December 7, 2010
Denver’s largest hospital system is lobbying Colorado Springs to sell Memorial Health System, even as the City Council considers a recommendation to turn Memorial into an independent non-profit.
On Monday, Jeff Dorsey, president and CEO of Denver-based HealthOne, met with Memorial CEO Larry McEvoy and discussed buying or affiliating with Memorial, according to e-mails obtained by The Gazette.
McEvoy and Memorial’s board have come out in support of the non-profit proposal recommended by the Citizens’ Commission on Ownership and Governance of Memorial Health System.
“The meeting was at (HealthOne’s) request, and they wanted to discuss the possibility of selling Memorial to their for-profit corporation,” McEvoy said in a statement. “But, like the citizens’ commission, Memorial believes that an outside, for-profit health care system is not the best option for Colorado Springs.”
The meeting was set up by Kevin Walker, who was director of the group that championed a voter-approved ballot initiative for a strong-mayor form of government. He now runs a consulting company.
“HCA-HealthOne has met with community leaders, council members and hospital administration to encourage an expansion of the public process to consider other alternatives than the commission’s recommendation,” Walker said in a statement. A HealthOne spokeswoman referred questions to Walker.
It’s estimated that Memorial would sell for more than $400 million, although debts and other liabilities would reduce the net proceeds to $200 million to $300 million. Colorado Attorney General John Suthers told the commission in May that a sale to a for-profit would be subject to the state’s Hospital Transfer Act, meaning the proceeds would have to go into a foundation dedicated to health care, rather than the city’s general fund.
The commission spent nearly 10 months looking at different possibilities for Memorial and, in November, voted unanimously to recommend the non-profit option.
Dorsey and Walker told McEvoy that the commission’s public process “lacked diligence and access for all corners to the table” and proposed creating a new commission to reopen the issue, McEvoy said in an e-mail late Monday to council members.
Bob Lally, chairman of the Memorial commission, said the panel gave serious consideration to selling the hospital to a for-profit company. He rejected the claim that the commission was less than thorough.
“We did hundreds and hundreds of hours (of research) into the pros and cons of that type of model,” Lally said of a sale to a for-profit. “There’s no pot of gold for us to think about in selling Memorial to a for-profit. The numbers just don’t add up.”
Mayor Lionel Rivera said he questioned the commission’s process and why a for-profit company or a potential joint venture partner wasn’t invited to make a proposal directly to the commission.
“I still think it might be better to have some direct appearances by somebody like HealthOne,” Rivera said. “They chose not to go that route, and I accept that.”
But Rivera said he’s willing to talk to Dorsey.
“If the CEO wants to sit down and talk, I will,” the mayor said. “I won’t turn him down if he contacts me, and frankly, I don’t need Kevin Walker to arrange a meeting with me.”
Councilman Sean Paige said he is open to the idea of selling Memorial.
“My impression is that the Memorial commission too easily fell in line with the non-profit concept, and didn’t seriously consider other options, once Steve Hyde stepped off as chairman (in May). That’s the commission’s prerogative, of course, but I’m just not as prone to drinking the Kool-aid on this one,” Paige said.
The City Council is scheduled to meet with Memorial’s board on Thursday to choose its next steps. Any change to Memorial, be it spinning it off or selling it, would have to be approved by voters. The commission’s plan was to put the independent non-profit option on the April 2011, ballot, but Walker said he believes that’s premature.
HealthOne’s interest is not a huge surprise. The commission’s consultant, Chicago attorney Larry Singer, predicted last month that several for-profit hospital companies would make bids for Memorial as the City Council considers the commission’s recommendation.
“There’ll be others for sure that come out,” Singer said Tuesday. “It wouldn’t surprise me if a large nonprofit also threw its hat in the ring. The game will begin.”
Singer said he believed the City Council should decide whether to pursue the commission’s recommendation, which he supports, before looking at potential offers for Memorial. And, if it decides to sell the hospital, it should cast a wide net for suitors.
“Why not just invite the world and see who’s out there and who’s interested and get a real bidding war going?” Singer said.
HealthOne is a joint venture that was formed in 1995 between the for-profit health care giant Hospital Corporation of America (HCA) and the nonprofit Colorado Health Foundation that operates seven Denver-area hospitals. HealthOne expressed interest in Memorial early this year as the commission began its work, then backed off and said it would allow the commission to finish its process.
Earlier in the year, Tennessee-based hospital giant Community Health Systems and Texas-based LHP Hospital Group also expressed interest in buying Memorial or entering into a joint venture with the city.
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