Mayor: No to hospital board: 'It is time for the borough to assume control of this process'

Posted: Tuesday, August 31, 2010

Mayor's letter to hospital board (version 1)  (pdf)

Mayor's letter to hospital board (version 2)  (pdf)

Kenai Peninsula Borough Mayor Dave Carey is putting his foot down.

"It is time for the borough to assume control of this process," Carey said.

Those were Carey's words in a letter to Thomas Boedeker, Central Peninsula General Hospital, Inc.'s president, regarding the possible change of ownership at Central Peninsula Hospital.

And, whether intended or not, they're fighting words.

The letter says CPGH, Inc., the nonprofit company that governs the hospital, is no longer within its rights to spend money pursuing information on the hospital ownership issue. The letter also calls for educating the public rather than advancing any decision.

While the letter signifies the next step in the change of governance discussion, it, and the way it was distributed, also shows a burgeoning of two factions.

One draft of the letter was sent to Boedeker on Friday. A second more strongly worded draft, which Carey said is the correct draft, was sent Monday morning.

Ryan Smith, the hospital's chief executive officer, did not receive either draft directly from the mayor.

"Thank you for sending me a copy of the mayor's correspondence to Tom Boedeker that you received," Smith wrote in an e-mail to the Clarion. "Apparently, a different letter (signed) was sent via e-mail to Tom Boedeker and Bob Molloy. Before I comment on either letter, perhaps you could call the mayor and ask him which is the 'real' letter."

The mayor said he did not send the letter to Smith because Boedeker, not Smith, is the president of the CPGH, Inc. board.

"The reason it was addressed to Tom (Boedeker) is because the Inc. board is the signator on the operating agreement," Carey said.

Boedeker said he is "confused" by the letter, especially the last sentence in which the mayor says he hopes "CPGHI will cooperate with the borough."

"We've cooperated the whole way. I don't know if it wanted to say we didn't cooperate. I would disagree with that," Boedeker said. "We brought them in when we started. I'm not sure how you could bring somebody in earlier than at the beginning."

In addition to the letter, Carey is also publicly opposing a partnership with LHP Hospital Group, who has made an offer to buy the majority of CPH, Serenity House Treatment Center, Heritage Place and local practices governed by CPGH, Inc.

"I do oppose the (letter of intent) with the Legacy group. They are investment bankers and basically looking to make money off this hospital," Carey told the Clarion this week. "Any local funds should stay local."

Carey also expressed his concern about losing control of the hospital in an Aug. 29 Wall Street Journal article detailing the national trend of local governments selling community hospitals to for-profit partners.

Carey has called for putting the change of governance and ownership decision up for a ballot vote no sooner than 2011.

"Given the magnitude of this issue, I anticipate that this may be a year-long process," Carey's letter says. "At a minimum, any discussion should extend over multiple hearings to provide the public ample opportunity to learn about and comment on the options."

Smith said putting the decision off another year-plus would be a "deal killer."

"We would basically have to start over. LHP is not going to hang around for a year," Smith said. "We'd have to go through the process again. Our preference is that (the assembly) would offer a special ballot election. If you hold it open for another year, it's disruptive to the organization and we'd have to start the market process over."

As it stands, CPGH, Inc. has recommended a joint venture partnership with LHP, and the Kenai Peninsula Borough Assembly will deal with an ordinance at its Sept. 7 meeting that would allow CPGH, Inc. to sign a letter committing to a partnership with the Texas-based for-profit company.

Given the ordinance facing the assembly, Carey, who is the administrator on CPGH, Inc.'s lease with the borough, said CPGH, Inc. is "not authorized to proceed any further in this matter unless and until it is authorized to do so by the borough assembly."

"In my view, CPGH, Inc. has reached the final point that could conceivably be considered within the scope of authority granted CPGH, Inc. in the (lease and operating) agreement," Carey said.

CPGH, Inc.'s lease and operating agreement with the borough requires that CPGH, Inc. deposit its excess operating funds into a kind of savings account meant for major repairs and capital improvement projects.

"None of these allowed uses include spending funds to change the governance or ownership of the hospital or other leased medical facilities," Carey said.

The mayor's power to freeze CPGH, Inc.'s spending in such a way comes because he is the administrator of the lease, Colette Thompson, the borough's attorney, explained. Of course, the assembly still has final say.

The mayor's letter "formalizes that the borough is going to step into the process," Thompson said. "At this point, where the letter of intent is to be drafted and, if approved, signed, that is a significant point in this process because the terms and conditions of the letter of intent affect the next step."

Enacting the ordinance would force the assembly to either accept a partnership with LHP or forfeit $300,000 of the hospital's money.

In a May contract extension signed between CPGH, Inc. and the investment-banking firm Juniper Advisory, LLC, the hospital agreed to pay the firm a $300,000 "withdrawal fee" if the hospital signs a letter of intent but then backs out of the deal.

If Juniper facilitates a successful deal, the company that partners with the hospital would owe Juniper $1.75 million.

CPGH, Inc. has spent a significant amount of money mulling possible changes at CPH, including $16,800 for a Chicago-based consultant and $77,000 in legal fees, according to borough records and Smith. CPGH Inc. continues to pay Juniper a $25,000 monthly fee. The fee will remain as long as the borough is in decision-making mode.

Smith questioned the value of the mayor's letter because the hospital doesn't currently need to spend more money in the process.

"I don't see any real purpose," Smith said of the letter. "Really there is no additional work for us to do until the assembly takes action on this ordinance."

Like Boedeker, Smith said he thinks Carey's letter fails to account for the hospital's transparency thus far in the process.

"I'm not sure how we could have engaged them any sooner. They've been involved in a any decision we've made along the way, and I've notified the assembly every two weeks at their meetings," Smith said. "I'm not sure how we could have done a better job engaging them in the process."

Andrew Waite can be reached at

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