Sutter proposal disected

This is the second in a series of articles on proposals by health-care entities Triad, Universal and Sutter to affiliate with Carson-Tahoe Hospital.

Sutter Health, the only nonprofit health care provider among three proposed affiliates, has offered to merge with Carson-Tahoe Hospital to form a new nonprofit entity called Nevada Capitol Regional Health Care Systems.

The fact that Sutter, based in Sacramento, is closer than other proposed affiliates offers some advantages, according to Carson-Tahoe's chief executive officer Steve Smith.

"(That) would make integration into this organization easier, but as with any affiliate, control would be centralized," Smith said. "Sutter clusters hospitals into districts, so hospitals aren't treated as individuals."

Under this proposal, Carson-Tahoe would carry the Sutter name. An advisory committee with some local representation would exist, but most local control would be lost to the corporate structure.

When the health care industry is financially shaky, however, debt could be spread throughout the system much like any franchise. And should local hospital officials need any kind of counsel, Sutter has financial, legal and clinical expertise.

Sutter Health is the 13th largest health care system in the nation when ranked according to net patient revenues, and the organization had $51 million in income in 1999.

"That's a little low for an organization of that size," said retired hospital administrator Richard Moore, who has examined the affiliates' proposals. But he also noted that the organization's A-plus bond rating is an advantage.

He pointed out that Sutter has 29 hospitals or about the same number as Triad, another potential affiliate. But the organization manages a wider variety of health-care entities, including nonprofit medical foundations,10 independent physicians' associations, home health care organizations and four skilled nursing hospitals.

Sutter focuses on building networks in contiguous markets and proposes making Carson-Tahoe the hub of its network with satellite affiliates in the Tahoe-Reno-Sierra market.

The merger would be accomplished in phases.

Initially, Carson-Tahoe would work with Sutter at Sutter's expense to plan for a replacement hospital at a new site, to be built within five years, and proposes expanding maternity, orthopedics, cardiology and cancer services.

At the same time, Sutter and Carson-Tahoe would merge to form a new nonprofit organization. Up to that point, (estimated at about six months) Carson-Tahoe has the option to back out of the agreement.

Later, the newly formed organization would accept the existing hospital's debt, working capital and leases. Carson-Tahoe would not be required to pay its outstanding debt and Sutter would assume or refinance the indebtedness.

"They (the new organization) would finance the new hospital," Smith said, noting that Carson-Tahoe paid 6 percent the last time it borrowed money, and Sutter borrows at 3.6 percent. The new organization would also pay off the estimated $27 million in existing bonded indebtedness from its revenues.

The existing hospital would be leased under a 30-year agreement with the county for behavioral health, skilled nursing, and rehabilitation at a cost of between $500,000 and $900,000 per year.

"Sutter would be paying for that lease out of profits we already have," said Tom Keeton, a Carson City resident and former mayoral candidate who has been studying the affiliation process. "At the end of 30 years we will get back the hospital we already have, but what will it be then? No great bargain."

In addition, Carson-Tahoe's board-designated funds would be transferred to a community foundation for community health care. Nevada Capitol Regional Health Care System would merge with Sutter and appoint a local governing board. In the last phase, a new hospital would be owned and operated as an affiliate of Sutter.

Like the other two affiliates, Sutter is not interested in retaining the Public Employees Retirement System retirement program hospital employees currently enjoy.

"Sutter is going to have to do something for the employees," Smith said. "We won't ink the deal until there is some kind of offer that will cover employees for PERS."