Banner to bid on Springs’ Memorial Health

COLORADO SPRINGS — Phoenix-based Banner Health System intends to submit a bid on a 40-year lease of Memorial Health System in Colorado Springs, but whether Poudre Valley Health System in Fort Collins will do so remains an open question.

While PVHS has expressed interest in having a relationship with Memorial, its ongoing development of a joint operating agreement with Aurora-based University of Colorado Hospital may prevent that from happening.

PVHS and UCH announced their intent to collaborate under a JOA in June. Since then, officials from both systems have been working to finalize details of the agreement.

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Rulon Stacey, PVHS president and CEO, said the creation of a JOA with UCH is continuing and “negotiations are moving along nicely.”

But while Memorial has hired a consultant to oversee the lease bid process, it has yet to send out Requests for Proposals, even though responses would be due back by Nov. 11. That tight timeline, driven in part by the need for Colorado Springs voters to approve the winning bid, makes PVHS’ participation problematic, Stacey said.

“I don’t think it’s safe to say we’d not respond to an RFP,” he said. “Everybody would have to look at it and evaluate it. But right now there is no (JOA) entity, and it’s probably just too soon to say, especially without seeing the RFP itself.”

Stacey did say that a bid “is within the realm of possibility” but was not something he could say would definitely happen.

Meanwhile, Bill Byron, Banner Health spokesman, said Banner will submit a bid to lease Memorial after the hospital system sends out RFPs, expected by mid-October.

“We are interested in participating because we believe we have some tremendous values for the people who turn to that system and to the system itself,” he said. “Memorial as an institution has a strong history in that community, and that’s important. People there routinely turn to it for care, so it is attractive to us.”

Banner Health owns McKee Medical Center in Loveland and has a contract to operate North Colorado Medical Center in Greeley. Banner also has hospitals in Brush and Sterling but none in southern Colorado.

Byron said the prospect of a southern Colorado Banner facility was appealing but not important to its overall strategy.

“The notion of a new area of Colorado is not so important because we already operate in seven states,” he said. “But we do have substantial operations in Colorado, and we like the Colorado area a lot.”

City-owned since 1943

Memorial Health System was purchased by the city of Colorado Springs in 1943 and is one of the few remaining publicly-owned systems in the nation. It competes directly in Colorado Springs with Penrose-St. Francis Health Services, which is part of Centura Health, Colorado’s largest hospital network.

Memorial had been doing well financially until recently, when the future of health care became less certain under federal health-care reform.

While Memorial Health System was ranked No. 2 in the state in net revenue last year, its net revenue is down 88 percent this year.

Talks about changing Memorial’s ownership over the last two years have also contributed to an atmosphere of uncertainty, according to Brian Newsome, Memorial spokesman.

“This year has been a tough one,” he acknowledged. “A lot of it is due to the uncertainty about our ownership.”

Several hospital systems have already expressed interest in leasing Memorial, including Nashville-based HCA, which operates in Colorado as HealthOne with six hospitals in the Denver area, including Rose Medical Center and Swedish Medical Center.

Poudre Valley Hospital made a similar transition from public to nonprofit ownership in the 1990s. Colorado Springs and Memorial officials have expressed their interest in an independent, not-for-profit business model as used by PVHS and UCH, and PVHS CEO Stacey visited the city several times over the past two years to talk about the model.

One large question could complicate any bid from a hospital system seeking to lease Memorial. Memorial’s employees are part of the state Public Employees Retirement System, and if the hospital gives up its public status, the new owner might have to commit to funding the pension plan at the same rate.

It’s a $246 million question that still has no definitive answer, although Memorial’s RFP is expected to include a provision that the new lessee would assume all hospital system obligations.

Banner’s Byron said the PERA question is one that would likely not be a deal-breaker.

“I think we’d certainly want to know a lot more about that, but I don’t think that in any way diminishes our interest,” he said. “It certainly is a factor. Perhaps there may be something that makes us reconsider, but it doesn’t diminish our interest at this point.”

Banner is one of a dozen hospital systems set to receive RFP lease invitations from Memorial. That list also includes PVHS and UCH.

Jan Martin, Colorado Springs Council president pro tem, said she would be “really sorry” if PVHS/UCH was not able to submit a bid to lease Memorial in the tight time frame that’s been laid out.

But events must keep moving, she said.

“We’ve been at this for about two years, trying to find a solution and we’re on a real tight timeline,” she said. “It’s really for the best for Memorial to get this done as soon as possible.”

The selected bid will be announced by Dec. 31, with Colorado Springs residents voting to approve or reject the bid in early 2012.