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