Borough administration seeks revision of 5-year agreement with hospital

CPGH Inc. to negotiate changes

Posted: Friday, December 14, 2001

With only a few days left before a Dec. 31, 2001, "trigger date," the Kenai Peninsula Borough administration has notified Central Peninsula General Hospital Inc. that it wants to make changes to the five-year lease and operating agreement.

But Borough Mayor Dale Bagley said there is no cause for alarm.

"We've been happy with CPGH Inc. and the job they've done," Bagley said. "But there were a few small problem areas that came up during the past four years, and we'd like to take care of them in the new contract."

The hospital is a nonprofit facility owned by the borough and operated by CPGH Inc. As a 501(c)(3) not-for-profit organization, once operating expenses are paid, remaining financial resources are committed to improving the hospital's services and facilities.

According to the current agreement, any changes to the contract have to be addressed by the end of the fourth year or the contract will be automatically extended for another five years.

In a letter dated Nov. 20, 2001, to Diana Zirul, board president for CPGH Inc, Bagley stated the borough's desire to continue contracting with CPGH Inc., provided certain changes are made.

"The changes are intended to clarify contractual interpretations agreed to and implemented during the past four years." Bagley wrote.

As outlined in the letter, the changes would:

Delete all references to "lease;"

Clarify that all borough-provided property and assets generated by CPGH Inc. through the use of borough property are property of the borough;

Add that the borough will pay CPGH Inc. $1 a year to operate the hospital;

Require monthly reporting of operations by the operator's chief executive officer and a CPGH Inc. board member to the borough contract administrator;

Require approval for capital improvement projects and clarify that the role of CPGH Inc. is not to plan or execute capital improvement projects;

Make it clear that hospital revenues are borough property;

Give the borough, rather than the operator, the responsibility for managing deposits of case reserves made by the hospital to the borough's central investment pool;

Necessitate the approval of the borough contract administrator for any expenditure in excess of $100,000 for new services;

Specify that meetings of CPGH Inc.'s board and committees and copies of non-confidential board materials are open to the public, and hospital records are subject to the Public Records Act; and

Require that upon termination of the agreement, CPGH Inc. shall not compete with the borough's ongoing hospital service area activities for a period of five years.

"If (these changes) are not (acceptable to CPGH Inc.), be advised that this letter constitutes the notice of termination contractually required to be issued prior to January 1, 2002, to prevent automatic extension of the existing contract," Bagley wrote.

He closed by adding that he hoped the contract would continue with the changes "for the betterment of the service area residents."

On Tuesday, the borough assembly and administration met in a work session to discuss the contract. Jeff Sinz, the borough finance director and administrator of the contract, stated the administration's intent to reach an agreeable extension date to allow time to address the contract changes. (See related story, page A-1.)

"We all knew the deadline was coming up," Zirul said on Wednesday.

"We would like to sit down and discuss these issues and see what, if any, language changes need to be done."

Dolly Farnsworth, of Soldotna, served nine years on the hospital board. Although no longer on the board, she remains involved in hospital issues.

"I know the borough hates to hear this, but I think we should really be concerned," Farnsworth said.

Topping her list of concerns is the impact the contract changes would have on the hospital's nonprofit status, which originally came about, she said, because of the borough's reluctance to assume liability for operating the hospital. Removing the reference to a lease and paying the nonprofit $1 a year to operate the hospital could change all that, she said.

"So that's the biggest worry," she said. "(The borough) has to be careful of what jeopardy it puts the nonprofit in. That's where the biggest danger lies."

According to Sinz, the contract has financial significance and is "the borough's largest activity, other than local school district funding." Operating expenses exceeded $30 million during Fiscal Year 01, of which $35,000 was appropriated by the assembly; CPGH Inc. oversees more than $40 million in borough assets, including $7.7 million in cash; and capital improvements are being planned that exceed $50 million.

"I think they have heartburn over the fact that we have control over the money," Farnsworth said. "People wanted a locally controlled hospital, and that's what we have. The thing we want to impress on people is that we are giving service at a minimal charge. These prices are the second lowest in the state."

Cynthia Glassmaker, secretary on the Central Kenai Peninsula Borough Hospital Service Area Board, said discussion of the contract negotiations is slated for the service area board's Monday meeting. The 5:30 p.m. meeting will be held at the hospital and is open to the public.

Bagley said a meeting between the borough administration and CPGH Inc. board of directors is being scheduled for next week.

A work session between the assembly, borough administration and the service area board has been scheduled for Jan. 22 at 4 p.m.

"This is very normal," Bagley said. "We've just got some little issues."

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