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1985-10-18 Special Meeting 18 MINUTES OF SPECIAL MEETING, OCTOBER 18, 1985 - DISCUSSION OF HOSPITAL REORGANIZATION ASSEMBLY The New Hanover County Board of Commissioners met in Special Session on Friday, October 18, 1985, at 9:00 o'clock A.M. in the Assembly Room of the New Hanover County Administration Building, 320 Chestnut Street, Wilmington, North Carolina. Members present were: Commissioners John Dolan; Claud 0' Shields, Jr.; Fred Retchin; Vice-Chairman Jonathan Barfield, Sr.; Chairman Nolan O'Neal; County Manager, G. Felix Cooper; County Attorney, Robert W. Pope; and Clerk to the Board, Lucie F. Harrell. Chairman O'Neal called the Special Session to order introducing the following guest speakers: Mr. Greg Gaskins, Attorney for State Treasurer's Office and N. C. Local Government Commission Mr. Douglas Johnston, Assistant Attorney General Office of the Attorney General State of North Carolina Mr. Frank Pritchett Finance Officer New Hanover Memorial Hospital Mr. Joseph Soto Executive Director Cape Fear Memorial Hospital EXECUTIVE SESSION Commissioner O'Shields requested and MOVED, to call an Executive Session under GS 143-318.11 with reference to Paragraphs 8 and 9 concerning the qualifications, competence, performance, character, fitness, or conditions of initial employment of a public officer employee or concerning the employment, performance, or discharge of an independent contractor. He recommended the Executive Session be attended only by County Commissioners. Commissioner Retchin SECONDED THE MOTION. Chairman O'Neal expressed concern for delaying the meeting with guest speakers present. Commissioner Dolan asked if the Executive Session was related to the Special Session and if it could be delayed until after the session. Commissioner O'Shields stated the subject was related to the meeting. Chairman O'Neal called for a vote on the motion. Upon vote, the MOTION CARRIED AS FOLLOWS: Voting Aye: Commissioner O'Shields Commissioner Retchin Vice-Chairman Barfield Voting Noe: Commissioner Dolan Chairman O'Neal Chairman O'Neal convened the meeting to Executive Session at 9:07 o'clock A.M. Chairman O'Neal reconvened the meeting to Special Session at 9:28 o'clock A.M. Chairman O'Neal apologized for the delay in the meeting. He stated the Commissioners had requested him to call this Special 1! MINUTES OF SPECIAL MEETING, OCTOBER 18, 1985 (CONTINUED) Session to discuss the proposal presented by the Hospital Board of Trustees for transfer of ownership and assets of our public hospital to a corporate board. He stressed the importance of analyzing "all parts" of health and medical care. I Chairman O'Neal introduced and welcomed the guest speaker, Mr. William R. Ritter, Vice-President & Treasurer of Arnot-Ogden Memorial Hospital, Elmira, New York. PRESENTATION BY MR. WILLIAM R. RITTER Mr. Ritter stated he had been charged to study the proposed reorganization plan presented by the New Hanover County Board of Trustees disclosing pros and cons of reorganization for this public hospital. He thanked Mr. Frank Pritchett for his cooperation and assistance in furnishing data complimenting him on a very fine and excellent hospital. He stated a profit of $5,640,650 for 1985 places New Hanover Memorial Hospital in the top 5% of hospitals in the County without reorganization. He stated the projected profit of $3,114,343 for 1986 without reorganization could be even higher if administration had a handle on its utilization of resources, its administrative and general expenses, its data processing expenses, and its malpractice insurance expenses. He stated a crucial point that everyone must understand is that the administration of any hospital, reorganized or not, has to understand not only hospital finance, including the federal prospective payment system (DRG's) and the preferred provider program, but they must know how to implement the same. I After a slide presentation and explanation of his analysis, Mr. Ritter presented the following reorganization disadvantages: 1. Challenge from intermediaries, debt covenant problems; retaining tax-exempt status; time and cost to reorganize; lack of management skills; employee and medical staff dissatisfaction; resent loss of authority, lack of support from: (1) Management, Medical Staff, Board of Directors, Community; (2) lack of agreement on what to do after reorganizing; (3) how to get the dollars to do it; (4) disagreement on which board members will go to subsidiary, parent company, foundation boards; (5) unwillingness of board members to give "community involvement" in favor of a profit-making role; and (6) dealing with ego's of health professionals who want leadership roles in the for-profit organization but are not qualified to be risk takers or managers. 