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1996-08-01 Budget Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 503 ASSEMBLY The New Hanover County Board of Commissioners held a Work Session with the New Hanover Regional Medical Center Board of Trustees on Thursday, August 1, 1996, at 10:15 A.M. in the Assembly Room of the New Hanover County Courthouse, 24 North Third 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 Clerk to the Board, Lucie F. Harrell. Hospital Trustees present were: Dr. Bertram Williams, Jr., Chairman of the Board of Trustees; Charles M. Coleman, Jr.; Henry M. von Oesen; Phillip Sharpe; David B. Benford; Luther Brown; Daniel E. Dawson; Sylvia H. Rountree; William C. Taylor, Charles C. Wells; Fred Retchin; Dr. David B. Sloan; and Jim Hobbs, President/CEO of the Medical Center. Chairman Greer called the Work Session to order and stated the purpose of the meeting was to hear a presentation and discuss the request submitted by the Medical Center Board of Trustees to convey New Hanover Regional Medical Center to a non-profit corporation. He welcomed all persons present and requested Dr. Williams to begin the presentation. Dr. Williams reported the Board of Trustees had voted unanimously to submit a request to transfer the hospital from a public hospital to a private non-profit Community General Hospital in order to react to the existing competitive environment in health care. Without a mechanism in place to generate income other than through patient charges, the hospital will not be able to remain competitive. He requested Mr. Jim Hobbs to present an overview of why this change was proposed. Mr. Hobbs presented the following report: WHY SHOULD THE HOSPITAL BE RESTRUCTURED? a.To react to the changing health care environment now, not in the future. b.Protect an asset that has grown since its opening in 1967 from a 320-bed facility and a medical staff of 73 members to a facility licensed for 628 beds, currently operating 339 adult and pediatric beds, 26 nursery beds, 23 Neonatal Intensive Care beds, 48 Coastal Rehabilitation Hospital beds and 62 psychiatric beds with a medical staff of more than 400 physicians and dentists. c.Insure that New Hanover Regional Medical Center will remain financially healthy and have the ability to continue to provide care for the community and region. Mr. Hobbs advised that a public hospital had become vulnerable in the existing medical health care climate without more flexibility in investment of money and control of construction costs. The State bidding restrictions have driven up construction costs because the hospital has to submit multiple-prime bids instead of bidding the project to one prime contractor to oversee the entire project. WHAT CHANGES WILL OCCUR IF THE HOSPITAL IS RESTRUCTURED? a.New Hanover County will transfer the public hospital to a non- profit corporation enabling the facility to become a Community General Hospital. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 504 b.The Community General Hospital will have the ability to invest in higher returns and utilize a single prime contractor as well as implement other construction strategies. c.The Community General Hospital will not be subject to the open records law. d.The Community General Hospital will be able to issue revenue bonds as New Hanover Regional Medical Center. WHAT CHANGES WILL NOT OCCUR IF THE HOSPITAL IS RESTRUCTURED? a.The commitment to quality patient care will continue. b.The Community General Hospital will be responsible for providing indigent care. c.New Hanover County will control the appointment of members to serve on the Board of Trustees. d.Hospital Board meetings will be subject to the Open Meetings Law. e.There will be no negative impact on employees of the hospital. f.The name of the hospital will not change. WHAT ARE THE STRATEGIC ADVANTAGES OF RESTRUCTURING THE HOSPITAL? a.The provision of continued care to all citizens. b.Faster response to meet the changing needs in health care. c.Enhance the competitive position of the hospital. d.Drive costs down. e.Enhance non-patient related income. WHAT ARE THE OPERATIONAL ADVANTAGES OF RESTRUCTURING THE HOSPITAL? a.Balance local control and flexibility. b.Streamline construction projects. c.Resolve the issue of access to competitive information. WHAT ARE THE FINANCIAL ADVANTAGES OF RESTRUCTURING THE HOSPITAL? a.Increase investment earnings $25 million over the next five years. b.Save $5 to $7.5 million in construction costs over the next five years. WHAT ARE THE REQUIRED TERMS AND CONDITIONS OF THE RESTRUCTURING? a.Continue to operate as a Community General Hospital. b.Continue to assure care is available to the County's indigent population. c.Defeasance of outstanding revenue bonds. d.A minimum of 51% of Hospital Trustees will be appointed by the New Hanover County Board of Commissioners. e.The community general hospital will revert back to New Hanover County should conveyance requirements be violated. