November 14, 2011
HCA-HealthOne is offering more than $500 million to lease city-owned Memorial Health System, according to a proposal the company released Monday.
In addition to a $500 million up-front payment, the for-profit operator of seven hospitals in Denver, and an arm of a nationwide hospital chain, is also offering to let the city keep all of Memorial’s cash on hand, about $332 million, and pledging a minimum of $1 billion of capital investment at the hospital over the life of the lease.
According to Linda Kanamine, HCA-HealthOne’s vice president of marketing and public affairs, even after paying off Memorial’s debt and pension obligations, the deal would leave the city with about $325 million — although according to state law those proceeds would have to go into a health care foundation.
“We hope we’re offering a complete package that’s very compelling,” Kanamine said.
Monday was the deadline for prospective bidders to submit their proposals for Memorial.
Six hospital companies submitted proposals to lease Memorial. Bidders were free to speak publicly about their offers until 4 p.m. Monday, but HCA-HealthOne was the only company to release its full proposal.
“We have been saying for a year that we were going to put our money where our mouth is,” Kanamine said. “If I were voting on this in Colorado Springs, I would want to see all of the proposals.”
For the next two weeks, bidders are required by a confidentiality agreement to stay silent about their offers and the process while a city task force scores the proposals. City Council President Pro Tem Jan Martin, who heads the task force, said she plans to release the full proposals on Dec. 1. A town hall scheduled for Thursday will address the leasing process and how the task force will proceed with the bids. The task force will question bidders at its meeting Dec. 2, then on Dec. 7, the public will get the chance to ask bidders questions at a town hall.
The task force plans to recommend a winning proposal to City Council by the end of the year and voters would need to approve any lease plan sometime in 2012.
HCA-HealthOne’s 83-page proposal — along with several hundred more pages of supporting documents — lays out a wide range of commitments and a few caveats:
Kanamine said HCA-HealthOne would guarantee Memorial’s 4,000 employees’ jobs for at least six months, but said that some billing and procurement functions would likely be centralized.
Kanamine said that as a for-profit company, HCA-HealthOne would pay about $10 million in taxes a year to all levels of government, $5 million in sales tax and $5 million in property tax.
HCA-HealthOne would establish a local board with a majority of representatives from El Paso County to oversee the new Memorial and that major changes to services would require that board’s approval, she said. The board’s authority would be limited to significant changes to the charity and indigent care policies, participation in Medicare and Medicaid, ending any clinical services and the hospital’s community outreach. Other decisions would be made by HealthOne or HCA.
HCA-HealthOne pledged to maintain or exceed Memorial’s current charity and indigent care policies, however, its proposal stated that it could not commit to a set dollar amount or formula, citing potential changes in insurance and coverage. The task force’s request for proposals also asked respondents to commit to continue taking Medicare, Medicaid, TriCare and the Colorado Indigent Care Program. HCA-HealthOne’s proposal said that it agreed, but “at the request of HealthOne, the board would have the right to modify or terminate this obligation.” The proposal also said that HCA-HealthOne could opt out if Medicare or one of the others switches to a negotiated fee plan. HCA-HealthOne said that it would lose negotiating leverage with them if it were required to participate.
An HCA-run Memorial would be part of the HealthOne network, but it would also be the company’s southern Colorado headquarters and a standalone market. HCA doesn’t own any other hospitals in the region at this point, but Kanamine said it wants to grow.
“I think our growth plans for regional growth are cohesive with what Memorial wants,” she said.
HCA-HealthOne pledged to improve Memorial’s quality of care, another stipulation of the bid request. Kanamine argued that HealthOne’s Denver hospitals already perform better in key measurements than Memorial does.
“They already have pretty good quality, but we always strive for better,” she said.
Although the total, roughly $800 million offer is heady territory, the city would need to pay off Memorial’s existing debt of about $305 million and buy its way out of the state’s Public Employees Retirement Association pension plan, a figure that could be as high as $190 million. Besides PERA, Kanamine said HCA-HealthOne would assume all of Memorial’s other liabilities, a number that could be as high as the tens of millions of dollars.
The state’s Hospital Transfer Act requires that the proceeds of a sale of a nonprofit hospital to a for-profit entity be put into a foundation tied to the original mission of the hospital. Colorado Attorney General John Suthers has said that the act’s provisions would apply to the 40-year lease being contemplated for Memorial. The act would likely not apply, however, to a sale to a nonprofit company.
Big dollar signs aren’t new to HealthOne: In October, HCA bought out its nonprofit partner in HealthOne, the Colorado Health Foundation, for $1.45 billion, acquiring the foundation’s 40 percent stake in its seven Colorado hospitals.
Memorial town hall
The city task force running the leasing process for Memorial Health System is holding a town hall meeting 5:30-7:30 p.m. Thursday at City Hall, 107 N. Nevada Ave., to discuss the leasing process and what happens next.
The task force plans to hold a second town hall on Dec. 7 where the public can hear from bidders and ask questions.