Negotiations begin between Hutcheson and Erlanger

Negotiations begin between Hutcheson and Erlanger

October 29th, 2010 by Emily Bregel in News

Staff Photo by Angela Lewis/Chattanooga Times Free Press Erlanger President and CEO Jim Brexler, center, talks about a partnership between Erlanger Health System and Hutcheson Medical Center on Thursdsay during a news conference at Hutcheson. Hutcheson board of directors Chairman Martha Attaway, left, and President and CEO Charles Stewart, right, listen.

In need of a lifeline, officials at Hutcheson Medical Center announced Thursday they have settled on Erlanger Health System as a partner to help ensure the community hospital's survival.

But the structure of the proposed affiliation is far from settled. Officials said they don't know what Hutcheson's signs will read this time next year, let alone what form the strategic partnership will take.

"That's all not defined at this stage," Hutcheson President and CEO Charles Stewart said Thursday after a news conference announcing the partnership plans.

Hutcheson leaders have been looking for weeks for a partner that could help recruit doctors and bring patients back to the Fort Oglethorpe hospital. They considered proposals from Erlanger and Memorial Health Care System.

Hutcheson lost more than $7.3 million in fiscal year 2009, according to unaudited financial statements. The hospital's loss in fiscal year 2010 was about the same, Stewart said.

At the news conference, Hutcheson Medical Center board Chairwoman Martha Attaway said Erlanger won out because of its mission to provide health care to the poor, as well as its financial stability and willingness to recruit and maintain physicians in Northwest Georgia.

Erlanger handles the bulk of the uncompensated care provided to poor and uninsured patients in the area each year and it receives federal disproportionate share payments to help offset those losses.

Hutcheson and Erlanger now intend to move forward with a 60-day "due diligence" period, giving each time to learn more about the other and come up with a detailed plan for collaboration by mid-January, Stewart said.

The agreement was predicated upon Erlanger trustees' approval, which was given at the hospital's Thursday night board meeting.

Hutcheson Medical Center's board, which oversees the hospital's day-to-day operations, voted Monday to recommend Erlanger to Hutcheson Health Enterprises, the nonprofit parent company of Hutcheson Medical Center and Hutcheson Medical Division.

The Hutcheson Health Enterprises board met Wednesday and voted unanimously to follow the recommendation, board Chairman Jim Forster said.

Members of the committee that heard Erlanger's partnership proposal said the Chattanooga hospital, at least initially, would have operational control over Hutcheson.

"Like any business, if you're fixing to drop a tremendous amount of money (into a partnership,) you want to have some control," said Dade County Executive Ted Rumley, who heard the proposals and was one of the North Georgia county leaders who advised Hutcheson officials before the decision.

But it's not clear what kind of financial exchange will occur between the hospitals.

After the news conference, Erlanger President and CEO Jim Brexler emphasized that the collaboration will be based on business strategy and clinical partnerships, not a financial bailout of struggling Hutcheson.

"The hardest part of this work is to [come up with] something that's sustainable. A bailout isn't sustainable," he said.

Brexler also said a commitment to Hutcheson won't be a drain on Erlanger's operations in Chattanooga.

"We're very clear that nothing we do here [at Hutcheson] will put in jeopardy the mission that we've got already [at Erlanger]," Brexler said. "This is about building a strong business plan for Hutcheson. This has been a successful organization in the past and there's no reason why it shouldn't in the future."

Memorial President and CEO Jim Hobson said in a statement Thursday that the hospital will remain committed to North Georgia.

"While we are disappointed that Memorial was not selected by Hutcheson's board, we will continue to support and serve patients in the North Georgia region to ensure they have access to the best quality health care available," Hobson said.

TURNING POINT

Stewart said the Erlanger partnership is a turning point in the hospital's 50-year history.

The community hospital opened as Tri-County Hospital in 1953, supported by funds raised by residents of Walker, Dade and Catoosa counties.

Originally governed by the Hospital Authority of Walker, Dade and Catoosa Counties, Hutcheson was leased to nonprofit private company Hutcheson Medical Center Inc. in 1996. The hospital authority's board, whose members are appointed by county commissioners, oversees the terms of the 40-year lease.

Stewart took over in 2005, while the hospital was in dire financial straits. His reforms helped Hutcheson achieve its first profit in years in 2007, a $766,766 gain. The next year the hospital took out a $35.5 million bond from Regions Bank to fund renovations and development. That was right before the bond market collapsed, Stewart said.

"Just as we were seeing the light of day, factors beyond our control started to push our [profit] margins down," he said.

Struggling with losses and low patient counts, Hutcheson hired Plano, Texas-based Community Hospital Corp., in July to consider partnership options. Its president and CEO, Mike Williams, did not return a call seeking comment Thursday.

Dr. Lori Emerson, medical director of Hutcheson's laboratory and former board chairwoman, said she's curious how the selection of Erlanger will affect the dynamics within Hutcheson's medical staff. Many Hutcheson staff doctors are also affiliated with Memorial, she said.

"I wonder if physician allegiances are going to shift," she said. "I wonder if they would reconsider their position based on the fact that the hospital with which they're currently affiliated was not selected to be partner."

CHALLENGES AND HOPES

Like hospitals nationwide, Hutcheson has been hit with mounting losses from patients who can't pay for care in the economic downturn, officials said.

Hutcheson also has lost primary care physicians, whose patient referrals are often the backbone of community hospitals' business, local doctors said.

Memorial and Parkridge Health System, which both have a strong primary care presence in Northwest Georgia, have drawn away many of those patients, said Dr. David Hall, vice chairman of the Hutcheson Health Foundation.

Affiliating with Hutcheson gives Erlanger an entry point to establishing its own North Georgia primary-care base, Hall said, which will boost Hutcheson's core business and funnel more-complex cases to specialists at Erlanger.

"You must remember that a community hospital can't offer all the ... care services that a larger hospital does, and they shouldn't try. You have to find what your place as a community hospital is, and find those things you can do and do them well," he said.

Hutcheson also can benefit from combining operational costs, such as accounting and collections, with Erlanger and will share in the larger system's hefty buying power, Hall said.

Young residents training with Erlanger's affiliate medical school, the University of Tennessee College of Medicine in Chattanooga, could also become a source of future recruitment, he said.