The Erlanger Health System Board of Trustees paved the way Thursday to convert the acute care side of Erlanger North Hospital on Morrison Springs Road in Red Bank into a 48-bed behavioral health hospital.
The board voted to approve a joint venture between Erlanger and Acadia Healthcare that would allow Erlanger Behavioral Health -- which is already a joint venture between the two entities -- to lease the north hospital.
Currently, Erlanger Behavioral Health Hospital includes a roughly 90-bed psychiatric hospital on Holtzclaw Avenue, just over 1 mile from Erlanger's main campus. Erlanger owns 20% of Erlanger Behavioral Health, and Acadia owns the remaining 80%.
Gregg Gentry, chief administrative officer for Erlanger Health System, presented the resolution at a monthly board meeting Thursday, saying that Erlanger North's emergency department, imaging, sleep center, children's therapy and physician's office building would remain in place.
"There has been considerable discussion regarding the sustainability of Erlanger North and how we can use that facility to best meet the needs of our community, and we all know that mental health is under-bedded -- we're not meeting the needs of the larger community both in Chattanooga and throughout the entire region," Gentry said. "So we believe that the timing is right to transition Erlanger North, at least the inpatient aspect of the facility, from acute care to a behavioral health hospital."
Acadia is a publicly traded company based in Franklin, Tennessee, with more than 200 facilities across the country. The company began operating Erlanger Behavioral Health when the facility opened in 2018.
At the time, the venture was touted as a means to increase the number of desperately needed beds for the area's physiatric patients, but it historically failed to live up to expectations. That's because Acadia has favored accepting patients with commercial insurance, leaving many low-income and uninsured psychiatric patients to wait in Erlanger's emergency department until a bed opens up at another facility, members of Erlanger management and trustees acknowledged during Thursday's meeting.
Though he said he supports the move, Erlanger Trustee Dr. Phillip Burns expressed concern during the meeting over those practices.
"I want to be sure that we -- as a board -- and our administrative leaders keep pressure on Acadia to be sure that they provide that care to our patients that we have at Erlanger, in particular," Burns said, noting that it prevents Erlanger from accepting other patients when mental health patients are waiting for long periods of time in the hospital's main emergency department.
"I think it is a good financial move, but I want it to be a good move for our patients," Burns said.
Trustee Linda Moss Mines echoed those concerns, asking if anything in the contract guarantees that a certain percentage of beds are set aside for uninsured patients, to which Gentry said there is not -- but "there are discussions underway."
Rob Maloney, Erlanger's chief operating officer who joined the health system roughly two years ago, said he's been working on the issue and that approving the lease agreement is just a first step and that nothing is set in stone yet.
"They're getting on board. So I can't talk about what happened three or four years ago, but I am very happy with the state of the relationship," Maloney said.
Gentry said that all the Erlanger employees at the north facility were informed of the move and offered other jobs within the health system.
"Some employees elected to retire. Some have accepted jobs elsewhere within Erlanger," he said.
The lease agreement states that Erlanger will maintain ownership of the property, including responsibility for the utilities and general maintenance of the building, and lease it to the joint venture, maintaining its 20% ownership.
Renovations are estimated between $9 and $10 million total, of which Erlanger will invest up to $2 million and Acadia will foot the bill for the remainder.
The lease is locked for 10 years, with first-year payments starting just under $700,000 and increasing each year to slightly over $800,000 by year 10.
"It is locked for 10 years, and obviously, Acadia wants that because of the upfront investment that's being made, and we also believe that this is a sustainable model for Erlanger North," Gentry said.
During the last fiscal year, Erlanger North admitted 538 patients compared to around 32,000 at its main campus. Over the past few months, the hospital operated between 12 and 15 inpatient beds, according to an Erlanger spokesperson. That spokesperson said those patients will not be displaced since Erlanger can treat them at the health system's other Hamilton County facilities.
As an acute care hospital, Erlanger North admitted patients with acute medical conditions, such as illnesses, injuries and other short-term ailments that require hospital care. Patients will still be able to seek emergency care at Erlanger North, but those who need to be admitted will be transferred.
Erlanger Health System is transitioning from a government entity to a private, nonprofit corporation, and being able to pursue more joint ventures was one of the reasons hospital leaders cited as a need for change.
Erlanger Board Secretary Vicky Gregg, who was not present at Thursday's meeting, has been heavily involved in that process and also sits on Acadia's board. Gregg owns less than 5% of vested and restricted shares in the company, according to a trustee conflict of interest disclosure statement from Erlanger dated July 2021.
She is not a member of the committee that brought forward Thursday's joint venture resolution.
Contact Elizabeth Fite at firstname.lastname@example.org or 423-757-6673. Follow her on Twitter @ecfite.