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Memorial's road to health



The Memorial Health System debate advanced this week when a city task force recommended that City Council select University of Colorado Hospital to run the city-owned hospital.

The next step comes Jan. 9-10 when Council takes up the recommendation. If it's adopted, Council will appoint negotiators to iron out a host of details of a plan that will go to voters — perhaps as late as November 2012.

But it already has come a long way toward reality, thanks in no small part to the work of task force chair and Council President Pro Tem Jan Martin.

Drama has surrounded the two-year process: A nine-month citizen study was ignored by Council after voters elected six new members in April. Businessmen elbowed their way onto the subsequent task force late in the game, and allegations of open-meetings violations and favoritism dogged the panel.

Despite all that, Martin mustered accord in an 11-minute meeting on Monday when Council/task force members Merv Bennett, Tim Leigh and Brandy Williams followed her lead, agreeing with all seven citizen members who cast non-binding votes for University last week.

University would pay the city $74 million up front, but that hinges on Memorial's finances. It also would make cash payments of $5.6 million annually for 30 years, plus a percentage of revenues based on Memorial's performance. University additionally pledges more than $1 billion toward capital investment and a medical-school campus at the University of Colorado at Colorado Springs.

Monday's decision sparked harsh words from for-profit health care behemoth HCA-HealthONE, which said in a statement the task force "rushed to judgment" and unwisely passed up HCA's proposal to pay $500 million up front. HCA CEO Jeff Dorsey urged Council to reconsider, noting the proposal from University, which never has run a community hospital like Memorial, is based on forming two new entities not yet created.

University plans to set up the University of Colorado Health System (UCHS) by merging University of Colorado Hospital and Poudre Valley Health System of Fort Collins. Memorial, which would be converted to a nonprofit, would become the new system's southern hub and serve Elbert, Fremont, Otero, Pueblo and Teller counties, as well as El Paso County. Now, only 18 percent of Memorial's patients come from outside El Paso County, Poudre Valley president and CEO Rulon Stacey says. In addition, Children's Hospital in Denver would operate a unit at Memorial, making advanced pediatric care available here.

That's all good, but Martin says "the rubber will meet the road" in the coming negotiations, to be led by City Attorney Chris Melcher.

University's proposal gives only a sketchy outline on some topics, such as job losses and indigent care.

"I think the city of Colorado Springs needs to remain strong in these negotiations," Martin says, adding the city has been well-served by two outside consultants, Mike Anthony and Larry Singer, whose involvement might be extended.

Singer hailed the recommendation, saying it would allow Memorial to be part of "one of the strongest health care systems in the nation by quality, reputation and financial strength."

But he notes Springs residents shouldn't expect 100 percent control, nor for the agreement to expire within this century. University suggests the lease should run for 99 years, and Singer says such partnerships can be "ungodly" to undo decades later.

If Council chooses University, negotiations will zero in on several factors.

Local control

University proposes an 11-member board to oversee Memorial, at least seven being El Paso County residents. Appointed by Council and approved by the UCHS board, the local board would have "the right to approve" the first CEO and the "right to recommend" capital spending, operating budgets and strategic plans, the proposal says. In other words, it would largely be an advisory board to the UCHS board.

Former councilman and task force member Randy Purvis says the task force asked for the wrong thing. Instead of insisting a majority of the local board be local residents, "what you want is seats on the corporate board," he says. "After the merger [of University Hospital and Poudre Valley] goes through, Poudre Valley has five of 11 seats. Memorial would have none."

There will be some representation, though, because the University of Colorado regents by law must have a member from the 5th Congressional District, which includes Colorado Springs. Currently, the board is chaired by Springs lawyer Kyle Hybl. That's important, because the regents appoint seven members to the 11-member University of Colorado Hospital board, and former regent Jerry Rutledge of Colorado Springs is a member. The University Hospital board, in turn, has seats on the UCHS board, where the big decisions will be made, such as shutting down programs, laying off people and locking up facilities.

Stacey says the UCHS board composition isn't likely to be renegotiated. But he says UCHS will take local boards' views into consideration and act to advance the entire system.

Lilly Marks, University of Colorado vice president for health affairs, executive vice chancellor with the University of Colorado Anschutz Medical Campus and chairwoman of the University of Colorado Hospital board, says each local board, including Memorial's, will have operational control locally, such as maintaining licensure and granting medical staff privileges.

What about jobs?

University has promised to retain Memorial's workers for six months after the lease is signed. But Purvis and Martin worry about job losses when UCHS consolidates functions such as information technology, contracting, procurement, billing, lab work and payroll. Both say the city should negotiate to gain jobs by centralizing one or more of those functions here.

No problem, says Anthony DeFurio, University of Colorado Hospital chief financial officer.

