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LIND, LAWRENCE & OTTENHOFF LLP
ATTORNEYS AT LAW •
THE LAW BUILDING
1011 ELEVENTH AVENUE
P.O.BOX 326 - -
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GREELEY,COLORADO 80632
WEB PAGE:LLOLAW.COM
GEORGE H.OTTENHOFF TELEPHONE
KENNETH F.LIND (970)353-2323
KIM R.LAWRENCE (970)356-9160
LECOPIER
P.ANDREW JONES TE)356-111
RICHARD T.LiPUMA (970)ken@llolaw.com
ken�llolaw.wm
December 20, 2001
Mike Geile, Chairman
Board of County Commissioners of Weld County
915 10`h Street
Greeley, CO 80631
Dear Chairman Geile and Commissioners:
I want to personally thank all of you for taking the time to meet with the NCMC, Inc.
Board and Weld County Board of Trustees on December 11, 2001. I am quite cognizant
of your busy schedules but I also believe that the meeting was important to help re-open
lines of communications between all three entities.
While the NCMC, Inc. Board has attempted to act in a unified manner, there are
occasions that do not lend to unanimity even after much review and discussion. Such was
the case in relation to our vote on October 4`1 to go forward with further negotiations with
Banner. As you know, I was the only dissenting vote in the public session but that vote
was made after long and careful deliberation.
At the meeting of December 11, 2001, I found it very interesting that the
Commissioner's concerns were primarily focused upon (1) the community hospital and
regional tertiary facility; (2) local control and management; and (3) financial issues,
especially related to dollars "leaving" the community.
At the time of our Board vote on October 4, 2001, it was my presumption that my
vote would be a minority position. Accordingly, I prepared a written statement that was
submitted as part of the minutes of that meeting which was for the purpose of making a
public record of my vote. While that written response was and is a public record, I am also
aware that it was not widely disseminated. Accordingly, I am providing to you five copies
of my written statement, and I would request that you take the time to read this report at
your convenience.
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Mike Geile, Chairman
Board of County Commissioners of Weld County
December 20, 2001
Page 2
Additionally, now that we have received the written report and conclusions of Mr.
Figa (special counsel), I think it is interesting to note that some of his conclusions regarding
a review of alternatives was similar to my conclusions.
In closing, I hope that this report provides some information to you regarding this
matter.
Very truly yours,
LIND, LAWRE E ''O ENHOFF LLP
fir
Ken r et . Ind
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Enclosure
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I. INTRODUCTION
For sixteen years I have had the honor, duty and privilege of serving upon the Board
of Directors for what was originally North Colorado Medical Center, Inc. and is now called
NCMC, Inc. During these sixteen years I also served on the Weld County Commissioner
appointed Board of Trustees for seven years, I was elected to serve on the Colorado
Hospital Association Board of Trustees for four years, and I was appointed by Governor
Romer and confirmed by the Colorado State Senate for a four year term on the State of
Colorado Cooperative Health Care Agreements Board. The time that I have devoted to
health care issues in general, and to North Colorado Medical Center specifically, total
thousands of hours. At all times my goal has been to assist in maintaining the highest
quality of health care available at a competitive price in reference to North Colorado
Medical Center, Northeastern Colorado and Weld County in particular.
II. HISTORY
During these sixteen years the changes in the health care industry as well as at
North Colorado Medical Center have been continual, rapid, demanding and substantial.
Our own local medical center went from a local County hospital (Weld County Hospital) to
a restructured organization in 1986(North Colorado Medical Center, Inc.)which was locally
controlled and managed. In 1995 it became affiliated with Lutheran Health Systems
("LHS")which then merged and became Banner Health System("Banner")which maintains
its corporate offices in Phoenix, Arizona.
At the present time, North Colorado Medical Center ("NCMC") is operated and
managed by Banner pursuant to the terms of an Operating Agreement which became
effective January 1, 1995. Under the terms of this Operating Agreement, NCMC has
leased to Banner the Greeley hospital and equipment (as well as being involved in other
affiliated operations). Under the terms of this Operating Agreement, Banner is responsible
for providing employees as well as administrative and management services. This
Operating Agreement provides for several forms of payment and essentially, NCMC, Inc.
receives a minimum basic rent payment plus a certain amount of additional rent. Banner,
on the other hand, receives an administrative fee in the amount of 1.4% of net operating
revenues as well as 60% of other funds which are generally called operating cash.
