Effective Governance of Public Safety Net Hospitals & Health Systems

1. Effective Governance of Public Safety Net Hospitals & Health Systems Presentation of Larry Gage President, NAPH Partner, Powell Goldstein LLP Los Angeles Health Collaborative December 15,2005

2. Outline of Presentation • What is a “typical” public hospital? • The hallmarks of effective governance • Why do public hospitals restructure? • Advantages of public status • Potential models for reorganization

3. What is a “Typical” Public Hospital? • Direct governance by elected/appointed officials • Advisory board or commission • Freestanding board with some autonomy • State University • Hospital District • Hospital Authority • Public benefit corporation • Private non-profit corporation • Public/private partnership

4. What is the Responsibility of a “Typical” Hospital Trustee? • Strategic Orientation: To articulate the mission and establish long-term direction • Fiduciary: To preserve the fiscal viability of the organization • Public Accountability: To represent the needs of the public and be accountable to the public • Advocate: To represent the hospital’s needs before the executive and legislative branches and the public

5. Why Do Public Hospitals Restructure? Issues & Challenges • Financial pressures • Demand for uncompensated care • Public need for money-losing services • Increased demand, reduced funds when economy slows • Disproportionate impact of Medicaid “reforms” • Aggressive competition for reimbursed services • Drain on local government resources • Lengthy budget & decision-making process • Limited control over revenues, expenditures • Personnel & procurement constraints • Under-funded medical education role • Access to capital • Ability to partner or compete

6. Advantages of Public Status • Access to county tax revenues • Access to general obligation bonds • Ability to make Medicaid transfers and receive supplemental payments • OSHA, Social Security, labor, antitrust, tax and other federal and state exemptions • Availability of cross subsidies for prevention & public health • Sovereign immunity and eminent domain • Access to municipal support services – pension, benefits, self-insurance fund, etc.

7. Restructured Public Hospitals: Potential Options • Hospital Taxing District • Independent Health Care Authority • Merger or Affiliation • Outright Sale • New Non-Profit Entity

8. Reorganization Options: Taxing District • Most common form of public hospital in California • Counties may have more than one district • Governed by general hospital district statute • Subject to most open meeting and record laws • Need not conform to county boundaries (joint powers) • Powers of a hospital district include: • Entering management contract for hospital • Transferring all or majority of hospital assets to third party, subject to voter approval • Create subsidiary, participate in joint venture • Levying taxes, subject to voter approval

9. Taxing District: Examples • Maricopa Medical Center • Dallas County Hospital District • North & South Broward Districts • North Sonoma County Hospital District

10. Reorganization Options: Independent Authority • Special legislation authorizes transfer of significant county services & powers • County can adopt through resolution, ordinance • County can appoint board • Assets, personnel, programs, obligations can all be transferred to new entity • Contracts and agreements between county and authority govern services, funding

11. Independent Authority: Examples • Denver Health & Hospitals Authority • Alameda County Health Care Authority • Hawaii Health Systems Corporation • New York City Health & Hospitals Corporation • Universities of Colorado, Kansas, Wisconsin • Nassau & Westchester Counties NY

12. Reorganization Options: Merger or Affiliation • Can take a variety of forms, e.g. joint subsidiary, joint operating entity, management contract • Can be system-wide or for limited purpose • County’s involvement can be tailored to fit its needs – i.e. new governmental organization can be created to manage relationship • Responsibilities, as well as associated risks, may be transferred in varying degrees • County may negotiate desired level of control over funding priorities, physical renovations, service mix • Contract negotiation may be difficult -- affiliate entity typically requires limit on risk • May require public bids, hearings, special legislation, or voter approval • Short- to medium-term contract permits flexibility to respond to future needs and environment

13. Merger or Affiliation: Examples • Boston Medical Center • UMass/Memorial Health System • University of New Mexico Hospital/Bernalillo County Medical Center • Harborview Medical Center/University of Washington • Wishard Memorial Hospital/Indiana University

14. Reorganization Options: Outright Sale • Transfer of public hospital to existing provider • Unlike BMC merger – little remaining county role • Forms include merger, sale, long-term lease, etc. • Acquirer enters new market or gains market share • County can reduce financial risk, get out of healthcare provider business • May cover healthcare obligations by contract • Acquirer usually looks to limit risk

15. Outright Sale: Examples • Fresno Valley Medical Center (Community HS) • Sonoma County Community Hospital (Sutter) • University of California -- Davis, Irvine, San Diego • Milwaukee County (Froedtert Memorial) • St. Paul-Ramsey County (HMO) • Memorial of Las Cruces (For-profit) • University of Minnesota Hospital (Fairview) • Brackenridge City Hospital (Seton Health System) • Cambridge Health Alliance

16. Reorganization Options: New Non-profit Corporation • New corporation can be created by county or others • Releases hospital from “public entity” constraints • Insulates county from liabilities of corporation • County may retain substantial control, but excess control may result in treatment as public entity • County may contract for indigent care, other services • Public hearings, procurement requirements, voter approval, role of county employees may be issues • Medicaid payment methodologies favor public status

17. New Non-profit Corporation: Examples • Detroit Medical Center • Truman Medical Center • Regional Medical Center at Memphis • Memorial Medical Center of Savannah • Universities of Maryland, Florida, Georgia, West Virginia, Massachusetts, etc.

18. Reorganization: Issues to Be Considered • Remember: reorganization is a tool, not a panacea • System change requires will, ideas & execution (Tom Nolan) • Systematically identify key problems – and determine if a new structure can address them • Carefully define new structure: make sure it has the resources and power it needs • Lay out required process in detail before proceeding, e.g., authorizing legislation, referendum, board structure, services to be transferred, funding, personnel, procurement, information, accounting & financial systems, etc. • Educate & enlist all relevant stakeholders • Recruit an outstanding board – and let it function with sufficient autonomy to get the job done