Hamilton County Commission to vote next week for Erlanger's transition to private corporation

Staff photo by Matt Hamilton /  Erlanger Hospital on Friday, August 12, 2022.
Staff photo by Matt Hamilton / Erlanger Hospital on Friday, August 12, 2022.

Hamilton County commissioners will vote next week on an agreement that would allow Erlanger Health System, the Chattanooga region's largest hospital and only safety-net provider, to transition from a government entity to a private, nonprofit corporation.

The 50-page agreement was distributed following Wednesday's county commission meeting and is the product of eight months of negotiations between lawyers representing the county and the Erlanger Board of Trustees.

The document contains 13 covenants that the new nonprofit organization, Erlanger Health, must adhere to once it becomes private and is therefore no longer subject to the sunshine laws that currently provide a window into operations at the health system, which brings in more than $1 billion net revenue annually and is the county's largest employer.

An Oversight Monitor Board will ensure that Erlanger upholds the covenants for 15 years after the transition is complete. Prior to the transaction closing, the county will submit a plan for the organization of the monitor board, which will consist of three people - at least one member must be an attorney and another must have a background in finance and accounting, according to the agreement.

Among the documents are seven mission-based covenants, which if the new nonprofit violates could result in the health system reverting back to a government entity, and six community-based covenants, which are legally enforceable.

"Obviously we do not think that will ever be necessary, but it's there if it becomes necessary," said Richard Cowart, chairman of health law and public policy for Nashville-based Baker Donelson, who is representing the county in the transaction and presented the key points of the agreement to commissioners during their Wednesday meeting.

Here are the 13 covenants:

Mission Covenants

- Maintain the historic mission of Erlanger as a teaching hospital, regional referral center and safety-net provider, which the agreement defines as a hospital with a mission to provide medical services to Hamilton County residents without health insurance or who are otherwise unable to pay for care.

- Maintain Erlanger's tax-exempt nonprofit status and continue to provide charity care to area residents "consistent with similarly situated tax-exempt safety net providers in Tennessee," such as the University of Tennessee Medical Center in Knoxville.

- Continue to provide emergency services and utilize "reasonable efforts" to maintain status as a Level I trauma center that provides the highest level of care to seriously ill and injured patients.

- Maintain Erlanger's children's hospital and pediatric emergency services and utilize "reasonable efforts" to maintain its Level IV neonatal intensive care unit designation, which provides the highest level of neonatal care.

- Continue participation in the Medicare and Medicaid programs and maintain the necessary licenses for Erlanger's general acute care hospitals to participate in those programs.

- Continue operation as a teaching hospital with programs for the education and training of health professionals, with the scope and scale of these programs subject to available federal and state funding.

- Continue to use the "Erlanger" name.

Community Covenants

- All Erlanger hospitals must maintain national accreditation.

- The health system must maintain major acute care service lines.

- Maintain appropriate legal procedures for review, appointment, reappointment and termination of medical staff members.

- Use "reasonable efforts" to continue to operate federally qualified health centers consistent with applicable regulatory requirements, absent a significant reimbursement change.

- Maintain a community health needs assessment, with attention to health professional shortages and the identification and recruitment of health professionals to address supply/demand deficiencies.

- Annually assess designated health outcomes in primary service areas to identify significant deviations from state average (e.g., breast cancer, lung cancer, diabetes, heart disease) and prepare facility-specific education efforts or other engagement for patients and prospective patients.

Cowart said during the meeting that the reasonable efforts provisions are because health care designation and terms sometimes change.

"We're talking about covenants that will be in place for decades," he said, "so we have allowed for it to change with the changing regulatory terminology that may also change."

The benchmark for "reasonable efforts" will be "similarly situated tax-exempt safety-net hospitals in Tennessee," according to the agreement.

Erlanger Health's initial board of directors will be the current board of trustees, which will make decisions about its members going forward, staying between nine and 15 members. The board must always include at least one member of the medical staff, and members must be from Erlanger's service area, according to the agreement.

Erlanger CEO Jim Coleman, who has been heavily involved in the transition process in his former role as Erlanger board chairman and new role as CEO, explained to commissioners at Wednesday's meeting that as it is now, Erlanger is subject to sunshine laws that makes it "hard to plan strategies" in the public eye.

"This will allow us to be nimble, to respond to market changes in health care quicker. I think it will open a lot of doors for collaborations and partnerships in joint ventures, whether it be a service line or on a bigger scale," Coleman said, "and open up a lot of opportunities to really enhance more of what Erlanger currently does for this region and make it stronger."

As it is now, many potential partners aren't interested because of the public nature of the hospital, Coleman said.

County Commissioner Chip Baker, R-Signal Mountain, who said he worked in health care for 20 years, acknowledged the competitive nature of the industry and told his fellow commissioners that this change would "allow Erlanger to not only compete but succeed."

Commissioner Randy Fairbanks, R-Soddy-Daisy, said he's been pleasantly surprised by the lack of public pushback since it was announced that Erlanger wanted to pursue this new model.

"Something this major always has, normally has, pushback," Fairbanks said during the meeting, noting how it appears that leaders at the hospitals that compete with Erlanger also agree with the move. "That's what amazed me during this whole process of how everybody's come together and said, 'Hey, we want to work toward this, because we think it's the best for our region.'"

Contact Elizabeth Fite at efite@timesfreepress.com or 423-757-6673. Follow her on Twitter @ecfite.

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