SEARHC’s proposal to take over Sitka Community Hospital includes leasing the city-owned facility for five years, until it replaces its own, 70-year old facility pictured above. (SEARHC photo)
The Sitka assembly heard a pair competing proposals for the management of its community hospital Monday night (8-13-18), and the two could not be further apart. One would cost the city a half-million dollars a year for at least five years, with no guarantee that the hospital would be much better off in the future than it is now. The other would be a multi-million dollar buyout that would take the city out of the health care business altogether.
And there was a third option that no one saw coming.
Note: The City of Sitka will hold a special town hall meeting to discuss the proposals for management of Sitka Community Hospital at 6 p.m. Monday, August 20, in the main auditorium of Harrigan Centennial Hall. A third proposer, Sitka Jet Center, did not present at the assembly work session, but its proposal — to buy the hospital outright — remains on the table.
The proposals were from Quorum Health Resources, a health care services organization based in Tennessee, with over 700 hospitals in its client portfolio in four decades of health care management, and from SEARHC, the Southeast Alaska Regional Health Consortium.
SEARHC is based in Sitka, but has grown over the years to serve 28 communities in Southeast Alaska. And since it began accepting non-beneficiaries, or patients who are not Alaska Native, SEARHC has also grown to become Sitka Community Hospital’s greatest rival.
Bill Donatelli, a senior vice president for Quorum, was not promising any miracles.
“We think, bluntly, if you want a competitive situation we’re in the best position to help this hospital compete financially, bringing in the resources and the expertise you need to survive,” said Donatelli. “But we do think it’s going to be awful tough to compete in a community with 9,000 people trying to support two hospitals.”
Basically, Donatelli said that Sitka Community Hospital and SEARHC were competing over 50-percent of the Medicaid/Medicare market in Sitka. The other half were seeking care out of town anyway.
Mark Armstrong, a senior vice president of consulting at Quorum, was no more optimistic.
“We think sustaining two hospitals in a town of 9,000 people is a very difficult row to hoe,” said Armstrong. “A hospital this size in a community this successful has to have 100-percent community support, and you have half the people leaving, or splitting between two hospitals. While we’re willing to give it our best shot, we really do think that long term it’s in the best interest of the community to have one organization, or a whole lot better collaboration than you had before.”
Still, Donatelli and Armstrong said Quorum would take on the management of Sitka Community Hospital, for a cost of $454,000 per year for five years, not including salaries of the hospital’s two top executives and travel reimbursements, and bring the full weight of the firm’s experience, resources, and purchasing power to help keep Sitka Community Hospital going.
But there was a Plan B — and it was the most surreal moment of the evening: For a one-year fee of $480,000, Quorum would ensure a smooth transition to new ownership.
“The second proposal we’re proposing is a short-term agreement to help you facilitate a smooth transition if you accept the SEARHC proposal,” said Donatelli.
But there was a Plan B — and it was the most surreal moment of the evening: For a one-year fee of $480,000, Quorum would ensure a smooth transition to new ownership.
“The second proposal we’re proposing is a short-term agreement to help you facilitate a smooth transition if you accept the SEARHC proposal,” said Donatelli.
That’s right: Two competing proposals, one of which involves helping the other guys win. Imagine watching the Super Bowl come down to a field goal, and the defense offers to snap the ball.
Sitka Community Hospital CEO Rob Allen had heard that Quorum had added an alternative to their proposal, “and for them to actually say that our recommendation is that you merge with SEARHC… I just like… what?” Allen remarked, clearly stunned. “I think that was the big surprise of the night.”
The assembly was also taken aback. Member Richard Wein, a Sitka hospital proponent and former physician at SEARHC, has a flair for the melodramatic, and he spared none in his antagonism toward what was looking a bit like an ambush.
“Come I to speak at Caesar’s funeral?” he intoned, quoting from Shakespeare’s tragedy.
So then it was up to CEO Charles Clement to demonstrate that SEARHC was worthy, capable, and motivated to take ownership of the health care system in Sitka. The offer, on paper, is compelling: A buyout of the Sitka Community Hospital for between $8- and $9-million, in lump sum or over time; a buyout of the city’s pension obligation to hospital employees for about $700,000; annual lease payments to Sitka of $140,000 for use of the hospital property for five years, until a new hospital is constructed on Japonski Island; and guaranteed employment for all current Sitka Community Hospital staff.
And to sweeten the deal — if it were possible to make it any sweeter — SEARHC would assume full financial responsibility for the hospital, and allow the City of Sitka to retain the full $900,000 it collects each year from the additional sales tax on tobacco.
But the assembly had concerns: Would SEARHC, as a compact among 15 Southeast Tribes, put the needs of the community of Sitka on a par with the needs of its traditional beneficiaries?
“You stated it like it was an inconceivable notion that we would have to deliver assurances,” Clement replied. “I agree with you. If we’re not living up to our end of the bargain, there need to be assurances, and there needs to be recourse.”
There’s also some historical antipathy toward SEARHC and its management practices. When Clement took over as CEO in 2011, SEARHC was deep in debt, and hamstrung by inefficient financial systems. There were significant layoffs — the elimination of entire departments — that stung in Sitka and other communities.
SEARHC has turned things around, but the memory lingers. Clement said that his offer was “not without controversy on both sides, but I can tell you as someone who’s been doing this for 20 years: What path offers the best chance for success? It is not the status quo. It is certainly not the status quo. It will not lead to what this community deserves.”
Or is the status quo a perfectly acceptable option? Sitka Community Hospital CEO Rob Allen thinks so. Allen took over the hospital in 2014 when it too was in financial jeopardy due to inefficient systems. It’s since paid down its debt, and has put money in the bank.
Allen wasn’t invited to present a proposal at the work session, but he says the hospital — by closing its obstetrics program and on-call surgical practice — has found a “narrow path forward.”
“I still feel — and I think I’ve been consistent — that we’ve got the next couple of years covered, as long as we don’t have something unexpected happen,” said Allen. “We have the resources to get through the next couple of years, and set ourselves up for better success in the future.”
The Sitka Assembly will deliberate the future of Sitka Community Hospital as its one-and-only agenda item at its regular meeting on Tuesday, August 28.
