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Assembly opts not to move forward with hospital joint venture

Posted: Thursday, September 09, 2010

With one 5-4 vote on Tuesday night, the Kenai Peninsula Borough Assembly blocked the road that the hospital governance structure discussion was headed down.

The body chose not to introduce an ordinance that would have allowed Central Peninsula General Hospital, Inc., the nonprofit that governs Central Peninsula Hospital, to sign a letter of intent to partner with an outside for-profit firm.  

Tuesday night's Kenai Peninsula Borough Assembly meeting drew one of the largest crowds in recent memory, with people lining the walls of the chamber to take part in the landmark decision facing the assembly.

Many people testified to the issue, representing both sides, but the majority of the testimony spoke against a partnership with the Texas-based LHP Hospital Group.

CPGH, Inc. recommended such a partnership last month, saying it believes the 50/50 ownership and control arrangement is in the hospital's best financial interest. The decision moved into the assembly's hand on Tuesday.

Tuesday's meeting was the public's first opportunity to speak out in an official forum on the possible changes.

A draft of the letter of intent, written by LHP and subject to assembly amendments, detailed the potential partnership in which LHP would purchase CPH, Serenity House, Heritage Place and other local practices for about $105 million.

Half of that money would have gone to a nonprofit joint venture entity that would have run the hospital, much like CPGH, Inc. The joint venture entity would have been made up of two, five-member voting blocs.

One bloc would have included 100 percent local membership and the second bloc would have included three LHP representatives and two physicians. Each bloc would have received one vote in all decisions.

The letter of intent would not have finalized any partnership; it would have allowed CPGH, Inc. to continue negotiations toward a deal with LHP.

The decision before the assembly on Tuesday was the latest step in a process dating back to March, when CPGH, Inc. brought in a private consultant who recommended changing the hospital's governance structure.

Since then, the hospital's board has vetted several governance options with the help of a $25,000-per month investment banking firm. After months of deliberation, the board recommended a whole hospital joint venture with Texas-based LHP.

Enacting the letter of intent ordinance would have forced 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 signed a letter of intent but then backed out of the deal.

The hospital has spent about $300,000 in the decision-making process, according to CPH CEO Ryan Smith.

 

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

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