New River, CentraCare formally affiliated after key agreements signed

The New River Medical Center’s Board of Directors approved two agreements Feb. 14 to formally affiliate with St. Cloud-based CentraCare Health System.

The board’s approval of the lease and affiliation agreements wasn’t unanimous, however.
Prior to the full board’s resolution vote, Boardmember and Silver Creek Township representative Doug Schneider resigned in protest.

Schneider wasn’t happy with legal language and terms that were included in the leasing documents presented by Thomas Schroeder, New River Medical Center’s legal counsel.
Schneider announced he would not vote on the documents presented and confirmed he would permanently step down from his board position effective immediately. Board members unanimously accepted his verbal resigation.

Schneider left the board meeting room last Thursday before the affiliation and lease agreement vote was taken.

Boardmember Linda Doerr announced she would abstain from voting on the two agreements, citing a conflict of interest. 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.
The board’s initial vote on the lease and affiliation agreements ended in a 3-3 deadlock.

Voting in favor were Sheldon Johnson, Candy Benoit, Bob Dawson. Voting against were Richard Helms, Tom Campbell, Rob VanDenBerg.

After further discussion that addressed concerns about providing the public with additional information about the affiliation and leasing process, board members voted 5-1 to approve the agreements and conduct a public information meeting in early March to explain the significance of Thursday’s vote.
VanDenBerg cast the lone dissenting vote. Doerr also abstained from that vote.

Schneider responded to a media email request  requesting further clarification of his New River Medical Center board resignation decision.“I feel this whole process was designed to keep the public uninformed,” he stated. “Having a committee to negotiate this lease/purchase allowed them [the board] to get around the open meeting laws.  As an elected representative, I only received information less than four days before a closed-door meeting and less than three days to make a final decision at an open meeting.  All along the public was told that this was an affiliation/lease not a lease/purchase.  I live in this community with my friends and neighbors and I will not be party to deceiving them in any way.”

Schneider was referring to a purchase option provision in the lease agreement that will allow CentraCare to purchase New River Medical Center if $2 million were placed in a restricted account maintained by a tax-exempt, non-profit community foundation that would support or promote activities to benefit the general health in communities served by the district.

“I don’t feel enough work was put into the sale portion of this agreement,” Schneider said.

He added: “The presentation given at the meeting [Thursday] only showed one side of the story.  The hospital has not been valued in any way as to what it is worth.  By not valuing the hospital, the citizens lose out on any additional services, money, or future growth to the hospital.  I don’t feel any due diligence was done in regards to the sale of this hospital.”

Schneider said his resignation left Silver Creek Township without representation in the affiliation and lease agreement discussion. “My hopes are that this will give the seven hospital district cities and townships some type of ground to fight this legally,” he said.

Schneider felt a better purchase deal could have been negotiated.“I think CentraCare is the best fit for the community and is a great organization, but a lease/purchase and not an affiliation/lease is not right,” Schneider said.

John Jones, a Silver Creek Township supervisor, spoke during public forum at the Feb. 14 meeting. He recalled the history of the Monticello-Big Lake Hospital District, specifically how tax dollars from township residents and others throughout the district had been used to build and maintain a community hospital.

“Where are we after having built and paid for this entity?” Jones asked. “Is there anything left of our investment, and everything we’ve put into it? CentraCare is getting a hospital, but has nothing in its account for all those years of payments. I’d like to know where we are at. Where is the money for the seven entities and the people in my district and township who have paid on this since its inception? Can somebody answer my question?”

Board Chairman Sheldon Johnson said the lease and affiliation agreements under review would address monetary aspects of New River Medical Center and CentraCare’s deal. “If you stay tonight, you’ll hear what the presenters have to say,” Johnson said.

Dr. Terence Pladson, CentraCare Health System’s president and chief executive officer, spoke before Thomas Schroeder, New River Medical Center’s legal counsel, reviewed a color-coded document stack containing the lease and affiliation agreements. “[Tonight] is the culmination of many months of careful consideration of the affiliation process by your task force and by your board,” Pladson said. “I’ve been very impressed. You have been diligent, thoughtful and great stewards of this medical center.”

Pladson said CentraCare was ready to move the affiliation process along quickly if the board approved the two key documents. He added CentraCare was waiting for a final due diligence report from its accounting firm, CliftonLarsonAllen. That final report is expected in March, he said.

“We’ll take that report and the other documents back to the CentraCare board for final approval by mid-March. New River Medical Center representatives outlined five core objectives or “must haves” that drove the affiliation decision, Johnson said. CentraCare and New River negotiated each point, and language reflecting the negotiations was placed in document form.

Affiliation task force member Steve Heath spoke briefly after Johnson reviewed New River’s core objectives for affiliation. “We asked CentraCare for specifics,” Heath said. “They came back with a 100-day plan that they’ve already started to implement. Our board and the task force looked at their proposal. It’s time to finalize that decision process. I can recognize why there might be hesitancy to actually hand the ring over to the bride and say, ‘Yes, I do.’ All of the negotiations we’ve have with them have been in good faith. There’s been no arm-twisting whatsoever.”

