Retirees Get Fleeced, SRHS Gets Leased, JCBOS Master Plan?

John McKay has been using the analogy of a landlord and tenant to describe the relationship between the Jackson County Board of Supervisors and Singing River Health System. He has used this in campaign materials, on Facebook, and in an interview with WXXV. That choice of wording is unique, sending up a red flag at SRHS Watch. Owners of community hospitals are authorized to lease a hospital to an outside organization under state law. This has happened numerous times with community hospital failures across Mississippi.

McKay posted on Facebook:

McKay states “MS CODE 41-13-15 explains in detail.” Here McKay shows his hand. 41-13-15 does not deal with approving trustees, approving budgets, or approving borrowing. That section deals entirely with how owners of community hospitals may own, transfer, lease, or otherwise disposition their interest in the hospital and its property.  Here are those details:

(8) Whenever any owner decides that it may be in its best interests to sell or lease a community hospital as provided for under subsection (7) of this section, the owner shall first contract with a certified public accounting firm, a law firm or competent professional health care or management consultants to review the current operating condition of the community hospital.

Let’s review. To date, the JCBOS has hired:

1. A CPA firm, LaPorte
2. A law firm, Rushing & Guice
3. Management consultants, LaPorte and other as yet unnamed consultants through Rushing & Guice

The sub-section continues:

The review shall consist of, at minimum, the following:

(a) A review of the community’s inpatient facility needs based on current workload, historical trends and projections, based on demographic data, of future needs.

(b) A review of the competitive market for services, including other hospitals which serve the same area, the services provided and the market perception of the competitive hospitals.

(c) A review of the hospital’s strengths relative to the competition and its capacity to compete in light of projected trends and competition.

(d) An analysis of the hospital’s options, including service mix and pricing strategies. If the study concludes that a sale or lease should occur, the study shall include an analysis of which option would be best for the community and how much revenues should be derived from the lease or sale.

The JCBOS has commissioned all of these studies to be completed by Billy Guice and his experts. Guice only delivered his recommendations to Singing River last week.  Guice has already spoken to the fact that SRHS needs new leadership and a turnaround expert. He has also stated that the hospital needs “strategic alliances.”

Doug Walker at WLOX asked Guice if sale or lease of the system was an option. Guice says that the JCBOS is:

looking at every option. […] It cannot go forward in the present structure. […] There is going to have to be some form of strategic alliance, whether it is a partnership, whether it is a sale, whether it is several alliances. They have to do medicine differently and its going to have to be a regional effect.

Urge to Purge Trustees

If the JCBOS is attempting to lease the hospital, this could explain the breakdown and total lack of a working relationship between the JCBOS and SRHS. Little has been said about the Singing River Board of Trustees in the six months since the JCBOS passed a resolution asking all trustees to resign. Now there is a shift in the talking points of Guice and the JCBOS to start mentioning the BOT.

• June 22, 2015 JCBOS states they will file ethics complaint against Trustee Michael Tolleson
• June 25, 2015 Troy Ross mentions to WXXV that SB 2407 will give them the power to remove trustees
• July 2, 2015 McKay mentions to WXXV that they have no power to remove trustees
• June 25, 2015 Guice says to WLOX:

“They have evidenced a good bit of misjudgement. There are those who now appear to be well motivated and there are those who maybe are pushing the envelope to protect themselves. I would prefer that some of the composition of the board would change.”

Why the sudden “urge to purge” the Singing River Board of Trustees? Turning back to 41-13-15(7)(a) we find:

[…] Such lease shall be subject to the express approval of the board of trustees of the community hospital

If the JCBOS wishes to lease the hospital, they will need the approval of the SRHS Board of Trustees. At this point it seems they do not have it. By removing current Trustees and stacking the board with new Trustees, the JCBOS will have a patsy SRHS board who will immediately sign off on the lease.

Think Like a Supervisor

Slabbed recently instructed to “think like a CEO” to understand the actions of Chris Anderson. The same could be said for a supervisor.

As a county supervisor, the hospital system is nothing but a headache. It gives you all manner of political liability and no sort of political influence. Any politician’s biggest goal is survival: re-election. Tax increases usually spell death and defeat in elections. As a county supervisor, you would never want to raise taxes. A politician is always seeking to expand his influence and the hospital, in the current form, gives him little opportunity to do so.

A foundering county owned hospital puts a supervisor in a very tough position. He might find himself asking, as did King Henry, “who will rid me of this troublesome hospital?” only to have his knight in the form of Billy Guice ride out for a solution.

As a supervisor the ideal solution would be one that:

1. Doesn’t require a tax increase
2. Removes the political liability of appointing trustees and oversight of hospital operations
3. Expands political influence in the form of additional money to the general fund

This would come in the form of leasing the hospital to an outside organization. The lease payments would cover the principal and interest payments on bonds and also on payments to the pension plan. An outside company or non-profit would now oversee all aspects of hospital operation and the Board of Trustees would be dissolved. After the bonds and the pension holders are paid any money leftover goes to the county’s general fund. This gives the supervisors extra money to spend and exert more influence without having to raise taxes. The only “byproduct” such an elegant political solution is that employees and retirees will both suffer as pension obligations will have to be “cut to the bone.”

Effect on the Pension

Recall that Billy Guice and the JCBOS are opposed to the 88% offer on the table by SRHS. They feel it is too generous and unsustainable. They are on the record stating that retirees should get less.  Guice has said, “I do not believe the plan can be saved at 100%, I do not believe the plan can be save in the manner that the hospital is attempting.”

Any proceeds from leasing the hospital must be first used to pay bonds per 41-13-15(7)(a) “[…]the proceeds from the lease being first applied against such bonds, notes or other evidence of indebtedness[.]”  If the county can secure a lease in excess of the amount required to pay bonds and pension holders, that extra money would go into the general fund, able to be used for anything.

Each month that passes erodes $500,000 from the principal of the pension fund. With no incoming contributions, this puts the plan further and further behind with each passing month.  The longer resolution of the plan is delayed, the percentage at which the retirees will be paid decreases. Guice and the JCBOS are angling to reduce the pension obligation under a structured termination that will fix the pension plan obligations at the lowest possible amount to satisfy retirees, while simultaneously removing the anchor from SRHS. The lower the amount of the pension obligation, the more attractive SRHS is to a lessee.

Health policy is rapidly changing in the US, as are other outside economic forces. The span of five years may see Medicaid expansion in Mississippi, moving SRHS solidly into the black. All manner of “strategic alliances” between the hospital, physicians, and other groups may make SRHS a solidly profitable institution over the next 65 years. Any settlement reached with retirees should see that any excess profits from SRHS operations are restored to the pension plan at 100%, and only then should any excess flow to the general fund.

Consider it this way: you have loaned your son $5,000 to buy a car. He later loses his job, and is unable to make payments to you. He sells the car for $3,500 and gives you this as payment toward the car, still owing $1,500.  You agree to accept the $3,500 as payment in full and forgive the $1,500 shortfall. The next month your son gets a new job paying $5,000 a month. He never offers to repay the $1,500. Since you forgave the debt, you have little right to ask for it, but you know it is the right thing for him to do. You now realize you should have left your son on the hook for the remaining $1,500.

Employees and retirees should leave SRHS on the hook. Any settlement should include a provision that will allow employees and retirees to share in the future prosperity of SRHS.