1996-05-16 Work Session
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 373
ASSEMBLY
The New Hanover County Board of Commissioners held a Work
Session on Thursday, May 16, 1996, at 10:15 A.M. in the Conference
Room of the New Hanover County Administration Building, 320
Chestnut Street, Wilmington, North Carolina.
Members present were: Commissioners Sandra Barone; William A.
Caster; William E. Sisson, Jr.; Vice-Chairman E. L. Mathews, Jr.;
Chairman Robert G. Greer; County Manager, Allen O'Neal; County
Attorney, Wanda M. Copley; and Deputy Clerk to the Board, Teresa P.
Elmore.
Chairman Greer called the meeting to order and reported the
purpose of the Work Session was to hear a presentation on the
Revenue Bond Financing Project for New Hanover Regional Medical
Center.
Mr. Jim Hobbs, President of New Hanover Regional Medical
Center, presented an update on the Master Space and Site Plan,
which was developed to insure a well-designed and well-developed
building program for the Medical Center. He explained the
commitments of the Hospital Board were to continue to address the
quality and access concerns of the Medical Center and development
of the Cancer Center. He stressed the importance of remaining as
the leading provider of health care in this community and region of
the state by maintaining and enhancing their financial strengths.
The Medical Center will need to continue reducing cost in an
efficient and methodical way and improving the health status of the
community as assessed in the recent regional health assessment
survey.
Mr. Hobbs updated the Commissioners on the Master Space and
Site Plan. The concept of using revenue bond financing for Phase
II of the project was approved by the Commissioners in January
1995. The Coastal Rehabilitation Hospital, which was part of the
1993 Revenue Bond Issue, was opened in September 1994. It has
surpassed all budget projections for service volumes by serving
citizens from every county in Southeastern North Carolina. The
parking deck project, also a part of the 1993 Bond Issue, was
completed at the same time. The utilities upgrade for Phase I will
be completed within the next 3-5 months.
The proposed revenue bond financing project consists of:
Asbestos Removal of Kitchen Area $1,650,000
Asbestos Removal of Other Renovated Areas 350,000
Phase II of the Master Space and Site Plan 49,000,000
East Parking Lot 1,160,000
Cardiac Surgery Recovery Care Unit 3,000,000
Utilities Upgrade 2,900,000
The total cost of these improvements is estimated at $58
million.
The Cancer Center is proposed to meet the growing demand for
cancer medical services and to improve the Medical Center's
marketing position. This community and region have higher
incidents of cancer than other parts of the state and nation; yet
local citizens are leaving the community to seek medical services
at other hospitals. Currently, radiation therapy treatment for
cancer patients is provided at an off-site location, which requires
the cancer patient to be driven by medical transport ambulance to
the out-patient center. The Cancer Center will provide easily
assessable medical treatment to both in-patient and out-patient
clients. It will restore radiation therapy at NHRMC and allow
other methods of cancer care through the clinical trials program.
NHRMC is affiliated with UNC Chapel Hill's cancer clinical trials
program and will become a part of protocol therapy provided at Duke
and other major research centers with the development of the Cancer
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 374
Center.
The second major component of the project is the Pediatrics
Unit. The plan allows the vacant space on the tenth floor of the
Medical Center for a modern, efficient, and flexible space to
accommodate the pediatric population.
Cardiac Surgery Recovery Unit expansion is needed for the
rapidly growing program of more than 600 cardiac surgical
procedures per year. The plan consolidates the functions, which
are currently on two floors, into a single unit that is easily
accessible from the operating rooms. It will eliminate
duplications of services and staffing requirements.
The Master Space and Site Plan doubles the size of the
Emergency Department and improves the hospital's ability to handle
and deliver trauma care. It will separate the true emergency care
trauma patient or the urgently ill patient from the minor illness
type clinic patient. The Emergency Department receives fifty
percent of the hospital's admissions.
