Carson-Tahoe Hospital holds open affiliation discussions

An audience made up largely of physicians and hospital staff participated in an engaging discussion at Carson-Tahoe Hospital's strategic planning session Wednesday night. Consultant Jody Hill-Mischel presented the basic tenets of the proposals for affiliation, including those from the three potential affiliates Universal, Triad, and Sutter, as well as seven other alternatives.

No matter what path the hospital takes, Hill-Mischel made it clear that a solid financial base is essential for the hospital's survival.

"Cash is king, and the health industry is uncertain. The key to survival is in creating debt capacity, and (the hospital) can't create capital fast enough to meet the need," Hill-Mischel said, noting that the hospital could apply for 501(c)(3) status, which would allow the hospital to gain capital by going into debt for up to $200 million. But that is a very significant debt load, and the hospital's capital needs are projected to be about $90 million over the next 10 years.

Capital may be king, but 43 percent of the country's hospitals are in the red, according to chief executive officer Steve Smith. And that number is climbing. Five hundred hospitals are expected to close this year, due in part to cuts in Medicare and Medicaid. Carson-Tahoe lost $2.2 million in revenues this year and next year is expected to be worse.

Physicians expressed concern that affiliation with another entity might result in the draining of services from the community. Universal, for instance, owns Northern Nevada Medical Center in Sparks.

"Physicians have seen areas devastated. Doctors have lost their practices, and patients are forced to travel miles for services," Dr. Colleen Lyons said.

Another threat to the hospital's financial integrity is the "physician carve-out," a process whereby physicians take the paying services out of the hospital, such as endoscopy, X-ray, or ultrasound, leaving the hospital with the less lucrative services.

Steve Smith noted that this is a natural phenomenon, but it can send a hospital into an economic spin, further exacerbated by a lack of capital. He cited Carson City's dialysis center as an example. The hospital didn't have the capital to build a center, so an outside entity built the facility, taking that market away from the hospital.

But the potential affiliates could generate the needed capital because their bonding capacity is greater. They can underwrite more debt because they own more hospitals over which to spread costs.

"Roseville (Sutter) built a new hospital with a 3.6 percent loan," Smith said. "Our (loan) money costs us better than 6 percent."

The matter will be reconsidered at the Board of Trustees meeting Nov. 9, when it is hoped that the 10 affiliation options being considered will be narrowed to three or four. The following three affiliates are being considered as well as seven other alternatives.

-- Triad, a for-profit company based in Dallas, Texas, has proposed a joint venture with for-profit status. Under this agreement, Triad would own 80 percent of the hospital, and the county about 20 percent, with no proceeds of sale to the community.

-- A nonprofit health care provider based in Sacramento, Sutter Health is the thirteenth largest health care system in the country. It proposes a merger that would create an organization called Nevada Capitol Regional Health Systems.

-- Universal, based in King of Prussia, Pa., is a publicly traded for-profit hospital founded in 1978. It proposes an outright sale for $105 million. Proceeds of the sale would remain in the community, but hospital cash flow and control of these funds would move to Universal.