HomeMy WebLinkAbout~Master - Special Meeting of the Ames City Council 05/09/1994MINUTES OF THE SPECIAL MEETING
OF THE AMES CITY COUNCIL
AMES, IOWA MAY 9, 1994
The Ames City Council met in special session at 7:00 p.m., May 9, l994, in the City Council
Chambers in the City Hall, 5l5 Clark Avenue, pursuant to law with Mayor Curtis presiding and the
following Council Members present: Campbell, Parks, Tedesco, Wirth, Hoffman. Council Member
Parks arrived late.
FIRST MEETING ON THE FUTURE OF THE OWNERSHIP OF MARY GREELEY
MEDICAL CENTER: Mayor Curtis introduced Mr. George Pust, representative of Quorum
Health Group, Inc., a for-profit corporation. The Mayor announced that Quorum Health Group,
Inc. will conduct a citizen's forum on Tuesday, May l0, beginning at 5:30 p.m. in the
Council Chambers.
PRESENTATION: Mr. Pust thanked the Ames City Council for the opportunity to speak regarding
his company, the future of health care and the opportunities they see in Ames, Iowa, with Mary
Greeley Medical Center. Quorum is committed to meeting the needs of their client and is strictly
a short term acute care company. Quorum holds four succinct values; respect for people,
commitment to customers, continuous improvement practices, and responsibility to shareholders.
Quorum is one of the larger systems in the U.S. It has both managed and owned hospitals, and
is currently in 45 states. Quorum is interested in MGMC because it looks for hospitals in the
400 bed range in which they can enhance the revenues and can be a provider in the market place.
MGMC also has a population base of 50,000 to 400,000 with a solid economic base of operation,
and has a viable health care system in place.
Mr. Pust stated the proposal is being presented as "an expression of interest" because of the
limited amount of information they have. They would propose to purchase all the land,
buildings, equipment and the net working capital at net realizable value (net realizable value is
a factor for the quality of accounts receivable and other pre-paid assets on the books). The net
working capital equation would necessarily exclude the current portions of any long term debt
and any third party accounts under current assets and liabilities. They would propose a clean
cut off the closing - meaning they would have clean titles to the properties within the
organization and a clean cut within internal operations. Quorum would have monies available
in order to meet the closing schedule of the City Council. The excess funds of the sale represent
a major benefit to the City. The City would be relieved of any future obligations on the bond
issues and Ames would have the advantage of networking with a large system, have on-going
access to capital, and the hospital would become a source of revenue. Quorum would replace
City-backed financing with equity financing and would not ask the City for funds. The
transaction would be conducted either as a purchase or a joint venture.
The City of Ames would be responsible for defeasing the long term debt. Quorum would
commit to completing the parking ramp and other priority construction projects that exist (not
necessarily to include the existing construction program, but construction that would achieve the
same benefits). They would propose to retain $10M of the construction funds to work through
the parking ramp and other proposals.
Quorum would commit to rehiring all the employees that are employed as of the closing date of
the transaction. All employees would be placed on Quorum's benefit plan including a full range
of health care benefits, a 401K retirement plan, long term disability, vacation, sick leave, and
sick leave accrual plans. All prior service time would be recognized and there would be no
decrease in salary scales.
The present Hospital Board would be asked to remain as an advisory board within the Quorum
organization. The advisory board would lend their expertise to the appointment and re-
appointment of medical staff, the on-going assessment of quality care, strategic planning and
other similar activities.
The corporate structure of Quorum would allow fuller involvement with physicians. Iowa is a
"corporate practice of medicine state", which means that the physicians are not allowed to be
employees of a proprietaryorganization, but other structures do allow involvement with
physicians in the local community.
Mr. Pust felt the advantages to this type of health care would be the commitment to the retention
and growth of all existing services within the organization. Quorum feels a need to enhance the
cardiology department, the out-patient and in-patient surgical service base, the emergency
services within the organization, and the expansion of home health care.
Mayor Curtis asked the Council to present their questions.
