50-year deal provides $54 million up front
Voting in front of a packed house, county commissioners unanimously approved a 50-year extension of the current lease for Carolinas Medical Center-Union during their Monday, Nov. 21, meeting. Commissioner Kim Rogers was absent, suffering from bronchitis.
Prior to the vote, 37 speakers ranging from pastors to school board members to nurses and doctors told commissioners the importance of extending the lease.
“Please vote yes,” Union County Community Arts Council President Barbara Faulk said, praising both the hospital’s treatment of patients and its stance toward nonprofits. “They make it possible for us to do things in the community.”
Community Trustee Council Chairman Donnie Baucom echoed Faulk’s words, saying the county needed to make a decision. Council members are appointed by the county and Carolinas HealthCare System to serve as an advisory board for CMC-Union’s operations.
“We have kicked this can down the road for a long time,” Baucom said. The lease “will infuse more money into the system.”
The deal calls for Carolinas HealthCare to pay the county $54 million up front, with annual payments of $6.1 million. Those payments are split into a $3 million rent payment and a $3.1 million “premium” payment. If the county ever decides to sell the hospital, those premium payments will be counted as credit towards the price. The total payment increases by 1 percent every five years, starting in 2017. If both parties agree to extend the lease past 50 years, then the rent payment would rise by 3 percent every five years after the extension.
If the county ever plans to sell, under the terms of the extension, Union would have to offer the facility to Carolinas HealthCare, which could purchase it for a starting price of $133 million. Each year after 2011, that price would climb 2 percent, until arriving at $218 million at the end of the 50 years.
In each 15-year period, the lease calls for Carolinas HealthCare to spend no less than 75 percent of what it spends at its other facilities on capital investments. The company also assumes all the hospital’s debt.
Under the current lease agreement, Carolinas HealthCare pays the county either $1.4 million or 7.5 percent of the hospital’s investment earnings and 10 percent of its annual operating income, whichever is greater. The payment has alternated between the two in recent years. In past two years, the county received $3 million, which would double under the new proposal.
The lease has less up front than the last proposal. In 2008, the hospital group came to the board with a $335 million deal to extend the lease through 2048. That deal would have injected $135 million in payments and $200 million in improvements to CMC-Union.
The county later discovered the $200 million included work already done at the hospital.
“We think it’s a strong lease on financial terms,” Kaufman Hall Senior Vice President Mike Finnerty told commissioners. The county contracted with Kaufman Hall last year to negotiate the new lease with the health-care system.
“It seems in some respects, you’re at a crossroads,” Finnerty said. He gave the same presentation that he did in August, saying counties were getting out of the health-care business.
While Union County retains the ownership of the property, the agreement transfers all assets to the control of Carolinas HealthCare, under the title of Union Healthcare Enterprise. If the county ever wants to terminate the lease at the end of the 50 years, the county would have to pay Carolinas HealthCare fair market value for everything, from the CMC Waxhaw facility to the upgrades on CMC-Union. Additionally, once the lease is terminated, Union County can’t contract with another healthcare provider for up to five years.
The new lease also disbands the Community Trustee Council and the CMC Union Board of Directors. A four-person advisory board, consisting of a sitting county commissioner, one county resident nominated by the commission and two people from the hospital’s medical staff, takes its place.
The system also agrees to select a Union County resident to serve on the system’s board of commissioners for the first nine years of the lease.
Ending talk of a sale
The county owns the hospital building and property at 600 Hospital Drive in Monroe and contracts with Carolinas HealthCare System to operate the facility. That contract expires in 2020 and has been the focus of debate in the past two years. The previous county board had considered selling the hospital property to pay down the county’s more than $600 million debt.
“We stopped the sale,” Commissioner Todd Johnson said, who made that one of his campaign promises. “Anything resembling a sale, I could not support.”
Commissioner Tracy Kuehler said she didn’t regret looking at options of what to do with the hospital in 2010.
“Is this the best deal for the county and our citizens? We will never know the answer to that question because we sole-sourced the provider and did not test the market value or the health-care offerings of any other entities,” Kuehler said.
“As a Republican, I believe in free enterprise, in which a competitive marketplace is a key component,” Kuehler said. “This lease was not tested against the benefit of that competition. At the end of the day, I sincerely hope that CHS’ desire to compete in our marketplace creates the benefits that are expected by our citizens.”