published Friday, March 25th, 2011

Don’t rush hospital talks

There is some urgency that talks to secure an agreement that would allow Erlanger Health System to take over management of Hutcheson Medical Center in Fort Oglethorpe conclude speedily. Hutcheson is losing about $1 million a month, and it is unlikely to survive long without outside assistance. Still, that’s no reason to rush to sign an agreement. All involved, especially those with long-term historic and financial interests in the North Georgia facility, should take the necessary time to thoroughly examine Erlanger’s proposals before a pact is finalized.

Not all parties involved in negotiating the management agreement, however, seem willing to allow reasonable time for scrutiny. An email obtained by the Chattanooga Times Free Press strongly suggests that Ward Nelson, legal counsel for HMC, the private nonprofit group that operates Hutcheson, is unhappy with the speed at which negotiations are moving. He blames Walker County leaders for the current lack of progress in the negotiations. That’s his opinion. The county officials take a different view.

They are rightfully concerned about the financial implications that the proposed agreement might have on Walker County. They could be considerable. Hutcheson is not only hemorrhaging massive amounts of money monthly: It also has defaulted on a $35 million bond issue from Regions Bank. The Erlanger proposal would provide a $20 million line of credit to address the financial problems, but the offer comes with a contingency. Erlanger reasonably wants to protect its investment. Consequently, it is insisting that Walker, Dade and Catoosa counties, which make up the hospital authority board, guarantee the $20 million investment in case Hutcheson is unable to repay it from future income. That’s sound business practice.

What is sound practice for Erlanger, though, might not be in the best interest of taxpayers in the three affected counties. Don Oliver, Walker County attorney and counsel for the Hospital Authority board, makes that point in an email to the various parties involved in negotiations. He wrote that Hutcheson should avoid getting into another “predatory” debt entanglement — a clear reference to the default on the Regions’ bond.

“Commissioner [Bebe] Heiskell,” he wrote, “will not allow the Walker County taxpayers to be stuck with such a similar predatory arrangement as is being proposed by Erlanger.” Heiskell might eventually accept Erlanger’s terms, as officials in Dade and Catoosa counties have done, but she certainly should not be forced to do so without considering all options available. That is prudent stewardship of public funds.

Other Erlanger proposals, according to information provided by Nelson, cover deferral of interest payments and repayment of principal and management fees. Erlanger also estimates that it would invest $15 million in new physician practices in Northwest Georgia in coming years and that it would hire and pay three top hospital administrators. The estimated cost of the latter is put at $1 million annually.

Each of the Erlanger proposals requires scrutiny. Some are standard in such matters. Certainly an investment in physician practices makes sense. Without a strong physician base to refer patients, Hutcheson will languish regardless of who operates it. Heiskell and other county leaders, though, might want more information about the proposed salaries for those hired to operate Hutcheson if Erlanger takes over.

An estimated $1 million a year for three top administrators for a smallish hospital in serious financial difficulties seems somewhat extreme, particularly since Erlanger already has a cadre of highly paid officials and experts on staff. Surely, that expertise could be used beneficially to reduce costs at Hutcheson.

More public information on the proposed management agreement would be welcome as well. Erlanger already struggles to pay for indigent care on its Tennessee campuses. Many of those patients, according to the hospital, come from the Northwest Georgia region currently served by Hutcheson. Would a revived Hutcheson reduce that load and the associated costs — thereby boosting Erlanger’s bottom line — but do so by shifting burdensome costs to Hutcheson? That’s a question that deserves an answer, especially since Erlanger wants taxpayer funds to guarantee its investment.

Good-faith negotiations between Erlanger and Hutcheson need not be open-ended. The situation is dire and requires resolution in a timely manner if Erlanger is to remain interested in operating Hutcheson. Forcing the issue, through emails or coercive course of action, though, is counterproductive.

In business matters, it almost always is wiser to exhaustively vet a proposal before signing an agreement than to accept it under duress and then come to regret the decision. Erlanger, Hutcheson officials, the governments involved in negotiations and those who rely on Hutcheson for care would do well to remember that.

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