NCMC, Banner agree on long-term contract

GREELEY – A 21-year operating contract that binds Greeley’s North Colorado Medical Center to Phoenix-based Banner Health Systems will be in place Jan. 1 under terms of an agreement reached Thursday night.

And Banner’s top Colorado official said following the meeting the company likely would have built a new hospital in the region had the board not agreed to a contract.

The hospital’s board – with a lone dissenting vote – approved the extension of the operating pact with Banner, ending eight months of negotiations that board Chairman Frank Cordell described after the vote as “emotional and difficult.”

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The new agreement splits profits generated by NCMC’s operations between the hospital and Banner under a complex formula and eliminates a clause in the current contract that allows either party to terminate on 12 months notice.

“I start tomorrow building the document,´ said Jeff Tindle, the Kansas City-based consultant that NCMC hired to handle its contract negotiations with Banner. “We want to keep it reasonable and simple.”

With its 9-1 vote, the board turned away from a partnership with Poudre Valley Health System that had been the subject of discussion during a 6 1/2-hour private meeting earlier this week and a 90-minute closed session Thursday.

Rulon Stacey, CEO of the Fort Collins-based Poudre Valley system, said the board’s vote diminishes chances for regional cooperation on health care service.

“This makes it harder for us to work with them,´ said Stacey, who has advocated closer ties between Northern Colorado’s two largest hospitals.

“Under this agreement, there will be tens of millions of dollars from Northern Colorado funneled to Phoenix over each of the next several years,” Stacey said Thursday. “Do we form partnerships with Banner, knowing that we are going to be sending even more money to Phoenix? That would be irresponsible.”

Banner Health Colorado CEO Scott Bosch said following the meeting that if NCMC had not reached agreement with Banner his company likely would have stayed in the Northern Colorado market. He acknowledged that Banner had discussed contingency plans to build a new hospital, either in Greeley or as an expansion of Loveland’s McKee Medical Center, which Banner also operates.

“In the last six months we have been looking at our alternatives,” Bosch said. “We discussed a tertiary care center at McKee, or building a new tertiary care facility in Greeley.”

Tindle said Banner’s commitment to keeping its hand in Northern Colorado’s fast-growing health care market was reasonable, and that the contingency plans were not used as a negotiating tool.

“Do I think that Banner was going to vacate this market? Absolutely not,” he said. “Do I think that was used as a hammer or as a threat? Absolutely not.”

Board member Kenneth Lind, the sole dissenter in the Banner vote, submitted a six-page rationale for his decision that raised questions about Banner’s share of NCMC profits.

“We are feeding the Banner Hospital System and not getting an adequate return on the investment in our local hospital or community,” wrote Lind, a lawyer who has served 16 years on the NCMC board.

Lind’s analysis concluded that Banner and its predecessor, Lutheran Health Systems, had taken $48 million in NCMC revenue during the past six years, while the hospital had realized $7 million profits after spending for capital improvements and debt service.

“We have not received $48 million of value or service from Banner in the past six years, and we are paying far too much for what we are receiving,” Lind wrote.

Neither Cordell nor Bosch had time to read Lind’s statement, delivered at the conclusion of the meeting, and neither could comment on its contents.

Cordell defended the financial relationship with Banner that the contract will spell out, saying the money will be invested in Banner’s Northern Colorado health care facilities.

“The freaking money doesn’t disappear,” Cordell said. “It stays here. What will they do with that money? They will build up McKee. They will build up Sterling. They will build the infrastructure for Northern Colorado.

In total, the board met privately for eight hours during two meetings this week to discuss the Banner agreement and to hear Tindle’s analysis of a report, commissioned by PVH, that showed how the two hospital systems could save $47.5 million over several years by collaborating.

Tindle said that number was questionable, and that his own calculations showed smaller savings.

“Is there a savings with collaborative behavior? Absolutely,” Tindle said. “But I can’t embrace that $47 million. … I recalculated those numbers and found we would save much less.”

The public portion of Thursday’s meeting, measured in minutes rather than hours, featured a nod toward regional cooperation with a motion by board member Julianne Haefeli to “help initiate a multi-county community health network that would involve representatives of community health centers, public health departments, hospitals and other social services.”

The group would have “a primary focus on collaboration across traditional organized boundaries,” Haefeli said.

The board unanimously passed the motion without discussion of specifics.

Bosch said eliminating the one-year escape clause from the contract was essential for Banner’s continued operation of NCMC.

“With that 12-month notice, there was no opportunity to develop a long-term strategy with any confidence,” Bosch said. “We needed to have that.”

To replace the escape clause, the new contract will feature a series of “triggers,” as Tindle described them, that could give the parties cause to terminate the agreement.

For example, the document will include ways to measure patient, physician or employee dissatisfaction and to ensure that NCMC maintains market share and accreditation.

At the same time, Bosch said he and Tindle would work to keep the new contract simple. “The existing agreement is about this thick,” Bosch said, holding his thumb and forefinger about three inches apart.

When the agreement is ready to sign, NCMC will get an infusion of $18.1 million from Banner for the rights to take charge of all of NCMC’s accounts receivable, the parties agreed.

Thereafter, the hospital’s revenue will be apportioned under what Tindle called a “blended formula” tied to return on assets and depreciation, among other factors.

Bosch and Tindle said they hoped the new contract would stabilize NCMC’s medical staff, a group that the two acknowledged has been fragmented during the negotiating process.

Two prominent specialists, heart surgeon Dr. Michael Stanton and burn specialist Dr. Sally Parsons, recently left NCMC to join the PVH staff, and other specialists are said to be considering the same move.

Tindle said that dissatisfaction with hospital managers, especially among hospital-based specialists, was “endemic in the industry.” Bosch agreed, saying “I know that Rulon (Stacey) would sit here today and say the same thing.”