CPH extends contract

Posted: Sunday, May 30, 2010

Though Central Peninsula Hospital leaders say they remain open to all governance structure options, the nonprofit company that governs the hospital recently signed a deal with an advisory firm that has financial incentive to push in certain directions.

Photo By M. Scott Moon
Photo By M. Scott Moon
Doctor Gregg Motonaga talks about technology available to him at Central Peninsula Hospital during a tour earlier this year.

In a May 5 agreement, Central Peninsula General Hospital, Inc. extended its $25,000-per-month partnership with Juniper Advisory, LLC, so the investment banking firm can pursue information on three of six possible hospital governance structures.

In the updated agreement, Chicago-based Juniper is guaranteed a "transaction fee" if the hospital goes through with one of the three options that Juniper researches.

The details of the transaction fee were redacted in the copy of the new contract between Juniper and CPGH, Inc., which the Clarion obtained through a public records request. However, hospital CEO Ryan Smith mentioned the fee at the Kenai Peninsula Borough Assembly's May 18 meeting.

If the hospital were to change its governance structure and partner with an organization recommended by Juniper, "Juniper would be paid a transaction fee by the partner or suitor," Smith said.

The Clarion's records request, filed May 24 with the Kenai Peninsula Borough clerk's office, yielded this response:

"The borough was advised by CPGH, Inc. that all or a portion of the requested material contains information that, if released today, would very likely cause damage to the interests of the borough and the private parties."

Some parts of the contract were later released.

While Juniper acknowledges its financial interests in a potential deal, the company says it is not motivated by those interests.

At the May 18 assembly meeting, Smith also said CPGH, Inc. would owe Juniper a $300,000 "withdrawal fee" if the hospital backs out of a business partnership that Juniper facilitated.

The nonprofit's new contract with the consultant is one more step toward what could be the end of Kenai Peninsula Borough involvement with the hospital.

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

A leading health care organizational consultant, James Orlikoff, questioned the structure publicly in March, calling the model "antiquated," "nonsensical" and an inhibitor of efficiency.

CPGH, Inc paid Orlikoff, president of Chicago-based Orlikoff & Associates, Inc., $15,000 for his work and $1,800 for his travel, according to documents obtained in a records request.

In May, James Burgdorfer, co-founder of Juniper, detailed the pros and cons of seven possible governance structure options ranging from making no changes to selling the hospital. The hospital is currently considering six of the options, four of which involve some change to the current ownership model.

Following the latest contract, Juniper will be pursuing information on a joint operating agreement, whole hospital joint venture and an outright sale -- all of which could shake up the status quo.

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 hospital.

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.

The CPGH, Inc. board is independently pursing information on amending the current lease and operating agreement with the borough, a merger and privatization.

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

A merger would combine CPH with another facility so that only one survives.

The borough assembly will cast deciding votes on any governance structure decisions after the CPGH, Inc. board makes its recommendation. But some assembly members are worried that Juniper's financial incentives will influence the process.

"It seemed clear that it was in Juniper's interest to bring something in other than the status quo," Homer's Assemblyman Bill Smith said after speaking with Burgdorfer. "Even though the recommendation might be valid, it's tainted by the self-interest of the Juniper group."

Seward Assemblywoman Sue McClure also expressed skepticism.

"If what (Juniper is) doing is worth that much it's only fair, but it seems like an awful lot of money when we are talking about cutting things and when we're in a bad economy," McClure said.

Burgdorfer said anyone who thinks Juniper intends to manipulate CPGH, Inc. is overstating that firm's influence. He said Juniper's job is to bring about the best deal for the hospital and the borough once leaders decide which avenue to pursue. Juniper's role is not to tell local leaders which road to choose, according to the investment banker.

"I don't want the (CPGH, Inc.) board to learn directly from me. My job is to elicit proposals from the market, help the board know the people who made the proposals and then help them, in plain English, understand what the proposals say," Burgdorfer said Friday. "They should make up their own mind based upon what the market is telling them. I'm not going to recommend anything."

Burgdorfer said he can appreciate concern about Juniper's financial interests, but he says those interests won't get in the way of allowing the hospital and the borough to make an unbiased decision.

"I'm incentivized by my long-term reputation and being an open and honest person," Burgdorfer said.

Formed in 2006, Juniper 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 website. Its focus is mergers and acquisitions within the health services industry.

Hospital CEO Smith said CPH will not allow Juniper's interests to come into play.

"I don't care about some consulting firm making millions of dollars," Smith said. "I care about the residents of the Central Kenai Peninsula Hospital Service Area."

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

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