Three Still In Running For Hospital Management

September 9, 2004

By PAUL ROY
Independent Herald Publisher

HUNTSVILLE - And then there were three.

Lifepoint has withdrawn its proposal to take over the management of Scott County Hospital, but three other firms are still actively vying for the opportunity. They are: St. Mary's, Covenant and Attentus Healthcare.

County commissioners and the transition team appointed by County Mayor Dwight Murphy to oversee the selection process have met with representatives of the three hospital groups in recent days, in addition to having visited several hospitals. It is expected that one of the three will be chosen (by the commissioners) in October to replace Community Health Systems, Inc. (CHS), which has been at the helm of the local hospital for the past 15 years, but has announced it will step aside when the current lease expires in November.

Officials of St. Mary's and Covenant Health met in a public forum with the transition team and commissioners at the Scott County Office Building on Tuesday, August 31, and a similar presentation was made by representatives of Attentus on Thursday, September 2. Representatives of the three groups have also held meetings with local physicians, which were not attended by local news media.

St. Mary's Proposal

St. Mary's was first up, as the companyÕs President & CEO Debra London and four other officials unveiled two financial options for Scott CountyÕs consideration: 1) A $13,250,000 financial commitment for a 10-year lease of the facility, approximately $3 million of which would be for the initial lease payment (to acquire CHS's existing equipment and features). St. Mary's first option would include two five-year renewal terms, with 80% of income being earmarked for capital improvements; that is, the money would be set aside for construction of a new hospital facility; and 2) A $13,400,000 financial commitment for a 10-year lease with two five-year renewal options, and an annual lease payment to Scott County of $65,000 a year. The lease payments would jump to $100,000 a year for the first five-year renewal option exercised, and to $150,000 a year for the second.

The primary difference between the two is that the second option makes no provision for setting aside income for new construction.

In addition to London, other St. Mary's officials taking part in the presentation were Eli Matijevich, senior vice president in charge of planning and network development; Dave Wowiski, chief financial officers; Marty Margetts, senior vice president of human resources; and Jerry Askew, a former dean of students at UT, now serving as St. MaryÕs senior vice president in charge of community development.

It was pointed out that St. Mary's has been in operation in Knoxville since 1930, and the hospital currently has 473 beds. St. Mary's also operates Jefferson Memorial Hospital (58 beds), St. Mary's Campbell County (66 beds) and just last month was issued a certificate of need to proceed with construction of St. Mary's North, a planned 72-bed facility in Knoxville. The hospital also operates several other facilities, including two long term care facilities, a home health agency, a health and fitness center, a shelter for senior citizens, a residential hospice, a 120 HUD housing unit, a medical equipment company, an outpatient surgery center and several physician practices. St. Mary's is also a member of the Catholic Healthcare Partners organization.

While St. Mary's is a faith-based hospital, it serves all faiths. Officials list its strengths as its mission, relationship with physicians, community outreach, employee satisfaction, financial stability and quality of care.

From previous discussions with local physicians and members of the hospital transition team, St. Mary's officials addressed what they felt to be the top three concerns locally: 1) outsourcing hospital services, of which they committed to use local providers whenever possible; 2) retention of hospital employees, of which they said the existing staff will be kept, salaries will not be cut, and that they were committed to providing a minimum of a Òliving wage,Ó currently defined as $7.19 per hour; and, 3) local advisory board, to which they committed establishing a nine- to 11-member board which would include a representative of the administration, the hospitalÕs chief of staff, two St. MaryÕs representatives and five commission-appointed representatives. The board would be responsible for overseeing the quality of care, strategic planning, etc.

During the course of a question and answer session which followed St. Mary's presentation, officials said it would not be their intent to outsource any service which could be provided locally; anyone not retained by St. Mary's would be based solely on "performance issues;" would accept TennCare rates for prisoners being housed in the Scott County Jail; and would participate, financially and otherwise, in health and health education related events and activities in the community.

Covenant HealthÕs Proposal

A total of eight Covenant Health representatives were on hand for their presentation to the transition team and county commissioners, with much of the discussion centering around the company's financial stability and established record of providing quality healthcare services at Fort Sanders, Fort Sanders-Park West, Methodist Medical Center (Oak Ridge), as well as in Loudon and Sevier County.

No specific financial commitments were made, but it was announced that Covenant Health proposes a long-term lease (annual or prepaid), establishment of a local advisory board with a representative also serving on Covenant's board; commitment to employees, including better compensation and benefits; a commitment to local providers; and a commitment to the community, which would include establishment of a fund for a Center for Community Health Improvement.

While not apologizing for a lack of a specific financial investment plan, President and CEO Tony Spezia said, "WeÕre going to under-promise and over-deliver . . . It would be wrong for me to promise you a new facility. That's an issue for the contract. We would keep the cash flow in this community. In the next three years, or whatever, you decide if you want to keep us; if not, you keep the money and find someone else."

In addition to Spezia, other presenters for Covenant Health were Larry Martin, chief operating officer for First Tennessee Financial Services, and chairman of the board of Covenant Health; Cletus McMahon, M.D., orthopedic surgeon from Oak Ridge, who serves as the vice-chairman of the Covenant Health Board, as well as chairman of the boardÕs System Quality Committee; Sam Buschetta, executive vice president, human resources; John Geppie, executive vice president and CFO; and Sarah Sinclair, executive vice president.

Attentus's Proposal

A newly-established firm based in Franklin, Tennessee, Attentus Healthcare has pledged to build a new hospital as its first order of business upon assuming the lease of the Scott County Hospital. Among Attentus officials appearing before the transition team and county commissioners last Thursday night were founders Robert A. Yeager and Richard D. Gore, co-CEOs; Gary Fant, CFO; and Warren Goodwin, principal and CCO of META, a program management firm, who would be in charge of determining the communityÕs needs, as well as designing and building a new hospital. Yeager, who provided a history of his and GoreÕs background in hospital management, said Attentus was established in March 2003 with venture capital investments of $77 million, with a focus on small and mid-sized hospitals. "We are preparing to close on our first hospital in Alabama within the next few weeks," Yeager said.

Saying he subscribed to the philosophy "if we build it they will come," Yeager pledged to constructed a new hospital for the county.

"WeÕll take that step starting day one. If its a Monday (that the lease is signed), on Tuesday weÕll start the paperwork to get through the process to eventually build you a new hospital," Yeager said.

Gore said his company would commit to a "minimum of 2%" of the operating budget to set up a capital budget to fund the new hospital. "ItÕs a win-win scenario," Gore said.

Attentus is asking Scott County for a three year lease with two one-year extensions in exchange for $3.3 million up front and $1 million a year for anything over three years. It is estimated that a 60,000 square foot facility (35 to 40 beds) would be built over a three- to four-year period, at which time Attentus would acquire the hospitalÕs equipment at a fair market value. It was estimated that the new hospital could be built for $15 to $25 million.

There was some question about whether or not that $3.3 million would have to be used by the county to meet its obligation to CHS to purchase existing hospital equipment, to which Attentus officials said that they would have to look into what obligations the county had with CHS.

Other commitments pledged by Attentus Healthcare include an evaluation of the existing hospital management team; formation of a local advisory board; installation of standardized information system; begin a physician recruitment efforts; expand and add services; and establish a continuous improvement program. news@ihoneida.com

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