@KingWm

A Bold Plan To Save St. Mark's

*** DRAFT: A WORK IN PROGRESS ***

I am updating the Bold Plan as I receive comments and feed back so check back regularly for updates.  These are not all my ideas.

*** There is no tax under this plan IF the hospital is able to pay its rent.  Clearly, that’s a big IF! ***

Table of Contents

The Goal

The goal is to engineer a plan to rescue St. Mark’s Medical Center (SMMC), before it goes bankrupt, and set it on a path to be a prosperous, full-service hospital again, effective January 1, 2024.  Our plan should only temporarily increase property taxes, if at all, and provide for adequate local, community oversight of the hospital.  With this goal in mind, let’s use this space to crowdsource the solution.

If you have any insight, would like to contribute or have anything to say that might be useful, please contact me via Telegram or via email.  We hope to schedule a town hall meeting very soon (see below) and hold an open forum for interested parties to discuss this and other options more in depth.

The Problem

In a nutshell, SMMC is not generating enough revenue to service its ±$13m outstanding debt (±$1.9m for 7 years).  It needs more support from the community, whether it be via the use of SMMC services or a tax or some other method.

The community has clearly identified the following problems:

  1. They believe the hospital is mismanaged.
  2. They believe there is no, or not enough transparency.
  3. Some in the community have lost trust in the hospital.

This plan depends on the community utilizing the services the hospital offers.  If faith has been lost, then it’s paramount to restore faith.

Remember, the clock is ticking!

St. Marks Medical Center Financial Records

Search using SMMC’s EIN (74-3019849) at https://apps.irs.gov/app/eos/.

Note that the year of the form refers to the year of the closing of the fiscal year (June 30th).

  1. 2016 Form 990
  2. 2017 Form 990
  3. 2018 Form 990
  4. 2019 Form 990
  5. 2020 Form 990

We received this as part of our information request:

  1. 2021 Form 990

The Solution

*** I NO LONGER BELIEVE THIS IS A VIABLE OPTION ***

Purchase the hospital real estate from SMMC, relieving them of that burden (and of course, the asset) and grant them a long-term lease.  If the goal is the success of the hospital, then it shouldn’t matter who holds title to the real estate in trust for the public.  The County is clearly better positioned to generate the necessary capital, let it manage and maintain the real estate.

St. Mark’s leadership claims the hospital is sustainable if only they could service the  debt.  If we take this claim at face value, then relieving the debt could be just what the doctor ordered.  Once free of that burden, SMMC should be better positioned to focus on its intended purpose.  Let St. Mark’s manage the hospital.

There must not be a partnership between the County and SMMC to manage the hospital; it could be a liability hazard.  Under this plan, the relationship would be a contractual one between landlord (the County) and tenant (SMMC).  I don’t know if granting the County the ability to appoint 1/3 of St. Mark’s directors changes this.

Of course, the terms and conditions must carefully provide the public its desired accountability, transparency and oversight while meeting St. Mark’s operational needs.  Everybody wins.

If everything goes according to the plan, St. Mark’s will pay for it all and it won’t cost the taxpayers a dime.  Our task is to make sure the plan fits those parameters.

The Process

  1. formulate a plan
  2. revise plan at town hall meetings
  3. Commissioners Court discuss and hold public hearings
  4. Commissioners Court vote
  5. make an offer to St. Mark’s
  6. St. Mark’s accepts the offer because they have been begging for support for years, have few options left and because it is a sweet heart of a deal.
    1. In other words, make them an offer they can’t refuse.

The Real Estate

  1. In 1999, Jack Kern and others donated 35.00 acres, and conveyed 38.68 acres, to Fayette Memorial Hospital.
    1. Click to see (1082/724 FCOPR)
    2. Click to see (1082/731 FCOPR)
  2. In 2002, Fayette Memorial conveyed both tracts to SMMC.
    1. Click to see (1162/507 FCOPR)
  3. In 2004, SMMC established an agreement with HUD related to the 19.960 acre hospital tract.
    1. Click to see (1257/870 FCOPR)
    2. This will be referred to as the “hospital tract”, or the “hospital”.
    3. There are more records but this is the only history I need for now.
  4. I believe the “Bold Plan” will need to be limited to the acquisition of the hospital tract only.
  5. The fair market value of the hospital is far more than the $13.1 million mortgage.
  6. In my opinion, it doesn’t matter who holds the equity in the hospital because the beneficiary (the public) and the purpose (for a hospital) remain unchanged.

Maps

Hospital Tract
Survey Plat Circa 1999

Endowment & Foundation

  1. It was suggested that we should fund both the purchase of the real estate AND an endowment to the SMMC Foundation.
  2. The primary purpose is to support the transition back to a full-service hospital.
  3. The endowment would of course help the Foundation in its long-term mission to support SMMC.
  4. This endowment should be earmarked for SMMC only.
  5. A separate fund managed by the Foundation provides another layer of oversight.
  6. A well-funded benefactor for SMMC will decrease the likely-hood that SMMC would need to come back to the County asking for funds.
  7. Any net proceeds to the County (tax dollars collected [if any] plus rent collected from hospital minus cost to service debt and property maintenance) should be added to the endowment managed by the Foundation.