The Out-Patient Clinics of obstetrics-gynecology, surgery, and
medicine, as well as thirty-two specialty clinics, handle 45,000
patients per year. The current clinics, staffed by the physicians
of the community and Chapel Hill, have poor patient flow and
significant overcrowding. The clinic will be located on the first
level of the new south building and will provide a more cost
effective way of treating the clinic population.
The Laboratory is another major component of the project. The
functions of the lab will be consolidated onto one floor. New
technology will provide a more efficient and flexible environment,
while improving turn-around times of reporting results.
The front entrance will be modified to make a new front access
to the Medical Center. The major corridor, designed in 1966 for a
300-bed community hospital, handles traffic of medical staff,
patients, visitors, and movement of supplies for a 628-bed
hospital.
Mr. Ron Smidt, Director of Facility Services, presented the
architectural plans of the project showing the new construction and
renovation areas. The project will address ADA issues dealing with
the accessibility of the facility. The proposed front concourse
will allow handicapped individuals to access the Medical Center
from grade parking and have complete access to the facility. The
lower level corridor will free some of the congestion of the first
floor. The south entrance will align with the critical care units
of the hospital and the north entrance will be primarily used for
admissions and discharges of patients. These access routes will
segregate the patient population to allow more privacy for the
patients. The Cancer Center will have its own separate entrance.
Ms. Susan Devore, a partner of Ernst and Young, presented an
overview of the financial feasibility study for the construction
and renovation projects based on payment of revenue bonds from the
revenues of the Medical Center. Financial and operational concerns
for the public hospital are providing for higher indigent care, no-
pay charity care, and the medicare populations while competing with
Columbia, the new for-profit hospital chain at Cape Fear Hospital.
NHRMC can continue to provide the fullest continuum of care, but
will have pressure on pricing to get the patient released from the
hospital with the least cost.
NHRMC provides acute care services for the surrounding seven
counties and primary services for Pender, Brunswick and New Hanover
Counties. Currently, the hospital facility handles 80% of the
market share in New Hanover County and 60% of the market share in
the primary service area counties. Columbia's acquisition of Cape
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 375
Fear may result in some loss of the market share as Columbia
aggressively pursues the market.
Ms. Devore reported there has been significant growth in
managed care and HMOs into the market place. Although there are
only two HMOs in the area, twenty-six HMOs are licensed in North
Carolina and twelve more are anticipated. Major competition among
the managed care companies will develop networks of hospitals and
will impose aggressive pricing.
The medical staff, composed of three hundred physicians, has
a very strong mix of services. Significant growth in medical staff
will drive the utilization of the hospital and the ability to cover
the fixed cost of the facilities. Discharge use rates will
decrease from six days to 5.6 days because managed care providers
will force hospitals to shorten the lengths of stay. Contractual
agreements will be a major risk point for public hospitals because
of being dependent on medicare and medicaid and having a heavy
indigent population. With the Medicare Preservation Act, the
Medical Center will give increasing discounts to manage care
companies in order to compete for that business. The introduction
of Columbia into the market place will probably cause managed care
contracting to be more competitive.
The recent operational assessment of the Medical Center placed
staffing ratio levels at 5.3. With the proposed initiatives, the
1998 level is projected to be 4.9 FTEs per adjusted occupied bed
(AOB). Columbia's hospitals tend to run more efficiently at the
3.5 to 3.1 range. The hospital will need to change their delivery
of patient care to be more cost effective and efficient as opposed
to cutting every department by 10% or such similar techniques.
Commissioner Sisson objected to changing the delivery of
service by sacrificing quality of care. He had heard that Columbia
cross-trains their housekeeping staff to draw blood from patients,
which as a health care professional, he found totally unacceptable.
Ms. Devore surmised the Medical Center has a mission to serve
the indigent and to provide care as effectively as possible, while
a proprietary chain or private hospital does not have the same
goal. The 3.1 level of FTEs per AOBs would place any hospital at
risk for the delivery of quality care. In order to survive in the
industry, NHRMC will need to continue to improve its operational
efficiency while investing in the facility.
