If people think the city could sell Memorial Health System to a big corporation and pave streets, they're wrong.
Colorado Attorney General John Suthers said Tuesday that the city-owned health system is, in fact, subject to the state Hospital Transfer Act — meaning proceeds from its sale to a for-profit corporation would have to be used for health care purposes. Selling to a nonprofit is another question entirely: The act is silent on what the city could do with proceeds in that situation, but Suthers says the IRS might impose its own set of restrictions.
In any case, Suthers said the sale of Memorial would have to be reviewed by his office for compliance with those provisions.
"The bottom line is that these proceeds cannot be used for general city purposes," he told the Citizens Commission on Ownership and Governance of Memorial Health System.
The panel (which includes Indy business development vice president Jay Patel) is charged with delivering a recommendation to City Council by December about whether to sell Memorial, keep it, convert it to an independent nonprofit or alter it in some other way. Some of those changes, including a sale, would require voter approval.
But in the few minutes it took Suthers to announce his much-anticipated legal opinion, the hospital's market value may well have taken a dive, judging from a consultant's 2009 analysis.
Kaufman, Hall & Associates, Inc., of Skokie, Ill., concluded in a valuation study issued a year ago that, "If the Hospital Transfer Act does apply to the city, we believe there would be negative implications" to the hospital's value.
The study set the enterprise's value at $362 million to $435 million, and its equity value — or the profit a sale would generate — at $216 million to $289 million, "assuming the Hospital Transfer Act does NOT apply to the City."
It continued: "As the Hospital Transfer Act will likely limit the pool of interested purchasers, it will have a negative affect on valuation."
Potential nonprofit buyers, the study notes, would likely be swayed by one restriction in particular that prevents hospital assets — everything from cash to MRI equipment — from being sent out of state.
Suthers said if City Council disagrees with his opinion, it could seek a District Court declaratory judgment on the matter, a move he would support. But City Attorney Patricia Kelly says that's not likely.
"My sense is they don't want to get into another lawsuit," Kelly says. "What good would come of it?"
Vice Mayor Larry Small says Suthers' opinion doesn't change his mind about wanting to keep the hospital.
"I'm not sure why we're going through this exercise in the first place," he says.
The commission has yet to formulate options to submit to the public for feedback, but some ideas are swirling, judging from questions asked of Suthers.
The commission's $285,000 consultant, Larry Singer, asked whether a city demand for an annual lease payment from Memorial would be subject to review under the transfer act. (Suthers said it would not.) And Commission Chairman Bob Lally wondered whether the transfer act would apply to the idea of simply removing the City Council's oversight of Memorial. (It would.)
Commissioners begin meeting at various locations next month and have planned their first town hall for the week of June 28.