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'Health care powerhouse' 

As campaigns gear up to support or oppose leasing city-owned Memorial Health System, Memorial is acting as though there might not be a change.

Its leaders are on course to spend up to $35 million this year on capital investments that, if the lease is approved by voters Aug. 28, will be turned over to its new partner University of Colorado Health to operate.

Memorial interim CEO Mike Scialdone says the spending is intended "to make sure we're growing the service in the community and competing."

"The main urgency," Scialdone adds, "is we think it's needed to maintain our quality of care and our strategic edge in the market."

One major purchase is the da Vinci Surgical System, a $2 million robot that "enables surgeons to perform delicate and complex operations through a few tiny incisions with increased vision, precision, dexterity and control," the manufacturer boasts.

Memorial's chief competitors, St. Francis Medical Center and Penrose Hospital, both owned by Centura Health, have had da Vinci robots since 2011 and 2008, respectively.

Scialdone says Memorial finally ordered one, due for delivery this summer, after physicians told Memorial they'd prefer to do procedures there — but Memorial lacks comparable technology.

UCH spokesman Dan Weaver says UCH supports Memorial buying the da Vinci and other additions, including a $2.1 million positron emission tomography (PET) scanner, replacing monitors in patient rooms, the operating room and cardiology unit; tissue processors and analyzers for the lab, and infusion pumps for IVs, among other things.

The whole point, according to Scialdone, is to show that Memorial isn't sitting on its hands and waiting for the UCH deal to go through.

Because it might not.

A firm foundation

City Council members and Mayor Steve Bach call the proposed lease a home run, but a dispute simmered last week over who would control the proceeds from the 40-year lease. Bach reportedly told the Gazette last week he would "actively oppose" the ballot measure unless he could appoint foundation members to oversee the funds, though Bach later said he was mischaracterized, insisting he simply wants to work with Council regarding the foundation's makeup.

Who's in charge is key, because the city expects to receive nearly $260 million up front as well as monthly payments totaling at least $5.6 million a year. Moreover, the city would face no restrictions on spending the money under the Colorado Hospital Transfer Act, City Attorney Chris Melcher says, giving the city "maximum flexibility."

Bach and Councilor Merv Bennett say their goal is to prevent a repeat of Memorial's former board to give outgoing CEO Dr. Larry McEvoy a $1.15 million severance payout, which Council opposed but couldn't stop.

Bennett says the mayor and Council don't want the foundation's board to have complete autonomy, which would set the stage for another McEvoy debacle. But that issue won't undermine ballot measure support, Bennett says, adding: "You will see the mayor and City Council working together." Also, several councilors have said they want to spend the money on "wellness," liberally construed.

Former Councilor and libertarian activist Sean Paige predicts voters will expect to see a plan for spending the money to assure it won't be squandered, but it's unclear whether that will happen in the next 60 days. Even if it does, exactly how much money shakes out for the city is still unclear.

City keeps liability

Taxpayer liability was the chief reason the city launched its effort to get out of the health care business. Although Melcher said in February that UCH "seems comfortable" taking over Memorial's liabilities, that won't happen. That means city taxpayers are on the hook for at least five years in key areas: debt, malpractice, Medicare reimbursement errors or fraud, and how much is owed, if any, to the Public Employees' Retirement Association to cover some 5,000 Memorial workers, who would leave PERA when they become UCH employees.

That's why the lease requires the city to retain $50 million of the $74 million up-front payment for three years — to cover malpractice and Medicare liabilities — and $25 million in the fourth and fifth years.

As for PERA, the city will get $185 million to solve that problem. Melcher borrows from former CEO McEvoy's Aug. 17, 2011, letter to PERA when he asserts the city would owe PERA nothing, just as it paid nothing to PERA toward the retirement accounts of employees laid off during hard times in recent years. Whatever the city retains below the $185 million would go into the foundation, Melcher says.

The city also would get enough cash to retire Memorial's bond debt, estimated at roughly $329 million to $359 million. Again, any leftovers would go to the foundation, and Melcher predicts the extra would run into the millions.

A new board

The deal means Memorial would become part of UCH, but there would be no seat on the UCH board held by a Memorial representative.

