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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.


The bill enables the Hamilton County Hospital Authority -- Erlanger's current 12-member board made up of political appointees -- to form a new 501c3 operating board. The Authority would remain intact, but it would gradually transition its regular oversight of the hospital's management to the operating board once that new board becomes more defined.

The new board could have some members carryover from the Authority to maintain public accountability. But it will probably be smaller, and be comprised of community members who are not politically appointed and have no political ties.

Erlanger could make purchases and procurements according to market-based standards instead of its current government bidding system.


The Hospital Authority Act does not change, and the Authority board positions will remain.

Erlanger will still be the region's safety-net hospital. Its responsibility to serve the indigent and low-income will not change.

Erlanger's CEO and management team will remain intact. Employees and benefit structures will also remain as they stand now. No management will be outsourced.

The hospital will still be beholden to the Open Record Act and the Open Meetings Act. Its board meetings and its financial records will still be available to the public.

Nothing in the act will add or reduce existing financial obligations of the county to Erlanger. The county has annually contributed $1.5 million.

Erlanger Health System leaders hope a state bill introduced last week could give the public hospital a new lease on life.

If passed, the bill, introduced Thursday by Chattanooga Republicans Sen. Todd Gardenhire and Rep. Mike Carter, could give Erlanger the freedom to change its more than 30-year-old governing structure, potentially depoliticizing a system that for decades has weathered its fair share of political controversy.

Erlanger CEO Kevin Spiegel said the bill also allows Erlanger to "level the playing field" in how it operates and competes with other local hospitals.

"Erlanger deserves the ability to compete," Spiegel said of the hospital, which is trying to recover from financial losses the last two years while coping with mounting cuts to funding. "This enables us to modernize."

The bill could allow Erlanger's board, the politically appointed Chattanooga-Hamilton County Hospital Authority, to create an additional operating board, which would run the hospital as a 501(c)3.

The new board could see some members carry over from the Authority board, but it could be primarily made up of community members which the new board could itself select -- meaning there is "not as much worry about answering to any political group," Gardenhire said.

The structure could allow Erlanger to adopt nonprofit status while still retaining its public hospital designation. That means Erlanger still could be eligible for pools of state and federal money designated specifically for public hospitals.

"Under this structure, they could get the best of both worlds," Gardenhire said.

Gardenhire said the legislation was in part patterned after what Grady Memorial Hospital in Atlanta did in 2007. That public hospital authority adopted a similar measure to create a nonprofit corporation to operate the hospital.

The two-board system, where an authority board and operating board co-exist, has been a "common model" as public hospitals have modernized over the years, Johnson said.

Under the new system, a key feature of the new board would be a new level of flexibility in how it makes purchases.

Currently, the hospital adheres to a strict government system of bids and procurements.

"It's an archaic, governmental structure that needs to be freed up," said Spiegel.

However, the hospital and its board would opt into the Open Records Act and the Open Meetings Act -- meaning its board meetings and its records are still available to the public.


There are some key differences between the Erlanger bill Hamilton County lawmakers are trying to steer through the General Assembly this session and the bill passed last year:

OLD BILL: In 2013, Tennessee lawmakers passed a bill that would overhaul the Hospital Authority board completely, replacing all current members and creating a self-perpetuating board. It did not address creating a 501(c)3. The bill included a provision that changed Hamilton County funding would work, tying its annual contribution to the Consumer Price Index. Largely because of this feature, the County Commission decided not to ratify the bill -- and let it die.

NEW BILL: This year's bill does not replace the current Hospital Authority. Instead, it allows the authority to create a 501(c)3 operating board which will "lease" the hospital from the authority, and will eventually handle major hospital decisions. It also allows the hospital to change its purchasing practices. If passed, this bill would not need approval from the Hamilton County Commission.

Steve Johnson, Erlanger's vice president of government relations, said that is an important feature for Erlanger to maintain its public hospital status in the transition.

"It's important that Erlanger maintain its responsibility to the public and to be transparent in its operations," Johnson said. "However, we needed to pass legislation that would allow us to operate more efficiently than is allowed under the existing law."

The 501(c)3 model could also make Erlanger more attractive to philanthropists. The public hospital for years has struggled in gaining traction with donors, largely because of Erlanger's reputation as a quasi-government institution.

"There is a perception that Erlanger is totally supported by tax dollars. And when you do a major capital campaign, most people really want to donate to not-for-profit, not a government," Spiegel said.

Last year, the delegation passed a bill creating a nonprofit board, but Hamilton County Commission members refused to approve those changes to the private act creating Erlanger.

This bill purposely bypasses the need for county approval, lawmakers have said.

Gardenhire said the legislation is vital not only to Erlanger's success -- but to its long-term survival.

"It may not be the silver bullet for all it's problems, but we're pointing the gun in the right direction," Gardenhire said.

Contact staff writer Kate Harrison at kharrison@times or 423-757-6673.