Hospital to change hands?

Posted: Monday, May 03, 2010

A financial adviser specializing in the health services industry recently presented seven possible governance models for Central Peninsula Hospital. Of the seven models, five involve a change of ownership.

Before speaking at the April 29 hospital board meeting, James Burgdorfer, co-founder of Chicago-based Juniper Advisory LLC., signed a three-month, $25,000 per-month contract with the nonprofit corporation that runs CPH, according to hospital CEO Ryan Smith. Smith said he couldn't release copies of the contract because of a "confidentiality clause" written into the agreement.

Burgdorfer's talk came more than a month after a leading health care organizational consultant called CPH's governance structure "antiquated" and "nonsensical," causing Kenai Peninsula Borough and hospital leaders to mull major changes.

The hospital paid James Orlikoff, president of Chicago-based Orlikoff & Associates, Inc., about $10,000 for his March talk, Smith said.

Burgdorfer devoted much of his hour-long speech on Thursday night to detailing governance options. The choices ranged from amending the existing ownership arrangement to an outright sale.

Currently, the Kenai Peninsula Borough owns CPH. The borough leases the facility to the nonprofit corporation Central Peninsula General Hospital, Inc. An 11-member board governs the hospital, but the Kenai Peninsula Borough Assembly must first approve major capital decisions. The Central Kenai Peninsula Hospital Service Area Board serves as an advisory board to the borough assembly and administration.

"You have a beautiful hospital that's operating beautifully, but you're swimming upstream in a huge river of change," Burgdorfer said. The adviser said the best time to consider changes is when things are going well.

In addition to selling and essentially doing nothing, Burgdorfer discussed privatizing, a joint operating agreement, a whole hospital joint venture, merging and a long-term lease.

Privatizing would take the borough out of play and put the nonprofit in control, and the hospital would remain independent from other facilities.

"Still, this is a modest form of change," Burgdorfer said. "You'd be a minnow in a sea of whales."

A joint operating agreement would mean CPH would combine management, contracting and capital raising with other nonprofit health care facilities. The model would not change the ownership structure, but it would likely change how decisions are made at the hospitals.

Burgdorfer warned that the arrangement could cause facilities to butt heads.

"You're going to get into disagreements over why is more capital being spent in your hospital versus my hospital," the adviser said.

A whole hospital joint venture would mean the borough would sell 51 percent to 80 percent of the hospital to a for-profit partner. However, a local body would still be involved in the decision-making process at CPH.

Though Burgdorfer did not pick favorites Thursday, he spoke highly of the joint venture model.

"It's a structure that has gained popularity over the years," Burgdorfer said. "It allows nonprofits who have a significant willingness to stay involved to lessen their ownership risk but not to outright sell."

A merger would combine CPH with another facility so that only one survives. This could be an option for CPH and South Peninsula Hospital in Homer.

A long-term lease would turn ownership and control of CPH over to an outside entity and would most likely be a precursor to an outright sale, according to Burgdorfer.

Smith said the hospital's role in the governance decision is to help "facilitate the process."

"The question becomes which of those options, if any, do we get additional information on," Smith said. "The board decided to get information on all of them."

Kenai Peninsula Borough Mayor Dave Carey, who is the contract administrator on the hospital lease, said Burgdorfer's talk had much "educative" value. Carey's primary concern, he said, is most effectively meeting the peninsula's health care needs.

"We want to maintain as high a quality of health care to all of our residents. There is no estimate of value you can place on saving people's lives and making people feel safe to live here," Carey said.

On April 26, Carey announced his intentions to make potential hospital governance structure changes a 2011 election ballot issue. On Friday, the mayor was noncommittal toward the specifics of Burgdorfer's proposed financial models.

"I'm going to reserve judgment on that," Carey said. "There were strengths and weaknesses with every one of them."

Formed in 2006, Juniper Advisory is a privately owned financial banking firm with "no lending, trading, or research conflicts, no cross-selling pressures, and no shareholder or other conflicts," according to its Web site. Its focus is mergers and acquisitions within the health services industry.

In March, Orlikoff, whose company specializes in health care governance consulting, said the borough and the hospital must consider major changes.

"When you have to be efficient and effective and make decisions that many people in the community won't like, that some of the officials won't like, that require alacrity in decision making, the model that you have does not facilitate that," Orlikoff said. "And it, in fact, inhibits."

Andrew Waite can be reached at andrew.waite@peninsulaclarion.com.



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