The Operating Agreement is a very complicated document which has been
amended on numerous occasions to reflect changing circumstances. It is obvious that
there is much confusion in the community concerning the Operating Agreement and
arrangement between NCMC, Inc. and Banner. It is also obvious that in letters, articles,
editorials, columns and opinions, financial figures and other information have been
discussed, some of which are correct and some of which are in error.
While it is very difficult to explain all of the intricacies of the Operating Agreement
and financial impacts, there is some pertinent base information. From January 1, 1995
through December 31, 2000 NCMC, Inc. has earned approximately 84 million dollars from
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hospital operations under Banner's management. However, during that same six year time
period NCMC, Inc. has spent 56 million dollars for capital improvements, approximately 6
million dollars for repayment of debt principal and approximately 16 million dollars for debt
interest. This means that only 7 million dollars has been earned by NCMC, Inc. from
Banner operations which has gone into cash reserves. During that same time period,
however, Banner has received and taken approximately 48 million dollars.
It is important to realize that it is NCMC, Inc., and not Banner, that provides virtually
all capital funding for equipment and facilities. These funds are provided by NCMC, Inc.
from hospital operations and from our cash reserves. Simply stated, Banner operates the
hospital and receives a fee, but Banner does not purchase equipment or construct
facilities. Providing the necessary equipment and facilities is the sole obligation of NCMC,
Inc.
In a recent article, a Banner representative noted that NCMC, Inc's. cash reserves
have increased from 45 million dollars (as of January 1, 1995)to approximately 123 Million
Dollars (as of December 31, 2000). It was implied that this 78 million dollar increase was
due to Banner's hospital operations. This implication is not correct. During the six years
of Banner operations, NCMC, Inc. cash reserves increased only 7 million dollars due to
Banner operations; approximately 61 million dollars came from careful and prudent
investments made through the NCMC, Inc. Board and its financial advisors, and 10 million
dollars from other sources also not attributable to Banner operations.
It is mistakenly believed by many that Banner has or will fund a portion of future
capital improvements consisting of equipment and/or buildings. This is not correct as
NCMC, Inc. will be required to provide all of the proposed 105 million dollars for
improvements, with no money from Banner.
When the Board of Directors of North Colorado Medical Center, Inc. initially entered
into the 1995 Operating Agreement with LHS, it was entered into with specific goals. The
most important aspect of those goals was to have North Colorado Medical Center as the
major regional tertiary health care facility providing both basic and specialized services for
a large region. LHS (now Banner) was to assist in creating this regional health care
network commonly referred to as an integrated health care delivery system ("system").
Three critical components of this system were to consist of(1) better quality, (2) a system
of referrals, and (3) lower costs. Underlying these goals was the main premise of providing
quality health care and competitive pricing with NCMC being the referral facility for
specialized services and physicians.
We have now had six years of experience under the 1995 Operating Agreement and
there are two key questions which can and must be answered.
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III. IS NORTH COLORADO MEDICAL CENTER BETTER OFF TODAY THAN
SIX YEARS AGO?
In my opinion the answer is"No". Before providing further response to this answer,
let me first state that Banner has generally provided adequate administration and
management in a very complex and difficult situation. All aspects of health care are
extremely complicated and intricate. I do appreciate the hard work and performance of
Banner over the last six years. However, I do not believe that the goals of the 1995
Operating Agreement have been met. Over the past six years the network or integrated
health care delivery system that was contemplated has not been established. While
patient numbers have increased, our market share in the Northeast region has remained
stagnant or declined. Banner has not been effective in creating the system nor in referring
speciality treatments and patients to Greeley. Initially, it was my impression that a large
organization like Banner could change certain practice and referral patterns, however, I
have learned that it is really the efforts of our many fine local physicians that have resulted
in the referrals coming to NCMC. While Banner has assisted in this effort, the referral
patterns and numbers are virtually the same today as they were six years ago.
