Selling Memorial Health System back on table

Whether Colorado Springs should sell Memorial Health System is on the table again. It's a question that has dogged the system for nearly two decades.

The issue was raised last week by Councilman Jerry Heimlicher, who questions the agency's financial strength.

"My big concern is that we're continuing down the road with uncompensated care to the point where we might have to ask the public to subsidize the hospital," he said. "I'm thoroughly opposed to that. We've always said the hospital stands on its own."

Newly hired Memorial CEO Larry McEvoy said in a statement, "The city's charge and our mission is to provide the highest quality health care here in Colorado Springs. Given this mutual commitment, we look forward to constructive dialogue on how to best serve our community's needs."

The idea of selling Memorial has been debated for decades, most recently during the 1999 mayoral contest when Memorial became a pivotal issue as a source of funding for a $600 million backlog of road, bridge and public safety needs.

In 2001, a panel appointed by then-Mayor Mary Lou Makepeace recommended Memorial not be sold, citing its healthy bottom line.

Makepeace's panel decided to stick with city ownership, she said, because "it's better for the citizens of Colorado Springs" because of $16.5 million in indigent care the hospital provided in 2000.

Now, the rising cost of indigent care is driving the City Council's concerns.

Purchased by the city in 1947 for $76,500, Memorial was valued in 2001 at $500 million, but it's unclear what the system is worth today. At the end of 2007, Memorial's net assets totaled $398.8 million. It's budget this year is roughly $646 million.

In 2006, the system saw net income from operations plunge to $19.6 million from $30.7 million the previous year, "due primarily to the significant increase in the provision for bad debts," according to the 2006 annual report.

Heimlicher noted that last year the hospital had to use $23.5 million from cash reserves to balance its budget.

One reason Memorial officials gave was uncompensated care, which includes the difference between actual charges for service and the amounts reimbursed by Medicare and Medicaid and charity care for those with no ability to pay.

From 2002 to 2007, Memorial has provided $254.9 million in uncompensated care, and the annual total increased by 156 percent during that time. Memorial projects it will write off $65.6 million this year for uncompensated care, $10 million more than it projected for 2008 just eight months ago.

"They cannot make up this unexpected loss forever," Heimlicher said. "This is a problem that we must step up to before it costs the citizens direct dollars."

Heimlicher said the council asked the City Attorney's Office to provide information on legal requirements for selling the hospital or restricting how it operates.

Among that information will be whether an election is required to sell, whether the council can mandate that free care be provided only to city residents and what the city can do with money from a possible sale.

But that's not the only issue. Heimlicher said the council also is concerned about Memorial:

• Giving $250,000 to the U.S. Senior Open golf tournament to be held at The Broadmoor this summer. Heimlicher said that sum was scaled back to $100,000 after council members objected.

• Paying a new CEO who doesn't have large-hospital administration experience $550,000 a year. That's more than $100,000 more than his predecessor, Dick Eitel, who retired this year after about 30 years with Memorial, was paid.

McEvoy took over as CEO on Saturday. He had been chief medical officer since Oct. 1 and interim CEO since mid-January when Eitel announced his retirement.

Heimlicher said the pay increase should have been discussed with the council, which has budget authority over Memorial.

He also challenged McEvoy's credentials, noting he oversaw a clinic/hospital/nursing home operation in Montana and worked as a consultant.

"Was he the right person, and should he be compensated the way he's being compensated?" Heimlicher said. Vice Mayor Larry Small said he shared those concerns.

Memorial's board defended the hiring, saying in a statement the process was "rigorous," 90 applicants were considered and pay was based on a salary study.

Heimlicher said the council is considering appointing council members to Memorial's board, as it used to do years ago.

"We can't continue to run the hospital the way we are," he said. "I believe there's been financial mismanagement with cost overruns on both buildings (main and north hospitals), and the decisions that were made on the Senior Open, it demonstrated to me we needed some additional oversight."

CONTACT THE WRITER: 636-0238 or pam.zubeck@gazette.com

FREE CARE

Uncompensated care provided by Memorial Health System. These figures represent the difference between actual charges for service and the amounts reimbursed by Medicare and Medicaid patients and charity care to those who have no ability to pay.

2002: $25.6 million
2003: $29.7 million
2004: $38.2 million
2005: $40.4 million
2006: $55.4 million
2007: $65.6 million
2008 (projected): $68.7 million
MEMORIAL HEALTH SYSTEM