The historical and projected income statements show strong
operating margins, which indicate a good revenue source. The
balance sheet position is very strong in growth and in Board
designated assets, which means there is a good safety net for the
future. The Board of Trustee's goal is to maintain at least the A+
S&P rating. Cash reserves will need to be increased in order to
better position themselves for the future. Debt levels are within
normal ranges and the hospital is able to handle existing and
proposed debts. A strong operating margin will be needed by 1997-
98, in anticipation of paying for the bonds beginning in 1999.
Commissioner Sisson asked if the development of the Northside
Community Health Center will decrease the number of patients having
to use the expensive care of the Emergency Department at the
Medical Center.
Mr. Hobbs replied that the Community Health Center will effect
the usage of the Emergency Department, which will also result in a
reduction of in-patient use at the Medical Center. The operation
has already given some primary care access to that basic
population. The health center will promote a healthier population
in that area and also reduce the long-term cost of those operations
at the Medical Center.
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 376
Ms. Devore stated NHRMC is providing 6.5% of its revenue
stream for charity care and bad debt; however, one outside clinic
cannot absorb the magnitude of the indigent care.
Chairman Greer asked how the Medical Center will increase
revenues if managed care companies will be paying less for
services.
Ms. Devore explained as the intensity of services increase due
to severity of illnesses in the hospital, the revenues will need to
be offset by increasing prices and out-patient volumes.
Chairman Greer asked if the salary reductions will be in place
by 1998.
Ms. Devore replied the proposed initiatives will have begun,
but the Medical Center will need to continue implementing staff
reductions and other operation assessments to remain competitive
with comparable FTE levels in the industry.
Commissioner Sisson reflected the Medical Center will need to
balance high tech employment with a reduction in the lower tech
jobs in order to offset the high cost of highly trained personnel.
Ms. Devore explained although technology is expensive, the
renovation and building project will be a more efficient operation
with a better flow of patients and work. The Board of Trustees
will need to remain committed to maintaining financial
accountability by sustaining their operating, liability and cash
reserves and focusing on cost reductions.
Vice-Chairman Mathews asked why the incidents of cancer were
higher in Southeastern North Carolina than in other parts of the
state and country.
Mr. Hobbs reported the Regional Health Assessment Survey
recently completed by New Hanover Regional Medical Center, Cape
Fear Memorial Hospital, and Coastal Carolina Alliance determined
that the lifestyles of people in the area attributed to higher
incidents of cancer. Some factors include: more sun exposure,
which is a leading cause of skin cancer, and more people who smoke
cigarettes. Since the State is a leading producer of agricultural
products, there is a higher intake of pork and beef products. In
the surrounding rural areas, there is less access to medical care.
In addition to cancer, there are high incidents of diabetes and
cardiovascular disorders, which are also associated with lifestyle
issues of diet and access to medical care. One of the goals of the
Cancer Center will be to educate the younger generations on how to
have a healthy lifestyle.
Mr. David Ertel, of Painewebber, the underwriter of the 1993
Hospital Bond Issue and the lead underwriter for the proposed 1996
Bond Issue, reported market conditions are good for lower interest
rates at the present time. Another client, Stanley Memorial
Hospital, recently received the low bond rate of 5.85% on a 30-year
maturity bond, which is comparable to the rate New Hanover Regional
Medical Center received on the 1993 Bond Issue. At this time, the
upside risk of increased rates is much greater than the opportunity
for decreased rates.
Mr. Ertel explained the Medical Center will want to use
municipal bond insurance to access the market place. A premium is
paid to a municipal bond insurer, which will add credit
enhancements to the hospital's underlying credit and receive the
AAA rating by both Moody's Investors Service and the Standard's and
Poor. The hospital bond will entice institutional and individual
investors with the AAA rated product, which is the same credit risk
as a U.S. Treasury Security. The Medical Center will be able to
get the lowest cost of capital in the market place for payment of
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 377
the premium.