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 505 In closing, Mr. Hobbs commented on the importance of properly informing the public about the need for the hospital to change to a Community General Hospital and reported public forums, presentations to civic organizations, public service announcements, and paid advertising will be used to inform the public. He requested Attorney Noah H. Huffstetler, III, of the Petree Stockton law firm, Raleigh, North Carolina, to comment on the legal steps required for the County to convey the public hospital to a Community General Hospital. Attorney Huffstetler outlined the following guidelines under the General Statutes: NCGS-131E-8 - Sale of Hospital Facilities to Non-Profit Corporations: This statute allows the County to convey to a non- profit corporation the County's rights of ownership to the hospital. The conveyance would include the building, land, and equipment. (1)The non-profit corporation will be required to continue operating the facility as a Community General Hospital. (2)The non-profit corporation will be required to provide services to indigent patients. The extent of these services should be agreed upon between the Board of County Commissioners and the Board of Trustees. (3)The non-profit corporation must agree that the hospital will revert to the County if the corporation ceases to operate the hospital as a Community General Hospital, or if the hospital fails to carry out the terms and conditions of the conveyance document. (4)By the effective date of the conveyance, the non-profit corporation must place into escrow sufficient monies to pay the principal and interest on the outstanding revenue bonds. (5)A majority of the Board of Trustees would continue to be appointed by the New Hanover County Board of Commissioners. (6)Under NCGS-131-E(8.l), the County and Medical Center must reach an agreement to continue access to the AHEC Program under the Community General Hospital. (7)Certificate of Need: There is a provision that if notice is given to the N. C. Department of Human Resources before the effective date of the conveyance, the transaction will be exempt from a certificate of need review. Also, if a Certificate of Need has already been issued for a project at the hospital which has not been completed, there is a mechanism in place through the N. C. Department of Human Resources to alleviate another certificate of need review. All regulatory approvals can be in place by October 1, 1996. Mr. Huffstetler reported he would be glad to answer any questions. Mr. Pete Brunstetter, Chairman of the Forsyth County Board of Commissioners and a partner of the Petree Stockton Law Firm, presented the following draft documents that are required for the County to convey the public hospital to a Community General Hospital: (1)By-Laws: The existing By-Laws would be changed to a fifteen (15) member Board of Trustees, which is one additional member over the present membership. Ten (10) members would be appointed by the New Hanover County Board of Commissioners and five (5) members appointed by the Board of Trustees with three NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 506 (3)ex-officio positions. The terms would be changed from three to five years. (2)Amendment to the Hospital Charter: The hospital charter would have to be amended to allow the non-profit corporation to own and operate the hospital. Also, a provision has been included to require the Board of County Commissioners to approve in advance any further amendment to the Articles of Incorporation of the non-profit corporation. (3)Resolution: A resolution would have to be adopted by the Board of County Commissioners approving the conveyance of the public hospital to a non-profit corporation. The conditions of the conveyance would be placed in the resolution to assure the hospital will be committed to providing quality patient care as well as indigent care; control of Trustee appointments by the Board of County Commissioners; ensure that regular meetings are subject to the Open Meetings Law; ensure there will be no negative impact to existing employees; and ensure the name of the hospital will not be changed. If the Board so desires, more conditions can be placed in the resolution. (4)Deed: A deed conveying the County ownership of property to the non-profit corporation, including control issues, would have to be prepared. In closing, Mr. Brunstetter offered to share his knowledge about the success of Forsyth Memorial Hospital since it became a non-profit corporation. Mr. Hobbs advised that the following benefits would be derived by the community from the proposed restructuring: (1)Continue to serve as the safety net for emergency services in the Emergency Room and Emergency Department. (2)Provide specialty care for the entire region. (3)Keep costs down. (4)Provide local control and input. (5)Improve