As certain hospital licenses are set to expire on Dec. 31, the Patrick County Economic Development Authority detailed their efforts to reopen the former Pioneer Community Hospital of Patrick.
The EDA has worked to attract an operator, while trying to negotiate a fiscally responsible lease and/or purchase from the lien holder, Virginia Community Capital to gain control over the hospital property with the hope of preventing this type of situation from ever happening again.
The hospital closed in September, 2017 after declaring bankruptcy in March 2016. An asset purchase agreement reached with Americore eventually was terminated.
Around the same time, the Centers for Medicare and Medicaid Services determined the hospital must repay $650,000 due to a 2016 cost report. The agency also began withholding all payments/reimbursements until the debt was paid.
With no purchaser and no income from the Centers for Medicare and Medicaid Service, the management company appointed by the bankruptcy court, Healthcare Management Partners, opted to close the hospital.
Following the Sept. 13, 2017 notice the hospital would stop receiving patients two days later, the Centers for Medicare and Medicaid Services on Oct. 15, 2017 terminated the hospital’s Critical Access Hospital designation.
Significant efforts to identify an operator were made by the local EDA as well as the Healthcare Management Partners and the lien holder. There also were numerous discussions between the EDA, the Board of Supervisors and the Stuart Town Council to craft a strategy to gain control of the hospital property and put an incentive package together to offer a potential operator.
After learning that HMP would not authorize any payments for the utilities of the hospital, the county committed to pay the utility bills and to try and maintain building for which the county paid a total of $89,063.53 between October and December, 2017.
Officials were unable to identify an operator that was willing to pay VCC, the bankruptcy estate and the repayment required by Centers for Medicare and Medicaid Services, and by December, the VCC decided to foreclose on the property to protect their nearly $6.8 million lien.
Only two bidders registered at the auction: representatives from the EDA and the VCC.
Dale Puckett, chairman of the EDA, placed a $500,000 bid; VCC’s representatives placed the winning bid of $4.7 million on behalf of Patrick County Real Estate, LLC, a subsidiary created by VCC.
On Jan. 23, Debbie Foley, director of the EDA, attended a meeting in Richmond with State Senator Bill Stanley, R-Moneta; Bill Clark, vice chairman of the EDA, and VCC representatives to discuss the hospital and gain a broader understanding of the issues and challenges facing the lien holder.
Officials learned that the VCC is a non-profit community capital banking institution created for the purpose of financing businesses and/or projects that are located in communities that are distressed. The bank was set up to be completely independent of any legislative involvement, with no elected official serving on their board.
Clark and Foley also were informed that the lien against the hospital used an IRS program called New Market Tax Credits, a complicated program with many stipulations. The main challenge was the severe limitation of changes that could occur as far as ownership, use and pricing before June 2020. Significant changes occurring outside those limitations could trigger a payback because the banking institution that had been receiving the credits would have to repay the credits, plus penalties and interest. The restrictions severely limited VCC’s options, according to the EDA release.
Due to support and efforts of Patrick residents, state officials on Feb. 12 passed legislation to extend the Acute Care Hospital license through the end of the 2018. Gov. Ralph Northam traveled to Patrick County and signed the bills – the first of his administration — on Feb. 16.
The board of supervisors and Stuart Town Council appointed the EDA to negotiate and handle all matters regarding the hospital on Feb. 21.
The EDA initiated discussions with health care organizations, both in and out of the region. The VCC, on a parallel tract, also marketed the hospital and contacted health care organizations and any other types of organizations that would qualify under the tax credit program.
VCC also hired a marketing consultant who presented the EDA with a plan “that the EDA felt was unrealistic and unworkable,” the release stated. “Unfortunately, VCC disagreed and thought that the plan would solve all the issues. They believed the plan would be in place by mid-June and were not interested in discussing a sale or lease outside of their consultant’s plan, unless they could recover their $4.7 million investment,” according to the release.
Because of the complicated structure of the tax credit program, the EDA hired a firm with significant experience with the program to help craft the first offer of purchase to VCC and to ensure that any offer would meet all the guidelines and regulatory issues of the tax credit program.
An offer submitted to the VCC on April 13 proposed the county would lease the hospital for $1 annually for 10 years, with an option to purchase at the June 2020 end of the tax credit period for $3 million, minus the costs of capital improvements.