2. The following projects as outlined in the proposed reorganization plan can be accomplished without reorganization: I 1. Urgent Care Center 2. Ambulatory Surgery and Endoscopy 3. Psychiatry Treatment Services 4. Joint ventures with physicians 5. Health care affiliation with retirement communities 6. Ambulatory Care 7. Wellness program 8. Contract management and services 9. Rehabilitation Services 10. Tenth floor space 11. Guest House 12. Cardiac Care Program 13. Expand tertiary referral market 14. Growing room for diversification in medicine 15. Fund raising, philanthropy, and grant money 16. Develop incentive compensation for Managers 17. Outpatient I.V. Therapy 18. Service Development 20 MINUTES OF SPECIAL MEETING, OCTOB~R 18, 1985 (CONTINUED) In conclusion, Mr. Ritter stated after visiting Wilmington on two separate occasions, it was his opinion that reorganization is an attempt to take New Hanover County's finest jewel and remove it from the control of the elected officials and place it in the hands of those citizens which want to control it without being elected. He stressed the importance of remembering: (1) Safety of the citizens of New Hanover County; (2) Health of the citizens of New Hanover County; and (3) care for the indigent of New Hanover County. He stated he felt reorganization would eventually develop into a two-tiered health care system in New Hanover County where those who pay get to stay which would be detrimental to both the County and Hospital. Mr. Ritter stated he would be glad to answer any questions and thanked the Commissioners for the opportunity to make his presentation. Commissioner Barfield asked for an explanation of the laws that control joint ventures. Mr. Douglas Johnston, Assistant Attorney General, stated there are relatively few things that would not be permitted under a non-profit organization or for-profit organization. He stated some projects would require additional legislation under either structure. He stated the legal requirements of the County would be: (1) does the County have enough control to demonstrate its continued willingness to meet its fiduciary obligation and (2) "public purpose." Mr. Ritter asked if the fiduciary obligation is forever. Mr. Johnston stated it is possible to draw up a contract that would not give a direct obligation to oversee the new structure for longer than 50 years. However, he stated it was not likely that you could structure reorganization without using deed restrictions. You need to have the deed potential, insurance provision, contract provision, and a careful selection process when restructuring. Commissioner Dolan asked if reorganization did pass and later down the road, poor investments were made under the holding corporation, does the fiduciary burden come back to the County? Mr. Johnston commented on the difference between times becoming hard and poor management. He stated if times get hard and bankruptcy occurs, there is no way to say the Board of Commissioners failed in their duties nor failed to carry out the County's fiduciary duties. However, if poor management occurred developing into bankruptcy and the County had not anticipated a method of control over management, the County could have a problem legally with the fiduciary obligation stating again, this is where insurance would be advantageous when the transfer agreement was originally drawn. He stated the Board of County Commissioners would always have the responsibility of providing health care in the County. Commissioner Dolan asked if the County would be responsible for debts incurred by the corporate board or would the County have to start over in providing health care. Mr. Johnston stated under the transfer agreement, provisions should be provided whereby the corporate board would be responsible for any debts incurred and pay back thereafter. Mr. Johnston stated the next legal responsibility other than fiduciary obligation was "public purpose." He stated public property had to be handled in conformance with public purpose. The notion of public purpose is simply that no use of an asset or money of the public and County government can be used for anything other than a public purpose rather than a private gain. He stated this is not to say that you cannot sell property but when you sell property you must obtain a contract which will state your hopes for the public purpose to be accomplished. He explained that now you have a building and grounds that meet the public purpose but when you draw up a transfer agreement the public purpose will be in the form of a contract. .... :2./ MINUTES OF SPECIAL MEETING, OCTOBER 18, 1985 (CONTINUED) I Mr. Johnston commented on a non-profit and for-profit organization. He stated the general assumption that non-profit structures are much more limited in authority to do various things than for-profit structures is not entirely true. He stated there may be situations where non-profit structures may have to perform additional procedures or steps