community health. (6)Provide a more flexible/responsive health care resource. In summary, Dr. Williams, again, reiterated the importance of allowing the hospital to remain financially competitive and continue to provide quality medical care to all citizens, including the indigent. He urged the Board of County Commissioners to move forward with the necessary documents to convey the public hospital to a non-profit corporation and operate as a Community General Hospital. The following period of questions and answers followed: Chairman Greer advised that he was not prepared to review the draft documents presented, therefore, he would need more time to review each document in detail. He stated, in his opinion, the citizens want to be assured that the hospital will remain a County hospital. He suggested a thorough review of the number of trustees to be appointed by the Board of County Commissioners and the length of terms. He asked if the Board of Trustees had approved the draft transfer documents? Dr. Williams responded the draft documents were not approved by the Board of Trustees and advised the documents were presented as examples of the necessary documentation that will be needed to convey the hospital to a non-profit corporation. He advised the NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 507 Board of County Commissioners would have to make the decision regarding the numbers of Trustees appointed by the Commissioners and the length of terms. Commissioner Barone commented on Page 11 and recommended changing the appointment of vacant positions from the Board of Trustees to the Board of County Commissioners. Chairman Greer inquired as to what would happen to the current Board of Trustees if the change was approved? Dr. Williams responded that this decision would have to be made by the Board of County Commissioners. Mr. David Benford, a member of the Board of Trustees, advised that many of the Trustees had not seen the draft documents, therefore, he was concerned about the details and would like to review the documents for discussion at a later date. Commissioner Caster advised that presently New Hanover Regional Medical Center could request the County to provide funding for indigent care if the hospital became financially unable to provide the care. He asked if the hospital became a Community General Hospital and could not provide indigent care, what would happen? He placed emphasis on defining the level of indigent care that will be provided under the new structure. Mr. Huffstetler reported the statutes do not define indigent care; however, a condition of the conveyance would be that the Community General Hospital will agree to provide a certain level of indigent care as specified by the Board of County Commissioners. Commissioner Barone reported after several conversations with Mr. Hobbs and Dr. Williams, an argument used for restructuring the hospital was the extra money that would be generated from investments that could be used to offset indigent care. She requested Mr. Hobbs to explain this statement. Mr. Hobbs advised that more flexibility in investing money would allow the hospital to generate an additional $5 million per year, which would greatly assist with the provision of indigent care. He stressed the importance of everyone understanding that increasing costs cannot continue to be passed to paying patients. Commissioner Caster stressed the importance of assuring the citizens that risky investments will not be made by the hospital under the new structure. Vice-Chairman Mathews commented on the number of calls received from concerned citizens that are opposed to the change and stated he felt this issue should not be rushed. Ms. Sylvia Rountree, a member of the Board of Trustees, commented on concerns expressed about appointments to the Board of Trustees under the new structure and stated, in her opinion, it would be logical for the current trustees to remain in office until the terms expire at which time the Board of County Commissioners would fill the vacant positions. She stated she would not be opposed to the Board of County Commissioners appointing all the Trustees. Chairman Greer stated the appointment issue would be addressed; however, many citizens are concerned about the fact that patient care has not been mentioned by the Board of Trustees when promoting the issue. Ms. Rountree advised that patient care was the major reason for proposing the change. She explained that with more flexibility NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 508 the hospital could remain competitive and allow Staff more time to focus on patient care. Dr. Williams agreed and stated the most important issue was patient care. Mr. Huffstetler stated the primary responsibility of the Board of Trustees is to ensure the public trust and move forward with exercising their fiduciary duties by establishing an investment program that is conservative