"I don't think it will actually require any negotiation," he says. "We certainly will put some of those functions in Colorado Springs, some of them will be in Fort Collins, and some may be in Denver. We are a Colorado system, and ... we don't have a bias to any particular geography."

Marks adds that a "stronger and more vibrant Memorial" created by its affiliation also will bring jobs. In the past five years, University Hospital has added 704 full-time equivalent jobs, a 20 percent gain, while Poudre Valley has added 1,155, a 47 percent growth rate. Children's Hospital has added 1,160 full-time equivalent positions, a 35 percent increase.

"We expect that to continue," Marks says. "One of the real goals of the partnership is to bring that strength and collaboration to Colorado Springs and Memorial. The whole will grow jobs."

In addition, Jim Shmerling, Children's president and CEO, notes Children's Hospital is adding an outpatient facility here that will require clinical and administrative positions.

Who's out?

Top executives at Memorial might be gone under the new arrangement. Though Stacey says he has "nothing but the greatest respect" for CEO Larry McEvoy and Chief Strategy Officer Carm Moceri, he and DeFurio say the UCHS board would look to the new Memorial board and City Council for input on executive hirings.

McEvoy is paid $577,500 with no golden parachute, Memorial says. However, eight other executives would be paid a year's salary and benefits if forced out based on a "change of control" of Memorial. Their salaries total $2,364,633.

It's raining cash

University offers $74 million up front, but the real number depends on the cost of assuming Memorial's bond debt, the PERA payment and Memorial's cash on hand at time of transfer. In addition to the $5.6 million annual payment, the city would receive 5 percent of any earnings above 8 percent per year.

In addition, University pledges to spend $28 million annually for 40 years, or $1.12 billion, on capital investment and pay $3 million a year for 40 years, $120 million, toward developing a satellite University of Colorado School of Medicine Campus in Colorado Springs.

While the Colorado Transfer Act would require HCA's payment to be deposited in a nonprofit health care foundation, no such stipulation applies to the deal with University, a nonprofit. That means the city can use the windfall for any purpose, Allen Staver, University of Colorado Hospital vice president and general counsel, says in an interview. The Attorney General's Office, which will review the deal to transfer Memorial, confirms that.

City officials haven't indicated how they would spend the money.

The PERA problem

University says it's willing to pay $185 million to remove Memorial from the Colorado Public Employees' Retirement Association. But it might not cost that much. Memorial contends it owes PERA nothing if it becomes a nonprofit, because the change would render its employees ineligible for the government-employee program.

"Clearly we'll be working in partnership with the city to solve the issue," DeFurio says, noting that any savings translates to a larger upfront payment. He adds Memorial employees might be able to stay with PERA by virtue of UCHS's tie to the University of Colorado. "We'll be collaborating with several parties to solve the issue," DeFurio says. "We have no interest, obviously, in giving more money to PERA."

Indigent care

It's hard to pin down University officials on whether Memorial's historical level of uncompensated care would continue. The proposal merely notes that 11.4 percent of University Hospital's 2010 charges went to uncompensated care, as did 10.4 percent of Poudre Valley's.

University's proposal says, "It would be the absolutely wrong thing to do to compromise Memorial's contributions to its community..."

Pressed in an interview, Stacey says, "No organization can come in and predict what they will or won't do. [Health care is] changing so quickly that to predict what we can or can't do four or 10 years from now is hard. The best we can offer is our history. All I can tell you is we will be more committed to doing the right thing than anyone else in the state."

Turns out, Memorial's uncompensated care is similar to University's and Poudre Valley's, 10.5 percent of charges in 2010.

Med school

University iced the cake with a proposal to use its connections and money to give birth to a medical school at UCCS. "We have been working with community members and the medical school for five years talking about this," UCCS Chancellor Pam Shockley-Zalabak says in an interview.

Marks says it will take a year to 18 months to get the school accredited, and University already is lining up physicians to serve as faculty. She notes that outcomes of having a medical school affiliated with a hospital are "demonstrable."

"The ability to wed the latest knowledge, whether clinical or basic research, and bring that to the bedside is quite extraordinary," she says, adding the top hospitals in the nation are teaching hospitals.

While the campus can handle adding a medical school now, eventually it will require more buildings, Shockley-Zalabak says, indicating that two residence hall towers now under construction might include apartments for med students.

Reaching out

If University's proposal goes through, Memorial wouldn't be subject to disclosure laws like it is now as a city agency. But Stacey assures transparency, saying UCHS plans to provide annual reports, conduct community meetings and communicate in other ways about Memorial's progress.

The election still could turn into a dogfight. HCA has money to mount a "vote no" campaign and has said it "will continue to have an interest in Memorial's future."

The city attorney says there's no way to bar such involvement. "It would be difficult," Melcher says, "to prevent anyone from commenting on matters of public concern and matters on the ballot."

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