In further discussion, Mr. Ertel explained that the hospital
is financially strong enough on its own to get a good bond rating;
however, the bond insurance market is very competitive. The
hospital has a very strong A+ credit rating. Many individual
investors in North Carolina find this type of bond attractive
because of the state tax exemption; and they are more comfortable
buying a AAA rated security even with unknown changes developing in
health care. If it is not economically feasible, the underwriters
will not insure the bond.
Mr. Dumay Gorham, the Medical Center's attorney, reported the
bond counsel is requiring some technical amendments to the existing
lease agreement between the County and the Medical Center. The
five-year lease agreement must include both the 1993 and 1996 Bond
Issues; and it must be effective on the closing date of the sale
for the 1996 Bond Issue.
In discussion of the time schedule, Mr. Hobbs stated that two
certificate of needs have been approved by the State Department of
Human Resources, Division of Facility Services for the proposed
Cancer Center and one for the remaining portion of the project. It
is anticipated the project will move forward with approval and sale
of bonds by the Local Government Commission during the month of
June.
Mr. Bill Mead, partner with Shepley, Bulfinch, Richardson and
Abbott, architects of the project, reported there are alternate
plans in the project in case the bids come in larger than
anticipated. A 12% contingency is allocated in anticipation of
needing some flexibility in the renovation and construction of the
project. The project is complex because of the phasing aspect.
Commissioner Barone asked how the hospital will serve the
public during construction and renovation of the project.
Mr. Mead responded the project is phased specifically to
accommodate the public. The center portion (the main entrance)
will stay open as the project begins; visitors or patients will not
be impeded from getting into the hospital. Construction of the new
facilities will occur in a manner that will allow people to funnel
between the construction sites. After twelve months, the north
entrance will become the main entrance into the hospital and the
center section and the southern entrance will be under
construction.
Commissioner Barone asked if the construction work will effect
the number of patients the hospital will be able to handle.
Mr. Mead answered his experiences in the past have been with
more complex projects, and he felt this project could be
accomplished very smoothly.
Commissioner Barone asked if releasing information on
insurance contracts with the managed care companies would place the
Medical Center at a competitive disadvantage.
Ms. Devore replied the Medical Center will have to deal with
meeting competition whether or not the information is public;
however, it will be a disadvantage when information is released
while negotiations are occurring. NHRMC is at a strategic
advantage because of offering a full continuum of medical care and
services, whereas other community hospitals do not offer the same
type care.
Commissioner Barone asked if the private-not-for-profit
concept was considered to allow better competition for the
hospital.
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 378
Ms. Devore explained it would be a very strategic advantage
for the hospital to be a private-not-for-profit hospital; however,
it has not restricted the public hospital because of the lower
level of competition in the region. The public debate of hospital
issues concerning costs, staffing levels, technology, and service
lines can delay the hospital's ability to act promptly. The public
bid process, the limitation on investment income, and the types of
securities allowed for investments are strategic initiatives that
can be impacted by timing. The private-not-for-profit concept
would be more flexible for the Medical Center and it has been
recommended for the past six years.
Chairman Greer asked if the bid process could effect the
schedule for the sale of the bonds. He expressed concern that high
bids could delay the selling of the bonds.
Mr. Hobbs responded the Medical Center is expecting to receive
bids for the Emergency Department, Pediatrics, and the concourse in
front of the hospital by the end of May and first of June. The
only bids that have not gone out are for the CSRUD portion of the
project, which is estimated to be about $3 million.
Ms. Devore stated the bids will be reviewed in May to prepare
for construction pricing and bond sizing. If the bids come in too
high, Ernst and Young will review the bids to determine the effects
on the financial feasibility of the project.
Mr. Ertel explained the Local Government Commission will
review the results of the bidding before approving the project.