“This offer was flatly refused, stating that they were pursuing other alternatives or options,” the release stated.
The Critical Access Hospital that was terminated in October, 2017 also was significant, according to the release, which added that “all operators and health care organizations understand the financial significance of the designation and it factors heavily in the decision process of opening a hospital in a rural area.
“Very simply, the CAH designation was created to help rural hospitals with the cost of health care by increasing the reimbursements for services by CMS. These reimbursements are cost plus 1 percent,” according to the release. “Basically, CAH hospitals receive higher reimbursements from the Centers for Medicare and Medicaid Services than urban hospitals. Our hospital qualified for this designation under an exception to the federal regulations for CMS in 2000. The exception has since been removed from the federal regulations, so the hospital no longer qualifies.”
Federal legislators can help request a waiver or variance, and while the EDA has made those contacts, the process will be lengthy and cannot be initiated until an interested operator is identified.
When negotiations stalled with VCC, the EDA reached out to Stanley, who immediately called for a meeting between himself, VCC, representatives from the EDA and Figueroa.
The July 9 meeting in Richmond was to facilitate communications and move the negotiations forward. Stanley insisted that the county and VCC come up with an offer that could be acceptable for both parties. Figueroa stressed to both VCC and the EDA that access to health care for Patrick residents was among Northam’s high priorities.
Stanley also directed the VCC to present a counter-offer to the EDA within three days.
The counter-offer, received on July 18, called for the county to lease the property for two years, and then purchase. Rent would be $75,000 per month under the triple net lease, meaning the county would be responsible for all maintenance, insurance and taxes, which amounted to $1.8 million over two years, to be credited to a purchase price. The purchase price after the rent credit would be $2.4 million, with possible financing from VCC, for a total purchase price of $4.2 million.
In a counter offer submitted by the EDA to VCC on July 24, three separate options were proposed: A straight purchase of the hospital, purchasing and renovating an existing medical use building and building a new facility.
The offer to VCC was a lease for $1 annually, with an outright purchase, no reductions for repairs and maintenance at $1 million in 18-24 months. In essence, a purchase price of $1 million, plus the $1.2 million estimated cost of the most immediately needed repairs, for an estimated $2.2 million investment by the county.
The alternatives presented were to build a new 8,000 square-foot facility at a $300 per square-foot for a total estimated cost of $2.4 million; renovate 3,500 square-feet of an existing medical use building; an additional 4,500 square-feet for a total of 8,000 square-feet at $300 per square-foot for a total of $1.35 million and with an assessed building value of $392,600. The assessed value of adjacent land was listed at $33,800, if needed, for a total estimated investment of $1,776,700. The offer was valid until July 31.
The EDA then received a counter offer from VCC on Aug. 1. The offer stipulated the county would lease the property for $1 annually, and called for a triple net lease, with the county responsible for maintenance, insurance and taxes beginning Sept. 1, 2018 and continuing through June 30, 2019, at which time the VCC would “consider a sale of the building at a fair market value to be determined at that date,” the release stated.
Agreeing to a purchase price that would be determined on a future date was considered “unworkable and would commit the county to an unknown financial burden,” the release stated.
Additionally, “fair market value at some future date would reflect any investment for repairs, maintenance and capital improvements already paid for by the county,” the release stated. EDA officials also considered the difference between a fair market value of a vacant building, as opposed to the fair market value of a building with a fully operational institution.
On Aug. 3, Lock Boyce, board chairman, said he and Tom Rose, county administrator, participated in a conference call with officials in Gov. Ralph Northam’s office, including Secretary Dan Carey and Deputy Secretary Marvin Figueroa, of the state department of Health and Human Resources. (Figueroa also attended the EDA’s meeting with Virginia Community Capital on July 9).
On Aug. 6, Boyce requested a comprehensive timeline and specific information of all EDA activities and contacts regarding the hospital. The information packet was hand delivered to Boyce’s office on Aug. 7.
Carey’s office contacted all the potential operators listed in the packet. Each indicated that, in addition to the required investment by VCC, the resources necessary to open and operate a facility would not be financially feasible.
To date, no operator has expressed interest in investing in and operating the hospital. The VCC continues to affirm that any ultimate sales price would be well over what the county can afford, according to a release from the EDA.
The VCC received an annual appraisal in early November, placing the value of the hospital at $5 million.