Hutcheson Medical Center and Erlanger Health System pact hits snag on legality

Hutcheson Medical Center and Erlanger Health System pact hits snag on legality

March 26th, 2011 by Emily Bregel in News

Document: Roy Barnes' legal opinion

Roy Barnes' legal opinion of the proposed agreement with Erlanger

Lawyers involved in the Hutcheson Medical Center and Erlanger Health System negotiations are disputing a legal opinion calling a management agreement between the two hospitals illegal, but nonetheless amending the contract.

"We, meaning Catoosa County, absolutely disagree with the statement that these documents ... or the transaction itself, are illegal," Catoosa County Attorney Chad Young said.

But Young said some points about the deal's financing that attorney and former Georgia Gov. Roy Barnes raised in an opinion are pertinent. He said he could not speak to details because of a confidentiality agreement.

"I think he made good points on the financing section. On the Hutcheson side we're making some changes to the documents because of those points," Young said. "At the end of the day it certainly doesn't change the substance of the deal."

Barnes reviewed the documents at the request of Don Oliver, Walker County attorney and legal counsel for the Hospital Authority of Walker, Dade and Catoosa Counties.

The Hospital Authority, with trustees appointed by the three counties, owns Hutcheson's buildings and assets. The authority leases the building to private, nonprofit Hutcheson Medical Center Inc., which operates the hospital.

Barnes wrote that the agreement wrongly delegates the hospital's spending and operations to a nonprofit agency with no oversight from the Hospital Authority.

That's not allowed, Barnes wrote.

"Never can the public Hospital Authority become subservient to the nonprofit," he wrote.

Barnes' opinion also states that the contract as written allows only Hutcheson Medical Center Inc., not the Hospital Authority, to borrow money on a proposed $20 million line of credit from Erlanger. The counties have been asked to guarantee Erlanger's investment.

Oliver said a public body such as the counties can't give tax dollars or a credit to backstop dollars sent to a private entity, or to a public entity outside Georgia.

"If the public bodies are backing a debt to Erlanger or even the nonprofit, HMC, then they are essentially in the position of providing a gratuity to a nongovernmental unit," which is unconstitutional, he said.

"The bottom line is we can do what the parties want done, we just need to do it in a little different way."

Barnes wrote that the Hospital Authority could borrow money and loan it to Hutcheson Medical Center Inc. for working capital.

Hutcheson's four decision-making boards and county officials have been trying to hash out an agreement with Erlanger to save the struggling community hospital.

Leaders of Hutcheson Medical Center Inc. have complained that Oliver and Walker County Commissioner Bebe Heiskell are delaying progress toward a final vote on the agreement.

Heiskell said in a statement Friday she is focused on preserving the hospital through important changes to the contracts currently on the table.

Oliver emphasized Walker County leaders are not looking to restructure the hospital's $35 million bond debt in the immediate future or before signing with Erlanger.

They prefer seeking out short-term financing at a lower interest rate, to keep the hospital in operation, before signing a long-term loan obligation with Erlanger. Oliver said they'd rather do a long-term loan after Erlanger comes up with a specific strategic plan showing how much the hospital will need in the long term.