Oversight of local Memorial operations would be handled by an 11-member board — four appointed by UCH and seven who must have lived in El Paso County for at least a year and would be nominated by a Joint Nominating Committee consisting of three people appointed by the city and three by UCH.

Melcher called that composition "a tremendous benefit for our community," but UCH clearly is in the driver's seat, because the nominating committee's nominees would require approval of UCH's other four board members, according to lease provisions.

Also, UCH wants to assure both the nominating committee and the new board operate in secret. The lease states that both panels cannot contain individuals who would cause either panel to be subject to the Colorado Open Meetings Law, i.e., multiple elected officials from the same governing body.

The new Memorial would operate as a nonprofit, meaning its meetings and records wouldn't be open to the public, although it would have to file a Form 990 annually with the IRS, disclosing some financial information.

Another provision that might raise eyebrows is UCH's unquantifiable vow to maintain the same level of charity care currently provided by Memorial, Melcher says. "UCH wouldn't agree to a dollar figure," he says, and the lease contains no method of measuring its charity care support.

The lease calls for UCH to provide annual reports to the community, which would include what programs are added or subtracted, quality of care as measured by patient/employee/physician satisfaction scores, and "audited financial statements."

But UCH won't provide certain "confidential or competitively sensitive information," even to city representatives, if there is a risk the information could be considered "public records" subject to disclosure under the Colorado Open Records Act.

Who was at the table

Back in February, Melcher outlined goals for the negotiations, for which the city hired the law firm of Fulbright & Jaworski at $395 per hour. The firm called in experts from St. Louis, Chicago, Houston, Milwaukee and Washington, D.C., Melcher said.

Yet, the city achieved only one of the goals Melcher outlined for the Indy in February — to get UCH to pay the city's legal bills and the special election tab, a total expected to top $1 million.

UCH refused to solve the PERA dilemma, refused to increase the $74 million annual payment, refused to give Memorial or the city a seat on the UCH board and refused to assume Memorial's liabilities.

But then, the city was up against some tough negotiators. UCH was represented by Hogan Lovells, an international law firm with offices in Denver and Colorado Springs with 36 attorneys who worked on the lease in behalf of UCH, records show.

It's the same firm that gave legal advice to Mayor Steve Bach's campaign, for which it was paid nearly $20,000 both during and after Bach was elected in May 2011.

From September through April, the most recent records available, the city has paid the firm more than $129,500 for multiple engagements, including oil and gas regulations, Banning Lewis Ranch bankruptcy and annexation agreement, "termination of a significant city employee," ongoing legal advice about "miscellaneous matters related to litigation avoidance," re-evaluation of employment practices, financial review of the Colorado Springs Urban Renewal Authority, and city Charter and code interpretation, documents show.

The Indy requested, but has not yet received, any letters explaining potential conflicts of interest between Hogan Lovells' UCH representation and its work for the city.

Melcher seems comfortable with the arrangement, noting Hogan Lovells' work for UCH during an interview last week. He says the city asked Hogan Lovells to create a "firewall" to assure separation of city and UCH matters and that the mayor and several council members, like him, felt comfortable with the arrangement.

Campaign coming

Monday, Melcher presented the lease to Council, saying the agreement would lead to a "regional powerhouse in health care." Council is expected to approve the lease June 26, setting the stage for the August 28 election.

UCH's CEO Bruce Schroffel added, "Let me emphatically state we're ready. It's important we open this new chapter October 1."

So far, campaigning hasn't gotten off the ground. A group called "Great City. Great Care," formed May 3 to support the lease, involves Stephannie Finley, a former Chamber official who recently took a job at the University of Colorado at Colorado Springs.

"We are assembling Colorado Springs' strongest leaders and civic organizations into a coalition that will launch a campaign once Council places the issue onto the ballot," Finley says in an e-mail.

Neither UCH nor Memorial will be involved in the campaign due to legal restrictions. HCA-HealthOne, the for-profit hospital giant that offered $500 million to lease Memorial, declined to say whether it would actively support or oppose the ballot measure, saying it would make a decision based on "what's in the best interest of patients."

zubeck@csindy.com

Key provisions

  • Memorial still investing in itself even as city negotiates lease for voter approval.

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