Documents define New River, CentraCare relationship

The New River Medical Center Board of Directors approved an affiliation memorandum of understanding (MOU) last week with St. Cloud-based CentraCare Health System.
The action by board members representing the Monticello-Big Lake Community Hospital District was approved on a 5-2 vote near the end of a three-hour meeting that featured a lengthy legal review of affiliation-related documents.
Directors Richard Helms, representing Big Lake Township, and Rob VanDenBerg, Otsego, voted against the resolution to approve the MOU, which also included management and confidentiality agreements.
Boardmember Linda Doerr abstained. Doerr is employed by CentraCare as a vice president for senior services at St. Cloud Hospital and is CEO of St. Benedict’s Senior Community.
Jim Davis is CentraCare Health Services’ vice president of corporate services. He’s also president of CentraCare Health System-Melrose, CentraCare Health System-Long Prairie and Sauk Centre.
During last week’s meeting, Davis described CentraCare’s organizational relationship with New River Medical Center.
“New River Medical Center will be a strategic addition for CentraCare,” Davis said.
During the first 100 days of the two parties’ affiliation relationship, product and physician growth plans will be developed. A primary service area survey will be conducted and market-related focus groups will be established, Davis said.
Paul Harris, CentraCare Health System’s vice president and general counsel, and Thomas Schroeder, who is New River Medical Center’s legal counsel, spoke next.
Both lawyers referenced a presentation that showed timetables for the MOU, management agreement, affiliation agreement and facility leasing agreement.
CentraCare has organized CentraCare Health System-New River, LLC, a non-profit, to operate the health facilities under the terms of a lease with the district. Schroeder said the MOU states CentraCare and the district will enter into a temporary management agreement until affiliation can be completed.
“It’s the same model [we’ve been talking about] but with a different entity [CentraCare] stepping into the role of the non-profit organization,” he said.
According to Schroeder the actual deal document between the two parties will be signed sometime early next year, before Feb. 1. The MOU approved Dec. 13 was designed as a short-lived document. “The affiliate agreement comes in January,” he said  “The lease is shorter in duration than the affiliation agreement.”
CentraCare will recruit and maintain primary care and specialty providers who support local health care, invest in facility, capital, and technological advances so that New River’s facilities remain state-of-the-art, maintain, develop, and grow services to ensure that a continuum of health care services are offered and provided locally and ensure financial viability by guaranteeing current bond debt of $16 million. Finally, CentraCare will encourage and enable continued local input for local health care through community representatives on a local governing board. Schroeder said creating a limited-liability company that’s solely owned by CentraCare as a tax-exempt entity eliminates New River Medical Center’s need for a letter from the IRS confirming the non-profit status of its new board.
“The 501c3 non-profit board will disappear after the lease is signed,” Schroeder explained.” The [legal] flavor of this management agreement is that it’s little bit different. It confirms a bit more authority on the manager [CentraCare]. Your administrator [Marshall Smith] will become a CentraCare employee.”
Schroeder added New River Medical Center would not become a Catholic hospital once its affiliation and other agreements with CentraCare become effective.
The management agreement that will become effective Jan. 1, 2013, states CentraCare will provide or be responsible for supervising personnel who are not involved in patient care or services; set the terms of work and recommending the hiring and discharge of personnel; complying with any correction notices issued for the health facilities during the term of the agreement. Within the initial 30 days of the management period, CentraCare will recommend to the hospital district board a staffing plan that will include professional and administrative personnel for the management period and the affiliation period. CentraCare will be authorized to ratify, assume, or enter into all contracts and leases and provide or arrange for all accounting, internal auditing or other administrative services.
Ervin Danielowski, hospital board chairman, was concerned about language in the legal documents that stated CentraCare would not be required to pay any operating losses incurred in the operation of New River Medical Center’s health facilities. Helms was primarily concerned about the complexity and number of legal documents the New River Medical Center Board of Directors would sign. “Each time you sign something, you get farther down the road,” Helms said.
“CentraCare is not trying to back off its commitment that you won’t have to levy again,” Harris said, adding that CentraCare’s chief financial officer [Greg Klugherz] told him to tell the New River board CentraCare would honor its commitment. Schroeder said CentraCare would cover New River’s bond covenants.
VanDenBerg asked Schroeder to respond to a list of questions regarding the MOU and the management agreement.
Specifically VanDen Berg wanted to know if termination of the MOU would automatically terminate the management agreement, and who would be negotiating with CentraCare during the time the management agreement was in effect. He wanted to know about Smith’s employment status as administrator.
According to the legal documents presented last week, either party can terminate the MOU by written notice after Feb. 1, 2013. The management agreement requires 30 days notice. Schroeder and Harris responded to VanDenBerg’s list of questions. Schroeder said termination of the MOU would not lead to an automatic termination of the management agreement. Schroeder said use of the word “termination” regarding the administrator was not related to cause.
“It’s a transition over to CentraCare,” Schroeder said, referring to Smith’s employment status. VanDerBerg also wanted to know which party would pay off the administrator’s contract. Harris said that CentraCare would be willing to take that financial obligation if the management agreement continued to move forward.
As the legal documents discussion neared its completion, Danielowski said the New River board could wait until a later December meeting to sign the MOU.
“If anybody isn’t comfortable approving this, we could wait,” he said. Boardmember Brian Doyle, who represents Silver Creek Township, didn’t want to wait.
“Let’s do it tonight,” Doyle said before offering a motion to approve the MOU and reading resolution language into the board’s meeting record. Boardmember Bob Dawson, representing Becker Township, seconded Doyle’s motion, which passed 5-2. Schroeder recommended the board establish a transaction committee to review all affiliation documents. “You need formalize that [tonight] so as the district’s lawyer, I have a neutral party and advocate for the district. That will benefit Marshall [Smith] and his [management] team. They have to be relieved of somebody second guessing them.” Affiliation task force leaders Steve Heath and Bob Esse agreed to serve on the committee with board members Candy Benoit, Sheldon Johnson and board member-elect Tom Campbell.
New River Medical Center’s Board of Directors has called a special meeting for –Thursday, Dec. 27, at 7:30 a.m. to certify the hospital district’s final 2013 levy.
Also, New River Medical Center’s Finance Committee has canceled its Dec. 26 meeting and rescheduled the meeting for Wednesday, Jan. 2, 2013, at 7:30 a.m.

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