Now the debate really begins. And none of us will be in on it, at least to begin with.
Colorado Springs City Attorney Chris Melcher, with $395-per-hour legal consultant James Wiehl, has started negotiating the nitty-gritty details of a lease for city-owned Memorial Health System. The hope is to hold an August special election asking voters to approve the lease.
They've met multiple times with representatives of University of Colorado Health. Melcher says he'll report periodically to City Council, but likely in closed session. The chief issues, Melcher says, include employee pensions, liability, payment of expenses and local control.
"We are working hard to make sure that five, 10, 15 years from now, both the city and UCH are still thrilled with the partnership," Melcher says.
According to Melcher, the city is asking UCH to:
• Solve the employee retirement issue by either paying the Public Employees' Retirement Association to remove Memorial's roughly 4,000 employees from the plan, or finding a way to keep them in. UCH is a separate entity from the University of Colorado, which participates in PERA, so it's unclear how Memorial's workers could remain in PERA. But to release the employees, the retirement plan has demanded $150 million to $191 million.
• Increase its $74 million up-front payment to the city and $5.6 million annual lease fee.
• Pay for Wiehl, of St. Louis, to act as a city negotiator and consultant, and also to fund the special election. A polling-place election could cost nearly $600,000, and a mail election more than $350,000, based on estimates.
• Provide the city with a seat on UCH's board of directors, a concession that University officials have said they will not make. UCH was formed recently with the merger of University of Colorado Hospital and Poudre Valley Health System of Fort Collins, and the new entity has proposed that the city join a separate board without decision-making authority over how the system is run.
"The UCH perspective is, we're entering into a lease, not a partnership, which is what they have with Poudre Valley, so it would be unusual for the city to expect to have the same type of representation on the parent board," Melcher says. "But we're talking about some voice on the parent board."
He adds, "For us ... we already are looking at this as a partnership."
• Finally, the city wants UCH to absorb all of Memorial's pending liability, including judgments or settlements from pending lawsuits. According to the latest city report, covering August, September and October 2011, Memorial faces a fractured hip case and a wrongful death case involving a heart patient, plus nine pending cases, two involving patient deaths. Memorial carries liability insurance but helps pay some judgments.
In addition, Memorial might have to reimburse the federal government under the Medicare Recovery Audit Program, which seeks to recover overpayments to providers, including hospitals, based on mistakes in billing codes and other errors going back six years. Memorial spokesman Brian Newsome says there's been no such audit at Memorial, but all providers are subject to audit under the program.
UCH has said it would assume all liabilities "subject to exclusions based on public policy or specific due diligence." Otherwise, it's not commenting publicly at this point, save for a prepared statement from chairman and president Bruce Schroffel, who said, "We recently had our first meeting with the City's negotiating team, and it was a very positive start."
Melcher says UCH "seems comfortable" with the idea of assuming Memorial's liabilities. As Councilor Brandy Williams, a Council liaison to the negotiations, says, "If you're taking the cash on hand and getting a revenue stream, we will push that you will take as many of the liabilities as possible." Memorial had $300.2 million in cash as of Dec. 31.
Another liability is Memorial's debt, which stood at $313.1 million as of Dec. 31. Melcher says he's also optimistic about having UCH either assume or refinance that debt.
New appraisal coming
Although University and other contenders submitted bids that suggest Memorial is worth between $400 million and $500 million, Melcher says he'll order a new valuation "so we're sure the city is receiving value from Memorial." An appraisal conducted by a consultant in 2009 based on 2008 data set Memorial's value at $216 million to $289 million. The same consultant appraised Memorial in 2011, based on 2010 data, and set the value at $576 million. Both figures excluded PERA liability.
Another question involves whether to secure the presence of Memorial's executive team through the transition via incentive contracts. If the executives leave, the reasoning goes, Memorial would be a ship without a rudder.
Councilman Tim Leigh, whose wife works at Memorial, touched on the issue in his recent newsletter. "Good riddance," he wrote.
But Williams says, "I think anyone would be crazy not to be concerned about that. We need to keep the hospital as stable as possible." Such steps, she says, should be handled by Memorial's trustees. Councilor Merv Bennett, also a liaison to the negotiations, agrees, and adds that he doesn't want to see Memorial lose its executive team.