Decision nears on hospital merger.

Byline: Tim Christie The Register-Guard

McKenzie-Willamette Hospital and Triad Hospitals face one last hurdle before they consummate the partnership they proposed in January: t

he blessing of the Oregon attorney general.

That office is charged under state law with ensuring the joint venture won't hurt access to health care in Lane County, and that the assets McKenzie-Willamette has accrued in its 49-year existence will continue to benefit the community.

Attorney General Hardy Myers will conduct a public hearing Tuesday on the proposed merger. McKenzie-Willamette and Triad leaders will make a presentation before the public comment period begins.

The best reason for approving the partnership is that it preserves choice and competition in the community, said Roy Orr, McKenzie-Willamette's chief executive. The worst-case alternative, he said, would be the closure of McKenzie-Willamette, leaving Eugene and Springfield with a single hospital, Sacred Heart Medical Center.

The joint venture brings together two radically different health care organizations - one a small, independent, non-profit community hospital; the other the nation's third-largest for-profit hospital chain - to create a third company, to be called McKenzie-Willamette Regional Medical Center, LLC.

McKenzie-Willamette's contribution to the partnership is its assets, valued at $32.8 million by American Appraisal, a firm hired by McKenzie-Willamette. The attorney general hired a firm to analyze the appraisal and determined it did not undervalue McKenzie-Willamette's assets, said agency spokeswoman Victoria Cox.

Texas-based Triad is contributing $80 million cash to develop and build a new 114-bed hospital for McKenzie-Willamette in the Eugene-Springfield area. Triad intends to contribute $20 million as soon as the deal closes to operate the existing hospital and add unspecified services. The balance will be used when needed to build a new hospital.

Deal may close soon

McKenzie-Willamette and Triad hope to close their deal by either Aug. 1 or Sept. 1, depending on when Myers makes his decision and what kind of conditions he imposes, said Karen Francis, McKenzie-Willamette's chief financial officer.

Once the deal closes, Triad and McKenzie can concentrate on finding a location for a new $80 million hospital they plan to build.

But first the attorney general has to decide whether this partnership is in the best interest of the community and how it will affect access to health care.

A key issue is whether the new McKenzie-Willamette will continue to serve its share of Medicare and Medicaid patients, as well as charity care.

"We need to have a guarantee that the current level of care McKenzie-Willamette is providing will not be negatively impacted by the new joint venture," Cox said. "One of the things that plays into that is access to health care. We need to be sure that will continue at a level that is currently being provided."

PeaceHealth, parent corporation of Sacred Heart, plans to testify about its concern whether the new hospital company will serve those with the most need and least means, said company spokesman Brian Terrett.

"We want to make sure there continues to be a commitment to serving Medicare and Medicaid patients at levels the community is used to," said PeaceHealth spokesman Brian Terrett.

PeaceHealth supports the partnership provided Triad-McKenzie makes a commitment to serving those patients, he said.

Hospital officials say they lose money on Medicare and Medicaid patients because of reimbursement rates that don't cover their costs. They make up the difference by what they charge patients with commercial health insurance.

The operating agreement between Triad and McKenzie-Willamette states the new hospital company will strive to "satisfy the community benefits standard generally required of (not-for-profit) hospitals."

That includes providing health care to all members of the public; participating in Medicare and Medicaid; maintaining a 24-hour emergency room staffed by licensed physicians; maintaining an open medical staff; maintaining public health programs; and generally "promoting the health, welfare and wellness" of the community.

"We'll look at guarantees and make sure they are enforceable," Cox said.

Charity record

Triad has prepared an 11-page report on its record of charity care and community service at the request of the attorney general. The report states Triad spent $7.1 million on charitable contributions and public service in 2002, and valued its charity care and bad debt at $319 million.

The company reported total revenues of $3.5 billion last year.

Triad's 2002 annual report shows that Medicare accounted for 32 percent of its patient revenues and Medicaid contributed 5.2 percent.

PeaceHealth officials have suggested that doesn't measure up to McKenzie-Willamette's track record.

But McKenzie-Willamette officials say the new hospital will shoulder its fair share of Medicare and Medicaid patients as well as charity care.

"I'm not sure there is a disparity," said McKenzie-Willamette's Orr.

And comparing Triad's record at its 48 hospitals against a single market is comparing apples and oranges, said Karen Francis, McKenzie-Willamette's chief financial officer.

In many markets, the Triad hospital is the sole provider, meaning it's responsible for taking all Medicare and Medicaid patients in the community, Orr said.

Other factors may keep Triad's Medicare and Medicaid numbers down, Orr said.

For instance, at Willamette Valley Medical Center in McMinnville, Triad opened up an indigent care clinic on the hospital campus, which does a good job of drawing uninsured people and keeping them from showing up at the emergency room.

The new hospital also will have built-in safeguards. For instance, the three McKenzie-Willamette members of the six-member corporate board of governors will have unilateral power to fire Orr or his successor if they believe the hospital's community benefit standard is not being met.

PUBLIC HEARING

When: 6:30 p.m. Tuesday

Where: Willamalane Adult Activity Center, 215 W. C St., Springfield.

Special accommodations: Real-time captioning for those with a hearing impairment 

Testimony: Only comments relating to the proposed joint venture will be heard

What's next: The public record will be kept open for a week after the hearing and the attorney general may make a decision as early as July 9. He can reject the partnership; approve it as written; or approve it with conditions. His decision can be appealed to the circuit court in Lane or Marion counties.

HOW THE NEW HOSPITAL WILL WORK:

McKenzie-Willamette Hospital and Texas-based Triad Hospitals would create the company McKenzie-Willamette Regional Medical Center. The partners have spelled out their rights, responsibilities and contributions in a series of legal documents now under review by the attorney general:

Triad will contribute $80 million in cash; McKenzie-Willamette would contribute its assets, valued at $33 million, and retain a 20 percent ownership stake in the new company.

The new hospital agrees to: accept all Medicare and Medicaid patients; accept all emergency patients without regard to ability to pay; maintain an open medical staff; provide public health programs; provide health care services at a reasonable cost.

The new company will plan, design and build a new hospital at a yet-to-be-determined site, after listening to McKenzie-Willamette doctors and employees and local citizens.

McKenzie-Willamette will have the right to buy additional ownership interest in the new company, up to a maximum of 49 percent.

The corporate board of directors will have six members, three appointed by Triad and three appointed by McKenzie-Willamette. The McKenzie-Willamette members will retain the exclusive right to fire the chief executive officer; to name the board chair; and to require changes to the structure of the new company if it fails to meet the community benefits standard. Triad will have the right to buy out McKenzie-Willamette if it finds those changes unacceptable.

A 12-member board of trustees will oversee routine operations of the hospital. The board's makeup will include six physicians from the hospital's medical staff and six community members.

Triad will operate the hospital and will offer employment to all active employees of McKenzie-Willamette.

McKenzie-Willamette is responsible for the cost of its antitrust lawsuit against PeaceHealth and will retain the proceeds of any judgment or settlement.