Controversy continues over Homer hospital

Expansion without proper documentation violates law

Posted: Monday, August 20, 2007

As Homer Mayor Jim Hornaday and Borough Mayor John Williams were exchanging verbal salvos last week, confusion and controversy continued to surround missing documentation vital to South Peninsula Hospital's ongoing $31 million expansion project.

That documentation is called a certificate of need, or CON, a piece of paper required under state law for medical facility projects that would cost more than $1.15 million that allows the state to assure taxpayer dollars are not wasted funding more facilities or services in an area than are actually needed.

Currently, the hospital project has no CON for what today is being called Phase 2. Nor did it have one in place for Phase 1 of the project, a phase already virtually completed at a cost exceeding $16 million. Construction without an active CON was a violation of state law.

Hospital CEO Charlie Franz said last week that Williams had been aware of the lack of a certificate months ago, but had done nothing about that. Franz suggested Williams waited until recently to use that information to discredit him.

Hornaday also has charged that Williams knew earlier this year of the certificate of need problem, suggesting an ulterior motive in not disclosing that fact until the recent moves to withdraw certain powers of the South Peninsula Hospital Service Area Board.

Last week in an opinion piece regarding assembly decisions affecting the South Peninsula Service Area Board, Franz said Williams knew of the incomplete CON and "probably should have stopped the project long ago and demanded that the certificate of need be completed before moving forward."

Franz said Williams instead used the lack of a CON "to discredit me, and the boards, to get support for his ordinance," referring to an ordinance that reduced certain powers of the service area board that will leave them out of negotiations between the borough and the hospital over a new sublease and operating agreement.

In a written statement Thursday, Williams said the issues concerned not one, but two CONs, and that there was general confusion over which one he knew about and when.

He acknowledged knowing there was no CON in place for the upcoming Phase 2 part of the project scheduled to start in late summer or early fall, and said he had been told at the time by hospital officials that the CON was being obtained and there was no reason to believe it would not be completed before construction was to start.

Williams says he did not know at that time that no certificate had been in place for Phase 1. Thus, some $16 million worth of construction had proceeded, effectively in violation of state law. That fact only came to light around Aug. 1, he said, when the administration received a communication from Franz that included an attachment a CON application dated July 3, 2007, that incorporated both Phase 2 and Phase 1.

Franz has said a CON did exist in 1999, but that he had failed to get that document renewed prior to the start of Phase 1 construction, thus leaving the project uncovered by an active CON.

"My failure to have the certificate of need completed certainly provided the mayor with an excellent piece of ammunition to support his position that our management team is incompetent and in great need of his help to straighten out the mess," he wrote in his opinion piece.

Williams has laid blame for not having a certificate of need in place squarely at the feet of Franz and South Peninsula Hospital Inc.'s board of directors, often called the operating board. (It is a separate board from the service area board.)

The fact that no certificate existed for Phase 1 is now a matter of interest in the state Department of Health and Social Services and the state Department of Law.

The earliest a new certificate covering the entirety of the $31 million project would likely be issued is October, according to Williams. After meeting with legal, finance and project staff earlier this month, he opted to push back a scheduled date for bid-openings until later this year since bond proceeds for the project could not be expended without a CON in place. He announced that move at the Aug. 7 assembly meeting, adding that potential bidders had also requested more time.

Williams said then and since that if he had known in February that no certificate for Phase 1 existed, his oath of office would have compelled him to stop construction to avoid further violation of state law.

Just whether and when Williams, and the Kenai Peninsula Borough Assembly, for that matter, should have known about the lack of certificates of need will likely continue to be a matter of conjecture and debate. What is clear is that Franz knew a certificate was lacking long before Williams assumed the borough helm on Nov. 1, 2005. A state Department of Health and Social Services memo to the Franz dated Oct. 22, 2004, noted the need for a certificate for what then was being called "Phase II and Phase III" of the hospital's master plan. That plan's "Phase I" was a project completed years earlier. Phases II and III later became what today are called Phase 1, the $16 million project just completed, and Phase 2, the $14.7 million project about to start.

Hornaday said Friday that issues surrounding the certificates are not yet clear, but added that there is great consternation among residents of the lower Kenai Peninsula over the heavy-handed way the mayor and assembly have addressed the hospital issues.

"There has to be more respect," he said, noting that he would like to see the assembly move to reverse its decisions regarding the service area board.

Assemblywoman Milli Martin, of Diamond Ridge, said Friday that responsibility for the failure of oversight regarding the certificates of need should probably be shared among all the government and administrative agencies involved, including the assembly.

She, Williams' administration, and Hornaday have all expressed the hope that issues can be resolved, communication can improve, and the vital hospital project move forward.

Hal Spence can be reached at

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