Council Member Campbell wanted to know more about the role of the advisory board. Answer:
The size of the board is between 9 and l2 individuals. The responsibilities of that board would
be to advise the local governing board (Board of Trustees) regarding health care as it affects the
City of Ames. The Board of Trustees would be made up of equal representatives of physicians
and representatives of Quorum would decide on medical and quality of care issues as it relates
to MGMC, and be responsible for recommending to the Board of Directors of Quorum the
operating budget and the capital budget on an on-going basis. It would be a three-tiered type of
approach.
Council Member Campbell: Who are the members of Quorum who make up half of the board?
Answer: One is the CEO of the hospital the other two or three Quorum representatives would
be from the operations staff. The medical staff would be asked to appoint three or four members
to serve on that board. Everyone serves one year annual renewable terms on an on-going basis
except the CEO and administrator.
Council Member Campbell: We hear concerns regarding for-profit versus a not-for-profit such
as, "How are you going to make a profit without reducing the benefits, pay taxes and not see a
decline in care?" Answer: There is no difference in a for-profit or not-for-profit hospital in
today's market, except the corporate owned facility pays taxes. In the Quorum Corporation there
are economies of scale which will be brought to be bear on MGMC in the form of national
purchasing contracts that offset the dollar amount of increased taxes.
Council Member Campbell: Some major physician groups have taken a strong stand opposing
a for-profit company buying the hospital. If we were to go against that, how would you deal
with the medical community? Answer: It is honestly felt that the physicians, employees and/or
the citizens would not see any change from one day to the next if Quorum would acquire
MGMC from the standpoint of the operation, philosophy or quality care.
Council Member Parks: In the Mission Statement there is a commitment to innovative services.
What do you mean by innovative? Answer: Any service that looks at improving cost
effectiveness, quality of operation, or enhances service from the standpoint of quality is an
innovative approach.
Council Member Parks: It is indicated in the proposal you would retain $10M for the
construction of the parking ramp and other types of things. What would you not build that they
are proposing to build? Answer: The existing building that they propose to tear down is very
suitable for office space and does not need to be destroyed.
Council Member Parks: Are you building new surgery rooms? Answer: Part of the major
expansion would be in the out-patient area as far as waiting and pre-op areas and new surgical
suites.
Council Member Parks: Out of the $10M, what part of that are you allocating for parking:
Answer: The Certificate-of-Need application indicates $5-6M for the parking ramp. We are
committing to you that we would build that parking ramp, the remaining $4-5M would go into
new construction and remodeling.
Council Member Parks: I'm concerned how you reached your evaluation of MGMC, what goes
into calculating its worth? Answer: We look at the cash flow of the organization, the earnings
that come from cash generated dollars and apply a multiple to that number and value is based
on that.
Council Member Parks: What kind of discount rate do you use with those cash flows to assess
value? Answer: A multiple of between 5 and 7 is used.
Council Member Parks: If MGMC was acquired at this price, what would happen to the rate
structure and how long would it be guaranteed. Answer: Very little would happen to the rate
structure. MGMC has approximately 67% of its business under Medicare and Medicaid. It may
change over some period of time, but that could be negotiated.
Council Member Parks: Do you have a sense for how long you would continue services that are
currently provided? Answer: We will retain and/or enhance the services at MGMC as they are
needed by the community.
Council Member Parks: We have an article that was sent to us from Modern Health Care
regarding Quorum's acquistioning and subsequent disposal of some hospitals. In the event that
we are acquired and then at some point sold again, what kind of guarantees does that carry with
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it? Answer: We would be willing to make a commitment to define in the purchase agreement
that we would give the City the first right of refusal to either purchase back the facility at the
then fair market value or to have the option to repurchase the facility over a given time period.
Council Member Parks: Have you ever previously acquired a Municipal. Answer: No.
Council Member Parks: You mentioned opportunities for integration. Could you expand on
that? And, regarding MGMC do you see expansion or shrinkage in its value? Answer: We see
MGMC expanding. Health care is expanding through regional systems and we see the need in
every market place to begin to develop network opportunities.
