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It was like thinking you'd pay $60 for a doctor's office visit to have your blood pressure checked — and finding out you need a $100,000 heart surgery.

Monday's news that it would cost Memorial Health System $246 million to leave the Public Employees' Retirement Association left everyone with a coronary, and raised questions about why that number wasn't known months ago. As it was, the figure doomed a possible April 5 ballot measure to convert the city-owned system into a nonprofit, and might doom any such conversion, period.

However, backers of the nonprofit idea, while sobered by the PERA price tag, sound undeterred.

"At the end of the day, it's still going to be a 501(c)(3)," says James Moore, Memorial's board of trustees vice chair, citing IRS lingo for nonprofit status.

Nobody accepts responsibility for not having secured the figure long ago, and several members of the Citizens Commission on Ownership/Governance of Memorial Health System, which recommended converting Memorial to a nonprofit, say they raised the question early on. Commission chair Bob Lally says a $30 million to $50 million estimate was accepted by everyone involved, including lawyers, consultants and hospital officials. Those estimates came from Memorial, which had worked with consultants on the figures, says Carm Moceri, Memorial's chief strategy officer.

Moceri notes that the estimate wasn't far from PERA's partial figure of $58.3 million. Problem is, the pension fund's actuary did a second calculation to determine PERA's need for a reserve, which will allow the association to pay benefits years into the future.

"That total, which we never expected," Moceri says, "is $159,152,472." On top of that, PERA added $28.8 million for PERA's health care trust fund, a cost-sharing, multiple-employer health care trust.

Moceri notes that Memorial's obligation likely will be much less when an actual figure is calculated with 2010 numbers. Monday's figure was based on 2009 numbers; 2010 saw robust earnings in the stock market, where PERA has money invested.

So the next step is for Memorial to hire its own actuary to come up with a figure, then visit the PERA board to open negotiations. But Moceri says the wrangling could lead to legislation or litigation.

"We're questioning how they came up with their figures," Moceri says, "and whether it truly, legally is applicable."

He also notes that when entities like Memorial want to convert into nonprofits, "PERA should not be the reason the hospital stays as a city-owned asset. Yet, the way they do the calculations, they most assuredly are saying, 'We will determine whether you leave or not.'"

Commission member and former Indy employee Jay Patel says the $246 million figure will scare off potential buyers, such as Denver hospital giant HCA-HealthOne. For now, a HealthOne representative is saying only that it's good to postpone a ballot measure to allow "many creative solutions" to surface.

Steve Hyde, a health care policy and strategy consultant who resigned as commission chair in its early weeks, thinks the hospital is worth enough that even with the PERA payment, the city could walk away with $100 million to $150 million for a community foundation. "The only way to find out is to have people come in and make offers," he says.

Mayor Lionel Rivera says the hospital probably will have to save for a while if it wants to pay off PERA. Meantime, several observers say Memorial should immediately convert non-vested workers to a defined contribution plan, like a 401(k), instead of continuing to rack up liability in PERA.

As Moore says, "All possibilities are on the table."

zubeck@csindy.com

Council OKs two ballot issues

City Council gave its blessing this week to move forward with two of six questions Mayor Lionel Rivera proposed for the April ballot, in hopes of tweaking the new strong-mayor government.

— J. Adrian Stanley

  • Memorial's conversion hopes were iced after a pension-payment jolt. So what's next?

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