PANAMA CITY ? Its campus has seen changes and growth since the hospital?s 1949 inception, but Bay Medical Center may soon undergo the biggest change of the organization?s history.
To compete in the current health care market, with decreasing reimbursement rates and higher costs, the county?s only public nonprofit hospital is exploring options to become a private for-profit with the help of joint venture partners.
Bay Medical Center?s Board of Trustees on Tuesday were presented with the hospital administrator?s recommendation to enter into a lease agreement with a health system and a private equity partner. The structure of the joint venture would include an 80-20 split with LHP Hospital Group Inc. and the Sacred Heart Health System.
President and CEO Steve Johnson said he believes that if an agreement is struck between the trustees and the potential joint venture partners, the hospital could be leased for 40 years.
The Board of Trustees must wait 30 days before voting on the recommendation, allowing time for public input. If the board votes to move forward with the recommendation, a nonbinding letter of intent would be approved while the staff works to create a full set of definitive agreements.
The joint venture proposal comes as Bay Medical Center faces increasing economic problems stemming from increased charity care during the economic downturn and a decrease in capital needed to make improvements and buy supplies. The hospital currently provides more than $30 million annually in uncompensated charity care.
?The turn in the economy and on top of that there are specific things that are hurting the health care industry,? Johnson said. ?One of the main things is health care reform. We are preparing for the next 10 years and Medicaid reform in the state is another big concern.?
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The proposal
If the Board of Trustees approved, the hospital would be leased to LHP Hospital Group and Sacred Heart. The proposed lease structure means Bay Medical Center would not be sold, and the special district that owns the hospital would remain in place and receive a lump-sum payment.
LHP would provide the funding for the upfront lease payment for the fair market value of the hospital, estimated to be about $155 million. The payment would be used to pay off the debt of the hospital, which is about $115 million.
Johnson said the proposed changes would have no visible impact on patient care and employees? jobs would be protected, as well as their pension plans.
The hospital would continue to follow the same medical staff bylaws, rules and regulations, and the hospital would abide by the same uncompensated care policies that already have been established.
The Bay Medical Center Board of Trustees also would remain in existence to oversee the terms of the lease and manage a newly formed foundation that would use the several million in escrow from the lease to assist with unfunded community health needs.
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Motivation
The motivation for the change was to keep the hospital moving forward despite a bleak outlook for the future, hospital officials said.
?Our basic premise is the belief that a public safety-net hospital that is independent, and is not supported by taxes is a model ? no longer viable,? Johnson said.
The hospital is operating at a loss of $600,000 for the month of July and has a year-to-date loss of nearly $3 million. The hospital operates at a nearly break-even point, further complicating the upcoming challenges of investing in the information technology infrastructure mandated by health care reform, according to hospital officials.
?We have to refinance our debt, and a negotiated lease agreement would do that,? Johnson said. ?We did not want an outright sale.?
Hospital officials said the proposed joint venture would allow for a stronger balance sheet for the community hospital and capital for future expansions and growth. The agreement essentially would allow Sacred Heart to fold Bay Medical Center into the larger Sacred Heart health care system. Bay Medical Center would be able to share services with the surrounding Sacred Heart hospitals but continue to provide the same levels of charity care and follow a similar mission, hospital officials said.
?The buying power of the hospital will go from making purchases for one hospital to being part of a group that operates multiple hospitals,? Johnson said.
In addition to buying power, Sacred Heart would provide the hospital with higher reimbursements, and Bay Medical Center could work with other Sacred Heart hospitals in Port St. Joe, Destin and Pensacola for clinical support.
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Partnership, affiliation talks
The talks to partner with Sacred Heart have been in the works for more than a decade. Johnson interviewed with Sacred Heart officials when he applied for the president and CEO position at Bay Medical Center in 2001. At that time, the discussion involved Sacred Heart purchasing Bay Medical Center.
In 2001, Bay Medical Center was worth about $73 million; today the hospital is worth about $155 million, according to Johnson.
