Board debates pros, cons of a lease

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Local News

July 25, 2018 - 11:00 PM

Hospital leaders could entertain offers to lease Allen County Regional Hospital, but they doubt such a plan would work.

A task force is examining whether to continue a management contract with Hospital Corporation of America (HCA), an arrangement that has been in place since the new building opened in 2013 but is up for renewal. Task force members say they want to study all options, including whether to return to a lease arrangement.

A lease agreement would require another entity to assume the hospital’s financial risk but would take away local control, said Alan Weber, Allen County counselor who advises the hospital board. Board of trustees members seemed intrigued by the possibility of a lease, but worried a healthcare company wouldn’t want to take over the $26.5 million in outstanding debt incurred from building a new hospital.

“I have a hard time believing even a not-for-profit would want us with $26 million in debt,” Patti Boyd, chairman of the board of trustees, said. “The primary benefit to a lease is less risk to the county.”

“But you lose control,” Weber reminded her. “You don’t get to say what services are offered. If we lease it, the bottom line is all they’ll be interested in.”

“I don’t have any problem including a lease option if the bidder would assume full financial responsibility,” Jim Gil-pin, a trustee, said.

Weber said county commissioners told him they’d like the trustees to consider a lease option as well as a management contract.

The hospital entered a lease agreement in 1981 when it fell on hard times while under the county’s control, and was operated under a lease for $1 per year until 2013. Former lessor Health Midwest invested more than $1.5 million in expansion and improvement projects, and other capital during about a 10-year period in the 1990s, Weber said.

HCA assumed the lease when it bought Health Midwest and leased the hospital from 2003 to 2013. But when physical conditions of the 60-year-old hospital deteriorated to the point a new building was necessary, HCA deferred from investing.

The county was then forced to take the matter into its own hands and used municipal bonds to build the hospital. The switch entailed the county resuming ownership of the hospital because the new arrangement required a lease to a non-profit entity. HCA is a for-profit enterprise.

Iola officials also dedicated a quarter of a percent of a city sales tax, which amounts to about $300,000 a year, toward operational costs of the new hospital. That money comes from a 10-year half-cent sales tax passed in 2009 by Iola voters for projects such as street lights, sidewalks, etc. Hospital officials will likely ask for the city to renew their commitment.

Under the management agreement, HCA provides top administrators and a variety of services including purchasing contracts and physician recruitment.

But times have changed since the last time the hospital was leased, trustees said. Changes in technology and bureaucracy, including payment reimbursements from government-funded programs like Medicaid and Medicare, have made healthcare so complicated that rural hospitals often have to join forces with a major player to be competitive, they said. HCA is the country’s largest healthcare provider.

“The biggest problem I have with HCA, it’s a for-profit model in a nonprofit environment,” Gilpin said.

Trustee Terry Sparks pointed to other hospitals in the region that have partnered with non-profit healthcare systems. Perhaps some of those companies would find Allen County more attractive now, he suggested.

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