Quality of care is also a prime concern. Again, I compliment Banner on its efforts
and work as Banner has done a good job in overall management. However, I again do not
believe that quality of care has increased or been better under the management and
administration of Banner. In fact, there is a large segment of our patient and physician
community that believe that the quality of care is not as good as it was six years ago and,
unfortunately, some of these physicians have left and others plan to follow. In all fairness,
there are also a large number of physicians who believe that Banner has operated and
managed the hospital in an exemplary fashion and quality has been maintained or even
improved. During these past six years I have also seen increased turmoil and
dissatisfaction from our medical staff. Unquestionably, the physicians at North Colorado
Medical Center are all highly qualified and dedicated individuals but there have been
numerous times when members of the medical staff have expressed concern and
dissatisfaction with Banner management and operations. That has again come to the
forefront as evidenced by letters and comments, some of which have been provided and
published by local media and others expressed in phone calls and correspondence to
Board members. Unfortunately, I believe that we will see more medical staff departing if
the affiliation with Banner continues.
The third component of the integrated delivery system was to provide lower costs.
Information and data from the Colorado Health and Hospital Association does not indicate
that NCMC has been successful in maintaining or stabilizing costs in relation to similar
facilities. In fact, much of the data would seem to indicate that costs at NCMC are
generally higher than those at Poudre Valley and even at an affiliated facility, McKee
Hospital in Loveland. Of significance is the fact that over the last six years 48 million
dollars has left the local community and been transferred to Fargo and now Phoenix.
Banner can argue that this is a fair sum in return for their expertise in information systems,
accounting, billing, managed care contracting, purchase savings, and overall management.
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However, I personally do not believe that those services have been worth the 48 million
dollars.
Another important factor in the original affiliation between NCMC and LHS six years
ago was similarities in corporate culture and outlook. Six years ago, LHS was
headquartered in Fargo, North Dakota and owned and managed many rural oriented health
care facilities. It was believed that LHS would be able to create the referral system
oriented to these general health care facilities and direct the specialized services to NCMC.
That all changed within the past year when LHS merged and became Banner. Just
recently, Banner announced that it was selling or transferring ten rural hospitals in seven
states and closing numerous other health care facilities. The stated purpose was for
Banner to strengthen its position in Arizona and Colorado. If you talk to the residents of
Fargo, North Dakota and those formerly associated with LHS, you can determine that most
of these former LHS employees and facilities feel somewhat betrayed and they have now
been discarded. The direction, corporate culture and similarities that were so important
to the original affiliation with LHS no longer exist. I believe that NCMC is nothing more
than one cog in the Banner corporate structure that can be as easily discarded in the future
as is now being done with the former LHS facilities.
Additionally, six years of experience have convinced me that the 48 million dollars
that has been transferred to Fargo and Phoenix could have been earned with local control
and management and those funds could have been better utilized and paid for services in
Northeastern Colorado rather than being sent out of state and used by Banner to fund its
other operations. The loss of local control is a significant concern to this community and
neither the existing nor proposed new arrangement with Banner provide for local control.
I believe that much dissatisfaction from medical staff and patients is due to the loss of this
local control.
IV. WILL NORTH COLORADO MEDICAL CENTER BE BETTER OFF TEN
YEARS FROM NOW UNDER CONTINUED AFFILIATION WITH BANNER?
In my opinion, the answer is "No". Over the past several months, NCMC, Inc. has
entered into negotiations with Banner to modify the 1995 Operating Agreement. A key
element of the 1995 Operating Agreement was a provision that either party could terminate
the Agreement with one year notice. Now, Banner is negotiating for a ten year or longer
affiliation that can be terminated only"for cause"which would be better for the community.
I must respectfully disagree. As most people know, determining "for cause", which is a
very expensive and lengthy litigation process,would be very detrimental to the hospital and
community. The proposal currently under review also does not adequately enhance the
financial position of NCMC. It is my opinion that if the proposed agreement is entered into,
NCMC will not be in a position in the future to adequately finance capital improvements.
At that time we would be solely at the mercy of Banner and, in effect, Banner will have
taken over the local hospital by default.