but yields the return needed to enable continued growth and provide new medical technologies to the community and surrounding areas. Dr. David Sloan, President-Elect of the Medical Staff at New Hanover Regional Medical Center, reported he was 100% in favor of the proposed change; however, the public was confused about the amount of emphasis being placed on the need to generate more revenue in order for the hospital to remain competitive and financially sound when there is a cash reserve of $54,000,000 and an on-going construction project of $60,000,000. Dr. Sloan stressed the importance of the public understanding why the change was needed. Mr. Hobbs agreed and explained a public hospital has unique requirements and unique restrictions because of the following items: (1)A public hospital does not have the flexibility, as an investor owned hospital, to select which profitable services the hospital will continue to provide and which services will not be provided because they are not profitable. The Medical Center will continue to provide indigent care and services to the community. As the hospital incurs decreases in patient care revenues, and the ability to shift the charges to paying patients shrinks, the hospital will need to generate additional revenue to continue to provide services. (2)From a competitive point of view, the flexibility allowed under the State enabling legislation will allow the hospital to make better investments and bid projects at a lower cost. This will place the hospital on an equal ground when competing for business in the future. Dr. Sloan requested Mr. Paul Brunstetter to comment on the advantages of the change to Forsyth Memorial Hospital. Mr. Brunstetter reported the major advantage was the competitive environment in Forsyth County between Carolina Medical (Forsyth Memorial Hospital) and Bowman Grey. The fact that both entities have been able to compete with each other freely has resulted in the consumer receiving better care at a lower cost. He commented on appointments to the Forsyth Memorial Board of Trustees and reported the Forsyth County Board of Commissioners appoints 12 out of 19 members. During the past five years, the Commissioners have appointed general community representatives with the Board of Trustees appointing persons from the health care profession, which has resulted in a well-balanced board. Chairman Greer inquired as to the length of term for each trustee? Mr. Brunstetter responded three years with one-third of the Trustees rotating off annually. Chairman Greer asked if the indigent population was receiving quality care? Mr. Brunstetter responded that no complaints had been received about the provision of indigent care. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 509 Discussion was held on a definition of indigent care and the reverter clause. Mr. Brunstetter advised he had not seen any definition of indigent care; however, the hospital is required to provide indigent care or revert back to the county. The reverter clause basically deals with discontinuance of hospital operations and the failure to provide indigent care. Commissioner Caster commented on the public being concerned about the hospital no longer being required to comply to the State bidding law, and he requested an explanation of the bidding process under the proposed change. Mr. Hobbs responded the Board of Trustees would establish a prudent purchasing policy which could include the competitive bidding process. The ability of the hospital to bid single prime versus multiple prime is a tremendous advantage because of being able to design the project and structure the bid. The hospital is currently covered by group purchasing, which would not be changed. As to alternate health care related businesses, the proposed change will provide more flexibility in the ability to develop partnerships with community health care groups. Commissioner Caster commented on the public perception that contracts could be awarded to a friend of choice by the hospital without going through the bidding process. Mr. Hobbs responded as a Community General Hospital the Board of Trustees would be guided by a conflict of interest statement from two viewpoints: (1) the fiduciary responsibility as a Trustee under 501-C3 corporations; and (2) the requirement for a conflict of interest statement in the hospital by-laws since the Medical Center is a joint commission credit organization. A revision would have to be made to the conflict of interest statement, and the Trustees would have to comply to this statement. Mr. Dumay Gorham, Attorney for New Hanover Regional Medical Center, reported a transfer under the enabling State legislation would require the hospital to cease to be a public hospital; therefore, the hospital would not be required to comply to the public bidding statute. Once the hospital becomes a Community General Hospital, there is nothing to prohibit the