In February, the Colorado Springs City Council created a nine-person citizen commission to explore possible changes to the ownership and governance of Memorial Health System, which is currently owned by the city.Bob Lally, commission chairman, said the commission has three objectives of equal priority:
- Minimize taxpayer financial and legal exposure
- Maximize MHS’s benefit to the community
- Ensure access to excellent health care, designed and delivered around the needs of the community
On Aug. 4, the commission invited David Burik, strategic market development advisor from Navigant Consulting Inc., to talk about MHS options and how it compares with other hospitals around the country.”In many respects, our health care system was born out of post-World War II exuberance,” Burik said.In 1946, it was hard to get workers, so health care became a benefit attached to employment – something that only happened in the United States, he said.In the same year, President Truman signed the Hill-Burton Act. The act helped communities finance hospital construction, resulting in an explosion of stand-alone, community-based hospitals, Burik said.He said Colorado Springs is one of just three cities in the country with a favorable ratio of hospitals to insurance companies, which means hospitals in Colorado Springs are in a better negotiating position than the insurance companies. The other cities are Cape Coral, Fla., and Spokane, Wash.It also means that Colorado Springs is a good place to own a hospital. Nonprofit and for-profit buyers would be interested in talking with MHS, he said.MHS has other positives: 65 percent of Colorado Springs’ in-patient market, a low average length of stay of three days and exposure to the affluent and growing Briargate area, Burik said.The negative for MHS is its financial loss of $31.9 million in 2008, but that is offset by improved operating income for 2009, he said.Another negative for MHS and the Colorado Springs area as a whole is the lack of an academic medical center. Such a center would provide physician training, residency programs and other benefits that would draw physicians to the area, Burik said.Burik listed several alternatives for changing MHS’s ownership:
- Merger with a nonprofit system
- Joint venture with a for-profit system
- Sale to a for-profit system
All three of the options could result in more cash flow to expand MHS, but all three options would reduce or eliminate local control, he said.On Aug. 18, the commission invited Ed Epperson, chief executive officer of the Carson Tahoe Regional Medical Center in Nevada, to talk about how his hospital decided to change its ownership structure 10 years ago.Carson Tahoe is similar to MHS: publicly owned, located 40 miles from a larger and competitive metropolitan area (Reno), and it serves a geographic area larger than the government entity that owned it.Unlike MHS, the main driver for changing Carson Tahoe’s ownership was the need for capital to build a new hospital campus.Because Carson Tahoe was a publicly owned hospital, its board had to make decisions in public.”When we talked about a heart surgery program, our competitor from Reno was in the audience and said, ‘not if we can help it’,” Epperson said.He said the hospital’s staff considered staying county-owned, affiliating with a nonprofit, selling to a for-profit and converting to a nonprofit 501(c)(3).”We had 10 to 12 for-profit entities come to town and express their interest,” he said.Ultimately, Carson Tahoe decided to convert to a nonprofit 501(c)(3) because it would satisfy their goals of relieving taxpayers of worry about the future and would allow the hospital to deliver better services while retaining control of their future, Epperson said.”People in our town care a lot about the hospital. They feel like it’s theirs even today,” he said. “The community was very engaged in the whole process and didn’t like the ‘slicks’ who tried to buy it.”Epperson said Carson Tahoe funded their conversion by selling bonds, which got a BBB+ rating from Standard and Poor’s. Their bonds have returned to a credit worthy status after the hospital lost money in 2008 because of the economy.”Our debt is coming down and our cash-to-debt ratio keeps marching up. Wall Street wants to see that,” he said.Epperson emphasized the importance of having board members with background in finance. After the conversion, his board added three such members.Since converting to a nonprofit organization, Carson Tahoe has a new 75-acre campus, a cancer center and an open heart surgery program. It is also expanding its psychiatric program.”We take great pride that we’re the only hospital in Nevada that has a psychiatric program,” he said “That comes directly from the local citizens saying ‘this is important; we’ve got to do it.'”Epperson said the biggest lesson he learned from the conversion was to communicate continuously with the community.He offered to assist MHS if it decides to convert to a nonprofit.The citizens’ commission will report its recommendations to the Colorado Springs City Council in November.