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The proposed agreement further provides inadequate local control over operations
and management. While Banner can argue that they have substantial expertise in
management and operations and that they are "local", the fact remains that policy and
decisions are directed from Phoenix; North Colorado Medical Center is merely a cog in a
large health care organization. I believe we have the financial ability and can retain
operational expertise to locally manage and control this hospital operation. I also believe
it can be done on a more cost effective basis than paying huge sums of money to Banner
every year.
As to future quality of care and referrals, numerous promises have been made that
quality will be improved and that Banner will work harder in creating NCMC as the hub of
a referral system. This is exactly what was promised six years ago but history does not
indicate that Banner can or will be able to modify that experience.
As to lower costs, Banner's own ten year financial projections (provided to NCMC
in May) indicate that Banner will receive and take from various hospital operations
approximately 180 million dollars. This is money that will leave the local community over
these ten years and can be used by Banner in any of its other operations. During that
same ten year time frame, the projection is that NCMC, Inc. will receive approximately 77
million dollars. We all know that ten year financial predictions may not be very accurate
but I am using the figures provided to NCMC by Banner. The projected 180 million dollars
is excessive and I continue to believe that NCMC, Inc. could operate the hospital for less
money, NCMC, Inc. would realize a greater return from operations, and NCMC, Inc. would
thus have more funds for future expansion or renovation as well as providing lower cost
services. The financial arrangements as provided in the proposed agreement are not
fiscally responsible.
V. CONCLUSION.
Ethically I can no longer remain silent and allow the perception to continue that all
Board members are in agreement and in support of the existing (or proposed) agreement
with Banner. Both the current and proposed agreement with Banner have a direct impact
upon tens of thousands of citizens in Northeastern Colorado involving hundreds of millions
of dollars. Under the existing and proposed arrangement with Banner, we are missing an
opportunity to provide better quality health care, competitively priced, under local control
and management, and with tens of millions more dollars remaining in our community. We
have not received 48 million dollars of value or service from Banner in the past six years,
and we are paying far too much for what we are receiving. We are feeding the Banner
Hospital System and not getting an adequate return on the investment in our local hospital
or community. Banner will argue that our relationship has and will result in substantial cost
savings and also allow NCMC to have better access to new and expensive technology and
markets. Fortunately, all of that and more is available to us with or without Banner, and by
keeping more revenues in our community, this will benefit the local economy and result in
cost savings.
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We have spent over six months in various negotiations with Banner as to the
existing and proposed new agreement. Only in the last two weeks have we started to
review alternatives and look at other data. Clearly, two weeks to review other alternatives
is inadequate. I believe it is necessary that we take the time to further research these
alternatives and go forward with further review and analysis, especially regarding possible
opportunities with Poudre Valley Health System. Effective regional collaboration is really
the only way to create a true regional health care delivery network and it offers the best
possibility of better quality, lower costs, and effective referral system with local control and
management. Until we further review and analyze these alternatives, it is not the time to
go forward with a new agreement with Banner. Undoubtedly there are risks and expenses
associated with this but we should not forego an opportunity for effective regional
cooperation and organization. While there are deficiencies, a lack of information, and
analysis in the Tiber report, it was noted that a detailed marketing study analyzing the
respective medical staffs, key community leaders and patients should be completed. That
has not been done either in relation to the Tiber report or as to our own Banner affiliation.
Our review of the Tiber report also indicates that data and analysis that was missing or
incomplete could be prepared over the next few months and that should be done in a
cooperative effort between NCMC, Inc., Poudre Valley Health System,the Tiber Group and
our consulting firm, BKD, LLP. Further review and analysis could be of substantial benefit
in creating a regional health care delivery system but we have elected not to go forward
with further study and analysis. I believe this is a mistake. Furthermore, I believe that a
new arrangement with Banner will end further efforts to collaborate and cooperate with the
Poudre Valley Health System. Naturally, this then dooms any further efforts between
NCMC and Poudre Valley that could result in a true regional health care delivery system,
elimination of extremely expensive duplicative facilities, substantial cost savings in the
northern front range concerning health care, and creation of cost effective specialized
facilities.
In closing, I sincerely hope that my analysis and conclusions are wrong and that
Banner will be able to effectively create what has been promised but which has not been
delivered over the past six years. I deeply care for this community and NCMC, and I wish
the best of luck to NCMC and Banner with future operations.
Kenneth F. ind
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