA more money.”

Councilor Merv Bennett said the lawsuits would not hinder the exchange of authority at Memorial. The timing of the city’s suit, he said, was due to PERA.

“I understand they forced our hand,” he said. “I think maybe they chose to do it right before the vote.”

Bennett was in a celebratory mood Tuesday night. As one of the architects of the lease with UCH, he said he was “beyond excited” by the overwhelming vote in favor of the lease.

“People care about Memorial,” he said. “I am pleased because this outcome shows that all the citizens understood what we had put in place. They understood the partnership. This is a great day for the city — the greatest day in decades, I think.”

UCH will take over Memorial Oct. 1, but CEO Bruce Schroffel said that the initial changes will be internal.

“We want to improve the morale at Memorial,” he said. “And focus on the quality of care. So our first changes will be less substantive and more in that area.”

Schroffel will have to move quickly to address a lingering problem at Memorial, low patient volumes. In the past two years, it has lost some of its market share to rival Penrose-St. Francis Health Services.

“They’ve struggled with that for years,” he said. “It was the uncertainty. We’re certainly working on that — we have several plans. We’re already talking to physicians who have left — and we’re hoping they’ll return. We’ll be recruiting physicians and working with those who are already there to see what we can do to keep them, to meet their needs.”

Schroffel and Rulon Stacey, president of the University of Colorado Health and CEO of Poudre Valley Health System, say they have big plans for Memorial.

“We plan for Memorial to be the southern flagship of the system,” said Schroffel. The group plans to grow the hospital’s services, improve its market share and improve the health care.

Health care won’t be more expensive under the new leadership, Stacey said.

“We’re going to standardize and use economies of scale,” he said. “We expect health care costs to go down at all three hospitals. Standardization doesn’t mean doing less, it means doing it the same. If you have a procedure that saves $1 at a single system and you do 10 of them, you save $10. If you have a procedure that saves $1 and you do a million of them, you save $1 million.”

Both UCH and PVHS have been economic drivers for Aurora and Fort Collins — and they say they expect no difference at Memorial. Far from cutting staff, Schroffel said that UCH added 800 employees in the last five years, and PVHS added 1,200.

“That speaks for itself, I think,” he said.

Colorado Springs residents can expect to see immediate cosmetic changes. A temporary sign and logo for Memorial is already posted.

And the hospital groups are already preparing for the 30-day transition period, with much of the groundwork already laid.

“Health care can’t take a day off,” said interim CEO Mike Scialdone. “So we’ve been working hard for quite some time now to ensure a smooth transition once the vote was finished. This is a historic opportunity for Colorado Springs, a significant opportunity.”

Mayor Steve Bach agreed, calling it a “watershed moment,” in Colorado Springs history.

“83 percent, that’s a mandate,” said Mayor Steve Bach. “That’s a sign that voters understood and trusted what we were doing with Memorial. I appreciate that trust.”

Under the terms of the lease, the city will receive annual payments, plus $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.

UCH gets a southern branch of its University of Colorado Health collaboration that includes Poudre Valley Health System in Fort Collins and University of Colorado Hospital in Aurora, as well as the Children’s Hospital of Colorado. Together, the system will run the length of the Front Range.

Bach reiterated his plans to sequester the money the city receives from the lease to create a foundation, whose board members will be chosen by the mayor and City Council.

“Health care is an uncertain, fluid field,” he said. “We don’t know what’s going to happen. It’s a good thing to create this trust fund to make sure people can get the care they need.”

Bach said the mandate was clear that once the city does due diligence on an issue, and chooses the right path — voters will agree.

“This should be a model for future planning for all our enterprises,” he said. “We did extreme due diligence and we ended up with the best outcome possible. I hope we do the same with our other enterprises.”