in order to do the same as for-profit structures. He stated the non-profit concept can be a useful tool in working on a parallel track with the County government or with private corporations. He stated normally non-profit structures are established with a Board of Directors appointed by local government undertaking non-profit activities and involvements in unrelated businesses which can be for-profit operations. Commissioner Retchin asked if County hospitals could enter into for-profit ventures? Mr. Johnston gave various examples where property at the hospital can be leased to another entity stating you do not have to go into business for yourself. He stated you can work through leases for various profit making ventures. Mr. Greg Gaskins gave background information on the establishment of the Local Government Commission. He stated the Local Government Commission is involved with Counties in terms of hospitals because of GS 159.39 the statute which defines the public hospital and places the hospital under the Budget Fiscal Control Act. He stated as hospitals have wanted to reorganize to do different types of ventures, the Local Government Commission worked to establish the new statute. I Commissioner Dolan asked what types of businesses in the health care area can public hospitals now participate without restrictions? Mr. Gaskins stated each situation would have to be on a case-by-case basis. Mr. Johnston stated the definition in the general statutes states you can operate a medical clinic that would have to rely on information from physicians and medical experts and operate in connection with the hospital. He stated the definition also includes mental health clinics, nursing facilities, convalescent facilities, rehabilitation centers, a public health' center, a hospital faci Ii ty includes renting facilities such as laboratories, outpatient departments, housing, training facilities for nurses and other health care professionals, and central service facilities. Mr. Johnston stated non-profit corporations may have more flexibility than ever before. He again reiterated that non- profit structures can enter into different organizations without violating their non-profit status. He stated most medically related businesses can be performed by a publicly owned hospital within its county boundaries. Commissioner Retchin asked Mr. Johnston about the question of a foundation as a subsidiary of a public hospital that would be allowed to participate in various for-profit ventures. I Mr. Johnston commented on the limitation that you cannot do by indirection which you are not allowed to do directly. However, there could be attorneys through various legal methods that could accomplish entering into such agreements. Mr. Gaskins stressed the importance of defining the gray areas in the statute and encouraged all local governments to have the General Assembly to address these issues. He stated it was impossible to answer yes or no to joint ventures of public hospitals stating each request must be on a case-by-case basis. d:L~ MINUTES OF SPECIAL MEETING, OCTOBER 18, 1985 (CONTINUED) Commissioner Retchin commented on 40% of hospital revenues being received outside of New Hanover County. He stated because of competition that is now occurring, it would seem a great deal of this revenue is threatened; consequently, the hospital board is looking for joint ventures outside the County in order to recover some referrals that are being lost. He emphasized the importance of the best possible way to provide healthcare service for the citizens of the community. Mr. Joseph Soto, Executive Director of Cape Fear Memorial Hospital, commented on Cape Fear Hospital as being a private non- profit hospital. He gave background information on the hospital stating the administration of Cape Fear works very closely with the administration of New Hanover Memorial Hospital. He expressed concern for the long-term impact of reorganization on Cape Fear Hospital and its operations. He requested the Commissioners to keep this point in mind when making a decision. ADJOURNMENT Vice-Chairman Barfield MOVED, SECONDED Commissioner Dolan to adjourn the meeting. Upon vote, the MOTION CARRIED AS FOLLOWS: Voting Aye: Commissioner Dolan Commissioner Retchin Vice-Chairman Barfield Chairman O'Neal Absent: Commissioner O'Shields Chairman O'Neal expressed appreciation to all persons who participated in the meeting and adjourned the meeting at 12: 06 o'clock P.M. ~c:/z::ed. Lucie F. Harrell ADDENDUM TO MINUTES OF OCTOBER 18, 1985 Commissioner O'Shie1ds returned to the meeting at 11:46 o'clock A.M. MINUTES OF REGULAR MEETING, OCTOBER 21, 1985 ASSEMBLY The New Hanover County Board of Commissioners met in Regular Session on Monday, October 21, 1985, at 9:00 o'clock A.M. in the Assembly Room of the New Hanover County Administration Building, 320 Chestnut Street, Wilmington, North Carolina. h.