BRHS board considers five proposals

Published 10:26 pm Wednesday, October 13, 2010

Staff writer

Four prospective partners have presented five proposals for affiliation with Beaufort Regional Health System, according to information presented to the BRHS Board of Commissioners Tuesday.
Greenville-based University Health Systems of Eastern Carolina, Community Health Systems Inc. of Brentwood, Tenn., and LHP Hospital Group of Plano, Texas presented lease offers. LHP Hospital Group and Brim Healthcare of Brentwood, Tenn. presented alternative proposals that would either create some type of joint venture with BRHS or establish a management services arrangement.
A summary of the proposals were presented to the board by Daryl P. Johnson and James R. Hills of HealthCare Appraisers, Inc., the Florida-based consultants guiding the local hospital’s search for suitors.
He said the proposals represented a starting board for BRHS discussions with the potential partners and would be subject to possible revisions as a result of direct negotiations between BRHS and the four health care systems.
Alice Mills Sadler, chairman of the BRHS board, said the board will meet with members of the medical community and seek comments from the public before the board begins the task of winnowing the proposals and choosing a prospective partner.
Mills Sadler said the board will not likely make a decision by the December 2010 date included in the original Request for Proposal issued by BRHS earlier this year.
That RFP asked for two proposals from potential partners. The first asked potential partners to respond to a BRHS request for a 20-year lease that would begin “on or about” Dec. 1, 2010. The second asked potential partners “to be creative. If you see an alternative way to accomplish our objectives in lieu of the preferred leasing structure, we  invite you to propose your best ideas without restrictions.”
University Health Systems of Eastern Carolina presented a proposal for a 20-year lease; Community Health Systems, a 30-year lease plus two 10-year renewals; Brim Healthcare, a three-year management services arrangement with one two-year renewal, and LHP Healthcare, separate proposals for a 30-year lease with two 10-year renewals and a 80/20 joint venture arrangement.
About a dozen members of the public including County Commissioner Al Klemm and Danielle Leff, a research associate for the Service Employees International Union, attended the presentation.
Hood Richardson, a member of the BRHS board and the Beaufort County Board of Commissioners, declined to say which proposal he preferred, saying it is “very early in the process.”
In other business, the board:
* Approved a contract with LarsonAllen LLP of Charlotte to perform the 2009-2010 audit of BRHS. The firm is to begin auditing the health system’s finances later this month and deliver a completed audit report in January. The contract is in the amount of $73,700 plus expenses, according to Interim Chief Finance Officer Richard Reif. The cost of the audit is about $40,000 more than the previous year’s audit to allow auditors to more closely examine the finances of various hospital departments, the board was told. Board member Edwin M. “Sandy” Hardy abstained from the vote.
* Appointed BRHS Chief Executive Officer Susan Gerard, Reif and board member Howard Cadmus as BRHS representatives to Eastpointe Health LLC. Eastpointe Health is a joint venture between BRHS and University Health Systems of Eastern Carolina established in 1999 to operate the magnetic resonance imaging system at BRHS. Under a new agreement, retroactive to Oct. 1, 2008, BRHS will lease the equipment at a cost of $138,396 but will retain all of the profits from its operations. The previous agreement called for BRHS to split the profits with UHS, the board was told. The board voted unanimously to give the new representatives the authority to execute the new agreement.
* Heard a report but took no action on an amendment to the BRHS lease agreement with the county. The lease would be amended to reflect the recent sale of 19 pieces of property including some medical buildings and vacant land to the county. It would require a lease payment to the county equal to the debt payment by the county for the newly-acquired property, the board was told.
* Voted unanimously to dissolve the BRHS board’s Cost Containment Committee and assign its work to the BRHS board’s Finance Committee.
* Appointed officers as follows: Alice Mills Sadler, chairman; Brenda Peacock, vice chairman, and Hood Richardson, secretary/treasurer.
* Lease arrangement proposed
* Leases assets: Operations and assets of Beaufort Regional Medical Center including its related joint ventures, land and buildings and physician practices
* Lease term: 20 years
* Consideration: $18.1 million prepaid lease payment
* Minimum $21 million capital expenditure commitment over first five years of lease
* UHS to assume Beaufort Regional Health System current assets and liabilities
* Upon expiration of the lease, UHS is entitled to full and complete transfer of title and ownership of all leased assets for no additional consideration. Thereafter, UHS will be responsible for the operations of BRMC and its physician practices. Future working capital needs will be the responsibility of UHS
* UHS will recruit new physicians based on the hospital’s strategic plan
* Lease arrangement proposed
* Leased assets: Land, building and equipment of BRMC
* Lease term: 30 years, plus two 10-year renewals at fair market value
* Consideration: $30 million prepaid lease payment
* Additional consideration: CHS would purchase the “net working capital” of BRMC
* Purchased assets: Net working capital, including all assets of BRMC and associated physician clinics, ancillary services and other assets required for the operation of BRMC
* $25 million capital expenditure commitment during the first five years of lease
* $2 million physician recruiting commitment during the first five years of lease
* End of lease term: Hospital retains ownership of its assets, BRMC will reimburse CHS for the net book value of any preapproved capital expenditures made by CHS within five years of the lease termination
* Management services agreement proposed
* MSA term: Three years plus one-two year renewal
* Management fee: To be determined; a starting point is one to three percent of net patient revenue
* Will recruit new physicians based on BRMC strategic plan; a contingency fee will be charged for this service
* Comprehensive management services to be provided include supply savings, financial reporting systems, best practices, strategic planning, quality improvement, organizational leadership, clinical resources management, joint commission readiness, education and billing and collections services
* Leased assets: the business operations of BRMC, the physician practices, joint ventures, any assets not specifically retained by BRHS, net working capital, rights, privileges and interests necessary to the continued operations of the business
* Lease term: 30 years plus two 10-year renewals at fair market value
* Lease consideration: $22 million prepaid lease payment
* $20 million capital expenditure commitment during the first 10 years of the lease
* Physician recruiting committee to be determined
* East of lease term: Not clear as to the treatment of assets
* LHP will contribute $24 million case for 80 percent interest in a new joint venture
* BRHS to contribute its land, facilities, equipment, operations and net working capital to the joint venture at a valuation of $22 million; BRHS to immediately receive a $16 million cash distribution at closing to help satisfy debts/liabilities. BRHS net ownership interest in the new joint venture is 20 percent
* Net cash position of joint venture after closing is $8 million, debt-free
* After the initial capitalization, funding for capital expenditures and other cash needs will be secured by the joint venture in the following order of priority: Cash that is available at closing, cash available from ongoing operations of the joint venture, loans from LHP on terms mutually agreeable to LHP and the joint venture, loans from third party lenders, and pro-rata cash contributions from the owners to the joint venture
* After the first year and up until the end of the fifth year following joint venture formation, BRHS will have the right to sell its ownership interest to LHP at fair market value
* Up to five years following the joint venture formation, BRHS will have the right to purchase up to 40 percent of the joint venture at fair market value
* In the event that LHP or BRHS receives a bona fide offer from an unrelated third party to purchase its ownership interest in the joint venture, the non-selling party will have a ‘first right of refusal” to purchase such ownership interest for a price equal to the amount offered by such third party.