BJC HealthCare told the Boone Hospital Center Board of Trustees last year that BJC is no longer the best option for managing the hospital and that trustees should pursue a partnership with MU Health Care.
The news came as a surprise to the trustees, who had issued a request for proposals for management of the hospital after its current lease with BJC expires in 2020. The trustees fully expected BJC to respond with a proposal. Instead, it sent a short letter on June 29, 2016, according to a draft progress report compiled by Verité Healthcare Consulting in December.
“The current Boone Hospital Center operating lease, its short lease term (an exit option every 5 years), its rent algorithm (variable with hospital cash flows), and its governance model (a county-elected board of trustees), is no longer responsive to what the hospital will need to succeed, indeed, to thrive in the years ahead,” the letter said.
BJC also said that it’s willing to consider early termination of its 30-year-old lease with Boone under the condition that it joins with MU Health Care and that Boone sustain any possible costs associated with early severance. BJC and the trustees have until December 2018 to notify one another whether they intend to end their lease arrangement.
The letter recommended the trustees “meet with the leaders of the University of Missouri in Columbia” to “explore a model of joining together the two hospitals in a way that could accomplish several important objectives,” according to the report. Those include “achieving synergy and efficiencies” and “better integrating and coordinating the region’s health care services (including physicians).”
BJC further recommended a new operating model for Boone, saying the “growing trend is for hospitals to join together with other hospitals located in the same region to better serve their communities.”
The Missourian reached out to the five trustees for this story but was only able to contact Trustee Jan Beckett. She declined in a brief phone conversation to comment.
The Verité report
The Verité document — prepared for the trustees and obtained by the Missourian — includes a timeline of events leading up to the request for proposals. It also contains information about Boone Hospital Center’s financial condition through 2015, an abbreviated version of MU Health Care’s proposal and an analysis of the pros and cons of forming a partnership with MU and others who responded to the request.
The report says that Beckett, the trustees’ secretary and a member of the BJC board, spoke with other BJC board members after receiving the letter recommending a partnership with MU. She outlined what it would take for the trustees to consider a new lease with BJC. BJC responded by sending a follow-up letter on Sept 27, 2016.
“We are not prepared to renegotiate the terms of the current lease more than four years prior to its expiration,” the letter said. “Our current lease agreement states that any notice of intent to terminate the Lease may only be given between December 1 and December 31, 2018. … none of our communications [are] intended to provide such a notice.”
BJC is a nonprofit health care organization based in St. Louis and is one of the biggest employers in Missouri. St. Louis Children’s Hospital and Barnes-Jewish Hospital are part of its network.
BJC was one of about 20 entities, including MU Health Care, that were sent requests for proposals last year. The trustees announced in August that they would begin negotiating exclusively with MU Health Care for a new partnership, and they’ve been doing so in a series of closed meetings since.
The Verité report details Boone Hospital’s financials, indicating that as of Dec. 31, 2015, the trustees had around $80 million in cash reserves while Boone Hospital Center had access to half of a $58 million fund shared with BJC. The hospital’s operating expenses increased by around $93 million between 2006 and 2015, however. Operating profits were $22.3 million in 2006, but the hospital reportedly lost $2.26 million in 2015.
The loss of revenue coincides with declining admissions and patient numbers at the hospital. The drop in patient volumes was a contributing factor in the layoffs of 50 employees on Monday, according to a statement from Boone Hospital spokesman Ben Cornelius on Monday.
In addition to a collaboration with MU Health Care, Boone Hospital sized up other options, including a partnership with Tennessee-based Duke LifePoint and Kansas City-based Saint Luke’s Health System, as well as the option of standing alone.
Going independent offers Boone Hospital the most flexibility in the future, according to the Verité report, and a partnership with Duke LifePoint would yield the highest return, the report said. Saint Luke’s Health System comes in second.
MU Health Care, on the other hand, would yield just the third-highest potential return. In the case of a collaboration with MU Health Care, Boone County and the trustees each would receive a series of fixed payments tied to the average amounts paid by BJC under the current lease.
MU Health Care is also considering providing an additional annual payment to the trustees for “specific initiatives in furtherance of the health of Boone County residents” if the two hospitals collaborate, the report showed.
Under a partnership with MU, the trustees would require $6 million a year to service Boone Hospital’s debt, and during the initial 10 years of a lease, the payments overall could be anywhere between $13 million and $16 million, the report said.
Change in governance
If the two hospitals come to an agreement, Boone Hospital Center could rely “on MU Health Care for certain administrative and support functions,” but complete integration would pan out over the course of two years, the report said.
MU Health Care has proposed forming a governing body it would call the Boone Hospital Center Operating Co. It would be in charge of general operations and would consist of five MU-appointed members, six trustee-appointed members and two members from the community approved by MU and the trustees.
The operating company’s duties, according to Verité, would include:
- Providing input on material changes in services at BHC.
- Supporting strategic planning efforts.
- Participating in budget development and recommending capital spending.
- Recommending, selecting and evaluating the hospital CEO.
- Overseeing quality standards.
- Fostering community relationships.
The report detailed the role of Medical Alliance, a subsidiary of MU, “as the sole member (parent) of BHCOC,” which “would retain approval rights for major decisions recommended by” the operating company. Those would include “final operating and capital budget approvals, strategic planning and managed-care contracting.”
Two trustees would join the Medical Alliance Board which currently comprises the 11 MU Health Care Advisory Board members.
The Boone Hospital CEO, who would be in charge of general operations, as well as a new chief integration officer, “would report” to the operating company board and the CEO of MU Health Care.
As for trustees, MU Health Care “would not envision extending powers such as the requirement of Trustee consent for major operational decisions including the locations of service lines.” MU acknowledged in its proposal that state legislation might be required to authorize and solidify a partnership.
Advantages and disadvantages
The report detailed anticipated advantages of an MU-Boone collaboration, such as enacting MU’s plan to “establish Columbia, Missouri as a ‘destination medical community,’” and having hospital management, control and resources centered in mid-Missouri.
Other advantages outlined in the report include enhancing the ability to retain physicians and the increase in efficiency and quality that unifying medical records and combining patient volumes would bring.
Collaboration also would cut down on “duplication of services and capital spending” and would have a positive overall economic impact by returning outsourced jobs to Columbia, the report said.
The report deemed the financial returns for Boone County and the trustees as “reasonable.” MU Health Care also would take care of Boone Hospital Center’s “future capital needs without Hospital Trustees financial support,” the report said.
Several disadvantages are noted in the report, including MU Health Care’s desire for the “longest possible lease term,” anticipated backlash from the public and Boone Hospital medical staff, and the added obstacle posed by the inevitable change in Boone Hospital culture.
It also cites MU Health Care’s unclear interest in joint ventures — beyond employment — with physicians. The report shows that “MU Health Care would be open to exploring partnerships and other alignment vehicles with physicians on a case by case basis.” MU would intend to retain all Boone employees who meet minimum qualifications.
Supervising editor is Scott Swafford.