Several issues stick in hospital operating agreement

This March 29, 2017 photo shows Central Peninsula Hospital’s River Tower, which houses specialty medical services, in Soldotna, Alaska. The tower was completed in January 2017 as part of a multi-year service and infrastructure expansion at the hospital. (Photo by Elizabeth Earl/Peninsula Clarion)

As the Kenai Peninsula Borough Assembly goes through the process of renewing the agreement allowing a nonprofit to operate Central Peninsula Hospital, there are a few major issues coming to the forefront.


The Kenai Peninsula Borough owns the physical facilities of the hospital in Soldotna and leases them to nonprofit Central Peninsula General Hospital, Inc. to operate. The nonprofit then reports activities to the borough and requires assembly approval for major projects. The hospital gets some support from the borough’s general fund through a .01 mill levy and ability to issue bonds for projects.

The last lease and operating agreement was inked in 2008. Borough Mayor Mike Navarre’s administration officially began negotiating the renewal of the agreement last October, adding language and new reporting requirements for the hospital administration as well as renaming the document as simply an “operating agreement,” removing the word “lease” because of some past issues with bond financing.

Term length

One of the chief concerns among some members of the assembly and the public is the proposed 10-year term for the contract. Assembly member Wayne Ogle suggested a 5-year term instead, saying the health care industry is changing so quickly that a shorter contract term makes better sense.

Assembly member Paul Fischer said some of his constituents were concerned about the fact that Navarre will leave office in October, and said the assembly could consider extending the current contract for a year to allow the next mayor to negotiate the contract. Navarre answered that learning the complexity of health care well enough to negotiate a contract takes a long time, and that he served on the CPGH, Inc. board before his second term as mayor and has been working on health care issues for nearly three decades, so he is more familiar with health care issues than the next mayor may be.

Ogle submitted an amendment Thursday to change the language of the proposed contract from 10 years to 5 years, with no automatic renewal.

“While I recognize CPGH, Inc.’s need for stability, in my view a 5-year term would be in the best interests of the borough as the health care industry and regulatory environments are in flux and we may need to significantly change the agreement in much less than 10 years,” he wrote in the amendment.

A 10-year contract allows the hospital more stability in its supply contract and relationships with employees, who are often recruited to move to Soldotna and want to know they will have stable jobs, said Central Peninsula Hospital CEO Rick Davis at the Tuesday assembly meeting.

School district’s letter

Another contentious issue is the charges for public employees. Currently, Kenai Peninsula Borough School District employees and borough employees receive a discount on services at the hospital. Those discounts have been negotiated separately from the lease and operating agreement, and were not included in Navarre’s initial proposed draft of the new agreement.

However, the Kenai Peninsula Borough School District Board of Education sent a letter to the borough administration asking for an adjustment in the new agreement to change the payment for school district employees to be the Medicare reimbursement rate plus 25 percent. Health care is a major cost driver for the school district and a major source of concern for the board, which voted to approve the letter at its July 10 meeting.

Navarre said at the borough assembly meeting that he was frustrated by the letter, saying the Board of Education was jumping in late to the negotiation process and that the operating agreement was an “inappropriate” place to address charges for public employees. In a heated exchange with Board of Education President Joe Arness, Navarre said arranging decreased costs for public employees at the hospital does not solve the problem of high health care costs — it simply shifts them to another payer, something that has long plagued the health care industry and led to the current crisis of unsustainably high costs.

“We haven’t in my opinion been able to attack health care costs from the right angle, and that is sort of, in my opinion, a fundamental change to how we allow escalations in our health care costs,” he said. “… I guess what Mr. Arness is asking for is treating one of the symptoms of the cost of health care to the school district but I think there are other steps that the school district and my administration might be able to talk about including their contractual agreement and how it allows for the employee groups to determine some of the components of their health plan that might otherwise provide them some significant savings over time.”

Arness returned during a public comment that the board was doing its job — finding ways to reduce costs to the school district and thus to the taxpayers. Though Navarre said the district was jumping in too late, Arness said the conversation over the hospital’s agreement is a good time to bring it up.

“I can go to Mr. Davis’ office any day of the week and talk to him about the deal that we get at the hospital,” he said. “I have no leverage — I have nothing to bring to that conversation other than, ‘Please, sir, can you charge us less?’ At this point, there is a conversation going on where that could be carried forward.”

Davis weighed in during an extended public comment on the Board of Education’s letter, agreeing with Navarre about the problem of cost shifting. “Doing something as draconian” as dictating charges would immediately require the hospital to have a larger mill rate to support its operations and undermine the hospital board’s operating authority, he said.

“I would think that the assembly would have been happy to find a sucker willing to run this hospital for 10 years for $1 a year,” he said. “Running a hospital in today’s world is not something for the faint of heart. If you didn’t have CPGH, Inc. already in place with all the cumulative learning they have put themselves through, you would be paying a management company a lot of money to run this hospital, if you can find a willing company.”

The borough assembly has one more public hearing on the hospital lease and operating agreement scheduled for Aug. 1.

Reach Elizabeth Earl at