hospital from awarding a contract to a friend. However, why should the hospital be prevented from awarding a contract to a friend if the contract is in the best interest of the Medical Center. Contracts can be awarded according to prudent business practices, as done by the private sector. Regarding the award of a contract to a Trustee, there is a law in the non-profit corporation act dealing with conflicts of interest that would rule on this type of transaction. There is very little difference between the conflict of interest requirements imposed upon public officials and the conflict of interest requirements in Chapter 55A that apply to Trustees of non- profit corporations. Mr. Charles M. Coleman, Jr., a member of the Board of Trustees, advised the change will allow the hospital to move more quickly with construction projects. Regarding bids awards, there will be a system in place with an administrative review, a committee review, and a Board review that will prohibit undesirable bidding practices. Dr. William P. Parker, President of the Medical Staff, reported the medical staff's major interest was in the provision of care to the patients, not bidding changes or the procedure to be used for appointment of Trustees. He stressed the importance of the Medical Center remaining in a strong, viable position so the hospital can continue to provide quality medical care to the patients. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 510 Mr. William C. Taylor, a member of the Board of Trustees, commented on being in the health care business for over 40 years and reported on the rapid changes that have occurred in the health care industry during the past four years. He stated the proposed change will assist the hospital with keeping the cost of health care down for the citizens living in New Hanover County. Mr. Phil Sharpe, Vice-Chairman of the Board of Trustees, commented on the delays that have occurred in awarding contracts because of restrictions in the State bidding law and reported without more flexibility in the bidding procedures, the hospital would not be able to respond to the bid climate and move forward with capital projects. Mr. Fred Retchin, a member of the Board of Trustees, advised that both boards were interested in the provision of quality health care to the citizens. He commented on the need for the proposed change and urged the Commissioners to move forward with developing the necessary requirements for the transfer to occur as soon as possible so the hospital will not continue to lose revenue. Mr. Charles Coleman commented on appointments to the Board of Trustees and recommended the following alternative: (1)The Board of County Commissioners would appoint two-thirds of the members of the Board of Trustees. (2)The Board of Trustees would appoint one-third of the members. (3)Three ex-officio positions would remain, including one County Commissioner. (4)All appointments would be confirmed by the Board of County Commissioners. Chairman Greer reported the Commissioners would try to respond as soon as possible; however, the citizens must completely understand the issue before approving the transfer. The Commissioners will review the revised by-laws, make corrections, and forward the revisions to the Board of Trustees. Mr. Sharpe suggested that the Board of Trustees should proceed with preparing the following items: (1) identify or define the level of indigent care to be provided by the Community General Hospital; (2) identify and define the investment risks with an in depth accounting of figures; and (3) place more emphasis on patient care in relationship to the reorganization specifying the areas of patient care that will be enhanced. Ms. Sylvia Rountree reported it would be helpful if the Board of County Commissioners could establish a time frame as to when a decision would be rendered because of the amount of time being given by the hospital administration and Board of Trustees on the proposed request. Chairman Greer responded the citizens must understand and be sold on the idea of transferring the public hospital to a private non-profit corporation. He advised the Board would not be ready to make a decision on August 19, 1996, but would try to make a decision within a reasonable length of time. Mr. Sharpe recommended establishing another date for a joint meeting to be held between the two boards to review the draft transfer documents. Dr. Williams expressed appreciation to the Commissioners for the Work Session and encouraged the Board to establish a time frame for rendering a decision. NEW HANOVER COUNTY BOARD OF COMMISSIONERS BOOK 25 JOINT WORK SESSION, AUGUST 1, 1996PAGE 511 Chairman Greer advised that the Board of County Commissioners would try to schedule a joint meeting with the Board of Trustees within thirty days. ADJOURNMENT Chairman Greer adjourned the meeting at 12:34 P.M. Respectfully submitted, Lucie F. Harrell Clerk to the Board