Whose hospital is it anyway? The Beaufort Regional Health System | Eastern North Carolina Now

    This is the second in a series entitled "Whose hospital is it anyway?" In the first installment we focused on the Beaufort County Medical Center (BCMC), known to most people as "the Hospital." In this installment we focus on the Beaufort County Health System (BRHS).

    The simplest, but rather inadequate, way of looking at BRHS is that it is a legal umbrella that includes BCMC and other affiliates associated with the Hospital. But for many, even those closely connected with the two entities, including the boards, the terms are often used interchangeably and often comingled so as to be indistinguishable.

    Another simple way to view the BRHS is that it is the Hospital and affiliated doctors' practices, including several other somewhat separate entities. Nonetheless, those entities are included in a consolidated financial reporting system for the BRHS that includes the BCMC. Significantly, this means that it is very difficult or impossible to assess the financial performance of the separate entities of the BRHS. We have repeatedly requested a breakout of the financial reports by entity but to date have not been able to obtain such.

    A number of people have asked us: "Why did the Hospital buy all these doctors' practices?" The answer is simple. In order for the Hospital to survive, it must have two essential ingredients (among others): practitioners and patients. Owning the practices insures the availability of practitioners and it offers a "feeder system" of patients into the hospital. And it works vice-versa with the Hospital Emergency Department being a referral agency to physician practices, in some cases. And while it is way too complex to examine in this article, a consolidated medical system facilitates more effective control, and presumably reduces overhead through economies of scale, such as in billing, lab work and other functions. And as is being learned in recent months, a consolidated system has larger financial assets to distribute short-term fiscal fluxations and risks.

    A more detailed description of the BRHS can be found in a document called the RFP Book-draft which was prepared to support the Request For Proposals being sent to solicit potential affiliates. Slide 2 provides a history of the system, both predating the creation of the BRHS and what is projected for the future (Slide 3). Slide 8 lists the practices that have been acquired and are now a part of the Health System. A number of patients will recognize that not all the doctors' practices in the county are included in the System even though their physicians have practice privileges at the Hospital.

    Included in this document are the external audits for 2008 and 2009 as well as Financial Reports for March and April 2010, as well as other financial data. But you will note that none of it depicts a breakdown of the individual affiliates of the Health System. Thus, the data do not permit a determination of which elements of the System are paying for themselves or which are being carried by those that more than pay for themselves.

    The BRHS is governed by a Board of Commissioners under N. C. G. S. §131E of the General Statutes and separate (from the Hospital) set of Authority By-laws. The BRHS is governed by a Board of Commissioners appointed by the County Commissioners. The exact same people who serve on the Hospital Board of Trustees serve on the Authority's Board of Commissioners.

    It is probably obvious to the reader at this point that this becomes an immensely complex situation. But the links to the documents above give you the basic information one needs to understand the Health System Authority.

    Another way of looking at the Authority is that it is a holding company for the hospital, the doctors' practices and other affiliates. But how much practical control the Authority exercises over the individual entities under the Authority remains unclear. The financial reports make it appear everything is put into one pot and expenses paid from that pot. But legally, the Authority, as the sole "member" of the Hospital's non-profit corporation is the controlling entity.

    In the third article in this series we will examine the offer by the County Commissioners to bailout the Authority from its current status of default on its debt payments.

Commentary

    At a recent meeting of the Hospital board the consultant hired to help the Hospital/Health System find a partner he was asked: "What is the disadvantage to merging with another organization?" His answer was simple: "control." We think that is something of an oversimplification.

    For example, there has been very little discussion in recent weeks when the board has discussed "merging" with another entity (most often University Health Systems) about the financial liability the taxpayers of Beaufort County now have related to the Hospital. That debt is approaching $20 million.

    And even if the debt is not considered, the current Federal and State law makes the County of Beaufort liable for providing the health care services in compliance with the license (Certificate of Need -CON) currently in operation. If another entity takes over the System and fails then the duty falls back on the County to pick up the pieces and provide the service the CON requires.

    So if an outside organization comes in to "take over" the Hospital and/or the System, the question becomes: "What is the governance structure going to be that makes the decisions?"

    Is the Authority going to continue to exist or go out of business?

    Is the Hospital Association going to continue to exist or go out of business.

    What assets and liabilities will be conveyed to a merger partner? Remember the $20 million in debt the taxpayers of Beaufort County have.

    And if the physical assets are sold to a new partner, what is the value of those assets? How much is the Hospital worth? It'll be rather hard to find accurate comparables for that one.

    What will happen to the contracts the Health System has with its affiliates (doctors' practices)?

    At a recent meeting of the Authority Board, Hood Richardson raised the issue of how to protect the private practitioners who are not in the Health System and it was brushed aside, even by the practitioners on the board. But we have learned that in other mergers this has become a major issue.

    But we will predict that the major issue will become, as it almost always does: Money.

    We can't imagine that any organization is going to come to Beaufort County and write a check to pay off all the debt and buy the remaining physical assets at anything near fair market value. Not with the current operation losing money like it has been.

    So if the system is not sold outright, that means the taxpayer will to some degree or another remain "on the hook" for what happens. We predict that this fact, in and of itself, will mean that the ultimate decision of what happens to the Hospital will fall on the County Commissioners as elected representatives of the people. And the County Commissioners are not going to want to take the liability without retaining some control over who makes the decisions that will determine the ultimate fate of the enterprise. But an outside entity that is willing to invest considerable sums of money to renovate, upgrade and improve the operations is going to be reticent to invest that money without being able to control the purse strings and the decisions that impact the bottom line.

    We would predict that what will come out of this is either one of two things: Either the Health System will remain Independent (from control from outside the county) or it will become a hybrid in which, most likely, an outside entity operates the enterprise as long as it makes the requisite payments to cover the taxpayers' liabilities. And we would predict that no outside organization will be willing to sustain consistent loses. They will reorganize the system and its operations so that it makes at least $1.00, no matter what.

    The question then is going to become: Are the consequences of what it will take for an outside entity to make a dollar better or worse than if the BRHS adapted itself to be able to make a dollar?

    What is clear to us is that the status quo will change. And we will predict that this change will mean that greater efficiencies will be achieved one way or another. If patient loads continue to decline, or even shift, there will be personnel cuts, no matter who is running the show. Practices and other affiliates that are consistently losing money will have to either be cut loose or made to be more productive. And this will be true no matter who is running the show or what name is on the sign out front.

    Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor. With his permission, we are more than happy to publish Mr Blinson's most insigtfull articles on the evolving condition of the Beaufort County Medical Center.