Council Member Brown: Could you explain the position of set salaries and benefits now in
comparison to the year 2010 as far as responding to markets, equity models and personnel.
Answer: Competition is the key word. We will always be competitive with changes in the
health care system. We have corporate wide training programs which will provide the
opportunity to grow personally and within the salary scale of that particular hospital.
Council Member Wirth: Tell us about your affiliation with other hospitals within Iowa and how
long that relationship has gone on and what type of facilities those are? Answer: He cannot.
He is on the acquisition and development side of the business. Quorum has been associated with
Des Moines General Hospital 8 to 10 years, Knoxville 8 years, helped build Ft. Madison
Hospital and has been associated for about 10 years. Boone is a management contract facility.
Council Member Wirth: Do you foresee decreasing beds here? Answer: They would not
anticipate decreasing beds.
Council Member Wirth: Do you feel it would be advantageous to establish satellite properties
within the community or outside of the community? Would you be looking to purchase some
facilities? Answer: Quorum would take whatever approach that would be appropriate working
with the existing medical staff of MGMC, as well as the outlying communities. If it got the job
done, yes, we would be interested in growing the business in that particular fashion.
Council Member Tedesco: It was indicated that you liked to be in communities where there
were two to four hospitals, and you didn't often go into communities below 50,000. What made
you interested in MGMC? Answer: MGMC is an interesting size facility, it has the ability for
growth, and the market is relatively low as far as managed care and regionalization of health
care.
Council Member Tedesco: You referred several times to being a major player in the medical
care arena. Can you describe briefly a "major player". Answer: MGMC is a major player as
far as the City of Ames is concerned. It is one of the predominate employers in town.
Council Member Tedesco: You indicated that you were involved in short term acute care. How
does that relate to services provided by Mary Greeley such as physical and occupational therapy,
and ambulance service? How do you fit in the picture with Homeward Programs and indigent
care? Answer: MGMC is licensed as a short term acute care hospital. That is his reference
point. This would be the first ambulance service owned by Quorum. Outpatient services,
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nursing home services, long term acute care, Homeward Bound Programs are all programs that
enhance the delivery of health care. Those programs would need further study and are looked
at as potential areas of growth.
Council Member Tedesco: Are any of your hospitals or employees unionized? Answer: At this
time, no.
Council Member Tedesco: You indicated that one of the new phenomena's are Physician
Hospital Organizations. Can you relate how you may have worked or formed partnerships with
PHO's. Answer: Quorum has only one model which they are activity working with physicians
in a direct equity relationship. It is a limited partnership with 26 physicians that have a 26%
interest in the hospital organization.
Council Member Tedesco: I understand Quorum may have two corporations - one dealing with
managed care versus owned and operated facilities. Are the owned and operated facilities all
under one corporation? Answer: No, they are not. Each hospital is separately incorporated for
liability purposes. The Quorum Health Group is a holding company. The Management
Company consists of all of our management contracts and consulting contracts. Each individual
hospital of the owned nature are individual corporations.
Council Member Tedesco: Have you ever gone into a situation where you have purchased the
business of the hospital and leased back the facility that it was housed in? Answer: No.
Council Member Hoffman: Would you discuss the pros and cons of going into a joint venture
versus purchasing the hospital? Answer: The joint venture model offers an opportunity to get
local community players involved from an equity standpoint so they have a greater interest and
awareness of what is happening with health care needs. The down side is we would all be at risk
because of financial commitment to the equation.
Council Member Hoffman: The April 25, l994, issue of Modern Health Care talks about
Quorum being investigated by HHS for preparation of Medicare cost reports for its hospitals.
Would you respond to that? Answer: We had a disgruntled employee that filed a complaint with
the Office of the Inspector General. Anyone can file a complaint and the Inspector General by
law has to investigate. It has nothing to do with management ability or the way those reports
were prepared.
