The difference between the original UHS and CHS hospital proposals | Eastern North Carolina Now

     Publisher's Note: We do very much appreciate this fine article on the BRHS debacle from our friends of the Beaufort Observer.

Update below

    The Beaufort Regional Heath System Board of Commissioners (Hospital) has called a meeting for Monday, December 27. A meeting of the Beaufort County Commissioners has also been called for Monday night. Thus, it is presumed that officials foresee the possibility that the Hospital's Negotiating Committee will make a recommendation on which proposal for taking over the hospital they favor and that the Hospital Board will then make a recommendation to the County Commissioners. It is thus possible that the Board of Commissioners may choose an affiliate to sell or lease the Hospital to.

    The two proposals that have garnered the most attention in the community seem to be that of University Health System (UHS) and Community Health Systems (CHS). Advocates for UHS have pushed an aggressive campaign to have the Commissioners choose UHS.

    We know what the original proposals were. They can be viewed in this Summary by clicking here. The detailed proposals have been available at the Hospital and public library.

    Jim Bispo, one of the Observer's columnists has been following the issue closely and has reduced the original proposals to a single page and you can review that spreadsheet by clicking here.

    While we know what the original proposals were, we do not know yet what the revised proposals are that resulted from the negotiations. Nonetheless, we will speculate that the fundamental differences will be in the amount of upfront payments and what happens to the property at the termination of any lease.

    Thus, anticipating the discussions that we will hear at both the Hospital board meetings and the Board of Commissioners meeting, we thought it might be interesting to compare what may, in the final analysis, be the determining factors.

    There are two major differences in the two proposals. UHS offers $18.1 million upfront while CHS offers $30 million. A third proposal (LHP Healthcare) offers $24 million for 80% of a joint venture.

    The Hospital owes the County (which carries the fiscal responsibility for the debt) $18,840,000. Factoring in "closing costs" the UHS original offer would fall short of paying off existing debt by an estimated one million dollars. We would assume this has been one of the points of negotiations with UHS. If not, the County may have to come up with the cash to pay off the balance of the debt.

    On the other hand, the County would walk away from a "closing" with CHS with nearly $12 million cash.

    If the County were to continue to operate the Hospital the annual debt service would be approximately $2.5 million per year.

    But the second and by far the biggest difference between UHS's and CHS's proposals relate to the disposition of the property at the termination of the lease. Under the UHS proposal they get 100% of the property. Under the CHS proposal the County retains ownership of 100% of the property, including any improvements made to the property except during the last five years of the lease.

    The value of this provision could be as much as $120 million dollars. Here's how we compute that:

    The current audit (and the Request For Proposals) values the current property assets at approximately $30 million. But that is a depreciated book value. The actual current value is probably in excess of $50 million. The replacement value is even greater.

    If one assumes a 30 year lease with CHS the value at the end of the lease is likely (based on industry standards) at least twice what it is worth now, or even more considering improvements that would not have to be paid back to CHS. If CHS were awarded the two 10-year extensions their original proposal called for, at the end of a fifty year lease it is reasonable to assume that the value of the property would then exceed $120 million. Even if one takes a "worst case scenario" approach, it could be argued that this will be the biggest deal Beaufort County has ever made, and likely will ever make in the foreseeable future. By splitting the difference between the lowest and highest estimate the value of the deal is at least $75 million... twice as much as the next largest deal (the 2004 school bond project) and nearly 50% more than the total county budget of $52.5 million. Add in the nearly $12 million net cash the County would receive at closing and we are looking at a difference of $87 million dollars between the original CHS and UHS deals.

    Finally, one other fine point that must be remembered. The law requires that even if Beaufort leases or sells its hospital to another entity, the taxpayers of Beaufort County are still liable for "continuing to provide the same or similar clinical hospital services...as it provided before disposing of the hospital." But how would we be able to do that if we did not own the property?