Heath said the future financial commitment offered by CentraCare couldn’t be matched by New River if it continued to operate under its current governance structure.

“In looking at this, since 1964, our communities have contributed some $28 million in taxes to build this hospital. What we’ve received in return is life-supporting,” he said.

Since January, CentraCare has operated New River Medical Center under a management agreement signed by both organizations. During this time, both parties have been working towards finalizing the lease and affiliation agreements. New River selected CentraCare after a months-long review process.

CentraCare will lease New River Medical Center’s existing facilities in Monticello for a 30-year period, with a renewal provision to lease for 60 years.

The approved agreements confirm CentraCare’s pledge to strengthen and grow local health care services, stated a joint news release issued last Friday.

CentraCare’s financial commitment to the Monticello-Big Lake Hospital District will eventually total more than $68 million, and includes the following:
• CentraCare will recruit and maintain primary care and specialty providers who support local health care, an estimated $1 million investment during the first 18 months of the affiliation.

• CentraCare will invest in local facility, capital and technological advances that will allow the New River campus to remain state-of-the-art. CentraCare will fund $21.3 million in such improvements in the first five years of the agreement and $24.3 million in the second five years.

• CentraCare will invest a minimum of $3 million to  maintain, develop and grow services to ensure a continuum of health care services are offered and provided locally. To accomplish this, CentraCare will increase the number of primary care physicians employed locally through New River Medical Clinic or any affiliated successor clinic, reopen the obstetrics and birth center by the spring of 2014, maintain locally-based acute inpatient, emergency room, ambulance and skilled nursing facility services and establish an observation unit as well as expand local emergency room facilities and services.

• CentraCare has agreed to ensure New River Medical Center’s future financial viability through commitments regarding current debt and offsetting operating losses in order to avoid future tax levies by the hospital district.

•CentraCare will assume $11.6 million in debt during years one through five of the affiliation agreement and $7.2 million in years six through 10, paying principal and interest payments on existing New River bonds and hospital capital leases.

•CentraCare will encourage and enable local input for local health care through community representatives on a local governing board. The agreement approved last Thursday listed the following local board representation structure:  One member who is a district representative; one member who is not a current member of the district board and who resides within the boundaries of the District and who is appointed by the district from nominees proposed by CentraCare; two members who are appointed by CentraCare and ex-officio members that include the president of CentraCare Health System – New River, LLC, the health care facility administrator and the hospital’s chief of medical staff. Employees will have the opportunity work for the new CentraCare affiliate.

In his opening comments, Schroeder said the New River Medical Center board’s commitment to securing health care services was far more important than the legal documents son the table.
“This board spent well over a year in meetings and education sessions with consultants, speakers and health care experts,” he said. “It was determined the mode this hospital was operating under is simply not viable. The district governance structure is hindering, rather than helping, health care in this community.”

Schroeder said transferring the hospital to a new mode of governance, a private, independent, 501c3, at that time represented the best way to move forward, and that the proposed affiliation agreement with CentraCare represented a similar evolution.

“What you are dealing with still involves revolutionary changes in health care, an ever-escalating tide of competition and larger players coming into the marketplace.” Schroeder said.

He added: “It’s no secret that the year 2012 was not a very peaceful year for this institution.” Schroder said the deal done a year ago to create a New River Medical Center non-profit was still in place, and that five of its nine members were district board members.
That non-profit corporation still holds a binding lease to New River. The document the board spent more than a year crafting is the foundation on which the current CentraCare deal is constructed, he said.

Ervin Danielowski, former hospital board chairman, disagreed.

“You sold this whole 501c3 on the premise that we were selling it to ourselves,”  Danielowski said. “That’s no longer the case. I’m not saying that this is a bad deal, but don’t tell me it’s the same.”

Schroeder said the lease agreement, as an underlying document, remained virtually unchanged from a year ago. In addition, he said the affiliation agreement on the table contained changes approved during a meeting Feb. 1. That meeting was closed to the public.
Johnson previously stated that the board was allowed to close the meeting to discuss various contracts for services with the CentraCare related to local facility management and operations, service line growth, physician recruitment and capital investment.
Those items formed the crux of the approved lease and affiliation agreements approved last Thursday by the New River Board of Directors.

In an interview after the Feb. 14 New River Medical Center board vote, Schroder explained the finer points of both agreements.
He started by reviewing CentraCare’s assumption of New River’s bond payments, a key consideration that emerged early in the affliation process.

“When those bonds come due and payable, we are going to call that rent,” he said. CentraCare can’t accelerate the bond payments until after Dec. 1, 2016, he said.

“That’s why there’s a lease, and not a sale. The bond documents will not allow an immediate asset transfer to CentraCare. If that would have been permitted, it would have been far easier. We could have secured the same commitments through an affiliation agreement without a lease.”

Contact Managing Editor Tim Hennagir at [email protected]