Council Member Hoffman: You noted that one of the advantages to being involved with many
hospitals is costs savings in buying the equipment and supplies. The above mentioned article
also talks about buying from Baxter with a rebate of less than 3%. Can you square those two?
Answer: That is a rebate that is given back from Baxter to the corporation based on the volume
of purchases that are done in all the individual entities throughout the entire U.S. We pass the
discounts on to the individual hospitals. When a certain money level is reached that money is
set aside at the corporate level for on-going educational programs.
Council Member Hoffman: In looking 4 or 5 years into the future, how many hospitals do you
envision owning at that point? Answer: We would like to acquire around 3 to 5 facilities a year.
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Council Member Hoffman: MGMC has a good financial record. I assume all the hospitals that
you are buying don't. Can you discuss that? Answer: No, they do not. Some of them have a far
superior financial records, some have far worse.
Council Member Hoffman: How much cross-over is there of money from one institution to
another? Answer: Within the company every hospital establishes its capital budget within the
owned environment. Once that capital budget is decided it is taken to the corporate board for
their approval and the money flows back into the local institution on an on-going basis.
Mayor Larry Curtis: Obviously Quorum Health Group, Inc. is a parent corporation. Where is
it incorporated, how many shareholders does it have, and is it publicly traded? Answer:
Quorum is incorporated in the State of Delaware. Quorum Health Group is currently owned by
approximately 560 employees of the company, three major banking firms, and some smaller
groups of stockholders. They have 32 shares of outstanding stock and are proposing to issue an
additional 6.25 million shares.
Mayor Larry Curtis: How much capital do you hope to raise by that public offering? Answer:
$14.00 to $16.00 a share is the coming out price times 6.25 million shares.
Mayor Larry Curtis: Each entity that you buy is it individually incorporated? What percentage
of each individual operating unit does Quorum own? Answer: It varies by facility.
Mayor Larry Curtis: What would happen at MGMC? Answer: We would own 100% of the
facility. Assuming we could do something in a joint venture with the medical community or the
City, we would propose Quorum owning in excess of 60% and the other parties would own
somewhere less than 40%.
Mayor Larry Curtis: Have you approached the medical staff community regarding a joint
venture in terms of this purchase arrangement? Answer: No we certainly have not.
Mayor Larry Curtis: The loss leader in medical health care services today is ambulance service,
indigent care, Homeward Services, etc. I would like to know how you make money on those?
How do you provide those services? Where does a for-profit organization get the benefit out of
doing that if you are looking at the bottom-line process? Answer: You can't afford to look
strictly at the bottom line in today's health care market place and meet the needs of the local
community. We like to be a full service provider and like to integrate as many health services
as we possibly can. You cannot make money on an ambulance service no matter how many cars
you run, no matter how you staff that service. It is a money losing proposition. As far as
indigent care- where else are those patients going to go for health care. Home Health Care -
certainly if you are providing the type of service that is necessary and needed. Both of these
areas money can be made.
Mayor Larry Curtis: Saw a report regarding Quorum and cost of capital and was amazed that
it was around 12% in terms of debt financing. It raised the question how are you going to pay
the money for Mary Greeley and make out in terms of your investment. Answer: That was a
$100M debt offering. What you don't see are numbers that are private, such as an off-setting
$100M debt equity, a working capital loan at 6.5%, and capital that comes from additional
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borrowings through our joint venture partners.
Campbell Member Brown: Are you involved in managed-care at your other facilities and is that
why you are seeking MGMC. Answer: Yes, we see that as an opportunity. Quorum has a
substantial managed-care business.
Mayor Curtis announced there will be a public forum Tuesday, at 5:30 in the Council Chambers.
He will entertain questions for about 10 minutes from the public.
No one wishing to come forward the meeting was closed.
ADJOURNMENT: Meeting was adjourned at 8:28 p.m.
Jill Ripperger, Acting City Clerk Larry R. Curtis, Mayor
Ginger Jones, Recording Secretary
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