'We're done': Assembly rejects hospital partnership with LHP

Posted: Thursday, September 09, 2010

After the hospital's governing board spent about $300,000 and six months doing the research that led to its whole hospital joint venture recommendation, the Kenai Peninsula Borough Assembly killed the idea with its first true opportunity.

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Photo By M. Scott Moon
Photo By M. Scott Moon
Central Peninsula Hospital CEO Ryan Smith waits Tuesday night for testimony on a proposed hospital sale to begin. The assembly rejected an ordinance that would have allowed Central Peninsula General Hospital, Inc. to sign a letter of intent to partner with a Texas firm.

The assembly on Tuesday voted 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.

In the five-to-four vote, Gary Superman (Nikiski), Paul Fischer (Kasilof), Mako Haggerty (South Peninsula), Bill Smith (Homer) and Gary Knopp (Kalifornsky) voted against introduction of the ordinance.

Assembly President Pete Sprague (Soldotna), Hal Smalley (Kenai), Sue McClure (East Peninsula) and Charlie Pierce (Sterling) voted for introduction. Sprague and Pierce co-sponsored the proposal.

Ryan Smith, the hospital's chief executive officer, said he was "disappointed" with the assembly's decision.

"From my perspective, we're done," Smith said. "We were just trying to get the thing introduced to have a dialogue. Now it's a little tough to go out and have the dialogue. We don't feel like we have the opportunity to go out and talk to the public about all of the great information that we learned through this very intensive process."

Smith said future changes are now up to the assembly.

Mayor Dave Carey announced his intent to immediately strike up new conversations with the hospital board regarding different changes that can be made to the current governance structure. But Tuesday's decision ended the possibility of the borough selling the hospital in the near future.

Last month, the hospital board recommended a joint venture partnership with Texas-based LHP Hospital Group, saying it believes the 50/50 ownership and control arrangement is in the hospital's best financial interest.

The assembly expressed its willingness to discuss changes to the current governance and ownership structure, but the majority of the members did not see an ordinance regarding a possible partnership with LHP as a way to move the conversation forward.

"What this dialogue is all about is the approval of entering into a letter of intent with the LHP Hospital Group. That's a very narrowly defined dialogue. It's not 'what is the future of this hospital?'" Haggerty said.

Now, discussion could turn to amending the lease and operating agreement, which would maintain borough ownership of CPH, but likely free up decision-making at the hospital. Local physicians have expressed support for amending the lease agreement.

Superman, who has been a leading voice against selling any of the hospital, said he recognized the need for change.

"This just isn't the vehicle that we need to be dealing with right now," Superman said of the letter of intent ordinance. "Maybe we can accomplish what you're after here through a different method."

Pierce questioned, "Where do we go if we turn this down?

"If we sit back and do nothing for the next two or three years, how do we protect the current value of this asset? When do you move? Do you wait until you are in a position of pain before you make a decision? I think this ordinance will create this discussion."

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

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

A draft of the letter of intent, written by LHP and subject to assembly amendments, detailed the potential partnership in which LHP would have purchased 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 future 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 LHP.

Because of a "withdrawal fee" written into a contract with the investment-banking firm Juniper Advisory, LLC, enacting the letter of intent ordinance would have forced the assembly to either accept a partnership with LHP or forfeit an additional $300,000 of the hospital's money.

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

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