Other Options

The other current options seem to be:

  1. A hospital district (election recently failed miserably)
    1. This creates a permanent new property tax, something I personally oppose no matter what.  No new property taxes!  
  2. A hospital authority (I hope we never have to try this)
    1. This is a full-blown government run facility, something I generally oppose.  I can’t think of very many things that government can do better than the private sector.
    2. We have recently discussed the principle that maybe, at least when it comes to critical infrastructure where there is no competition, sometimes government control is favorable to private monopoly.
    3. SMMC doesn’t have a monopoly.
  3. A new budget item for SMMC (like the firefighters get)
    1. I am hearing rumors that there is another proposal which gives annual tax dollars to SMMC in a similar fashion to how we fund the volunteer fire departments currently.  This could essentially become a permanent tax increase and I don’t know how oversight would be attained.  I would oppose this idea simply on the grounds that its a permanent tax increase and the Bold Plan is not.
  4. Bankruptcy
    1. This is a very risky proposition full of uncertainty and doubt.  There is no telling what the outcome may be, but it is likely that we would lose local control to the new owner.
    2. Perhaps we could try to purchase the real estate after bankruptcy but what about all the other assets SMMC is holding?
    3. The increased cost to the County for EMS during the bankruptcy could be significant and indefinite.  Along with the increase in EMS expenses we have already experienced, the total cost could approach the cost of the real estate.

Terms & Conditions

  1. Full forensic audit of SMMC’s books?
  2. The last two years worth of tax returns and audits.
  3. The existing board must resign
  4. The chair of the board, at least, must resign?
    1. It’s a trust issue.  Like it or not, management has failed, at least in the eyes of the public.
  5. There must be a significant leadership shuffle at every level, including the board.
    1. For the sake of continuity, 100% turnover is not practical.
    2. In a small community, the pool of candidates is more limited.
    3. Healthcare is a unique, specialized and challenging field, so the pool of candidates is ever more limited.
    4. Current board members, especially new ones, may not have been a part of the mismanagement.
    5. Experience matters
  6. Hospital administration must change, no more CHC.
    1. It’s a trust issue.  Like it or not, management has failed, at least in the eyes of the public.
  7. The County gets the privilege to appoint 1/3 of SMMC directors.
    1. oversight and transparency (see below)
  8. SMMC must pay rent
    1. Initially, set the rate at a reasonable amount to recover the cost of the Bold Plan.  It should cover the principle and interest under the new terms and property maintenance.
    2. Once the debt is extinguished, the rent should probably be set to a value sufficient only for the County to maintain the premises and cover the cost of managing the real estate.
    3.  To be consistent with the purposes for which SMMC was organized, no “profit” should be generated for the county and all proceeds should be turned over to SMMC or its Foundation.
  9. The community requires a full-service hospital as soon as possible.

Accountability & Oversight

  1. Articles of Incorporation are usually harder to amend than bylaws.
  2. It should be a trivial matter to amend the SMMC bylaws to allow for the political appointment of directors.
  3. I believe this would give the County (the public) its desired oversight.
  4. I recommend at least 1/3 (currently 4 out of 12 directors) but less than 1/2 (currently 5 of 12 directors).
    1. All four appointed by Fayette County, one for each Precinct?
    2. Two appointed by Fayette County, one by Lee County and one by the City of La Grange?
    3. Keep in mind that it is the Fayette County government alone which would be purchasing the hospital.
  5. I would consider a board made up of 4 politically-appointed directors and 8 directors elected in the usual manner to be run by the private sector, but with County oversight.  Is that enough?

Advantages

  1. local control, increased accountability and oversight
  2. real estate is a physical asset where EMS costs are expenses
    • funds go into real estate, not a black hole
  3. reduced County cost for EMS over time
  4. no permanent increase in property taxes, no cost to the County over time
  5. total cost could eventually be completely recovered from SMMC
  6. no risky bankruptcy
  7. no new board, district, agency or bureaucracy created
  8. If the hospital fails, we still have the real estate
    1. We could negotiate a similar deal with another hospital
    2. We could sell the real estate to the new hospital
  9. It may be possible to put the new justice center there
    1. The County would likely have to purchase any real estate to use for a justice center from SMMC at fair market value because that is not a use for which SMMC was organized.

Disadvantages

  1. We have to produce the capital to make the purchase and there will be expenses.
  2. If the hospital is not successful, the County will incur losses.
  3. Property taxes may have to be raised temporarily to pay for the real estate if rent collected doesn’t service the debt or the hospital runs a deficit.
  4. The County would have to maintain the real estate.
  5. In the worst case scenario, if SMMC failed for any reason, or if the hospital was closed for any reason (like in 2020), the County would still be on the hook to service the debt until maturity.