?The board has known we would likely partner with someone. The question was when is the timing right,? Johnson said. ?We are timing the market; I don?t think our hospital is going to be worth any more under our current business model.?
Discussions with multiple partners have been held in the past several months about Bay Medical Center joining a health care system. Sacred Heart?s mission and scope aligned with BMC?s, according to Johnson.
Sacred Heart currently has operations along spanning from Pensacola to Jacksonville. The partnership with Bay Medical Center enhances those locations in the Panhandle.
?We see it as extremely beneficial,? said Laura Kaiser, president and CEO of Sacred Heart Health System. ?The benefit for Sacred Heart is that tremendous ability to tie the hospitals together. ? There are all kinds of connectivity and services that can be shared.?
LHP and Sacred Heart would share 50/50 governance of the hospital. A board of local individuals and medical providers would sit on the new governing board for the hospital.
?We look at our health system as a family and your ministry is impressive and stands very tall in this community,? Kaiser told board members during Tuesday?s meeting. ?We are looking forward to the continued dialogue, and I hope we can bring this together.?
The other partner in the proposed joint venture, LHP Hospital Group Inc., is a privately owned hospital company that operates and manages acute-care hospitals in small cities. LHP has a development strategy of partnering with various not-for-profit hospital companies and balance the needs of sponsors with the needs of the community while maintaining a for-profit revenue model.
Although the Board of Trustees would be giving up some control if the plan is approved, the leadership team, Emergency Medical Services and all hospital employees are expected to remain in their current positions with their current job functions.
?I think it?s probably going to be the best thing for the hospital,? said board chairman Floyd Skinner. ?I?m sure that (if) the hospital continued in the long term the way we are now, we wouldn?t be able to keep up and improve the quality of care.?
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Next steps
The Board of Trustees will not take any action on the proposal until their next board meeting in September. The board?s attorney advised the members of the board to not advocate any particular position but to be part of the discussion about the proposal.
?We will be talking with everyone at length about this transaction,? Skinner said. ?We are going to make sure this is absolutely the right thing for the hospital and the community.?
If the board agrees to follow Johnson?s recommendation and sign a nonbinding letter of intent, it would allow hospital staff to begin definitive negotiations with their joint venture partners.
?What we have tried to do is make this a win-win situation,? Johnson said. ?The employees will retain their jobs, their benefits will remain basically the same and physicians will keep their contracts. ? Patients will not see any difference.?
The earliest any definitive agreement can be expected to be in place is November to January, Johnson said. If approved by the hospital board, the lease agreement would go before the Bay County Commission for a vote. ?
An earlier version of this story appears below:
PANAMA CITY ? The only public non-profit hospital in Bay County took key steps Tuesday to take the facility private.
The Bay Medical Center?s Board of Trustees learned Tuesday that hospital administrators are recommending a lease agreement with private equity partners. The structure of the joint venture would include an 80-20 split with LHP Hospital Group Inc. and the Sacred Heart Health System.
Hospital CEO and President Steve Johnson said he believes that if an agreement is struck between the trustees and the potential joint venture partners, the hospital can be privately leased for a period of 40 years.
The Board of Trustees will have to wait 30 days before voting on the recommendation, allowing time for public input. If the Board of Trustees votes to go forward with the recommendation, a full set of definitive agreements would have to be negotiated.
Bay Medical Center?s economic problems stem from the increased charity care during the economic downturn, while its capital necessary to make improvements and buy supplies decreased.
Johnson said the proposed changes would have no visible impact on patient care and employees? jobs will be protected, as well as their pension plans.
?Our basic premise is the belief that public safety-net hospitals that are independent, and are not supported by taxes is a model ? no longer viable,? Johnson said.
The hospital currently has about $115 million in debt and operates at a break-even point.
?We have to refinance our debt, and a negotiated lease agreement would do that,? Johnson said. ?We did not want an outright sale.?
Check back later for more details
Article source: http://www.newsherald.com/articles/privatization-96476-seek-bay.html
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Source: http://medicaltips.biz/2011/08/31/bay-med-seeks-to-go-private/
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