Bill allows creation of new Erlanger operating board

Bill allows creation of new Erlanger operating board

February 21st, 2014 by Andy Sher in Local Regional News

Aerial view of Erlanger hospital in Chattanooga, which could get a new nonprofit board in a bill working its way through the Tennessee General Assembly.

Photo by Doug Strickland /Times Free Press.

What the bill does:

According to an Erlanger news release:

• The Hospital Authority is permitted to create a Tennessee Nonprofit Corporation (Operating Board). It would be a 501 (c)(3) federally tax-exempt organization.

• The Authority, if it chooses, can lease the facilities and operations of Erlanger Health Systems to the Operating Board for adequate consideration, sufficient to cover the Authority's current and future debt service. The Authority remains intact to oversee the lease. The lease will not increase the bonded indebtedness of the Authority.

• The Operating Board assumes all debt and obligations which are payable out of the assets of the Operating Board with no liability to state or local governments.

• The Operating Board shall have all the rights and powers under the Tennessee Nonprofit Corporation Act and shall serve a governmental, public purpose. for purposes of leasing and operating the hospitals

• Nothing in the act will add or reduce existing financial obligations of the county to Erlanger.

• The Operating Board is directed to adopt competitive bidding procurement rules and regulations based on best corporate business practices. It also encourages opportunities for Disadvantaged Business Enterprises as already defined by state procurement law.

• The Operating Board is subject to and covered by Tennessee's Government Tort Liability Act as well as the state's Open Records Act and Open Meetings Act. The Hospital Authority remains under these laws as well.

• Employees and contractors "leased" to the hospital by the Authority remain eligible for all benefits, retain their workers compensation status and are subject to personnel policies and procedures.

• The Operating Board will file annual financial reports to the Authority. They will include data on the provision of charity care, indigent care and other community benefits benefits the hospital provides.

• The Operation Board shall maintain Erlanger's public mission providing trauma care and serving indigent, low-income and needy within the service area.

• The Operating Board is direct to adopt conflict-of-interest rules and policies for directors, officers and medical staff as it relates to hospital operations. Both state and Internal Revenue Service regulations governing nonprofit boards include conflict of interest provisions as well.

Local state senators and representatives have gone back to the drawing board on legislation they say is crucial for the survival of Erlanger Health Services.

Unlike last year's bill, which was spurned by Hamilton County commissioners, the new bill isn't a private act and therefore doesn't require commissioners' approval.

The legislation instead changes a general state law. It would pave the way for the public Chattanooga-Hamilton County Hospital Authority to, if it chooses, create a new operating board that would assume management of the hospital.

Last year's version amended the Legislature's 1976 private act creating the hospital authority and how its 12 trustees are appointed. They currently are appointed by the city, the county, local lawmakers, the two chancellors and the Chattanooga-Hamilton County Medical Society.

County commissioners, who approve four trustees submitted by the county mayor, didn't like that last year's version took them out of the appointment process. They also disliked a provision that pegged the county's annual $1.5 million appropriation to Erlanger to the Consumer Price Index's rate of inflation.

This year's version doesn't change how trustees are appointed. It keeps the $1.5 million county appropriation, but there's no longer an inflation index. It also directs trustees to create and appoint a federally tax-exempt operating board.

"We still leave them [county commissioners] involved," said Sen. Todd Gardenhire, R-Chattanooga, the new bill's Senate sponsor. "We just don't go through them [for approval] because they refused to vote" on last year's bill.

Rep. Mike Carter, R-Ooltewah, the House sponsor, agreed. Changes at the public hospital are necessary, he said, because of Erlanger's financial losses and changes in the health care landscape.

"Remember that running a medical facility now is a hunt for dollars and they must follow what the federal Centers for Medicare and Medicaid services will pay for," Carter said.

Officials also hope the change could attract other types of funding. And the politically appointed hospital authority would be looking over the management board's shoulder.

Lawmakers and others have complained authority trustees have sought to micromanage Erlanger with bad results.

Hamilton County Commission Chairman Fred Skillern hadn't seen the bill as of Thursday afternoon but bristled at the notion commissioners would not be involved in the decision.

"If the commission doesn't have to fund it, then we don't need to have an input," Skillern said. "But if we have to fund it, then the commission needs to have an input."

The county will still be required to pay $1.5 million toward the public hospital under the legislation.

County Mayor Jim Coppinger said it was within the legislature's "right" to decide the legislation's format, and that the county "will adhere to their decision."

Overall, Coppinger said, he supports the nonprofit model.

"It helps Erlanger in its purchasing and procurement rules because they're obviously competing with other health care facilities. There will definitely still be public accountability, and the state has agreed there will be no additional burden for the taxpayers," he said.

If lawmakers give the OK, the legislation still would need to pass a vote by the existing hospital authority board -- which has already voiced support for the measure.

It would likely take at least a year to move to the new governing structure, with all of the new contracts with vendors and paperwork with government agencies, said Steve Johnson, Erlanger's vice president of government relations.

Johnson said a major feature of the new structure is how it gives Erlanger more freedom to make purchases.

Instead of sticking to strict dollar thresholds for how to advertise and accept bids, the new board can adopt buying practices based on market conditions -- making the hospital more competitive with its Chattanooga rivals, Memorial Health Care System and Parkridge Health System.

The hospital authority board will remain intact, with 12 trustees appointed by political figures. But it will likely meet much less frequently as the new operating board takes over closer management of the hospital.

The operating board will file annual financial reports to the authority, and will outline services like its level of indigent care.

Contact staff writer Andy Sher at or 615-255-0550.