Effingham County commissioners have been given a copy of a feasibility study draft on Effingham Hospital’s modernization and expansion plans, a draft that has hospital officials beaming.
The feasibility study draft, Effingham Hospital CEO Norma Jean Morgan said, shows that the hospital’s plans to add 58,605 square feet of space and renovate 6,863 square feet with federal financial resources are viable.
“This is a big deal,” she said.
The final feasibility study will be sent to the Department of Housing and Urban Development, with the date of the hospital’s certificate of need approval to be plugged in. That is expected to happen June 16.
Morgan also defended the feasibility study, prepared by accounting firm Dixon Hughes.
“These guys are the cream of the crop,” she said. “They are reputable. When they say it’s a doable project, it’s a doable project. They have been vetted by HUD. When they give an assessment, it is good, it is on target.”
HUD also will have a second set of certified public accountants review the feasibility study, Morgan added.
“This is a tough process,” she said. “A lot of work has gone into it. They are not going to put their reputation on the line for anything less than what it is.”
The hospital authority is seeking a guarantee of 2 mills for 25 years and a deed for land adjacent to the hospital needed for the expansion. Morgan said the hospital won’t seek more than the requested 2 mills, which HUD stipulates as part of issuing the Build America bonds. The 2 mills are needed to cover the cost of indigent and uncompensated care. Last year, the hospital had more than $4 million in indigent and uncompensated care costs and received $3.2 million in property tax revenue.
Should the proceeds from the millage rate outweigh the cost of indigent and uncompensated care, Morgan said, the hospital would ask HUD if it could return that surplus amount to the county.
“We don’t want to try to make money off the hospital,” Morgan said. “We’re in this for the county to support indigent care.”
With the financing, the hospital will embark on an estimated $31.7 million project, with $25 million going to equipment and construction costs.
Should the hospital pay its loan off before the 25 years, the requirement of 2 mills would cease as well. There’s also a deadline of Dec. 31 to get the Build America bond package in place. There is federal stimulus money for modernizing small hospitals but that stimulus money ends Dec. 31.
Getting the application into HUD and approved would mean a 35 percent reduction in interest rate costs for the bonds. By 2014, if the package is approved, the hospital would get a $700,000 rebate from the federal government, Morgan said.
“The citizens of the county do not have to secure that loan,” Morgan said.
Hospital officials met with commissioners Bob Brantley and Myra Lewis recently to go over concerns commissioners have had about the expansion plans and the process it’s followed. Brantley said the meeting, which lasted about two and a half hours, went well.
“I kept telling them about accountability, and that’s what we want to see,” Brantley said. “The one thing I told them is we want accountability.”
Commissioners also said Tuesday that the majority of calls they’ve received from constituents on the hospital’s plans have not been in favor of the expansion and modernization.
Relations and communications between the hospital and the commissioners have been strained over the last several months. The hospital authority is seeking $30 million in Department of Housing and Urban Development-backed Build America bonds to expand and modernize the hospital.
“Building a new hospital is relatively simple,” said Alan Richman, president and CEO of InnoVative Capital, the group helping the hospital put its HUD package together. “But modernizing and renovating on its site is a work of art. Building a new hospital is more expensive. For this hospital to get maximum value, it has to modernize.”
Richman also was taken aback at the level of rancor between the hospital and the county commission stemming from the process.
“It’s supposed to be nice, happy thing where everyone benefits from it,” he said. “You’re going to get a brand new hospital, guaranteed by the federal government. I thought it was a fait accompli. I thought this thing was going to be to die for.
“It was never supposed to be this. Everyone was supposed to be happy. I never dreamed there would be any concern, that we would have these issues. We want them to be in with us. It is toxic what is going on right now.”
Richman said it was never his intent to be disrespectful and there has never been an instance of not keeping the commissioners informed. But commissioners are still questioning where certain reports and documents they have asked for are.
Richman also explained how and why the planned meeting for the hospital and representatives from the county commission with HUD changed. HUD officials told him that the meeting would be about the operations of the hospital and not its usual attempt to get a sense of where the community stood.
“I was legitimately disturbed when I heard county people wanted to speak with HUD,” he said. “I said it was not necessary.”
HUD staff told Richman they had not seen a hospital like Effingham’s as a community hospital and said they saw no reason why the process should not go forward.
He also took issue with the notion that the feasibility study, which commissioners have requested, might be written favorably toward expansion because the hospital is the one seeking the study.
“This is little Effingham Hospital, getting one examined economic forecast. They have no ax to grind,” he said of Dixon Hughes. “For anyone to disparage the credibility of the feasibility study is silly.”
Richman said he has seen a rough draft of the study and it points to the hospital being viable and having a good future.
“The feasibility study supports that the hospital is going to do nicely over time,” he said.
Of millage and studies
The HUD loan will carry an interest rate of 4.225 percent. According to Richman, 35 percent of the borrowing rate will be paid back to the hospital on an annual basis.
Part of the package requires a resolution the commission pledge 2 mills a year for 25 years to the hospital. Commissioners have balked at that stipulation, since that equates to approximately $100 million.
Hospital officials say getting that millage endorsement will allow them to eventually end their need for property tax revenue.
“The need for the millage isn’t going to go away if we don’t modernize,” Morgan said. “The need for the millage is never going to go away if we don’t modernize.”
“The millage gives us the opportunity to get rid of the millage,” Richman said.
The hospital, though, may not need as much from the county as it originally asked.
“We are proposing the county provide support on a negotiated level,” Richman said. “The result of that is less than the tax burden of trash collection. We’re not asking the county to co-sign the loan.”
Commissioners also discussed, but shelved, the idea of a study from Armstrong Atlantic State University’s Center for Regional Analysis. The hospital did agree to pay for a regional economic model study done by Georgia Southern University’s Bureau of Business Research and Economic Development.
“We were going to take them up on their commitment to go forward,” Richman said of the commissioners. “Somewhere in there, they want to do a critique. They don’t know if the hospital is worth their investment. That is not the way to go forward. I stand behind all the stuff being done. We’re trying to limit the encumbrance to the county. This is the perfect time to ensure independence and perpetuity in health care for Effingham County.”
HUD is expected to make two visits to Effingham to meet with officials and citizens to talk about the expansion plans. They will meet with doctors, county officials and hospital staff to discuss the hospital’s goal.
Should the commissioners back away from supporting the hospital’s plans for expansion and modernization, there may not be much of a future for the hospital, said Richman and Effingham Hospital CEO Norma Jean Morgan.
“We would be limited in physician recruitment,” Morgan said. “If you can’t provide space, they won’t come.”
The hospital has recruited a surgeon, Dr. Joey Christmas, who will begin at the hospital this summer.
Should the expansion and modernization plans move forward, construction is expected to start in December and be finished in December 2012. Morgan anticipates moving into the new space by early 2013.
Walter Murphy of Rives E. Worrell, who along with R.J. Griffin in Savannah has been awarded the construction contract, has told hospital authority members he will use as much qualified local labor as possible.
The hospital’s plans also have been given a thumbs-up from Savannah’s two hospital systems.
“They don’t see us as competitors,” Richman said. “They see us as team members.”
Without the commissioners, “you will have the beginning of the death of the hospital,” Richman said.
“There isn’t a concept of doing nothing,” he said.