The Debt

  1. Currently, the debt is $13.1 million (±$1.9m/year for 7 years)
  2. We must work to lower the debt, make it more sustainable
  3. Solicit wealthy donors
    1. to help pay down the mortgage
    2. to fund an endowment for the Foundation
  4. Negotiate with HUD/Lender to reduce the mortgage?
  5. Negotiate with CHC to reduce or eliminate the $1.5m owed to them?

Financing

  1. The debt could be extended over a longer period sufficient to sustain SMMC.
  2. Remember that sky high inflation?  In this case, it is a blessing.  Future tax revenue will likely be hyper-inflated compared to the meager return on the bonds.
  3. We should consider funding both the debt and an endowment managed by the Foundation.
  4. Pages 8-10 of the Handbook issued by TAC (see below) lists several types of bonds.
  5. I don’t think we will have any trouble finding an authorizing statute.
  6. certificates of obligations (CO’s) don’t require an election (unless there is a petition) and are secured by ad valorem taxes
    1. the new EMS station (±$1.7-2$ million) was funded using CO’s
    2. Notice is required 45 days prior to vote.
    3. a petition signed by 5% of qualified voters causes an election
  7. general obligation bonds (GO’s) always require an election and are secured by ad valorem taxes
  8. tax notes don’t require an election and are secured by ad valorem taxes, but may not exceed seven years
    1. the Pioneer Bank building ($1/2 million I believe) was funded using tax notes
  9. Bond elections take time so diligence is required.
  10. The Handbook issued by TAC has two handy tables (pages 30 & 31) which summarize the authorized purposes for issuing debt obligations and the defining features of each type.

Budget & Amortization Schedule

  1. I have been told that my understanding of how bonds are paid is correct.  In general:
    1. Principle is paid once annually as shown.
    2. Interest is paid twice annually on the outstanding principle balance.
    3. I am still awaiting confirmation that my math is correct.
  2. If we get many reductions and/or donations and the deal is especially sweet, I might recommend CO’s because they don’t require an election unless a valid petition is submitted, potentially saving precious time.
    1. This presumes the Bold Plan has the general support of the community and is not controversial.
  3. If we don’t get those concessions and donations, and we have to pay the full amount, I may lean more towards GO’s because it’s a much more controversial decision.
  4. CHC said the hospital can sustain about $600k/year right now, under the REH designation and their month-to-month plan, which must be renewed each month.
    1. Compare this figure to the “Average” in the spreadsheet scenarios.
  5. The three scenarios presented are as follows (20 years @ 5%):
    1. $2m raised for Foundation endowment, $1.5m forgiven by CHC and $6m in private donations, finance $9.2m, $702k average yearly rent
    2. $2m raised for Foundation endowment, $4m in private donations, finance $12.7m, $968k average yearly rent
    3. no reductions or donations, finance $14.7m, $1,121k average yearly payment
  6. Note that in all three scenarios, the monthly cost is less than or equal to the current projected increase in our EMS budget.

Questions

  1. How do we get SMMC Form 990’s (tax returns) for 2021 and 2022?
    1. request them from St. Mark’s (in progress)
  2. How do we get current organizational docs and bylaws?
    1. request them from St. Mark’s (in progress)

Comments

  1. I don’t believe the SMMC organization docs would have to be changed, but the bylaws may.
  2. Observations from another citizen:
    1. The top two compensated individuals pulled in almost $1.2 M just between the two of them.
    2. The top two contractors pulled in almost $1.4 M just between the two of them.
    3. $3.7 million for non-employee management services, another ~$750K for accounting.
    4. I have friends that are doctors and this is well more than they make, and it’s even high per Glassdoor and other sites for hospital CEOs.
  3. Comments from another citizen:
    1. The REH designation is a terrible idea (by the Regulators) because it pays the hospital to stop offering profitable services.
    2. We agreed that it is almost as if the creator of the REH designation designed it to destroy rural hospitals.

Town Hall Time

With a spirit of harmony and common purpose and intent, let’s hammer out the details to save the hospital.  No more excuses.  It’s time to talk, face to face.  We could have more than one meeting.  Be prepared, do your homework.

  1. Plum Church hall?
    1. bigger than Ag building, smaller than La Grange KC hall
  2. KC Hall in La Grange is more centrally located.
    1. especially if there is only going to be one meeting
  3. Pick a day in April?
  4. I would probably recommend a Saturday afternoon at maybe 3 pm.
  5. I’ll be prepared to present this proposal.
  6. Others should be prepared to present their alternatives.

The audit includes the financial statements and there is a ton of analysis.

First Certificate of Formation to Amend and Restate Articles of Incorporation of St. Marks's Medical Center