CPH looks at two models: New hospital governance structure would retain local input

Posted: Wednesday, July 28, 2010

Ryan Smith is frequently asked two questions: Why are you selling Central Peninsula Hospital and why are you selling Central Peninsula Hospital to Providence?

"I'm not selling the hospital," Smith, CPH's chief executive officer, explained at the Tuesday's Soldotna Chamber of Commerce luncheon.

In an informative talk, Smith announced that the hospital's operating board has officially ruled out an outright sale of Central Peninsula Hospital.

The hospital has been discussing whether or not to change its current governance model and has considered everything from selling the hospital entirely to making no changes. Now, Central Peninsula General Hospital Inc., the board that governs the borough-owned facility, has narrowed it down to two governance structure options, according to Smith.

The board will continue to look into either amending its current lease with the Kenai Peninsula Borough or entering into a whole hospital joint venture with an outside partner.

Currently, the borough owns CPH. The borough leases the facility to the nonprofit corporation CPGH Inc. The 11-member CPGH Inc. board governs the hospital, but the borough assembly must first approve major capital decisions.

Smith said the latest advancement in the governance structure discussion, which is expected to culminate with CPGH Inc. recommending a course of action to the borough mayor, came after careful consideration of important criteria.

That list includes access to capital, efficiency, local control, monetizing the asset and making the hospital a tax or lease-paying entity.

Smith said the lease amendment and the whole hospital joint venture model are the only two governance options that can possibly meet CPGH Inc.'s criteria. The hospital had been looking into six structure options.

Amending the current lease with the Kenai Peninsula Borough would involve rewriting the agreement to give CPGH Inc. control over hospital decisions. The borough would maintain ownership of the facility but would likely assume an even more hands-off role.

A whole hospital joint venture would take the borough out of play. The borough would sell 51 percent to 80 percent of the hospital to an outside partner, and the remaining value would be handed to some sort of operating board, much like CPGH Inc. While the partner would purchase 51 percent to 80 percent ownership, they would share governance equally on a joint venture board with 100-percent local representation in one voting block.

"We would have significant local representation in governance with a partner going forward," Smith said.

A whole hospital joint venture agreement would also likely include conditions for the borough to regain control of the hospital if it so desired, according to Smith. But no specific agreements have been written.

With the help of a $25,000-per month advisory firm, CPH has narrowed down its list of potential partners to five organizations, one nonprofit and four for-profits.

The for-profit suitors are Capella Healthcare, LHP Hospital Group Inc., LifePoint Hospitals and RegionalCare Hospital Partners. Providence Health and Services is the lone nonprofit.

CPGH Inc.'s next step is to visit hospitals partnering with these organizations to get a better feel for how collaboration might work.

At Tuesday's chamber meeting, attendees pressed Smith on whether an outside partner would cut jobs or services at CPH. Smith said CPGH Inc. will not partner with an organization intent on cutting.

"Certainly in selecting the partner it's all about can they meet our expectations," Smith said. "Most are very interested in growth. They want to help us."

Smith pointed to orthopedic spine and cancer treatment as possible areas of growth.

He said the best catalyst for growth is to make sure that the hospital is running as effectively as possible.

"We want to grow services. We don't want to be in a Band-Aid state," Smith said. "We want to grow them faster than we can in our current model."

By putting the hospital on the market, Smith said the operating board was able to determine that the hospital's worth is "somewhere north of $100 million."

Smith said it might behoove the residents of the borough to make the most of that value while it's here, rather than risk losing it.

"We're in good financial condition and the hospital has value. We're trying to approach this from an offensive position versus a defensive position," Smith said. "We're going through the process from a position of strength."

Still, Smith admitted, changes would occur should there be any outside partnership.

"There are some things that would change," Smith said. "I don't want to water it down."

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

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