Furthermore, Painewebber and Ernst and Young will not present their
final documents of disclosure statements and prospectus before all
their concerns are addressed.
Mr. Hobbs commented there will be a higher percentage of bids
assigned prior to review by the Local Government Commission than in
1993. Currently, the Medical Center does not have an equity
contribution into the project, which will allow some flexibility
before recommending cutting back on the project.
Chairman Greer questioned why almost three million dollars was
needed for the utilities project since it was covered in the 1993
Bond Issue.
Mr. Hobbs replied the first bond issue covered only a portion
of the utilities package because the design had not been completed
for the full scope of the project.
Chairman Greer asked if doubling the size of the Emergency
Department would encourage more use while making it less cost
effective.
Mr. Hobbs replied the expansion will enable the Emergency
Department to handle the current demand in a more efficient way as
well as keep up with the growth of the community. In the operation
assessment, the major cause of problems in the Emergency Department
was not medical staffing, but being able to move patients through
the physical space in an efficient manner.
Commissioner Sisson commented the Board of Trustees was
restructured in 1993 because of leverage the Commissioners had with
the bond issue and the need for a revised lease. There have been
recent public concerns about the decisions made by the hospital
board in regards to Mr. Hobb's salary increase and personal
matters. The Commissioners need to reiterate to all members of
boards appointed by the Commissioners of the need to understand
that their decisions and responsibilities are somewhat political in
nature. The need for the new bond issue and amended lease
agreement has given the Commissioners an opportunity to resolve
some potential problems with the Board of Trustees. As with a
NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25
WORK SESSION, MAY 16, 1996PAGE 379
performance base contract, the Commissioners need a commitment from
the Board of Trustees that they will work to resolve some of the
concerns. The two boards need to have a good understanding of each
other's functions and objectives for the public hospital. The bond
issue can be a viable means to ensure that those discussions occur;
however, he did not want to inhibit the bond process.
Chairman Greer expressed concern that it may be detrimental to
the bond process to hold up the lease to resolve these concerns
with the Board of Trustees. Mr. Jim Lapenn, the New York bond
counsel, would not have required the amendments to the lease if the
changes were not an important part to the bond process.
Mr. Gorham replied that Commissioner Sisson's concerns were
more about relationships than of legal requirements. Mr. Lapenn
directed that these changes must be included in the lease in order
for the bond issue to go forward. The discussions regarding the
composition of the Board of Trustees delayed the 1993 Bond Issue by
four or five months. At that time, the concerns of the
Commissioners were addressed, which resulted in changes in the by-
laws and lease agreement.
Chairman Greer suggested Commissioner Sisson and another
Commissioner meet with some of the Trustees to discuss his
concerns.
Commissioner Sisson agreed that Commissioner Caster could join
him in these discussions since he was the Commissioners'
representative on the Board of Trustees.
Commissioner Caster invited the Commissioners to meet with
Trustee members whenever they had concerns with the operations of
the Medical Center. However, he urged the Board not to renegotiate
or make any major changes in the lease which would threaten or hold
up the revenue bond.
Chairman Greer complimented the Board of Trustees for keeping
him abreast of hospital issues and he felt confident that the
Trustees would address any concerns the Commissioners may have.
Mr. Hobbs expressed appreciation for the opportunity to
present the hospital's proposal and requested the Board to approve
the $66 million revenue bond issue and the amended lease agreement
as recommended by the Hospital Board of Trustees. He reported the
Chairman of the Board of Trustees, Dr. Bert Williams, was unable to
attend the meeting because of vacationing out of the country.
ADJOURNMENT
Chairman Greer expressed appreciation to Mr. Hobbs and the
consultants for an excellent presentation on the Medical Center's
bond proposal. The Board will consider the request at the May 20,
1996 Board of Commissioners Meeting. He adjourned the meeting at
12:30 P.M.
Respectfully submitted,
Teresa P. Elmore
Deputy Clerk to the Board